Health insurance: How to avoid being underinsured

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More Americans have health insurance today than a decade ago, but there are still millions who are underinsured. Being underinsured can result in hefty out-of-pocket costs and not having enough coverage to take care of the health care of you and your family.

A recent Commonwealth Fund report found that 28 percent of Americans with employer-sponsored health insurance were underinsured in 2018. More people with employer-based health insurance are underinsured now than four years ago, according to The Commonwealth Fund.

It’s not just a problem for those who get insurance through their job. Forty-two percent of people with an individual health plan purchased through the health insurance marketplace are underinsured.

One contributor to underinsurance is affordability. If you can’t afford your insurance, especially out-of-pocket costs, your health plan isn’t providing enough protection.

Another problem is not having enough coverage — for instance, a catastrophic health plan or a short-term plan that doesn’t cover you as well as a standard health plan.

Short-term health plans are an option for all Americans now. The Affordable Care Act (ACA) limited short-term plans to young people and those who couldn’t afford any other type of health insurance.

The Trump administration changed the regulation to let anyone sign up for a short-term plan. It also expanded those plans to last a year with the opportunity to renew the policy for two more years.

A benefit of a short-term plan is its low cost. However, that comes with limited coverage and high out-of-pocket costs.

Short-term health plans don’t have to provide the 10 essential health benefits found in the ACA. Those benefits include maternity, prescription drug, hospitalization, and outpatient care.

A Kaiser Family Foundation report on short-term plans available in 2018 found that:

43 percent didn’t cover mental health services
62 percent didn’t cover substance abuse treatment
71 percent didn’t cover outpatient prescription drugs
None of the plans covered maternity care

Experts fear that those limits coupled with the expansion of short-term health plans may exacerbate the underinsured problem.

How can you be underinsured?

There are two ways someone can be underinsured: high out-of-pocket costs and low coverage. Paying a large percent of your income on health care and facing coverage limits and high deductibles make you underinsured.

Underinsurance can especially be a problem for someone with a pre-existing condition. More than half of Americans not in Medicare or Medicaid have a pre-existing condition.

Now that we understand what it means to be underinsured, how do you avoid that issue? Consider these options.

Gauge your health plan needs

The first step when deciding on a health plan and making sure you’re not underinsured is to think about your health care needs. Think back to the past year.

How was your health?
How often did you see a doctor?
How many prescriptions do you have?
How often did you have a medical procedure?
Do you have children who may visit a doctor more than a couple of times a year? How about your spouse’s health?

Now, think about the next year.

Do you have a pre-existing condition that will requires care?
Do you expect you’ll need more healthcare? For instance, will you need to get that tricky knee fixed?
What kind of health care does your family need?
Do you plan to start a family?
What’s your family income and what can you afford?

The more care you need or expect, the better the chance that you need more coverage. Going with a low-cost, barebones plan isn’t likely a good idea if you expect to visit doctors or need prescriptions.

Also, choosing a limited network plan like a health maintenance organization (HMO) may work if your doctors are considered in-network. However, if that’s not the case or you live in an area with few HMO in-network doctors, then a preferred provider network (PPO) might be a better fit.

Once you figure out your health care needs and how it fits with your finances, you can start to objectively figure out what plan makes the most sense for you.

Find a plan with proper protection

A high-deductible health plan can be a wise choice if you want low premiums and don’t expect to visit the doctor much. However, these plans have higher out-of-pocket costs if you need health care services.

In that case, a PPO or an HMO plan might be a better choice. PPOs have much higher premiums, but lower out-of-pocket costs. HMOs offer restricted networks and specialist referrals, but they can be an affordable option with fairly low premiums and deductibles.

If you have a nongroup marketplace plan, you’ll want to take note of the different metal levels. These plans offer the same coverage. The only differences are the premiums and out-of-pocket costs.

Here’s how the different marketplace plans vary:

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.

Plans on each metal level can vary on out-of-pocket costs, such as deductibles. Provider networks may differ, as well as benefit design. One plan might be an HMO; another could be a PPO. Those are different based on provider networks, out-of-pocket costs, and where you can get care.

If you use many health care services, going with a Gold or Platinum plan may be wise. If you don’t use health insurance that much, a Bronze or Silver plan may work. Run the numbers and figure out which one makes the most sense for you.

How to choose the right health insurance

Unlike other types of insurance, health insurance doesn’t give you as many opportunities to shop around for coverage. If you get insurance through your job, you choose between a limited number of options offered by your employer. You have more options if you’re searching for an individual health plan.

Regardless of how you get your health insurance, here are tips for finding the best policy for you:

Weigh both premiums and out-of-pocket costs. That includes deductibles and coinsurance. You may find a plan with low premiums, but make sure to take into account potential out-of-pocket costs.
Figure out whether a restricted network is worth the lower costs. An HMO is a cheaper alternative to a PPO but limits your provider choices. Plus, an HMO requires you to get a referral to see a specialist and may not cover any out-of-network costs. Make sure you’re comfortable with your selection. Health insurance isn’t a one-size-fits-all.
Check with the insurer to make sure your doctors are part of their networks. If not, you could play higher out-of-network costs.
Confirm that the insurer covers your prescriptions.

To find out more about picking a health plan, check out What’s the Best Health Insurance Option for You? That page provides more information about choosing a plan, so you avoid being underinsured.

Les Masterson

Contributor

Les, a former managing editor, insurance, at QuinStreet, has more than 20 years of experience in journalism. In his career, he has covered everything from health insurance to presidential politics.