Insurance Tip #6: Choosing the right health care plan is a critical decision

This post is part of a series where personal finance expert Dan Solin provides 10 insurance tips no one else will tell you. See all 10, plus one bonus tip!

I am for universal health care. The present system -- which leaves almost 50 million Americans (16% of the population) uninsured -- is a confusing mess.

You have many options for selecting health insurance. The one you pick may be your most important financial decision.

If you are covered at work, you may be able to select from various options. Check out the coverages and costs carefully. My advice generally is to focus on big ticket items. It may not be worth the additional premium to cover smaller costs.

If you need to purchase individual insurance, things get more complicated.

If you can afford the higher premiums, check out indemnity insurance. It lets you pick your own doctors and hospitals and to consult with specialists without being referred by your primary care physician.

Since indemnity policies often have a limit on lifetime benefits, be sure the cap is realistic. Personally, I would want a $2 million cap, but many experts believe $1 million is sufficient.

Most Americans have "managed care" plans. These plans are more cost effective, but they require you to see providers who are part of the plan network.
There are various kinds of managed care plans, including HMOs, preferred provider organizations and point-of-service plans.

As a general rule, HMOs are the least expensive option.

Finally, you need to be aware of coverage that you can direct yourself. These plans include:
  • health savings accounts
  • health reimbursement arrangements
  • flexible spending arrangements
  • Archer medical savings accounts

    For an excellent discussion of your health care options, check out this article.

    I told you it was a mess!

    See 10 more insurance tips from Dan.

    Dan Solin is the author of The Smartest Investment Book You'll Ever Read (Perigee Books, 2006) and The Smartest 401(k) Book You'll Ever Read (Perigee Books, 2008).

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