The key to choosing right plan is knowing how insurance works

The key to choosing right plan is knowing how insurance works


Choosing a health insurance plan that's right for you starts with understanding how insurance works. Unfortunately, that's not so easy. Below is a quick lesson in the basics, plus what you should look for in a health-insurance plan.

Choose a good plan


Good health insurance protects you from medical expenses you couldn't easily afford on your own. Inadequate insurance is everything else, including some products you can buy that may seem like health insurance but aren't.

What does good insurance look like?

Health insurance should do two things:

Cover all kinds of medical care. That includes outpatient treatment, doctor visits, hospitalization, prescription drugs, emergency services, mental-health and substance-abuse treatment, laboratory and imaging tests, preventive care, maternity care, and rehabilitation services. You might not need everything now, but sickness and injury can strike at any time.
Limit your out-of-pocket exposure. Good insurance should pick up 100 percent of your medical expenses when your out-of-pocket expenses from deductibles and co-insurance hit a certain level in a year—say, $5,000 or $10,000.
Resist the temptation to lower your premium by selecting a plan that omits major benefit categories, such as prescription drugs. Instead, lower your premium by opting for a higher deductible (say $5,000 rather than $2,500), a higher out-of-pocket limit (say $15,000 rather than $10,000), or both. That does mean that in years when you're healthy, you might get little or no benefit from your policy. But it's vital protection against financial catastrophe due to high medical bills.

Make sure you understand the plan's details

Starting this fall, all insurance plans (except for Medicare plans) must start providing a standard form, the "Summary of Benefits and Coverage," that sets out critical plan details such as deductibles, co-insurance, co-pays. If you have a choice of plans, use this form to compare them.



What about limited-benefit plans?

Those inexpensive plans, also known as "mini-meds," are often sold directly to consumers through telemarketers or online as "affordable" products you can get even if you're in poor health. They're cheap for a reason; they are designed to cap what they'll pay out for any given illness. For instance, a plan might pay only $1,000 a day for a hospital stay that could cost two to three times that. Or you might be entitled to only a few doctor visits a year, and little or nothing for costly outpatient treatments such as cancer chemotherapy. The risk if you ever develop a serious illness? Tens of thousands of dollars of debt.

Are medical-discount plans considered insurance?

No; they're programs that charge you a monthly fee for a card that supposedly entitles you to discounts from various medical providers. Even the legitimate ones are no substitute for real medical insurance in the event of a serious illness or accident. And some are scams that give you little or nothing for your money. The Federal Trade Commission has a consumer-education program, that can help you tell the difference.

What about health-care sharing ministries?

Those faith-based organizations don't claim to offer health insurance. Instead, they collect monthly "shares" from participating members that are then distributed to those with medical needs. They don't pay providers directly and don't have a binding contract to cover members' expenses. If you join such a ministry, you should know that you won't have any of the legal protections available to people who buy state-regulated insurance products. Learn more about health-care sharing ministries.