How to Choose the Best Health Insurance Plan

Choosing—and using—health insurance can be perplexing. Whether you're already insured or you're in the market for healthcare coverage, you may be struggling to understand the terms of your plan or the ones you're considering.

The conditions, procedures, and medical tests covered vary from plan to plan. So do the financial details and your options when choosing a healthcare provider. Knowing the details of health insurance plans is key to making informed decisions. In the event of a sudden illness or emergency, you won't find yourself trying to learn it all at a difficult time.

This article will help you understand what's important when you're choosing a health plan, and how to align with what best fits your needs when making your annual decisions about coverage.

Sources of Health Insurance Information

According to a 2023 report from the United States Census Bureau, 92% of Americans had health insurance in 2022. More than half get their insurance from an employer. About 37% of the U.S. population has coverage under Medicaid or Medicare, which are government-run health coverage programs.

More than 24 million people secured health insurance through Marketplace (exchange) plans offered through the Affordable Care Act (ACA) in 2025. Others found coverage through an off-exchange plan (meaning an individual market plan purchased directly from an insurer, rather than via the exchange), the military's TRICARE coverage, and the Veterans Administration.

No matter how you obtain your coverage, there are resources to help you select the best plan for you and your family, complete the enrollment process, and use your health insurance when you need it.

If you have health insurance through work, reach out to the human resources department at your company. Don't be shy about asking as many questions as necessary: It's the job of this department to help you understand the health plan options that are part of your employment benefits.

If you work for a small company that doesn't have a human resources team, there are several sources of information to turn to:

• The health insurance carrier
• The broker who helped your employer choose the coverage (ask your manager to direct you)
• Your state's small business health insurance exchange, if available (most states states do not have a small business health insurance exchange)
• Your employer's third-party payroll/benefits company, if there is one

If you're shopping for insurance on your own (because you're self-employed, for example), brokers are available to help you online, over the phone, or in person at no charge. They can help you compare plans both on-exchange and off-exchange.

If you know you want to enroll in the health insurance exchange, there are navigators and certified counselors available to assist you. Brokers can also assist with this process. You can use HealthCare.gov's "find local help" tool to find navigators, enrollment counselors, and brokers who are in your area and certified by the exchange. If your state runs its own exchange, it will have a similar tool that you can use to find local assistance.

For Medicaid or the Children's Health Insurance Program (CHIP), your state agency can help you understand if you or your family is eligible for any benefits and what they are, and also help you sign up. Depending on where you live, you might be able to enroll in Medicaid or CHIP through your state's health insurance exchange. If not, the exchange will direct you to the state Medicaid agency to complete the application.

In most states, Medicaid coverage is administered by one or more private insurance companies, so you may have multiple insurers to choose from when you're setting up your coverage.

If you're eligible for Medicare, you can use your State Health Insurance Assistance Program as a resource. There are also brokers nationwide who help beneficiaries enroll in Medicare Advantage plans (as an alternative to Original Medicare), or Part D prescription plans and Medigap plans to supplement Original Medicare. You can also call 1-800-MEDICARE to get answers to your questions and help with the enrollment process.

Weighing Your Options

In some cases, insurance plan options are limited (if an employer offers only one option, for example). But most people have at least a few choices.

Your employer may offer a range of plans with varying coverage levels and monthly premiums. If you buy your own health insurance, you can select from any plan available in the individual market in your area, on or off-exchange. Depending on where you live, this could be dozens of plan options.

It's important to understand that premium subsidies are only available in the exchange. Premium subsidies are larger than they used to be, due to the American Rescue Plan and Inflation Reduction Act. These subsidy enhancements will be available through the end of 2025, although additional Congressional action would be necessary to extend them into 2026 or beyond.

(If the subsidy enhancements are allowed to expire at the end of 2025, subsidy rules will return to the way they were before 2021. There will still be subsidies, they just won't be as large or as widely available as they were from 2021 through 2025.)

If you're eligible to enroll in Medicare, you have the option of a Medicare Advantage plan or sticking with original Medicare and supplementing it with Medigap and Part D prescription coverage. There are some counties where Medicare Advantage plans are not available, although this is limited to only a very small percentage of rural counties.

For all coverage types other than Medicaid/CHIP, annual open enrollment periods apply. Special enrollment periods, however, are available if you experience certain qualifying life events, like involuntary loss of coverage or a marriage.

How to Choose the Best Healthcare Plan

There's no one-size-fits-all when it comes to health insurance. The plan that will be best for you depends on a variety of factors.

Do You Have a Pre-Existing Condition?

Thanks to the Affordable Care Act (ACA), no insurance provider can turn someone away because they have a chronic disease or other medical problem when they apply for coverage (a practice that can be part of medical underwriting).

Note that the ACA's reforms do not apply to Medigap plans, which can still be medically underwritten under certain conditions. Nor do they apply to plans such as short-term health insurance and fixed indemnity policies, which also still use medical underwriting.

However, if you have a pre-existing condition, you'll want to consider what you need from your insurance to manage it, since benefits, out-of-pocket expenses, covered prescription medications, and provider networks vary considerably from one plan to another.

Do You Take Any Prescription Drugs?

Be sure to check the formularies (list of covered medications) of the health plans you're considering. Health plans divide covered drugs into categories, generally labeled Tier 1, Tier 2, Tier 3, Tier 4, and Tier 5 (not all plans have five tiers, so the details vary by plan). You may find that one plan covers your drugs in a lower-cost tier than another—or that some plans don't cover your medication at all. 

Drugs in Tier 1 are the least expensive, while those in Tier 4 or 5 are mostly specialty drugs. Drugs in Tier 4 and 5 are generally covered with coinsurance (you pay a percentage of the cost) as opposed to a flat-rate copay.

Given the high sticker price on specialty drugs, some people end up meeting their plan's out-of-pocket maximum very early in the year if they need expensive Tier 4 or 5 drugs. Some states, however, have implemented limits on patient costs for specialty drugs.

If you're enrolling in or already covered by Medicare, you can use Medicare's plan finder tool when you first enroll and each year during open enrollment. It will let you enter your prescriptions and help you determine which prescription plan will work best for you. Medicare's prescription coverage is provided by Medicare Part D, which can be purchased as a stand-alone plan or integrated with a Medicare Advantage plan.

Do You Want Care From a Particular Provider?

Provider networks vary from one carrier to another, so compare the provider lists for the various plans you're considering. If your provider isn't in-network, you still may be able to use that provider but with a higher out-of-pocket cost, or you may not have any coverage outside the network. The specifics vary from one plan to another in terms of whether they cover out-of-network care and if so, what the out-of-pocket costs are.

It's also important to understand that out-of-network medical providers can send you a balance bill; they do not have to write off any of the cost the way in-network providers do. (Unless it's an emergency or a situation where you went to an in-network facility but received care from an out-of-network provider while you were there; patients are protected from balance bills in those scenarios, due to the No Surprises Act.)

In some cases, you'll need to decide whether keeping your current provider is worth paying higher health insurance premiums. If you don't have a particularly well-established relationship with a specific healthcare provider, you may find that selecting a plan with a narrow network could result in lower premiums.

Do You Anticipate Expensive Medical Care Soon?

If you know you or a covered family member is going to have surgery, for example, or you're planning to have a baby, it may make sense to pay higher premiums in trade for a plan with a lower out-of-pocket limit.

You may get a better value from a plan with a lower total out-of-pocket limit regardless of how much the plan requires you to pay for individual services prior to meeting that threshold.

For example, if you know you're going to need a knee replacement, a plan with a total out-of-pocket limit of $3,000 might be a better value than a plan with a $5,000 out-of-pocket limit (depending on how the monthly premiums compare). Even if the latter plan offers copays for practitioner visits, the former plan counts your healthcare provider visits toward the deductible.

It would ultimately be a better deal to pay the full cost of your practitioner visits if you know that all of your healthcare spending on covered services will cease once you hit $3,000 for the year.

But it's also important to consider premiums in that calculation. If you know you're going to hit the out-of-pocket maximum on any plan, you should add each plan's out-of-pocket limit to the total premiums you'd have to pay to buy the plan. You might find that a plan with a higher out-of-pocket limit ends up being a better overall value once you add in the premiums.

In 2025, most non-Medicare plans are limited to having out-of-pocket maximums that can't be more than $9,200 for a single person. But many plans have out-of-pocket caps well below this limit, so it's important to understand the out-of-pocket details for each plan you're considering.

Do You Travel a Lot?

You may want to consider a preferred provider organization (PPO) with a broad network and solid out-of-network coverage. This will likely be more expensive than a narrow-network health maintenance organization (HMO), assuming both plans have similar out-of-pocket costs. But the flexibility it offers in terms of allowing you to use providers in multiple areas might be worth it.

PPOs tend to be widely available for people who are getting their coverage from an employer, but they're much less common in the individual/family market (where people buy their coverage if they don't have access to an employer's plan).

Many areas of the country have no PPO or POS plans available in the individual market, meaning that enrollees will not have the option to select a plan with out-of-network coverage.

If you're enrolling in Medicare and travel a lot, Original Medicare (plus supplemental coverage) is probably a better choice than Medicare Advantage, since the latter has limited provider networks that tend to be localized. But Original Medicare can be used nationwide, with any provider that accepts Medicare. And a Medigap plan (which covers out-of-pocket costs under Original Medicare) can also be used with any provider who accepts Medicare.

How Comfortable Are You With Risk?

Do you prefer to spend more on premiums every month in exchange for lower out-of-pocket expenses? Is having a copay at the healthcare provider's office—as opposed to paying for all care until you meet your deductible—worth higher premiums? Do you have money in savings that could be used to pay for your healthcare costs if you opt for a plan with a higher deductible?

These are questions that don't have a right or wrong answer, but understanding how you feel about them is a key part of picking the health plan that will provide you with the best value. The premiums have to be paid whether you use $1 million in health care services or none at all.

But beyond the monthly premiums, the amount you'll pay throughout the year depends on the type of coverage you have and how much medical care you need. All non-grandfathered plans cover some types of preventive care with no cost-sharing—meaning there's no copay and you don't have to pay your deductible for those services.

But beyond that, coverage for other types of care can vary substantially from one plan to another. If you select the plan with the lowest premiums, be aware that your costs are likely to be higher if and when you need medical care.

Do You Want a Health Savings Account (HSA)?

If you want a health savings account (HSA), you'll need to make sure that you enroll in a High Deductible Health Plan (HDHP) that is HSA-qualified. HDHPs are regulated by the IRS, and it's important to understand that the term does not just refer to any plan with a high deductible.

These plans pay for preventive care before the deductible, but nothing else. HSA-qualified plans have minimum deductible requirements along with limits on maximum out-of-pocket costs.

You and/or your employer can fund your HSA and there's no "use it or lose it" provision. You can use the money to pay for medical expenses with pre-tax dollars, but you can also leave the money in the HSA and let it grow (it can be in an interest-bearing account or invested in stocks, bonds, etc.).

It will roll over from one year to the next and can always be used—tax-free—to pay for qualified medical expenses, even if you no longer have an HSA-qualified health plan. (You need to have current HDHP coverage to contribute to an HSA, but not to make withdrawals.)

Best Health Insurance Companies

Deciding on the best health insurance company will mean finding the best match for your specific situation.

People who are retired have different needs than those who are young but unemployed. In a similar way, people with short-term needs require different health insurance coverages than those living with chronic conditions like diabetes or long-term disabilities that involve medical supplies in addition to medication.

Many Marketplace plans and Medicare plans have star ratings, which can be useful when comparing insurers. You can also contact the Insurance Department in your state to ask about complaint ratios and whether they maintain any rating systems for the plans available in your area.

Summary

Choosing a health insurance plan can feel complicated, but you can narrow down the options by focusing on what's most important for your needs. You'll want to consider the monthly premium costs, the provider network, the covered drug list (formulary), and the out-of-pocket exposure—including the cap on out-of-pocket costs, as well as how this is structured throughout the year.

If you want to be able to contribute to an HSA, you'll need to make sure that you enroll in an HSA-qualified high-deductible health plan (HDHP).

Regardless of whether you have a government-run plan, coverage offered by your employer, or a policy that you bought for yourself, a solid understanding of how health insurance works will serve you well.