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Choosing and understanding health insurance can be a challenge. Much like retirement, it requires assumptions, understanding your risk tolerance and even budgeting.
There are several key factors.
Deductibles before benefits are paid
Co-insurance and co-payments – your share of each charge
Out-of-pocket limits-the point annually where payments are at 100% by your insurance.
If you have family coverage, there may be a family deductible limit of two people so each individual does not need to satisfy a deductible.
Understanding provider networks and the affect on your costs for using none network providers is critical. You may pay more out of pocket or you may pay the full charge. How important is it to be able to see any doctor or use any facility you choose?
If you see your doctor on the provider list, check with your doctor to verify he still participates and plans to continue to do so. Don’t rely only on the plan’s list.
Your employer provided summary plan description will highlight all the above factors. It will have a section on eligible and ineligible service.
It will also layout the legally required claim appeal process, including time limits for each step of the process. Just familiarize yourself with this information in case you need it in the future.
Private insurance will provide a similar summary of the coverage.
You do not need to read the material cover to cover, but rather focus on the key factors I mentioned. If you have specific health needs, especially focus on the ineligible section. Look at the words describing “medical necessity” as this is the key to all eligibility and the source of most claim issues. The reality is that just because your doctor orders a procedure or test or treatment, that does not make it medically necessary in the broader context of medical practice.
For example, let’s say a doctor orders a mammogram every six months. In the absence of special circumstances for that patient, it probably is not medically necessary. I had a claim where a family of five was visiting a chiropractor twice a week for many weeks. Finally, we said there was no medical necessity as there was no diagnosis supporting the treatments.
Sometimes treatments are not yet approved. Sometimes a doctor will use a treatment beyond the purpose for which it was approved. A treatment may be experimental. Medical necessity is often a matter of judgement.
Without some consideration and assessment for medical necessity, costs would be much higher than they are and fraud would be as well. There can also be a benefit to the patient. Health care has an element of risk.
How do you select the right plan?
People tend to first focus on premiums when making their choice. Some people think the higher cost plan is always the best plan. That probably is not true for you. Premiums are a guaranteed expense for the year, everything else is variable and may not occur. In fact, absent a chronic condition, most people (families) will not meet their deductible in a year.
Think of your coverage as insurance is intended, not to reimburse for every dollar you spend, but to protect from catastrophic expenses you can’t handle – and while possible, unlikely to occur in any given year.
So, calculate the annual premium costs for a plan along with your possible out of pocket costs, your deductible and maximum amount. Then do the same with a plan with lower premiums and higher potential OOP costs.
Are you willing and able to assume the possible additional OOP cost? Will you save the difference in premiums – possibly using health savings account (HSA) to help offset costs if necessary? In any case, it’s a good idea to have a modest health care OOP emergency fund.
I used to tell employees that before making a plan choice look at what they and their family actually spent on health care in the last year or two. Chances are it is far lower than the perception.
Here are a few other tips:
Keep all the explanation of benefits (EOBs) you receive-helps keep track of your spending
Never pay a provider until your claim is adjudicated and you have the EOB – Medicare takes three months
Don’t rely on your doctor to tell you what is covered by your plan. However, if you appeal a denied service, your doctor may help by showing other insurers paid for the same service.
Keep in mind a denied claim may easily be the result of inaccurate/incomplete paperwork submitted by the provider.
If you have coverage through your employer, there is better than 50/50 chance your employer is self-insured which means the employer calls the shots and pays the bill. You may have an insurance company ID card, but they are only processing claims and have no financial risk. This also means that your employer can help if you are struggling with a denied claim.
Good stuff, Dick. I wrote an article about my analytical approach to comparing plan costs. It encompasses what you suggest in the post, and provides an example to illustrate the simple calculations.
I second your recommendation that it’s worth spending a little time reading the Summary Plan Descriptions for your benefit programs. It may be confusing at first, but it gets easier as you familiarize yourself with the documents, terminology, and concepts. As I’ve written before, I worked with highly educated engineers and scientists, and many never looked at the documents, or got comfortable, with them. When I became a manager, my employees assumed I had somehow gotten smarter and more knowedgable overnight, and had become an expert on benefit plans. I made it a point to learn as much as I could, and to lean on some excellent HR colleagues.
Rick, you illustrate one of my key points. It’s not intelligence or lack of it that keeps people from learning about their benefits, it’s lack of motivation and interest, lazy thinking.
I just read a post by someone knocking an insurance company because a claim was denied or rather applied to their deductible they just “discovered” they had.
Truly, dealing with people like that and knowing years of trying to communicate was wasted was a factor in my retiring when I did. Very frustrating.
Rather than expecting people to conform to a system it is usually better to fit the system to the people. In other words, we need something simpler. I just encountered someone on another board who appears to have a Medicare Advantage plan but calls it supplemental. When I lived in the UK I just went to the doctor. No confusion, no deductibles, no copays. I’m not saying we should copy the UK, but other countries have better, and cheaper, systems that don’t require a lot of time and energy to decode.
Medicare at least is simple to use and Medigap fills in the gaps.
MA muddies the waters and should never have been adopted. That was done under the false assumption that choice is good and Medicare would save money. Neither is true. And of course, we have MA because of pressure from the insurance industry.
What makes no sense is that MA employs the strategies like tight networks, referrals and managed care that workers have hated for years.
‘’Retirees must be lured by the promises in the ads and look no further than $0 premium and “extra” benefits.
If the government gets it act together and subsidizes MA properly their prices will go up and benefits down or a plan will disappear.
Maybe we should post this on X 😎
For retirees, I would add- look at the networks available for rehab facilities and the PT/OT available annually. I found out that a top notch Medicare Advantage Plan (sponsored by past employer) limited options for a family member, while original Medicare did not. This is in spite of the MA plan not limiting regular medical providers to a network. Fortunately, was able to switch this family member back to original Medicare for more robust coverage. Medicare also does not micromanage progress in a rehab setting like non-Medicare providers.
We had a particularly heavy use year, where we hit some of our high deductibles. It still was cheaper than the high premium low deductible plan. That was a real eye opener.
Richard this is a very comprehensive primer on how to select and use health insurance.
When I became self-employed I analyzed premium and out of pocket maximums just as you described. I had huge deductibles and reasonable premiums. I set aside enough money to cover the OOP in an H.S.A. each year and ended up with a $25k balance by age 65.
I also know from experience that many of the complaints leveled at insurers are the result of people not understanding the policy.
Now I’m reminded of the guy you mentioned in a prior post who thought he should get paid for attending a free financial seminar you set up. Good luck getting that guy to read a plan description.