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Health Insurance -
Don't Bet Your Life On It
Unless you live in a cave, you know that healthcare costs
have accelerated in recent years. According to a recent
study, more than 15% of the United States' total gross
domestic product (GDP) was spent on health care, and by
2014, this figure is expected to represent nearly one in
every five dollars we spend!
What's more, a growing number
of Americans - more than 40 million, by latest count - don't
have any health insurance coverage at all.2 Without health
insurance, a single illness can cause serious, and often
irreversible, financial hardship.
Insurance of any kind is intended to transfer financial risk
to an insurance company in exchange for a reasonable
insurance premium. Where most insurance coverages pay once a
loss has occurred, health insurance has the added benefit of
paying to keep your loss from getting worse. Health
insurance is probably your most important coverage since it
can be the difference between life and death.
Fortunately, most employers offer some form of health
insurance. Often you will have to select from several
different alternative plans with differing coverages and
premiums.
Health Insurance Categories
There are two broad categories of health insurance coverage.
One is fee-for-service and the other is managed health care,
which is further divided into health maintenance
organizations (HMOs), preferred provider organizations (PPOs),
and point-of-service (POS) plans.
Fee-For-Service -
A primary difference between fee-for-service and managed health
plans in the amount of control you enjoy in choosing doctors and
hospitals. Fee-for-service plans give you the greatest amount of
choice, allowing you to select doctors and hospitals based on your
needs and preferences. This greater amount of choice comes at a
cost, however, as fee-for-service plans are usually more expensive
than managed care plans.
Under a fee-for-service plan, your doctor will submit a bill to your
insurance provider, or, if he or she does not have a relationship
with your provider, you may have to pay the bill directly and get
reimbursed by your provider. Under this plan, you can generally see
any doctor you wish. You will most likely be responsible for a
percentage of every expense, typically 20% but sometimes higher or
lower.
Fee-for-service plans also have an annual deductible; these
generally start at $100 for individuals and $500 for families.
Typically, the higher the deductible, the lower your premiums.
You'll have to meet the deductible amount before receiving any
reimbursement. If your doctor charges more than is "reasonable" as
defined by your policy, you will have to pay the difference. You can
appeal this if you feel the doctor is charging the same as the other
doctors around your area.
Fee-for-service plans usually limit how much you will have to pay
before the plan reimburses you at 100%. Some plans also have a
lifetime limit on benefits, usually at least $1,000,000. This seems
very high but it is not uncommon with serious accidents or illnesses
that this number is met.
Managed Care
There are three major types of managed care health plans --
HMOs, PPOs, and POSs - which generally charge a co-payment of $10 or
$20 a visit. One limitation of an HMO is that you must use the
doctor and hospitals that participate in the plan. The premiums are
generally lower than fee-for-service plans.
With a managed care plan, you will have to select a primary care
physician (PCP) who will be responsible for coordinating your care.
You will need to be approved by the PCP to seek care by a
specialist. You must also get authorization for any hospitalization
you may require. As you can see, the lower premiums associated with
managed care are the result of allowing the managed care provider to
make many of your health care decisions for you.
PPOs and POSs differ from HMOs in that you can
choose between the organization's network of providers but can see
physicians outside the network if you desire.
Other Considerations
If you choose not to utilize the coverage offered at work,
or if no coverage is available through your employer, you
could get your own personal policy or go through a group.
Group policies have lower premiums. Also, some group
policies do not ask questions about your health.
Nevertheless, some policies will not cover pre-existing
conditions for up to 12 months. You will want to understand
all the pre-existing limitations that your coverage
includes. If you have had health coverage for at least two
years and change employment, you won't be affected by the
exclusion.
If you are terminated from or
leave a job in which health insurance was provided for you,
the government has established guidelines for maintaining
your old coverage at your own expense until you can find new
coverage. Created by the Consolidated Omnibus Budget
Reconciliation Act, this so-called COBRA program gives
workers and their families who lose their health benefits
the right to choose to continue health benefits provided by
their group health plan for limited periods of time under
certain circumstances such as voluntary or involuntary job
loss, reduction in the hours worked, transition between
jobs, death, divorce, and other life events.
Decoding MSAs and
HSAs
For small businesses and the self-employed, a Medical
Savings Account, or MSA, is a tax-exempt account established
for the purpose of paying medical expenses in conjunction
with a high-deductible health plan. Like an IRA, an MSA is
established for the benefit of the individual, and is
"portable." Thus, if the individual is an employee who later
changes employers or leaves the work force, the MSA does not
stay behind with the former employer, but remains with the
individual.
Introduced in 2004,
Health Savings Accounts, or HSAs, are similar to
MSAs. However, MSA eligibility is restricted to employees of
small businesses and self-employed individuals, while HSAs
are open to everyone with a high-deductible health insurance
plan. The interest and investment earnings generated by the
account are also not taxable while in the HSA. Amounts
distributed are not taxable as long as they are used to pay
for qualified medical expenses. Amounts distributed that are
not used to pay for qualified medical expenses will be
taxable, plus an additional 10% penalty is applied to
prevent the use of the HSA for nonmedical purposes.
Given the bills you could face for an unanticipated illness
or injury, health insurance is probably the most important
coverage you can have. Although you might be in fine health
now and think you'll never need it, don't bet your life on
it - or your financial future.
1) "Health
Tracking," Office of the Actuary, Centers for Medicare and Medicaid
Services, February 23, 2005
2) National Coalition on Health Care, based in 2003
statistics
Material discussed is meant for general illustration and/or
informational purposes only and it is not to be construed as tax,
legal, or investment advice. Although the information has been
gathered from sources believed to be reliable, please note that
individual situations can vary therefore, the information should be
relied upon when coordinated with individual professional advice.
Past performance is no guarantee of future results. Diversification
does not ensure against loss. Source: Financial Visions, Inc.
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