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A Consumer Guide:
Questions and Answers
About Health Insurance

Introduction

This guide briefly describes the different kinds of health insurance plans available today, including:

  • Network-based plans.
  • Non-network based coverage.
  • Consumer-directed health plans.

You will find answers to many common questions you may have about health insurance. Resources are provided to help you find additional, more detailed information. There is also a Glossary of health insurance terms.

1. Why do you need health insurance?

2. How do you get it?

3. Which type is right for you?

4. What is consumer-directed coverage?

5. How does Medicare coverage work?

6. What about other government programs?

7. Are there other types of coverage?

8. What if you have a pre-existing condition?

9. What If You Are Insured Through Your Job and You Leave?

10. In Closing

11. Glossary


1. Why do you need health insurance?

As medical care advances and treatments increase, health care costs also increase. The purpose of health insurance is to help you pay for care. It protects you and your family financially in the event of an unexpected serious illness or injury that could be very expensive. In addition, you are more likely to get routine and preventive care if you have health insurance.

You need health insurance because you cannot predict what your medical bills will be. In some years, your costs may be low. In other years, you may have very high medical expenses. If you have health insurance, you will have peace of mind in knowing that you are protected from most of these costs. You should not wait until you or a family member becomes seriously ill to try to purchase health insurance.

We also know that there is a link between having health insurance and getting better health care. Research shows that people with health insurance are more likely to have a regular doctor and to get care when they need it.

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2. How do you get it?

Most people get health insurance through their employers or organizations to which they belong. This is called group insurance. Some people do not have access to group insurance. They may choose to purchase their own individual health insurance directly from an insurance company. Many Americans get health insurance through government programs that operate at the national, State, and local levels. Examples include Medicare, Medicaid, and programs run by the Department of Veterans Affairs and Department of Defense.

Group Insurance

Group health insurance is typically offered by employers. Or, if you are a member of a union, professional association, or other group, you may be able to get group coverage through that organization.

Some employers allow employees to choose between several plans, including both indemnity insurance and managed care. Other employers offer only one plan. Some group plans offer dental and/or vision benefits as well as medical benefits. So it is important to compare plans to find the one that offers the benefits you need most. Once you enroll in a health insurance plan, you usually cannot change to another plan until the next open season, usually set once a year.

When group health insurance is an employee benefit, your employer usually pays a portion or all of the premiums. This means your costs for health insurance premiums will be lower than they would be if you paid the entire premium alone.

When you get group insurance through membership in an organization, you usually will benefit from being a member of a large group. You may pay less for premiums than an individual would pay. However, the organization often does not pay a share of the premium, meaning you may be responsible for paying the entire premium yourself.

Individual Insurance

If you are self-employed or your employer does not offer health insurance, you may not have access to group insurance. You may, however, be able to purchase individual coverage directly from an insurance company. When you buy your own health insurance, you will be responsible for paying the entire premium rather than sharing the cost with an employer. You should shop around to find a plan that fits your needs at a price that you are willing to pay.

Most self-employed workers are able to deduct their health insurance premiums from their Federal taxable income, providing them with an important tax saving. Most States also offer similar tax preferences. If you are self-employed and buy individual health insurance, you should consult a tax advisor to find out if you are eligible for this deduction.

Insurance plans differ greatly from one company to another and, within an insurance company, from one plan or product to another. Some plans have multiple products (options) from which you can choose; read carefully through the "fine print" to be sure you understand the various choices.

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3. Which type is right for you?

Whether you are eligible for group insurance or choosing an individual plan, you should carefully compare costs and coverage. Be sure to compare:

1. Premiums.
2. Coverage/benefits.
3. Access to doctors, hospitals, and other providers.
4. Access to after hours and emergency care.
5. Out-of-pocket costs (coinsurance, copays, and deductibles).
6. Exclusions and limitations.

Even if you do not get to choose your health plan—for example, if your employer offers only one plan-you still need to understand your coverage. What kind of services are covered by the plan? What steps do you need to take to get the care you and your family members need? When do you need prior approval to ensure coverage for care (for example, elective hospitalization for scheduled surgery)? How are benefits paid; do you have to submit a claim?

Make sure you understand how your plan works. Don't wait until you need emergency care to ask questions.

If you are choosing between indemnity and managed care plans, remember that they may differ in several important ways, including:

How you access services.
How you obtain specialty care.
How much and sometimes how you pay for care.

Despite these differences, indemnity and managed care plans share some features. For example, both types of plans cover a wide array of medical, surgical, and hospital services. Most plans offer some coverage for prescription drugs. Some plans also have at least partial coverage for dentists and other providers.

The major difference between indemnity (non-network based coverage) and managed care plans (network-based coverage) concerns choice of doctors, hospitals, and other providers; out-of-pocket costs for covered services; and how bills are paid.

Be sure to check on the physicians and hospitals that are included in the plan.

Indemnity Insurance

This type of coverage offers more flexibility in choosing doctors and hospitals. Usually, you can choose any doctor you wish, and you can change doctors at any time. Although you usually will not need a referral to see a specialist or go for x-rays or tests, you may need paperwork, such as your medical records, from your primary care physician. Be sure to ask your doctor if there's any paperwork that you will need to take with you.

If you have indemnity insurance, your plan only pays part of your medical bills. You are responsible for the rest. Your out-of-pocket costs are likely to be higher for certain services than with some managed care plans. Usually, you will need to spend a certain amount each year before your plan begins to pay benefits. This amount is called a deductible.

Deductibles are the amount of the covered expenses you must pay each year before your plan starts to reimburse you. Deductibles might range from $100 to $300 per year per covered person or $500 or more per year for a family.

If you have an indemnity plan, you may have more paperwork to do. Some doctors will submit the claim for you. Once the doctor receives payment from the insurance company, he or she will bill you for the difference. With other doctors, you will have to pay the entire bill and file a claim with your insurance company to be reimbursed.

Indemnity insurance pays a portion of the bill—usually 80 percent— after the deductible has been met, although this may vary. You pay the remainder, usually 20 percent of the total bill. This is called coinsurance.

Indemnity policies typically have an out-of-pocket maximum. This means that once your expenses reach a certain amount in a given calendar year, the fee for covered benefits typically will be paid in full by your insurance plan. If your doctor bills you for more than the reasonable and customary charge, you possibly may have to pay a portion of the bill. If you have Medicare coverage, there are limits on how much a physician may charge you above the usual amount.

There also may be lifetime limits on benefits paid under the policy. Most experts recommend that you look for a policy with a lifetime limit of at least $1 million. Anything less may not be sufficient.

Managed Care

More than half of all Americans who have health insurance are enrolled in a managed care plan. Managed care plans usually cover a wide range of health services. With these plans, costs are lower when patients use the doctors and other providers who participate in the plan (network providers).

In most cases, you will not have to fill out any insurance forms or submit any claims to the insurance company when you use in-network providers. Usually, you will pay a copay (typically $10 to $20 for an office visit) each time you go to the doctor or hospital or fill a prescription. Your copay may vary depending on whether you see your primary care doctor or a specialist and whether you receive a generic or brand name prescription drug.

Most managed care plans have a list of drugs that they cover, called a formulary. Your copay for prescription drugs will probably depend on whether you are getting a generic drug, a brand name formulary drug, or a brand name drug not on the plan's formulary. For example, the copay might be $10 for a generic drug, $25 for a formulary drug, and $40 for a brand name non-formulary drug. Be sure to check the formulary of the plan you are considering to make sure it will cover any routine prescription drugs that you and your family members take.

Some managed care plans have a mail-order pharmacy option. This means that you send your doctor's prescription for routine maintenance drugs (for example, blood pressure medicine, drugs to control blood sugar, and other drugs used on a regular basis) to the mail order pharmacy. In most cases, you will receive a 3-month supply of your medication by return mail. You still pay a copay, but your cost may be lower than it would be at a local retail pharmacy.

If you choose to enroll in a managed care plan instead of an indemnity plan, you may have lower out-of-pocket expenses for health care, as long as you see doctors who are part of the plan (in-network providers).

There are three main types of managed care plans:

Health maintenance organizations (HMOs).
Preferred provider organizations (PPOs).
Point-of-service plans (POS).

All three types of managed care plans have contracts with doctors, hospitals, and other providers. They have agreed on certain fees with these providers. As long as you get your care from a plan provider, you typically will be responsible only for any cost-sharing your plan requires.

Health Maintenance Organizations

HMOs have long been known for a focus on prevention and wellness. Traditionally, HMOs required that you receive most of your care from one primary care physician who is aware of your total health picture. If you belong to an HMO, usually you must receive all of your medical care from network providers, except in emergencies. HMOs usually have flat copayments rather than deductibles and co-insurance and no lifetime limits on coverage.

After you enroll in an HMO, you typically will need to select a primary care physician who will be responsible for coordinating all of your care. Primary care physicians may be family practice doctors, internists, pediatricians, obstetricians-gynecologists, or general practitioners.

If you become ill, your primary care doctor will see you first, unless it is an emergency. Your primary care doctor will give you a referral if he or she thinks you need to see a specialist. Usually, your HMO will not provide coverage for a specialist unless you have this referral.

In most cases, you must see a specialist who participates in your HMO. Sometimes, in special circumstances, HMO patients may be referred to providers outside the HMO network and still receive coverage.

If you need to be admitted to the hospital and it is not an emergency, you may have to obtain precertification from your plan. In most cases, your physician or hospital will take care of this for you. Non-emergency hospital care may not be covered without precertification. In case of an emergency admission, you or a family member, your doctor, or your hospital will need to contact your plan within a certain timeframe (usually within 48 hours of admission) to obtain written confirmation of coverage for the hospital stay.

Today, some HMOs do not follow this "primary care model." So, if you are considering a traditional HMO, it is important to compare the features and requirements among the various HMO plans that are available to you.

Preferred Provider Organizations
and Point-of-Service Plans

PPOs and POS plans combine features from both fee-for-service and HMOs. PPOs and POS plans offer more flexibility than HMOs in choosing physicians and other providers. POS plans have primary care physicians who coordinate patient care, but in most cases, PPOs do not. Premiums tend to be somewhat higher in PPOs and POS plans than in traditional HMOs.

Generally, the greater the emphasis on in-network care, the lower the premiums and the more comprehensive the benefits will be. Consumers and employers make tradeoffs, deciding which is more important: a greater choice of providers or a lower premium.

If you are enrolled in a PPO or POS plan, your out-of-pocket expenses will be less if you use a provider who is part of the plan (a network provider). However, you will still get some reimbursement if you receive a covered service from a provider who is not in the network. In this case, your reimbursement will be at a lower level than if you used an in-network provider.

If you choose to go out of network for your care, you may have to meet a deductible before your plan begins to pay benefits. Also, you may have to pay the bill yourself and submit paperwork to the plan for reimbursement of covered expenses.

If you are in a PPO, you will not need a referral to see a specialist or get other types of care, but you may need to take some paperwork with you. Be sure to ask your doctor if you will need a written order or other documentation when you are referred to a specialist, laboratory, or other provider.

When you go out of the plan's network for care, PPOs and POS plans work like fee-for-service plans and charge you coinsurance. For PPOs, this coinsurance may be different than the coinsurance charged for in-network providers. Also, you may have to pay the total cost of care right away and then file a claim with your insurance company to get the allowable reimbursement for out-of-plan care.

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