From understanding types of health plans to comparing out-of-pocket costs, here’s how to pick the best coverage.
Updated Apr 4, 2022 · 8 min read Written by Lacie Glover Assigning Editor Lacie Glover
Assigning Editor | Auto insurance, home insurance, other insurance
Lacie Glover spent more than five years covering health care costs and all types of insurance as a NerdWallet writer before becoming an assistant assigning editor in 2019 and later an assigning editor on the insurance team. As a writer, her work was featured in The Associated Press, The Motley Fool and U.S. News & World Report. Lacie is a NerdWallet authority on insurance products and loves data, analytics and solving SEO mysteries.
Assigning Editor Holly Carey
Assigning Editor | Medicare
Holly Carey joined NerdWallet in 2021 as an editor on the team responsible for expanding content to additional topics within personal finance. She currently leads the Medicare team. Previously, Holly wrote and edited content and developed digital media strategies as a public affairs officer for the U.S. Navy. She is based in Virginia Beach, Virginia.
Fact Checked Co-written by Kate Ashford, CSA® Lead Writer Kate Ashford, CSA®
Lead Writer | Medicare, retirement, personal finance
Kate Ashford is a writer and NerdWallet authority on Medicare. She is a certified senior advisor (CSA)® and has more than 20 years of experience writing about personal finance. Previously, she was a freelance writer for both consumer and business publications, and her work has been published by the BBC, Forbes, Money, AARP, LearnVest and Parents, among others. She has a degree from the University of Virginia and a master’s degree in journalism from Northwestern’s Medill School of Journalism. Kate has appeared as a Medicare expert on the PennyWise podcast by Lee Enterprises, and she's been quoted in national publications including Healthline, Real Simple and SingleCare. She is based in New York.
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You typically have a limited amount of time to choose the best health insurance plan for your family, but rushing and picking 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.
How you shop for health insurance will depend on what’s available to you.
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 marketplace are likely to cost more than plans offered by employers. This is because most employers pay a portion of workers’ insurance premiums.
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 purchase 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.
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.
Do you have to stay in-network to get coverage?
Do procedures & specialists require a referral?
HMO: health maintenance organization
Yes, except for emergencies.
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.
More provider options and no required referrals, but higher out-of-pocket costs.
EPO: exclusive provider organization
Yes, except for emergencies.
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.
More provider options and a primary doctor who coordinates your care for you, with referrals required.
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.
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.
Look at the amount and type of treatment you’ve received in the past. Though it’s impossible to predict every medical expense, being aware of trends can help you make an informed decision.
If you choose an HMO or POS plan, which require referrals, you typically must see a primary care physician before scheduling a procedure or visiting a specialist. Because of this requirement, many 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.)
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.
A high-deductible health plan, or 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 out-of-pocket costs, especially at first. They're the only plans that qualify you to open a health savings account, or HSA, which is a tax-advantaged account you can use to pay health care costs. If you’re interested in this arrangement, be sure to learn the ins and outs of HSAs and HDHPs first .
Your health insurance “network” refers to the medical providers and facilities your health plan has contracted with to provide your care.
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.
If you want to keep seeing your current medical providers, make sure they’re in the provider directories for the plan you’re considering. You can also ask your doctors directly if they take a particular health plan.
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.
Eliminate any plans that don’t have local in-network doctors, if possible; you may also want to eliminate those that have very few provider options compared with other plans.
Out-of-pocket costs (that is, costs other than your monthly premium) are another key consideration. A plan’s summary of benefits should clearly lay out how much you’ll have to pay out of pocket for services. The federal online marketplace offers snapshots of these costs for comparison, as do many state marketplaces.
It’s useful to know the definitions of some key health insurance terms:
Copay: This is a flat fee (such as $20) that you pay each time you receive a health care service or procedure.
Coinsurance: This is the percentage (such as 20%) of a medical charge that you pay; the rest is covered by your health insurance plan.
Deductible: This is the amount you pay for covered medical care before your insurance starts paying.Out-of-pocket maximum: This is 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.
Premium: This is the monthly amount you pay for your health insurance plan.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.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.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 that summary of benefits to see if any of the 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.
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 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.
Here’s a quick recap:
Go to your online health insurance marketplace and view all of your plan options.Decide which type of health insurance plan — HMO, PPO, EPO or POS — is best for you and your family, and whether you want an HSA-eligible plan.
Eliminate plans that exclude your preferred doctor or that don't have local doctors in the provider network.
Determine whether you want more health coverage and higher premiums, or lower premiums and higher-out-of-pocket costs.
Make sure any plan you choose will pay for your regular and necessary care, like prescriptions and specialists.
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Lacie Glover is an insurance editor and writer and a NerdWallet authority on insurance. Her work has been featured by USA Today, U.S. News and World Report and The Associated Press. See full bio.
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Kate Ashford is a certified senior advisor (CSA)® and personal finance writer at NerdWallet specializing in Medicare and retirement topics. See full bio.
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