How To Select Individual Health Insurance by Answering Only Two Questions

September 08, 2011

At first glance the laundry list of insurance terms can be intimidating, with deductibles, coinsurance, copays, premium, PPO, HSA, out-of-pocket maximums and coinsurance maximums. It’s easy to see how people can become overwhelmed with learning a whole new language. However there are only two terms listed above that you should initially concern yourself with. Those two terms are premium and out-of-pocket maximum.

To start the qualification process take those two terms and turn them into questions.

What do I want my monthly premium to be?Translation: How much do I want to pay for insurance each month?

How high of an annual out-of-pocket maximum am I comfortable with?Translation: How much money do I want to be responsible for in a given year for medical treatment?

If you are able to provide honest answers to both of these questions you will have already narrowed down your options from hundreds of plans to just a handful. All the extra terms that were listed, and commonly referenced when discussing insurance, are not nearly as important as identifying the two above.

The idea behind this two question evaluation is simple. First, just like everything else you buy, you need to know what you can afford. You don’t walk into an electronics store looking for a new TV and head straight for the 65 inch flat screen TV with every imaginable bell and whistle, do you? OK, so maybe you do. But after you enjoy your moment of entertainment bliss your haze of love lifts to reveal a hefty price tag. As a result you quickly shuffle down the line to find a more modestly priced option.

This concept still applies when shopping for health insurance. Just because you want something does not mean you are going to be able to afford it. And just because you can’t afford what you want doesn't mean you shouldn’t buy anything at all. Also, the nice thing about health insurance, unlike TV’s, is the most expensive options is not always the best.

The second part of our little test helps identify when payments stop being your responsibility. Plain and simple the annual out-of-pocket maximum is the total amount of money your health insurance plan requires you to pay for covered medical services each year. This is important because some health insurance plans have low deductibles but relatively high out-of-pocket maximums. It is always a good idea to know the total potential cost associated with your yearly medical treatment.

While there are other factors to consider when selecting the right health plan, your monthly premium and annual out-of-pocket maximum remain the most important building blocks when assembling a strong individual health insurance plan.