Buyers Guide For Personal Health Insurance

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.

If your employer offers you a choice of health plans, what should you know before making a decision? What types of health coverage are available? 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 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.

Managedcare 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.

An 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 copayment 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 copayments; generally, you will not have deductibles or coinsurance.

The most 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 copayment 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.

How Do I Get Health Coverage?

Health insurance is generally available through groups and to individuals. Premiums - the regular fees that you pay for health insurance coverage - are generally lower for group coverage. When you receive group insurance at work, the premium usually is paid through your employer.

Group insurance is typically offered through employers, although unions, professional associations, and other organizations also offer it. As an employee benefit, group health insurance has many advantages. Much - although not all - of the cost may be borne by the employer. Premium costs are frequently lower because economies of scale in large groups make administration less expensive. With group insurance, if you enroll when you first become eligible for coverage, you generally will not be asked for evidence that you are insurable. (Enrollment usually occurs when you first take a job, and/or during a specified period each year, which is called open enrollment.) Some employers offer employees a choice of fee-for-service and managed care plans. In addition, some group plans offer dental insurance as well as medical.

Individual insurance is a good option if you work for a small company that does not offer health insurance or if you are self-employed. Buying individual insurance allows you to tailor a plan to fit your needs from the insurance company of your choice. It requires careful shopping, because coverage and costs vary from company to company. In evaluating policies, consider what medical services are covered, what benefits are paid, and how much you must pay in deductibles and coinsurance. You may keep premiums down by accepting a higher deductible.

Pre-existing Conditions

Many people worry about coverage for preexisting conditions, especially when they change jobs. The Health Insurance Portability and Accountability Act (HIPAA) helps assure continued health insurance coverage for employees and their dependents. Starting July 1, 1997, insurers could impose only one 12-month waiting period for any preexisting condition treated or diagnosed in the previous six months. Your prior health insurance coverage will be credited toward the preexisting condition exclusion period as long as you have maintained continuous coverage without a break of more than 62 days. Pregnancy is not considered a preexisting condition, and newborns and adopted children who are covered within 30 days are not subject to the 12-monthwaiting period.

If you have had group health coverage for two years, and you switch jobs and go to another plan, that new health plan cannot impose another preexisting condition exclusion period. If, for example, you have had prior coverage of only eight months, you may be subject to a four-month, preexisting condition exclusion period when you switch jobs. If you've never been covered by an employer's group plan, and you get a job that offers such coverage, you may be subject to a 12-month, preexisting condition waiting period.

Federal law also makes it easier for you to get individual insurance under certain situations, including if you have left a job where you had group health insurance, or had another plan for more than 18 months without a break of more than 62 days.

If you have not been covered under a group plan and have found it difficult to get insurance on your own, check with your state insurance department to see if your state has a risk pool. Similar to risk pools for automobile insurance, these can provide health insurance for people who cannot get it elsewhere.

What Is Not Covered?

While HMO benefits are generally more comprehensive than those of traditional fee-for-service plans, no health plan will cover every medical expense.

Very few plans cover eyeglasses and hearing aids because these are considered budgetable expenses. Very few cover elective cosmetic surgery, except to correct damage caused by a covered accidental injury. Some fee-for-service plans do not cover checkups. Procedures that are considered experimental may not be covered either. And some plans cover complications arising from pregnancy, but do not cover normal pregnancy or childbirth.

Health insurance policies frequently exclude coverage for preexisting conditions, but, as explained, federal law now limits exclusions based on such conditions.

You should also remember that insurers will not pay duplicate benefits. You and your spouse may each be covered under a health insurance plan at work but, under what is called a "coordination of benefits" provision, the total you can receive under both plans for a covered medical expense cannot exceed 100 percent of the allowable cost. Also note that if neither of your plans covers 100 percent of your expenses, you will only be covered for the percentage of coverage (for example, 80 percent) that your primary plan covers. This provision benefits everyone in the long run because it helps to keep costs down.

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."