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 illnesses. 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 at least a 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 health 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;
- Veterans;
- Federal civilian
employees; and
- Native Americans.
Medicaid
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.
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:
- Social Security;
- Job sick pay;
- Worker's compensation;
- Veterans' benefits; or
- Disability payments
from a life insurance policy.
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 disabled. 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.
- Medical Expense Exclusions--Medical
expense insurance usually will not cover cosmetic surgery, such as a
nose job, a face lift or other type of plastic surgery, unless it is
required following an accident. Exempt, too, are self-inflicted
injuries, as during a suicide attempt, or those occurring during active
military service, and rest cures.
- Preexisting Conditions--You should
also expect to find clauses excluding preexisting conditions. Such
clauses allow a company to refuse a claim for treatment of an illness
which was present when you took out a policy even though you were
unaware of its existence at the time you signed.
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.
Specific Limits, Exclusions--Remember, benefit
payments are based on the specific provisions of your policy and the
company's interpretation of the provisions. This is why it is very
important to know the reputation and reliability of a company before
you do business with them.
Most policies, for example, do not pay for
dental work, hearing aids or eye glasses, unless they clearly specify
so.
Coverage for mental illness varies. Typically, individual or family
policies limit their coverage to treatment in general hospitals, while
group coverage commonly provides payment for treatment in and out of
hospitals.
Waiting Period--A specified period you must wait between the
time the policy is issued and payments of benefits begin. Be certain to
check the waiting period. Beware of policies that call for unusual or
extensive waiting periods.
Renewability
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?
Complaints
If you have a question or complaint about your insurance company, policy or coverage, contact the:
- Your state insurance department
The Health Insurance Association of America
1025 Connecticut Ave., N.W.
Washington, D.C. 20036.
- New York State Department of Insurance
25 Beaver Street
New York, NY 10004-6400
(212) 480-6400
(800) 342-3736
- Insurance Information Institute
110 William Street
New York, NY 10038
(800) 331-9146