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There are several options available to Americans who are looking for private health insurance coverage or will come across through their employee. Which one is right for you depends upon the number of people being covered, your aversion to risk, personal and family health history and more.

The main options are as follows:

 

HMO Plans- Health Maintenance Organization

HMOs are prepaid health plans that charge a monthly premium. In exchange for the premium, the HMO provides full care for you and your family that includes:

  • Doctor office visits
  • Hospital stays
  • Emergency care
  • Surgery
  • Lab tests
  • X-rays
  • Therapy

With an HMO you can usually only choose from the doctors and hospitals that your HMO has contracts with. An HMO will generally charge a small co-pay for a doctor or hospital visit but overall your medical costs will be lower and more predictable than with other types of health insurance.

HMOs receive the same amount of money whether you are healthy or sick. Since a sick person can cost more money for the insurance company it is in your HMOs best interest for you to stay healthy. Because of this, HMOs usually provide preventative care such as: office visits, immunizations, well-baby checkups, mammograms, and physicals.

PROS

  • Lower health premiums for both the employee and the employer. Because of the lower cost, these plans are very attractive and a significant amount of employees will choose them. Usually there are a wide selection of physicians and hospitals on HMO plans and employees feel that if they are able to get the current amount of health care at a substantially reduced price, then it benefits them.
  • Usually no deductible for the patient. The only thing that is required is the prescribed co-payment for services that may run between $15 and $20 a visit. In addition, the co-payment for outpatient and hospital services is substantially reduced as well in comparison to a regular PPO health plan.

CONS

  • The main disadvantage for HMO plans is the fact that you can only go to a prescribed list of doctors. If your physician is not listed on the plan, then you will have to obtain special permission to pay a higher proportion of the cost of the office visit or you will have to pay for the entire treatment of that physician.
  • Little control in use of specialists in the treatment of patients. For instance if your child had autism and you wanted to take him to his children’s neurologist (something he’s done for numerous years), you would have to contact your primary care physician to get a “referral” for you to bring your son. To many, this may seem ludicrous. If you don’t get a referral (or even if the physician doesn’t get the referral from the insurance company), it is very likely that you will have to be faced with the fact that your son cannot see his doctor at the prescribed time unless you pay for the entire visit. Some HMO's have been accused of putting profits ahead of the clients requirement for treatment
  • If your regular physician drops from the HMO plan, then you will be faced with the prospect of trying to find another physician or pay a higher cost ratio for using the same physician. When a patient has developed a doctor/patient relationship for several years, is this really right for them to be forced to change or be punished?

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PPO Plans - Preferred Provider Organization

PPO health insurance plans are very similar to HMO plans. These types of medical insurance plans provide health care for their members by contracting with selected hospitals and doctors, much like an HMO. However, unlike an HMO, many PPO programs will cover non-network providers if you pay a larger co-payment or deductible.

Under a PPO insurance plan, a primary care physician or "gatekeeper" physician is not required. As a result, seeing a specialist does not require a referral. But, If you need or want health care from outside the network, you should expect to pay a higher co-payment than if the provider were from within the PPO network.

PPO health insurance plans are good for people who want a percentage of autonomy in their health care. If you have health problems and like to try different doctors or get several opinions, a PPO will probably work better for you than an HMO. It will cost you more money, but you get more freedom to make your own health care decisions.

PROS

  • Relatively inexpensive if you stay in network for your care although more than an HMO plan
  • You can use specialists outside network assuming you accept the additional costs
  • No need to receive a referral from your Primary Care Physician to see a specialist

CONS

  • Paperwork is your responsibility if the care is non-network.
  • Cost of treatment outside of network is more expensive.
  • Co-pays are larger than with other managed care plans.
  • You may need to satisfy a deductible.

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POS Plans - Preferred Provider Organization

POS plans, or Point of Service plans, are based on the basic managed care principles: lower medical costs in exchange for more limited choice. But POS health insurance does differ from other managed care plans.

When you enroll in a POS plan, you are required to choose a primary care physician to monitor your health care. This primary care physician must be chosen from within the the health insurance companies health care network, and becomes your "point of service".

The primary POS physician may then make referrals - even outside the network, in which case your benefits will be less than if a network doctor was used.

For medical visits within the health care network, paperwork is completed for you. If you choose to go outside the network, it is your responsibility to fill out the forms, send bills in for payment, and keep an accurate account of health care receipts.

The costs under a POS plan is similar to that of other managed care plans. It may be slightly less costly than a PPO because the health insurance company will still regulate most of your health care.

PROS

  • Relatively inexpensive if you stay in network for your care although more than an HMO plan
  • You can use specialists outside network assuming you accept the additional costs
  • No need to receive a referral from your Primary Care Physician to see a specialist

CONS

  • Paperwork is your responsibility if the care is non-network.
  • Cost of treatment outside of network is more expensive.
  • Co-pays are larger than with other managed care plans.
  • You may need to satisfy a deductible.

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HSA - Health Savings Accounts

A health savings account is a tax-sheltered savings account similar to the IRA, but earmarked for medical expenses. Deposits are 100% tax-deductible for the self-employed (and now almost everyone with the HSA) and can be easily withdrawn by check or debit card to pay routine medical bills with tax-free dollars.

Larger medical expenses are covered by a low-cost, high deductible health insurance policy. What is not used from the account each year stays in the account and continues to grow interest on a tax-favored basis to supplement retirement, just like an IRA! When combined with a low-cost, high deductible health insurance policy (required), the health savings account is meant to replace a traditional high-cost health insurance policy (with its low co-pays and mountains of restrictions on medical choices). A health savings plan will restore a high degree of freedom of choice by allowing you to choose your own physician (typically from an extensive PPO directory) without the extensive restrictions imposed by HMO-type plans.

Please click on the following lonks to jump to specific topics.

  1. How a Health Savings Account Works
  2. Who can get an HSA?
  3. How much can I contribute annually to an HSA?
  4. Can any high-deductible health insurance policy qualify for an HSA?
  5. How and where can I open a health savings account?
  6. Would I fund an HSA with pre- or post-tax dollars?
  7. Do the tax benefits phase out at certain income levels?
  8. If my employer offers both, can I fund my flexible spending plan, too?
  9. What happens if I want to withdraw the money for nonmedical expenses after age 65?
  10. Can a couple who is planning to retire early open an HSA?
  11. Do contributions to an HSA in any way affect one's ability to contribute to an individual retirement account?

 

How an HSA Works

Take the money currently spent on a high cost traditional health plan and split it like this: Put a portion towards a low cost higher deductible policy and deposit the balance into a tax-deductible HSA.
The savings accounts should be used to help pay smaller covered medical expenses until the deductible is met; should the need arise, the high deductible insurance policy takes care of covered medical expenses exceeding the deductible


Who can get an HSA?

Anyone under age 65 who buys a qualified high-deductible policy can open an HSA. You can't be covered by another health insurance policy that isn't a qualified high-deductible plan (either as an individual or a dependent), although you can still have other disability, dental, vision and long-term care insurance policies.

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How much can I contribute annually to an HSA?

You can contribute in 2006 the amount of the deductible, up to $2,700 for singles and $5,450 for families, each year to your HSA. And if are 55 or older, you can put in an extra $700.

In 2007 you can contribute up to $2,850 for individual coverage or $5,650 for families (people age 55 and older can make an extra catch-up contribution of $800 in 2007). Legislation approved by Congress December 9 will allow you to contribute up to these limits even if your insurance deductible is less.

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Can any high-deductible health insurance policy qualify for an HSA?

Any high-deductible health insurance policy can qualify, as long as it meets the IRS requirements. The deductible must be at least $1,050 for individuals or $2,100 for families, and the annual out-of-pocket expenses cannot exceed $5,250 for an individual or $10,500 for a family, including the deductible and co-payments (but not premiums). So individuals can buy high-deductible policies on their own, or through their employers.

In 2007 your health insurance policy must have a deductible of at least $1,100 for individual coverage or $2,200 for families to qualify as an HSA-eligible policy. You can then contribute up to the amount of the deductible each year.

If you're buying a plan on your own, be sure to ask your health insurance company if it qualifies, says Victoria Bunce, research and policy director for the Council for Affordable Health Insurance.

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How and where can I open a health savings account?

It depends on if you're buying coverage on your own or getting it through your employer.

On your own. You can find a list of health insurance companies offering HSA-eligible plans in your state at HSAInsider.com or HSADecisions.org. You can compare several companies policies in most states at eHealthInsurance.com, or can search for a local agent who knows which policies are available in your area at the National Association of Health Underwriters Web site. The list of companies offering HSA-eligible plans continues to grow every month.

Through your employer. If you get health insurance through your employer, you may have seen an HSA-eligible option during last-year's open-enrollment period (generally in the fall). If not, talk to your benefits manager to see if HSAs will be on your health insurance menu. Choosing an HSA could knock down your share of premiums significantly, and some employers may choose to fund all or part of the HSA for you -- perhaps even adding a 401(k)-style match.

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Would I fund an HSA with pre- or post-tax dollars?

If your employer offers a high-deductible health insurance policy, you may be able to make pretax contributions, like you would with a flexible-spending account. If you open the HSA on your own, your contributions will be deductible when you file your taxes, even if you don't itemize.

For 2007, as a result of legislation passed December 9 (and expected to be signed by the President soon), you can deduct up to $2,850 for individuals, $5,650 for families. The dollar amount of your tax deduction no longer will be restricted to the amount of your insurance deductible.

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Do the tax benefits phase out at certain income levels?

Unlike many other tax breaks, there aren't any income limits. Anyone under age 65 who buys a qualified high-deductible policy can open an HSA.

What's the difference between the new HSAs and the flexible-spending accounts? It seems they are for the same purpose.

The tax benefits of both plans are quite similar, but there are several differences. The biggest and most important difference is that your HSA balances can roll over from year to year and continue to grow tax-deferred.

Money in your flex plan must be spent by the end of the plan year or you lose it. That may sound like a big negative, but flex plans can save you a lot of money even if you don't spend every nickel. Also, you can open a flexible-spending account only if the plan is offered by your employer, and you don't need to have a high-deductible health insurance policy.

Legislation passed by Congres December 9, 2006, will let you make a one-time transfer of funds tax free from a flexible-spending account to an HSA. Changes to the law also will allow individuals to make a one-time tax-free direct transfer of funds from an IRA to an HSA (up to the HSA annual contribution limit).

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If my employer offers both, can I fund my flexible spending plan, too?

No. You cannot have an HSA if you use a flexible-spending account to pay health-care costs or if you have other medical coverage (say, through a spouse's policy). However, if your flex plan restricts reimbursements to wellness care (such as annual physicals) and vision and dental care, you can have an HSA, too.

If I set up HSA through my employer, what happens if I switch jobs?

You can keep the money in an HSA account even after you leave that job, similar to a 401(k). But you will get stuck with a 10% penalty -- plus an income-tax bill -- if you use any of the money for nonmedical expenses before age 65.

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What happens if I want to withdraw the money for nonmedical expenses after age 65?

You won't be hit with the 10% penalty if you use the money for nonmedical expenses after age 65, but you would still have to pay income taxes on the money. Keep in mind that you can continue to withdraw money from the account tax-free for qualified medical expenses after age 65.

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Can a couple who is planning to retire early open an HSA?

Sure. Anyone under age 65 can contribute to an HSA if he or she buys a high-deductible health insurance policy, and you can contribute an extra $700 in 2006 if you're 55 or older; in 2007 it's $800. This catch-up contribution amount will increase by $100 per year until it reaches $1,000 in 2009.

You can't make new HSA contributions after age 65, but you can still use the money in your account tax-free for medical expenses at any age. You'll owe income taxes on the money -- but no penalty -- if you withdraw the money for nonmedical expenses after age 65.

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Do contributions to an HSA in any way affect one's ability to contribute to an individual retirement account?

No. Your HSA contributions won't affect your IRA limits -- $4,000 per year or $4,500 for those over 50. It's just another tax-deferred way to save for retirement.

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Short term "Gap" Insurance

Short Term Insurance usually covers a time period of 30 days – 36 months. It is very useful for people who are between jobs, have recently been laid off, and those who have recently graduated.

If any of the following statements apply to you, short term insurance may very well be what you are looking for:

  • Currently uninsured
  • Your insurance expires soon
  • You are in between insurance plans either from an employer or individual health insuranceYou have applied for health insurance but have not been approved or heard back yet
  • You are not eligible for individual health insurance due to something that happened more than 3 years ago
  • You need to make sure you do not break continuity under HIPAA (gaps over 63 days could limit future insurance)
  • You cannot afford or do not want to pay for other health insurance
  • You have simply lost your health insurance – for any reason
  • You believe you would be declined for other health insurance for reasons such as weight
  • You are moving out of the coverage area for your current health insurance
  • You are waiting for Medicare benefits
  • You are in your group or employer’s waiting period
  • You are interested in looking at new insurance options
  • You are self-employed
  • You are an independent contractor
  • You recently graduated college or will soon
  • You are currently in college
  • You are unemployed

Options for short term (gap) coverage:

COBRA – For those who previously had employer-sponsored coverage (group health insurance). Federal law allowing most people to continue group coverage.
SHORT TERM POLICIES – For those who are not eligible for COBRA or previously had a self-purchased policy (not through their employer). Non-renewable (have to reapply) coverage you can purchase.

COBRA – (Consolidated Omnibus Budget Reconciliation Act of 1985)

Cobra is a Federal law that allows people to continue health insurance coverage for at least 18 months if:

  • You work for a company of 20 employees or more and quit your job or are laid off.
  • You were covered through your spouse’s health plan and are now widowed or divorced.
  • You were covered on your parents’ health insurance policy while you were in college and need coverage until you find a job that offers health benefits. (up to 18 months)

Short Term Insurance Policies

Short term policies are a great option for people who are not or were not covered by their company’s insurance plan. Typical temporary health insurance policies will cover most of the same services as permanent policies do, with some differences.

Most short term policies will not cover preventative care such as check-ups and will not cover visits to the dentist or eye doctor. Short term insurance companies are also known to deny coverage for pre-existing conditions. For example, if you had knee surgery in the past your policy will not cover care for anything related to your knee or if you have had back problems in the past your contract will exclude any care for back pain, etc.

Normal services covered by short-term health insurance include emergency care, prescription drugs, intensive care, lab and x-ray, ambulance, and some home and hospital care. (Policies will vary.) Most temporary health insurance policies can be adapted to extend coverage to a spouse and dependents.

* State Plans *

Some states have "continuation of coverage" laws that apply to firms with fewer than 20 employees. A few states passed continuation of coverage laws before COBRA was passed and, in general, extend coverage for three to six months, according to Fronstin. To find out whether you're covered, consult your company's human-resources department. Or, check with your state's health department or insurance commissioner.

* Individual Plans *

Coverage periods are typically brief. Golden Rule Insurance, for instance, offers a short-term major medical plan in which the consumer chooses coverage for one to six months. Fortis Health offers short-term medical plans for 30 to 185 days, says Kathy Quirk, a spokeswoman.

Not all companies do business in all states. Companies usually offer a choice of deductibles ($250, $500 or $1,000, for example) and a choice of major medical coverage (with 80 percent of covered expenses paid or 50 percent of covered expenses paid). Here's one way a temporary plan could work: A 22-year-old woman in Wisconsin who just graduated from college and wants a 60-day, 80/20 major medical plan with a $500 deductible would pay a total, lump-sum premium of $86.40.

Applications for the policies are fairly brief. Generally, no physical exam is required. But if you have pre-existing conditions -- such as heart disease or other serious problems -- you may be denied coverage.

Short-term plans are intended to cover unexpected illness and accidents, not preventive care. If you anticipate still needing coverage after the temporary plan expires, you may be able to apply for a second policy.

To minimize costs, choose a plan with a higher deductible and 50/50 coverage, and pay the premium in a single payment rather than in installments.

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