7 Ways Misinterpreting Your Healthcare Plan Is Hurting Your Wallet

Gabrielle Olya

Many Americans enroll in a health insurance plan without taking the time to really understand what the plan does and doesn’t cover, which benefits they might be eligible for and what programs they might qualify for that help make healthcare more affordable. A recent survey of 1,500 Americans conducted by Policygenius, a digital marketplace where you can compare and buy all types of insurance, found that most respondents lack health literacy — and in some cases, this lack of understanding can end up hurting your bank account, as well as your health.

Last updated: Dec. 6, 2019

Americans Are Avoiding Treatment Because They Don't Know What Their Insurance Covers

The Policygenius survey found that more than 1 in 4 Americans have avoided getting care or treatment because they were unsure if their health insurance covered it. Low-income Americans were even more likely to avoid treatment for this reason — 38.9% of Americans whose household income is less than $35,000 said they have avoided care or treatment because they were unsure what their insurance covers.

How This Can Hurt Your Wallet

“Going to the doctor for checkups or even getting a flu shot are examples of preventive healthcare — and your health insurance should cover them,” said Myles Ma, a healthcare expert at Policygenius. “If you don’t know what your health insurance covers and [you] stop going for your annual physical, you may develop health problems that could have been easily preventable.”

These health problems can end up being expensive to treat.

What You Should Do

Read through your health insurance plan to get a full understanding of what it covers. Most healthcare plans cover preventive care such as shots and screening tests, meaning you won’t have to pay anything out-of-pocket for these services.

Most Americans Don't Know When Open Enrollment Takes Place

Americans who don’t receive their insurance through their employers, or opt not to, can register for insurance through the federal health insurance marketplace. Registration for 2020 began on Nov. 1 and ends Dec. 15 — important dates to know for anyone seeking coverage for next year. However, the survey found that only 11.9% of respondents know when open enrollment takes place.

How This Can Hurt Your Wallet

“It’s important for everyone to be aware of the open enrollment deadline because it’s the only time of year you can get health insurance — unless you have a qualifying life event, like turning 26 or getting a new job,” Ma said. “If you miss the open enrollment deadline, you may be able to get a short-term health plan. However, these may not cover the 10 essential benefits required by the Affordable Care Act.”

These benefits include ambulatory services, hospitalization and maternity care.

“While [short-term health plans] are cheaper upfront, you may end up with less coverage — and higher out-of-pocket bills — than you would under a comprehensive health insurance plan,” Ma added.

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What You Should Do

If you haven’t enrolled in health insurance for 2020 yet, make sure you don’t miss the Dec. 15 deadline. Whether you are applying for health insurance for the first time or would like to renew or change your policy, you need to register by this deadline. You can apply online at Healthcare.gov.

Many Americans Aren't Taking Advantage of HSAs

Some plans available through the federal health insurance marketplace are eligible for health savings accounts. Individuals who get their insurance elsewhere are also eligible if they have a high-deductible plan, aren’t enrolled in Medicare and are not claimed as a dependent on someone else’s tax return.

This tax-privileged savings account can help people cover medical expenses, but many Americans don’t know about HSAs. The survey found that only 26.4% of respondents know that you can invest money in an HSA.

How This Can Hurt Your Wallet

Health savings accounts allow you to take money out of your paycheck before taxes and save it for health expenses. This money can be used to pay for medical expenses tax-free. If you don’t end up needing the money, you can invest it and these funds will grow tax-free as well.

“This triple tax advantage is why financial advisors are big fans of HSAs,” Ma said. “They let you save money on health expenses today and save for retirement in the future.”

Not understanding HSAs can cause you to miss out on the tax advantages of the account.

What You Should Do

Your health insurance plan, whether it’s through your employer or the marketplace, should clearly denote if it is HSA eligible. If it is, you should consider opening an account. For 2020, you can contribute up to $3,550 for self-only coverage and up to $7,100 for family coverage. If you don’t spend it all, the funds will roll over into the next year.

Less Than One-Fifth of Americans Know About the Premium Tax Credit

There are a couple of health insurance subsidies Americans might be eligible for, one of which is the advance premium tax credit. According to Ma, this is a subsidy designed to help people with low or moderate incomes afford health insurance by having the federal government pay the tax credit directly to the insurance carrier each month, which can lower premium costs.

“To be eligible, you must meet certain qualifications, including things like having an annual household income between 100% and 400% of the federal poverty line for the size of your family, not being claimed as a dependent by another person or having enrolled in a qualified health insurance plan,” Ma said.

The survey found that only 15.6% of respondents without health insurance are aware that they can get aid.

How This Can Hurt Your Wallet

The majority of Americans who don’t have health insurance don’t know they could qualify for aid — even though they probably would. A 2019 report from the Centers for Medicare & Medicaid Services found that about 87% of enrollees in a federal- or state-based health insurance exchange received an advance premium tax credit. The average amount of this credit for 2019 enrollees was $514.01, the report found.

Missing out on this tax credit is like leaving free money on the table.

What You Should Do

When you apply for health insurance through the marketplace, you will find out automatically if you qualify for the premium tax credit. The amount you qualify for will be based on your income. You can choose to apply all or some of this amount to your monthly insurance premium.

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There Are Other Forms of Aid You Might Not Know About

The advanced premium tax credit is just one of the ways you can receive aid for health insurance payments. You might also qualify for a cost-sharing reduction.

“People can also consider other programs, like Medicaid and the Children’s Health Insurance Program (CHIP),” Ma said. “In order to be eligible for these programs, you must meet certain income requirements, have children, be pregnant or have a disability.”

How This Can Hurt Your Wallet

Not knowing about all your options might mean you enroll in a more expensive healthcare plan — or neglect to enroll in a healthcare plan at all. If the latter is the case, that means you’ll have to pay for all medical expenses out-of-pocket.

“The third annual Policygenius healthcare survey shows that there is a general sense of confusion around healthcare, which could be contributing to why people may not know about these options,” Ma said. “Health insurance is confusing on its own, but all the political noise around health insurance coverage may be contributing to people’s lack of knowledge.”

What You Should Do

In addition to helping you find out if you qualify for the premium tax credit, applying through the marketplace also lets you automatically find out if you qualify for cost-sharing reductions. This is based on your household and income information.

Applying for Medicaid or CHIP is done through your state rather than the federal marketplace. Many states let you apply for these programs online.

Most Americans Don't Know All of the Benefits Included With Their Healthcare Plan

Policygenius asked Americans which services are covered by all Healthcare.gov plans, and most did not know all the benefits that were included. For example, less than 25% of respondents knew that the plans cover ambulatory services, while only 37.7% knew they cover hospitalization. Other categories revealed a similar lack of awareness. One-third or fewer respondents knew that Healthcare.gov plans cover each of the following categories: mental healthcare, maternity and newborn care, substance abuse and rehabilitation, and pediatric care. Nearly half of respondents — 44% — believed that Healthcare.gov plans cover none of these benefits. In fact, the plans must cover all of them under the Affordable Care Act.

How This Can Hurt Your Wallet

Not knowing which health benefits are covered by insurance plans might cause people to avoid treatment or avoid enrolling altogether.

“By knowing what benefits are covered by their health insurance, people can get the coverage they need when they need it — instead of waiting for health issues to be so bad they warrant a trip to the emergency room,” Ma said. “For example, preventive care like a flu shot should be fully covered by most health insurance plans. Getting a flu shot, rather than getting the flu, can save hours of time lost from work, and possibly prevent even more serious consequences from getting sick.”

What You Should Do

If your healthcare plan covers preventive care, you should definitely take advantage of it. Also, check to see the copays required for other types of treatment before deciding to forgo treatment. The copays might be less than you think.

Less Than Two-Thirds of Americans Can Correctly Define Basic Health Insurance Terms

The survey asked respondents to define very basic health insurance terms such as “premiums,” “copays” and “deductibles,” but the vast majority couldn’t define all three. Only 29.3% of respondents got all three right.

How This Can Hurt Your Wallet

Not understanding these terms can lead to financial problems due to lack of planning, Ma said.

“Specifically, your premium — the amount you pay each month — affects your monthly budget,” he said. “And in the event of a medical emergency, not having enough saved up to cover your deductible — how much you need to pay before your coverage kicks in — can lead to debt.”

What You Should Do

You might not master all the ins and outs of your particular healthcare plan, but you should definitely familiarize yourself with basic healthcare terms. A “premium” is the amount you pay each month for insurance. A “copay” is the fixed amount you pay for a covered expense and a “deductible” is the maximum amount you will pay out-of-pocket for healthcare costs in a given year before coverage kicks in.

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This article originally appeared on GOBankingRates.com: 7 Ways Misinterpreting Your Healthcare Plan Is Hurting Your Wallet