health insurance, a single illness can cause serious, and often
irrevocable, financial hardship.
Insurance of any kind is intended to
transfer financial risk to an insurance company in exchange for a
reasonable insurance premium. Where most insurance coverages
pay once a loss has occurred, health insurance has the added benefit
of paying to keep your loss from getting worse.
Health insurance is probably your
most important coverage since it can be the difference between life
Fortunately, most employers offer
some form of health insurance. Often you will have to select from
several different alternative plans with differing coverages and
There are two broad categories of
health insurance coverage. One is fee-for-service and the
other is managed health care. Under managed health care there
are health maintenance organizations (HMOs), preferred provider
organizations (PPOs), and point-of-service (POS) plans.
Fee-for-service and managed health
plans have distinct differences in the amount of control the
policyholder has in choosing doctors and hospitals. Fee for
service plans offer you the greatest amount of choices, allowing you
to select doctors and hospitals based on your needs and
preferences. This greater amount of choice comes at a cost,
fee for service plans are usually more expensive than managed care
Under a fee for service plan, your
doctor will submit a bill to your insurance provider, or, if he or
she does not have a relationship with your provider, you may have to
pay the bill directly and get reimbursed by your provider.
Under this plan you can see any doctor you wish. You will most
likely be responsible for a percentage of every expense, often 20%.
Fee-for-service plans also have an
annual deductible; these generally start at $100 for individuals and
$500 for families. Generally speaking, the higher the deductible,
the lower your premiums. Before receiving the reimbursement you'll
have to pay the deductible amount.
If your doctor charges more than is
"reasonable," you will have to pay the difference. You can
appeal this if you feel the doctor is charging the same as the other
doctors around your area.
Under fee for service plans there is
usually a limit to how much you will have to pay before the plan
reimburses you at 100%. Some plans also have a lifetime limit on
benefits, usually at least $1,000,000. This seems very high but it
is not uncommon in serious situations that this number is met.
There are three major types of
managed care health plans: HMOs, PPOs, and POSs. Many of these plans
charge a co-payment of $10 or $20 a visit. The disadvantage of an
HMO is that you must use the doctor and hospitals that participate
in the plan. The premiums are generally lower than fee-for-service
With a managed care plan you will
have to select a primary physician who will be responsible for
coordinating your care. You will need to be approved by him to seek
care by a specialist. You must also get authorization for any
hospitalization you may require. As you can see, the lower
premiums associated with managed care are the result of allowing the
managed care provider to make many of your health care decisions for
PPOs and POSs differ from HMOs in
that not only do they have a network of providers, but you are also
allowed to use physicians outside the network.
If you choose not to utilize the
coverage offered at work, or if no coverage is available through
your employer, you could get your own personal policy or go through
a group. Group policies have lower premiums. Also, some group
policies do not ask questions about your health. Nevertheless, some
policies will not cover preexisting conditions for up to 12 months.
You will want to understand all the pre-existing limitations that
your coverage includes. If you have had health coverage for at least
2 years and change employment you won't be affected by the
If you are terminated from or leave a
job where health insurance was provided for you, the government has
established guidelines for maintaining your old coverage at your own
expense until you can find new coverage.
Health Savings Accounts (HSAs) and Medical Savings Accounts
For small businesses and the self employed, an MSA is a tax-exempt
account established for the purpose of paying medical expenses in conjunction
with a high-deductible health plan. Like an IRA, an MSA is established for the
benefit of the individual, and is "portable". Thus, if the individual is an
employee who later changes employers or leaves the work force, the MSA does not
stay behind with the former employer, but stays with the
are new for 2004. HSAs are similar to medical savings accounts (MSAs).
However, MSA eligibility has been restricted to employees of small businesses
and the self-employed while HSAs are open to everyone with a high deductible
health insurance plan. The interest and investment earnings generated by the account are also not taxable
while in the HSA. Amounts distributed are not taxable as long as they are used
to pay for qualified medical expenses. Amounts distributed which are not used
to pay for qualified medical expenses will be taxable, plus an additional 10%
tax will be applied in order to prevent the use of the HSA for nonmedical