Alternative Health Insurance Key Terms

Make sure you understand what you're purchasing with alternative health insurance

Everyone needs health insurance, but the high cost can prevent people from purchasing a full health insurance plan. Small business owners looking to save money on employees' plans or self-employed people may want to consider alternative health insurance. However, for someone who's always had a traditional health insurance plan, it may be hard to understand the differences between the different types of plans. For example, a discount plan or health savings account is certainly a viable alternative, but they're very different from a traditional a health insurance plan.

COBRA

For someone who's leaving his or her job to start a new business or someone who will have a gap in employment a COBRA plan should be considered. COBRA stands for Consolidated Omnibus Budget Reconciliation Act and is a law that gives employees and families the opportunity to continue the same health insurance plan that they've had on the job.
U.S. Department of Labor.

Health savings account (HSA)

While not a health insurance plan, many people view health savings accounts, or HSAs, as a viable alternative to insurance. HSAs allow people to use pre-tax dollars to pay for their medical expenses.
U.S. Department of the Treasury has a brief description of health savings accounts as well as a more detailed downloadable PDF file.

Discount health plan

A discount health plan allows members to receive a discount off the cost of their medical care. It's not to be confused with a health insurance plan. Rather, consumers pay a monthly fee and then certain member doctors will give the members a discount off the full price of services.

Health reimbursement arrangement

A health reimbursement arrangement is similar to a health savings account, except that it is employer-funded. Employees must pay for medical expenses up front, but then their employer will reimburse a certain percentage. Employers receive tax advantages for doing this.
Bureau of Labor Statistics explains different types of health spending accounts, including health reimbursement arrangements. It  also includes a side-by-side comparison.

Out-of-pocket maximum

This is the maximum amount of money that you will have to pay for your health care costs. This is similar to a deductible, which is how much you have to pay for a particular procedure, but the out-of- pocket maximum encompasses all costs throughout the year.

Rider

A rider, sometimes called an optional rider or a health rider, is additional insurance that one can add to the basic health insurance plan. Common examples are dental and vision plans. Someone looking to save money on individual insurance plans may choose to go without this type of insurance.

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