The health insurance system is complicated. You spent four years in medical school, but you probably weren’t taught anything about how health insurance works. You know it’s complex, Obama changed it, and Trump wants to repeal and replace it. That’s about it.
But you know nothing about how to buy insurance. Maybe your parents helped you select your health insurance during medical school. Maybe you even stayed under their insurance plan because of the Affordable Care Act. But now you’re 26 and need to select your own health insurance.
Most hospitals will have several health insurance options designed for employees with different financial and healthcare needs. It is critical that you select the right health insurance option for you. Let’s look at how to choose a health insurance plan.
Premium – this is what you pay for health insurance. Typically, it is deducted from your paycheck.
Deductible – When you have a deductible, the insurance company does not automatically pay for your health care at the beginning of a calendar year. You would have to pay 100% of your health care costs until you have paid your deductible. For example, if you have a $500 deductible, you will have to pay the first $500 of your healthcare costs yourself (“out-of-pocket”) before the insurance begins covering healthcare costs. In many plans, there are services that are covered even before the deductible is met. In my own health insurance plan, an annual physical and prenatal visits are examples of services that are covered before the deductible is met.
Copay – This is the amount you have to pay for a specific service, and the insurance will cover the rest. This is most commonly seen for office visits. For example, if your primary care physician gets paid $100 for a sick visit and the co-pay is $25, you will pay $25 out-of-pocket and the insurance company will cover the remaining $75.
Out-of-pocket Maximum – This is the maximum amount of money you can pay for healthcare in a calendar year. This does not include your premiums. Once you reach your out-of-pocket maximum, your insurance company will pay 100% of your health care costs, even if they have to pay out hundreds of thousands of dollars.
Coinsurance – The percentage of healthcare costs that you have to pay for a service. For example, if coinsurance for a service is 10% and your x-rays costs$100, then you will pay $10 and the insurance company will pay $90.
In-network: This is a list of preferred healthcare providers. The insurance company will typically pay a higher percentage of costs to in-network providers.
Out-of-network: These are providers who are not in-network. The insurance company will pay a lower percentage of costs to out-of-network providers than in-network providers. Some insurance plans do not provide any coverage to out-of-network providers.
The Enrollment Process
You can’t change your health insurance whenever you want. If you could, you would switch to a more comprehensive health insurance plan whenever you got sick.
Before you start your internship, you will be able to select your health insurance. After that, you will select your insurance for the upcoming year during the open enrollment period, typically in November. If you have a life event (e.g. marriage, new baby) between open enrollment periods, you will have an opportunity to change healthcare plans (typically to add your new spouse or baby to your insurance).
Step 1: Assess your health care needs
There are two types of people when it comes to health insurance: those who use health insurance as insurance and those who use health insurance as a subsidy for their healthcare costs.
For the healthy patient who will see their doctor only for their annual physical and perhaps one sick visit, health insurance is like other types of insurance (auto, homeowner, disability). They will almost never use the insurance, but it gives them peace of mind that they will not be stuck with a massive hospital bill if the unthinkable happens.
On the other hand, the patient with chronic illnesses will use health insurance to reduce their healthcare costs. They know they will spending a lot of money on health care. They will need to estimate the cost of medications, doctor’s visits, imaging tests, and other services to determine which plan will minimize their healthcare costs.
Step 2: Choose the plan that minimizes your expected healthcare costs
Take your expected health care needs from Step 1 and calculate what your total healthcare costs (healthcare premiums + out-of-pocket costs) would be for each plan. In general, you would select the plan with the lowest expected costs, but some patients may prefer to pay a higher premium for the assurance that they will not be stuck with a large bill if they get into an accident or are hospitalized.
Step 3: Consider additional funding sources
Healthcare Flexible Savings Account (FSA)
You can contribute to a healthcare FSA during the open enrollment period. Contributions to the FSA are tax deductible. They do not earn interest and the money cannot be invested. Money from the FSA can be used to pay for healthcare costs throughout the year. However, any money that is not used by the end of the calendar year (many companies allow a grace period until March 15 of the following calendar year) for healthcare is forfeited.
One use of a healthcare FSA is to contribute the amount of your deductible into an FSA when you know you will be using healthcare in the next year (e.g. pregnancy, elective surgery). This enables you to get a discount on your healthcare through the tax deduction on your contributions.
Health Savings Account (HSA)
The health savings account is a combined savings / investment account. In order to contribute to the account, you will need to have a high-deductible health plan (HDHP). The money you contribute to the HSA is tax-deductible and grows without capital gains tax. If you withdraw the money, the money is not taxed upon withdrawal. HSA balances do not expire at the end of the calendar year, and you can even withdraw money (which is then taxed as ordinary income like 401(k) withdrawals) without a penalty after age 65. HSAs are a great way to get a discount on healthcare costs, but may not be ideal for people who utilize a lot of healthcare each year.
You cannot contribute to both a health care FSA and an HSA in the same year.
Consider a hospital system that has the following two health insurance plans:
|Standard Plan||High-Deductible Health Plan|
|Premium (per month)||45||30|
Let’s look at three residents who have a choice between the standard plan and the high-deductible health care plan.
The healthy resident
This resident does not plan to use health care except in emergencies. Therefore, the lowest cost healthcare plan would be the HSA plan. This plan would have a high deductible and out-of-pocket maximum, but it is rare that he would have a major surgery or hospitalization that would cause a large out-of-pocket expense.
The resident who is planning to get pregnant
This resident is planning to get pregnant this year. As a result, she knows she will incur significant, but reasonable healthcare costs as part of her pregnancy. Therefore, she will select the standard insurance plan for its lower deductible and contribute the amount of her deductible to a healthcare FSA. This will enable her to receive a tax deduction on her deductible.
The resident with a chronic illness
This resident has a chronic illness and is on several brand-name prescription medications to treat this. For him, the standard insurance option is the preferred option. He may choose to max out his health care FSA if he knows he will be spending at least $2,600 (the maximum in 2017) out-of-pocket for healthcare.
Questions? Just Ask!
It is important to talk to your HR department about your particular situation. They will be more than available to answer questions about the nuances of your hospital’s health insurance options. There are so many nuances to health insurance plans and each resident has their own unique healthcare needs, so when in doubt, ask questions!
What do you think? Which health insurance plan did you choose during residency? Did you use a healthcare FSA or HSA?