Educational Consumer Tips
What Is Health Insurance?
Just as most consumers purchase insurance on their automobiles to protect themselves and their property in case of an accident, many individuals, likewise, insure themselves and their families against the unforeseen expenses arising from illness, injury or accidents.
Today, with health care costs rising dramatically each year, even relatively simple medical procedures can run into the thousands of dollars. However, it is not just the cost of medical care that is rising. The variety of care available also is increasing.
In order to reduce the risk of unexpected health care, private health insurance companies now offer a growing array of health insurance programs and plans, that vary widely in terms of coverage, costs and benefits.
Although at first glance some health insurance plans and policies may seem the same, after reviewing the technical language you may discover they are quite different. Because of the often difficult-to-understand terminology, exceptions, and exclusions, contained in these policies, it is frequently said that few purchases made by consumers are more confusing or require more careful study.
The purpose of this pamphlet is to discuss some of the key issues to keep in mind when shopping for the best health insurance policy, or plan, for you or your family.
What Does Health Insurance Do For You?
Perhaps the most important point to remember is that no insurance company can guarantee good health. In fact, many insurance companies actively encourage their customers to take it upon themselves to become healthier.
This preventive approach to better health may include a series of brochures or booklets that provide tips on ways to better living, free or low cost smoke-ending clinics and exercise related activities. Proper diet and regular medical check-ups are also encouraged.
Health insurance companies are selective in who they will or will not insure. For example, some offer better rates to non-smokers, or persons without previously existing maladies. So, on a whole, it is in the consumer's best interest from both a health and financial standpoint to stay as healthy as possible.
Virtually all health insurance plans and policies cover part of the costs stemming from hospitalization, unforeseen diseases and illnesses, various forms of elective and emergency surgery, and injuries resulting from accidents.
How much of these costs are to be paid by the insurance company is largely dependent on how much coverage you are willing and able to pay for.
How Does Health Insurance Work?
Insurance companies can pay out sums to clients entitled to benefits year after year because many thousands of policyholders contribute relatively small sums--the premiums--to a common fund, thus spreading the risk among a large group. This risk lies at the heart of all forms of insurance. Put another way, a whole lot of people are sharing the costs for one another's health care.
Insurance companies determine the size of premium payments by first estimating how much they would normally be expected to pay out in the form of claims, the cost of administering the plans, and other expenses. Of course, nobody can predict which individual policyholder will have what illness or injury. However, experts can indeed predict how many will be stricken and how much it will cost to treat them.
Using these figures as a basis for future projections, insurance company statisticians make computations and draw up their tables of sicknesses, accidents, disabilities and costs.
Who Provides Health Insurance?
Health insurance coverage is available from commercial insurance companies; hospital and medical service plan providers, like Blue Cross and Blue Shield; and maintenance organizations (HMOs).
Other forms of health insurance are provided specifically for members of the military, the elderly (Medicare), federal civilian employees, veterans of military service, and other special interest groups like American Indians and Alaskan natives.
Health insurance can be purchased on an individual or group basis. Group health insurance, generally available through an employer, may also be offered by other various organizations such as federal societies, labor unions, college health departments, and rural and consumer health cooperatives. The employer usually pays part of or all of the costs for the group health insurance available to employees. However, since the protection provided by group health insurance varies from plan to plan it is wise to check with your employer's personnel office, or the union office, to find out exactly what coverage and benefits you are entitled to receive.
If your group health insurance does not fully cover all of your health needs, then you may need to supplement your coverage with individual insurance. Individual insurance can be suited to your particular needs and provided by the insurance company or agent of your choice. Because coverage and costs of such policies vary from company to company you should shop around and compare the prices and benefits offered before making a decision to purchase.
Normally, premiums are significantly lower under group plans. This is because many individuals can be insured under a single contract, with savings in sales and administrative expenses.
The physical condition of the insured person, usually does not have a bearing upon his or her eligibility for a group plan. The insurance company is concerned with the health of the entire group.
Under group policies, the individual's coverage cannot be canceled. It normally terminates when he or she leaves the job or organization. However, many groups offer continued coverage for a specified time until you are able to convert your group coverage to an individual policy, generally at a higher rate.
Types Of Health Insurance
I. Basic Protection Insurance
This type of insurance combines hospital, surgical and doctor's expenses under one plan. Benefits may cover daily room and board and routine nursing services while in the hospital, X-rays, lab tests, drugs and medications, costs for surgical procedures in and out of the hospital (often based on usual and customary charges), as well as office visits to your doctor.
II. Major Medical Insurance
Major medical is most important because it comes in where basic protection leaves off, providing the financial cushion against the heavy costs of a catastrophic or prolonged illness. These policies cover virtually every type of treatment, whether in or out of a hospital, as long as it is provided by a licensed physician. Designed for the catastrophic, rather than routine sickness, the policies pay large amounts for such services as private nursing care, ambulances, surgical appliances, drugs, tests and X-rays.
While shopping for major medical insurance you should keep the following factors in mind.
These policies call for a "deductible." This means you must pay a stated amount first, before the insurance company begins issuing benefits.
The deductible commonly runs from several hundred to several thousand dollars or more; and the rule here is the higher the deductible you are willing to accept, the lower the cost of your insurance. If you have basic protection (hospital, surgical and physician's expense insurance) and a major medical policy to supplement that, the deductible can be satisfied in part or in full by using up all your basic benefits first.
"Co-insurance." the part of the medical costs you are obligated to pay with your insurer, is also involved.
For example, most major medical plans will pay 75 to 85 percent of all eligible medical costs above the deductible, you pay the remainder. In other words, a medical care bill totaling $10,000 of eligible expenses would leave you paying from $1,500 to $2,500 above the deductible.
Many policies that require you to pay a share of the costs feature a "stop-loss" provision where you only have to pay up to a certain amount and no more. For example, a policy may specify that after you have paid $2,000 of your own money, then the insurer will pay 100 percent of all remaining covered medical expenses.
> III. Disability Insurance
Disability insurance provides income if you are unable to work because of sickness or injury.
This type of insurance is also called "loss of income" insurance and generally, requires that a person be totally disabled before benefits are paid. Depending on the definition of "total disability" in your policy, this may mean that you are unable to:
- Perform any job requirement;
- Engage in any gainful occupation to which you are suited by education, training or experience; or
- Work in any occupation.
Be sure to examine your insurance policy carefully for the exact definition of "total disability."
Under disability insurance, cash benefits may range from half to two-thirds of your regular income, depending on the policy selected. Duration of the benefits varies considerably. You can buy policies that provide payments for 13, 26 and 52 weeks or for an entire lifetime. As in "major medical" there is a deductible in the form of a waiting period, which can be a week to six months. Usually, there is no waiting period for accidental injuries. This waiting interval eliminates payment of a great number of small claims, since the overwhelming majority of illnesses last only a couple of weeks. The longer the waiting period, the less the cost of the insurance.
Other Types Of Special Coverage
Several special types of insurance coverage also are available. They include:
- Dental expense insurance that helps pay for normal dental care as well as damage caused by accidents. It is generally available through insurance company group plans or prepayment plans.
- Special hazards policies that cover accidents suffered in hunting, football and skiing.
- Insurance against the expense of treating an unborn child for congenital conditions.
- Insurance against injuries to students, incurred while attending school or traveling to and from school. Under some policies, a student can be covered during those times of the year when he or she is not attending school.
- Policies covering rehabilitation services, prescription drug service and vision care.
- Coverage for accidents and illnesses occurring during a plane hijacking
- Travel accident policies that provide death and dismemberment benefits ranging up to high maximums are obtainable at all ages. These may be purchased for an individual trip or an annual basis and are written either as an individual policy or as a group plan for employees. These policies may also provide reimbursement for accidents or, in some cases, weekly or monthly loss of income benefits for a limited period of disability due to accident.
- Cancer insurance coverage to help finance costly treatment.
As with any supplemental insurance, it is important to determine if there is a problem of "coordination of benefits" with your primary health insurance. This is to guard against a situation of obtaining supplemental insurance which is rendered useless through coordination of benefits. Mail Order Insurance Consumers have been purchasing health insurance through the mail for a very long time. Insurance companies mail brochures to millions of potential customers each year. This material contains information on health insurance, coverage and cost.
Many of these same firms also advertise in newspapers and magazines for additional customers. Some advertisements may be particularly attractive to persons 65 and over who have been dropped by other insurance firms because of the high risk.
Check mail-order insurance terms, conditions and premiums very carefully. Some policies promise fixed premiums for the term of the policy; however, in other instances, the premiums are lower to start but increase as you grow older. In some cases, these increases are substantial. Federal Government Insurance Programs
The federal government provides various forms of health insurance for different groups. The majority of federal health spending is for health services to the following groups:
- Low-income individuals and others eligible for Medicaid services;
- Individuals 65 and over (Medicare);
- Military personnel and their dependents;
- Federal civilian employees; and
- Native Americans.
Title XIX of the Social Security Act provides for a program of medical assistance for certain low-income individuals and families. The program, known as Medicaid, became federal law in 1965.
Medicaid is basically administered by each state within certain broad federal requirements and guidelines. The program, financed jointly by state and federal funds, is designed to provide medical assistance to those groups or categories of persons who are eligible to receive payment under one of the cash assistance programs. In addition, states may provide Medicaid to the "medically needy," persons who fit into one of the categories eligible for public assistance, who have enough income to pay for their basic living expenses but not enough to pay for their medical care.
Many members of the Medicaid population are old or disabled and are also covered by Medicare. In cases where this dual coverage exists, most state Medicaid programs pay for the Medicare premiums, deductibles and co-payments, and for services not covered by Medicare. State participation in the Medicaid program is optional.
Medicare Persons 65 and over are entitled, without premium payments, to certain health insurance benefits under the federal government's Medicare program, which went into effect in 1966.
Medicare consists of two parts: hospitalization insurance (HI), also called Part A; and voluntary supplementary medical insurance (SMI), Part B, which helps pay for physicians' services and some medical services and supplies not covered under Part A. Part A is financed largely by social security taxes; Part B is financed by monthly premiums paid by those who choose to enroll and by the federal government.
Since Medicare does not cover all health care costs, Medicare Supplemental Insurance, offered by many major insurance groups, has become a popular means of filling many of the gaps left by Medicare coverage. These programs, however, do not fill all the gaps. They are designed to cover the co-payments not covered by Medicare and to pay Medicare eligible expenses after Medicare's limits have been reached. (Note, Medicare payments and benefits may be substantially expanded when catastrophic health legislation, approved by Congress, becomes effective).
Health Maintenance Organizations (HMOs)
An HMO is an organization that provides for a wide range of comprehensive health care services for a specified group at a fixed periodic payment. Membership in one HMO does not automatically entitle you to care nationwide. An HMO is primarily a local service, limited to residents of a specific geographical area. Obtaining health care when you are away from your HMO area may be difficult, available only in the event of an emergency.
When joining a HMO, members select a doctor, the "primary care physician," from a list provided by the company. Typically internists, pediatricians and general practitioners, these doctors decide if tests or further referral to a specialist is warranted. This system is designed to eliminate any unnecessary care which may increase the total cost of health care.
In considering an HMO do not base your decision on a brochure, alone. Be sure to read the complete HMO contract and discuss details and questions with the plan administrator before enrolling.
How Much Insurance Is Right For You?
There is no easy formula for determining how much or what kinds of health insurance you and your family need? The ideal family health insurance plan gives adequate protection according to the needs and situation of your family. The best family program is one which prevents undue financial strain from an unexpected illness or injury, yet is not too costly to maintain.
In deciding how much coverage you need, these factors should be taken into account:
- How much money do you have available for emergencies?
- Is your income large enough to absorb some of the financial burden?
- How much do hospitals and doctors charge in your community health services in the form of low-cost or free clinics available to you?
- Are there any unusual health hazards where you live?
- How good has your family's health history been? Many illnesses? A few?
- And, most important of all, what protection do you already possess? Check into benefits provided under worker's compensation, social security benefits, the medical payments under liability insurance, and life insurance disability provisions.
After this kind of fiscal check-up, you should have a fairly good idea of how much insurance you need. You may find, for example, that you would be able to absorb the cost of a brief period of illness or hospitalization. In that case, major medical would be all the coverage necessary.
However, if you cannot absorb an unexpected expense of several hundred or thousands of dollars, you should consider basic protection insurance and add major medical coverage.
When it comes to disability insurance, it is easier to estimate how much protection you may need. It is simply the difference between the amount of money that will be coming in if you are not working and what you would need to sustain your family under normal conditions.
Carefully compute the total amount your family would receive from every possible source, if you should suddenly stop earning wages. Chances are you may discover you already have more disability protection than you think.
You may, for example, have money coming in from sources, such as:
Who Is Covered And For How Long?
Medical expense policies are usually family policies which specify who is primarily insured (the policyholder) and spell out the eligibility of dependents for coverage. Generally, a spouse and dependent children are fully covered. New additions to a family become eligible for benefits at birth.
As for dependent children, the policy will set the age limit for dependency; which can range between 18 and 25. There are some exceptions if the child is handicapped. Once a child marries or ceases to be dependent, regardless of age, or enters the armed forces, coverage ceases.
Disability income insurance only covers the wage earner, not members of the family.
Limitations and Exclusions
A good insurance policy does not have a long list of limitations and exclusions, but you probably will find some. An insurance policy that covered your total medical bills for every possible contingency would be prohibitively expensive.
In most cases, however, after one, two or three years, depending on the state laws and your contract, the company can no longer refuse benefits for preexisting conditions.
Renewability is a critical factor, since it could make the difference between coverage and no coverage at an important time. Where renewability is concerned, policies come in the following types:
Guaranteed renewable--Health insurance coverage cannot be terminated, as long as you pay the premiums. However, the company can raise rates at its discretion, not just for you but everyone else having the same kind of coverage. All insured persons in a given class can expect boosts as general medical costs rise, but no other provision of the policy may be altered.
Optional renewable--A contract for health insurance in which the insurer reserves the unrestricted right to terminate the coverage at any anniversary date or, in some cases, at the premium due date; but does not have the right to terminate coverage between such dates.
Tips To Remember
Consider these key issues as you plan a health insurance program for you and your family:
- Does the policy cover everyone in your immediate family? To what age are children insured?
- What is the policy's effective date?
- How long is the waiting period before benefits begin?
- Are surgical benefits in line with surgeon's fees in the area where you live?
- What conditions are not covered?
- What is the maximum amount paid under major medical? How large is the deductible? After recovery from an illness, will the maximum amount of benefits again be available?
- Did you compute the total amount of funds your family can obtain from all sources if your income should cease, before acquiring disability insurance?
- Was the loss of income policy reviewed carefully for the exact definition of "total disability"?
- How reliable is your agent and the company he or she represents? Are they licensed to do business in your state?
- Did you fall prey to high pressure tactics by an insurance agent or glowing promises made in an advertisement? Did you consult other policyholders about their experiences with the company?
- Was the policy studied with special care before you signed it?
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