How to Choose Health Insurance: 5 Steps to Pick the Best Plan
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Picking the best health insurance can feel overwhelming, and you typically have a limited window to make your choice each year. But it’s a critical decision, and choosing the wrong coverage can be costly.
Here’s a start-to-finish guide to help you find affordable health insurance, whether it’s through a state or federal marketplace or through an employer.
Step 1: Choose your health insurance marketplace
How you shop for health insurance will depend on what’s available to you.
If your employer offers health insurance
Most people with health insurance get it through an employer. If your employer offers health insurance, you won’t need to use the government insurance exchanges or marketplaces, unless you want to look for an alternative plan. But plans in the health insurance marketplace usually cost more than plans offered by employers. This is because most employers pay a portion of workers’ insurance premiums.
If your employer doesn’t offer health insurance
Shop your state’s online marketplace, if available, or the federal marketplace to find the plan that's best for you. Start by going to HealthCare.gov and entering your ZIP code. You’ll be sent to your state’s exchange, if there is one. Otherwise, you’ll use the federal marketplace.
You can also buy health insurance through a private exchange or directly from an insurer. If you choose these options, you won’t be eligible for premium tax credits, which are income-based discounts on your monthly premiums.
Step 2: Compare types of health insurance plans
You’ll encounter some alphabet soup while shopping for the best health insurance plan. The most common types of health insurance policies are HMOs, PPOs, EPOs and POS plans. What you choose will help determine your out-of-pocket costs and which doctors you can see.
Comparing health insurance plans: HMO vs. PPO vs. EPO vs. POS
Plan type | Do you have to stay in-network to get coverage? | Do procedures & specialists require a referral? | Snapshot: |
|---|---|---|---|
HMO: health maintenance organization | Yes, except for emergencies. | Yes, typically. | Lower out-of-pocket costs and a primary doctor who coordinates your care for you, but less freedom to choose providers. |
PPO: preferred provider organization | No, but in-network care is less expensive. | No. | More provider options and no required referrals, but higher out-of-pocket costs. |
EPO: exclusive provider organization | Yes, except for emergencies. | No, typically. | Lower out-of-pocket costs and usually no required referrals, but less freedom to choose providers. |
POS: point of service plan | No, but in-network care is less expensive. | Yes. | More provider options and a primary doctor who coordinates your care for you, with referrals required. |
Plan type | Snapshot |
|---|---|
HMO: health maintenance organization | Lower out-of-pocket costs and a primary doctor who coordinates your care for you, with referrals required to see a specialist. You must stay in-network except for emergencies. |
PPO: preferred provider organization | More provider options and no required referrals, but higher out-of-pocket costs. You can go out of network, but care will be more expensive. |
EPO: exclusive provider organization | Lower out-of-pocket costs and usually no required referrals, but less freedom to choose providers. You must stay in-network except for emergencies. |
POS: point of service plan | More provider options and a primary doctor who coordinates your care for you, with referrals required to see a specialist. You can go out-of-network, but care will be more expensive. |
Look for a summary of benefits
Online marketplaces usually provide a link to the summary of benefits, which explains all the plan's costs and coverages. A provider directory, which lists the doctors and clinics that participate in the plan’s network, should also be available. If you’re going through an employer, ask your workplace benefits administrator for the summary of benefits.
Weigh your family’s medical needs
Look at the amount and type of treatment you’ve received in the past. While it’s impossible to predict every medical expense, paying attention to trends can help you make an informed decision.
Consider whether you want to get referrals
Plans that require referrals
If you choose an HMO or POS plan, which both usually require referrals, you typically must see a primary care physician before scheduling a procedure or visiting a specialist. Because of this, some people prefer other plans. However, by limiting your choices to providers they've contracted with, HMOs do tend to be the cheapest type of health plan.
A benefit of HMO and POS plans is that there’s one primary doctor managing your overall medical care, which can result in greater familiarity with your needs and continuity of medical records. If you do choose a POS plan and go out-of-network, make sure to get the referral from your doctor ahead of time to reduce out-of-pocket costs. (You cannot go out-of-network with an HMO unless it's an emergency.)
Plans that don't require referrals
If you would rather see specialists without a referral, you might be happier with an EPO or a PPO. (EPOs typically don't require a referral, but some do, so read the fine print.) An EPO may help keep costs low as long as you find providers in-network; this is more likely to be the case in a larger metro area. A PPO might be better if you live in a remote or rural area with limited access to doctors and care, as you may be forced to go out-of-network.
What about an HDHP with a health savings account?
A high-deductible health plan (HDHP) can be any one of the types of health insurance above — HMO, PPO, EPO or POS — but follows certain rules in order to be “HSA-eligible.” These HDHPs typically have lower premiums, but you pay higher up-front costs because you must pay the higher deductible before your insurance starts covering care.
HDHPs are the only plans that qualify you to open a health savings account (HSA), which is a tax-advantaged account you can use to pay health care costs. Many employers also contribute to employee HSAs as an incentive. If you’re interested in this arrangement, be sure to learn the ins and outs of HSAs and HDHPs first.
Step 3: Compare health plan networks
Your health insurance “network” refers to the medical providers and facilities your health plan has contracted with to provide your care.
Why does the network matter?
Costs are lower when you go to an in-network doctor because insurance companies negotiate lower rates with in-network providers. When you go out-of-network, those doctors don’t have agreed-upon rates, and you’re typically on the hook for a higher portion of the cost. (And depending on your plan, you may not be covered for out-of-network providers or facilities at all.)
Do you have preferred doctors?
If you want to keep seeing your current medical providers, make sure they’re in the provider directory for the plan you’re considering. Tip: Ask your doctors directly if they take a particular health plan.
Is a large network important?
If you don’t have a preferred doctor, it's probably a good idea to look for a plan with a large network so you have more choices. A larger network is especially important if you live in a rural community, since it'll give you better odds of finding a local doctor who takes your plan.
Search each plan’s provider network for primary care providers, hospital services and specialists in your area so you can get a sense of your options.
Step 4: Compare costs
Premiums and out-of-pocket costs are also key considerations. Your premium — the amount you pay for health insurance each month — will depend on whether you’re buying from the federal or state marketplace or getting coverage through work, and whether you qualify for any subsidies to help cover the cost. But even if your premium is being taken out of your paycheck each month, don’t forget to factor in the cost.
Out-of-pocket costs vary, and a plan’s summary of benefits should clearly lay out how much you’ll have to pay for services and prescriptions. The federal online marketplace offers snapshots of these costs for comparison, as do many state marketplaces.
Know your health insurance terms
It’s useful to know the definitions of some key health insurance terms:
Premium: The monthly amount you pay for your health insurance plan.
Copay: A flat fee (such as $20) that you pay each time you receive a health care service or procedure.
Coinsurance: A percentage (such as 20%) of a medical charge that you pay; the rest is covered by your health insurance plan.
Deductible: The amount you pay for covered medical care before your insurance starts paying.
Out-of-pocket maximum: The most you’ll pay in one year, out of your own pocket, for covered health care. Once you reach this maximum, your insurance pays the rest.
Out-of-pocket costs: These are all costs above a plan's premium that you must pay, including copays, coinsurance and deductibles.
Higher premiums, more coverage
In general, the higher your premium, the lower your out-of-pocket costs such as copays and coinsurance (and vice versa). A plan that pays a higher portion of your medical costs, but has higher monthly premiums, may be better if:
You see a primary physician or a specialist frequently.
You frequently need emergency care.
You take expensive or brand-name medications on a regular basis.
You're expecting a baby, plan to have a baby or have small children.
You have a planned surgery coming up.
You’ve been diagnosed with a chronic condition such as diabetes or cancer.
Lower premiums, higher out-of-pocket
A plan with higher out-of-pocket costs and lower monthly premiums might be the better choice if:
You can’t afford the higher monthly premiums for a plan with lower out-of-pocket costs.
You're in good health and rarely see a doctor.
Your employer contributes significantly to your HSA, balancing out a higher deductible.
» MORE: What is a copay?
Step 5: Compare benefits
By this step, you'll likely have your options narrowed down to just a few plans. Here are some things to consider next:
Check the scope of services.
Go back to the summary of benefits to see if any plans cover a wider scope of services. Some may have better coverage for things like physical therapy, fertility treatments or mental health care, while others might have better emergency coverage.
If you skip this quick but important step, you could miss out on a plan that’s much better suited to you and your family.
Address any lingering questions
In some cases, calling the plans’ customer service line may be the best way to get your questions answered. Write your questions down ahead of time, and have a pen and paper or electronic device handy to record the answers.
Here are some examples of what you could ask:
I take a specific medication. How is that medication covered under this plan?
Which drugs for my condition are covered under this plan?
What maternity services are covered?
What happens if I get sick while traveling abroad?
How do I get started signing up, and what documents will I need?
Don’t forget to discontinue your old plan, if you have one, before the new one starts.
Summary: How to choose health insurance
Here’s a quick action plan:
Go to your online health insurance marketplace (or employee benefits page) and view all of your plan options.
Decide what type of plan — HMO, PPO, EPO or POS — is best for you and your family.
Weigh whether you want higher premiums with more health coverage, or lower premiums and higher up-front costs (potentially HSA-eligible).
Eliminate plans that don't include your preferred doctor or that don't have local doctors in their provider network.
Make sure the plan you choose will pay for your regular and necessary care, like prescriptions and specialists.
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