Unless you’re one of the lucky few who can afford to pay all of their medical expenses out of pocket, you need enough health insurance to cover your medical expenses, both anticipated and unanticipated. In addition to routine exams, prescription coverage, and minor illnesses, you need to consider the expense of emergency-room visits and the possibility of surgery.

Health insurance is usually sold in take-it-or-leave-it packages. Within each package, little or no flexibility exists in terms of coverage, dollar limits, deductibles, or co-payments. The only choice you may have is which package to buy, and that depends on how much you can afford or want to pay.

Employers often offer health insurance as part of their employee benefits package and pay a portion of the premiums. If possible, you’ll want to buy coverage through your employer, since it’s less expensive than if you purchased an individual policy on your own. As for the type of coverage you can purchase, you really don’t have that much choice. Most employers offer only one or two options (e.g., HMO, PPO, or traditional indemnity plan).

If your employer doesn’t offer health insurance, contact your local health insurance brokers for information on individual health insurance that you can purchase.  Naturally, you’ll want to purchase the best package you can afford.  Ask your brokers to help you compare rates and select the best package available in your areas.

There’s no doubt about it–health insurance can seem complicated. A typical policy is filled with the kind of technical jargon that sends many of us into cold sweats. Fortunately, understanding the basics of your policy isn’t as difficult as you might think.

Take the bull by the horns
Before you can begin to understand your health insurance policy, you need to know exactly what type of policy you have. Do you have your own individual policy, or do you participate in your employer’s group health plan at work? Is your plan a health maintenance organization (HMO), preferred provider organization (PPO), or point of service (POS) plan? If you’re not sure what type of plan you have, talk to your insurance agent or your benefits officer at work. In addition, it’s always a good idea to carefully read your entire policy. Your own initiative and resourcefulness will go a long way toward helping you understand your policy. If you have any specific questions, don’t hesitate to call your agent or ask your benefits person.

Get a handle on the standard coverage

With so many different types of plans and policies, there is no standard health insurance policy. The specific benefits, levels of coverage, and other policy features will differ among policies. But most health insurance policies offer certain basic types of coverage. A big part of understanding your policy involves familiarizing yourself with these key areas:

• Hospital expense insurance: This covers your room-and-board costs if you’re hospitalized, as well as other hospital-related expenses (e.g., use of the operating room, X rays, drugs, lab charges). Some plans pay on an indemnity basis, meaning that the insurer pays a specific amount per day for a maximum number of days. Other plans simply pay a percentage of your total hospital costs.
• Surgical expense insurance: If you have surgery, this covers surgeons’ fees and related costs (e.g., anesthesia, use of the operating room if not covered as a hospital expense, follow-up visits). Benefits are typically paid according to a set schedule, though some plans pay benefits that are considered “usual, customary, and reasonable” in a particular geographic area.
• Physicians’ expense insurance: Sometimes called regular medical expense insurance, this covers visits to a doctor’s office and a doctor’s hospital visits. A typical policy specifies a maximum benefit per visit (e.g., $25 or $50), as well as a maximum number of visits per illness or injury.
• Major medical insurance: This is designed to protect you against costs associated with a major illness or injury. Fortunately, major medical coverage is usually very broad and often has a very high benefit limit (typically, between $250,000 and $1 million). Common items covered may include diagnostic services, nursing services, medical specialists’ services, outpatient services, ambulance service, home health care, radiology and other therapy, dental treatment resulting from injury, and prescription drugs.
• Ideally, your policy will combine all four of these types of coverage into one package (if not, you can probably purchase them separately). It’s important to know exactly what coverage your policy provides in each of these areas.

Understand your out-of-pocket costs

No matter how good the plan, health insurance is rarely free, so it’s important to know how much you’ll be paying out of your own pocket. The most obvious cost associated with your policy is the premium. If you’re covered by an employer’s plan or other group plan, your premium will be lower than if you have an individual policy. How low depends on the characteristics of the group as a whole and what portion of the premium your employer or group pays. With an individual policy, your premium depends on your age, health, and other personal factors. Be sure to plan on the possibility of premium increases down the road.

In addition to the premium, your policy may require you to pay these other out-of-pocket costs:

• Deductible: This is the amount (typically, an annual amount) that you must pay toward your medical costs before your insurer begins to cover you. The most popular deductible is currently $250 or $500.
• Co-payment: This is the amount that you’ll have to pay each time you visit a health-care professional or buy a prescription (e.g., $10).
• Coinsurance: This is the percentage of your medical costs that you’ll have to pay after you satisfy any deductible (e.g., 20 percent); typically capped at a maximum dollar figure for out-of-pocket costs.

These extra costs can greatly affect the total cost of your policy, so make sure you know what they are. For example, if you take lots of medications, those little co-payments can really add up over time. Reading your policy should tell you everything you need to know about deductibles, co-payments, and coinsurance.

What else should you know?

Understanding your health insurance policy involves other things, too. There are a number of specific provisions and features that you should pay close attention to as you’re reading your policy. These often vary among policies, and it would be impossible to list all of the things you might find. But here are some common provisions and features of many health insurance policies:

• Limitations and exclusions: Most policies provide limited coverage (or none at all) for certain things. For example, cosmetic surgery may not be covered. Your policy should clearly spell out all of its limitations and exclusions.
• Stop-loss provision: This provision limits your liability for your medical expenses. Typically, this means that you no longer have to make coinsurance payments when your expenses exceed a certain threshold. Common loss levels are $5,000 to $10,000.
• Benefit ceiling: Also known as the maximum lifetime payout, this provision specifies the maximum amount that your insurer will pay on your behalf. Keep in mind that your policy’s benefit ceiling may be well below what many insurance experts recommend, which is a maximum of $1 million.
• Family coverage: Many policies allow you to also cover your spouse and children, but your premium will be higher. Some policies with family coverage have a family deductible that must be satisfied before coverage kicks in for anyone in the family.
• Riders and endorsements: These are optional features that you can often buy to modify your policy’s standard coverage or add extra coverage. If you’d like to better tailor your policy to your needs, ask your insurer what riders or endorsements are available and at what cost.

If you leave your job, voluntarily or otherwise, you may be able to continue your employer-sponsored health insurance under the federal Consolidated Omnibus Budget Reconciliation Act (COBRA) of 1985. Eligibility does come with some restrictions, however.

Employers with 20 or more employees are required to offer continued health insurance for up to 18 months to employees who leave the company. The employer must make this offer in writing within 14 days of an employee’s last working day. To qualify, you, the employee, must have been covered by the employer’s health plan on the day before your employment status changed. There may also be state laws that affect your options. You should be aware that you are responsible for paying the premiums for COBRA, and the coverage is usually expensive. Your employer may also charge a fee, up to 2 percent of the monthly premium, for administrative costs.

If COBRA is not applicable in your case, other options are available. For example, you may be able to convert your employer-sponsored health plan to an individual health plan. Although you may not have to pass a medical exam, a pre-existing condition could be excluded.

Another option is to purchase a short-term health policy that covers your health costs on a temporary basis, usually two to six months. Short-term policies are generally not expensive, but you will not be covered for any pre-existing conditions. Insurance companies provide this coverage at reduced administrative costs and then pass the savings on to their customers.

A fourth option is to continue your health coverage through a professional association that offers health insurance to its members at reduced rates. This is a particularly good option if you are self-employed.

It depends on the laws in your state. In most states, you can purchase an individual or a one-person group policy for your health insurance. Both are available as managed care or indemnity plans. The big difference is guarantee of acceptance.

Individual policies can decline to insure you or your dependents if the insurance company’s medical guidelines are not met. One-person group policies can’t refuse to insure you or your dependents because of health problems. But, you will have to prove that you operate a legitimate business. Usually, this requires supplying copies of your tax returns and business licenses.

Disability income insurance is vitally important to the self-employed and will give you an income if you get sick or injured and cannot work. It is available to you as an independent contractor, but it can be difficult to get. The insurance company will require several years of tax returns and a medical examination. Like all insurance, the insurance can be rated or declined if you have health problems or the insurance company feels you have a dangerous job that makes you a higher risk.

The amount of coverage you can purchase is based on your income, age, and occupation. Premiums vary, depending on the waiting and benefit periods you select, and on the percentage of income you insure.

Some dental policies cover orthodontia (including braces) and others don’t. You should carefully read through a dental insurance plan before selecting it if you think a member of your family may need orthodontic services.

If your dental policy covers orthodontia, there may be a waiting period before the coverage kicks in. Also, your policy may contain a maximum annual benefit limit for orthodontic work. And keep in mind that most plans offer orthodontic treatment to children only, not to adults. One more word of caution: If your child has a pre-existing dental condition, it may be excluded from coverage, depending on the policy provisions.

A dental plan’s orthodontic benefits may be treated differently from other dental benefits. Normally, the plan will pay for a certain percentage of orthodontic treatment. The co-payments and deductibles may also differ from standard dental care. If you have any questions related to the orthodontia component of your dental insurance, contact your plan administrator or a customer service representative at your insurer.

Whether you live at home or are away at college, chances are you’re covered under your parents’ health plan until you’re about 20 to 26 years old as long as you’re a full-time student. Ask your parents to check the policy for the details. Many students take advantage of health insurance plans offered by their colleges because such plans are relatively inexpensive and the services are close at hand. Whether you’re covered by your parents or your school, you’re likely to be on your own after you graduate. If you’re working, check any health insurance options your employer offers. If you’re not working or your employer offers no health benefits, consider purchasing short-term health insurance (if available) or catastrophic coverage, or look into your options under COBRA if you recently left a job.

Travel insurance refers to various types of specialized coverage you can buy to insure yourself against the many risks you face as a traveler. You can purchase this insurance from insurance companies, travel agents, tour operators, cruise lines, rental companies, or travel assistance companies. Coverage, cost, and terms vary widely.

There are many different types of travel insurance:

Trip cancellation or interruption insurance protects you if your trip is canceled or interrupted because of some unforeseen event, such as the financial failure of the cruise line, airline, or travel agency; bad weather; illness; or death.
Temporary health policies provide short-term supplemental health insurance coverage. This type of coverage may be helpful when you’re traveling abroad, since some health insurance providers do not cover you while traveling overseas, or they may provide only limited coverage.
Baggage insurance reimburses you if your personal belongings are permanently or temporarily lost, stolen, or damaged while you are traveling.
Accidental death and dismemberment (AD&D) insurance compensates you if you lose a limb or an eye, or compensates your beneficiary if you die in an accident. You can purchase this coverage as a separate policy, as a rider to an existing policy, or as part of a travel insurance policy.
You may want to consider purchasing some form of travel insurance if the financial benefit and peace of mind outweigh the premium cost. For instance, if your trip were canceled or the tour operator went out of business, could you afford to lose the money you paid for the trip? If you got sick while vacationing in a foreign country, would your health insurance cover you? If not, could you afford to pay for your medical expenses? If your luggage were lost, could you afford to purchase everything you would need to continue your trip? These are important questions to consider when deciding whether or not to purchase travel insurance.

5 QUESTIONS CONSUMERS SHOULD ASK THEMSELVES

1. Do I want to save money for current and future health expenses?
HSA plans have two primary components – health insurance coverage and an actual tax-advantaged savings account. You can use the money in the savings account to pay for your current health expenses, but you also own the money in the account regardless of whether your health coverage changes or you move to another city. So, HSAs offer an opportunity to build tax-advantaged savings for current and future health expenses.

2. Which type of health plan gives me a better financial value?
Do you prefer to save money on your monthly premiums in exchange for paying some of the initial costs of your health-care services out of your own pocket (known as the “deductible”)? Or would you rather pay higher monthly premiums in exchange for your insurer covering a portion of your costs from day one? With HSA plans you can put the money you save on your premiums into your tax-advantaged savings account to build interest, whereas with a traditional plan, more money is spent on premiums regardless of how much health care you actually use.

3. Have I considered all the relevant costs for each plan?
To make sure you’re not comparing apples to oranges, you should consider all of the cost elements associated with each plan option. Traditional plans may include: higher monthly premiums, a smaller deductible, as well as copays and/or coinsurance. HSA plans may include: lower monthly premiums and a higher deductible. So depending on your health needs, a high-deductible plan may very well cost less overall than repeatedly paying a traditional plan’s copays and coinsurance.

4. Will I lose unused money in the HSA?
HSAs don’t have a “use it or lose it” provision. Just as some cell phone providers now let you roll over unused minutes, HSAs let you rollover your unused dollars from one year to the next, so you don’t have to worry about ever forfeiting your money.

5. Is it difficult to connect the HSA plan with the bank account?
Since you need to select a financial institution to administrate your savings account, and the health insurer offering the HSA plan also has a financial institution available, it can make the process of setting up and using an HSA much easier and more convenient. Some insurers have their own bank and offer a single enrollment process so you can sign up for both the health insurance plan and the bank account at the same time, eliminating the need to go through two separate enrollment processes. Also, one way to turn HSA funds into long-term health-care savings is to invest that money in mutual funds or other opportunities. So make sure that the bank you choose has investment options available.

Health Savings Account (HSA) Eligible/Ineligible Expenses

Funds you withdraw from your HSA are tax-free when used to pay for qualified medical expenses as described in Section 213(d) of the Internal Revenue Service Tax Code. The expenses must be primarily to alleviate or prevent a physical or mental defect or illness, including dental and vision. A list of these expenses is available on the IRS Web site, www.irs.gov in IRS Publication 502, “Medical and Dental Expenses“.

Any funds you withdraw for non-qualified medical expenses will be taxed at your income tax rate plus 10% tax penalty if you’re under 65.

The following list provides examples of eligible and ineligible medical expenses. This list is not all-inclusive. Remember, the IRS may modify its list of eligible expenses from time to time. As always, consult your tax advisor should you require specific tax advice.

Eligible medical expenses may include:

Acupuncture
Alcoholism treatment
Ambulance
Artificial limb
Artificial teeth
Breast reconstruction surgery (mastectomy-related)
Chiropractor
Contact lenses and solutions
Cosmetic surgery (if due to trauma or disease)
Dental treatment (X-rays, fillings, braces, extractions, etc.)
Diagnostic devices (such as blood sugar test kits for diabetics)
Doctor’s office (including physicians, surgeons, specialists or other medical practitioners) visits and procedures
Drug addiction treatment
Drugs, prescription
Eyeglasses and exams (for medical reasons)
Eye surgery (such as laser eye surgery or radial keratotomy)
Fertility enhancements
Hearing aids (and batteries for use)
Hospital services
Laboratory fees
Long-term care (for medical expenses and premiums)
Nursing home
Nursing services
Operations/surgery (excluding unnecessary cosmetic surgery)
Osteopath
Over-the-counter (OTC) medical expenses for items used solely to treat a medical condition (such as aspirin, pain relievers, decongestants, cough suppressant, etc)
Physical Therapy
Psychiatric care
Psychologist
Special education (for learning disabilities)
Speech Therapy
Stop-smoking programs (including nicotine gum or patches)
Vasectomy
Weight-loss program (to treat a specific disease diagnosed by a physician)
Wheelchair
Ineligible medical expenses may include:

Advance payment for future medical care
Amounts reimbursed from any other source (such as other health coverage or a Flexible Spending Account)
Babysitting, child care and nursing services for a normal, healthy baby
Betting (including lottery, gaming, chips, or track wagers)
Cosmetic surgery (unless due to trauma or disease)
Diaper service
Electrolysis or hair removal
Funeral expenses
Gasoline
Health club dues
Household help
Illegal operations and treatments
Maternity clothes
Meals
Nutritional supplements
Over-the-counter drugs and medicines other than those used exclusively for medical purposes
Personal use items (such as toothbrush, toothpaste)
Swimming lessons
Teeth whitening
Weight loss program (unless prescribed to treat a specific disease)

Here is what you need to know about the HSA contribution limits for the 2022 calendar year:

• An individual with coverage under a qualifying high-deductible health plan (deductible not less than $1,400) can contribute up to $3,650 — up $50 from 2021 — for the year to their HSA. The maximum out-of-pocket has been capped at $7,050.
• An individual with family coverage under a qualifying high-deductible health plan (deductible not less than $2,800) can contribute up to $7,300 — up $100 from 2021 — for the year. The maximum out-of-pocket has been capped at $14,100.

The guidance also includes the 2022 limit for health reimbursement arrangements (HRAs), which remains $1,800.

The new limits increase the pre-tax amounts individuals and families may contribute to their HSA over 2021 limits by $50 and $100, respectively, though the minimum deductible for qualifying health plans remains the same from 2021 to 2022. Out-of-pocket maximums are up $50 for individuals and $100 for families over 2021 limits.
Please note: Individuals who have an HSA and are over age 55 can also contribute an extra $1,000 annually, in what is commonly called a “catch-up” contribution.
For more detailed information on HSAs and taxes, visit the U.S. Department of Treasury Web site at www.ustreas.gov or talk with your tax advisor.