5 Costly Mistakes People Make When Choosing a Health Insurance Plan

Fact-checked by the MyFinancial101 editorial team

Avoiding the most common health insurance mistakes starts with one shift in thinking: treat open enrollment as a budgeting decision, not a checkbox. The wrong plan can cost a family thousands of dollars more per year than the right one, and according to the Commonwealth Fund’s 2024 Biennial Health Insurance Survey, 23% of working-age adults who had insurance all year were still considered underinsured because their out-of-pocket costs were so high they skipped care. Being technically covered is not the same as being financially protected.

The stakes grew larger heading into 2026. Employer health care costs are projected to rise by a median 9% per employee this year, which Kiplinger has described as the highest single-year forecast in more than a decade, and employers are passing more of that increase to workers. At the same time, a significant change to ACA subsidy repayment rules took effect for 2026, creating a new and largely unannounced financial risk for marketplace enrollees who underestimate their income. Both trends make plan selection more consequential than it has been in years.

This guide is for anyone choosing a health plan during open enrollment, a life-event special enrollment period, or on the ACA marketplace. By the end, you will know how to calculate your real annual cost, verify your network and prescriptions, handle subsidies without triggering a tax bill, and build a repeatable review process you can use every year.

Mistake 1: Choosing by Premium Alone and Ignoring Your Real Annual Cost

The lowest monthly premium is rarely the lowest annual cost. Focusing only on what you pay each month is one of the most damaging health insurance mistakes you can make, because the premium is just one line item in a much larger equation that also includes your deductible, copays, coinsurance, and out-of-pocket maximum.

How to Calculate Your True Annual Cost

To compare plans honestly, use this formula: (monthly premium x 12) + expected deductible usage + estimated copays + coinsurance. Do this for each plan you are considering under two scenarios: a healthy year with minimal care and a bad year where you hit your out-of-pocket maximum.

Consider a concrete example. A Bronze plan might charge $280 per month with a $7,000 deductible. A Silver plan might cost $410 per month with a $2,500 deductible. For a person with one chronic condition who needs regular prescriptions and a few specialist visits, the Bronze plan costs $3,360 per year in premiums alone, plus potentially thousands in deductible spending before coverage kicks in. The Silver plan’s higher premium often costs less in total. HealthCare.gov advises consumers to evaluate both monthly premiums and out-of-pocket costs across all four metal tiers before choosing.

What to Watch Out For

The metal tier framework (Bronze, Silver, Gold, Platinum) represents actuarial value, not quality. Bronze plans pay roughly 60% of expected costs; Platinum plans pay about 90%. The break-even logic is direct: the more healthcare you use, the higher the tier worth considering. For a genuinely healthy 25-year-old with no prescriptions and no chronic conditions, a Bronze or high-deductible plan may make financial sense. For anyone with recurring care needs, the math almost always favors Silver or Gold.

The “cheapest plan available” framing is a trap. According to KFF research, 61.7% of uninsured adults said coverage was not affordable as their top reason for lacking insurance. But many consumers who are enrolled are effectively in the same position, just on paper, paying premiums for a plan they cannot actually afford to use. This is what being underinsured means, and it is a solvable problem at the enrollment stage.

Mistake 2: Not Verifying That Your Doctors and Hospitals Are In-Network Before You Enroll

Assuming your current doctors accept your new plan is a costly error. Provider networks change every January, and a physician who was in-network last year may not be in-network this year. Checking the insurer’s online directory is a start, but it is not enough on its own.

How to Verify Your Network Correctly

The only reliable method is to call your insurer directly, provide the plan name and ID number you are considering, and ask them to confirm whether your specific doctors and hospitals are contracted for that plan in the coming year. Do not rely solely on a provider’s front desk; they may not know which insurance products accept their contracts, only which companies they bill. CMS directs consumers to verify that their preferred doctors and hospitals accept the specific plan they are considering before enrolling and to use the Summary of Benefits and Coverage to review costs and covered services.

Understanding your plan type matters here too. An HMO (Health Maintenance Organization) typically requires you to use in-network providers exclusively and get referrals for specialists. A PPO (Preferred Provider Organization) lets you see out-of-network providers at a higher cost. An EPO (Exclusive Provider Organization) is like an HMO with no referral requirement but also no out-of-network coverage. A POS (Point of Service) plan is a hybrid that requires a primary care physician but allows out-of-network care with a referral. If your specialist or hospital system only takes PPOs, enrolling in an HMO or EPO means you pay entirely out of pocket.

What to Watch Out For

Provider directories are notoriously outdated. A 2017 study by the HHS Office of Inspector General found that nearly half of provider directory listings for Medicaid managed care plans were inaccurate. While that data is specific to Medicaid, the underlying problem affects commercial plans too. Do not treat the online directory as a final answer.

It is also worth checking whether your nearest hospital and any surgical center you might use are in-network, not just your primary care physician. Surprise billing protections under the No Surprises Act (effective 2022) limit some out-of-network charges, but they do not cover all situations and do not apply if you knowingly go out of network. Prevention is still far simpler than disputing a bill after the fact. If you want to reduce healthcare costs elsewhere while you are reviewing your coverage, the free winter health screenings available in your area can help you catch issues before they become expensive claims.

Mistake 3: Skipping the Formulary Check and Getting Surprised at the Pharmacy

If you take prescription medications regularly, the plan’s drug formulary may matter more than its deductible. A drug that costs $15 per month on one plan can cost $300 or more on another for the same medication, and some plans require prior authorization before they will cover it at all.

How Drug Tiers Work

Most formularies organize drugs into tiers: Tier 1 (preferred generics, lowest cost), Tier 2 (non-preferred generics), Tier 3 (preferred brand-name drugs), Tier 4 (non-preferred brand-name drugs), and Tier 5 (specialty drugs, often the most expensive). Before enrolling, pull the plan’s formulary document (required to be publicly posted) and search for every medication you take. Confirm both the tier placement and whether prior authorization or step therapy is required.

Prior authorization means the insurer must approve a drug before covering it, which can take days or weeks. Step therapy means the insurer requires you to try a cheaper alternative first before they will cover your preferred medication. These restrictions are disclosed in plan documents but rarely appear on comparison websites, so you have to look them up manually. CMS requires insurers to provide a standardized Summary of Benefits and Coverage that includes drug cost information, but the full formulary is a separate document you need to request or find on the insurer’s website.

What to Watch Out For

Even if a drug is technically covered, the cost-sharing can make it unaffordable. Specialty drugs on Tier 5 often carry coinsurance rather than a flat copay, meaning you pay a percentage of a very high list price. A biologic medication might carry a list price of $6,000 per month; 20% coinsurance on that figure is $1,200 per month, even with insurance.

One tool worth using as a cross-check after enrollment: GoodRx. Sometimes the cash price for a generic through GoodRx is lower than your plan’s copay, even after insurance. This does not mean you should avoid using your insurance, but it is a legitimate option for lower-tier generics where your deductible has not been met. Manufacturer patient assistance programs and copay cards are another avenue for brand-name specialty drugs, though these cannot be used alongside Medicare or Medicaid.

Mistake 4: Mishandling ACA Subsidies and Setting Up a Tax Bill

ACA premium tax credits are not free money you receive upfront and keep regardless of what happens. They are advance estimates reconciled at tax time on IRS Form 8962. If your actual income for the year is higher than what you projected when you enrolled, you will owe the difference back, and starting in 2026, that repayment has no cap.

How the Subsidy Reconciliation Works

When you enroll through the marketplace, you estimate your household income for the year. The government advances you a tax credit that reduces your monthly premium. At tax time, the IRS compares your estimated income to your actual income. If you earned more than projected and crossed the threshold into a lower subsidy bracket, you pay back the difference. Previously, the law capped how much you could owe back. That cap was eliminated for plan years beginning in 2026 under the new federal tax legislation, meaning you could owe back every dollar of advance credit you received if your income ends up significantly over your projection.

The stakes are highest at the subsidy cliff: the income level at which ACA subsidies disappear entirely (400% of the Federal Poverty Level). In 2026, for a single person, that threshold is approximately $62,600. A 60-year-old just above that line could face full unsubsidized premiums approaching $14,900 per year with no tax credit to offset them. The difference between earning $62,599 and $62,601 can be thousands of dollars in annual premium costs. Our guide to rising poverty guidelines in 2026 explains how the Federal Poverty Level thresholds affect benefit eligibility across multiple programs.

What to Watch Out For

If your income is unpredictable, you are self-employed, do freelance work, or have variable investment income, err toward slightly overestimating your income when applying for marketplace coverage. Underestimating to get a larger subsidy now creates a larger tax bill in April. You can also take proactive steps to manage income and stay below the cliff: making pre-tax contributions to a traditional IRA, funding an HSA if your plan qualifies, or harvesting capital losses can all reduce your modified adjusted gross income and preserve subsidy eligibility.

Research on consumer health plan choices consistently finds that people tend to accept the first reasonable-looking option rather than modeling a few scenarios to find the one that actually fits their financial situation. That tendency is especially costly on the ACA marketplace, where modest changes to projected income can shift both subsidy eligibility and cost-sharing reduction access by thousands of dollars. Cost-sharing reductions (CSRs) are only available on Silver plans and only for households earning between 100% and 250% of the Federal Poverty Level. If you fall in that income range and choose a Bronze plan to save on premiums, you lose the CSR benefit entirely. That is a common and correctable mistake. The KFF private insurance research hub publishes updated subsidy tables and breakeven calculators you can use to model your own numbers.

Mistake 5: Auto-Renewing Last Year’s Plan Without Reviewing What Changed

Auto-renewal feels like a safe default, but it is one of the most financially passive choices you can make during open enrollment. Health plans are legally permitted to update their premiums, formularies, and provider networks every January, so the plan you chose last year may look quite different this year.

What to Audit Every Year Before Renewing

Treat every open enrollment as a fresh decision. Four things must be reviewed before you renew or switch: your plan’s new deductible and out-of-pocket maximum amounts, whether your current doctors are still in-network under the renewed plan, whether your prescriptions are still on the formulary at the same tier, and whether your income qualifies you for a different subsidy level or cost-sharing reduction than last year.

Any of these four can change without notice beyond the annual notice of change the insurer is required to mail. That document is often skimmed or discarded. If you do not read it and do not act, the marketplace automatically re-enrolls you in your current plan, which may now have a higher deductible, a narrower network, or a formulary that no longer covers your medication at the same price.

What to Watch Out For

The behavioral pull toward auto-renewal is real and well-documented. The 2024 Consumer Engagement in Health Care Survey found that 50% of privately insured adults spent under one hour selecting their health plan during open enrollment. That is not nearly enough time to review four plan variables, compare alternatives, and recalculate subsidy eligibility. The insurer benefits from your inertia; you typically do not.

Enrollment periods are short. For most ACA marketplace plans, open enrollment runs from November 1 through January 15. For employer plans, your window may be just two to four weeks. Set a calendar reminder at least two weeks before your open enrollment window closes, and block 90 minutes to do a proper review. If you want support, HealthCare.gov navigators provide free, unbiased enrollment assistance and receive no commissions. State Health Insurance Assistance Programs (SHIP) offer the same for Medicare-eligible consumers. If you are also reviewing your broader financial health this season, it may help to look at adjacent costs like winter illness preparedness and the financial side of seasonal health expenses.

How to Match a Plan to Your Actual Financial Situation

The right health plan is the one that aligns with how you actually use healthcare, not the one with the lowest sticker price or the most recognizable insurer name. A simple decision process can protect you from most of the mistakes described above.

A Four-Step Decision Process

Start by estimating your expected healthcare use for the year. Be honest: count your regular prescriptions, planned procedures, specialist visits, and any conditions that might require care. Then calculate your worst-case annual cost under each plan you are considering by adding the full annual premium to the plan’s out-of-pocket maximum. That worst-case number tells you the most you could possibly spend, and it is the only reliable way to compare plans for someone who might need significant care.

Next, check your subsidy eligibility at the income you expect for the year, and determine whether any Silver plan qualifies you for cost-sharing reductions. Then verify network and formulary for every plan that looks promising. Only after those four checks are complete should you make a final decision.

When an HDHP and HSA Actually Makes Sense

The HDHP plus HSA combination is a legitimately good strategy under specific conditions: you are in good health, you have liquid savings equal to at least the full deductible available from January 1, and you can afford to pre-fund the HSA to build a tax-advantaged buffer. For 2025, the HSA contribution limit is $4,150 for individuals and $8,300 for families. Those contributions are triple-tax-advantaged: deductible going in, tax-free for qualified medical expenses, and tax-deferred for investment growth.

But this strategy is a real risk for families with unpredictable health needs or without adequate liquid savings. One unplanned hospitalization in January, before the HSA has been funded, can mean owing the full deductible out of pocket at a time of year when most household budgets are already strained. If you are managing tight cash flow and thinking about where your money goes each month, this tradeoff intersects with broader personal finance decisions around managing high-interest debt alongside irregular large expenses.

What the Comparison Table Does Not Show

Two coverage gaps appear in virtually every health plan and are almost always missed until they become expensive: dental and vision. Standard ACA marketplace plans do not cover these. If you need a root canal or new glasses, you need a separate dental or vision plan, or you pay the full cost out of pocket. Neither is optional for most adults over time.

There is also a gap that health insurance cannot fill at all: income replacement. Health insurance covers your medical bills if you are sick or injured, but it does not replace your paycheck if an illness prevents you from working for weeks or months. A short-term or long-term disability policy is a separate product, and for most working adults with dependents it is worth understanding before a claim makes the gap obvious. If you are exploring ways to build financial resilience, looking at how to start building savings and investments alongside your coverage decisions is a natural next step.

Frequently Asked Questions

How do I figure out my real annual cost for a health insurance plan, not just the premium?

To find your true annual cost, multiply the monthly premium by 12, then add your expected out-of-pocket spending for the year (deductible usage, copays, and coinsurance). Run this calculation twice: once for a healthy year and once for a bad year where you hit the plan’s out-of-pocket maximum. The plan with the lowest total under the bad-year scenario is usually the safest financial choice for anyone with existing health needs. HealthCare.gov’s plan comparison tool includes estimated total costs for different usage levels.

Should I choose an HMO or a PPO for my health insurance?

Choose an HMO if your preferred doctors and hospitals are all in-network and you are comfortable with referrals for specialists, HMOs typically cost less in premiums. Choose a PPO if you see out-of-network specialists or travel frequently and need coverage flexibility, accepting that premiums and cost-sharing will be higher. EPOs sit between the two: no referrals required, but zero out-of-network coverage. The right choice depends entirely on where your providers are contracted, which is why network verification must come before plan-type preference.

What happens if I underestimate my income for ACA subsidies?

If you underestimate your income and receive more advance premium tax credit than you were entitled to, you repay the difference when you file your federal tax return on IRS Form 8962. Starting with 2026 plan years, the repayment caps that previously limited how much you owed back have been eliminated, so if your income ends up significantly above your projection, you could owe back the full value of the credits you received. Update your marketplace income estimate immediately if your financial situation changes mid-year to reduce this risk.

How do I check if my prescription drugs are covered before enrolling in a health plan?

Every ACA-compliant plan must publish a drug formulary listing which drugs are covered and at what cost tier. Find the formulary on the insurer’s website or request it directly, then search for each medication you take. Check the tier placement, the cost-sharing amount, and whether prior authorization or step therapy is required. If a drug is listed as requiring prior authorization, factor in the time and effort involved in getting that approved each year.

Is the HDHP and HSA combination actually a good deal, or is it overhyped?

It is a genuinely good deal for healthy individuals and families who have enough liquid savings to cover the full deductible from January 1 and who can consistently fund the HSA. For 2025, family HDHP out-of-pocket maximums can reach $16,600, if you cannot cover that amount in cash in a medical emergency without going into debt, the HDHP’s lower premium offers false savings. The HSA’s triple tax advantage is real and valuable, but the strategy requires financial stability to work as advertised.

Can being on both spouses’ employer health plans save money?

Dual enrollment in both spouses’ employer plans often costs more than it saves. You pay two sets of premiums, and when a claim is filed, the two insurers must coordinate benefits to decide which pays first and which pays second, a process called coordination of benefits that can delay reimbursement and create billing disputes. In most cases, enrolling the whole family on the better of the two plans is cheaper and simpler. Compare the combined premium cost of dual enrollment against the family coverage cost on the stronger plan before deciding.

What is the ACA subsidy cliff and how do I avoid falling off it?

The subsidy cliff is the income threshold at which ACA premium tax credits disappear entirely, currently set at 400% of the Federal Poverty Level (approximately $62,600 for a single person in 2026). One dollar above that line means zero subsidy, which can mean thousands more in annual premiums. To stay below the cliff, you can reduce your modified adjusted gross income through pre-tax traditional IRA contributions, HSA contributions (if enrolled in an HDHP), or by harvesting capital losses. The KFF health insurance subsidy calculator lets you model exactly where your household falls.

How long does open enrollment last and what happens if I miss it?

For ACA marketplace plans, open enrollment generally runs November 1 through January 15 each year. For employer-sponsored plans, the window is set by each employer and typically runs two to four weeks in the fall. Missing open enrollment means you cannot change or enroll in coverage until the next open enrollment period unless you experience a qualifying life event (such as losing other coverage, getting married, or having a child), which triggers a 60-day Special Enrollment Period. Missing the window and going uninsured can also have tax implications in some states that maintain individual mandates.

Do standard ACA marketplace plans cover dental and vision?

Standard ACA marketplace health plans for adults do not include dental or vision coverage. You must purchase separate standalone dental and vision plans, which are available through the marketplace as add-ons or through private insurers. For children, dental coverage is an essential health benefit required under the ACA, so pediatric dental is included in or available alongside most marketplace plans. Adults who skip standalone dental coverage typically discover the gap when they need a procedure that costs several hundred to several thousand dollars out of pocket. If you are looking for ways to reduce health-related expenses, our guide to free health screenings available this winter can help offset some preventive care costs.

Should I use a health insurance broker or the HealthCare.gov marketplace directly?

Both options can get you enrolled in the same plans at the same prices, brokers are not permitted to charge you additional fees for marketplace plans. The key difference is independence: a broker works for commission and may steer you toward plans that pay them more, while a HealthCare.gov-certified navigator works for free and has no financial incentive to recommend one plan over another. For unbiased guidance, use a navigator or your state’s SHIP program. If you prefer to compare independently, the HealthCare.gov plan comparison tool displays all available plans side by side with standardized cost breakdowns.