Why Do You Need Health
Insurance?
Today, health care costs
are high, and getting higher. Who will pay your bills if
you have a serious accident or a major illness? You buy
health insurance for the same reason you buy other kinds
of insurance, to protect yourself financially. With
health insurance, you protect yourself and your family in
case you need medical care that could be very expensive.
You can't predict what your medical bills will be. In a
good year, your costs may be low. But if you become ill,
your bills could be very high. If you have insurance,
many of your costs are covered by a third-party payer,
not by you. A third-party payer can be an insurance
company or, in some cases, it can be your employer.
Evolution
Health care in America
is changing rapidly. Twenty-five years ago, most people
in the United States had indemnity insurance coverage. A
person with indemnity insurance could go to any doctor,
hospital, or other provider (which would bill for each
service given), and the insurance and the patient would
each pay part of the bill.
But today, more than
half of all Americans who have health insurance are
enrolled in some kind of managed care plan, an organized
way of both providing services and paying for them.
Different types of managed care plans work differently
and include preferred provider organizations (PPOs),
health maintenance organizations (HMOs), and
point-of-service (POS) plans.
You've probably heard
these terms before. But what do they mean, and what are
the differences between them? And what do these
differences mean to you?
Types of Insurance
Fee-for-Service (Indemnity Plan)
This is the traditional
kind of health care policy. Insurance companies pay fees
for the services provided to the insured people covered
by the policy. This type of health insurance offers the
most choices of doctors and hospitals. You can choose any
doctor you wish and change doctors any time. You can go
to any hospital in any part of the country.
With fee-for-service,
the insurer only pays for part of your doctor and
hospital bills. This is what you pay:
- A monthly fee, called a premium.
- A certain amount of money each
year, known as the deductible, before the
insurance payments begin. In a typical plan, the
deductible might be $250 for each person in your
family, with a family deductible of $500 when at
least two people in the family have reached the
individual deductible. The deductible requirement
applies each year of the policy. Also, not all
health expenses you have count toward your
deductible. Only those covered by the policy do.
You need to check the insurance policy to find
out which ones are covered.
- After you have paid your deductible
amount for the year, you share the bill with the
insurance company. For example, you might pay 20
percent while the insurer pays 80 percent. Your
portion is called coinsurance.
To receive payment for
fee-for-service claims, you may have to fill out forms
and send them to your insurer. Sometimes your doctor's
office will do this for you. You also need to keep
receipts for drugs and other medical costs. You are
responsible for keeping track of your medical expenses.
There are limits as to
how much an insurance company will pay for your claim if
both you and your spouse file for it under two different
group insurance plans. A coordination of benefit clause
usually limits benefits under two plans to no more than
100 percent of the claim.
Most fee-for-service
plans have a "cap," the most you will have to
pay for medical bills in any one year. You reach the cap
when your out-of-pocket expenses (for your deductible and
your coinsurance) total a certain amount. It may be as
low as $1,000 or as high as $5,000. Then the insurance
company pays the full amount in excess of the cap for the
items your policy says it will cover. The cap does not
include what you pay for your monthly premium.
Some services are
limited or not covered at all. You need to check on
preventive health care coverage such as immunizations and
well-child care.
There are two kinds of
fee-for-service coverage: basic and major medical. Basic
protection pays toward the costs of a hospital room and
care while you are in the hospital. It covers some
hospital services and supplies, such as x-rays and
prescribed medicine. Basic coverage also pays toward the
cost of surgery, whether it is performed in or out of the
hospital, and for some doctor visits. Major medical
insurance takes over where your basic coverage leaves
off. It covers the cost of long, high-cost illnesses or
injuries.
Some policies combine
basic and major medical coverage into one plan. This is
sometimes called a "comprehensive plan." Check
your policy to make sure you have both kinds of
protection.
What Is a "Customary" Fee?
Most insurance plans
will pay only what they call a reasonable and customary
fee for a particular service. If your doctor charges
$1,000 for a hernia repair while most doctors in your
area charge only $600, you will be billed for the $400
difference. This is in addition to the deductible and
coinsurance you would be expected to pay. To avoid this
additional cost, ask your doctor to accept your insurance
company's payment as full payment. Or shop around to find
a doctor who will. Otherwise you will have to pay the
rest yourself.
Questions to Ask About Fee-for-Service (Indemnity)
Insurance
- How much is the monthly premium?
What will your total cost be each year? There are
individual rates and family rates.
- What does the policy cover? Does it
cover prescription drugs, out-of-hospital care,
or home care? Are there limits on the amount or
the number of days the company will pay for these
services? The best plans cover a broad range of
services.
- Are you currently being treated for
a medical condition that may not be covered under
your new plan? Are there limitations or a waiting
period involved in the coverage?
- What is the deductible? Often, you
can lower your monthly health insurance premium
by buying a policy with a higher yearly
deductible amount.
- What is the coinsurance rate? What
percent of your bills for allowable services will
you have to pay?
- What is the maximum you would pay
out of pocket per year? How much would it cost
you directly before the insurance company would
pay everything else?
- Is there a lifetime maximum cap the
insurer will pay? The cap is an amount after
which the insurance company won't pay anymore.
This is important to know if you or someone in
your family has an illness that requires
expensive treatments.
Health Maintenance Organizations
(HMOs)
Health
maintenance organizations are prepaid health plans. As an
HMO member, you pay a monthly premium. In exchange, the
HMO provides comprehensive care for you and your family,
including doctors' visits, hospital stays, emergency
care, surgery, lab tests, x-rays, and therapy.
The HMO arranges for
this care either directly in its own group practice
and/or through doctors and other health care
professionals under contract. Usually, your choices of
doctors and hospitals are limited to those that have
agreements with the HMO to provide care. However,
exceptions are made in emergencies or when medically
necessary.
There may be a small
co-payment for each office visit, such as $5 for a
doctor's visit or $25 for hospital emergency room
treatment. Your total medical costs will likely be lower
and more predictable in an HMO than with fee-for-service
insurance.
Because HMOs receive a
fixed fee for your covered medical care, it is in their
interest to make sure you get basic health care for
problems before they become serious. HMOs typically
provide preventive care, such as office visits,
immunizations, well-baby checkups, mammograms, and
physicals. The range of services covered vary in HMOs, so
it is important to compare available plans. Some
services, such as outpatient mental health care, often
are provided only on a limited basis.
Many people like HMOs
because they do not require claim forms for office visits
or hospital stays. Instead, members present a card, like
a credit card, at the doctor's office or hospital.
However, in an HMO you may have to wait longer for an
appointment than you would with a fee-for-service plan.
In some HMOs, doctors
are salaried and they all have offices in an HMO building
at one or more locations in your community as part of a
prepaid group practice. In others, independent groups of
doctors contract with the HMO to take care of patients.
These are called individual practice associations (IPAs)
and they are made up of private physicians in private
offices who agree to care for HMO members. You select a
doctor from a list of participating physicians that make
up the IPA network. If you are thinking of switching into
an IPA-type of HMO, ask your doctor if he or she
participates in the plan.
In almost all HMOs, you
either are assigned or you choose one doctor to serve as
your primary care doctor. This doctor monitors your
health and provides most of your medical care, referring
you to specialists and other health care professionals as
needed. You usually cannot see a specialist without a
referral from your primary care doctor who is expected to
manage the care you receive. This is one way that HMOs
can limit your choice.
Before choosing an HMO,
it is a good idea to talk to people you know who are
enrolled in it. Ask them how they like the services and
care given.
Questions to Ask About an HMO
- Are there many doctors to choose
from? Do you select from a list of contract
physicians or from the available staff of a group
practice? Which doctors are accepting new
patients? How hard is it to change doctors if you
decide you want someone else? How are referrals
to specialists handled?
- Is it easy to get appointments? How
far in advance must routine visits be scheduled?
What arrangements does the HMO have for handling
emergency care?
- Does the HMO offer the services I
want? What preventive services are provided? Are
there limits on medical tests, surgery, mental
health care, home care, or other support offered?
What if you need a special service not provided
by the HMO?
- What is the service area of the
HMO? Where are the facilities located in your
community that serve HMO members? How convenient
to your home and workplace are the doctors,
hospitals, and emergency care centers that make
up the HMO network? What happens if you or a
family member are out of town and need medical
treatment?
- What will the HMO plan cost? What
is the yearly total for monthly fees? In
addition, are there copayments for office visits,
emergency care, prescribed drugs, or other
services? How much?
Preferred Provider
Organizations (PPOs)
The preferred provider
organization is a combination of traditional
fee-for-service and an HMO. Like an HMO, there are a
limited number of doctors and hospitals to choose from.
When you use those providers (sometimes called
"preferred" providers, other times called
"network" providers), most of your medical
bills are covered.
When you go to doctors
in the PPO, you present a card and do not have to fill
out forms. Usually there is a small copayment for each
visit. For some services, you may have to pay a
deductible and coinsurance.
As with an HMO, a PPO
requires that you choose a primary care doctor to monitor
your health care. Most PPOs cover preventive care. This
usually includes visits to the doctor, well-baby care,
immunizations, and mammograms.
In a PPO, you can use
doctors who are not part of the plan and still receive
some coverage. At these times, you will pay a larger
portion of the bill yourself (and also fill out the
claims forms). Some people like this option because even
if their doctor is not a part of the network, it means
they don't have to change doctors to join a PPO.
Questions to Ask About a PPO
- Are there many doctors to choose
from? Who are the doctors in the PPO network?
Where are they located? Which ones are accepting
new patients? How are referrals to specialists
handled?
- What hospitals are available
through the PPO? Where is the nearest hospital in
the PPO network? What arrangements does the PPO
have for handling emergency care?
- What services are covered? What
preventive services are offered? Are there limits
on medical tests, out-of-hospital care, mental
health care, prescription drugs, or other
services that are important to you?
- What will the PPO plan cost? How
much is the premium? Is there a per-visit cost
for seeing PPO doctors or other types of
co-payments for services? What is the difference
in cost between using doctors in the PPO network
and those outside it? What is the deductible and
coinsurance rate for care outside of the PPO? Is
there a limit to the maximum you would pay out of
pocket?
Point-of-Service (POS) Plan
Many HMOs offer plan
members the option to self direct care, as one would
under an indemnity or PPO plan, rather than get referrals
from primary care physicians. An HMO with this opt-out
provision is known as a point-of-service (POS) plan. How
the plan functions (i.e., like an HMO or like an
indemnity plan) depends on whether individual plan
members use their primary care physician or self direct
their care at the "point of service."
To illustrate this
point, this is how these plans typically work. When
medical care is needed, the individual plan member
essentially has up to two or three choices, depending on
the particular health plan. The plan member can choose to
go through his or her primary care physician, in which
case services will be covered under HMO guidelines (i.e.,
usually a co-payment will be required). Alternatively,
the plan member can access care through a PPO provider
and the services will be covered under in-network PPO
rules (i.e., usually a co-payment and coinsurance will be
required). Lastly, if the plan member chooses to obtain
services from a provider outside of the HMO and PPO
networks, the services will be reimbursed according to
out-of-network rules (i.e., usually a co-payment and
higher coinsurance charge will be required). Because
people who belong to POS plans are responsible for
deciding how to access care within the various options,
it is important that they understand the financial
implications of these choices.
Where Do People Get Health
Insurance Coverage?
Group Insurance
Most Americans get
health insurance through their jobs or are covered
because a family member has insurance at work. This is
called group insurance. Group insurance is generally the
least expensive kind. In many cases, the employer pays
part or all of the cost.
Some employers offer
only one health insurance plan. Some offer a choice of
plans: a fee-for-service plan, a health maintenance
organization (HMO), or a preferred provider organization
(PPO), for example. Employers with 25 or more workers are
required by Federal law to offer employees the chance to
enroll in an HMO.
What happens if you or
your family member leaves the job? You will lose your
employer- supported group coverage. It may be possible to
keep the same policy, but you will have to pay for it
yourself. This will certainly cost you more than group
coverage for the same, or less, protection.
A Federal law makes it
possible for most people to continue their group health
coverage for a period of time. Called COBRA (for the
Consolidated Omnibus Budget Reconciliation Act of 1985),
the law requires that if you work for a business of 20 or
more employees and leave your job or are laid off, you
can continue to get health coverage for at least 18
months. You will be charged a higher premium than when
you were working.
You also will be able to
get insurance under COBRA if your spouse was covered but
now you are widowed or divorced. If you were covered
under your parents' group plan while you were in school,
you also can continue in the plan for up to 18 months
under COBRA until you find a job that offers you your own
health insurance.
Not all employers offer
health insurance. You might find this to be the case with
your job, especially if you work for a small business or
work part-time. If your employer does not offer health
insurance, you might be able to get group insurance
through membership in a labor union, professional
association, club, or other organization. Many
organizations offer health insurance plans to members.
Individual Insurance
If your employer does
not offer group insurance, or if the insurance offered is
very limited, you can buy an individual policy. You can
get fee-for-service, HMO, or PPO protection. But you
should compare your options and shop carefully because
coverage and costs vary from company to company.
Individual plans may not offer benefits as broad as those
in group plans.
If you get a
non-cancelable policy (also called a guaranteed renewable
policy), then you will receive individual insurance under
that policy as long as you keep paying the monthly
premium. The insurance company can raise the cost, but
cannot cancel your coverage. Many companies now offer a
conditionally renewable policy. This means that the
insurance company can cancel all policies like yours, not
just yours. This protects you from being singled out. But
it doesn't protect you from losing coverage.
Before you buy any
health insurance policy, make sure you know what it will
pay for...and what it won't. To find out about individual
health insurance plans, you can call insurance companies,
HMOs, and PPOs in your community, or speak to your
insurance agent.
Tips when shopping for individual insurance:
- Shop carefully. Policies differ
widely in coverage and cost. Contact different
insurance companies, or ask your agent to show
you policies from several insurers so you can
compare them.
- Make sure the policy protects you
from large medical costs.
- Read and understand the policy.
Make sure it provides the kind of coverage that's
right for you. You don't want unpleasant
surprises when you're sick or in the hospital.
- Check to see that the policy
states: the date that the policy will begin
paying (some have a waiting period before
coverage begins), and what is covered or excluded
from coverage.
- Make sure there is a "free
look" clause. Most companies give you at
least 10 days to look over your policy after you
receive it. If you decide it is not for you, you
can return it and have your premium refunded.
- Beware of single disease insurance
policies. There are some polices that offer
protection for only one disease, such as cancer.
If you already have health insurance, your
regular plan probably already provides all the
coverage you need. Check to see what protection
you have before buying any more insurance.
Medicare
Medicare
is the Federal health insurance program for Americans age
65 and older and for certain disabled Americans. If you
are eligible for Social Security or Railroad Retirement
benefits and are age 65, you and your spouse
automatically qualify for Medicare.
Medicare has two parts:
hospital insurance, known as Part A, and supplementary
medical insurance, known as Part B, which provides
payments for doctors and related services and supplies
ordered by the doctor. If you are eligible for Medicare,
Part A is free, but you must pay a premium for Part B.
Medicare will pay for
many of your health care expenses, but not all of them.
In particular, Medicare does not cover most nursing home
care, long-term care services in the home, or
prescription drugs. There are also special rules on when
Medicare pays your bills that apply if you have employer
group health insurance coverage through your own job or
the employment of a spouse.
Medicare usually
operates on a fee-for-service basis. HMOs and similar
forms of prepaid health care plans are now available to
Medicare enrollees in some locations.
The best source of
information on the Medicare program is the Medicare
Handbook. This booklet explains how the Medicare
program works and what your benefits are. To order a free
copy, write to: Health Care Financing Administration,
Publications, N1-26-27, 7500 Security Blvd., Baltimore,
MD 21244-1850. You also can contact your local Social
Security office for information.
Some people who are
covered by Medicare buy private insurance, called
"Medigap" policies, to pay the medical bills
that Medicare doesn't cover. Some Medigap policies cover
Medicare's deductibles; most pay the coinsurance amount.
Some also pay for health services not covered by
Medicare. There are 10 standard plans from which you can
choose. (Some States may have fewer than 10.) If you buy
a Medigap policy, make sure you do not purchase more than
one.
You need to shop
carefully before deciding on the best policy to fit your
needs. You may get another booklet, Guide to Health
Insurance for People with Medicare, to help you in making
the right choice. To order a free copy, write to: Health
Care Financing Administration, Publications, N1-26-27,
7500 Security Blvd., Baltimore, MD 21244-1850.
Another good source of
information on the same topic is The Consumer's Guide to
Medicare Supplement Insurance. To order a free copy,
write to: Health Insurance Association of America, 555
13th St., N.W., Suite 600 East, Washington, D.C. 20004.
Medicaid
Medicaid provides health care
coverage for some low-income people who cannot afford it.
This includes people who are eligible because they are
aged, blind, or disabled or certain people in families
with dependent children. Medicaid is a Federal program
that is operated by the States, and each State decides
who is eligible and the scope of health services offered.
General information on
the Medicaid program is given in the Medicaid Fact Sheet.
For a free copy, write to: Health Care Financing
Administration, Publications, N1-26-27, 7500 Security
Blvd., Baltimore, MD 21244-1850. For specifics on
Medicaid eligibility and the health services offered,
contact your State Medicaid Program Office.
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