Healthcare in the United States
Making Sense of Health Insurance
The term health insurance refers to a wide variety of insurance policies. These range from policies that cover the costs of doctors and hospitals to those that meet a specific need, such as paying for long-term care. Even disability insurance, which replaces lost income while not working due to illness or accident, is considered health insurance, even though it’s not specifically for medical expenses. However, when people talk about health insurance, they usually mean the kind of insurance offered by employers to employees, the type of insurance that covers medical bills, surgery, and hospital expenses. You may have heard this kind of health insurance referred to as comprehensive or major medical policies, alluding to the broad protection they offer. The fact is that neither of these terms is particularly helpful to the consumer.
Today, when people talk about broad health care coverage, instead of using the term "major medical," they are more likely to refer to fee-for-service or managed care. These terms apply to different kinds of coverage or health plans. You’ll also hear about specific kinds of managed care plans: Health Maintenance Organizations or HMOs, Preferred Provider Organizations or PPOs, and Point-Of-Service or POS plans. Remember, the detailed differences between one plan and another can only be understood by careful reading of the materials provided by insurers, your employee benefits specialist, or your agent or broker.
This type of coverage generally assumes that the medical provider (usually a doctor or hospital) will be paid a fee for each service rendered to the patient (you or a family member) covered under your policy. With fee-for-service insurance, you go to the doctor of your choice and you or your doctor or hospital submits a claim to your insurance company for reimbursement. You will only receive reimbursement for "covered" medical expenses, such as the ones listed in your benefits summary. When a service is covered under your policy, you can expect to be reimbursed for some, but generally not all, of the cost. How much you will receive is dependent upon the provisions of the policy on coinsurance and deductibles. Here’s how it works:
The portion of the covered medical expenses you pay is called "coinsurance." Although there are variations, fee-for-service policies often reimburse doctor bills at 80 percent of the "reasonable and customary charge." (This is the prevailing cost of a medical service in a given geographic area.) You pay the other 20 percent—your coinsurance.
However, if a medical provider charges more than the reasonable and customary fee, you will have to pay the difference. For example, if the reasonable and customary fee for a medical service is $100, the insurer will pay $80. If your doctor charged $100, you will pay $20. But if the doctor charged $105, you will pay $25.
Note that many fee-for-service plans pay hospital expenses in full; some reimburse at the 80/20 level as described above.
Deductibles are the amount of the covered expenses you must pay each year before the insurer starts to reimburse you. These might range from $100 to $300 per year per individual, or $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.
Policies typically have an out-of-pocket maximum. This means that once your expenses reach a certain amount in a given calendar year, the reasonable and customary fee for covered benefits will be paid in full by the insurer. (If your doctor bills are more than the reasonable and customary charge, you may still have to pay a portion of the bill.)
Note that Medicare limits how much a physician may charge you above the usual amount.
There also may be lifetime limits on benefits paid under the policy. Most experts recommend that you look for a policy whose lifetime limit is at least $1 million. Anything less may prove to be inadequate.
The three major types of managed care plans are Health Maintenance Organizations (HMOs), Preferred Provider Organizations (PPOs), and Point-Of-Service (POS) plans. Managed care plans generally provide comprehensive health services to their members, and offer financial incentives for patients to use the providers who belong to the plan. In managed care plans, instead of paying separately for each service that you receive, your coverage is paid in advance. This is called prepaid care. For example, you may decide to join a local HMO where you pay a monthly or quarterly premium. That premium is the same whether you use the plan’s services or not. The plan may charge a co-payment for certain services, for example, $10 for an office visit, or $5 for every prescription. So, if you join this HMO, you may find that you have few out-of-pocket expenses for medical care, as long as you use doctors or hospitals that participate in or are part of the HMO. Your share may be only the small co-payments; generally, you will not have deductibles or coinsurance. One of the interesting things about HMOs is that they deliver care directly to patients. Patients sometimes go to a medical facility to see the nurses and doctors or to a specific doctor’s office. Another common model is a network of individual practitioners. In these individual practice associations (IPAs), you will get your care in a physician’s office.
If you belong to an HMO, typically you must receive your medical care through the plan. Generally, you will select a Primary Care Physician who coordinates your care. Primary care physicians may be Family Practice Doctors, Internists, Pediatricians, or other types of doctors. The Primary Care Physician is responsible for referring you to specialists when needed. While most of these specialists will be "participating providers" in the HMO, there are circumstances in which patients enrolled in an HMO may be referred to providers outside the HMO network and still receive coverage. PPOs and POS plans are categorized as managed care plans. (Indeed, many people call POS plans "an HMO with a point-of-service option.") From the consumer’s point of view, these plans combine features of fee-for-service and HMOs. They offer more flexibility than HMOs, but premiums are likely to be somewhat higher. With a PPO or a POS plan, 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-for-service plans and charge you coinsurance when you go outside the network.
What is the difference between a PPO and a POS plan? A POS plan has primary care physicians who coordinate patient care; and in most cases, PPO plans do not. But there are exceptions!
HMOs and PPOs have contracts with doctors, hospitals, and other providers. They have negotiated certain fees with these providers, and as long as you get your care from these providers, they should not ask you for additional payment. Of course, if your plan requires a co-payment at the time you receive care, you will have to pay that.
Always look carefully at the description of the plans you are considering for the conditions of payment. Check with your employer, your benefits manager, or your state department of insurance to find out about laws that may regulate who is responsible for payment.
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. With self-insured health plans, certain federal laws may apply. Thus, if you have problems with a plan that isn’t state regulated, it’s probably a good idea to talk to an attorney who specializes in health law.
How Do I Get Health Coverage?
Health insurance is generally available through groups and to individuals. Premiums are the regular fees that you pay for health insurance coverage and are generally lower for group coverage. When you receive group insurance at work, the premium usually is paid through your employer.
Group insurance is typically offered through employers, although unions, professional associations, and other organizations also offer it. As an employee benefit, group health insurance has many advantages. Much, although not all of the cost may be borne by the employer. Premium costs are frequently lower because economies of scale in large groups make administration less expensive. With group insurance, if you enroll when you first become eligible for coverage, you generally will not be asked for evidence that you are insurable. (Enrollment usually occurs when you first take a job, and/or during a specified period each year, which is called open enrollment.) Some employers offer employees 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 good option if you work for a small company that does not offer health insurance or if you are self-employed. Buying individual insurance allows you to tailor a plan to fit your needs from the insurance company of your choice. It requires careful shopping, because coverage and costs vary from company to company. In evaluating policies, consider what medical services are covered, what benefits are paid, and how much you must pay in deductibles and coinsurance. You may keep premiums down by accepting a higher deductible.
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. Very few plans cover eyeglasses and hearing aids because these are considered to be budgeted expenses. Very few cover elective cosmetic surgery, except to correct damage caused by a covered accidental injury. Some fee-for-service plans do not cover checkups. Procedures that are considered experimental may not be covered either. And some plans cover complications arising from pregnancy, but do not cover normal pregnancy or childbirth.
Health insurance policies frequently exclude coverage for preexisting conditions, but, as explained, federal law now limits exclusions based on such conditions. 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.
Whether you end up choosing a fee-for-service plan or a form of managed care, you must examine a benefits summary or an outline of coverage—the description of policy benefits, exclusions, and provisions that make it easier to understand a particular policy and compare it with others.
Look at this information closely. Think about your personal situation. After all, you may not mind that pregnancy is not covered, but you may want coverage for psychological counseling. Do you want coverage for your whole family or just yourself? Are you concerned with preventive care and checkups? Or would you be comfortable in a managed care setting that might restrict your choice somewhat but give you broad coverage and convenience? These are questions that only you can answer.
Here are some of the things to look at when choosing and comparing health insurance plans.
Health Insurance Checklist:
- Covered medical services
- Inpatient hospital services
- Outpatient surgery
- Physician visits (in the hospital)
- Office visits
- Skilled nursing care
- Medical tests and X-rays
- Prescription drugs
- Mental health care
- Drug and alcohol abuse treatment
- Home health care visits
- Rehabilitation facility care
- Physical therapy
- Speech therapy
- Hospice care
- Maternity care
- Chiropractic treatment
- Preventive care and checkups
- Well-baby care
- Dental care
Other covered services
Are there any medical service limits, exclusions, or preexisting conditions that will affect you or your family? What types of utilization review, pre authorization, or certification procedures are included?
A Final Word
If you get health care coverage at work, or through a trade or professional association or a union, you are almost certainly enrolled under a group contract. Generally, the contract is between the group and the insurer, and your employer has done comparison-shopping before offering the plan to the employees. Nevertheless, while some employers only offer one plan, some offer more than one. Compare plans carefully!
If you are buying individual insurance, or any form of insurance that you purchase directly, read and compare the policies you are considering before you buy one, and make sure you understand all of the provisions. Marketing or sales literature is no substitute for the actual policy. Read the policy itself before you buy.
Ask for a summary of each policy’s benefits or an outline of coverage. Good agents and good insurance companies want you to know what you are buying. Don’t be afraid to ask your benefits manager or insurance agent to explain anything that is unclear.
It is also a good idea to ask for the insurance company’s rating. The A.M. Best Company, Standard & Poor’s Corporation, and Moody’s all rate insurance companies after analyzing their financial records. Such publications that list ratings usually can be found in the business section of libraries.
In some cases, even after you buy a policy, if you find that it doesn’t meet your needs, you may have 30 days to return the policy and get your money back. This is called the "free look."
Information obtained from the American Health Insurance Plans.