Finance Friday – Lesson 6: Learn About Health Insurance, And Get Some!

This is part of a series of posts on 10 Important Financial Lessons To Learn While You’re Young. A new lesson will go up every Friday. And if finances bore you, don’t worry…I’ll keep posting non-finance things on Mondays!

<<   Lesson 5 – Pay yourself first                                    Lesson 7 – Save for retirement now   >>

Taking care of yourself and your health is very important, and health insurance can help. It’s a large and complex topic, and I don’t plan to go into (too many) details, but I do think you should be educated about it.

A new healthcare law passed in 2010 which allows young adults to remain covered under their parents’ health insurance plans until they reach age 26. Unfortunately for me, I graduated college and was “kicked out of” my parents’ health insurance plan about six months before that. Bummer! I wasn’t comfortable being uninsured, so I had to learn about healthcare very quickly in order to find myself some insurance.

Here are some of the important things you should know when you’re looking for health insurance:

The two types of coverage are Managed Care or Fee-for-Service plans (aka Indemnity or Traditional plans). With a Fee-for-Service plan you can visit any doctor you like, they’ll bill your insurance, and if you’ve met your deductible your insurance will pay a percentage of the bill and you pay the remainder (called co-insurance). These plans are more expensive and not even offered as an option through many employers because of the cost.

Managed Care plansare more popular because they are less expensive, though they have more “rules” associated with them. Popular types of Managed Care plans include:

• HMOs (Health Maintenance Organizations): Basically you choose a Primary Care Physician who, as the name implies, is “in charge of” all of your health care needs. If they can’t diagnose or treat it, they’ll refer you to a specialist, but you have to go through them for everything. HMOs don’t usually have deductibles; usually you just pay a copay of $5 to $25 and the HMO handles the rest.
• PPOs (Preferred Provider Organizations): With a PPO you can visit any doctor you like, though you will receive much better rates “in-network” by visiting a doctor within a pre-approved network of providers. Usually you will have a deductible and possibly still be responsible for a percentage, the co-insurance, of a bill depending on the type of treatment.

If you’re looking for coverage online like I was, usually you’ll be asked to enter certain info about yourself (location, age, gender, etc.) and then you’ll get some search results back. Before you choose a plan you should at least know the following important information about each plan:

• Plan Type: Whether it’s a PPO, HMO, or other type.
• Deductible: The amount that you are 100% responsible for before your insurance starts to cover a portion of your medical costs. Deductibles are usually yearly and reset back to $0 on January 1st.
• Co-insurance: After you have met your deductible in a year, this is the percentage of any new health care costs you are responsible for. Insurance will pay the rest.
• Co-Pay: Sometimes listed as Office Visit, this is the amount you are responsible for at the time of your visit to the doctor. You pay this amount at the time of the visit, and may still be responsible for additional costs later (because of things like co-insurance etc.)
• Monthly Premium: The monthly cost of your health insurance, whether you ever visit a doctor or not.
• Out of Pocket Limit: The maximum amount that you will be responsible for paying, either annually or over a lifetime. Once you have paid this much your insurance will cover all further costs at 100%, no matter what your co-insurance is or anything else. (You’ll still owe your monthly premiums however.)
• Lifetime Maximum: The maximum amount of money (aka benefits) your insurance will pay out over a lifetime.

There are other important things to look for as well. Prescription coverage can sometimes have its own deductible and co-insurance rate separate from the rest of the plan, so watch out for that. Most plans cover Preventative Care at 100%, meaning your annual check-up is completely covered by your insurance (including PAP smears and mammograms for women); if this is true for your plan make sure you take advantage of that and go at least once a year. Out Of Network coverage could also have a different deductible, co-insurance amount, etc. so be careful of that too.

This is just a very basic intro to health insurance, but it’s all important to know. If you understand all of this pretty well and want to learn a bit more you might do some research on things like Flexible Spending Accounts (FSAs) or Health Savings Accounts (HSAs) which can give you some tax breaks on the money you use to pay for health care costs. Also, check to see if your employer offers health insurance through the company; you can usually get some highly discounted rates if you buy it that way.

The most important thing is to make sure you understand this before looking for health insurance, or you’ll just be completely overwhelmed. The Insurance Basics/FAQ section of HealthInsurance.com has a lot of good information about a bunch of different topics, and it’s explained well, so maybe start there.

What has been your experience with finding your own health care? Do you participate in a group plan through your employer or do you have your own insurance separately?