Last month we discussed group health insurance as one of the benefits provided by an employer to its employees. This month, we are going to look at health insurance from a different perspective - yours.
You can have the best job in the world, make a ton of money and have a healthy investment portfolio, but if you don't have health insurance, you're risking everything you own.
Case in point is the CPA who worked hard and made a good living. Along came a premature baby and the related medical bills. This life changing event also caused a loss in productivity and later, caused the CPA his bankruptcy.
Another example is the two-earner family with a premature child. Because of the child’s medical problems, the mom had to give up her job to take care of the baby. The medical bills related to the new baby were in excess of $1 million. Luckily, the couple had insurance that would cover much of the cost, but they were still short.
The simple fact is, medical miracles do not come without a price. The price can be staggering and without adequate medical insurance, staggering can turn into devastating.
By now you should be convinced you need the best possible insurance you can get, but how do you know which insurance is best for you? The answer isn’t easy, but fortunately, the Web has plenty of resources to guide you. We'll discuss a few of the more important decisions you need to make.
One very important point – just because you are self-employed and only need to insure yourself, don’t take the first quote you get. Contact the various organizations of which you are a member, or organizations that caters to self-employed individuals to see if they offer plans. Many times, these will be the best plans for you.
What flavor ice cream do you like?
Just as there are many different flavors of ice cream so are there many different types of health insurance plans. You may have no choice in the type of insurance if your employer only offers one plan. If this is your only insurance option, take advantage of the benefit because, in our opinion, any health insurance coverage is better than none at all. If you do, however, have a choice, weigh the alternatives.
In our general business article last month, we gave you a definition of the major types of insurance. Here’s a short recap:
- Indemnity - The traditional fee-for-service plan that has a deductible and a co-insurance amount. You are not limited to your choice of doctors or other health care providers and there is generally an annual maximum out-of-pocket cost to you.
- Health Maintenance Organizations - The epitome of managed care organizations. Your choice of health care providers is limited to those who are members of the HMO. Generally, there are nominal co-pays involved for visits to the doctor's office and hospitalization or emergency services. These plans also require a high degree of pre-certification for major procedures.
- Preferred Provider Organization - The insurance company contracts with various physicians and other healthcare providers to provide necessary services. Generally co-pays are involved and there is some level of co-insurance. However, you as the customer have the ability to go outside of the PPO "network" to obtain care, if you are willing to pay a higher price in terms of maximum out-of-pocket costs. You may or may not be required to use an in-network primary care physician.
- Point Of Service – A POS plan has characteristics of both an HMO and Indemnity plan. The amount of benefit is determined based on where the service is provided. Of course, if you use providers inside the plan's network, you pay much less.
So which one is right for you? It depends on your preferences and your resources.
First, you should determine if you are willing to change physicians. It is not uncommon to find yourself moving into a plan that does not include your doctor. If you absolutely refuse to change doctors, don’t opt for an HMO. Your best bet would be either a PPO or Indemnity Plan.
Second, decide how much to pay for insurance. The higher the level of benefits a plan offers the more expensive the insurance. If cost is not the primary motivator, take a hard look at the Indemnity or PPO plans as your best alternative.
Third, decide how much you can afford in total out-of-pocket costs before blowing your financial picture. In general, if you go with an HMO, you are likely to have lower up front costs and perhaps lower overall costs than you might have with the Indemnity, PPO and POS plans.
If you're getting the idea there are numerous questions to ask when purchasing health insurance, read on.
What toppings do you like on your ice cream?
By now, you're probably confused about which plan you need, but you haven't seen anything yet.
Once you have a general idea of the type plan you want, next you need to decide what benefits you want included in the plan. Some of the questions you may wish to ask are:
- What's the lifetime maximum for this plan? If it's $1 million or less, keep looking. Many plans now offer higher lifetime limits to reflect the real cost of medical care.
- What's my deductible?
- What’s my maximum out-of-pocket expense?
- What's the co-insurance percentage and what are the co-pays?
- What specific services are covered and where do I have to get them?
- Do I want to include or exclude maternity benefits? If I do, what are the options for well baby care?
- How much will the policy pay for Durable Medical Equipment (DME)? Many plans don’t provide much for DME costs but consider the two-earner couple we mentioned previously. A wheel chair for their child cost $5,118. The limit for DME on their policy was $2,000. This doesn't include all the oxygen compressors and other equipment the child's condition required.
- What is the insurance company's rating (i.e. its ability to pay claims) and what are other people's experiences with payment of claims. If a company has a great rating, but doesn't pay claims until your lawyer writes a well-crafted letter, don't consider it. You don't need the aggravation.
- Is there prescription drug coverage in the policy? Don’t blindly assume the coverage is there. Be certain by asking the question.
The list could go on for several pages, but the point is, you really need to take a hard look at the benefits of each policy before deciding on a plan. Make sure you are comparing apples to apples in your decision-making. Bear in mind, though, that more benefits equates to higher premiums.
Do you want an ice cream cone or do you want it in a bowl?
You can get a traditional form of the preceding plan types, or you can combine your coverage with a M
ccount (MSA). MSAs were created several years ago as a way to encourage smaller employers to provide group health insurance to their employees. The most important thing you need to know about MSAs this month is the ability to utilize them ceases on December 31, 2000, unless Congress approves an extension. Plans existing at December 31, 2000 will be protected from extinction.
MSAs work like this:
- The employer provides a high deductible insurance policy to its employees. Because of the high deductible, the premiums are extremely low.
- The employees join the plan and also establish MSAs.
- The employees fund their MSAs with pre-tax deductions from their payroll.
- When medical expenses are incurred, the employee uses the funds in the MSA as a first line of defense.
- If the funds in the MSA remain unused when you reach 65, you can withdraw them in the same manner as you would an IRA.
MSAs are pretty good alternatives to traditional plans. The employees are able to pay for their premiums and medical expenses with money that has never been burdened with income taxes. Using what is called a Flexible Spending Account can also do this, but you lose any unexpended funds at the end of the year. If the funds in the MSA remain unexpended they carry forward and you have effectively avoided the two/four thousand dollar per year limitation on IRAs – legally!
Time to clean the dishes
Unless you are Bill Gates, or someone with similar resources, high medical costs have the potential to destroy you if you do not have proper insurance coverage. Give us a call and let us guide you through the maze of health insurance plans currently on the market. That's our job - to help you make sense out of the confusion.
In the meantime, here are a couple of useful sites you may wish to visit: