If you’re like most millennials, you’re able to stay on your parents’ health insurance plan until you turn 26. But when the clock strikes midnight on your 26th birthday, you lose coverage and have to get health insurance elsewhere — talk about a wake-up call.
When I got kicked off my parents’ policy, learning to navigate the world of health insurance was one of the most real forms of adulting I experienced. But I found out that health insurance isn’t as confusing as it seems.
If you’re getting ready to enroll in your own healthcare plan for the very first time, I’ll help you figure out what types of health plans are available and how they work.
Let’s get started.
Health insurance plans you should know
The first thing you should know about health insurance is that it’s not a one-size-fits-all. There’s no universal policy, like there is with car insurance, for example.
There are many different health plans you can choose from, which vary in price, benefits, out-of-pocket costs, and a few other things.
Here are some of the most popular health plans that young people can get.
HMO stands for Health Maintenance Organization. With this type of health plan, you get access to a large group of hospitals, doctors, and specialists that are part of a network and accept your insurance policy.
With an HMO, you must receive care from a healthcare provider and facility in the HMO network. If you get out-of-network treatment, your insurance doesn’t pay for the service, and you are responsible for the cost, whether it’s a routine lab test or surgery.
HMOs are considered a managed-care policy. That means if you want to see a specialist, like an orthopedic surgeon or physical therapist, you must be referred by your primary care physician.
So, for example, let’s say you’re struggling with a skin issue that you want to get checked out. First, you would need to visit your regular doctor to get referred to a dermatologist. You aren’t allowed to bypass your primary care physician and head straight to the derm.
Another thing to know about HMOs is that they are usually one of the cheaper plans. I recommend looking into an HMO plan if you’re shopping for health care on a budget.
A PPO plan, which stands for Preferred Provider Organization, is the most common health insurance plan. It’s also one of the most flexible in terms of care, but the premiums are more expensive than an HMO.
When you have a PPO plan, you can visit a provider in-network or out-of-network. Treatment from an in-network doctor and facility is covered in full, whereas out-of-network care is covered at a smaller percentage.
Here’s an example. Let’s say you’re searching for a new primary care doctor because you’re overdue for your annual physical. If you see a doctor in-network, the visit may be covered at 100%. However, if you visit an out-of-network doctor, your medical insurance company might only pay 70%, leaving you to pay the other 30% out of pocket. The exact payment split depends on your specific plan and tier.
One of the most significant benefits of a PPO plan is that referrals aren’t necessary. If you want to avoid an initial visit to your primary care physician every time you’d like to see a specialist, a PPO might be a good option for you.
An EPO plan, which stands for Exclusive Provider Organization, is a less popular type of health insurance than an HMO or PPO, but some providers offer them.
You can think of this type of health insurance plan as a hybrid of an HMO and PPO. In-network medical services are fully covered, and out-of-network care must be paid out of pocket. However, you don’t need a referral to see a specialist if you have an EPO plan.
In addition, EPO plans typically have a more extensive network than HMO plans. That means you have a more extensive selection of doctors, specialists, and healthcare facilities to choose from. Of course, this will depend on your specific plan and insurance company.
A Point of Service plan (POS) is another type of managed-care plan that requires you to work with a primary care provider and get a referral for specialists. However, you can get in-network or out-of-network care.
The catch with a POS plan is that in-network care has no deductible, whereas out-of-network care has a deductible. In addition, getting in-network care with a POS plan has much lower copayments than getting out-of-network care. If you don’t mind paying for most of the bill, nothing stops you from seeing a doctor that’s out of network.
POS plans can be a good choice if your regular doctors are in-network. Still, you want the option to occasionally seek treatment from a provider, specialist, or facility that is out-of-network without paying 100% of the cost.
A High Deductible Health Plan (HDHP) is one of the most budget-friendly health insurance plans. As the name suggests, this plan has a high deductible, which keeps the monthly premiums low. Most types of health plans have a high deductible version.
Although an HDHP health plan can be an excellent low-cost option overall, be aware that the out-of-pocket costs for medical care can be very high. If you visit the doctor regularly, it’s probably not the most cost-effective option. However, an HDHP can help you save money if you don’t use your health plan often.
According to HealthCare.gov, the minimum deductible for an individual HDHP plan is $1,500, with a maximum out-of-pocket cost of $7,500. For families, the minimum deductible is $3,000, and the maximum out-of-pocket expense is $15,000. However, HDHP deductibles are often much higher than these minimum amounts.
Catastrophic health plans are not very well known because they’re only available to people under 30 who have a hardship or financial exemption that makes it difficult to get affordable group health insurance or Marketplace coverage.
Like an HDHP, catastrophic coverage plans have a low premium and a high deductible. But unlike other plans, the deductible is fixed. For 2023, every catastrophic health plan has a deductible of $9,100. Once you reach the deductible, your insurance company covers 100% of the qualifying medical expenses — no coinsurance or copay required.
Catastrophic plans aren’t much different from standard plans in terms of coverage. They cover the same 10 essential health benefits you get with any Marketplace plan, and some preventative services are also covered.
Medicaid is a government-funded health insurance program for low-income individuals and families. Unlike other Marketplace health insurance plans, Medicaid doesn’t have an Open Enrollment period, which means you can buy coverage at any time.
To get Medicaid, you must meet specific eligibility requirements, which are different in every state. To see if you qualify based on your income alone, you can fill out this quick survey through HealthCare.gov.
Medicaid covers various medical services and treatments, and the copays tend to be pretty low. Also, if you are currently pregnant or have young children and make too much money to qualify for Medicaid, you might be able to get low-cost coverage through the Children’s Health Insurance Program (CHIP).
Medicare is another government-funded health insurance plan primarily geared toward adults over 65. However, if you are under 65 and have a qualifying disability, you may be eligible for Medicare benefits.
Individuals under 65 who have end-stage renal disease (ESRD) or amyotrophic lateral sclerosis (ALS) are eligible to receive Medicare. You can also qualify if you have a disability that allows you to get Social Security Disability Insurance (SSDI).
Remember that getting approved for SSDI is very lengthy and can take many months. Some examples of SSDI-covered disabilities include:
- Digestive disorders
- Cardiovascular disorders
- Musculoskeletal conditions
Understanding health plan tiers
When you’re in the market for individual health insurance, the first step is to choose the type of plan that best suits your healthcare needs and your budget. The next step is to decide what tier you want.
Every healthcare plan has a “metal” tier — Bronze, Silver, Gold, or Platinum. The tiers represent the premium, the payment split between you and your insurance carrier, and the deductible.
Here’s a high-level overview of the various plan tiers and their benefits.
- Insurance pays: 60%
- You pay: 40%
- Deductible: Highest deductible
- Premium: Lowest premiums, highest cost of care
- Insurance pays: 70%
- You pay: 30%
- Deductible: Lower deductible than Bronze tier
- Premium: Moderate premiums and cost of care
- Insurance pays: 80%
- You pay: 20%
- Deductible: Lower deductible than Silver tier
- Premium: High premiums, lower cost of care
- Insurance pays: 90%
- You pay: 10%
- Deductible: Lowest deductible
- Premium: Highest premiums, lowest cost of care
Supplemental health plans to consider
In addition to the regular health insurance plans, there are also a handful of health care supplements. They aren’t technically plans, but they can be tacked on to your existing health insurance policy to help lower your health insurance costs.
The most popular ones are the HSA and the FSA. Here’s how they work and who can get them.
An HSA, which stands for Health Savings Account, is only available if you have an HDHP. An HSA is like a savings account, allowing you to set aside pre-tax money to pay for certain medical services and treatments.
In addition, you can use the money from your HSA to cover some of your out-of-pocket costs, like the deductible or copayments (just not your monthly premium). As a result, having an HSA can help reduce your healthcare costs overall.
For 2023, you’re allowed to contribute a maximum of $3,850 toward your HSA, and for family coverage, the maximum contribution is $7,750. If you don’t use your HSA, the money rolls over and can be used the following year.
Read more: How to pick a health savings account
An FSA, which stands for Flexible Spending Account, is similar to an HSA, but it’s only an option if you have group health insurance through your employer. If you have private health insurance through the Marketplace or a private carrier, you can’t get access to an FSA.
An FSA acts as a savings account, where both you and your employer can contribute money. For 2023, the FSA contribution limit is $3,050.
You can use the money to pay for various expenses, including copayments, deductibles, prescription drugs, vision care, and other health-related items, like specific skincare, baby products, sunscreen, and over-the-counter medications.
The catch with an FSA is that the money doesn’t rollover. That means you have to spend your FSA dollars within the year.
However, some FSA plans have a grace period of up to 2.5 months that allows you to use your FSA money after the year ends. Also, some employers allow you to roll over a certain amount of FSA money to be used the following year.
Read more: When to bump up your FSA contributions
There are tons of healthcare plans available, so choosing the best one can feel like a struggle. My advice is to spend some time doing your research and comparing plans. A well-informed decision will never be a bad one.
With your budget in mind, take a close look at the out-of-pocket costs for each plan that you want to consider. Read the fine print about the payment split, copayments, coinsurance, and what doctors and hospitals are in-network.
And most importantly, remember that you aren’t locked into a health insurance plan for life.
Whether you need more coverage, less coverage, a lower premium, or a different company, you can always switch to a different health insurance plan during Open Enrollment (or sooner, if you qualify for a Special Enrollment Period or Medicaid).