Insurance in America is a bit of a crapshoot, but it is big business and lots of people are involved in this elaborate system. So today I hope to explain some basic aspects to everyone.
In my own experience many people do not have even the most rudimentary understanding of their insurance and that is a tragedy. Without knowing the basic components then you will be unable to get yourself the best deal and you will be unable to properly budget when you do have a medical situation arise.
So let’s review the basic terminology of insurance:
* Premium, this is the amount of money you or your business pays per month to keep your policy active.
* Co-pay, is a flat rate for services. Generally this is used for standard doctor visits, specialist visits or regularly occurring medical services such as rehabilitation.
* Deductible, this is an amount of money that you must spend BEFORE your insurance begins to provide any financial coverage for medical services.
* Co-insurance, is a percentage rate of coverage for medical services such as 80/20% coverage where the patient pays 20% of all expenses. This option is usually used instead of a co-pay or in situations where a co-pay is a not financially reasonable solution. At 80/20% the patient will almost certainly pay more than a co-pay, but not significantly more.
* Out-of-Pocket (Catastrophic Limit) is an upper limit on how much a patient will be required to spend before the insurance covers the patient at 100% of expenses. This can include what you spent on your deductible or in addition to.
* Benefit Cap/Maximum, is a limit to a particular service per diagnosis, or per year, or per lifetime. This limit can be in the form of a financial limit such as $1500 or by visit limit such as 20 visits to a chiropractor per year. Going beyond this limit means your insurance will no longer provide coverage.
* Authorization, is a process required by some insurances as a barrier to services to ensure they are necessary. The difficulty of obtaining this varies by insurance, but generally involves submitting paperwork and then waiting for a reply from a centralized office.
* Referral, similar to authorization this is a barrier to services, but it is generally a straight forward issue of visiting the hierarchy of doctors in order. Going from a GP and being referred to a specialist and then being referred to rehabilitation or other medical service. There is confusion to their word because many people incorrectly call the Rx given by a doctor to a patient as a referral; this is at odds with standard English.
* Plan Year, is the time period in which one year of coverage is active. Usually from Jan to Dec, but sometimes from month of first active coverage or on school year Sept to Aug. All benefits and payments, unless specified otherwise, should reset at the beginning of each new plan year.
* Lifetime Maximum, this is the amount your insurance will pay out over the entirety of the life of the policy. Usually stated as in the millions, but yes with a serious ailment it is reachable. After 10 years of chemotherapy your insurance may refuse to pay any more, ever.
* Replacement Policy, is an insurance policy that takes the place of your Medicare policy. In essence, you may opt out of your Medicare plan and deliver those dollars to a privately held insurance company for the benefits they offer you.
* Supplemental Policy, is an insurance policy that you pay for that covers what your original policy does not cover or to extend coverage to new services. Generally this is used by Medicare patients to cover the 20% expense that Medicare does not and to cover their prescription drugs and visual/dental care.
Now that we’ve reviewed the basic terminology let me try and explain how they fit together to form a policy.
Generally speaking the more you pay (Premium) for your insurance the better coverage it has. Better coverage is defined as lower co-payments, more favorable co-insurance rates (80/20 to 90/10 to 100%), easier or no authorizations, higher benefit maximums, lower deductibles and lower out-of-pockets. Better coverage also means coverage for more types of services such as for name brand drugs rather than generics only.
Bad insurance is of course the exact opposite of everything I just listed. Higher co-pays, higher deductibles, higher out-of-pockets, lower co-insurance rates (60/40 or 50/50), more authorizations required, lower benefit maximums and less services covered.
Two examples of policies:
In my own experience many people do not have even the most rudimentary understanding of their insurance and that is a tragedy. Without knowing the basic components then you will be unable to get yourself the best deal and you will be unable to properly budget when you do have a medical situation arise.
So let’s review the basic terminology of insurance:
* Premium, this is the amount of money you or your business pays per month to keep your policy active.
* Co-pay, is a flat rate for services. Generally this is used for standard doctor visits, specialist visits or regularly occurring medical services such as rehabilitation.
* Deductible, this is an amount of money that you must spend BEFORE your insurance begins to provide any financial coverage for medical services.
* Co-insurance, is a percentage rate of coverage for medical services such as 80/20% coverage where the patient pays 20% of all expenses. This option is usually used instead of a co-pay or in situations where a co-pay is a not financially reasonable solution. At 80/20% the patient will almost certainly pay more than a co-pay, but not significantly more.
* Out-of-Pocket (Catastrophic Limit) is an upper limit on how much a patient will be required to spend before the insurance covers the patient at 100% of expenses. This can include what you spent on your deductible or in addition to.
* Benefit Cap/Maximum, is a limit to a particular service per diagnosis, or per year, or per lifetime. This limit can be in the form of a financial limit such as $1500 or by visit limit such as 20 visits to a chiropractor per year. Going beyond this limit means your insurance will no longer provide coverage.
* Authorization, is a process required by some insurances as a barrier to services to ensure they are necessary. The difficulty of obtaining this varies by insurance, but generally involves submitting paperwork and then waiting for a reply from a centralized office.
* Referral, similar to authorization this is a barrier to services, but it is generally a straight forward issue of visiting the hierarchy of doctors in order. Going from a GP and being referred to a specialist and then being referred to rehabilitation or other medical service. There is confusion to their word because many people incorrectly call the Rx given by a doctor to a patient as a referral; this is at odds with standard English.
* Plan Year, is the time period in which one year of coverage is active. Usually from Jan to Dec, but sometimes from month of first active coverage or on school year Sept to Aug. All benefits and payments, unless specified otherwise, should reset at the beginning of each new plan year.
* Lifetime Maximum, this is the amount your insurance will pay out over the entirety of the life of the policy. Usually stated as in the millions, but yes with a serious ailment it is reachable. After 10 years of chemotherapy your insurance may refuse to pay any more, ever.
* Replacement Policy, is an insurance policy that takes the place of your Medicare policy. In essence, you may opt out of your Medicare plan and deliver those dollars to a privately held insurance company for the benefits they offer you.
* Supplemental Policy, is an insurance policy that you pay for that covers what your original policy does not cover or to extend coverage to new services. Generally this is used by Medicare patients to cover the 20% expense that Medicare does not and to cover their prescription drugs and visual/dental care.
Now that we’ve reviewed the basic terminology let me try and explain how they fit together to form a policy.
Generally speaking the more you pay (Premium) for your insurance the better coverage it has. Better coverage is defined as lower co-payments, more favorable co-insurance rates (80/20 to 90/10 to 100%), easier or no authorizations, higher benefit maximums, lower deductibles and lower out-of-pockets. Better coverage also means coverage for more types of services such as for name brand drugs rather than generics only.
Bad insurance is of course the exact opposite of everything I just listed. Higher co-pays, higher deductibles, higher out-of-pockets, lower co-insurance rates (60/40 or 50/50), more authorizations required, lower benefit maximums and less services covered.
Two examples of policies:
Policy 1 Montly Premium $258 Doctor Visit co-pay of $25 Specialist Visit co-pay of $40 Laboratory testing 90/10% Rx Drugs Name Brands $18 Generic $7 Physcial/Occupation/Speech Therapy co-pay $25 Deductible does not apply Out-of-pocket does not apply Maximum as Medically Necessary (MN) | Policy 2 Montly Premium $118 Doctor Visit co-pay of $45 Specialist Visit co-pay of $50 Laboratory testing 70/30% Rx Drugs Name Brands Not covered Generic $9 Physcial/Occupation/Speech Therapy 80/20% Deductible of $1500 Out-of-pocket of $3500 includes Maximum of $5500 |
At first glance the policies are rather similar, but the 2nd one has lower premiums and slightly higher co-pays. The true wealth is in the details. Some people do not respond well to generic drugs and name brand drugs can sometimes be superiorly engineered to alternatives.
Policy 1 has no limits on how much service a person can receive, which is a good thing, however policy 1 makes you pay for that privilege at the door with the higher premium and during treatment because there is no personal spending limit (out-of-pocket).
On policy 2 the deductible will only apply to things covered at a percentage rate so for physical therapy the patient must pay $1500 of their own money before insurance starts paying 80%, then while the patient pays 20% if they spend an additional $2000 for a total of $3500 then the insurance will cover all things at 100% from there after.
So despite the barrier to service of policy 2’s deductible, once that patient pays $3500 they are set while policy 1 will pay indefinitely. This is most notable in accident cases and other emergencies.
So one policy is superior to the other on everyday usage and that’s not unexpected. Depending on how you look at it though the 2nd policy is actively worse because you might not even get anything out of it due to the deductible.
However, so called “bad” insurance has its place and should not be immediately dismissed. Your needs will determine what sort of insurance you should look for.
There are essentially three categories of people in terms of health: healthy people who expect to stay healthy, healthy people who expect to be ill (such as parents) and people who are already ill (yes, age counts as illness).
If you’re healthy and expect to stay that way aside from a minor cold or a completely unexpected accident you might forgo insurance or get the bare minimum possible. Lapsing coverage is bad because if you have or develop a serious condition you will have trouble resuming coverage later, so minimum coverage is preferred. This is the true purpose of “bad” insurance; it keeps you from lapsing coverage and can provide for you in extreme medical emergencies.
When you’re an otherwise healthy individual but you interact with sickly people or children or are involved in hazardous work, then it is important to carry solid coverage. Without good insurance coverage a minor illness might grow, a cut might turn into a staph infection, and a knee needing replacement might be delayed until you’re on disability. In short, good coverage will keep you able bodied enough to continue working or to get you up to speed as quickly as possible.
If you’re elderly or sickly or have a serious chronic ailment then it behooves you to get the best insurance coverage you can get your hands on to cover all your liabilities. If a single monthly shot for osteoarthritis is without insurance is $1500 and your premium is $567 with the shot now only $150, you’re coming out ahead assuming you can afford the expense of the premium.
Despite the amount of money involved in medical insurance far too few people are paying attention to what they’re getting for their money. Even if you do have an idea finding the right insurance for you is an elaborate guessing game, paying for too much coverage is waste and paying for too little can destroy your finances in the event of a major problem. This information should allow you to better weigh those choices and find that right balance for your own life and circumstances.
No more lifetime maxes with the new Healthcare laws as of Jan 1, 2011.
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