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A Consumer Guide:
Questions and Answers
About Health Insurance

... Continued From Previous Page

4. What is consumer-directed coverage?

Consumer-directed health plans allow individuals and families to have greater control over their health care, including when and how they access care, what types of care they receive, and how much they spend on health care services. The major types of consumer-directed coverage are:

  • Health savings accounts, usually coupled
    with high-deductible health plans.
  • Health reimbursement arrangements.
  • Flexible spending arrangements.
  • Archer Medical Savings Accounts.

Health Savings Accounts

A health savings account is a type of medical savings account that allows you to save money to pay for current and future medical expenses on a tax-free basis. In order to be eligible for a health savings account, you must be covered by a high-deductible plan, not have any other health insurance (including Medicare), and not be claimed as a dependent on someone else's tax return.

You can use this account to pay for your qualified health expenses, including expenses that the plan ordinarily doesn't cover, such as eyeglasses and hearing aids. Expenses paid out of the HSA that are eligible expenses under your high-deductible health plan will count toward the plan's deductible.

During the year, you can make voluntary contributions to your health savings account using before-tax dollars. In some cases, employers may set up and help fund health savings accounts for their employees. A health savings account earns interest. If you have a balance in your health savings account at the end of the year, it will "roll over," allowing you to build up a cushion against future health expenses. A health savings account allows you to accumulate funds and retain them when you change plans or retire.

High-deductible Health Plans

High-deductible health plans that can be used with health savings accounts are now being offered by many insurers. As of 2007, individuals contributing to a health savings account must be covered by a health plan with an annual deductible of not less than $1,100 for self-only coverage and $2,200 for family coverage. The deductible generally applies to all expenses, including prescriptions and doctor office visits, but in some cases, preventive care does not count toward meeting the deductible. However, most plans will cover preventive services, such as routine office visits, before you have met your deductible.

Under a high-deductible plan, out-of-pocket expenses in 2007 cannot exceed $5,500 for self-only coverage and $11,000 for family coverage. These dollar amounts are adjusted annually to account for inflation, and they include deductibles, copays, and other amounts, but not premiums.

After the deductible has been met, some plans will have a coinsurance of 10 to 15 percent of expenses but only up to the out-of-pocket limit in the plan. After you meet the out-of-pocket limit, the plan will pay 100 percent of expenses. Other plans will pay 100 percent after the deductible has been met.

Some insurers have negotiated discounted prices with participating physicians and hospitals, resulting in substantial savings to consumers who purchase high-deductible health plans. If you are considering this type of coverage, be sure to inquire about discounted prices.

Health Reimbursement Arrangements

Health reimbursement arrangements may be established by employers to pay employees' medical expenses. A health reimbursement arrangement must be set up by an employer on behalf of its employees, and only the employer can contribute to it. The employer decides how much money to put in a health reimbursement arrangement, and the employee can withdraw funds from the account to cover allowed expenses. Health reimbursement arrangements often are established in conjunction with a high-deductible health plan, but they can be paired with any type of health plan or used as a stand-alone account.

Federal law allows employers to determine whether employees can carry over all or a portion of unspent funds from year to year. Also, employers can decide whether account balances will be forfeited if an employee leaves the job or changes health plans.

Flexible Spending Arrangements

Flexible spending arrangements are set up by employers to allow employees to set aside pre-tax money to pay for qualified medical expenses during the year. Only employers may set up an account, and employers may or may not contribute to the account. Also, there may be a limit on the amount that employers and employees can contribute to a health flexible spending arrangement.

Health flexible spending arrangements can be offered in conjunction with any type of health insurance plan, or they can be offered on a stand-alone basis. In the past, health flexible spending arrangements were subject to a use-it-or-lose-it rule. Now, employers may give employees a 2-½ month grace period at the end of the plan year to use up funds in the account. After that time, remaining funds from the previous plan year are forfeited. If you have a flexible health spending arrangement, you should try to anticipate your health care expenses for the coming year to avoid losing any money that you contribute and don't spend.

Archer Medical Savings Accounts

Archer Medical Savings Accounts are individual accounts that may be set up by self-employed individuals and those who work for small businesses (less than 50 employees). To set up an Archer medical savings account, you must be covered by a high-deductible health plan. Either the employee or the employer may contribute to an Archer account, but both cannot contribute to the account in the same year. Individuals control the use of funds in Archer medical savings accounts and can withdraw funds for qualified medical expenses. You can roll over funds from year to year, and balances in Archer medical savings accounts are portable. This means you can take them with you when you change jobs or retire.


5. How does Medicare coverage work?

Medicare is the Federal health insurance program for Americans age 65 and older, some disabled Americans, and individuals who have end-stage renal disease (ESRD). The Original Medicare Plan, which is available nationwide, is a fee-for-service plan that is managed by the Federal Government. It pays for many health care services and supplies, but it won't pay all of your health care costs.

Generally, you should enroll in Medicare when you first become eligible. If you choose to enroll at a later time, you will pay a late-enrollment penalty.

If you already have health insurance from an employer or another source, talk to your benefits administrator about whether you should join Medicare or not while still covered.

Medicare has four parts: hospital insurance, known as Part A; medical insurance, known as Part B, which provides payments for doctors and related services; and prescription drug coverage, known as Part D. Medicare Part C gives you the choice of receiving the benefits of Medicare A, B, and D through a private health plan, like an HMO or PPO. This coverage is called Medicare Advantage and is described on page 16 of this booklet.

Most people don't pay a premium for Part A, since they already paid for it through payroll taxes while they were working. There is a monthly premium for Medicare Part B ($93.50 per month in 2007, but people with incomes over $80,000 pay more).

Usually, you will pay a premium if you decide to enroll in Medicare's prescription drug plan. If you don't enroll as soon as you are eligible, your premium will be higher if you decide to enroll at a later time. Also, once you are past your first eligibility, you will have to wait for the annual enrollment period (generally November 15-December 31 of each year) in order to enroll in Medicare's prescription drug coverage.

Medicare Prescription Drug Benefits

In January 2006, prescription drug coverage (Part D) became available to Medicare beneficiaries for the first time. Through this new benefit, Medicare now pays for a portion of your prescription drug costs. Both brand-name and generic prescription drugs are covered at participating pharmacies across the country. Everyone with Medicare is eligible to enroll in this coverage, regardless of income and resources, health status, or current prescription expenses.

If you choose to have this coverage, you will be able to get your drugs in one of two ways. You can buy an individual drug plan, or you can sign up with a Medicare Advantage plan, like an HMO or PPO. Either way, you will pay a monthly premium, which varies by plan, coinsurance or copays for your drugs, and in some cases, a yearly deductible (no more than $265 in 2007).

There are many plans participating in the Medicare prescription drug program. This broad competition among plans should have a positive effect on consumers' out-of-pocket costs. Nevertheless, deductibles, out-of-pocket costs, and covered drugs vary widely across the plans. Some plans may offer more coverage and additional drugs for a higher monthly premium.

If you have limited income and resources and you qualify for extra help, you may not have to pay a premium or deductible. If you are eligible, you will get help paying for your drug plan's monthly premium, yearly deductible, and prescription copayments. The amount of help you get will depend on your income and resources.

To find out if you qualify for extra help, contact Social Security at 1-800-772-1213 or online at http://www.socialsecurity.gov. Or, you may contact your State medical assistance office. Call Medicare at 1-800-Medicare or go to http://www.medicare.gov to get a phone number for the medical assistance office in your State.

If you already have prescription drug coverage from an employer, former employer, or other source, you may be better off keeping that coverage. You should contact your benefits administrator to find out how your existing coverage works with Medicare drug coverage before you make a decision. You may decide to keep the drug coverage your have, or you may want to join a Medicare drug plan instead of, or in addition to, your current plan.

If you think you might be better off changing out of your employer-based drug plan, be sure to consult with your employer first. If you leave your employer coverage and later change your mind, you probably will not be able to return to it for health or prescription drug coverage.

Your employer, union, or other group is your best source of information about your current drug coverage. If you need more help in deciding what to do, you can call your State Health Insurance Assistance program to get personalized counseling about your choices. To get their telephone number, visit http://www.medicare.gov online and select "Helpful Telephone Numbers and Web Sites."

Medicare Advantage Plans

Another type of Medicare coverage, known as Medicare Advantage Plans, is available in many areas of the country. These Medicare plans include HMOs, PPO's, private fee-for-services plans, and special needs plans.

In comparison to the Original Medicare Plan, Medicare Advantage Plans often give you more choices and sometimes extra benefits, like coverage for more days in the hospital. Many include Part D drug coverage. To join a Medicare Advantage Plan, you must have Medicare Part A and Part B coverage. You will pay the monthly premium for Medicare Part B, and you may also have to pay a premium to your Medicare Advantage Plan for the extra benefits it offers.

Medigap Supplemental Insurance

Since Medicare doesn't cover all medical expenses, people who don't have other health insurance and choose not to enroll in a Medicare Advantage plan may decide to purchase a Medigap policy. Medigap is private insurance that helps to cover some of the gaps in Medicare benefits.

Since 1992, there have been 10 standard Medicare supplemental policies. These Medigap policies are designated by the letters A through J. In 2005, two new Medigap policies—designated by the letters K and L—were added. Medigap policies K and L have higher out-of-pocket amounts and lower premiums than policies A through J. Although all 12 standard policies may not be available to you where you live, supplemental Plan A is available to Medicare beneficiaries everywhere.

For more information on Medicare, Medigap policies, and Medicare prescription drug coverage, contact the Centers for Medicare & Medicaid Services. Log onto their Web site at http://www.medicare.gov or call 1-800-MEDICARE (1-800-633-4227).


6. What about other government programs?

Other government-sponsored programs for specific groups—such as Medicaid and the State Children's Health Insurance Program (SCHIP) for low-income individuals and families—and plans that meet a specific need, such as long-term care, supplemental coverage, and disability insurance, are also available.

Medicaid

Medicaid provides health care coverage for certain people with limited income who are eligible to participate in the program. Medicaid is a Federal-State program that is operated by the States. Each State sets its own rules about eligibility and covered services.

Many groups of people are eligible for Medicaid coverage. Some of the factors affecting eligibility include age; whether you are pregnant, blind, or disabled; your income and resources; and whether you are a U.S. citizen or legal immigrant. Your child may be eligible for coverage even if you are not. Eligibility for children is based on the child's status, not the parent's status.

If your income is limited and you can't afford the care you need, you should apply for Medicaid whether or not you think you qualify. A qualified caseworker in your State will evaluate your situation to see if you are eligible for Medicaid.

State Children's Health Insurance Program

Congress created the State Children's Health Insurance Program (SCHIP) in 1997. SCHIP is a Federal/State partnership similar to Medicaid. SCHIP expanded health insurance to children whose families earn too much money to be eligible for Medicaid but not enough to purchase private insurance.

Like Medicaid, SCHIP eligibility and covered services vary from State to State. In some States, Medicaid and SCHIP are combined. In other States, they operate as separate programs. Although health benefits covered by SCHIP vary, all States must provide coverage for well-baby and well-child care, immunizations, and emergency services.

High-Risk Pools

A high-risk pool is a State-operated program that offers health insurance to individuals who don't have access to coverage through an employer or other group and have a serious medical condition that prevents them from purchasing private health insurance. It is similar to risk pools for automobile insurance to ensure coverage for people who can't get it elsewhere. In most States, the risk pool is funded through premiums, supplemented by tax revenues or by an annual assessment on health insurance companies operating in the State.

More than 30 States have established high-risk pools that provide access to comprehensive health coverage for more than 180,000 people across the country. An estimated 1 million people who are eligible for coverage in high-risk pools don't participate. In a few cases, States don't have adequate funding for the pools and are unable to enroll all eligible individuals.

To find out if coverage through a high-risk pool is an option in your State, contact your State Insurance Commissioner. Check the blue pages of your local phone book for contact information.

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