5 Things You Need to Know Before Buying Health Insurance

We recently received a question from someone looking for guidance on how to choose a health insurance plan. After all, few things are as important to us as health care when we really need it. Without health insurance, you might not have access to many non-emergency services, an emergency like getting hit by the proverbial bus can land you deep in debt (medical bills are the biggest cause of bankruptcy), and you'll even have to pay a federal penalty (I mean...a tax) starting in 2014.

With that in mind, here are some things to know before you pick a plan:

Your employer's plan may not be the best deal. It's true that if you work for an employer that offers health insurance, you may be able to get it at reduced or even no cost to you. At the very least, it usually gives you the option of purchasing into a group plan, which can be particularly beneficial if you're not in good health or have pre-existing conditions. (Keep in mind that if you recently lost your job, you may be able to continue your group coverage under COBRA for 18-36 months.) If you're self employed, you might also be able to access group plans through trade associations like the Writers Guild of America and the Actors' Equity Association.

However, if you're paying for the insurance and you're in good health, you might be better off getting a policy on your own. That's because group plans base their premiums on the group's average health so you could find a lower cost plan or one with more benefits for the same price if your health is above average. You can comparison shop at a site like ehealthinsurance.com, healthplanone.com, healthinsurance.com, insuremonkey.com, or healthcare.gov.

You can also search for a local health insurance agent or broker at the National Association of Health Underwriter's website. An agent can help you find an insurer that will accept you and guide you through what can be a complicated application process. Just be sure that they have experience with health insurance (not just life or disability) and ask if they get compensated more for selling certain plans or policies.  A good sign that they're working in your best interest is if they ask about your eligibility for COBRA and government programs.

Your doctor may not be covered. If you want to keep your current doctor, check to see that they're covered by any insurance plans you're considering. HMOs are the most restrictive, limiting you to doctors in their network. PPOs let you go outside the network for a higher fee. POS plans are a hybrid, allowing you to pay extra to go outside the network but usually only after getting a referral from a primary care physician in the network.

Your prescription drugs might not be either. Just as not all health insurance plans cover all doctors, not all benefits are always covered. This is especially true for certain medications, alternative practices like chiropractic care, and "extras" like maternity coverage (at least until the Affordable Care Act mandates that insurers start covering it in 2014). Keep in mind that even if you're not planning on having children now, you probably won't be able to add maternity coverage to an individual policy if you change your mind later. You'll want to make a list of any prescription drugs you take and your other "must have" services to make sure they're included, and look out for dollar caps and other limitations and exclusions.

The lowest premium plan may not be the cheapest overall. The tendency can be to just look at the monthly premium, but that could be the least of your costs. Plans with lower monthly costs generally make it up in other ways. First, there are co-pays, which are a small percentage of costs that you pay when you use a service. Second is the annual deductible, which is the amount that you must pay out of pocket each year before your insurance will start kicking in, especially for major expenses. (Your co-pays may or may not be counted as part of the deductible.) Even after you meet the deductible, you may have to pay coinsurance, which is a percentage of the remaining costs up to an out-of-pocket maximum, if there is one.

Let's say that you have a policy with a $20 co-pay for doctor visits, a $1k annual deductible, and 20% coinsurance. After going to the doctor, you pay your $20 co-pay and then get a bill for $300, which you have to pay yourself since it's below your deductible. Later that year, you have surgery for $3,000. Since you already paid $300 out of your $1k deductible, you only need to pay another $700 to satisfy it for the year. However, you still have to pay 20% of the remaining $2,300, or another $460. As you can see, all those expenses can really add up. That's why you want to make sure you have enough savings to cover them in addition to having enough income to pay the premiums.

Don't necessarily avoid high-deductible plans though. You don't want to err on the other side either. The idea of having to potentially shell out thousands of dollars out of pocket can be frightening, especially if you're used to comprehensive plans with low or no deductibles, but it can also save you a lot of money if you remain in good health and have the savings to cover those expenses. 

One additional benefit for a policy with a high deductible (i.e. a deductible starting at $1,200 for an individual or $2,400 for a family) is that it might be eligible for a health savings account (HSA). This account allows you to save money on a pre-tax basis, and then to use it tax free to pay for qualified out-of-pocket medical expenses. If you withdraw the money for something else, you'll have to pay taxes and a 20% penalty on the withdrawal, but anything you don't use can eventually be withdrawn penalty free after age 65. If you can afford to make contributions, this can be a great way to save for your health expenses while lowering your taxes and even saving tax deferred for retirement.

As you can see, there's a lot to consider when picking a health care plan. First, start by looking at your employer's plan (if applicable) as well as options on the individual market. Second, narrow your search by limiting your choices to the ones that include your doctor, your prescription medications, and the services you want. You can then decide which has the mix of premiums and potential out-of-pocket expenses that you're most comfortable with based on your budget and assets. Hopefully, this process will leave you a bit more healthy, wealthy, and wise.

This article was originally published on Forbes.com.