Buying health insurance for the first time is not easy, as first, you need to fully understand about health insurance and different components of health plans. However, failing to do so, you can end up buying health plans that are unnecessarily expensive or don’t provide coverage as per your health requirements. Therefore, it is essential for you that you know everything about health insurance to make sure you have the coverage you need when you need it the most.
How Health Plans Work
You choose a health plan as per your requirement, and irrespective of the plan you choose, you are required to pay a monthly payment or premium to receive health insurance coverage. You may also require to pay co-insurance or co-payment each time you receive medical care. If your monthly premium is more than you have low deductibles and out-of-pocket costs and if your monthly premium is less that you have high deductibles and out-of-pocket costs. The biggest difference in the health plan is in the service they cover and the amount that they will pay for those services. With some of the health plans, you may require to pay a certain amount when receiving certain medical care, which is called as co-payment or co-insurance, depending on the plan. If your plan has a deductible, then you are supposed to pay that amount for the covered services before your insurance carrier starts paying. Most of the time, you will pay a part of your healthcare cost until you have paid the out-of-pocket maximum, and after that, your insurance carrier usually pays for covered expenses.
Health Insurance Plans and its Components
A health insurance plan is a legal contract between an insurance company and the policyholder. According to this contract, policyholders are required to make payments called premiums, to receive coverage from the insurance companies. This contract also contains details of various conditions under which the insurance company will be liable for the policyholder’s healthcare costs that may also include their family members.
The premium of health plan is the fee paid by the policyholder to receive coverage for the treatments of the medical conditions described in the policy. Depending upon factors like gender, age, and medical history, policyholders are sorted by an underwriting process. Even the premium amount for the policyholders is based on these factors, and it also reflects the amount they will likely incur medical costs equal or less than the premium amount they pay to the insurer. To prevent adverse selection Underwriting is necessary. Health plans premiums are set in a manner that is high for those who are most likely to use the insurance, and low to attract those who are least likely to use it. Underwriting makes sure that people who purchase health insurance are a mix of all, and don’t just represent people who purchase health insurance because they are ill or expect to need it.
Health insurance companies involve covered policyholders to bear a certain amount of risk, and so the policyholders are required to pay initial medical costs up to an agreed-upon amount. The health insurance company becomes liable for coverage only after policyholders pay the agreed-upon initial medical costs, which is known as the deductible. The deductible amount is high if the premium is low, and the deductible is low if the premium amount is high. Deductibles apply to both individual and family plans. For instance, a health plan may have a $3,000 individual deductible and a $5,000 family deductible. So, in these circumstances, the insurance company will pay an individual’s medical claims when either the total accumulated expenses for that individual exceeds $3,000 or the total family expense exceeds $5,000, despite no individual’s claims equal $3,000.
Policyholders are required to pay a portion of the healthcare cost for each covered medical treatment. The part of healthcare cost paid by the policyholder is termed as copays, and it was introduced to discourage frivolous use of medical services. Though the higher copays will reduce the insurance company’s total exposure, and each copay amount is rarely high to lead to a substantial reduction in the policy premium.
To share the risk and limit excessive utilization of medical services, insurers hold policyholders liable for an agreed-upon level of expense, usually 80%. This limit is calculated after deducting any copay.
All the healthcare expenses are not covered by the health insurance policies, and non-covered expenses are usually defined by a medical condition, treatment type, and healthcare provider. Most of the health plans don’t cover for certain medical treatments such as elective cosmetic surgery like facelifts, tummy tucks, or bariatric surgery, except on rare occasions. Policyholders are a hundred percent responsible to pay for any excluded treatment or expense. However, these expenses do not apply to the deductible amount defined in the health plan.
Health Insurance Coverage Limits
Health insurance companies usually set their limit by restricting their liability by setting the maximum amount they will pay for the healthcare costs. The coverage limits usually range from $500,000 to $1 million, and these may be either lifetime, annual, or both. For example, a policyholder may have an annual limit of $100,000 and a lifetime limit of $500,000. It means that the health insurance company pays up to $100,000 in the 12 months and cover total lifetime costs up to an accumulated $500,000. If this limit is reached, the health insurance companies stop payments, and the policyholder becomes liable for paying any costs beyond that amount. Therefore, the policyholders need to know about the policy in detail to make sure that the coverage is adequate to meet their potential needs.
Out-of-pocket maximums apply to the policyholder’s maximum amount, which they are liable for paying while having health insurance coverage. Once the policyholders reach the out-of-pocket limit, then the insurance carriers are liable to pay for all the covered costs up to the coverage limit. Though, policyholders will have to pay their copays and exclusions amount.
The biggest additional benefit of having a health insurance plan is the schedule of discounted payments, which is negotiated between the insurance company and the healthcare service providers. For example, a medical service that usually costs $1,000 to an uninsured person could cost $300 to $400 or even less to the insured person. Health insurance company negotiates a discount with the healthcare provider based on the number of policyholders associated with them and the projected utilization of the healthcare provider’s services. Doctors, hospitals, and other healthcare providers are categorized as either in-network or out-of-network.
In-network providers provide the highest discounts and so insurance companies encourage policyholders to use in-network providers, as they have negotiated with all or a majority of these providers’ to provide services at a discounted rate.
Out-of-network doctors and healthcare providers have not negotiated a preferred rate or minimal discounts. Policyholders who use an out-of-network provider will be required to pay higher fees compared to receiving similar medical services from an in-network healthcare provider. For receiving out-of-network services, policyholders may also have to pay a higher copay and coinsurance percentage.
Preauthorization means taking prior approval for medical treatment or before a specialized doctor visit. It is required to ensure that the medical service or visit will be covered. Most of the insurance companies require preauthorization before they agree to cover a specialist visit. However, preauthorization doesn’t guarantee that a medical service will be covered, but it ensures that the insurance company anticipates covering the service if the medical service is determined to be necessary. Therefore, several non-critical treatments require preauthorization, and it is the responsibility of the policyholders to know if it is required or not. If they fail to get preauthorization, then their claim can be denied also. Policyholders need to pay extra attention to the preauthorization requirement while seeing a specialist at the recommendation of their primary physician. It has been observed that in-network primary caregivers unknowingly refer patients to an out-of-network specialist due to which patients are penalized with a higher expense and their claim may be entirely denied.
Explanation of Benefits (EOB)
Health insurance companies usually send an explanation of the medical claim’s payment after the claim is approved, which is termed as an explanation of benefits. It mainly describes the covered services and the services that have been excluded. It also describes the final contracted fees for the service, the part of the fees paid by the insurance company and the part paid by the policyholders, and an explanation on the process of how these amounts were calculated. By having a review of this EOB, policyholders can match the payment made by the insurance company with their understanding of the policy.
Appealing a Claim Decision
Most of the health insurance companies rely upon information systems to review policyholder’s claims and to make claim payments. Over the years these systems have been consistently amended, so a chance of error occurs, and according to some experts, an error occurs in 8% to 10% of adjudicated claims.
In case of dispute in an insurance company’s claim decision, policyholders can adopt the following procedure:
- Policyholders can get in touch with the insurance company through the phone number given on the EOB. While calling policyholders should follow up their conversation in writing to confirm what they understood and the action they will follow.
- Policyholders should know and note the name and contact information of the person with whom they conversed. They should converse by taking the name of the person to personalize the conversation. This will allow them to consider the policyholders more than just another complaint, and the person will be more willing to help the policyholder.
- While disputing a claim decision it is essential to have accurate documentation, and policyholders should never rely on their memory alone. Insurance companies are generally large organizations having multiple levels of management. A positive outcome may take weeks, or even months to be completely settled, so policyholders should make sure to document every step of the process.
- Policyholders should take their request to higher authorities if they run into a roadblock. They can either write a letter to the company’s president or their state’s insurance commissioner, as it might generate activity on their claim. However, they should only use it as a last resort.
- In case if an error occurs policyholders should keep in mind that the insurance company personnel may be bewildered as the policyholders. Being belligerent will not help policyholders achieve the expected results.