How To Choose A Health Plan

Episode In Depth

Some employers, and the individual market, offer a dizzying array of medical plan options.

Some employers offer only one or two, using either different carriers, different designs or both. How do you decide? Use the “rule of three:”

Three Systems:

The most important decision is where you want to receive medical care. If you aren’t that concerned, then you can skip to the next section. If it matters, here are three options:

Closed HMO (Staff Model HMO)

You may only use health care providers, suppliers and facilities within a system that owns or runs everything, with centralized locations. Examples include Kaiser, Sutter Health, Western Health and Scripps, all of which own their own hospitals. Note that you can often move among their locations – you are locked systemically, not always geographically.

Open HMO (IPA Model HMO)

You choose a Primary Care Physician (PCP), who is part of an Independent Physician
Association (IPA). That doctor only refers to other doctors, providers, pharmacies and vendors within the IPA, and to an affiliated hospital. Exceptions are possible, though rare. You are also given the opportunity to change your PCP the first of the next month. Examples of an open HMO include Aetna, Anthem Blue Cross, Blue Shield and United Health Care.

Preferred Provider Organization – Partial System

The other major plan type is a Preferred Provider Organization, or PPO. You do not have to choose a PCP. You can see any doctor anywhere for any reason within the PPO network. You can even see a doctor in San Francisco one day and in Dallas the next. There is also a provision for seeing non PPO practitioners and hospitals, but there are often penalties on the “allowed charge” and a separate, but lower, benefits schedule.

Note: Common to all three systems is the exception for emergency care specifically, when there is a “life or death” emergency, which often includes “urgent care” like broken bones. In these situations, you may use the nearest facility and be reimbursed at the HMO or PPO schedule level. If you are able to make a call and discuss the situation with your primary care physician, if you have one, but your severity may not meet the standard. However, you can always ask permission ahead of time.Three Factors

Cost

What are the different amounts you would pay, for yourself and eligible dependents, to participate in each of the offered plans? You will need to know this, and either the carrier
or your employer, if a group plan, can provide the cost information.

Location

Some insurance carriers or systems may not be available where you reside. In California, Kaiser, for example, does not have providers available north of Sonoma County, so residents “out of area” must choose another carrier. Other states have similar selection situations.

Election

Remember that the plan you select for yourself and your dependents must be the same for everyone – but you may make a new selection at the next plan anniversary during the Open Enrollment period the employer announces. If you have an individual or family plan, the Open Enrollment is usually November and December for a January 1 change date each year.

Three Scenarios to Consider:

Now that you know where you want to go and the different design costs, you can make a final decision by considering three different situations: best case, worst case and “your case.”

Keep in mind that in all Affordable Care Act (ACA) level small group plans, and almost always with large employers, preventive services are paid at 100% with all carriers and designs.

Best Case – “I Don’t Expect Any Claims This Year”

In this scenario, you would choose the system that would serve you best and pick the least expensive plan offered. If you are not concerned with which system, then just choose the least expensive plan overall.

Worst Case – “What If I Have a Catastrophic Claim?”

All carriers, when using their system or network, have what is variously called an “out of pocket maximum” or “co-insurance maximum” or “maximum liability.” What these mean is that there is a limit to your financial exposure if you have a major claim. While there is a wide range possible these maximums typically are no lower here, but it is typically no lower than $1,000 nor higher than $10,000. The key is to find and know that number. For an example, assume you are using system or network providers

Example One – three plan design options all with the same maximum liability

Since your focus is on the worst case and it is the same for each plan, select the system type you want and choose the least expensive plan available. Again, if you have no system preference, just choose the least expensive plan overall.

Example Two – three plan design options with different maximums

Now you need to know what each will cost to determine the best value. Leaving aside system choice and just looking at the math, assume:

To get a worst-case number, add the annual premium to the liability maximum. Therefore:

So even though Plan I has the highest liability it is also the least expensive overall option

Your Case – What If This Year Is Like Last Year?

If you have ongoing medical care which involves doctor visits, tests and medications, finding the best value requires you to do a bit of “plan mapping.” This means you need to plug in the different “costs” under each plan choice, compare the totals and then plug in the premium contribution. That gives you all the numbers you need to decide – but just for the year.

To keep it simple, let’s assume a choice of three plans using the same health care delivery system – a PPO. Then assume the following, using system or discount pricing

Value Analysis:

Based on your medical expectations for the year, Plan II offers the best value

What if your employer, using Plan III as a qualifying plan to create a Health Savings Account (Plans I and II cannot make the same offer) and contributes $100 monthly for you to the HSA?
Now your actual cost is $1,750 ($2,950 in expenses less the $1,200 account contribution)

This makes Plan III the best value – in this additional scenario

Complicated yet simple once you break it all down. Remember it’s about system preference first, then your specific personal and plan factors, overlaid with your medical expectations or concerns for the coming plan year, and only for the coming plan year.

Numbers and needs change. So, you may have to go through the same analytical process each year.

Selection of Plans – What about Medicare?

When you are about to turn 65, you suddenly find that a million mailing lists had your name on them – and they all know your birthday. This generates a flood of unwanted email and snail mail, invitations to breakfasts at an inexpensive restaurant, and…confusion. What carrier should you choose, what is a “Medi-Gap” supplement, what is Medicare Advantage, and how do prescription drugs fit into all this? Etc. So here is a short guide.

First, know that the government has a good and easy to use publication that lays all of this out in digestible detail. You can order it directly from www.cms.gov (CMS stands for Center for Medicare and Medicaid Services, which runs Medicare). Second, refer to this summary.

Medicare Part A covers hospitalization. It is free. Payment is made for part of the charges for hospital and Skilled Nursing Facility. The patient is responsible for the rest. The schedule will vary based on the number of days they are in a facility.

Medicare Part B covers non hospitalization, or simply all the out patient services you need.
After a deductible ($226 in 2023), Medicare pays 80% up to the approved amount. This is far less than what a doctor or medical facility will actually charge.

Medicare Part B costs money. The premium varies according to your annual earnings. They will recalibrate this every year if you have fluctuations, but you need to stay on top of this to ensure you are getting the appropriate credit or charge.

Medicare Part D refers to prescription drug coverage. Medicare itself does not cover drugs, but there will be a charge for this coverage if your income exceeds a certain level. This will be added to the premium charged for enrolling in Medicare Part B.

What else do I need besides Medicare?

Medicare Part A and Medicare Part B cover a substantial portion of your medical expenses, but:

1. Part A leaves a substantial series of copayments for which the patient is responsible
2. Part B requires the patient to pay 20% and any “balance bill” over the allowed amounts
3. Medicare does not cover prescription drugs –separate coverage is required

You now enter the world of Medicare supplements (sometimes called “Medi-Gap” insurance) and comprehensive plans that pick up your contract from Medicare and run things from there.

We’ll start with that last statement, which should have raised a “huh?” Medicare Part C (in case you wondered why it was missing from the outline above) refers to “Medicare Advantage”. These are health plans that encompass the supplemental payments needed to “make you whole” on Part A, Part B, and prescription drugs. They are generally Health Maintenance Organizations (HMO) which limit your use of medical care to listed providers only.

There is a premium charge for these plans, of course, but it is usually very competitive. That’s because Medicare/CMS actually makes payment to the Medicare Advantage plan for running the health care and coverage simultaneously.

If you wish more freedom, Medicare Part C plans are not generally selected but instead you may opt to enter the Medi-Gap market. For many years, these plans were unregulated. This caused considerable confusion and consternation, prompting the government to decree that there would now be a limited number of Medicare supplement plans available (now 16) and they would all look the same regardless of the carrier selling them. Thus, a Medicare supplement Plan A or Plan D, etc. is the same for Blue Shield or AARP, etc. They only vary in price.

All supplement plans pay 100% of what Medicare doesn’t pay under Part A hospitalization. Where they vary is in what and how much they pay to supplement Medicare Part B. Fortunately, the grid is easy to read and understand. The most comprehensive of the supplements in this regard is Medicare Supplement Plan G.

Then there is the matter of prescription drugs. The Medicare Part D plans have a formal outline as to what they will cover and how much. Where they differ is in which drugs they cover. This is called a “formulary list” – and it does change annually. As it happens, you can also change your plan annually, during the “Open Enrollment” period ((November and December for a January 1 start date). Some less expensive plans will also have less comprehensive coverage. So, you will consider three things:

1. Actual coverage
2. Are your drugs covered under the formulary list
3. Monthly premium

What concerns should I have going forward?

1. Medicare and Medicare supplements do not cover prescription drugs. For that, you have to purchase a separate Medicare Plan D (as outlined above)
2. Your doctor may say “we don’t accept Medicare” – ask them to clarify. Usually, they mean that they do not accept Medicare’s payment rate, which is their prerogative. When you buy a supplement, be sure to look to see if they only cover the 20% Medicare does not pay on Part B or if they cover the 20% PLUS the difference between what the doctor charges and what Medicare allows.
3. Your doctor may say “we don’t accept Medicare” but what they mean is that they are no longer part of the Medicare system. They have dropped off the grid. This means that not only will Medicare not pay them, but neither will the supplement. Again, have them clarify. This is a rare occasion, but it does happen
4. If Medicare does not cover something, then the supplement does not either. A supplement only pays for what Medicare covers.

Where do you go for more information and enrollment?

Seek out an insurance broker who specializes or works extensively in the Medicare market. They are paid a commission by the carriers, but the amount is low, so they may charge a one-time fee to do the investigation and recommendation. They are your advocate and a great resource for information and helping you sort out your options.