Health insurance terms to learn as open enrollment begins

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It’s open enrollment season, the time each year when millions of American workers and retirees must choose a health plan, whether new or existing.

But picking health insurance can be a dizzying venture. Health plans have many moving parts — which may not come into focus at first glance. And each has financial implications for buyers.

“It is confusing, and people have no idea how much they could potentially have to pay,” said Carolyn McClanahan, a certified financial planner and founder of Life Planning Partners, based in Jacksonville, Florida. She is also a medical doctor.

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Making a mistake can be costly; consumers are generally locked into their health insurance for a year, with limited exception.

Here’s a guide to the major cost components of health insurance and how they may impact your bill.

1. Premiums

The premium is the sum you pay an insurer each month to participate in the health plan.

It’s perhaps the most transparent and easy-to-understand cost component of a health plan — the equivalent of a sticker price.

The average premium for an individual is $7,911 a year — or $659 a month — in 2022, according to a report on employer coverage from the Kaiser Family Foundation, a nonprofit. It’s $22,463 a year — $1,872 a month — for family coverage.

However, employers often pay a share of these premiums for their workers, greatly reducing the cost. The average worker pays a total $1,327 per year — or, $111 a month — for individual coverage and $6,106 — $509 a month — for family coverage in 2022, after factoring in employers’ share.

Your monthly payment may be higher or lower depending on the type of plan you choose, the size of your employer, your geography and other factors, according to KFF.

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Low premiums don’t necessarily translate to good value. You may be on the hook for a big bill later if you see a doctor or pay for a procedure, depending on the plan.

“When you’re shopping for health insurance, people naturally shop like they do for most products — by the price,” said Karen Pollitz, co-director of KFF’s program on patient and consumer protections.

“If you’re shopping for tennis shoes or rice, you know what you’re getting” for the price, she said. “But people really should not just price shop, because health insurance is not a commodity.

“The plans can be quite different” from each other, she added.

2. Co-pay

3. Co-insurance

4. Deductible

5. Out-of-pocket maximum

6. Network

For example, HMO plans are among the cheapest types of insurance, according to Aetna. Among the tradeoffs: The plans require consumers to pick in-network doctors and require referrals from a primary care physician before seeing a specialist.

Similarly, EPO plans also require in-network services for insurance coverage, but generally come with more choice than HMOs.

POS plans require referrals for a specialist visit but allow for some out-of-network coverage. PPO plans generally carry higher premiums but have more flexibility, allowing for out-of-network and specialist visits without a referral.  

“Cheaper plans have skinnier networks,” McClanahan said. “If you don’t like the doctors, you may not get a good choice and have to go out of network.”

There’s crossover between high-deductible health plans and other plan types; the former generally carry deductibles of more than $1,000 and $2,000, respectively, for single and family coverage and are paired with a health savings account, a tax-advantaged way for consumers to save for future medical costs.

How to bundle it all together

Budget is among the most important considerations, said Winnie Sun, co-founder and managing director of Sun Group Wealth Partners in Irvine, California, and a member of CNBC’s Advisor Council.

For example, would you struggle to pay a $1,000 medical bill if you require health care? If so, a health plan with a larger monthly premium and a smaller deductible may be your best bet, Sun said.

Similarly, older Americans or those who require a lot of health care each year — or who expect to have a costly procedure in the coming year — may do well to pick a plan with a bigger monthly premium but lower cost-sharing requirements.

Healthy people who generally don’t max out their health spending every year may find it cheaper overall to have a high-deductible plan with a health savings account, McClanahan said.

Consumers who enroll in a high-deductible plan should use their monthly savings on premiums to fund an HSA, advisors said.

Cheaper plans have skinnier networks. If you don’t like the doctors, you may not get a good choice and have to go out of network.

Carolyn McClanahan

certified financial planner and founder of Life Planning Partners

“Understand the first dollars and the potential last dollars when picking your insurance,” McClanahan said, referring to upfront premiums and back-end cost-sharing.

Every health plan has a “summary of benefits and coverage,” which presents key cost-sharing information and plan details uniformly across all health insurance, Pollitz said.

“I’d urge people to spend a little time with the SBC,” she said. “Don’t wait until an hour before the deadline to take a look. The stakes are high.”

Further, if you’re currently using a doctor or network of providers you like, ensure those providers are covered under your new insurance plan if you intend to switch, McClanahan said. You can consult an insurer’s in-network online directory or call your doctor or provider to ask if they accept your new insurance.

The same rationale goes for prescription drugs, Sun said: Would the cost of your current prescriptions change under a new health plan?

Source: https://www.cnbc.com/2022/11/06/health-insurance-terms-to-learn-as-open-enrollment-begins.html