Health Insurance ABC's
By: Financial Hotline
Fall 2023 (Vol. 41, No. 3)
Understanding the differences in the five most common health insurance plans, HMO, PPO, EPO, POS and HDHP, will help you navigate the options. Here are the basics:
Health Maintenance Organization (HMO): This plan usually limits coverage to care from doctors who work for or contract with the HMO and generally won’t cover out-of- network care except in an emergency. You may need to live or work in its service area to be eligible for coverage. The trade-off for the restrictions is these plans usually have the lowest premiums.
Preferred Provider Organization (PPO): With a PPO, you pay less for care if you use their preferred providers, but you can use out of network doctors, hospitals, and services without a referral for an additional cost. PPO plans offer the most flexibility but will usually come with higher premiums than other plans.
Exclusive Provider Organization (EPO): This is like an HMO where services are covered only if you use doctors, specialists, or hospitals in the plan’s network. EPOs negotiate lower rates with in network providers. The premiums are a little higher than an HMO but there is usually a larger selection of providers than most HMOs.
Point of Service (POS): Premiums are a little higher than an HMO but you can see out of network providers. You pay less if you use providers that belong to the plan’s network.
High Deductible Health Plan (HDHP): This plan has a deductible of at least $1500 for an individual and $3,000 for a family in 2023. HDHP premiums are typically low but the high deductible means your out of pocket costs can be high if you need regular medical care. One of the big advantages of an HDHP is that you can pair it with a health savings account (HSA) which allows you to save for and pay for medical services tax-free.
Choosing the plan with the lowest premium may not be the best route, your total costs also include your plan’s:
Deductible: This is the amount you pay before your insurance kicks in. (Preventative services like checkups and routine tests are usually fully covered).
Copayments and coinsurance: This refers to payments you make to your health care provider each time you get care, like $30 for each doctor visit or $150 for an Emergency Room visit.
Out-of-pocket maximum: This is the most you must spend for covered services in a year. After you reach this amount, the insurance company pays 100% for covered services.
When understanding your drug plan the words are similar but don’t mean the same. Here are some terms to remember:
Copay: The set amount that you pay may depend on the type of drug you need. For example, a plan might charge $10/$25/$50 for Tier 1/Tier 2/Tier 3 drugs, respectively.
Coinsurance: This means you pay a percentage of the prescription cost and insurance covers the rest. For example, your plan may require you to pay 20% or 30% and your insurance covers the rest. If your plan has a deductible, ask if you pay for prescriptions in full up until the deductible is met or if you only pay the percentage and that amount applies to your deductible.
Prescription deductible: deductible and needs to be met before coverage kicks in. If your plan has a prescription deductible then even if you surpass the deductible on your medical expenses but you still have to reach that threshold on prescriptions before coverage kicks in.
Integrated deductible: This type of deductible means costs you pay for both medical or prescription will count towards the deductible. Once the deductible is met, your prescription coverage will apply.
Out-of-pocket maximum includes prescriptions: With certain exceptions, most plans will have to cap total out-of-pocket spending for in-network expenses at no more than the level determined each year by the federal government. Both prescription and medical costs are counted toward the plan’s out-of-pocket cap. For 2024 the maximum out-of-pocket limit is $9,450 for an individual and $18,900 for multiple family members on the same policy.
Medicare Part D (prescription drug) coverage rules will change as of 2024, under the Inflation Reduction Act. There will no longer be a 5% coinsurance for prescription drugs once the “catastrophic” coverage level is reached. Starting in 2025, there will be a $2,000 cap on Part D out- of-pocket costs (inflation-adjusted in future years).