Health Insurance

The soaring cost of medical care and the resulting pressure on health insurance premiums have become top-priority issues for employers, employees, the self employed, the federal government, and recipients of various government health insurance plans. The current health insurance system is not only costly but also extremely complex and constantly changing.

Years ago, health insurance was relatively simple. You went to the doctor of your choice. He or she billed your insurance carrier directly, or you paid the bill and submitted it for reimbursement. If you worked for a large company, you paid no premiums, and your co-payments, if any, were minor.
Now, you have many more choices to make. Do you want the traditional fee-for-service indemnity plan? How about opting for the health maintenance organization (HMO) or preferred provider organization (PPO) alternative? Should you participate in a flexible spending account (FSA) plan? Today, you have a much bigger stake in these decisions, because you are often required to pay part of the health insurance premiums, and your deductibles and co-payments are far more costly than they used to be. On top of what is occurring between private employers and their workers, massive changes in health insurance coverage provided by the government promise to cost you even more money and angst.

Despite these complexities, it is crucial to understand your health insurance options and maximize your benefits at the least possible cost. A good health insurance plan can be the best employee benefit you receive because its coverage would be extremely expensive to replicate on your own. For this reason, many employees fear losing their job or are reluctant to switch companies if health benefits at the new company are not equal. Adequate health insurance is critical because you can easily be devastated financially if you or a family member needs major surgery or long-term medical care.

The optimal traditional fee-for-service indemnity policy is divided into two plans. The basic plan reimburses you for doctors’ bills, drugs, outpatient surgical procedures, and other medical expenses up to a certain annual dollar limit. The second plan, called major medical, covers extended hospital visits and other major medical procedures. Both the basic and major medical plans, if offered by an employer, usually cover the employee, his or her spouse, and any children age 23 or younger if the children attend school.

The basic plan, which may be offered directly by your employer or by an outside insurance company, usually applies deductibles of $100 to $1,000 or more before your bills are reimbursed. Some companies impose a fixed annual deductible of $100 or $200 for all employees; others tie the deductible to your salary level. After you pay the deductible out of your pocket, all further bills are usually reimbursed for 80 percent of your cost, up to a specified annual limit. Once you have spent more than that limit, you are reimbursed 100 percent.

Some basic plans are far less generous than others. Depending on the company you work for and the insurance carrier, reimbursement for some procedures might be limited or omitted altogether. This includes such expenses as home health care, dentist bills, psychiatric care, and drug or alcohol abuse treatment.

Your major medical plan normally pays 100 percent of the cost of a semiprivate hospital room up to a certain length of time, such as 120 days. After that time limit, the plan typically covers 80 percent of your bills. Hospitalization charges usually include room and board, nursing care, drugs, medical devices, food, and fees for specialists, such as surgeons, who work in the hospital. If your surgery can be performed on an outpatient basis, these expenses are also usually covered. Most major medical policies have either an annual or a lifetime cap, typically between $250,000 and $1 million. Some major medical plans, such as those offered by Blue Cross and Blue Shield, require you to cover the first $2,000 to $5,000 worth of hospital costs as a deductible before they pay hospital bills directly. This stipulation is often called the stop-loss clause because it limits your loss to the deductible. You are responsible for the initial deductible (say $250) after which the insurer will pay 80 percent of the covered medical costs, and you will pay 20 percent. When your total out-of-pocket expenditures reach a certain amount, such as $2,000, the insurer pays 100 percent.

For even more protection, you can buy excess major medical coverage to supplement a regular major medical policy with a low lifetime limit. Excess major medical policies, often called catastrophic policies, usually have a very high deductible of about $15,000 but can be vital if you need an expensive medical procedure.

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