Navigating the maze of healthcare plans can be a daunting task. Between the jargon, fine print and confusing acronyms, picking the right plan can feel incredibly overwhelming. In fact, the complexity of healthcare plans often leads people to spend more money than necessary. You might think that opting for a plan with a low deductible or shiny label like "Platinum" is the best choice, but the answer may surprise you.

At Sesame, we believe that healthcare transparency and education are key to a healthy body (and a healthy wallet). That's why we've laid out a few tips to help you make the best choice when it comes to picking a health plan.

1. Understand What the Acronyms Mean

Let's start with the basics. Health insurance plans often come with a load of acronyms like PPO, HDHP, HMO and others. In order to make an informed decision about your health plan, it’s essential to understand the abbreviations that are splashed across your enrollment papers. We’ve broken down a handful of the most common (and most important) terms that you’ll encounter when deciding on a health insurance plan:

• Health Maintenance Organization (HMO): An HMO is a type of health insurance plan that typically only covers care from clinicians who are also a part of the HMO (in-network). This means that if you seek care from a physician or facility which is out-of-network, your HMO may not cover the cost unless it is an emergency.
  
• Point of Service (POS): A POS is a type of health insurance plan where you pay less if you use doctors, hospitals, and other health care providers that belong to the plan’s network. POS plans require you to get a referral from your primary care doctor in order to see a specialist. Unlike an HMO, a POS will cover out-of-network providers, but they will likely cost you more in the form of higher copays or cost sharing. While POS plans typically cost less than PPO plans (below), they often offer fewer choices in terms of in-network providers.
  
• Preferred Provider Organization (PPO): A PPO is a type of health insurance plan where you pay less if you seek care from clinicians who are in-network. You don’t need a referral to use out-of-network clinicians or facilities, but you will need to pay an additional fee to do so. With a PPO, you typically have a low deductible but pay higher premiums.
  
• High-Deductible Health Plan (HDHP): A HDHP is a health insurance plan which has a high deductible and low monthly premiums (as of 2022, the IRS defines an HDHP as any plan with a deductible of at least $1,400 for an individual or $2,800 for a family). With an HDHP, you typically pay out-of-pocket for doctor visits and prescriptions until you reach your deductible. In theory, HDHPs can actually give consumers more control over healthcare costs because they incentivize you to shop around for the best price while keeping monthly premiums low. You can also combine your HDHP with a savings plan such as a health savings account (HSA), which allows you to put pre-tax dollars aside to put towards health care expenses. Of course, the challenge is actually shopping around and finding real, actionable prices for care. That’s where we come in at Sesame.
  
• Health Savings Account (HSA): An HSA is a type of savings account that lets you set aside pre-tax income to pay for qualified medical expenses. By using untaxed dollars in an HSA to pay for deductibles, copays and other expenses, you can lower your overall healthcare costs. It’s normally paired with a HDHP.
  
• Flexible Spending Account (FSA): An FSA is a special account which you deposit pre-tax money into in order to pay for certain out-of-pocket healthcare costs. This could include co-pays, deductibles, some drugs and more. Using pre-tax dollars in your FSA to pay for these expenses can result in significant savings. However, it's important to plan carefully as most FSAs have a use-it-or-lose-it policy, meaning you must use all the money in the account within the plan year or lose remaining FSA funds.
  
  

2. Don't Fall Victim to Flowery Language

Marketing plays a big role in the way healthcare plans are presented. Words like "Platinum," "Gold," or "Premium" may lead you to believe that the more expensive plans are inherently better. Most healthcare plans also use what’s called a Good-Better-Best model (GBB), a tiered pricing approach that can be seen when you purchase flights (economy, business, first class), credit cards (green, gold, platinum, black) and more. The reality is that these plans are designed to push consumers away from the good option and towards the better and best options.

But the truth is, a more expensive health plan isn't always the best plan for you. The key is to take a step back and analyze the benefits. What are your healthcare needs? Are you a healthy individual who only needs routine and preventive care, or do you have a chronic condition that requires regular visits to a specialist and high-priced medications? Do you travel frequently and find yourself seeking out-of-network care more often than not? Look past the marketing language and focus on the substance of the plan.

3. Don't Let Inertia Push You Towards Renewal

It's easy to fall into the trap of automatically renewing your current plan without considering other options. This is a phenomenon known as consumer inertia, and it occurs when consumers unconsciously use the same brands, stores or products based on their past consumption experiences. However, healthcare consumer inertia could lead you to overlook potentially better (and often cheaper) alternatives.

For example, a 2015 study from the National Bureau of Economic Research (NBER) on enrollment data in California’s ACA program found that about 79% of consumers chose the same plan, 91% chose a plan from the same tier, and 87% chose a plan from the same insurer as in the previous year. The NBER estimated that consumers were foregoing an average of $2,324 in annual surplus by remaining in their previous plan rather than making a new, and optimizing, choice. Take the time to review your healthcare needs and explore the options available to you - don't let inertia cost you money.

4. Forecast Your Healthcare Needs

Forecasting doesn't mean you need to predict the future—it's about planning based on what you know. People are often poor at predicting what will happen. This is a cognitive bias known as the availability heuristic, and it occurs when people make a decision based on the most easily accessible information.

For example, the odds of dying in a motor vehicle crash are 1 in 107, while the odds of dying in a plane crash are about 1 in 11 million - but studies show that people are far more likely to have a fear of flying than a fear of driving. This is because plane crashes receive far more attention and media coverage than car accidents, so our minds assume that the likelihood of aviary tragedy is likely. Unfortunately, our minds work the same way when it comes to picking a health plan. We immediately recall anecdotal evidence from a friend who developed a rare cancer or a news story about someone being struck by lightning, and assume that the worst will happen to us as well. This mindset often causes us to choose a low-deductible plan - even though it’s often not necessary - out of fear that we will be unprepared in the event of an emergency.

Rather than making fear-based decisions, consider what your known or planned health expenses will be for the coming year. If you're planning on having a baby, or if you're scheduling a major surgery, you might want to look at a plan with a lower deductible.

However, if you're generally healthy, a high-deductible plan could be more cost-effective in the long run. You pay more health care costs yourself before the insurance company starts to pay its share, but if you aren’t on many prescription medications or living with a chronic illness that requires frequent visits to the doctor, your out-of-pocket spending may not be as high as you think. You can calculate your out-of-pocket spending by shopping around for cash-pay care (a model which removes health insurance from the equation and connects you directly with healthcare providers). On Sesame, for example, the average price of a primary care appointment in 2022 was $37. Once you’ve done a rough forecast of the care that you’ll need for the year, add up the prices and see whether or not it makes sense to switch plans or stay on your existing plan - the answer may surprise you.

Conclusion

Choosing a healthcare plan isn't a decision to be taken lightly, but it doesn't have to be as daunting as it seems. By understanding the terminology, looking past marketing lingo, considering new options each year and forecasting your healthcare needs, you can make an informed choice that fits your situation and saves you money in the long run.

Cash-pay marketplaces like Sesame can also be a great way to save money on healthcare expenses, especially if you’re on a high-deductible plan. This type of model offers clear pricing and direct, transparent relationships between patients and providers, and shopping around enables you to find the best care at the lowest price. By taking control of your healthcare choices and costs, you can not only achieve considerable savings but also cultivate a healthcare experience that prioritizes your personal health needs and financial capacities.

Sources:

• Bar-Hillel, M. “Subjective Probability Judgments.” International Encyclopedia of the Social & Behavioral Sciences.
  
• Handel, B. “Adverse Selection and Inertia in Health Insurance Markets: When Nudging Hurts.” American Economic Review.
  
• Saltzman, Evan and Swanson, Ashley and Polsky, Daniel.”Inertia, Market Power, and Adverse Selection in Health Insurance: Evidence from the ACA Exchanges.” National Bureau of Economic Research.