How to Pick a Health Plan

This open-enrollment season, many employees will have to decipher a confusing alphabet soup of options. Do you stick with an HMO, a PPO or a POS? Or should you switch to an increasingly popular CDHP, which can include an HDHP paired with an HSA or an HRA?

As employers struggle to contain health costs by paring their contributions to employee health coverage, that alphabet soup is here to stay. So you will need to figure out what these different options mean to you as a consumer.

Why don’t I start with the increasingly common CDHPs, or consumer-driven health plans, which are anything but driven by consumers because if they were, they’d be much easier to understand. Let’s not kid ourselves: These plans are being driven by employers desperate to reduce their health care contributions.

A CDHP allows you to choose your own health care providers, although out-of-network services may cost more. Depending on the account, unused dollars can be rolled over to the next year to offset future expenses.

Within a CDHP you can have a high-deductible health plan or HDHP, which when you boil it down is really a catastrophic insurance plan. The premiums are inexpensive but you have to pay in some cases several thousand dollars of your health care expenses before your health plan pays any benefits. The deductibles are at least $1,050 for single coverage and $2,100 for family coverage.

An HDHP can be coupled with a health savings account, or HSA, which is a tax-advantaged account that allows you to set aside pre-tax money to help with medical expenses. The total annual out-of-pocket expenses, not counting premiums, can be as much as $5,250 for a single person or $10,500 for a family.

A health reimbursement arrangement, or HRA, is an employer-paid benefit in which an employer agrees to cover health care costs up to a set amount. The funds, which can range from $1,000 for singles to $3,000 for families, are available to pay for deductibles, co-payments and other qualified medical expenses. Once the allotted money is spent, you cover health care costs at 100 percent until you reach your deductible, typically $1,000 for single coverage and $2,000 for a family. Once the deductible has been met, another level of co-payments kicks in, and that can vary depending on the plan established by your employer. Out-of-pocket expenses at this point are usually capped.

As with all CDHPs, the cost of preventive care, such as annual physicals, immunizations, OB/GYN visits, may be completely covered and won’t count against your health care account.

Let’s move on to some of the more-familiar options. As many of you know, a health maintenance organization, or HMO, requires you to select a primary care physician, or PCP, from a network of physicians who work for the HMO. Your PCP has to refer you to a specialist, should you need one.

Depending on the plan, an HMO is typically the cheapest, usually requiring a co-payment for most visits. One of the biggest disadvantages of an HMO is that you are limited to the physicians and specialists in the plan.

A preferred provider organization, or PPO, allows you to choose any provider you want. With this plan get higher benefits for using preferred or in-network physicians and hospitals. PPOs generally have slightly higher premiums for comparable benefits or require that you pay slightly more out of pocket than HMO plans.

A point-of-service plan, or POS, is a hybrid of an HMO and PPO. With this plan, you use both in-network and out-of-network providers. Like an HMO, you choose an in-network doctor to be you primary care physician, and like a PPO, you can go outside of the network for health-care services. However, if you choose an out-of-network provider, you’ll get a lower benefit.

If you or your family members are healthy, choosing a consumer-driven plan could save you a lot of money. That is if you stay healthy.

Selecting among the different health plans hinges on your ability to predict the likelihood that you or a covered family member will get sick. If you can afford high deductibles and expenses not covered by the plan, it may be worth the money you save over the years in lower premiums.

In past years, I might have elected a consumer-driven plan. My husband and I are good savers so we wouldn’t have a problem with high deductibles.

But then a few years ago, my daughter Olivia was diagnosed with juvenile rheumatoid arthritis. Within a month of that diagnosis, she developed a rare complication of the disease and as a result was hospitalized for several months. She ended up needing chemotherapy and expensive, experimental drugs to save her life.

One month we had a healthy, happy seven-year-old, the next month she was near death and racking up a hospital bill that topped six figures. Had we been covered by a consumer-driven plan, we would have had to come up with several thousand dollars on top of any premiums paid. We would have blown through any money saved in a HSA within a week or two.

That’s life, of course. You can’t predict what will happen.

By Michelle Singletary