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How to buy individual health insurance

Because of the Affordable Care Act, the health insurance landscape has undergone considerable transformation. You have some advantages as a consumer shopping for an individual health insurance plan that you never had before.

Chief among them: Health insurance companies can't turn you down for coverage or charge you higher premiums because you're sick or have a health condition. Previously, people with health problems faced sky-high premiums to cover a pre-existing condition or couldn't qualify for an individual health plan at all.

In addition, in order to count as providing sufficient coverage under the Affordable Care Act, health plans now have to offer a comprehensive set of 10 essential benefits, including prenatal and maternity care, hospitalization and preventive care. And they can't cap the dollar amount of benefits you receive in a year or over a lifetime. The amount you pay out of pocket for health care, however, is capped.

On top of that, you may qualify for premium discounts in the form of tax credits or subsidies to lower your out-of-pocket health insurance costs if your income is low or moderate.

Buying individual health insuranceBut those consumer wins don't make choosing a health insurance plan a snap. You still have to assess your health care needs, review the options, crunch the numbers and choose the plan that makes the most sense for your finances and your health. And you have to accomplish all that in a brand new health insurance frontier.

Let’s review basic ways to get covered:

  1. Group health insurance: Your employer selects the plan(s) and health insurance companies. You enroll at work, usually in the fall during your employer's open enrollment period.
  2. Individual health insurance: This is a plan you buy on your own. An individual plan can cover just one person or a family. You can buy directly from a health insurance company or from your state’s health insurance marketplace, also called an exchange.
  3. Medicaid and the Children’s Health Insurance Program (CHIP): These plans have low income requirements.
  4. Medicare: Mostly for people age 65 and over.

What to look for with individual health coverage

Know when to shop

You can buy an individual health plan that meets government standards for coverage only during the annual open enrollment period in most states, unless you have a special circumstance, such as getting married or having a baby. So far Nevada is the only state that requires insurers that sell health plans outside the government-run marketplaces to offer those plans throughout the year. For most people the 2014 open enrollment period ended March 31.

Open enrollment for 2015 plans is scheduled for Nov. 15, 2014, through Feb. 15, 2015.

Don't wait until the last minute. Give yourself plenty of time to research options and apply.

Most people are required to have health insurance under the Affordable Care Act. Blow off open enrollment, and you could face a tax penalty. The penalty in 2014 is $95 per adult or 1 percent of income, whichever is higher.

Assess your health care needs

How often do you need to see the doctor? What types of health care will you need in the next year? What prescription drugs do you take? What hospitals and doctors do you want to see? Your needs should influence the type of plan you choose. The right health plan for your neighbor might not be the right plan for you.

Investigate health plans on your state marketplace

The federal government's HealthCare.gov website has links to state health insurance marketplaces. If your income qualifies you for premium discounts or lower out-of-pocket costs, the only way to get them is by purchasing a health plan through the marketplace. Fill out the application to see if you're eligible for financial assistance and to compare health plans from private insurance companies in your area.

Health plans sold in the marketplaces are categorized according to how much of the health care costs the insurer pays and how much the consumer pays. Generally the higher the out-of-pocket costs -- the more you pay in deductibles, coinsurance and copayments -- the lower the premium.

The health plan categories, going from those with the least to most expensive premiums, are:

  • Bronze: The insurer pays an average of 60 percent of your health care costs; you pay 40 percent.
  • Silver: The insurer pays 70 percent; you pay 30 percent.
  • Gold: The insurer pays 80 percent; you pay 20 percent.
  • Platinum: The insurer pays 90 percent; you pay 10 percent.

Keep in mind these are general categories, and the projected out-of-pocket costs are averages. Plans in the same metal category might achieve the cost split in different ways. Two bronze plans, for instance, might have different deductibles and co-insurance levels, even though their overall out-of-pocket costs are projected to be the same.

Plans in the same metal level might also be structured differently. One bronze plan might be a health maintenance organization, and another might be a preferred provider organization.

You can buy marketplace plans over the phone, through paper applications or online. Some states also hold enrollment fairs.

In addition, catastrophic health plans are available for people under age 30 and those with some type of financial hardship.

Today's catastrophic health plans are different than the bare-bones plans marketed as catastrophic in previous years. The new catastrophic plans have higher deductibles than traditional plans, but they still cover the essential benefits outlined in the health care reform law, including preventive care.  Catastrophic plans generally have lower premiums than bronze plans, but they do not qualify for tax credits to reduce the premium or subsidies to reduce out-of-pocket costs. And, if you qualify to purchase a catastrophic plan, you can buy one only for yourself, not for your entire family. Check with your state’s insurance marketplace for details.

Find out what health insurance companies are offering outside the marketplaces

There are plenty of health plans available directly from insurers, without going through a marketplace. In fact, some insurers are only selling policies outside the marketplace in some states.

Plans sold outside the marketplace are still categorized by metal tiers, and they still must offer the same minimum benefits to qualify as sufficient coverage under the Affordable Care Act. But you might find a plan with a wider network or a better price. Remember, though, you cannot qualify for tax credits for premium discounts when you buy outside the marketplace.

You can purchase health insurance directly from a health insurance company, a website that sells coverage from different carriers or through a health insurance agent. The National Association of Health Underwriters has a "find an agent" tool on its website.

Make sure the health plans you compare outside the marketplace count as sufficient coverage under the Affordable Care Act. Most health plans do, but some, such as temporary or short-term health plans, do not provide all the benefits necessary for meeting the law's "individual mandate" -- the requirement for Americans to have health insurance.

Understand and compare how health plans are structured

Know the differences between a health maintenance organization (HMO), preferred provider organization (PPO), point of service (POS) plan and high-deductible health plan with a health savings account.

With an HMO, you choose a primary care physician who coordinates your care, and generally you're limited to a network of doctors and hospitals. You typically pay a low copayment for each office visit. The plan generally doesn't cover care outside of the network except in special circumstances.

A PPO gives you more flexibility than an HMO. You can see specialists without a referral from a primary care physician. The plan pays a higher percentage of costs if you see doctors in the network, but still provides some coverage for services outside the network.

A POS plan is a little of both. It operates like an HMO if you stay within the network, but gives you the option of using out-of-network doctors. Typically a POS plan requires you to get a referral to see a doctor outside of the network.

A high-deductible health plan paired with a health savings account, or HSA, features a deductible of at least $1,250 for an individual and $2,500 for a family plan in 2014. You can use money from the HSA for out-of-pocket medical expenses. Contributions you make to the account are tax deductible, and unused money rolls over to the next year. You get to keep the account even if you change health plans, and you can use the money for non-medical expenses in retirement.

Compare provider networks and benefits

Dig into the details of what the health plans cover. For instance, how will the plan cover the prescription drugs you take? Make sure the health care providers you want to use are in the plan's network. Otherwise you will pay more out of pocket or may not have coverage to see them.

Crunch the numbers

In addition to reviewing the premium you'll pay for the plan, estimate how much you'll pay out of pocket for the amount of health care you expect to use in the next year.

If you rarely need medical care, it probably makes more sense to choose a plan with a higher deductible and lower premium than to pay a high premium for a plan with a low deductible.

More from Barbara Marquand here

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