Health Insurance Basics
Choosing the right insurance is a daunting task, and the challenge grows bigger all the time. A good place to start is to know what questions to ask, and then to arm yourself with answers that help you make the right choice.
Why do I need health care insurance and what are its limitations?
Health insurance helps protect you against high medical costs that could arise if you get sick or experience an accident. Though you may not be sick now, paying for health insurance protects you later if you or a member of your family get sick. There is no way to completely predict who will get sick, when they will need care, and how much that care will cost. Health insurance works by pooling large numbers of people together and then spreading the risk for high costs among everyone. That way, if you pay some money now, you can get benefits later if you need them.
Of course, health insurance can have major limitations. Most policies cover a defined range of treatments, tests, and doctors’ visits. If you need a treatment or drug that is not covered, you could pay for it yourself. Most insurance also charges you more than just the premium. For example, you are likely to be required to pay copayments (fixed per-visit or per-prescription costs), deductibles (dollar thresholds you must pay before coverage kicks in), or other payments.
Policies may also limit the amount of covered care you can receive, the number of times you can go to a doctor in a year, or the total dollar amount for care. They may require you to pay a large portion of costs even after you’ve paid your premiums.
What is a health maintenance organization (HMO)?
An HMO is the type of insurance that often has the lowest out-of-pocket costs to you, the patient. You may pay a small deductible along with copays for visiting the doctor or filling a prescription. HMOs keep costs lower by limiting the network of health providers you can see. Generally you must stick to the primary care physicians and specialists in the closed network. That means if a particular doctor is not in the HMO’s network, you may have to pay extra to see him or her, or not be allowed to use their services at all.
What is a preferred provider organization (PPO)?
A preferred provider organization has a network like an HMO, but you are allowed to go outside the network if you pay higher fees. Out-of-pocket costs of the insurance are usually greater because of this expanded choice. PPOs offer a lot of choice of doctors and hospitals, but they usually cost you more.
What is a point-of-service plan (POS)?
A point-of-service plan combines an HMO-like network with the freedom to see any doctor outside the network. If you stay inside the network, you pay regular HMO copays and co-insurance (Paying a certain percentage of costs up to a capped level). If you go outside the network, you likely won’t have any co-insurance, but you will have a higher deductible. For instance, you could be required to pay the first $1,000 for any care you receive, in addition to your premiums.
What is an indemnity plan?
An indemnity plan has no provider network. Instead it pays for care regardless of which hospital or doctor you go to. There is a lot of freedom with an indemnity plan, but because there are no closed networks, it is harder for the insurance company to negotiate to control costs. That means that premiums and deductibles may be very high, to help the plan cover high health care costs if you get sick.
What is a health savings account?
Health savings accounts are accounts that allow you to save a certain amount of money tax-free as long as you spend it on health costs. Current law limits yearly HSA contributions to $2,650 for individuals and $5,250 for families. HSAs are used in conjunction with low-premium, high-deductible plans that cost less up-front but require you to spend more of your own money if you need care. Employers may also contribute to these accounts.
What is a flexible spending account?
A flexible spending account may be set up by your employer to help cover medical expenses. The account allows an employee to deduct a set amount of money from their paycheck, tax-free, that can be set aside to pay for medical costs such as out-of-pocket costs or uncovered care. Employers may also contribute to these accounts.
Companies may place a limit on how much money can be set aside in such an account. In addition, the employee will lose the money if they don’t spend it by the end of the year.
How can I protect my private medical information?
Most doctors, nurses, clinics, hospitals, health plans, and insurers are required to follow the rules of the Health Insurance Portability and Accountability Act. That law gives you the right to:
o Ask to see your health records
o Have corrections added to your records
o Receive notice that tells you how your health information can be used or shared
o Decide if you want to give your permission BEFORE your health information is used or shared for certain purposes like marketing.
o Get a report on when and why your health information was shared
o File a complaint with your health insurer, health provider, or the federal government if you feel your privacy rights were violated
What is the difference between group and individual insurance?
Group insurance is typically offered through an employer. It insures a group of people, i.e., the company’s employees, all together. Individual insurance is what you buy if you are self-employed or if you choose not to take insurance through your job. Individual insurance is almost always more expensive because you don’t have the advantage of collective buying or negotiating with the insurance company. But one advantage of individual insurance is that you may deduct your premiums from your taxes.
What is a pre-existing condition? How does it affect my current insurance?
A pre-existing condition is a medical condition, such as diabetes, that you already have when applying for new insurance. Insurance plans may try to exclude coverage of your pre-existing condition before insuring you. But generally they may not exclude illnesses that occur after insurance starts. Usually you take a physical at the start of a new policy so that the plan can determine if you have any pre-existing conditions.
How does it affect getting a new insurance policy?
As stated above, insurance plans may try to exclude coverage for pre-existing conditions before insuring you. They may offer insurance only at a higher cost in the form of deductibles, copayments, and coinsurance, or they may choose not to offer you coverage at all.
What is the Health Insurance Portability and Accountability Act (HIPAA) and its impact on my having insurance?
Passed in 1996, HIPAA is designed to protect health insurance coverage for workers and their families when they change or lose their jobs. HIPAA prevents group health insurance plans from singling any one person out for higher premiums based on age, sex, health status, or other factors. HIPAA also limits how plans can exclude covering you for pre-existing conditions. In effect, HIPAA lets you “carry over” coverage of a pre-existing condition to a new insurance policy if you had roughly equal coverage before.
Why should I worry about a “coverage gap,” not having insurance for 63 days or more?
The “carry over” of coverage mentioned above only applies if your previous coverage ended less than 63 days before your new coverage begins. That means that for your new plan to cover a pre-existing condition, or limit exclusions for a pre-existing condition based on previous coverage, that coverage must have ended no more than 63 days ago. That’s why you may hear 63 days quoted as a HIPAA definition of “continuous coverage.”
By Todd Zwillich
Researched by Michele Foust
WebMD Special Report Reviewed by Louise Chang, MD
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