What type of health insurance plan is best for freelancers?

The Freelancer's Guide to Health Insurance

With the open enrollment period for purchasing individual health insurance on the federal and state exchanges starting on November 1, I’m doing a series of posts to make it easier for freelancers to make informed choices about their healthcare. Stay tuned for more installments throughout the month of October.

Other installments:

Healthcare.gov is a good tool for comparing several different healthcare plans from a numbers standpoint, allowing you to estimate the costs of several medical scenarios like pregnancy or a simple fracture, the costs of specific prescription drugs, and your potential overall annual out-of-pocket expenses. But the number of different options the site presents can be overwhelming, particularly if multiple companies offer insurance in your state. How do you decide when there two dozen different plans to choose from?

Every health insurance plan is unique, but certain plans share some of the same characteristics that can help you narrow down your options to make a decision. Let’s say that limiting your out-of-pocket costs is the most important factor for you in choosing a plan. In that case, you can eliminate the kinds of plans that don’t cover a high percentage of out-of-pocket costs and focus on the ones that do. Or maybe you travel a lot, and want to ensure you will be covered if you need medical care in another state. There are some types of plans that will cover you in this case, and some that definitely won’t.

There’s more to health insurance than the face value of the premium cost and amount of coverage. When freelancers choose a health insurance plan, they should make sure that they are picking the type of plan that meets their needs.

When you search for plans on Healthcare.gov, you see something like this at the top of each result:

Medica plan description

The bold text on top tells you the insurer and the plan name, but it doesn’t give you much information about the plan itself. For that, you need to look at the smaller text on the next line. The two boxes I’ve highlighted in orange respectively represent the plan tier and plan type.

Plan tiers are both well-known and intuitive: lower-tier (bronze and silver) plans charge pay less in monthly premiums and require you to pay more out-of-pocket costs for health care, and higher-tier (gold and platinum) plans charge more in premiums and cover more costs in return. Most people know much less about the different plan types and how different types of plans affect their healthcare options.

The basic concept behind plan types is that every insurance plan has a network of doctors and facilities who have agreed to provide care for that plan’s members at a discount. For any plan you choose, it will be less expensive to see a doctor who is in that plan’s network than one who is outside. What the plan type determines is how much more expensive those out-of-network costs will be and how much control the insurer has over which doctors you can see.

If you have doctors that you like, and you’d prefer to keep seeing them, you should make sure before you choose a plan that they are in that plan’s network. For every plan type it will be more costly to see doctors who are outside of your network, and some plans may not provide out-of-network coverage at all. All plans must provide coverage for emergency services regardless of whether they are in- or out-of-network, but they can (and normally do) cover less of those services if they are out-of-network, resulting in higher out-of-pocket expenses. Whether or not the nearest hospital is in your network is probably going to be the last thing on your mind in an emergency, but unfortunately because of the system we have today, it can matter a great deal when the bill arrives.

The other main distinction between different types of plans is whether or not you need a referral from your primary doctor (usually referred to as your primary care physician, or PCP) to see a specialist like an orthopedician or a gynecologist. This extra step reduces costs for the insurance company but can make it cumbersome to receive the care you need, particularly if you’ve recently moved or switched doctors. I know this from personal experience: when I needed to see a specialist for allergies shortly after moving to Massachusetts, my new insurance plan required me to choose a primary care physician and see him to get a referral before I could even make an appointment with the specialist.

Understanding different plan types

Four types of plans exist on the national health insurance exchange which are commonly known by their initials: EPO, HMO, POS, and PPO. Getting familiar with the characteristics of each of these plan types will make it easier to find a plan that matches your needs.

Exclusive Provider Organizations (EPOs) only cover care within that plan’s network. Most of the time you won’t need a referral from your primary doctor to see a specialist, but everything must be within the plan network to be covered. Only use this type of plan if you’re sure you can get everything you need in the network.

Health Maintenance Organizations (HMOs), like EPOs, only cover care within the plan’s network. These are the most restrictive plan types because unlike EPOs they require referrals from a primary doctor to see specialists, and coverage is often limited to a single state or region. If you travel often for your work, an HMO is probably not the right type of plan for you.

Point-of-Service (POS) is a type of plan that offers coverage outside of its network, though at a higher cost than inside the network. You need a referral from your doctor to see a specialist.

Preferred Provider Organizations (PPOs) give you the most flexibility: coverage is available outside of the plan’s network (albeit with higher out-of-pocket costs) and you don’t need a referral to see a specialist.

To sum up the differences between plan types:

comparison of plan types

The type of health insurance plan you have determines not only how much you pay for healthcare, but also where you can go and who provides it. As a freelancer, it’s important to think carefully when choosing a health insurance plan about what type of plan best suits your healthcare needs. Health insurance will work for you only if you can be sure your coverage will be there when you need it.