The following article contains the advice and opinions of Cary Hall, President and CEO of Benefits by Design, Inc. Hall will present at the Missouri Meetings & Events 2010 Kansas City Regional Expo – Healthy Meetings & Events Start With You.
The purpose of this article is to explain the seven most important factors you should consider when buying health insurance. I will attempt to separate fact from fiction about this process and simplify something that most people find complicated and hard to understand.
This is the first thing that people look at when purchasing health insurance; what is my deductible? Often it is the determining factor in what type of policy they buy. While deductibles are important, they are not the most important factor to consider when buying health insurance; here’s why. Less than 22% of the people in this country will ever reach their deductibles on an annual basis. When purchasing health insurance, I always advise clients to look at higher deductible policies because the savings in premium costs outweigh the additional deductible in 90% of cases. If you can save $8,000 per year in premiums when purchasing a four-person group policy with an additional $1,000 deductible (meaning a $2,000 deductible instead of $1,000) why would you spend $8,000 to purchase an additional $1,000 of health insurance? Even if four employees used the deductible in a given year and you paid the extra $1,000, you would still net a $4,000 savings by going to a higher deductible.
This is without a doubt the most misunderstood part of most health insurance policies. 80% / 20%; 50% / 50%; or 90% / 10%; what do they mean? Simply put, this is the amount of money you and the insurance company agree to pay after the deductible. Using 80% / 20% as an example, the insurance company pays $.80 on the dollar and you pay $.20 on the dollar until you hit the stop loss number. For example, with a $5,000 medical bill, your responsibility would be 20% of $5,000, or $1,000.
Out of Pocket Max
The out of pocket maximum is the total amount the policyholder is responsible for in case of catastrophic illness, meaning the deductible plus the coinsurance equals out of pocket max. Please note, many insurance companies are now offering policies with deductible only and no co-insurance. In this case, the deductible is your out of pocket max. It is also important to note that these policies can be less expensive than the deductible co-insurance model most people are used to.
Provider networks are those doctors, hospitals, clinics and pharmacies that insurance companies contract with for a specific fee. Networks are important because they determine which doctor, hospital or clinic you can access with the maximum benefit from your insurance policy. Out of network providers may be covered, but at a much greater cost to the policyholder. Most people’s tendencies are to look for their local doctor and hospital only; that is a mistake. It is important to make sure your network includes hospitals that are designated Centers for Excellence as well as specialty hospitals, like MD Anderson, Cleveland Clinic and the Mayo Hospital. If you are diagnosed with cancer or some other life threatening illness, you may want to seek specialty treatment at these facilities. Therefore, policies with national networks that include specialty hospitals can be extremely important.
Preventive Care and Wellness
This is without a doubt one of the most important parts of any health insurance policy. Unfortunately, it is the part most overlooked by employers and individuals when purchasing health insurance. When you consider that 80% of claims in the United States are driven by 20% of the people, preventive care, wellness and chronic disease management are the keys to controlling these costs. Recognizing a pre-diabetic employee through testing, and making sure that type one diabetics are completing the nine things they are supposed to do each year to manage their disease, are clear indicators of how these tools are the single biggest way to control costs. Mammograms, pap smears, lipid panels and colonoscopies are just some examples of preventive screenings and tests that should be included in every policy. Most carriers offer free wellness programs to complement these benefits using a Health Risk Assessment Form that is totally confidential.
Prescription drug costs make up 18% to 23% of each health care dollar spent. Using a health insurance policy that has generics only, or step therapy as part of first dollar coverage, can reduce total premium costs by as much as 20%. It is important to understand that 83% of the drugs on the market today are available in generic form. FDA studies have concluded that generic drugs are 99% compound equivalent to name brand drugs. A health insurance policy that uses step therapy directs policyholders to use generics first before trying name brand drugs, while generic-only policies typically cover just the generic drugs prior to the deductible. It is important in these types of policies to make sure that brand name tier two, three and four drugs are covered after the deductible in case of catastrophic illness. This would include medications for chemotherapy and other highly expensive drug therapies.
Emergency Room and Urgent Care
The least effective medical dollar spent is in the emergency room. Emergency room benefits should always be subject to the deductible and co-insurance. This will direct policyholders to use urgent care first, which should be covered with a co-pay similar to that of a doctor’s office visit, and not subject to the deductible and co-insurance. Using the urgent care first approach can save as much as 10% in premiums. It is time for employers to recognize the importance of requiring employees to have some skin in the game. Health insurance policies with higher deductibles, prescription drug management programs such as step therapy and generics only, as well as limited emergency room access, can all contribute to immediate cost savings. These policies lower costs for employers and employees’ dependents, making health insurance more affordable. Long term cost control is largely dependent on the implementation of effective wellness programs that require employers to lead from the top. Companies with aggressive wellness and disease management programs that require employees to complete a Health Risk Assessment Form have been able to hold their increases to between 3% and 5% annually. Health insurance companies almost always provide free wellness programs; your broker or agent should initiate these with an insurance company representative, using lunch and learns or breakfast meetings to kick them off and explain how they work to employees. Prizes and incentives can be used for weight loss, smoking cessation and chronic disease management programs. Requiring employees to be involved and implementing effective wellness programs are the only long term solutions to controlling health care costs. MM&E