Medical Insurance Magic: Which coverage is right for me? (Part III of IV)

May 28, 2012

Mark L. Friedman, MD, FACEP, FACP

If, like many Americans, you are required to pay for your health insurance, the issue then becomes, "Which of the confusing variety and number of plans should I buy?"

Luckily, at least from a decision-making standpoint, your options are in many cases limited.

If you are still in the work force and your employer offers health insurance as a benefit, this is likely to be your best option. First of all you are by definition part of a group and get both group rates and protection for pre-existing conditions (assuming you have no "gap" in coverage). Plus (and best of all), your employer is likely to contribute an often-significant amount toward the coverage, which is the equivalent of a tax-free pay raise. Any premium contribution on your part might also be tax deductible.

In addition, your employer may have an optional HSA or FSA plan toward which you can contribute tax-free dollars to offset co-pays, deductibles, and other out-of-pocket costs (like over-the-counter medications or dental expenses).

The next issue is which of the plans offered by your employer you should select. Typically, employers offer different versions of insurance sold by the same company. So there may be an "HMO" plan, a "PPO plan" (usually with different levels of copay and deductible), and less commonly these days, a straight indemnity plan.

While it may be tempting to choose the least expensive option, think carefully. What are you giving up (there is always something) in exchange for lower premiums? Are you giving up the freedom to choose your doctor and hospital? What if you develop a rare disease and need to see a certain specialist or jet off to the Mayo Clinic? Are you covered? Remember, these are tax-deductible dollars, so the whole difference will not all show up in your paycheck.

In addition to choice, you need to assess what level of risk you are willing to assume. Is it worth paying more up front (which is a certain loss) to avoid a higher co-pay and deductible (which is a potential loss) later? Sometimes these things are knowable (i.e., you have a history of high ongoing costs), but often you will just have to make your best guess and take a chance. There is no right answer for everyone and you will undoubtedly make the wrong guess from time to time, but at least take the time to make a conscious decision.

Can you get help making these decisions? You corporate benefits department may or may not be able to help. It should at the very least be able to explain the benefits and costs of each of the plans. An outside insurance consultant or health advocate is another potential source of help when making this decision.

What if you are self-employed, under- or unemployed, or for whatever reason need to buy individual insurance?

If you are newly unemployed find out immediately about the option for coverage under "COBRA" with your former employer's plan. This may be an expensive option as you will now have to pay the entire premium yourself, but it may be a reasonable short-term solution until you find another job. By all means avoid the deadly "lapse in coverage" whether or not you have a pre-existing condition. If you must buy new coverage, investigate plans sponsored by a trade group or similar organization. In most cases the individual insurance market will be your most expensive alternative.

Having said that, it is still possible to buy a policy, and even expensive coverage may be a better alternative to no coverage at all. Again, consulting an insurance professional in this situation may be advisable.

Long-term care insurance is another in the long line of types of insurance available. We'll discuss the pros and cons in Part IV of our series on medical insurance magic.

Originally published May 28, 2012 9:00:12 AM.