ABCs of health insurance
Health insurance has its own language,
and it can be tough to decipher. Here are some basic terms that
you'll see as you fill out the paperwork for company-sponsored health
insurance and some tips for making the best decision for you and
The basic issues of any plan are:
- The premium: the monthly cost of the coverage.
- The deductible: the amount of expenses you
pay on your own before coverage begins. It might be zero, $100,
$250, $500 or $1,000 or more. Like other kinds of insurance, if
you take a higher deductible, your premium will be lower.
- The co-payment: the set amount of money you'll
pay for basic services, such as office visits, emergency room
visits or prescriptions. A typical co-pay for a doctor's office
visit is $20. For prescriptions, a normal co-pay is $5 or $10.
- The reimbursement: the percentage of your
bill the insurer will pay. It doesn't mean you pay the whole bill
and the insurance company reimburses you. Often, a doctor will
bill the insurance company first and send you a bill for the rest.
A typical reimbursement is 80 percent, with you paying the remainder.
Depending on your coverage, your portion could be higher if you
use doctors who are not on the plan's list of approved providers.
- The maximum out-of-pocket expense: the most
you will pay out of your pocket during a year, including your
deductible and your portion of the bill.
- The lifetime benefit: the total amount of
coverage available over a lifetime. It could be $2 million or
- The network: the group of health-care providers
contracted to provide services to members of the plan.
- Excluded services: some plans may not cover
dental or vision care, mental health services or maternity care.
Common exclusions include braces, cosmetic surgery or surgery
to correct your vision.
What you're paying for is choice. The more choice,
the more it will cost.
There are four basic categories of health insurance.
From least to most expensive, they are:
HMO, or health maintenance organization. It
will be the least expensive and offer the least amount of flexibility.
Your co-payment will be quite low, there may be no deductible and
you get unlimited use of the system. The concept behind an HMO is
to keep you from getting sick, so it's likely to pay for things
such as annual physicals, vaccinations and programs to help you
In an HMO, your entry point into the system
is a primary care physician. You see that doctor first and he or
she may or may not refer you to a specialist, who is a member of
the same network. Go around your primary care physician or use a
doctor or hospital that isn't in the network and you may pay the
entire cost yourself.
"The intent is to develop a strong
relationship with that physician who will refer
you to other physicians in the network," says
Matt Tassey, past chairman-elect of the Life and
Health Insurance Foundation for Education and past
president of the Association of Health Insurance
Advisors. "As long as you follow those rules,
you'll get the highest reimbursement, the lowest
premium and the lowest out-of-pocket costs."
POS, or point-of-service plan.
It's an HMO that will provide coverage if you go outside the network.
You may have to pay a $500 or $1,000 deductible and the reimbursement
will be at a lower level.
PPO, or preferred provider
organization. Unlike HMO or a POS plan, PPOs don't have primary
care physicians. The insurer has negotiated fees with a broad range
of doctors and your coverage is good with anyone on the list. "You
don't have to get permission to see a dermatologist for a rash,"
You can also go outside the network and still
have coverage, although at a lower level.
But it's more sick care than preventive care,
Tassey says. "If you just want an annual exam and it's not
on the schedule, you'll pay a deductible."
Indemnity plan. This
is traditional health insurance. You can go to any licensed health
care provider anywhere you want. The deductible may be $250, $500
or $1,000, and the reimbursement at 80 percent or 90 percent. Because
the insurance company has very little control and few opportunities
to reduce costs, they charge the most for this kind of coverage.
For most people, the top issues in the decision are
the cost and the health care providers in the network. For those
with a family doctor they like, or an ongoing medical condition,
changing doctors can be a significant concern. If those aren't issues,
it comes down to how much coverage you can afford and how much control
Daniel J. McCleary, CLU, ChFC, MSFS,
is a field representative with the Guardian Life
Insurance Company and member of the board of directors
of the Society of Financial Service Professionals.
He recommends that people consider two things when
evaluating a health insurance plan.
First, if you have an established
relationship with doctors, make sure that that the
majority, if not all, of your doctors are in that
plan, he says. Secondly, check out what exclusions
exist within each of the coverages. Find out what
limitations are in the policy and how they apply
to your medical history. Certain things will be
covered in one and not in the other.
If you have college-aged children who are going to
school out of the area, make sure there is a network in that community.
If you're married and your spouse is employed, you'll want to do
a careful comparison of both companies' benefits. If you take medication
on a regular basis, ask to look at the formulary. That's a document
detailing the drugs the insurance will cover.
If a flexible spending account is offered, it's definitely
something to be taken advantage of, but McCleary cautions against
the risk of overfunding the account. "The negative is that
if the money isn't used by the end of the term it goes back to the
The biggest risk is not signing up
for health insurance at all. "Younger employees
don't always sign up for health insurance when they
should. They're confused and won't enroll because
they don't want to have money taken out of their
paycheck," McCleary says. "This is the
biggest danger because there's a thing called portability."
Thanks to the Health Insurance Portability and
Accountability Act, once you have had uninterrupted
group health coverage you're set. As long you are
continuously insured with no lapses longer than
63 days, you cannot be denied health insurance due
to a pre-existing condition.
"The problem is that when uninsured employees
go into the new employers plan, if they have an
ongoing problem, that problem won't be covered for
a certain period of time," McCleary says.
Thanks to HIPAA, again, insurance companies are
limited in the amount of time they can exclude a
condition from coverage.
Once committed to obtaining health insurance or
signing up for an employer-sponsored plan, the question
becomes what do I want to pay for?
Alan Ziegler is a certified employee benefits specialist
and 2002-2003 president of the Society of Financial Service Professionals.
His general advice is that unless you have some very special circumstances,
such as a chronic illness or a family history of a rare disorder,
go with the lowest premium costs. Take a higher co-payment and deductible
and keep your costs down. It might mean that you pay the first $250
or $500 every year, but if you don't get sick very often, it could
save you hundreds of dollars a month in premiums.
If your company offers more than one choice and you
don't like the one you've made, you can make changes during the
annual open enrollment period. It's usually in the fall. You might
decide to add or drop prescription drug coverage. You might decide
to take a higher deductible and reduce your costs.
You might be able to change your coverage at other
times of the year if you get married or have a child and want to
add those new family members.
Keep in mind that plans change from year to year.
According to a survey from the Employee Benefit Research Institute,
nearly one in five small employers offering health insurance benefits
changed them in 2002. Typically, those changes resulted in higher
costs to the employees. Most often, the changes increased the co-payments,
deductibles or premiums, and nearly a third dropped at least some
of their benefits.
Many businesses reported that to cover the increasing
costs they either cut out or reduced pay raises or bonuses, reduced
other benefits or put off making investments in the company.
"Unfortunately, employers are
looked at as Scrooge in this situation, but the
costs are astronomical," says Robert Kneip,
founder and former chairman of the Oasis Group,
a Florida-based professional employer organization
that also offers human resources consulting. "There
is not one of my clients who doesn't want to give
health care. But with the dynamics of business and
increasing health care costs, it's a real tough
squeeze. When companies increase the employee portion,
it doesn't mean they're not paying more, too."
Pat Curry is a contributing
editor based in Georgia.
-- Updated: Oct. 19,