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Understanding Insurance Series: Part 1 Understand your options and determine the best plan for you
Welcome to the first installment of our Understanding Insurance series. Our goal is to help consumers better understand the options they have when it comes to selecting an insurance plan, and how they can maximize their savings by enrolling in a tax-advantaged benefit account.
When it comes to health insurance, there are different plans designed to meet different needs. The specific options available to you depend on your employer and your personal situation. Listed below are the five most common health plans and some basic information about each.
Preferred Provider Organization (PPO)
A PPO is a type of health plan where you pay less if you use in-network providers. However, you do have the option to use doctors, hospitals, and providers outside of the network without a referral for an additional cost. Premiums and deductibles associated with this plan type are usually higher, but that comes with greater flexibility.
Health Maintenance Organization (HMO)
An HMO is a type of health insurance plan that usually limits coverage to providers who work for or contract with the HMO. This type of plan generally won't cover out-of-network care except in an emergency. You’ll likely pay less in premiums for an HMO compared to a PPO – sometimes significantly less – but you will sacrifice flexibility for the lower upfront costs.
High Deductible Health Plan (HDHP)
An HDHP can vary depending on the specific plan. These plans typically have lower premiums, so they cost less – as long as you don’t require a lot of medical care. The deductible is usually higher compared to other plans, and you need to pay this amount in full before the insurance provider chips in. To take advantage of a health savings account (HSA) you must be enrolled in a HDHP.
Point of Service (POS)
A POS is a type of health plan where you must select a primary care physician that belongs to the plan’s network, but have the option to use out-of-network providers for an additional cost.
Exclusive Provider Organization (EPO)
An EPO is a managed care plan where services are covered only if you use doctors, specialists, or hospitals in the plan’s network (except in an emergency).
Save on healthcare expenses with a tax-advantaged benefit account
Regardless of which health insurance plan type you select, chances are you will incur out of pocket costs – in the form of deductibles, copays, coinsurance, etc.
Tax-advantaged benefit accounts – such as health savings accounts (HSAs) and flexible spending accounts (FSAs) – allow you to save money, tax-free, for eligible healthcare expenses. Simply enroll in one of these accounts to reduce your taxable income and stretch your dollars an average of 30% further (depending on your tax bracket).
Health Savings Account (HSA): If you elect a high deductible health plan, then you can open and fund an HSA. This account allows you to set aside money, tax-free, for the deductible and other healthcare expenses. The money in the account is yours, unused funds roll over year to year, and any interest or other earnings on the account are tax free. Think of this as a triple tax savings!
Flexible Spending Account (FSA): For all other health plan options, you should open and fund an FSA. This account allows you to set aside money, tax-free, to pay for eligible healthcare expenses that aren’t covered by your insurance plan. It’s a smart, simple way to ensure you are getting the most value for your healthcare dollars.
For information about the health insurance plan options and associated tax-advantaged benefit accounts available to you, please speak with your employer and refer to your plan documents.
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