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Introduction
If you have ever been sick or injured, you know how important it is to have
health coverage. But if you're confused about what kind is best for you,
you're not alone.
What types of health coverage are available? If your employer offers you
a choice of health plans, what should you know before making a decision?
In addition to coverage for medical expenses, do you need some other kind
of insurance? What if you are too ill to work? Or, if you are over 65,will
Medicare pay for all your medical expenses?
These are questions that today's consumers are asking; and these questions
aren't necessarily easy to answer.
This booklet should help. It discusses the basic forms of health coverage
and includes a checklist to help you compare plans. It answers some commonly
asked questions and also includes thumbnail descriptions of other forms
of health insurance, including hospital-surgical policies, specified disease
policies, catastrophic coverage, hospital indemnity insurance, and disability,
long-term care, and Medicare supplement insurance.
While we know that our guide can't answer all your questions, we think it
will help you make the right decisions for yourself, your family, and even
your business.
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 if you can't work because
of illness or accident-is considered health insurance, even though it's
not specifically for medical expenses.
But when people talk about health insurance, they usually mean the kind
of insurance offered by employers to employees, the kind 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. But the fact is, 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. Moreover, 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.
While fee-for-service and managed care plans differ in important ways, in
some ways they are similar. Both cover an array of medical, surgical, and
hospital expenses. Most offer some coverage for prescription drugs, and
some include coverage for dentists and other providers. But there are many
important differences that will make one or the other form of coverage the
right one for you.
The section below is designed to acquaint you with the basics of fee-for-service
and managed care plans. But 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.
Fee-for-Service
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,
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
depends on 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 you 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.
Managed Care
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.
Self-insured 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. 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.
Appropriate Care
HMOs, PPOs, and fee-for-service plans often share certain features, including
pre authorization, utilization review, and discharge planning.
For example, you may be asked to get authorization from your plan or insurer
before admission to a hospital for certain types of surgery. Utilization
review is the process by which a plan determines whether a specific medical
or surgical service is appropriate and/or medically necessary. Discharge
planning is an approach that facilitates the transfer of a patient to amore
cost-effective facility if the patient no longer needs to stay in the hospital.
For example, if, following surgery, you no longer need hospitalization but
cannot be cared for at home, you may be transferred to a skilled nursing
facility.
Almost all fee-for-service plans apply managed care techniques to contain
costs and guarantee appropriate care; and an increasing number of managed
care plans contain fee-for-service elements. While the distinctions among
plans are growing increasingly blurred, the number of options available
to consumers increases every day.
Comparing Plans
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 makes 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?
Other Forms of Health Insurance
In addition to broad coverage for medical, surgical, and hospital expenses,
there are many other kinds of health insurance.
Hospital-surgical policies, sometimes called basic health insurance, provide
benefits when you have a covered condition that requires hospitalization.
These benefits typically include room and board and other hospital services,
surgery, physicians' non surgical services that are performed in a hospital,
expenses for diagnostic X-rays and laboratory tests, and room and board
in an extended care facility.
Benefits for hospital room and board may be a per-day dollar amount or all
or part of the hospital's daily rate for a semi-private room. Benefits for
surgery typically are listed, showing the maximum benefit for each type
of surgical procedure.
Hospital-surgical policies may provide "first-dollar" coverage.
That means that there is no deductible, or amount that you have to pay,
for a covered medical expense. Other policies may contain a small deductible.
Keep in mind that hospital-surgical policies usually do not cover lengthy
hospitalizations and costly medical care. In the event that you need these
types of services, you may incur large expenses that are difficult to meet
unless you have other insurance.
Catastrophic coverage pays hospital and medical expenses above a certain
deductible; this can provide additional protection if you hold either a
hospital-surgical policy or a major medical policy with a lower-than-adequate
lifetime limit. These policies typically contain a very high deductible
($15,000 or more) and a maximum lifetime limit high enough to cover the
costs of catastrophic illness.
Specified or dread disease policies provide benefits only if you get the
specific disease or group of diseases named in the policy. For example,
a policy might cover only medical care for cancer. Because benefits are
limited in amount, these policies are not a substitute for broad medical
coverage. Nor are specified disease policies available in every state.
Hospital indemnity insurance pays you a specified amount of cash benefits
for each day that you are hospitalized, generally up to a designated number
of days. These cash benefits are paid directly to you, can be used for any
purpose, and may be useful in meeting out-of-pocket expenses not covered
by other insurance.
Hospital indemnity policies frequently are available directly from insurance
companies by mail as well as through insurance agents. You will find that
these policies offer many choices, so be sure to ask questions and find
the right plan to meet your needs.
Some policies contain limitations on preexisting medical conditions that
you may have before your insurance takes effect. Others contain an elimination
period, which means that benefits will not be paid until after you have
been hospitalized for a specified number of days. When you apply for the
policy, you may be allowed to choose among two or three elimination periods,
with different premiums for each. Although you can reduce your premiums
by choosing a longer elimination period, you should bear in mind that most
patients are hospitalized for relatively brief periods of time.
If you purchase a hospital indemnity policy, periodically review it to see
if you need to increase your daily benefits to keep pace with rising health
care costs.
Medicare supplement insurance, sometimes called Medigap or MedSup, is private
insurance that helps cover some of the gaps in Medicare coverage.
Medicare is the federal program of hospital and medical insurance primarily
for people age 65 and over who are not covered by an employer's plan. But
Medicare doesn't cover all medical expenses. That's where MedSup comes in.
All Medicare supplement policies must cover certain expenses, such as the
daily coinsurance amount for hospitalization and 90 percent of the hospital
charges that otherwise would have been paid by Medicare, after Medicare
is exhausted. Some policies may offer additional benefits, such as coverage
for preventive medical care, prescription drugs, or at-home recovery.
There are 10 standard Medicare supplement policies, designated by the letters
A through J. With these standardized policies, it is much easier to compare
the costs of policies issued by different insurers. While all10 standard
policies may not be available to you, Plan A must be made available to Medicare
recipients everywhere.
Insurers are not permitted to sell policies that duplicate benefits you
already receive under Medicare or other policies. If you decide to replace
an existing Medicare supplement policy-and you should do so only after careful
evaluation-you must sign a statement that you intend to replace your current
policy and that you will not keep both policies in force.
People who are 65 or older can buy Medicare supplement insurance without
having to worry about being rejected for existing medical problems, so long
as they apply within six months after enrolling in Medicare.
Long-term care policies cover the medical care, nursing care, and other
assistance you might need if you ever have a chronic illness or disability
that leaves you unable to care for yourself for an extended period of time.
These services generally are not covered by other health insurance. You
may receive long-term care in a nursing home or in your own home.
Long-term care can be very expensive. On average, a year in a nursing home
costs about $40,000. In some regions, it may cost much more. Home care is
less expensive, but it still adds up. (Home care can include part-time skilled
nursing care, speech therapy, physical or occupational therapy, home health
aides, and homemakers.)
Bringing an aide into your home just three times a week-to help with dressing,
bathing, preparing meals, and similar chores-easily can cost$1,000 a month,
or $12,000 a year. Add in the cost of skilled help, such as physical therapy,
and the costs can be much greater.
Most long-term care policies pay a fixed dollar amount, typically from$40
to more than $200 a day, for each day you receive covered care in a nursing
home. The daily benefit for at-home care is usually half the benefit for
nursing home care. Because the per-day benefit you buy today may be inadequate
to cover higher costs in the future, most policies also offer an inflation
adjustment feature.
Keep in mind that unless you have a long-term care policy, you are not covered
for long-term care expenses under Medicare and most other types of insurance.
Recent changes in federal law may allow you to take certain income tax deductions
for some long-term care expenses and insurance premiums.
Disability insurance provides you with an income if illness or injury prevents
you from being able to work for an extended period of time. It is an important
but often overlooked form of insurance.
There are other possible sources of income if you are disabled. Social Security
provides protection, but only to those who are severely disabled and unable
to work at all; workers' compensation provides benefits if the illness or
injury is work-related; civil service disability covers federal or state
government workers; and automobile insurance may pay benefits if the disability
results from an automobile accident. But these sources are limited.
Some employers offer short- and long-term disability coverage. If you are
self-employed, you can buy individual disability income insurance policies.
Generally:
- Monthly benefits are usually 60 percent of your income at the time
of purchase, although cost-of-living adjustments may be available.
- If you pay the premiums for an individual disability policy, payments
you receive under the policy are not subject to income tax. If your employer
has paid some or all of the premiums under a group disability policy, some
or all of the benefits may be taxable.
Whether you are an employer shopping for a group disability policy or someone
thinking of purchasing disability income insurance, you will need to evaluate
different policies. Here are some things to look for:
- Some policies pay benefits only if someone is unable to perform
the duties of their customary occupation, while others pay only if the person
can engage in no gainful employment at all. Make sure that you know the
insurer's definition of disability.
- Some policies pay only for accidents, but it's important to be
insured for illness, too. Be sure, as you evaluate policies, that both accident
and illness are covered.
- Benefits may begin anywhere from one month to six months or more
after the onset of disability. A later starting date can keep your premiums
down. But remember, if your policy only starts to pay (for example) three
months after the disability begins, you may lose a considerable amount of
income.
- Benefits may be payable for a period ranging anywhere from one
year to a lifetime. Since disability benefits replace income, most people
do not need benefits beyond their working years. But it's generally wise
to insure at least until age 65 since a lengthy disability threatens financial
security much more than a short disability.
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. These publications that
list ratings usually can be found in the business section of libraries.
And bear in mind: 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."
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