Shopping For Health Insurance

insurance agent


The best ways to shop for health insurance for you and your family.

Health insurance these days can be quite complicated and difficult to shop for. Too often I have found that people will try to simplify the process by setting one or two parameters in choosing a plan. The one they choose most often and most incorrectly is price. 

To shop by price alone can be a very big mistake and lead to financial disaster in the future. I am not saying that you should spend outside your budget, but if price is your only guiding factor you could end up very disappointed. There are many important parts to a health insurance plan that can determine its value to you.

Price is far more important when you are trying to buy health insurance on your own. You may have become accustomed to having an employer pay a large portion of the monthly premiums for you, as most Americans have. Your portion of the premium may have been quite affordable. Or if you are receiving a subsidy through a government program such as Medicaid, Medicare or the Affordable Care Act, also call The Marketplace. Again, you are getting assistance to help cover the costs of your health insurance plan. 

When you shop privately for an individual policy you are literally getting what you pay for. There is no other entity or person paying any portion of the costs. When you get support from an employer or the government you are getting a full priced plan at a discount, so to speak. But, when you take that same money you are spending out of your own pocket and buy your own health insurance your buying power decreases significantly. You can't take that $100/mo. you spent on your employer coverage and get the same or similar coverage on your own. 

Insurance companies have to limit their risk. So, the less you pay for a private or individual plan the less you get. That could translate to a higher deductible, smaller network, higher coinsurance rates, no limit to your out of pocket expenses, no copays, etc. There is always a trade off on price for benefits. I have had so many people become discouraged when they see the prices on the private market and immediately reach for the cheapest plan they can find without finding out what they are actually getting.

If you were at the grocery store and you were choosing a cereal and you saw two boxes, same size, but very different prices. You would likely buy the least expensive box, right? Of course. Who wouldn’t? But, if you were to read the box to find out what you were actually getting in the same size box for less money you may discover you are actually getting less. Wait! What? The boxes are the same size. They look the same. However, on closer inspection you find that the lower priced box actually just has less cereal. In fact the food companies have been doing that to us for years. They keep the same price, make the front of the box the same size, but when you turn it sideways it is thinner than ever before. And if you read the weights on the boxes you will find out there is less cereal in the box despite its appearance.

With health insurance it's the same. When the sales rep tells you, "It's covered!" What exactly does that mean? Covered just once? !00% every time. Before I meet the deductible? After? Is there a waiting period? I have lost count of the number of times clients said "They told me if was covered" in referring to their last insurance agent. Yes, I am sure they did. But, you did not clarify what that meant.

Insurance companies are not charities. They actually have a very big fiduciary responsibility to its clients. They have to mitigate risk, hold onto cash and be able to pay out huge sums of money in the event of a massive disaster. Think of the thousands and thousands of people that become ill or injured during a natural disaster like a hurricane. They are seeing doctors and the doctors are filing claims. The insurance companies are paying out millions of dollars. They need to maintain their financial security in order to service their clients.

I am not saying they are doing this from the goodness of their hearts, insurance is obviously profitable. But, they can't be giving away the farm to help lower your person financial responsibility in regards to your health care. They have very complicated systems to determine what to charge for insurance from person to person so that everything stays balanced.

It’s not a secret and it’s not magic. It is just a mathematical equation. You want a certain amount of risk shifted to the insurance company and they want to make money do it. So the more risk you want covered the more expensive it is. Again, that does not mean you have to overspend to get good health insurance. It does mean that should find out why the insurance is priced the way it is if it is very cheap compared to other plans. There is something missing from your coverage. There is something in the policy that limits the insurance company’s financial responsibility. Which means the rest falls on you.

So, do shop wisely. Stay as close to your budget as possible. And if it seems too good to be true, it probably is. Ask the agent why is the insurance so cheap? There may be a good reason. Especially if it is a medically underwritten plan. That just means that you are going to go through a health questionnaire or a physical exam before you are allowed on the plan. That is how the insurance companies can limit their risk. If everyone on the plan is relatively healthy then it is likely they will pay out fewer claims than if everybody could enroll anytime.

Check out another of our articles on Asset Protection.