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Health, dental, and vision insurance: A comprehensive guide

At a glance:

The ways we pay for healthcare have changed a lot in the last 20 years. New legislation, products, and means of saving money have sprung up to help us with the huge rise in healthcare costs.

The latest is the Affordable Care Act (ACA), which is undergoing modification as we speak.

Let’s consider some common forms of insurance used for healthcare expenses, and we will look briefly at how flexible spending accounts and health savings accounts work.

A doctor tends to patients at his office. Some family doctors are ditching insurance for a simpler approach by charging patients a monthly fee. (Photo: AP Photo/Jeff Roberson, File)
A doctor tends to patients at his office. Some family doctors are ditching insurance for a simpler approach by charging patients a monthly fee. (Photo: AP Photo/Jeff Roberson, File)

What to consider when choosing a health insurance plan

When it comes to buying health insurance, there are many choices. Your employer may offer health insurance or you may be able to get it through your spouse's employer. If not, you can buy insurance through an insurance agent or through the state or federal health insurance marketplaces.

Employer-based plans may not have very much flexibility, although larger companies may offer several different plans. Individual policies purchased through an agent or in the health insurance marketplaces offer much more flexibility in terms of the types of coverage.

They may be traditional major medical plans or health maintenance organizations (HMOs) or preferred provider organizations (PPOs). Plans with richer benefits and lower deductibles have higher premiums.

Limitations on coverage

Now that the Affordable Care Act is the law, insurance companies must provide consumers with pre-existing medical conditions with insurance.

The pre-existing coverage rule does not apply to "grandfathered" individual health insurance policies. A grandfathered policy is a policy bought on or before March 23, 2010 that has not been changed to reduce benefits or increase costs to consumers. Insurance companies cannot terminate coverage unless due to fraud or failure to pay premiums or place limits on essential health benefits such as emergency services, hospitalization, prescription drugs, lab tests and outpatient services.

Insurance companies must provide coverage to consumers with pre-existing health conditions, and that coverage cannot cost more than comparable coverage for someone without that condition. In addition, insurance coverage cannot charge women more than men. Mental health coverage must be included in the essential health benefits provided by insurance companies.

Restrictions on access

Health insurance plans may restrict access to certain doctors, hospitals or labs. Certain types of insurance policies such as HMOs or PPOs, provide a list of doctors and hospitals within their network that are available for lower co-pays. You can see doctors or receive care at out of network facilities, but you will have to pay a higher co-pay than you would have to pay if you went to in-network providers.

How to buy health insurance on exchanges

The health insurance exchanges, also known as insurance marketplaces, allow you to comparison shop for medical and dental insurance in a variety of ways. These include online, over the phone, or through representatives of community healthcare organizations in your community.

The federal government exchange is located at healthcare.gov online or via a toll-free line 24 hours a day, seven days a week at 1-800-318-2596. Many states have their own exchanges; if you live in a state without exchanges, you will use the federal exchange to find health insurance.

Healthcare.gov Website

If you have a computer at home or access to one at work or at a public library, the healthcare.gov Website makes it possible to shop for health insurance and sign up for a plan. The first step is to create an account, where you provide basic information about yourself and your family. You also provide information about your family income to determine if you are eligible for a subsidy that will help pay part of your monthly health insurance premium.

Once you've created an account, you can shop for insurance. The Website makes it easy to compare both medical and dental insurance with different levels of coverage and different premium costs. You can also shop for insurance without creating an account, but you cannot enroll yourself or your family without creating an account.

The enrollment process

The enrollment process is fairly simple once you've selected a health insurance policy. The marketplace where you enrolled—either the federal exchange or a state exchange—automatically sends your application to the insurance company with the policy you selected.

You can either pay the first month's premium immediately online or wait until your insurance company sends you your insurance documents and first month's premium bill. There can be a delay of several weeks between when you enroll and when you receive your documents and bill. If you want to verify your coverage, call the toll-free number provided to you when your enrollment is verified on the exchange site.

Insurance tiers

Under healthcare reform, insurance companies can offer five types of plans:

  • Bronze

  • Silver

  • Gold

  • Platinum

  • Catastrophic

Every plan must have similar benefits, but costs vary significantly based on which tier you select. Bronze and silver plans cost less per month, but have higher deductibles and co-pays. They involve higher out-of-pocket costs if you need a lot of healthcare in a given year.

If you select a gold or platinum plan, your monthly premiums will be higher, but you will have lower deductibles, co-pays and ultimately will pay less if you consume a lot of healthcare. You have to decide what works best for you — if it makes sense to spend more money to get a better plan or if you'd rather have a lower premium and pay more for care. Catastrophic plans are bare-bones plans that require you to pay all of your health care costs up to a specific amount, usually several thousands of dollars. They have few other benefits.

If you have a plan with a high deductible, you can open a health savings account. A health savings account allows you to save money before taxes to pay health care costs that aren't covered by your health insurance plan.

NOTE: Legislation in 2020 may change cost-sharing subsidies and coverage provisions.

The basics of dental insurance

Simply put, dental insurance is insurance that provides coverage for dental expenses, such as those rendered by dentists, orthodontists, periodontists, and other medical care providers. Traditional health insurance rarely covers dental expenses; thus the need for separate dental policies.

Dental plans exist as individual plans, family plans, and group plans. Group plans are most likely to be offered at your place of employment. Like vision insurance, dental insurance is added as a perk to some employee benefit plans.

What does it cover?

Dental insurance coverage varies according to plan. Basic procedures include fillings, oral surgery, periodontics, endodontics, and preventive treatment. Some plans offer preventive treatment for free. Major procedures usually include dentures, crowns, implants, cosmetics, and some surgeries.

Plans usually have limits on the number of dental visits and treatments that are covered. Some plans do not cover pre-existing conditions, and some plans only cover the least expensive option for a given treatment.

Fee schedule

Dental insurance companies have a fee schedule—a list of prices that they will pay for dental services and products. This schedule is based on what's called "usual and customary dental services." Dentists have fee schedules of their own, but when they contract with a dental insurance company, they agree to charge the insurance company's prices, which are almost always lower. Though they are getting paid less, they can usually count on drawing in more customers because of the lower cost and because the plan makes referrals to them.

Once they have accepted the insurance company's prices, they become an "in-network provider." If you have your coverage with this company, you are expected to use in-network providers. Some plans let you use out-of-network providers, but you will have to pay some or all of the cost of them, unless your insurance policy specifies otherwise.

Waiting periods and maximum benefit limits

Some dental insurance companies have waiting periods, in which you must wait a certain length of time before a service is covered. They may also have annual benefit limits, meaning they cap the amount that they will cover each year. At the end of the year, the cap disappears and the annual benefit limits starts over.

As with traditional health insurance plans, there may also be a deductible that you have to meet. There may also be separate annual benefit limits for different types of services, for example, orthodontist services. There may also be co-pays.

How much does it cost?

Dental insurance costs vary depending on the type of plan and how much coverage is offered. Costs are well below those of regular health insurance.

Because it is less expensive than traditional health insurance, some employers add it to their benefits packages to attract good employees.

The basics of vision insurance

Vision insurance is insurance that provides coverage for eye care services, such as those rendered by ophthalmologists, optometrists, and opticians. It is not traditional health insurance. Health insurance is typically limited to injuries and disease. But health insurance does not usually cover lenses and other forms of vision correction. Vision insurance fills in the gap created by this void.

Vision insurance is a wellness benefit.

Where can I get it?

Vision insurance is available on an individual basis or as part of a group plan. A group plan can be obtained at your company or through an association, or some other organization. It can also be obtained through government programs such as Medicare and Medicaid.

Some health insurance plans offer vision insurance as a value-added option (an add-on).

How much does vision insurance cost?

Vision insurance costs vary depending on how the plan is structured, how many people are in the plan, and sometimes, where they live. Costs are well below that of regular health insurance. Each product or service may have its own coverage limit or discount.

Because it is much less expensive than traditional health insurance, business owners sometimes add it to their benefits packages to attract and retain good employees.

What it covers

Vision insurance generally covers the following products and services:

  • Eye examinations (usually annual)

  • Eyeglass frames

  • Eyeglass lenses

  • Contact lenses

  • Fittings for eyeglasses and contact lenses

  • Laser vision correction (LASIK or PRK)

  • Treatment of some eye diseases and conditions

Vision insurance provides specific dollar amounts or discounts toward the products or services you buy. Whichever form it takes, you will be provided with the figures as part of your plan information. Each specified product or service will come with its own dollar amount or discount.

When you purchase vision insurance, you get access to a network of providers, such as optometrists and ophthalmologists, eyewear stores, and LASIK or PRK surgeons.

Vision insurance can cover LASIK surgery. (Photo: BSIP/Universal Images Group via Getty Images)
Vision insurance can cover LASIK surgery. (Photo: BSIP/Universal Images Group via Getty Images)

How do I pay for my vision insurance?

If you buy an individual vision plan, you will be billed for the premiums either monthly, quarterly, or annually.

If you buy vision insurance as part of a group at your job, you will pay for it through payroll deductions or through a flexible spending account (FSA). An FSA allows you to set aside money pre-tax for various qualified expenses.

Paying for vision care without vision insurance

Standard health insurance covers only a limited amount of eye care services and products. This is one reason that vision insurance exists in the first place. Those who use eye care services and products but who don't have vision insurance can cover only a certain portion of their costs through health insurance; the rest is paid out of pocket. However, if you have a flexible spending account or a health savings account, most or all of your expenses can be reimbursed. These are plans that allow you to set aside money tax-free to use for qualified medical expenses.

It is wise to consider your yearly eye care needs when determining how much to fund your FSA or HSA.

How to use a health savings account

Health savings accounts (HSAs) are now available to any individual or family with HSA-qualified insurance (i.e., a high-deductible plan). There are no limitations on who may have an HSA based on income or employment status.

Saving money for your deductible

HSAs offer a way of putting money into that "rainy day" fund for health care. The tax benefits that come with the HSA make the opportunity that much better.

Advantages of health savings accounts

Health savings accounts come with several advantages.

Security. HSA-qualified insurance and the HSA account provide protection against high or unexpected medical bills. All policies also cover preventive care services to help you maintain your health and avoid illness and disease.

Affordability. High-deductible plans may make health insurance more affordable by lowering your health insurance premiums. The savings can be substantial, which can help you fund your HSA account.

Flexibility. HSA funds can pay for current medical expenses, including expenses that insurance may not cover. Funds can also be saved for future needs, such as:

  • Health insurance premiums or medical expenses if no longer working (such as COBRA or when unemployed or retired but not yet on Medicare)

  • Out-of-pocket expenses and premiums (except for Medigap premiums) when covered by Medicare

  • Long-term care expenses and insurance

Portability. HSA accounts are completely portable. You can keep and take your account with you even if you:

  • Change jobs or become unemployed

  • Change your medical coverage or marital status

  • Move to another state

Ownership. You own the funds in your account. The funds in the account remain permanently and roll over from year to year, just like an IRA. There are no "use it or lose it" rules for HSAs.

Tax savings. HSAs provide triple tax savings:

  • tax deductions when you contribute

  • tax-free earnings through investment

  • tax-free withdrawals for qualified medical expenses

Disadvantages of health savings accounts

Health savings accounts have some disadvantages.

Change. You must switch to HSA-qualified insurance from traditional insurance. Sometimes this means you must change insurance carriers as well.

Other coverage. You may be ineligible to contribute to an HSA if you or a family member has other insurance coverage that is not HSA-qualified, or has a flexible spending account or health reimbursement account through their employment.

Information. Sometimes it is difficult to get good information on health care prices and quality of services so you can comparison shop for good value in health care. Fortunately, better information is becoming available every day.

Tax filing. You must file an income tax return to take advantage of all the benefits HSAs offer.

What is covered?

To be an expense for medical care, the expense has to be primarily for the diagnosis, cure, mitigation, treatment, or prevention or alleviation of a physical or mental defect or illness. Additional information is available from IRS Publications 502 and 969 (available through www.irs.gov). Consult your physician and tax advisor if you have questions.

San Francisco is the healthiest city in the U.S. (Graphic: David Foster/Cashay)
San Francisco is the healthiest city in the U.S. (Graphic: David Foster/Cashay)

How to use a flexible spending account

A flexible spending account (FSA) is an employee benefit that allows you to save before-tax dollars on certain medical and childcare costs. These are separate accounts (referred to here as healthcare and dependent care FSAs). For you to enroll in one or both, your employer must offer this benefit and you must sign up, designating what amount of money you want to be deducted from your pay on a yearly basis. The amount you elect to contribute to your healthcare FSA is available on the first day of the plan year.

This is different from the dependent care FSA, where once you have actually contributed the funds in the account, you can either directly use those funds to pay for qualified expenses or use those funds to reimburse yourself for qualified expenses you have already incurred. Many employers provide debit cards that you can use to pay for medical or childcare expenses when incurred.

Many medical expenses traditionally not covered by insurance companies, such as over-the-counter medications, prescription eyeglasses and hearing aids, are covered by healthcare FSAs. However, a doctor's prescription (or note) is now needed for over-the-counter medicines to be reimbursed through a healthcare FSA or health savings account.

A big plus

Establishing an FSA carries a significant tax advantage—because you contribute to your FSA account with your pay before taxes are taken out, those dollars are ultimately worth 30 to 40 percent more than the after-tax dollars that you would have otherwise used (if your combined tax rate is around 30 to 40 percent).

Here's an example of how it works: if you contribute $1,500 to an FSA, you'll incur a tax savings of approximately $600, assuming a 40% tax rate. The $600 is the 40 percent that your employer would have taken out of your pay otherwise to cover tax obligations such as Social Security and federal and state income taxes.

So, by participating in a flexible spending account, you have that extra $600 to spend on medical and childcare expenses that you likely would have incurred regardless.

You must do some homework

If you haven't had an FSA before, you need to estimate how much to contribute, because your employer will need you to designate an amount that you want deducted from your pre-tax pay this year.

FSAs have a use-it-or-lose-it feature, whereby if you don't use the money within the year it is contributed—or during a short grace period afterward—you lose the money. Under healthcare FSAs, the first $500 may be exempt from this rule, however. Also, you cannot have both the $500 exemption and the grace period.

When deciding how much to contribute to a healthcare FSA, take a look at your medical expenses for the past year, which should give you a good idea of how much you are likely to spend. If you anticipate large expenses coming up in the current year, such as orthodontic expenses for a child or new prescription glasses for yourself or your spouse, you might want to allocate a higher amount to your healthcare FSA.

In the case of a dependent care FSA, consider how many children you will have in daycare in a given year, whether they will be receiving childcare full-time or part-time, and whether there are any circumstances under which alternative childcare would be available—from a relative, for example—that would be less expensive.

The contribution limits

In 2020, there is a contribution limit of $2,750 for healthcare FSAs.

For a dependent care FSA, the IRS allows you to contribute up to $5,000 a year if you are married and filing a joint return or if you are a single parent; or $2,500 per year if you are married and filing separately. If you enroll in and use funds from a dependent care FSA, you must file IRS Form 2441 when filing your income taxes.

For more information

For more information on allowable health care FSA expenses, see IRS publication 502, Medical and Dental Expenses. This publication refers to those medical and dental expenses allowed as itemized deductions, but also outlines those that are qualified health FSA expenses.

Summary of health, dental, and vision insurance

If you need coverage, there are several different ways to obtain it. Many of us qualify through employer benefits, or through trade associations or unions. There is now the option of the exchanges, made possible by the ACA.

When shopping for insurance, consider the benefits, limitations, and exclusions offered by the provider, as well as the access to doctors and hospitals — that is a critical issue for many at present. Costs continue to be an issue despite the best intentions of the laws.

Practical ideas you can start with today

  • Go to healthcare.gov and look at what options are available for health insurance.

  • Talk to your employer about your healthcare insurance options and find out when open enrollment is.

  • Compare the advantages and disadvantages of having a health savings account and determine whether it is a wise choice for you.

  • Open a flexible spending account if your workplace offers one.

This content was created in partnership with the Financial Fitness Group, a leading e-learning provider of FINRA compliant financial wellness solutions that help improve financial literacy.

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