How to Choose Between HMO and a High-Deductible Health Plan?
What’s the difference between a HMO and a high-deductible health plan with health savings account (HSA)?
If you are considering changing or recently changed from a health maintenance organization (HMO) plan to a high-deductible health plan (HDHP), you are likely to see a difference in your experience and coverage. Here are some ways the plans differ.
- You pick which in-network provider you want to see. This encourages you to compare prices for health, dental, and vision care and prescriptions.
- Your Health Savings Account (HSA) is portable. You can take it with you when you change jobs if your new employer offers a HDHP. You can take the account with you if you change insurers.
- You still have premiums to pay every month. These are low in comparison to the deductible. The annual deductible is high, often $5,000 or more. You must pay this amount before your insurer covers any costs.
- Spending for prescription drugs applies to the deductible. Copays do not. You cannot use HSA dollars to pay for insurance premiums unless you are between jobs.
- For family coverage, the family deductible must be met before there is reimbursement.
- There is a maximum limit on the deductible and medical expense costs, including copays. In 2017, the maximum deductible is $6,550 for individuals and $13,100 for a family.
- Qualifying HSA expenses can cover items that a HMO plan does not cover, like fertility treatment.
- The insurance plan may offer the following without a deductible (you do not have to meet the deductible before you receive no-charge care) or with a deductible that is lower the annual deductible: wellness and preventive care, such as visits related to prenatal and child wellness care, immunizations, screening services like mental health and cancer screens, annual physicals, smoking cessation, and weight loss; dental care; vision care; and expenses resulting from accidents.
- You may receive more coverage for out-of-network provider care. This depends on the situation that calls for out-of-network care, your insurer’s policies, and your plan.
- You are expected to pick one in-network primary care physician and see that doctor for most of your care. You may be able to see another doctor if he or she is not available or you need urgent care. The one exception to this rule is ob/gyn care for women. A woman may usually see an in-network ob/gyn provider in addition to her primary care physician.
- You will need a referral from your primary care doctor to see an in-network specialist.
- The amounts of your premiums and deductible depend on your plan.
- Full charge costs, copays, and coinsurance count toward your out-of-pocket maximum. The maximum is set by your plan. After you reach your maximum amount, you do not need to pay for most covered services for the rest of the year.
- Depending on your plan, you may pay copays or coinsurance before meeting your deductible.
- Those on a family plan have a deductible and out-of-pocket maximum for the family, as well as for each family member.
- You may not use a HSA to cover medical expenses.
- You can take the coverage with you if you switch jobs if you have the same insurer. You usually cannot switch insurers since the insurer is the HMO.
- You will have to pay out-of-pocket to cover items that your plan does not.
- You may or may not have to pay for wellness and preventive care. If you have to pay, you usually do not have to do so at full cost. You may only have to make a copay.
- Your plan usually does not cover dental care except if the dental concern is affecting your overall health. An example of such an exception is an abscess in the gum causing an infection that makes you dizzy. Health care plans may cover vision care, but this depends on the plan.
- You typically receive no coverage for out-of-network provider care unless you can show there was a medical necessity for such care.
For both plans, you should ask your insurer what is covered in your state. You should also identify your in-network providers.
A HSA has “triple tax” power. You can put aside, invest, and withdraw money on a pre-tax basis for qualified health expenses. A HSA can also earn interest. In addition, your employer can match your contributions to it through a 401(k). You do not have to use the money in a HSA by the end of the year. You can roll over the money, saving the total amount until you retire. After you retire, you can use the money in the HSA for health costs. Allowable expenditures include prescription medications, wheelchairs, therapy, in-home nursing care, nursing home fees, and modifications to your home like entrance and exit ramps and handrails. You can pass a HSA account on to a beneficiary.
The downside of a HSA is you must have money in the account to grow it. It is hard to benefit from a HSA if you have a low amount in the account, are constantly withdrawing money from it, or make poor investments. The investments you can make through a HSA are typically more limited than those you can make with a 401(k).
Setting up a HSA
Preparation for setting up a HSA involves reviewing your medical expenses for the past two years and your projected medical expenses for next year. A spreadsheet of the amounts you have spent will help you estimate how much you can deposit from your paychecks into a HSA, the timing of your contributions, and the amount you expect to have in the account at the end of the year. After you do these calculations and learn how to avoid common pitfalls of HSAs, you will be in good shape to talk with a financial advisor about investing the sum. You have many options, from mutual funds and stock to small businesses and real property.
Learn more about HSAs: