While the phrase “two are better than one” applies to many situations, two health insurance plans can be a burden, depending on your situation. However, two plans can also help you access needed care and save money on annual medical costs. Whether driven by specific needs, life circumstances, or a desire for comprehensive coverage, individuals work with more than one insurance provider for various reasons. However, if you don’t consider your choices carefully, it could end up costing you more than expected. Here’s what you need to know to tell the difference.
A financial advisor can help you create a financial plan to help you save for healthcare costs in retirement.
Having multiple health insurance plans can be a strategic decision or the result of various circumstances. Here are four common reasons you might have coverage from multiple plans:
Having multiple insurance plans means one plan will be your primary coverage, and the other will be secondary. As the names imply, your primary coverage activates first, and your secondary coverage picks up any unaddressed expenses if necessary. Your Coordination of Benefits (COB) defines which health plan takes precedence in these situations.
Every health care plan has a COB policy that governs how it interacts with other health coverage. This way, the insurance companies communicate with each other to avoid reimbursing a patient twice for the care they receive. The COB ensures you receive a maximum of 100% of the cost for a procedure or doctor visit.
For example, say you break a bone and need surgery and physical therapy. Your COB will help you receive reimbursement for up to 100% of your healthcare costs and prevent double reimbursement. Because overlap usually exists between multiple plans, the COB is necessary to keep patients from taking advantage of duplicate reimbursements.
Remember, having multiple plans doesn’t guarantee that your healthcare will be free. Despite the surplus insurance coverage, you typically will still pay copays, coinsurance, and other out-of-pocket costs. For example, most plans charge a copay to see a specialist, so multiple policies won’t nullify this requirement.
State laws and insurance policies determine which of your plans becomes the primary and secondary. While the unfortunate reality is that you can’t choose this for yourself, gaining awareness of how the rules work can help you take advantage of your insurance plans. Here’s how each scenario impacts your primary and secondary plans:
| Scenario | Primary Insurance Designation | Secondary Insurance Designation |
|---|---|---|
| Your employer-sponsored plan plus your spouse’s or partner’s plan | Your employer-sponsored plan | Your spouse or partner’s plan |
| Medicaid plus employer-sponsored plan | Employer plan | Medicaid |
| Medicare plus employer-sponsored plan | Employer if the workplace employs 20 or more people. Fewer than 20 employees means Medicare is primary. | Medicare if your workplace employs 20 or more people. Fewer than 20 employees means employer’s plan is secondary. |
| Under age 26 with insurance from a student or employer plan plus your parent’s dependent coverage | Your student or employer’s plan | Parent’s plan |
| Child receiving coverage from both parent’s separate plans (not divorced) | The parent with the earlier birthday in the calendar year | The parent with the later birthday in the calendar year |
| Children receiving coverage from both parent’s plans (divorced or separated) | The parent with custody provides primary coverage. Joint custody means following the birthday rule described above. | If the parent with custody remarries, the new spouse’s plan becomes secondary coverage. Otherwise, the parent without custody is secondary. |
Having two health plans might sound like a benefit with no costs. However, there are points to consider on either side. Here are three common pros:
Multiple plans can offset more costs, increasing your savings when receiving healthcare. For example, your primary insurance might only cover 80% of a specific procedure. If your secondary insurance covers the rest, you bear no cost.
Job loss and turning age 26 can result in the loss of coverage. Fortunately, your secondary insurance can prevent a lapse in coverage even if you lose your primary plan.
Most health insurance plans limit what types of procedures and care providers you can access. Multiple plans expand your access, allowing you to see doctors outside your primary plan’s network and receive reimbursement for different forms of care.
Here are thre common cons:
Although multiple health insurance plans can improve your coverage, they don’t guarantee payment-free services or a 100% cost reduction. As a result, you still can incur heavy expenses for various types of care. In addition, multiple health plans never result in you receiving surplus payments from insurance companies.
Two health insurance plans mean paying two premiums and deductibles. This situation means a greater monthly cost for premiums and a higher out-of-pocket cost to satisfy the deductible limit for each plan.
Multiple forms of coverage can overlap too much to be worth it. In other words, if your plans don’t expand your healthcare options, you may not experience a huge advantage.
There are several ways to find a health insurance plan. First, federal law requires employers to offer health benefits to full-time employees. So, finding a full-time job (working at least 30 hours a week) is a direct ticket to a health insurance plan.
On the other hand, working part-time means you must handle health insurance yourself. You can compare plans on healthcare.gov or use an online broker to break down plans for you. Remember, federal law prevents price differentiation between companies, so each type of plan will cost the same among providers. As a result, choosing a company with high customer service ratings should be a priority.
Your age and financial circumstances can also help you determine which healthcare plan makes sense. For example, turning 65 means you qualify for Medicare. Enrolling when you turn 65 is crucial because you’ll incur financial penalties for applying late (exceptions exist, such as those receiving healthcare from their job). In addition, state Medicaid programs provide low-income families and disabled individuals with low- or no-cost health insurance.
Whether you need two health insurance plans depends on your individual circumstances, preferences, and healthcare needs. Here are situations where having two health insurance plans makes sense:
COBRA transition: If you lose your job or transition to a part-time position, you can receive health insurance from your employer for up to 18 months due to the Consolidated Omnibus Budget Reconciliation Act (COBRA). You can also purchase an individual plan during this transition to ensure continuous coverage when COBRA expires.
Specialized coverage: You have a specific medical condition or need (such as fertility treatments or cancer therapies) that is better covered by a separate, specialized insurance plan.
Coordination of benefits: You and your spouse both have employer-sponsored health insurance plans. Having both plans allows you to coordinate benefits and reduce out-of-pocket costs for medical expenses.
Medicare supplement during retirement: Medicare doesn’t cover every form of healthcare. For example, original Medicare doesn’t cover eye exams or dental care. Therefore, you purchase supplemental coverage (such as Medicare Advantage) to cover the costs.
And, here are two common scenarios when it doesn’t make sense to have two plans:
Overlapping coverage: Both plans provide similar coverage, and the benefits largely overlap. The services covered by both plans are redundant, and you are not likely to use the additional services provided by the second plan. As a result, having two plans in such cases results in unnecessary premium expenses.
Limited benefits: One of the plans provides comprehensive coverage, and the second plan has limited benefits that do not significantly enhance your overall healthcare coverage.
Having multiple health insurance plans can expand your healthcare options and minimize costs. However, the premium and administrative costs can be prohibitive, and two plans might only end up providing redundant coverage. Before deciding to have two health insurance plans, carefully evaluate your healthcare needs, the specific benefits each plan offers and how the coordination of benefits works. It’s advisable to consult with an insurance expert or healthcare advisor to ensure that the plans align with your financial situation and provide significant additional coverage based on your health and lifestyle.
Photo credit: ©iStock/PeopleImages, ©iStock/kate_sept2004, ©iStock/Jacob Wackerhausen
Ashley KilroyAshley Kilroy is an experienced financial writer currently serving as an investment and insurance expert at SmartAsset. In addition to being a contributing writer at SmartAsset, she writes for solo entrepreneurs as well as for Fortune 500 companies. Ashley is a finance graduate of the University of Cincinnati. When she isn’t helping people understand their finances, you may find Ashley cage diving with great whites or on safari in South Africa.
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