Health care reform has made learning to shop insurance more important than ever. Whether you get it from work or on your own, you need to understand how it works and what controls the price. Here's the short course.
Had health care reform taken shape as a government-run health care system, i.e., an expansion of Medicare, there would be no need for this article. Because if the government ran the health care system, none of us would be required to purchase and maintain private, for-profit health insurance.
But as we all know, the opposite is what happened: By 2014, all but the poorest Americans and those over 65 will be required to traverse the private health insurance minefield in search of a policy that is both comprehensive and affordable. Some of the new regulations will make that process easier. For example, lifetime benefit caps are no longer allowed, so that’s one less thing you’ll need to be aware of. There will also be new minimum federal standards that may remove some of the shopping risk. And state exchanges should enhance competition, or at least options.
But after the health care reform dust has finally settled, you or your employer will still be buying private health insurance from a for-profit company with interests diametrically opposed to yours. You want to pay as little as possible in premiums and get as much cash as possible if you get sick, while your insurance company wants to collect as much as possible in premiums and pay out as little as possible in the event of an illness.
So as long as insurance is private and for-profit, it will pay to understand exactly what you’re paying for when you purchase health insurance. Fortunately, it’s not all that hard to at least learn the basics. And I’m the right guy to help because as a self-employed person, I’ve been shopping my own health insurance for about 20 years. Have a look at the following story we recently did concerning buying health insurance, then meet me on the other side for more.
Now let’s revisit some of the ideas from that story and add a little more detail.
By far and away the biggest thing you can do to influence the cost of health insurance (as well as most other kinds) is to raise the amount you’re willing to self-insure, known as the deductible.
When it comes to big deductibles, I’m a poster boy. My health policy features a $5,000 deductible, which means I have to spend $5,000 of my own money over the course of the calendar year before the insurance company has to spend a dime of theirs. Since it would probably require a health catastrophe for that to occur, this type of coverage is often known as “catastrophic coverage”.
Is it right for you? That depends on three things, all important: First, whether you have access to $5,000 to meet the deductible should the need arise. Second, how much you typically spend on health-related expenses (the more you typically spend for prescriptions, doctor visits, etc., the lower you’d like your deductible to be). And finally, whether you can afford a lower-deductible policy in the first place. A high-deductible policy will cost significantly less than a low-deductible one. And if all you can afford is a high-deductible, it’s still a lot better than nothing.
We did a story not that long ago about the drawbacks to high-deductible health insurance. Check it out.
The deductible determines when the insurance company opens its wallet. The co-pay is how much of each bill you’ll be expected to pay. The higher the co-pay, the lower the cost, but the higher your risk. In other words, if you’ve got a 80/20 copay, the insurance company will pay 80% of a bill and you’ll pay 20%. Since you’re paying part of each bill yourself, this type of policy will cost less. But if you have a major surgery that results in a $100,000 bill, do you really want to pay $20,000?
As far as I’m concerned, I’m good with a high deductible, because I know exactly what my maximum out-of-pocket expense will be and I keep that amount set aside in a special account. But I’m not fond of the idea of owing 20% of an open-ended obligation. So I’m big deductible, but no co-pay.
Not all health insurance reimburses you for visits to all doctors. Some requires that you visit a relatively small group of specific doctors: that’s known as an HMO. The most common type of network these days, however, is a PPO, or Preferred Provider Organization. The PPO is simply a network of doctors, hospitals, pharmacies, etc. that an insurance company has negotiated discounts with and agreed to work with. You can go to a doctor outside the PPO, but if you do you’ll pay a lot more of the expense yourself. So if you have a specific doctor or hospital you like, determine if they’re members of the network before considering that insurance company.
I’m not sure if within the 2,700 pages of the recently passed health care reform bill there are regulations making what’s covered by health insurance and what’s not more uniform and predictable, but I certainly hope so. Nothing like paying insurance premiums for 25 years, then getting sick with the one disease specifically excluded by your policy. Before you sign on any dotted line, you need to carefully go through the exclusions. Are childbirth expenses covered? Drug and/or alcohol addiction therapy? Every policy has exclusions, but some will have more than others. If during your shopping you encounter one insurance policy that’s cheaper than the others, this may be the reason why. Be careful.
If there’s ever an appropriate place for a company that’s too big to fail, it’s in the insurance industry. That’s probably why our government used $170 billion of taxpayer money to bailout insurance giant AIG.
You’re paying money into an insurance company for decades in case of a rainy day; god forbid they should dry up and blow away just when you need them. These companies positively, absolutely must be able to meet their financial obligations, so don’t ever buy any type of insurance from any company that isn’t at least rated A by AM Best (A++ is best) or Standard & Poors (AAA is best). If you’re dealing with a big national company that you’ve heard of, this probably won’t be an issue, since nearly all are highly rated. But then again, so was AIG until it needed $170 billion of our money to stay afloat.
My advice? Deal only with major, well-known companies that have been around a long time and are so big they’d qualify for a taxpayer bailout. Not only are you more certain they’ll be there when you need them, you’ll also be less likely to encounter any of the sleazy tactics chronicled in movies like John Grishom’s The Rainmaker.
The single most important thing about paying for anything that you’re not intimately familiar with is to shop it first. That’s because the shopping process doubles as an educational process as you compare prices and features. It’s the best way to learn what you’re doing and to get a decent deal, but when it comes to health insurance, it’s especially important to shop; not just initially, but continually.
Here’s an example that might explain what I mean by continual shopping: In 2007, I was researching a story about health insurance and needed video of an online health insurance quote. So I input my own information, and got a quote from my current company for $346.50 a month.
And therein was the problem: I wasn’t paying close to $346.50 a month. I had been with that company for 7 years, and thanks to annual increases, they were charging me $743 a month for the exact same policy they were selling to new customers exactly like me for literally half the price.
As you might imagine, I called the company for an explanation. How do you think they justified charging new customers 50% of what I was paying for the same coverage? They didn’t. They refused my request for an on-camera interview, refused to discuss their pricing, and in an email statement, told me the only thing that was already established: that premiums increase over time.
So I put that story on the air, then promptly switched to identical coverage at a different company at half the price. (Avoiding, of course, the cardinal sin in insurance: canceling existing coverage prior to new coverage being positively in place.)
Welcome to my world, 30+ million fellow Americans.
I’m not sure exactly what group so successfully advanced the idea during the health care reform debate that only private, for-profit companies were suitable to provide health insurance to Americans, or that any other solution would result in a system only Hitler or Stalin could love. But I’ll bet whoever advanced that argument doesn’t have to do what I and millions of other Americans do now and millions more will do by 2014: literally bet our lives that what we’re paying to for-profit insurers will be there for us in the future.
While health care reform made that more likely, everything’s better when it comes with a little education.