Wednesday, December 11, 2013
Health insurance protects you from incurring high health care costs in two ways. One is by providing protection from unexpected sickness or injury, and the other is by providing you with the opportunity to obtain health care services at a substantially discounted cost.
The price charged by providers of health care services varies considerably. An insured and uninsured person pay different prices for the same service. The price charged may also vary depending by insurance carrier and by provider. Health insurance carriers negotiate the price that they will pay for healthcare services with the providers of the services. The negotiated price varies by both provider and insurer.
The prices negotiated by the health insurance carriers for services are substantially discounted from the list price, or charge rate, for the service. This is the rate that you will pay if you are uninsured and not entitled to a discount based on your income level or prompt payment. In many instances, the discounted price negotiated by the insurance carrier may be less than 50% of the list price, or charge rate, for the service. When you purchase health insurance, you obtain the right to pay for services covered by your insurance policy at the discounted rate negotiated by your insurance carrier. If your policy has a high deductible or requires that you pay a certain percentage of the cost of a health care service, you will pay for the services that are covered by your policy at the discounted rate negotiated by the carrier. If you do not have insurance, and do not meet the eligibiliity guidelines for discounted pricing from the charge rate, the price of the service will be substantially higher.
It is important to understand that health insurance is the means by which health care services are most commonly accessed. Without health insurance your access to health care and obtaining necessary care is more difficult. By purchasing health coverage, you improve your access to health care and obtain the benefit of the discounted prices for the services negotiated by the carriers.
Health insurance has systems in place to improve access to care and process the billing for the services. These systems include:
Most Americans get their health insurance through their jobs or are covered because a family member has insurance at work. In many cases, the employer pays a substantial portion of the cost through monthy premiums. Depending on the specific coverage, an employee may have substantial out-of-pocket costs due to the cost sharing arrangements in the coverage provided.
Types of Coverage
Employers offer differnet types of plans. An indemnity plan, a health maintenance organization (HMO), or a preferred provider organization (PPO) are the most common. Newer types of plans and coverage such as Health Savings Accounts or High Deductible Health Plans are emerging in New Hampshire’s insurance market. When you leave your job, you lose your right to obtain health insurance through your employer. It may be possible to maintain similar coverage under a federal law called COBRA or under New Hampshire’s state continuation law, but you will have to pay the entire premium (employer and employee portions) yourself. The COBRA or continuation premium will typically include an administrative surcharge of 2% in addition to the base premium.
Not all employers offer health insurance. If your employer does not offer health insurance, you should consider purchasing individual insurance.
If your employer does not offer group insurance, or if the insurance offered does not meet your needs, you may choose to purchase an individual policy.
Before you buy a health insurance policy, make sure you know what it will pay for. To find out about individual health insurance plans, you can call insurance companies, HMOs, and PPOs in your community, or speak to a licensed insurance broker.
When evaluating individual insurance:
This is what you pay to purchase insurance coverage through your employer. This is different from deductibles, co-insurance, or co-pays. This is the portion of the monthly premium that you are responsible for, and is usually deducted directly from your paycheck. You may be responsible for paying additional costs in deductibles, co-insurance, or co-pays when you use your coverage.
Choose the plan that meets both your needs and your budget. Often, this means evaluating the benefits of the plan against the cost of the plan. Managed care plans generally provide comprehensive coverage at the lowest cost, but may restrict you to a network of physicians and/or prohibit direct access to specialists.
Although some health plans are called “organizations,” those plans generally are indistinguishable from coverage offered by insurance carriers. The major types of health plans include:
The following table is a side-by-side comparison of key features of the different types of plans.
Limited Provider Network
Primary Care Physician (PCP) Required
Specialist Referrals Required
Preferred Provider Organization (PPO)
Yes, but typically a national network
Yes, but by paying higher amounts at the time of service you can access a broader network
Typically has an in-network and and out-of-network benefit plan
Yes, for in-network benefit
Yes for in-network benefits and No for out-of-network benefits,
Health Maintenance Organization (HMO)
For in-network benefits
Consumer driven health care is a term used to refer to health plans that are designed to change health care consumption patterns by creating more educated and empowered consumers through benefit design and information tools. Consumer driven health care recognizes that high deductible plans combined with higher amounts of co-insurance shift more financial responsibility to the patient. Accordingly, consumer driven health care promotes access to better information on both the price and quality of health care services. This is typically provided through websites that allow consumers to see pricing and quality information for different health care services from different providers. Often, high deductible plans that are compatible with Health Savings Accounts are sold as consumer driven health care plans.
Price transparency means that patients or consumers will know the approximate cost of health care services before they receive care. If patients and consumers have this information, they can decide where to obtain care and at what cost. The purpose of the HealthCost website is to provide this kind of price information.
This is a health insurance policy with a higher annual deductible than traditional health policies. The policy is generally considered a high deductible health plan when the deductible is at least $1,000 for self-only coverage, or $2,000 for family coverage. Any type of health insurance plan (e.g. HMO, POS, PPO, or Indemnity) may incorporate a high deductible benefit design into the plan .
A HSA is a tax-exempt account that belongs to you that you can use to pay for health care expenses. The funds may be used to pay for your plan deductible and/or other qualified medical expenses that do not count towards your deductible. HSAs are available to members who enroll in a high deductible health plan that meets the requirements established by the Internal Revenue Service. The amount deposited in the account may not exceed the amount of your deductible.
The features of an HSA include:
An HRA is an employer funded tax-free account that reimburses employees for qualified medical care expenses, which are typically combined with a HDHP. The employer determines whether to allow employees to roll over unused funds from year to year, and whether to allow terminated employees to spend their unused balances. The account belongs to the employer and the employer has no legal obligation to transfer the funds from the account to the employer.
Health care flexible spending accounts are established by your employer to reimburse you for specified medical expenses. These accounts are allowed under section 125 of the Internal Revenue Code and are also referred to as "cafeteria plans" or "125 plans.” Separate accounts can be set up to cover each of the following types of expenses:
As a way to control costs, your employer and insurance company expect that you will pay a portion of the cost when you seek medical services. This cost sharing is known as a “patient liability”. The following are examples of the typical types of cost sharing:
The co-payment (co-pay) is a flat payment amount that you are responsible for at the time of service, and is usually a nominal fee paid toward the expense of providing care. Typically, co-pays are collected for physician visits, eye exams, pharmaceuticals, emergency room visits, and some diagnostic tests. They can range from $5.00-$30.00 for an office visit and up to several hundred dollars for an emergency room visit or a diagnostic test. This amount is paid each time you obtain a particular medical service. Pharmacy co-pays are often sold as “two tier” or “three tier” whereby you pay a different amount depending on whether it is a generic or non-generic drug.
The deductible is the amount you owe for health care services you receive during the year. Your health insurance company will not pay anything for your health care until you have paid the amount of your deductible. If your deductible is $500, you will need to pay $500 before the insurance company pays anything. What you pay toward your deductible is tracked from the first day your policy is in effect. If the policy starts January 1, nothing that you have paid prior to January 1 counts toward the $500 deductible. There are often different deductibles for different types of care. An example would be a $100 deductible on pharmacy services, or a separate deductible for lab and radiology services.
The amount you pay for the deductible does not reduce what you may owe for co-insurance or co-pays.
Co-insurance is the percentage of the amount paid to a health care provider that you are responsible for. For example, if your co-insurance is twenty percent, you will pay twenty percent of the total amount of the health care service that your health insurer pays the provider, and your health insurer will pay the remaining eighty percent.
Often there is a maximum annual out-of-pocket expense in a policy. This amount, if provided for in your health insurance policy and commonly referred to as “out-of-pocket maximum,” may limit your co-insurance payment.
Deductibles, co-insurance and co-pays are calculated based on your benefit design (your health insurance policy) and for covered services the negotiated price that the insurance company and the health care provider agree the health care provider will be reimbursed for services. These amounts can vary considerably among different types of insurance policies and different carriers.
The deductible will be paid first, followed by co-insurance. Co-pays are handled separately from the deductible and the co-insurance, and apply to specified services each time that service is purchased. If for example you have a $15 co-pay for pharmacy but you have a $100 deductible as well, you would pay the entire cost of the prescription until you have spent $100 and then you would be charged the $15 co-pay. Both deductibles and co-pays, however, are applied to out-of-pocket maximum (see below).
“Out-of-pocket” refers to the amount you pay for services you receive, through a deductible, co-insurance, or co-pay, exclusive of what you pay in premiums. Once out-of-pocket expenses reach a specified limit in a single policy year, the health plan will pay the remaining costs for the rest of the period covered by the 12 month policy period. The out-of-pocket maximum will differ depending on your insurance carrier and the insurance coverage you have. Some carriers exclude specific costs such as costs incurred for services that are not covered by the policy, or have different maximums for care provided by network and non-network providers. Out-of-pocket cap levels typically range from $1,000 to $5,000 per person. Not all insurance plans have an out-of-pocket maximum.
Deductibles, co-insurance, and co-pays, referred to as “patient liabilities,” are calculated based on the negotiated amount that the insurance company has agreed to pay a health care provider. These agreements are made well in advance of the point in time when you receive care. In some cases, the insurance company has agreed to pay a percent of charges. In other instances, the payment is not based on charges, but based on a set price for the medical diagnosis or the service performed.
Because different insurance companies pay providers based on different agreements, your liability as a patient will be different depending on the insurance company, insurance policy (i.e., indemnity, PPO, POS, or HMO), and health care provider you select.
There are many reasons insurance companies do not pay full charges. In many instances, charges do not reflect actual costs of the physician or hospital. Charges also may vary dramatically among health care providers that provide the same service. For example, one hospital may charge double what another one does for the same service. In that same example one insurance carrier may pay less than another for the same service.
Health insurers negotiate with health care providers to determine what they will pay for health care services. Carriers often obtain discounts from health care providers because of the volume of business that they bring to that provider. The important thing to remember is that if you have insurance, you are receiving a better price than if you do not have insurance.
A high deductible is just one aspect of determining how much you will pay for health care. Typically, increasing the deductible is an effective way for an insurance company to offer health insurance coverage at an affordable rate. Although you will be responsible for all of the costs up to your deductible, you need to review how much you may pay for co-insurance and co-pays to determine what your total liability might be. The amount of out-of-pocket expense you will pay depends on the services you incur.
For example, if you have one $10,000 admission and a $1,500 deductible health policy (and no co-insurance), you would pay $1,500. This would be less than you would pay with a twenty percent co-insurance plan ($2,000) and no deductible.
It's important to understand that most health coverage plans provide "managed care" coverage. Traditional indemnity plans (also called "fee for service") insurance, where patients chose their own doctors, pay for their care, and receive reimbursement by their insurance company for some or all of their doctor's bills are not the norm.
When reviewing a health insurance policy, you should consider the following:
The differences among indemnity plans, HMOs, and PPOs are not as clear-cut as they once were. Indemnity plans have adopted some of the features used by HMOs and PPOs to control the use of medical services. HMOs and PPOs now offer more freedom to choose doctors because most doctors and hospitals are in their networks. You should study your health insurance options carefully to determine the one that provides you with the coverage you need.
This website was developed by New Hampshire Health Information Center, NH Institute for Health Policy and Practice,
and websolutions for the New Hampshire Insurance Department in conjunction with the Department of Insurance Advisory Council