HE-0664, Reprinted October 1998. Fred Waddell, Extension Family Resource Management Specialist,Associate Professor, Human Development & Family Studies, Auburn University. Originally prepared by Josephine Turner, Extension Program Specialist, Professor, Human Development and Family Studies, Auburn University

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Health Insurance

Medical costs are rising faster than the costs of other goods and services. As medical costs increase, people look for protection by buying health insurance. About three-fourths of all Americans are protected from some of these costs by private health insurance.

Private health insurance programs are provided by insurance companies, hospital and medical service plans such as Blue Cross and Blue Shield, and group medical plans that run on a pre-payment basis, such as health maintenance organizations (HMOs). Due to the number of policies available, shopping for health insurance can be confusing.

Health insurance from private insurance companies can be divided into two basic groups--medical expense insurance and disability income insurance. Medical expense insurance is a "reimbursement" type of coverage that pays for almost all costs of hospital, medical care, and related services. Disability income insurance plans make regular payments when the insured person can't work due to sickness or injury. This publication discusses medical insurance. To learn more about disability income insurance see Circular HE-663.

You can get health care coverage through health maintenance organizations or HMOs, which provide comprehensive (broad-based) health care services for their members at a fixed periodic payment.

Two important public programs which provide medical and health care services are Medicaid and Medicare. Your local Social Security office can provide more information on these programs.

Medical Expense Insurance

Most medical expense policies include one or more of six forms of health coverage: hospitalization, surgical, general medical (sometimes called "basic coverage"), major medical, comprehensive expense, and dental. Medical expense insurance helps pay most hospital bills, doctors' fees, and other medical care needs.

Hospitalization Insurance

Hospitalization covers normal or customary charges for hospital care for a specified number of days. Room and board, routine nursing care, and minor medical supplies are included in this coverage. Other services such as laboratory tests, X-rays, anesthesia and its administration, use of operating facilities, drugs and medicines, and local ambulance service may also be included.

Room and board benefits usually cover room and board charges up to a set dollar amount per day, or as a service-type benefit (that is, current reasonable charges for a semi-private room, whatever those charges are). With service-type benefit programs your benefits rise if hospital costs rise.

Policies differ on the amount paid for hospital expenses and the number of days payments continue. When you consider hospitalization insurance, compare policies by asking these questions:

• How many days in the hospital are covered? Do the payments begin on the first day of hospitalization?
• How much will the policy pay per day for room and board? How does this compare to the average room and board charges in your local hospital?
• Does the policy pay for a private or semi-private room? (Some experts recommend that a policy pay hospital room and board charges at the full daily rate for a semi-private room for 60 to 120 days. The average patient cost per day for a semi-private hospital room in Alabama in 1987 was $188.46. This includes just room and board, not treatment, and is an 8.6 percent increase over 1986 charges.)
• How much does the policy pay for related hospital expenses such as anesthesia, X-rays, and drugs?
• Are there waiting periods before certain conditions are covered? If so, how long?
• How are preexisting conditions defined? For example, is cancer that existed but was not diagnosed when you enrolled in the policy a "preexisting condition" that won't be covered?
• What nursing care is included?
• Must a deductible be paid toward hospital expenses before benefits begin? How much?

  (A 1986 survey of medium and large employers showed a typical plan with good coverage charged $100 each year per person. After two or three family members meet the deductible, the rest of the family gets first-dollar coverage.)

• Can the policy be renewed? Try to get guaranteed, non-cancelable insurance.
• What are the limitations and/or exclusions of the policy?

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Surgeon's Insurance

A basic health care protection package will include coverage of surgical procedures both in and out of the hospital. Some policies pay benefits based on a predetermined schedule of fees that states the top payment for each operation. If your policy pays according to a predetermined fee schedule, check to see that these fees are updated often. Recently, policies have started providing reimbursement of a surgeon's fee up to the "usual, customary and reasonable" charge for each procedure. No surgical schedules are included in this type of policy. Ask these questions about surgical policies:

• Are the benefits similar to local physicians' and surgeons' fees?
• Are your doctor's fees considered "customary and reasonable?" (People often complain about not getting enough reimbursement, which stems from using a surgeon who charges more than others in the same area.)
• What type of surgical service does the policy help pay?
• What limitations and exclusions does the policy have?
• Is there a deductible before benefits begin? If so, how much?

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Physician's Expense Insurance

This insurance gives you protection from non-surgical expenses such as home health care or doctor's visits in the hospital or at the doctor's office. There are usually top benefits for specific services such as diagnostic X-ray and laboratory expenses.

Often, preventive care (regular check-ups) is not included. To understand what is covered in the health policy you are studying, ask these questions:

• How much does the policy pay when your doctor visits you in the hospital? Each time you visit the doctor's office?
• How many visits does the policy cover?
• Does the policy pay for home health care? If so, what does this include and how much per visit?
• Is there a deductible (dollar amount or specific number of uncovered visits) before benefits start?
• What are the exclusions or limitations on coverage?
• Can you afford to pay for part or all expenses yourself?

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Major Medical

This covers the large costs of a serious accident or prolonged (long-lasting) illness. It covers a wide range of medical charges with few internal limits and a high overall maximum benefit. There are two basic kinds of major medical plans. One plan adds to basic hospital-surgical-physician's expense insurance programs. In other words, it pays much of the cost of a treatment not covered by the basic policies. The second kind offers comprehensive protection where both basic coverage and extended health care benefits are combined.

Major medical policies often have a $100 to $500 deductible per year and a co-insurance provision. You pay the deductible and then a percentage of all costs above the deductible amount. For example, under a policy with a $100 deductible and a 20 percent co-insurance feature, a $10,000 medical bill in eligible expenses would require you to pay $2,080 out of your own pocket.

Here's how to figure this amount. You pay the first $100, then 20 percent of the other $9,900, or $1,980. The $100 plus $1,980 equals $2,080. Some policies have a stop-loss provision which requires you to pay only a set amount and no more. A stop-loss clause specifying $2,000 in out-of-pocket costs forces the insurance company to pay 100 percent of all expenses after $2,000.

A policy usually sets a top amount that will be paid. In 1986, a typical plan paid a maximum lifetime limit of $1 million per family. Some plans have both yearly and lifetime limits. Sometimes a policy will not have any limits on what the insurer will pay.

Remember, major medical insurance is probably the most important kind of health insurance to buy, because it protects against large losses. If you can afford only one kind of health insurance, buy major medical.

Along with the questions listed for basic coverage, ask these questions about major medical policies?

• What are the top benefits paid?
• How large is the deductible? (Usually, the larger the deductible, the lower the premium.)
• Must you pay the deductible for each illness or injury or only once a year?
• What percentage above the deductible does the policy pay?
• Is there a limit to the benefits the policy pays for hospital room and board, surgery, and other specialists' consultation and treatment?
• What illnesses aren't favored?

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Dental Insurance

Dental insurance covers expenses of dental services and supplies, and it encourages preventive care. It can be bought through insurance company group plans, prepayment plans and dental service corporations.

Benefits differ with each policy. Most dental care is covered, including oral exams, X-rays, fillings, cleaning, extraction, dentures, oral surgery, and root canals. Usually, there is a deductible and a co-insurance provision.

Ask these questions about dental insurance:

• Is there a lifetime maximum? If so, how much is it?
• What is the deductible?
• What is the co-insurance percentage?
• Can you afford to pay all or part of your dental expenses yourself?
• What types of dental care are covered?
• Based on last year's expenses, would you have saved money with dental insurance? Is your situation likely to change this year or next?

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Special Illness Insurance

In addition to the six medical expense types of insurance, there are special illness policies, such as for accidents or cancer. Although the premiums are small, most insurance experts don't think special illness policies are a good buy because they aren't broad enough to be effective. For example, what good is cancer insurance if you have a heart attack? Most experts say you should consider this kind of policy only after other medical insurance needs have been covered.

Group Insurance

About two-thirds of Americans rely on group policies provided by their employers. Group policies are usually divided into fee-for-service plans and health maintenance organizations (HMOs). Fee-for-service plans often have basic major-medical coverages packaged as a single comprehensive policy. Medical services are paid by the insured and reimbursed by the insurer. Preferred provider plans are a new option offered by some insurers. Under preferred provider plans, cooperating doctors and hospitals agree in advance with an insurer or employer to accept discounted fees for treating employees who have this coverage. You can usually use your own doctor, even if he or she does not take part in the plan. In most cases, however, you'll be responsible for a higher deductible or higher percentage of co-payment.

An HMO is a plan by which doctors, surgeons, dentists, and other medical professionals provide care to subscribers as specified by a contract. As a subscriber, you pay a fixed periodic payment for health care services. Under an HMO, except in limited circumstances, you must use a doctor from a list provided by the insurer. Because HMOs are not a reimbursement system, they usually don't have deductibles, although most require small co-payments. In an HMO, you may be treated in a clinic-like setting. An employer with 25 or more workers who offers conventional insurance must also offer an HMO as an option if a federally qualified HMO is nearby, and at least one representative contacts the employer. Write the Group Health Association of America, 1717 Massachusetts Ave., N.W., Washington, D.C., 20036 for more details on HMOs.

Tips for Buying Health Insurance

• Know the kind and amount of coverage you already have. Read the policy handbook and know what coverage and payment limits exist.
• Buy an insurance policy with broad coverage instead of one that insures against specific illnesses.
• See if you qualify for a group health care plan at work, through a professional association, or by way of membership in any group. Group policies are usually less expensive.
• Avoid double coverage. If both husband and wife are working, look carefully at the group plans offered by the employers and select the best coverage.
• Think about health insurance benefits when you consider a job change.
• Try to get a policy that is guaranteed non-cancelable and renewable.
• Review your insurance coverage annually to be sure it covers your family's current situation, as well as today's health care costs.
• Think about how much insurance is enough. You can't insure against all possible health losses. Decide which medical costs you can cover with your current income or savings. Using insurance when it's not necessary is a major reason for the rising costs.
• Compare policies and premiums to make sure you're getting the most coverage for your dollar. Check your policy against other HMO policies in your area. Remember, it's better to insure yourself against major expenses than to spend premium dollars protecting yourself against minor losses that could be covered with your savings.

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Where To Get Help

Do you have questions about a group plan? If so, ask your employer, or your union or association officer. If your question is about an individual or family policy, talk it over with your insurance agent, or contact the insurance company directly. Always read your policy carefully. Know what you are buying.

If you have problems with a company licensed to do business in Alabama, you can get help from the State Commissioner of Insurance, 64 North Union St., Montgomery, AL 36130; telephone (334) 269-3550.

For more information, contact your county Extension office. Look in your telephone directory under your county's name to find the number.