Individual medical policies are like individual life insurance policies — they generally become more expensive with age, and with healthcare costs skyrocketing, so, too, are health insurance premiums.
Most Americans with medical insurance have group medical insurance provided by their employer — in fact, more than 90% of health insurance is group health insurance. Individual policies are very expensive, and will continue to rise much faster than incomes; thus the number of uninsured Americans will increase, and businesses will continue to shift more of the cost to its employees. Group health insurance is more affordable because the premiums, even if the individuals pay for part of it, are determined by the group, not by the individual. A business, for instance, will have employees that range in ages from young to old, so the young help to subsidize the older employees. Since the business pays for at least part of the premium, the younger employees do not seek their own insurance at cheaper rates.
The hospital-surgical insurance plans of yesteryear are becoming the major medical plans most often issued today.
Hospital-Surgical Insurance Plans
Many medical plans were hospital-surgical insurance plans (aka basic plans) that covered basic medical expenses, but not major medical catastrophes. Although these plans vary widely, they do have many features in common.
Lifetime aggregate limits are typically $100,000; maximum limits for individual illnesses are much lower.
Hospital-surgical plan coverage can be classified as hospital expenses, surgical expenses, outpatient services, and doctor visits, with limits for each of these services.
Hospital expenses include in-patient expenses, such as for semi-private rooms, and miscellaneous hospital expenses, such as x-rays, lab tests, and drugs given while in the hospital.
Surgical expenses are paid either by using a schedule of payments for common procedures, or by paying reasonable and customary charges, charges that are within a specified percentile rating of what other surgeons in the same area and for the same procedure charge. If the surgeon charges more than this, then the patient must pay the difference.
Outpatient services are those services used by the insured, but not as an in-patient, such as emergency treatment, diagnostic procedures and laboratory expenses.
These plans also pay for doctor visits while in the hospital, including any nonsurgical treatment, with a maximum amount paid for each visit and a maximum number of visits paid for each hospitalization.
Major Medical Insurance Plans
Major medical insurance plans, the most commonly sold today, are more comprehensive and have higher limits than hospital-surgical plans. The limits apply to the entire treatment rather than for specific services, and typically, the limits are $500,000 to $5,000,000 or higher. As with most health insurance plans, there is a deductible and coinsurance (aka participation provision) requirement.
Calendar-Year Deductible; Family Deductible
The deductible lowers administrative costs by eliminating small claims. There are 2 major types of deductibles: the calendar-year deductible and family deductible.
The calendar-year deductible must be paid only once per year. For instance, if the deductible of $500 was paid in April, then no more deductibles need to be paid for the rest of the year. Most policies have a carry-over provision that allows the payment of any deductible during the last 3 months of the year to be carried over into the next year.
A family deductible is a single deductible that applies to all members of a family. For instance, if the deductible is $100 per month, and 2 members were treated within a month, and the $100 deductible was paid for the 1st member, then there is no deductible for the 2nd member.
Coinsurance is the amount of money that must be paid by the insured for any loss. Coinsurance reduces premiums, reduces overutilization of services, and sometimes motivates the insured to find or negotiate better prices. The coinsurance payment is usually 20% of the bill remaining after the deductible is paid.
However, most policies also have a stop-loss limit, which is a cap on the coinsurance payment, which prevents a financial burden if the loss is large. For instance, if the loss is $100,000, and the stop-loss limit is $3,000, and the deductible is $1,000, then the insured would have to pay the $1,000 deductible and $3,000 for the coinsurance. The insurance company would pay the remaining $96,000. Without the stop-loss limit, the coinsurance payment would be $20,000. Medicare has no stop-loss limit, so the 20% co-pay applies to the total bill.
Like most insurance policies, major medical plans have many exclusions. Generally, such exclusions include medical services required by most people, but are relatively inexpensive or may be covered by other insurance, such as dental work, and common eye and hearing impairments. Elective cosmetic surgery and experimental surgery are also excluded.
Treatments for impairments caused by the insured, notably drug use and alcoholism, are either excluded or have reduced limits. State laws may determine how these treatments are covered.
Due to the rapidly increasing costs of health services, many major medical plans are using managed care to contain costs. Managed care is care where the insurance company has emplaced procedures that must be followed in an effort to reduce costs. This may include precertification for a nonemergency admission to a hospital, or the insurance company may require that certain procedures be obtained as an outpatient service. Insurance companies are also using a preferred provider network, which is a group of hospitals, doctors and other medical specialists which have agreed to provide services for a reduced fee. If care is provided outside of the network, then the insured must pay higher out-of-pocket costs.
Medicare Supplement Insurance
Medicare provides health insurance for those 65 or older, but there are large deductibles. Medicare supplement insurance (aka Medigap, MedSupp) supplements Medicare by paying deductibles, physician charges above what Medicare considers reasonable, and additional expenses when Medicare ends. What Medicare covers continually changes, and the latest updates can be found at https://www.medicare.gov. Medigap insurance, like Medicare, does not pay for custodial care.
The premiums for Medigap insurance are based on the insured's age and on the amount of coverage.
The Omnibus Budget Reconciliation Act, passed in November, 1990, requires Medigap insurance to provide for the following:
- Insurers must accept anyone 65 or older who wants to buy Medigap insurance, if the purchase is made within 6 months of enrolling in Medicare, regardless of health status or the claims experience of the person.
- Insurers can only exclude preexisting conditions diagnosed or treated within the 6 months prior to the issuance of the policy.
- The policy must be guaranteed renewable.
- Medigap insurance has a minimum loss ratio. At least 60% of the premiums of individual policies and 75% of the premiums for group insurance must pay for benefits.
- Insurers are not permitted to sell Medigap insurance policies to those who already have such a policy, unless it is a replacement policy.
Shopping for Health Insurance: Coinsurance, Co-payments, and Deductibles
One major consideration when shopping for health insurance is the amount you must pay, in the form of coinsurance, co-payments, and deductibles. A long-term illness can easily cost a patient tens of thousands of dollars in such out-of-pocket expenses every year.
And, usually, the coinsurance is for customary charges for a specific treatment in the geographical area. If the doctor charges more, then the insurance company may only pay the percentage of the customary charge and not the actual amount charged. The healthcare provider will then bill the patient for the difference in what is called balance billing. Although many states prohibit balance billing by network providers, the prohibition does not extend to out-of-network providers.
Fortunately, many healthcare providers limit annual out-of-pocket expenditures, with limits ranging from $2,500 to $6,000 for single coverage and double that for family coverage. However, the limits on out-of-pocket expenditures can be much higher for out-of-network providers.
The out-of-pocket limits are set by federal law for high-deductible healthcare plans required by Health Savings Accounts, with deductibles limited in 2020 to $6,900 for single coverage and $13,800 for family coverage.
How much your premium will be for any given line of insurance depends not only on the information that you supply in your insurance application, but also on information held in various databases that insurance companies draw upon when underwriting your application. Underwriting for personal lines of insurance relies heavily on insurance scores and/or credit scores and underwriting for health and life insurance draws information from the Medical Information Bureau (MIB) database. Federal law requires that any collector of personal information must provide a free report annually to the consumer. Therefore, request a free report from MIB at MIB.com - Request Your MIB Consumer File to ensure that there are no mistakes in the report before applying for health or life insurance. Since insurance scores and credit scores are derived from information in your credit file, periodically review the files held by the 3 major credit reporting agencies. Get your free credit reports from each credit reporting agency at AnnualCreditReport.com. These risk scores are a major factor in determining the premiums that will be charged to you, so it would behoove you to get these reports to assure that there are no errors.
Beware of Medical Discount Plans
Medical discount plans are not health insurance. For a premium, they advertise that you can receive discounts on medical service. Often, their marketing materials will advertise discounts of up to a certain percentage that can be saved on medical services. The problem with getting "up to 50%, 60%, or 70% off" is that it means nothing without knowing what the retail prices are, which is almost impossible to determine in regard to medical services. Additionally, even if the discounts are legitimate, will the discounts received over the course of the year exceed the premium paid for the discount service? If not, then the discount plan is a scam, as most of them probably are. However, considering the cost of healthcare, it is much better to have health insurance, which generally negotiates discounted prices with the provider. Furthermore, insurance companies generally know how much procedures cost in given regions, so they can obtain real discounts. That is one of the advantages of having health insurance: not only is most of the cost paid for, but the co-pay will be less because of the discounts.
Why Health Insurance is so Expensive
Health insurance is expensive. Most people who have to buy individual coverage pay hundreds of dollars per month, or more, for premiums, which is why, in the United States, many people do not have health insurance. Some of the factors that make health insurance so expensive include the demand for the latest technology and the high cost of malpractice insurance that medical providers must purchase.
Another reason for the expensive health insurance is that healthcare providers game the system to earn even more money than they already do. For instance, drug companies are giving co-pay coupon cards to patients to lower their out-of-pocket expenses so that they choose the drug companies' patented drugs over generic brands. The patient often chooses the drug with the lower co-payment even though it costs the insurance company a lot more when the patient uses name-brand drugs over generic versions, which will eventually increase the cost of insurance premiums that these patients, or their employers, must pay. (See Co-Pay Coupons for Patients, but Higher Bills for Insurers)
However, the main reason why health insurance is so expensive is because, it is not only being used as insurance — to cover unexpected catastrophic costs — but it is also being used to cover routine expenses, such as annual checkups, vaccinations, and maternal deliveries, and small random expenses. These are items that people should pay for out-of-pocket so that they shop around for the best prices and service, which puts some pressure on healthcare providers to lower the prices they charge.
The tax treatment of health insurance also increases demand for routine or inexpensive services. Because employer-provided health insurance is exempt from income and payroll taxes for the employees, many employers provide health insurance as a benefit. Because of this tax exemption, employers often offer generous health insurance packages that covers many small expenses. Indeed, one of the things that unions — especially public unions — strive for in their negotiations is for a Cadillac health plan that covers just about everything.
Will Allowing Insurance Companies to Sell Across State Lines Reduce Health Insurance Premiums?
Some people, such as President Donald Trump, think that health insurance costs can be greatly reduced by allowing insurance companies to sell across state lines. However, insurers are already legally permitted to sell policies across state lines by §1333 of the Affordable Care Act.
Few states have pursued such policies because insurance companies are reluctant to sell over state lines, because of differing rules and regulations. Additionally, many people do not want to buy insurance from out-of-state insurance companies because most of the doctors and hospitals will be located in the insurer's state. Furthermore, the price for health insurance is largely dictated by how much medical care costs in the insured's area, which differs dramatically across the United States.
Several states, including Wyoming, Maine, and Georgia, have already allowed across-state sales of health insurance, but it was a dismal failure, chiefly because the insurers had no interest. Without current customers in the new state, it is very difficult to create a provider network that is competitive with in-state insurers. Additionally, insurers in states with tough insurance regulations would have a greater burden competing with insurance companies in states with less regulation. Insurers do not want to compete against out-of-state plans that don't have to adhere to the more restrictive regulations.