How To Choose The Right Health Insurance Plan

I bet your head is swimming right now with all the new acronyms you’ve been seeing after the first few days on the job. But as the old adage goes, these are good problems to have, especially in the current economy. One of the biggest decisions you’ll have to make in the first few weeks of starting work is what your health benefits are.

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Some companies offer a few choices, some offer only one, some offer none. Regardless of your options, it’s important that you review them carefully because this will likely be one of the more important decisions you’ll make this month.

This post is part of Bargaineering’s 2010 New Graduate Guide series where I’ll share my insights and offer my financial guidance to the graduate class of 2010. This post is part of day 2, the financial basics.

No Employer Health Insurance

If your employer does not offer health insurance, you will need to procure it on the open market. Recent legislation will make this easier for you but my previous post on finding affordable health insurance should put you on the right track.

You may be tempted to go without health insurance, this would be a mistake. Health insurance is affordable, especially if you are young and have no pre-existing conditions, and it’s something that you should budget for. If you feel like you can’t afford it, try to find a way to squeeze it into your budget. Going without insurance is like driving without a seatbelt. 99.9% of the time you’ll be OK, but that 0.1% time will be catastrophic.

HMO vs. PPO vs. …

Health insurance is a lot like a group buying program. The insurance company negotiates rates with various health care providers, like doctors and hospitals, and collects premiums from you. They can negotiate better rates because of the volume of customers they bring. If you’ve ever looked at a hospital bill, you may have noticed that the amount the hospital charges and the amount paid by the insurance company are never the same. In fact, the insurance company gets a huge discount.

The basic idea with insurance is that you have two types of plans. An HMO, which stands for health maintenance organization, is a type of insurance plan where you have a Primary Care Physician, who acts as a gatekeeper for medical services. If you need to see a specialist, you get a referral from your Primary Care Physician. They try to keep you in-network, which is where they have negotiated rates.

A PPO, which stands for preferred provider organization, is different in that you have no primary care physician and there is no need for a referral in seeking care. There is still a network, so there can be negotiated rates, but you don’t need a referral with everything.

There are other different types of health care types but those are the big two. Others are simply versions of those two.

Picking a Plan

How do you pick the right plan if you have two several to choose from? It comes down to what you think you’ll need it for. I would choose it based on your regular behavior with an eye towards how that plan will protect you in case of a major calamity. If you never go to the doctor, you might want to pick a plan with a higher deductible and save yourself a little money each month. If you go often, you may want to find one with a lower co-pay. If you’re sticking in the same area and have doctors you are comfortable with, make sure they accept the plan you choose.

It’s difficult for anyone else to give you advice on which plan to choose without knowing your situation but you may find it helpful to talk to co-workers, especially ones who have been there a while. They will probably have discussed the plans with each other and come to a fairly good understanding of the advantages and disadvantages of each.


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