PPOs, HMOs, HSAs, and more: An intro to medical insurance types

Trying to get health insurance can feel daunting—especially when all the terms surrounding insurance are an alphabet soup. As you research health insurance options, make sure you understand the jargon and acronyms.

Four main health insurance plan types

Health insurance is one of those important—and in most cases, mandatory—types of insurance, but it can also feel more complicated than getting other policies. Plus, the alphabet soup really kicks into high gear when comparing health insurance plan types.

Plan types are usually related to a provider network. Whether you’re looking at a company health insurance plan or you’re getting a marketplace plan established by the Affordable Care Act (ACA), you’re likely to see one of these four health insurance plan types:

• Exclusive provider organization (EPO). This plan is designed so that you must use only the health-care service providers in the network if you want services covered. It requires that you double-check to ensure that your doctor, hospital, or other health-care provider is definitely in network, or you could end up paying the entire bill on your own.
• Preferred provider organization (PPO). With this type of plan, you pay less out of pocket when you use doctors, specialists, and hospitals that are part of the network. You can usually use health-care providers outside of the network without a referral, although you’ll pay an extra cost.
• Point of service (POS). As with the PPO, you pay less within the provider network. However, if you want to go out of the network, you must have a referral. Additionally, if you want to see a specialist, your primary care doctor usually needs to provide you with a referral.
• Health maintenance organization (HMO). With an HMO, you need to use only the health-care professionals that are part of the organization (unless you have an emergency). Generally, you need to live or work in a specific service area.

Medical insurance premiums (and other costs)

Your medical insurance premium is the amount of money you pay each month to keep your health coverage in force. It’s basically money you pay to an insurance company for protection in case of a catastrophic or high-cost claim. In other words, it reduces your risk of a major health-care bill. Additionally, the insurance company covers some of your preventative care, and may offer discounts on prescription drugs or add-on services.

But the premium isn’t the end of your potential costs. There are four more you need to be aware of:

• Deductible. Your deductible is the amount of money you pay out of pocket before the insurance company starts paying for services. It’s usually given as a yearly number.
• Insurance co-pay. A co-pay is the amount you pay for certain services. For example, each time you see the doctor for a non-preventative visit, you might have to pay a co-pay of $25. The insurance company then covers a portion of the rest of the cost, after your deductible has been met.
• Coinsurance. A percentage, such as 20% or 30%, is usually paid by the insurance company as coinsurance. This means that after your deductible is met, you pay a smaller percentage of the bill while the insurance company picks up the rest of the tab.
• Out-of-pocket maximum. Once you hit your deductible and start paying coinsurance, you’ll reach a point where you’re not required to pay any more—the insurance company begins paying 100%. That point is your out-of-pocket maximum for the year.

In general, if you’re willing to pay a higher deductible and/or accept a higher out-of-pocket max, you’ll get a lower monthly medical insurance premium. If you’re trying to choose among plan options, you’ll have to assess the added cost versus the added risk in case of a catastrophic event.

HSAs, FSAs, HRAs …

For the final bit of alphabet soup, let’s look at these health insurance plan accompaniments. Each of these account types has annual limits and special guidelines.

• Health savings account (HSA). When you see an HSA-compatible ACA marketplace or company health insurance plan, it indicates that you might be able to open and use a Health Savings Account along with your insurance. HSA funds can be used for qualified health-care expenses such as co-payments, prescription drugs, coinsurance, certain over-the-counter items, and even dental and vision expenses. You are allowed to invest the funds, and interest earned is tax-free. The HSA is your own account, and it stays with you, not your employer or insurer. Additionally, the pre-tax money you contribute rolls over year-to-year, so you don’t have to worry about losing it if you don’t use it in a specific year. You must have an approved high-deductible health plan (HDHP) and meet other requirements to use an HSA. Typically, if your company offers such a plan it will be specifically notated as an “HSA-eligible” plan.
• Flexible spending account (FSA). An FSA is administered through your employer, and you have the chance to make pre-tax contributions to this account. You can then use the money for qualified health-care expenses. However, the money doesn’t usually roll over year-to-year, so you need to plan to use your account funds by the end of the year so you don’t lose them.
• Health reimbursement arrangement (HRA). If your employer offers an HRA, they contribute the money to this account, and own it. The money in an HRA is used to reimburse you for out-of-pocket expenses. You don’t get to keep the money when you change jobs.