If you’ve ever been sick or injured, you know that it’s important to have the right kind of health insurance. It pays for the pain to be abated...and the damage to be repaired. But, if your employer offers you a choice of health plans, do you have enough knowledge to make the right choice? In addition to medical expense coverage, do you need any other kind of insurance? What will happen if you are too sick to work? Or, if you are over 65, will Medicare pay for all your health care expenses?
If you’re confused about the types of health coverage available and what coverage is best for you, your family and even your business, you’re not alone. Today’s consumers are asking these same questions; and the questions aren’t always easy to answer. Many of the insurance agents and brokers who used to explain the details to people are gone. Companies that sell medical insurance rely on a shrinking number of experts to explain coverages to people and most of these experts focus their pitch on the start of a new plan with a client. If questions come up later which is usually the case people often get some brochures and a shrug of the shoulders.
MAKING SENSE OF INSURANCE
Health coverage refers to a collection of insurance policies and government programs which pay for a range of costs—from doctors and hospitals to more specific needs, such as long-term care expenses or disability insurance (which replaces lost income if you can’t work because of an illness or accident). Health insurance doesn’t just cover medical ex penses. It provides payment of benefits for the loss of income and/or the medical expenses aris ing from illness or injury. So, health insurance is sometimes called other things, like accident and sickness insurance or accident and health insur ance. The different kinds of health insurance cov erages vary according to the methods of under writing, the injury or illness covered, types of in surers, types of benefits and services provided, types of losses covered, and the amount of ben efits available. When people refer to health insurance, they usually mean group insurance offered by employers—insurance that covers such things as medical bills, surgery, and hospital expenses. Insurance companies call this comprehensive or major medical coverage, because of the broad protection it offers. When health insurance first appeared in the United States—in the mid-1800s—it was sold by casualty insurance companies on a stand-alone basis and as an add-on to life insurance policies. Early policies covered losses due to accidental injuries. Later ones provided benefits due to illness as well as accidents. Today, health coverage includes insurance policies and government-provided benefits. Most consumers are familiar with some of these. The terms fee-for-service and managed care appear just about everywhere. The specific kinds of managed care plans— health maintenance organizations (HMOs), preferred provider organizations (PPOs), and pointof-service (POS) plans—are also fairly common. But what do these terms mean? Both fee-for-service and managed care plans cover an array of medical, surgical, and hospital expenses. Most offer some coverage for prescription drugs; and some even include coverage for dentists and other providers. But because there
are differences that will make one or another plan right for
you, it is important to understand each kind of plan.
FEE-FOR-SERVICE PLANS
Fee-for-service coverage generally assumes that a medical
provider (usually a doctor or hospital) will be paid a fee for
services rendered. The term refers to the way doctors are
paid...regardless of who pays. Paying cash—that is,
unreimbursed out-of-pocket expenses—for medical treatment is
a fee-for-service arrangement. However, most people don’t pay
cash for their medical care. Traditional health insurance—
what insurance companies call indemnity coverage— is a fee-
for-service arrangement.
With fee-for-service insurance, you choose the doctor you want
to see; and you can choose a different doctor for any reaons,
any time you feel like it. After you’ve been treated, you or your
doctor submits a claim to your insurance company for
reimbursement. You will only receive reimbursement for the
covered medical expenses that are listed in your plan.
Services that are covered under your policy are generally reimbursed for
some—but not all—of the cost. Many policies pay 80 percent of the costs.
(For a sample list of covered expenses and/or examples of non-
covered expenses, turn to page 41 of Chapter 3.) With some
variation, fee-for-service policies reimburse bills for a
percentage of a reasonable service charge. (This amount is
derived by the prevailing cost of a service in a geographic
area.) The portion of the covered medical expenses that you
pay, the other 20 percent, is called coinsurance.
Sometimes a doctor will charge more than a reasonable
amount for a service. If this is the case, you’ll end up paying
the difference out of your own pocket.
Example: If the reasonable charge for a service is $100, your
insurer will probably pay $80 and you would pay $20. But if the
doctor charged $105, you would have to pay $25.
Many fee-for-service plans pay hospital expenses in full, so be
sure to check with your plan provider.
Deductibles are the amount of the covered expenses that you
must pay each year before your insurer will reimburse you.
These can range from as little as $100 to $300 per year per
person to $500 or more per family. Generally, the higher the
deductible, the lower the premiums, which are the monthly,
quarterly, or annual payments for the insurance.
Most policies have an out-of-pocket maximum— when your
covered expenses reach a certain amount in a given calendar
year, a reasonable fee for the benefits that are covered on your
plan will be paid in full by your insurer and you no longer pay
the coinsurance. However, if your doctor bills you more than
the reasonable charge, you may still have to pick up some of
the tab.
In addition to the out-of-pocket maximum, many policies place
lifetime limits on benefits. When shopping for a plan, it’s
smart to look for a policy whose lifetime limit is at least $1
million. If the limit is lower, you could run through the
coverage if you had major health problems for several years.
MANAGED CARE
Managed care plans provide comprehensive health services to
their members and offer financial incentives for patients to use
providers under contract with the plan. That’s how managed
care plans keep their costs low. (In recent years, though, even
this tactic has had a diminishing effect.) Instead of paying for
each service that you receive separately, the plans pay
providers in advance. That’s why insurance professionals call
these plans prepaid care.
HMOs have been in existence for many years. However, their
popularity has increased dramatically since the passage of the
Health Maintenance Organization Act by the federal
government in the late 1970s.
If you join an HMO, you’ll pay a monthly or quarterly premium.
That premium will remain the same—whatever your medical
history and whether or not you use the plan’s services. The
plan will also charge a copayment for certain services. For
example: $10 for an office visit or $5 for a prescription. This is
one of the ways in which the plans adjust for people who use
the services more heavily than others.
By joining an HMO, you may have only a few out-of-pocket expenses for
medical care—as long as you use doctors or hospitals that participate, or
are part of, the HMO. HMOs generally don’t re quire you to pay deductibles
or coinsurance.
HMOs deliver care directly to patients. Whether patients go to
a medical facility to see a doctor or to a specific doctor’s office,
the business relationship is with the HMO. To many people,
the health care providers seem to be interchangable
subcontractors.
This appearance isn’t exactly accurate. If you belong to an
HMO, you usually have to receive your medical care through
the plan by selecting a primary care physician who
coordinates your care. A primary care physician may be a
family practice doctor, an internist, pediatrician, etc. He or she
is responsible for referring you to specialists.
While most of these specialists will be participat ing providers in the HMO,
there are circumstances in which patients enrolled in an HMO may be re
ferred to providers outside the HMO network and still receive coverage.
(However, this issue is a major controversy in HMOs. We’ll consider the
matter in greater detail in Chapter 5.) Preferred provider
organizations and point-ofservice plans are the other major
types of managed care. These plans combine the features of
fee-for-service plans and HMOs. These plans provide choice
regarding physician, hospital, etc.; an HMO restricts choice to
a network provider. PPOs and POSs generally offer more
flexibility than HMOs; but their premiums tend to be somewhat
higher.
With a PPO or a POS, unlike most HMOs, you will get some
reimbursement if you receive a covered service from a provider
who is not in the plan. Of course, choosing a provider outside
the plan’s network will cost you more than choosing a
provider in the network. These plans will act like fee-forservice
plans and charge you coinsurance when you go outside the
network.
What’s the difference between a PPO and a POS plan? A POS
plan has primary care physicians who coordinate care; in most
cases, PPO plans do not.
In many cases, a PPO is under contract to—or a subsidiary of—a commercial
insurer. The overall plan benefits may include preventive health care,
diagnostic services, physicians’ services, inpa tient and outpatient benefits,
etc. These types of services and benefits are provided under the ba sic
medical plan and/or the PPO option.
COMMERCIAL INSURERS
Many of the major life and health insurance companies market
various forms of hospitalization coverage, including both group
and individual policies. Your insurance company may issue one
or more types of hospitalization insurance.
The structure of the commercial insurer offering
hospitalization policies generally includes a marketing
department, underwriting department and a claims and
administration section.
These are organizations which provide prepaid medical and
health benefits. The best example of this type of provider is
Blue Cross/Blue Shield. This system began in 1939 as part of
the California Physicians’ Service. This early plan was designed
to pay doctors’ fees. The American Medical Association was
closely involved with the early development of medical
association service plans.
Most Blue Cross-Blue Shield plans are organized in accordance
with state laws which recognize them as nonprofit service
organizations and exempt them from state premium taxation.
Depending on the state, Blue Cross-Blue Shield may or may not
technically operate as an insurer. Regardless, they are
regulated by the state insurance departments.
Normally, Blue Cross pays hospital expenses and Blue Shield
covers physician charges. Unlike a commercial insurer, which
issues a policy and has a contractual relationship with the
insured, service organizations have a contractual relationship
with the providers of health care, namely doctors and
hospitals. Subscribers to this health care service then use the
services of the contracted doctors and hospitals commonly
referred to as participating providers. All claims are settled
directly with the providers by Blue Cross-Blue Shield.
OTHER COVERAGES
Various kinds of insurance—most tied to some form of life
insurance or related coverages—can provide health coverage
for people or groups who can’t get the protection they want
from standard policies.
Used on a stand-alone basis...or combined with each
other...these alternative coverages can work for people
whose health or medical history makes traditional health
insurance difficult.
We’ll consider some of these coverages in greater detail later in
this book. Here, we’ll take a quick look at the important ones.
ACCIDENTAL DEATH AND DISMEMBERMENT
(AD&D)
Although a health insurance product, AD&D benefits are
frequently provided as riders—attachments to a policy that
modify its conditions by expanding or restricitng benefits—to
individual and group life insurance contracts.
AD&D benefits may be included as riders on life insurance policies, as part
of disability income insurance, as part of health insurance, or as a separate
policy.
AD&D coverage pays the policy’s principal sum in accordance
with policy provisions. A principal sum is similar to a policy’s
face amount. This same amount is paid if you suffer the actual
severance of two arms, two legs, or the loss of vision in two
eyes due to an accident. If the policy is paying an accidental
dismemberment benefit, this amount is identified as the
capital sum.
MEDICAL EXPENSE BENEFITS
Medical expense insurance, commonly referred to as
hospitalization insurance, provides benefits for expenses
incurred for hospital medical treatment/ surgery as well as
certain outpatient expenses like doctor’s visits, lab tests and
diagnostic services.
The policy can be issued as an individual policy covering all
family members or as a group insurance policy provided
through an employer-sponsored program.
Dental expense benefits are generally sold as part of group
hospitalization coverage. Most insurers do not provide
individual dental coverage. Dental benefits are provided for
preventive maintenance (cleanings and x-rays), repair (fillings,
root canals, etc.) and replacement of teeth.
Long-term care (LTC) insurance pays for the care of persons
with chronic diseases or disabilities, and may include a wide
range of health and social services provided under the
supervision of medical professionals. LTC often covers nursing
home care, home-based care and respite care.
LIMITED HEALTH CONTRACTS
There are a variety of special health insurance policies
providing limited coverage.
To ensure that you have sufficient notice that your coverage is limited, your
policy, by law, should state plainly that it is a limited policy.
Travel accident insurance provides coverage for death or
injury resulting from accidents occurring while the insured is a
fare-paying passenger on a common carrier.
Specified disease or dread disease insurance provides a
variety of benefits for only certain diseases, usually cancer or
heart disease. This coverage is especially important for people
with a history of a particular illness—because this is how they
can insure against other problems. For example, a person who
has survived cancer may have trouble finding standard health
coverage but may be able to get coverage for heart trouble.
Hospital income insurance pays a specified sum on a daily,
weekly or monthly basis while the insured is confined to a
hospital. The amount of the benefit is not related to expenses
incurred or to wages lost while the insured is hospitalized.
Accident only insurance provides coverage for injury from
accident—but excludes sickness. Benefits may be paid for all or
any of the following: death, disability, dismemberment or
hospital expenses.
Blanket insurance is a form of group coverage. Often the
individual’s name is not known because the individuals come
and go. These groups include students, campers, passengers of
a common carrier, volunteer groups, and sports teams. Unlike
group insurance the individuals are automatically covered
under the blanket policy, and they do not receive certificates of
insurance.
PRESCRIPTION COVERAGE
Prescription drug coverage is normally provided as an optional
benefit under a group medical expense policy. The insured and
eligible dependents are provided with a stated cost for any
prescription medication required. This specific cost is usually,
two, three, or five dollars per prescription. Thus, regardless of
the cost of the medication, the insured only pays the stated
amount and the balance of the prescription cost is paid by the
insurance company.
MEDICARE AND STATE PLANS
Medicare is health insurance for the aged or disabled. Aged
means 65 years old or older. (Though Congress has recently
considered raising the qualifying age to 67.) Disabled means
that the person is totally disabled as determined by Social
Security or an individual has a major kidney problem which
requires dialysis treatment. Reaching age 65 or having
disability status qualifies an individual for this federal health
care program.
Medicare is financed through the payment of the Medicare tax
which is part of the total Social Security taxes paid by
workers and their employers.
The other main federal health care program is Medicaid. Like
Medicare, this coverage has many limitations. Qualification for
benefits under Medicaid is based on financial need. And, even
then, the coverage is limited. It’s not great coverage.
In addition to state and federal programs in which the
government becomes a health care provider, there are
other organizations and entities which serve as health care
providers.
We will consider these programs (including Medicare and
Medicaid) in greater length later.
HOW DO YOU GET INSURANCE?
Now that you have a working knowledge of the types of plans
out there, you probably want to know how to purchase this
coverage.
Health insurance is generally available on an individual or
group basis. Premiums tend to be lower for group coverage—
and this is how most people get their health insurance.
Group coverage is typically offered through your employer,
but unions, professional associations, and other organizations
also offer this type of insurance.
When you receive group insurance at work, the premium
usually is paid through your employer. In some cases, the
employer pays some or all of this premium as an additional
benefit; in others, the premium will be deducted from your pay.
Group coverage has distinct advantages. Most of the costs may
be borne by your employer. Premiums are lower due to lower
administration costs for large groups. Eligibility for group
coverage is usually open when you start a job—you won’t have
to undergo a physical exam to prove you’re insurable.
Know your choices. Some employers offer em ployees a choice of fee-for-
service and managed care plans. In addition, some group plans offer dental
insurance as well as medical.
Individual insurance is a main option if you are self-employed
or work for a small company that doesn’t offer health
insurance. Mechanically, an individual policy works in the same
way that a group policy does; the main difference is that the
premiums are usually higher because the administrative costs
are, too.
One advantage of individual insurance: You can tailor a plan to
fit your needs. However, shop carefully. Coverage and costs
vary widely, so be sure to evaluate the medical services
covered, benefits paid, and what you must pay in deductibles
and coinsurance—for each kind of coverage.
SELF-FUNDED PLANS
Your employer may have set up a financial arrangement that
helps cover employees’ health care expenses. Sometimes
employers do this and have the health plan administered by an
insurance company, but sometimes there is no outside
administrator.
A self-funded plan is a program which allows a financially
secure employer to assume the risk for health care costs
instead of transferring the risk to an insurance company. The
employer’s funds are used to pay benefits directly to the
employees.
Instead of paying insurance policy premiums to an insurer, the
employer places a sum of money into a secured account to
provide health care benefits, usually with certain limitations.
In essence, the employer has become a “mini-insurer”
providing various types or levels of health care.
A self-insured plan is a less expensive way for an employer to provide
health care benefits, pro vided the claims experience is favorable and the
employer can realize a good rate of return on the money deposited in the
trust account. Employers often choose a self-funded plan to cover their
employees’ dental expenses because it is less ex pensive than purchasing a
dental plan.
With a self-funded plan an employer, not an insurance company,
provides the funds to pay claims for company employees and
their dependents. In the event that claims are higher than
predicted, a self-funded health insurance plan can be backed-
up by a stop-loss contract. A stop-loss contract is designed to
limit the employer’s liability for claims.
There are two variations of this coverage. Specific stop-loss
coverage begins to apply after an individual’s medical expenses
exceed a predetermined threshold—such as $5,000. Aggregate
stop-loss coverage applies when the employer’s liability for
group insurance claims exceeds a specified amount. The
insurance company pays all claims once the specified amount is
reached.
A self-funded plan may be an indemnity program which
reimburses covered employees for medical care they have
received. Or, the employer may provide benefits through the
service plan offered under an HMO, or through a company’s
PPO network.
An insurance company can also be used by a self-funded
employer under an “administrative services only” (ASO)
contract. Under an ASO agreement the insurance company
provides claim forms, administers claims and makes payments
to providers; but the employer still provides the funds to make
payments. It’s easy to confuse an ASO contract with traditional
insurance—but they aren’t the same thing.
WHAT IS NOT COVERED?
While HMO benefits are generally more comprehensive than
those of traditional fee-for-service plans, no health plan will
cover every medical expense.
Most plans won’t cover eyeglasses or hearing aids because
these are considered budgetable expenses. Very few cover
elective cosmetic surgery, except to correct damage caused by
a covered accidental injury. And some plans cover
complications arising from pregnancy—but not normal
pregnancy or childbirth.
Fee-for-service plans generally won’t cover ex perimental procedures and
sometimes they don’t cover checkups.
You should also remember that insurers will not pay duplicate
benefits. You and your spouse may each be covered under a
health insurance plan at work but, under what is called a
coordination of benefits provision, the total you can receive
under both plans for a covered medical expense cannot exceed
100 percent of the allowable cost. Also note that if neither of
your plans covers 100 percent of your expenses you will only be
covered for the percentage of coverage (for example, 80
percent) that your primary plan covers. This provision benefits
everyone in the long run because it helps to keep costs down.
PREEXISTING CONDITIONS
If you or a family member covered under your policy has a
preexisting condition you won’t have to worry about whether
or not your coverage will transfer when you change jobs thanks
to a recent change in federal law. As of July 1997, insurance
companies can impose only one 12-month waiting period for
any preexisting condition treated or diagnosed in the previous
six months. As long as you have maintained coverage without a
break for more than 62 days, your prior health insurance
coverage will be credited toward the preexisting condition
exclusion period. Pregnancy won’t apply here, but the 12-
month waiting period is waived for any newborns or adopted
children who are covered within 30 days.
If you’ve had group coverage for two years, switch jobs and
move to another plan, the new health plan can’t impose
another preexisting condition exclusion period.
Federal law also makes it easier for you to get individual insurance under
certain situations. If you aren’t covered under a group plan and can’t get
insurance on your own, check with your state insurance department to see
if it has a risk pool. Like risk pools for automobile insurance, these can
provide health insurance if you can’t get it elsewhere. But they can get
expensive.
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