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It may be tempting to think of health insurance as a product designed to keep your best interests in mind. In reality, health insurance is a profit-driven industry and your good health is not its primary goal. The first priority for employers and health plan providers is to operate a profitable business. In this environment, a few legal health insurance loopholes exist that allow providers or employers to save themselves expenditures. Some shortcuts not only cut insurers’ costs, but can also leave you with large gaps in coverage. These flaws in the system are probably not going to be pointed out to you, so it pays to be aware of some common pitfalls.
health insurance is a profit-driven industry and your good health is not its primary goal. The first priority for employers and health plan providers is to operate a profitable business
Annual Spending Limits
Changes in healthcare law at the federal level have eliminated spending caps. Previously, insurance companies could determine that the insurance would no longer cover your healthcare after a certain dollar amount was reached in a year or in the duration of the plan. While that is no longer the case, it does not mean that you can be covered indefinitely. Insurers have found other ways to limit spending and mitigate their risk.
For example: you receive a catastrophic diagnosis like cancer. Suddenly, you not only face multiple office visits with oncologists, sophisticated imaging and lab tests, but you may also need surgery and further treatment with chemotherapy and radiation. This can quickly add up; the average annual cost of cancer treatment in the U.S. in 2010 was $82,849 per patient. Ten percent of cancer patients who have private insurance report annual out-of-pocket costs of over $18,585. Hidden caps on your coverage could cost you thousands of dollars. Here are some of them:
- Providers commonly cap hospitalization coverage. Some plans cover hospitalization only after the first 24 hours; if you’re admitted through the ER, for instance, you’ve racked up most of your bill in those 24 hours. Some plans limit the number of days that you may be hospitalized per year, after which you owe a large percentage (or even all) of the bill.
- Plans may not place a dollar amount on coverage, but they may legally limit the number of approved office visits or treatments that you receive in a year. For a severe illness like cancer, you may hit that limit long before your treatment is complete.
Hidden caps on your coverage could cost you thousands of dollars
- You may have an annual out-of-pocket limit, usually represented as a flat fee. The sneaky part is that many insurers still require co-pays and coinsurance even after you’ve met your out-of-pocket expense limit. Exclusions for services like prescriptions or laboratory expenses are common, which can leave you holding the bag for those expenses. Check out Trent’s advice for appealing health insurance denials.
High Deductible Plans
Health insurance is costly and the average American family is feeling the pinch of a struggling economy. High deductible health plans are often presented to families as the option of lowest cost, which may be especially appealing if you are purchasing expensive private insurance. For many families the monthly budget determines how much health care coverage is carried.
Unfortunately, these low-premium plans carry very high deductibles for each family member. High deductible plans are usually quite generous once these deductibles are met, and often cover 100 percent of the expenses. This generous coverage kicks in after you’ve spent between $1,000 and $5,000 out-of-pocket per person (also see: ‘Raising Deductibles to Save Money on Insurance: Does It Work?’).
High deductible plans are now required to offer free preventive care, thanks to the Affordable Care Act. However, these visits may fall under any annual limitations on the number of visits that will be covered. This could lead to family members avoiding health care because of the potential cost or risk of losing coverage. In our earlier example of cancer, early treatment can literally be life-saving. Skimping on an office visit could cost you more than your deductible.
Some insurers offer what is called a hybrid high deductible plan. In this case, premiums are low and initial deductibles are high. The kicker is that once the deductible is met, co-pays and coinsurance are still required. There is no benefit to these plans except to the insurer’s bottom line; they mimic a typical high-deductible plan but are actually quite different, and should be avoided.
Some insurers offer what is called a hybrid high deductible plan…There is no benefit to these plans except to the insurer’s bottom line
Self-funded plans, usually offered by larger companies, are group plans where all costs and risks are maintained by the employer. Insurance companies such as Aetna, Blue Cross or other big-name firms, may collaborate with your employer to provide coverage, but your insurance is maintained by your employer. If you’re debating whether or not to forego health insurance in favor of a better career situation, this post might aid in your decision.
The benefit of self-funded plans is to your employer. Self-funded plans are exempt from state law and therefore any coverage mandates. Your employer has access to your claims data and your health information, and it has the power to manage its expenses by changing benefit packages as it sees fit.
Employers may offer promotions to encourage employees to choose self-funded plans, or may not make it clear that the company is acting as your insurer. Be wary of these plans and pay close attention to the fine print. If you are employed by a small company, the Simple Dollar’s Guide to Small Business Health Insurance can help you understand what to expect in the next year as the Affordable Care Act comes into play.
The benefit of self-funded plans is to your employer. Self-funded plans are exempt from state law and therefore any coverage mandates
Some clauses in your health plan may be easy to overlook, but could cause you distress and major out-of-pocket costs should you become ill. Things to watch for in a truly comprehensive policy include:
- Preventive coverage. Most plans offer coverage for routine office visits and screening for illness, but don’t make that assumption. Some plans do not offer this benefit or place strict limitations on its use.
- Prescription drug coverage. Medication costs have skyrocketed, particularly for newer designer drugs that treat illnesses with more success than ever. Check your policy to make sure that drug coverage is not capped or restricted; some policies partner with pharmaceutical companies and will only cover brand-name drugs versus their generic equivalent. Be aware that insurers can and do change their formularies during the plan year; check to see that your medications are still covered before you renew your policy.
- Physician networks. If you suddenly become ill, it may be more important than you think to have access to the doctors you want to see. Choose a policy that either offers a network that you’d be comfortable with if you or a family member are ill, or choose a policy that allows some flexibility in choosing your health care providers.
Ultimately, choosing the right health insurance policy boils down to one rule: Read the fine print. Ask your employer questions if something isn’t clear, or request clarification from your insurance broker if you’re purchasing your own policy. Educate yourself and do a little research: U.S. News and World Report has compiled a useful ratings system for existing health plans; higher ratings are given to plans that clearly state cost-sharing rules.