Health Insurance
Myth: the lowest premium is the cheapest plan
When shopping for health coverage, many consumers look only at the monthly premium to find the best deal. A premium is the fixed recurring payment you make to keep your health coverage active. However, looking strictly for the lowest premium cheapest plan can leave you facing large, unexpected medical bills when you get sick or hurt.
Is the lowest premium plan always the cheapest option?
A plan with the lowest premium is rarely the cheapest option overall if you need medical care during the year. Your total spending depends heavily on your cost-sharing requirements, which include your deductible, copayments, and coinsurance.
A deductible is the initial amount you must pay out of pocket for covered medical services before your plan begins paying. A copay is a flat fee you pay for a specific service, such as an office visit. Coinsurance is the percentage of medical costs you share with your plan after paying your deductible. A plan with a low monthly premium may have much higher copays, coinsurance percentages, and deductibles than a plan with a higher premium. If you require frequent doctor visits, diagnostic tests, or regular prescriptions, your out-of-pocket costs can quickly exceed the monthly savings from a cheaper premium.
Related reading: HMO vs. PPO vs. EPO: which plan type is right for me? · What does health insurance usually not cover?
How do plan types and coverage limits change your real costs?
The type of policy you select directly controls what services are covered and how much financial protection you receive. Health plans fall into distinct categories that offer different levels of coverage and follow different regulatory standards.
Major medical plans provide traditional health coverage, such as the plans you obtain through an employer or buy through HealthCare.gov. These include Health Maintenance Organizations (HMOs), Preferred Provider Organizations (PPOs), and Exclusive Provider Organizations (EPOs). Major medical plans cover a wide range of services if you get sick or hurt, and they are required to follow comprehensive state and federal rules.
In contrast, other types of health coverage offer far fewer benefits and maintain lower coverage amounts. These non-major medical plans often do not have to follow state or federal rules. Because they do not cover a wide range of treatments, you may be left paying the full cost of medical care out of your own pocket if you experience a major injury or illness.
| Coverage Feature | Major Medical Plans (HMO, PPO, EPO) | Other Health Coverage Plans |
|---|---|---|
| Scope of Services | Covers a wide range of health services if you get sick or hurt | Offers fewer benefits and does not cover a wide range of services |
| Coverage Limits | Standard coverage amounts under state and federal rules | Lower coverage amounts that limit how much the plan pays |
| Regulatory Oversight | Subject to strict state and federal rules | Often does not have to follow state or federal rules |
| Common Sources | Employer benefits or purchased through HealthCare.gov | Alternative private health coverage arrangements |
Why does your provider network determine what you pay?
Your plan’s network directly determines how much you must pay whenever you visit a doctor, clinic, or hospital. A provider network is the group of doctors, medical facilities, and specialists contracted with your health plan to provide care at agreed-upon rates.
Health plans usually want or require you to use their in-network providers. If you visit a doctor or facility outside your plan’s network, you will pay more of the cost. Before scheduling appointments, you should contact your health plan or check its website to confirm that your specific doctors, specialists, and treatment facilities are participating in the network.
Networks also involve specific rules for accessing specialized care. Many plans require you to get a referral from your primary care doctor before you can see a specialist. Even after receiving a referral, you must verify that the recommended specialist and facility are in your network, as your doctor might not know which providers your plan covers. Additionally, many plans require preauthorization, which is an official pre-approval from the plan before you receive certain treatments. If you receive care without required preauthorization, your plan might refuse to pay for the service entirely, or you may be forced to pay a much larger share of the bill.
How does where you receive care impact your medical bills?
The amount of money you spend on an appointment varies significantly depending on the setting where you receive care. Understanding your options helps you avoid unnecessary expenses.
Most plans cover multiple types of appointments, ranging from virtual consultations to emergency room care:
- Nurse advice lines and online appointments: These options are usually the cheapest ways to receive medical evaluation and are often provided for free by health plans.
- Doctor’s office visits: Standard visits to an in-network primary physician offer affordable routine care and preventive services.
- Urgent care clinics: Urgent care centers treat non-life-threatening issues and are usually much cheaper than emergency rooms. Consumers should not confuse urgent care clinics with freestanding emergency rooms that are not located inside hospitals, as emergency facilities charge significantly higher rates.
- Hospital emergency rooms: The emergency room is the most expensive place to receive medical treatment and should be reserved for true emergencies.
What happens when you face surprise medical bills or coverage denials?
Unexpected bills and coverage disputes can quickly turn an apparently inexpensive health plan into a major financial burden. Knowing your legal protections and administrative rights helps protect your finances.
Surprise billing, also known as balance billing, happens when you are treated by an out-of-network provider or facility without your knowledge or choice. This can occur if you are transported by an ambulance to an out-of-network hospital during an emergency, or if you schedule surgery at an in-network facility but an out-of-network medical professional participates in your procedure. The provider then bills you for the difference between what your plan agreed to pay and the total amount the provider billed.
In states like Washington, state-regulated plans protect consumers from balance billing during emergency care, emergency behavioral health services, scheduled procedures at certain in-network facilities (such as hospitals or surgical centers), and covered ground ambulance transports. Under these protections, you cannot be billed more than your normal in-network cost-sharing amount, which includes your standard copays, coinsurance, and deductibles. Any amount you pay for these protected services must count toward your deductible and your annual out-of-pocket limit. Medical providers and facilities must refund any overpayment within 30 business days.
If your health plan denies coverage for a recommended treatment by claiming it is not medically necessary, you have the right to use your plan’s appeal process. If the insurer upholds its denial, you can request an independent review of the decision. Similar appeal rights apply to prescription medications. If your insurer does not cover a drug or your provider prescribes it off-label, you or your doctor can submit an exception request. Insurers must generally respond within three days, or within one day for urgent situations; if they fail to respond within these deadlines, the prescription is automatically approved. If an exception request is denied, you can appeal to an independent review organization.
Key takeaways
- The lowest premium cheapest plan myth ignores major out-of-pocket costs like deductibles, copays, and coinsurance.
- Major medical plans cover a wide range of services under strict rules, while alternative plans often provide fewer benefits and lower coverage limits.
- Receiving care outside your provider network or skipping required preauthorization can dramatically increase what you owe.
- Choosing lower-cost care settings, such as nurse lines or urgent care clinics instead of emergency rooms, saves money.
- Consumers have rights to appeal medical denials through independent reviews and are protected against surprise billing for covered emergency situations in regulated plans.
Common mistakes to avoid
- Buying non-major medical coverage without checking limits: Purchasing a low-cost plan that offers fewer benefits leaves you vulnerable to high medical bills if you suffer a serious illness.
- Skipping preauthorization or referrals: Failing to get prior approval from your plan before a procedure can lead to denied claims or higher cost-sharing.
- Assuming referred specialists are in-network: Your primary doctor may refer you to a specialist who is out of your network, resulting in higher out-of-pocket costs.
- Using the emergency room for minor issues: Emergency rooms are the most expensive care setting, whereas nurse lines and urgent care clinics provide much cheaper care.
- Paying unexpected balance bills immediately: If you receive a surprise bill from an out-of-network provider for emergency care, contact the provider or your state insurance department before paying.
Frequently asked questions
Why is the plan with the lowest premium not always the cheapest option?
A low-premium plan can result in higher total spending if it requires large out-of-pocket payments for deductibles, copays, and coinsurance. It may also provide fewer benefits or require you to pay significantly more for out-of-network care.
What should you check about your doctors before picking a plan?
You should call the health plan or check its provider directory to confirm your doctors, specialists, and facilities are in the network. Using an out-of-network provider means you will pay more of the cost yourself.
What happens if you do not get a required referral or preauthorization?
If you do not obtain a referral from your primary doctor or fail to get preauthorization from your plan before receiving treatment, your plan may refuse to pay for the care or require you to pay a higher share of the bill.
Can you appeal if your health plan denies coverage for a treatment?
Yes, you can use your plan’s appeal process and request an independent review if your insurer denies a health care service as not medically necessary. You can also request an independent review if an exception request for a prescription drug is denied.
