Health care insurance is expensive, particularly if you're buying it on your own or if your employer does not contribute to the cost. However, here are several important reasons why you need it.
It is a financial safeguard. Without insurance, you run the risk of being financially wiped out by a serious illness or accident.
Without the benefits paid by insurance, you may find the cost of quality health care too high to afford.
You may even have to go without treatment if you don't have health insurance.
There are a variety of health care insurance products and coverage plans available today. And, whether your employer offers a plan or plans from which you can choose, or you're buying coverage directly, you're probably aware that health care insurance has a range of costs and benefits. Consequently, as a consumer of health care insurance, you'll want to select affordable coverage that's right for you. To help determine the best coverage, there are several important details about health insurance that are addressed in this article with which you'll want to be familiar.
Read any insurance policy carefully before buying. Be sure you know exactly what illnesses and conditions are covered. Once you select a policy, you will make a monthly payment, called a premium, in exchange for coverage. Typically, payments are made directly to the insurer; some employers provide for payroll deduction. In exchange for your premium dollars, insurance policies commonly pay for all or a portion of the following:
- Medical tests and X-rays
- Maternity care
- Pediatric care
- Doctor's office visits
Conditions and treatments that are often excluded from coverage include the following:
- Cosmetic surgery, except after a disfiguring accident or surgery
- Hearing aids
- Dental care
- Preventive care, such as mammograms, immunizations or well-baby care
- Experimental care or treatments not recognized as necessary by the medical establishment. However, some major insurers are starting to include coverage for alternative therapies such as chiropractic, diet and nutritional programs, and acupuncture.
Choosing insurance is a matter of need and cost. You can shop for a policy from among the major types of insurance offered today.
Traditional Health Care. Traditional insurance, sometimes called fee-for-service, is the most flexible form of health care insurance. You go to any doctor or hospital you choose and submit your medical bills as a claim to your insurer for reimbursement. You pay a deductible, which is the amount of money that you pay out of your pocket before your insurance company will begin paying your covered expenses. Some examples of typical deductible amounts are $200, $400 or $500. Most deductibles are annual, which means you will be responsible for paying your deductible again at the beginning of a new year.
After you have met your deductible for the year, your insurer will pay a specified percentage of your medical bills, often 70% or 80%. You are responsible for the remaining percentage, your coinsurance amount. Most policies have an out-of-pocket cap that limits how much you may have to pay in one year. For example, your yearly out-of-pocket limit may be $5,000. After you reach the cap, the insurer pays 100% of remaining covered expenses during that year. You may also have to pay any amount your doctor charges over what your policy defines as reasonable and customary fees.
Traditional plans come in many shapes and sizes. Some common types of traditional plans include major medical, which provides the most complete coverage for medical costs in and out of the hospital, and catastrophic plans, which are bare-bones policies that provide only for the costs of hospitalization and surgery. The deductibles for catastrophic plans can be high.
Preventive care, such as immunizations and yearly physical examinations, is often excluded from traditional plans. Likewise, dental and vision benefits usually are not included, though some employers may offer these coverages separately. Prescription drugs may or may not be included in traditional plans.
Be sure you understand exactly what type of policy you are buying. Check with your employee benefits coordinator or your insurance agent for the benefits provided under your specific plan. Among the questions you should ask about a traditional health insurance policy:
- What conditions are covered? Which are not? Are there limitations on coverage for preexisting conditions? Are prescription drugs covered?
- What is the most I would pay in a year for coverage? Add together the cost of the premium, the deductible amount and your coinsurance up to the out-of-pocket limit.
- Is the policy guaranteed renewable? This means it cannot be canceled unless you stop paying your premiums.
- Is there a lifetime limit on benefits? A policy may limit the benefits it will pay over the course of a long illness.
- Are there any procedures I must follow in order to get coverage? For example, many traditional plans require you to call ahead for authorization before being admitted to the hospital.
Health Maintenance Organizations (HMOs). HMOs are prepaid health plans for comprehensive care. HMOs usually cost you the least amount of money out of your pocket, but they do restrict your choice of doctors. When you enroll in an HMO, you choose a primary care physician--typically an internist, general practitioner, family doctor or pediatrician--from a list of physicians who participate in the HMO. This practitioner is then responsible for managing your health care and will refer you to specialists when necessary.
HMOs rarely have deductibles. Instead, you (or your employer) pay the monthly premium and a small co-payment, for example, $5 or $10, for each visit to your doctor's office. Visits to specialists may involve higher co-payments. Some HMOs also have hospital co-payments, for example, $200 per admission. You simply present your identification card for treatment, and there are no claim forms to fill out.
Most HMOs emphasize preventive care by including such benefits as immunizations, mammograms, physical examinations and well-baby pediatric care. Prescribed medications usually require a small co-payment, for example, $5 per prescription, at an HMO participating pharmacy. Some plans offer dental or vision options.
The most common complaints of HMO participants include the limited number of conveniently located doctors from which to choose and the amount of time it takes to be referred to a specialist. If you can tolerate these inconveniences, HMOs can provide you with comprehensive health care coverage at the lowest price. Among the questions to ask about an HMO:
- What is the yearly cost? Consider the premiums and estimate how much you're likely to pay in co-payments for visits to the doctor during the year. As a rule of thumb, the higher the co-payments, the lower your monthly premiums.
- How many doctors are there to choose from? Are they conveniently located to your home or office? Can you switch doctors within the HMO if you wish? Is the doctor accepting new patients?
- How far in advance do I have to schedule routine appointments? How long will it take to get in to see a specialist?
- Are certified specialists available for a specific condition or illness for which you or your family needs treatment?
- Are there any therapies or conditions that are not treated by the HMO?
- Are preexisting conditions covered? How long is the waiting period? Your insurer may exclude illnesses or conditions that existed before your policy takes effect, such as pregnancy, heart disease or an accidental injury. Typically an insurer will refuse to pay for treatment of preexisting conditions for a fixed period, usually one year. Some states have enacted legislation requiring insurers to cover preexisting conditions.
- What type of emergency treatment is provided? Is the cost of emergency treatment covered if you are traveling out of town?
Most networks are quite extensive, and you can choose from a number of physicians. You may even find your family doctor on the list of participating physicians. PPO networks vary in cost and convenience. There usually is a deductible, after which you pay a percentage of costs. You most likely will have to submit claim forms yourself, especially if you see an out-of-network doctor. Preventive care is sometimes provided. Among the questions you should ask about a PPO:
- What are my total costs likely to be? Again, consider premiums, the deductible and co-payments.
- How many doctors are in the PPO network? How conveniently located are they?
- How many specialists are in the network? How long does it take to schedule an appointment?
- Are there any limits on treatment for preexisting conditions?
- Is preventive care covered? What about prescriptions, medical tests or mental health care?
Hybrid Plans. Most insurers and HMOs have developed hybrid health plans, also known as Point-of-Service (POS) plans. These plans combine the managed care features of an HMO with a traditional plan, allowing you to go both in-network and out-of-network.
When you join a hybrid plan, you choose a primary care physician for the in-network portion of the plan. However, you do not have to use this doctor. Each time you require medical services you have the option of seeing your primary care physician or another doctor who is not in the network.
If you visit your primary care physician, you simply show your identification and pay the required co-payment.
If this doctor refers you to an in-network specialist, the same system applies.
Visiting an out-of-network doctor works like a traditional plan. You pay for the office visit and submit a claim form. After your deductible has been satisfied, the insurer pays a certain percentage, such as 70% or 80%. If you see a specialist on your own, without a referral from your primary care physician, you may have to pay the out-of-network costs, even if that specialist is in the network.
Hybrid plans are useful if you want to try managed care but don't want to be locked into a network of doctors. A drawback is that they cost more than HMOs.
Prescription Drug Plans. This coverage is not always provided by traditional plans. Large employers are most likely to provide prescription drug benefits. In addition, some states have laws mandating prescription drug coverage in policies sold to small businesses or individuals. Some plans specify a deductible for prescriptions, for example, $50 or $75, and reimburse 80% of the costs above that amount. Other plans require a co-payment, for example, $5 for each prescription filled at a network pharmacy. Some plans require you to use a mail-order pharmacy for drugs you take on a regular basis.
Dental Benefits. Dental procedures are rarely covered by health insurance plans, but some employers offer dental coverage as a separate package. Reimbursement varies by procedure and is often lower than that of medical plans. For example, a crown may be covered at only 50%. Some dental plans now offer managed care provisions similar to PPOs. They pay a higher percentage of dental costs if you use a dentist in the plan's network.
Vision Care. Eye examinations and corrective lenses are usually excluded from traditional health insurance but may be purchased as a separate package. Most vision benefits can be administered as traditional or network-based plans.
Disability Coverage. This is probably one of the most overlooked forms of insurance for working-age people. Disability coverage replaces a portion of your income when you can't work because of illness or injury. Most policies pay a percentage of your paycheck, for example, 60% to 80%. (You also may receive income from Social Security for certain disabilities or from Workers Compensation if you are injured on the job.)
Common examples of disabilities include back injuries or surgical procedures. Some policies provide coverage when you cannot work in your specific field, while other policies pay benefits only if you cannot work at all. Most policies will not pay if the disability was self-inflicted, such as injuries caused by drug abuse or a suicide attempt. Most companies also will generally not pay for a preexisting condition, typically defined as an injury or illness that occurred within three months before obtaining a disability policy. Ask your insurance agent or employer for details about how a specific policy works and how it defines disability.
Most policies don't pay any benefits during the initial waiting period, which can range from one to six months or even longer. That's why it's sound financial advice to keep cash savings on hand to cover at least six months of living expenses. After the waiting period, short-term disability policies generally pay for periods of disability ranging up to two years. Long-term disability policies may pay for an indefinite period, but most policies end when the disabled person turns 65. During your disability, premiums will be waived. It's a good idea to buy enough disability insurance to cover 80% of your monthly expenditures. If your employer provides a 60% disability policy, you may want to consider a supplemental policy covering 20% of your income. You cannot buy a policy that covers 100% of your income.
Accidental Death and Dismemberment (AD&D). Most AD&D policies provide benefits for accidental death, paralysis, or loss of limb, speech, hearing or eyesight. The percentage of payment varies by company and policy. This benefit is in addition to any other life or health insurance policies you may have. Most policies will not pay if the accident or death was due to suicide, drug abuse or mental illness. AD&D is an added benefit if your employer provides it, but it may be too expensive to purchase on your own.
Specified Disease Policies. These are available only in some states. Specified or "dread" disease policies provide medical benefits if you get a specific illness such as cancer. They may pay you a specific amount of money, for example, $100 a day, for each day of hospitalization from the specified illness. These policies are often sold through the mail. Be cautious about buying them: They may duplicate coverage you already have and/or may cost more than you would ever be likely to receive in benefits.
You can purchase health care coverage in three ways:
Through an employer
This is the least expensive way to acquire insurance. If you work for a large company, it may pay some or all of your monthly premium. Large businesses have the bargaining power to provide lower premiums and greater benefits. You probably will not be required to pass a health exam, and your preexisting conditions may be covered. You're also more likely to have a choice of plans if you work for a large employer.
Small businesses, on the other hand, are at a disadvantage in negotiating insurance coverage. They may have trouble even obtaining coverage based on the health history of one or more employees, and their premiums are likely to be more expensive. Some states have passed laws that require insurers to offer coverage to small groups within a set price range.
If you and your spouse are both covered by insurance at your jobs, the insurance firms may coordinate your benefits. That means that whatever is not covered by one plan (your primary carrier) could be paid by the other--provided you and your spouse are each covered under the other's policy. You may never receive more than 100% of the cost of the services provided. Not all insurers have the same rules, so check with your employee benefits counselor to see how benefits will be coordinated.
If you lose or leave your job, you have the option of extending your existing insurance coverage for up to 18 months under The Consolidated Omnibus Budget Reconciliation Act of 1986 (COBRA). The same law allows an employee's family to continue coverage for up to three years following death or divorce. COBRA permits you to continue your health care coverage at your former employer's group rate, plus a small (maximum of 2%) administrative fee. If you fail to pay the premiums, your coverage will be canceled and you will not be able to reestablish it.
COBRA coverage ends when you start a new job with health benefits. The option to extend coverage under COBRA is critical if you cannot afford the high premiums of an individual policy or if you have a preexisting condition.
As an individual
If you are self-employed or unemployed, and are not covered by another family member's insurance, you should purchase an individual health insurance policy. The premiums for individuals can be expensive, even for the most basic plans. The best advice is to comparison shop and buy the best coverage you can afford. Group coverage may be available to members of certain trade or professional associations. A few states have 'risk pools,' which provide coverage to any person regardless of prior health problems. Check with your state insurance department if you are unable to obtain coverage on your own. Note that some preexisting conditions may not be covered under your individual health insurance plan. Be sure to determine with your insurance provider what is and is not covered.
Medicare and Medigap insurance
Once you are 65, you can obtain Medicare insurance from the federal government's health insurance program. You also may qualify if you have certain disabilities. Medicare does not pay all of your expenses, and there are deductibles. Excluded are most nursing-home care or long-term care in the home. Medicare Part D provides coverage for prescription drugs. Many people over 65 buy a Medigap policy from a private insurer to supplement Medicare coverage.
There are 12 standard Medigap policies, labeled A through L, which make it easy to comparison shop. Depending on which package you choose, Medigap coverage may pay for such things as Medicare deductibles, coinsurance amounts or prescription drugs. Medigap insurers must accept you, regardless of preexisting conditions, if you apply within six months of becoming eligible for Medicare. If you wait longer, you may be refused coverage.
If you're in the market for new medical coverage, either through a choice of new plans at work or as an individual, ask yourself these very important questions.
What are my health care needs? The answer will depend on whether you have children, are frequently ill yourself, require many prescription drugs or have a preexisting condition. Make a list of the benefits you are most likely to need, then be sure the policy you are considering provides these coverages.
Is preventive care important to me? If you want coverage for yearly health exams, mammograms, immunizations or well-baby care, you may want to consider an HMO or PPO or POS plan.
Do I frequently need to see specialists? You may find access to specialists easier through traditional fee-for-service plans, particularly if you want to choose the specialist you see.
Do I mind filling out claim forms? Many traditional plans involve some paperwork. If you don't want to fill out claim forms or think you will forget, you may be better off with a managed care plan.
How much can I afford to spend? The amount of coverage you purchase may be limited by how much you can afford to spend.
Is the policy guaranteed renewable? If it is, the insurance company cannot cancel your policy as long as you keep paying premiums.
Can I get a "free look?" Many insurers provide a 30-day trial period during which you can get a refund if the new policy doesn't meet your needs.
Will the insurance company be able to pay my claims? Be sure the insurer is financially stable. Independent groups such as Duff & Phelps, Moody's, Standard & Poor's, A.M. Best and Weiss publish the financial ratings of insurance companies.
Does the insurance company have a good reputation for customer service, and does it pay claims promptly? Talk with several people who are already insured with that company, then check with your state insurance department.
Have I read the policy? Study it carefully before you sign up. You need to know exactly what health benefits you will have before you need to use them.
- Shop around. Make a list of the benefits you need and check at least three companies to compare costs.
- Think ahead. The best time to buy low-cost insurance is when you're young and healthy. If you have an accident or your health deteriorates, you may find that obtaining coverage is difficult or extremely expensive.
- Check to see if you qualify for group insurance as a member of a professional association. It may save you a lot of money over buying an individual policy.
- Increase your deductible. If you have enough cash on hand to pay for unexpected emergencies, you can save money by taking a higher deductible.
- Consider an HMO, PPO or POS. They are frequently less expensive than traditional plans.
- Don't overinsure yourself. Separate policies for hospital stays or accidents often have high premiums in comparison to the benefits they offer and may duplicate existing coverage.
- Coordinate coverages. If you and your spouse both work and get health care benefits, compare plans and choose the best parts from each.
- Find out about any tax allowances you may be eligible for. If your out-of-pocket medical costs (those not covered by insurance) exceed a certain percentage of your adjusted gross income, you may be entitled to a deduction on your federal income tax return.
- Take advantage of your company's flexible spending account (FSA). Some employers offer FSAs which allow you to set aside pretax dollars through payroll deduction to pay eligible medical expenses. Set aside only funds you know you will use, since you lose any money that you don't spend by the end of the year.
- Stay Healthy. Taking good care of yourself can be the best health care cost-control program.
The Social Security Administration's site on Medicare and Medicaid related topics.
Life and Health Insurance Foundation for Education has everything you wanted to know about insurance, but were afraid to ask. This is a very comprehensive site devoted to health (and life) insurance. Includes a newsletter, education and advice about purchasing insurance.