Picking the right Health Insurance Plan on an H1B visa!
Healthcare in US is notoriously (and sometimes ridiculously) expensive.
Fortunately, most good employers provide healthcare plans that cover most of these costs. But there are some choices to be made since employees need to select one of the plans that an employer may have on offer. There are many types of employer health insurance plans on offer, but I will only talk about the main ones offered by most employers i.e. PPO Plans, HMO Plans and Health Savings plans (also known as High Deductible Health plans — HDHP).
Before I describe the key features of these plans and how to determine which one is right for you and your family, one must understand some key terms related to health insurance plans in US. Below is a brief summary.
Premium: Your monthly (or per period if different from monthly) fee for insurance.
Deductible — What one must pay before the insurance starts to pay for anything. Preventative care cost is exempt from deductibles in all plans, Preventative and routine services are exempt from deductibles in HMO/PPO plans. This resets annually on Jan 1. Please note that depending on the plan deductibles can be per person or per family (some plans may even have a combination of both).
Co-pay/ Rx-Copay — Your cost of routine services for which deductibles don’t apply. Applicable to HMO/PPO plans. Rx- copay is for prescriptions.
Co-insurance — Percentage you will pay after meeting deductibles until you reach out of pocket maximum.
Out-of-pocket Maximum — Insurance pays for all covered expenses after hitting this amount. This also resets annually on Jan 1. Please note that depending on the plan deductibles Out-of-pocket Maximum be per person or per family. (some plans may even have a combination of both per person and per family)
Now with these terms out of the way, let’s dig into the basic types of plans!
PPO (Preferred Provider Organization) Plans:
This is the most common type of plan on offer. Around 40% of employer provided health care plans are PPO plans.
- No need to select a PCP (Primary Care Provider) doctor who co-ordinates your medical care.
- Both in and out of network care available (but with generally higher deductibles/out-of-pocket max./co-insurance for out-of-network).
- See a specialist without a referral
HMO Plans:
HMO stands for health maintenance organization and makes up 19% of health plans. It is known for its lower premiums and restricted network of doctors and hospitals, which means you sacrifice flexibility for lower upfront costs.
- Requires PCP selection and your PCP must refer any specialist visits if needed.
- Usually low deductibles, but there are co-pays.
- Out-of network coverage not available. (except for emergency care in which case the facility i.e the facility i.e. hospital is required to bill as in-network, but providers i.e. individual doctors may still bill as out-of-network.
- Not all providers accept HMOs
HDHP (Health savings plans):
HDHP stands for high-deductible health plan, which is also sometimes called a CDHP (consumer driven health plan). HDHPs have grown in popularity as more employers have begun offering the plans to contain health care costs. Approximately 30% of workers have a HDHP.
- Lower premiums, but higher deductibles
- All medical costs including prescriptions (except preventative care) paid by you until deductibles are met
- Health Savings Account is available
HDHP usually have lower premiums, so they can be a cheaper plan option — if you don’t need a lot of medical care. HDHPs might be a good idea if you are young and healthy but could be costly to older adults or young families. But one must keep in mind, that until the deductibles are met, usually “all” medical costs are paid by you. So, one must set aside that sum as savings in case required.
HDHPs typically feature a Health Savings Account. An HSA allows you to save money pre-tax to pay for qualified medical expenses. This money does not expire year to year like FSAs. Some employers seed money in employee HSA accounts to help pay for care, so you’ll want to see if your employer provides money to employee HSAs when making a health plan decision. As of now (for 2021), $7200 can be set aside each year for a family (3600 for individual) tax free in a Health Savings account. If invested properly, these tax-exempt accounts can grow a lot and provide for medical care later in life for your family.
Let us take an example to understand better. Say Naisha (single, age 25) has employer provided healthcare and is required to choose between the two below options:
Also, her employer offers an annual contribution of $1,000 to her Health Savings account in case she opts for the health savings plan. Cost structure is as follows:
Which plan do you think Naisha should choose?
She would save $2,220 on annual premiums in case she opts for Health Savings but will be subject to higher deductibles and out-of pocket costs. Since she is also getting $1,000 from employer her net savings are $3,220 with the Health savings plan. She can set aside these savings to pay of high out of pocket maximum (that is the maximum cost she can incur in the plan). In this case Health Savings plan clearly makes sense for her since being young and healthy she is unlikely to need a lot of medical care thereby saving money; and even if she does end up needing a lot of medical care her savings more than make up for the additional payments she would need to make compared to the PPO plan.
One should do these calculations as per the plans on offer and their personal/family health situation. This would provide us with an objective criterion to choose the plan that suits our needs the best.
Another benefit of choosing Health Savings Account is ability to set aside some pre-tax dollars for future healthcare costs. These funds never expire and can be used for all qualified medical expenses in future even if you switch to a PPO or any other non-HDHP plan later. These funds in case not used for medical expenses can be withdrawn without penalty by paying taxes after age 65 (in case you are wondering what if I never end up using up what I save for health-related expenses).
Quick note about Life/Disability insurance: If you have dependents who you want to be cared for in the event of death/long term disability, looking at term insurance plans that offer these benefits is important. Luckily, most good employers in US offer pretty good covers for Life/Disability and may also offer option to increase cover by paying some extra premium. Please review these covers and designate beneficiaries properly to these plans. If your employer doesn’t offer these covers, please look at purchasing adequate cover from insurance providers. These covers are not very expensive and should be bought if you have dependents with no income of their own. Please also don’t forget about the long-term disability benefits when looking for such plans. Statistically speaking, one is more likely (by a huge manifold margin!) to be disabled (and unable to work) than to die after an unfortunate accident. This is why long-term disability insurance is more expensive than life cover. People tend to ignore this and sometime buy insurance that pays only in the event of death to save money, I do not consider that as an appropriate cover.
