Evaluating and Comparing Health Coverage

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Heritage Trust Retirement and Investment

Dennis Bailey Financial Advisor 200 Marymeade Drive 843-832-7529

Evaluating and Comparing Health Coverage

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Evaluating and Comparing Health Coverage

What is it?

The costs of medical care and treatment can be astronomical and are rising all the time. With this in mind, it is amazing how many Americans are without health coverage. If you're smart and can afford it, you realize that you should probably have health

insurance. In fact, in 2014 the Patient Protection and Affordable Care Act (ACA) mandates that U.S. citizens and legal residents have health insurance or face a tax penalty (some exceptions apply). So, your first step is to choose between the two broad categories of health coverage: individual and group. This choice will depend entirely on your particular situation. For example, if group insurance is not available to you, individual coverage may be your only option. Once you have determined which category is appropriate for you, you are ready to start evaluating and comparing different insurance companies and the policies they sell.

There is a vast array of insurance carriers out there competing with each other and offering different types of policies. Perhaps you're looking for additional insurance to supplement your Medicare coverage. Or maybe you're trying to pick from among several plans offered through your employer. Or, you might choose to shop for health insurance through either a state-based or federal health insurance Exchange Marketplace. Whatever the case, you will need to do your homework to select the right insurance company and the particular policy that is best for you in terms of cost, benefits, and other factors. And you will need to review your policy periodically to help decide when you should replace it and when you should keep it as is.

Choosing a coverage provider

One of the biggest parts of your overall decision about health coverage will be selecting the right insurance company. Your comparisons between different companies and your final choice of one should be based on a combination of factors.

Compare policies offered

First, you should look at the different types of policies each company offers and determine if any of them meets the criteria you have established for health coverage.

Compare prices of individual policies

Once you have weeded out some companies, you can further narrow the pool by comparing the prices they charge for their policies.

Examine the integrity of the company

Other considerations should include the company's integrity and financial soundness. Integrity may depend on such qualitative factors as a company's reputation for providing superior products and service to its clients, as well as its reputation for paying claims in a timely, hassle-free manner.

Examine the company's financial soundness

Financial strength is based more on the same quantitative measures you might use to evaluate a company in which you were thinking of buying stock. These might include annual figures on the company's sales, revenue, capital growth, and dividend payments to shareholders. You can hire a professional to help you assess an insurance company's financial soundness, or you can obtain a rating of the company from a ratings service organization.

Tip: Many insurance professionals recommend that you consider only large insurance companies or HMOs.

Comparing health coverage

Types of policies

Coverage providers offer a wide range of both individual and group health insurance policies from which you can choose. To evaluate policies and make an informed decision, you should be aware of the types of options available to you and the unique characteristics of each. Within the two broad categories--individual and group--types of health insurance policies include

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employer-sponsored plans, association plans, indemnity/reimbursement plans, and service provider plans, among others. For detailed information on each type of policy, see our separate discussions of each.

The relationship between the type of policy and the criteria that you use to compare policies can take different forms. The criteria may steer you toward a certain type of policy that seems right for you. Or, having already decided what type of policy you need, you can use the criteria to help you weed out specific policies and choose one within that type. In any case, the following are the major criteria for comparing one health insurance policy to another.

Tip: Comparing insurance policies can be daunting, so the ACA provides state-based or federal health insurance Exchange Marketplaces for both individual health insurance and small business insurance plans. Through the Marketplace, individuals and small businesses can compare insurance policies as to their benefits and cost, and even purchase coverage if so desired.

Overall cost

One of your biggest questions probably concerns how much it will cost you in the end to provide yourself with health coverage.

The cost of a policy, known as the premium, is payable either in a lump sum or in regular installment payments throughout the year. You need to determine whether this premium is commensurate with the benefits you receive in return. If two policies provide identical benefits but one costs more than the other, you should probably go with the less expensive one.

In the case of an employer-sponsored policy, your employer may pay all or part of the total premium. The remaining cost, if any, will be spread out among the members of the group and deducted from their paychecks, generally in installments. Thus, the cost to you as an individual will depend on how much of the total cost your employer covers. Again, does this cost seem reasonable in light of the coverage the policy provides? Keep in mind that it's impossible to separate cost from coverage when comparing policies. Under the broad umbrella of cost, there are several specific issues that come into play. For instance, how do such factors as your age, health, and personal habits (e.g., smoking) affect the cost of your policy? Will the premiums increase as you age and, if so, by how much? How much more will it cost you to add your spouse and other family members to your employer-sponsored policy?

The ACA provides that coverage purchased through the Marketplace may be eligible for reduced premiums through premium tax credits based on the applicant's income and family size.

Caution:In terms of overall cost, you should not necessarily take the low price of a given health policy at face value. There could be several reasons why an insurance company is charging less for a policy than it appears to be worth. Perhaps they're able to do so because they're simply better at managing their expenses than most insurance companies. But it could be that they are

offering low rates to attract customers and to get a large chunk of the market share, only to raise premiums across the board at a later date.

Deductibles

One of the most important cost considerations is the issue of the deductible, if any. The deductible is the amount that you have to pay toward your medical expenses before the insurance company begins to pay claims. The total amount that you end up paying in deductibles will depend not only on the deductible amount set forth in your policy but also on what type of deductible the policy calls for. The deductible may be on an annual basis, a per-occurrence basis, or a family unit basis, among others. Moreover, the policy may contain a co-insurance provision whereby you have to pay a certain percentage of your medical costs above and beyond the deductible. Deductibles and co-insurance payments can greatly affect the overall cost of a policy, so you should look closely at the relevant terms of the policies you are comparing. To help applicants find more affordable coverage, the ACA provides that health insurance plans purchased through the Marketplace may be eligible for cost-sharing reductions that lower deductibles, copayments, and coinsurance costs based on the applicant's income and family size.

Coverage

As stated, the cost of and coverage offered by a health insurance policy are closely linked. You should always weigh the coverage that a policy provides against the cost of those benefits. In terms of benefits, you need to assess how comprehensive the policy's coverage is. What specific types of illnesses and injuries are covered, and which are not? Does it fully or only partially cover such expenses as surgery, hospitalization, routine medical exams, diagnostic procedures, rehabilitation, home care, and prescription drugs? Does it cover vision care, or do you need a separate policy for that? Are your family members eligible for coverage under the policy for an additional cost? Do you have to get approval from the insurance company for coverage of certain types of care?

These are some of the coverage questions on which you should base your policy comparisons.

Coverage obtained through the Marketplace must include minimum essential benefits including outpatient care, emergency room

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treatment, inpatient care, maternity care, mental health and substance abuse treatment, prescription drugs, lab tests, preventive care and screenings, and pediatric services.

Exclusions

One easy way to determine the range of coverage provided by a particular policy is to read its exclusion section. This should give you an exhaustive list of everything that is not covered. You will find that most policies do not cover self-inflicted injuries, injuries sustained during military service, losses covered by workers' compensation, and cosmetic surgery, to name a few. One common source of frustration is that many policies do not cover illnesses and medical conditions that you had before your policy went into effect. However, the ACA prohibits insurers (except grandfathered individual plans in effect since March 23, 2010) from imposing pre-existing condition exclusions. In addition, most will not pay you benefits for care or treatment already covered by another insurance carrier.

Limitations

Often, it's not just a matter of what items the policy will cover and not cover. Many policies are governed by limitations as to the amount(s) they will cover. Some, for instance, specify ceilings or maximum benefits that are allowable for a variety of specific medical procedures. Others may be subject to a stop-loss provision whereby you have to pay a percentage of your medical costs in co-payments up to a certain point (an out-of-pocket maximum) before the company begins to pay 100 percent. And, of course, many policies require you to pay deductibles before claims payments begin.

The most basic policies may cover only hospitalization and certain kinds of surgery. The most comprehensive ones provide unlimited benefits on both a per-occurrence basis and an overall total basis. However, if two policies cost the same amount but one offers clearly superior coverage, your choice is an easy one. Unfortunately, it's not usually that simple.

Tip: The ACA prohibits insurance companies from setting annual limits on the dollar value of coverage.

Reimbursement versus direct payment

One additional consideration is the issue of reimbursement versus direct payment, referring to two different methods by which an insurance company can pay for medical service. In the first case, you pay the provider for the medical care or treatment you received and then file a claim with your insurance company, which reimburses you (generally 80 percent). In the second case, it is the provider that files the claim and then receives payment from your insurance company for services rendered.

In terms of overall cost to you, it may not matter which payment method your policy calls for. However, say that most of your money is tied up in investments and you generally have very little liquid cash available for medical expenses. If so, even though you know you will be reimbursed afterwards, it may simply be a hardship or a nuisance to have to pay up front every time you go to the doctor or hospital. And the claims forms required by reimbursement plans can be an added nuisance for you, especially if the forms are long and complicated.

Screening processes

Also, as insurance companies try to slash costs and minimize their chances of having to pay large claims, many of them have instituted minimum standards that you have to meet to qualify for health insurance. To this end, such companies often require extensive screening processes before they will sell you a policy. A screening process may involve interviews to find out if your lifestyle or occupation put you at risk for illness or injury, as well as medical exams that allow them to assess your health and discover any pre-existing conditions. Even in the case of large employer-sponsored plans, many insurance companies now require information from individual participants within the plan before agreeing to provide insurance for the employer as a whole.

Depending on the medical history of the group as a whole or even a single individual, the insurance company may turn down a large employer for health coverage. Small employers, however, may not be turned down, nor may an individual who meets eligibility requirements under federal law, which include having most recently been covered under an employer-sponsored group plan and not being eligible for group coverage.

Tip: The ACA prohibits pre-existing condition exclusions for group health plans and individual health plans (except grandfathered individual health plans). Also, insurers offering new group or individual health plans (not grandfathered plans) cannot discriminate against an applicant based on his or her health status.

If you have nothing to hide, such processes may not bother you much, but they can be inconvenient and highly invasive. What's more, they can determine what type of health insurance you can obtain or even if you can obtain it at all.

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Other criteria

A final but very important question to consider when comparing policies is whether there is any waiting period before your benefits begin. Effective January 1, 2014, the ACA mandates that all policies limit waiting periods for coverage to no more than 90 days.

Reviewing policies

After choosing a health insurance policy, you should review it periodically, perhaps once a year or as your circumstances require.

The review should first of all take into account whether you have been satisfied with the policy and the company behind it. Has it matched your expectations in all respects? Specifically, has it paid benefits in a timely manner and in accordance with all the terms of the policy? Did you have to haggle with company representatives or health-care providers over claims?

You might also want to reconsider whether you accurately gauged your medical needs and your ability to afford the policy. In other words, was the coverage sufficient for all your various health problems, and did the overall cost prove to be too much of a burden?

Perhaps most importantly, did you feel that cost was commensurate with coverage?

When should you replace your coverage?

You should think about replacing your health coverage under one or more of the following conditions:

Your health or your medical needs change

If you are unexpectedly stricken with an illness or other medical condition that requires frequent hospitalization, regular doctor visits, or large amounts of drugs, you may want to consider switching to a policy with more comprehensive coverage, fewer limitations , and lower deductibles (provided that the new policy will cover your condition). Conversely, if you are cured of a disease that previously required extensive medical treatment, you will need less comprehensive coverage and can switch to an appropriate policy to lower your costs.

Your financial situation changes

This could mean anything from winning the lottery to losing your job to suddenly being saddled with your child's college expenses.

In any case, the health policy you have should depend at least partly on your ability to pay the premiums. Thus, if your financial circumstances change for the better, you can afford better insurance that costs more, and vice-versa.

Tip: Keep in mind that if you lose a job that provided medical insurance, you will probably be eligible for COBRA benefits at a specified cost and for a specified length of time after termination, usually 18 months.

You switch jobs

A job change could necessitate a new health insurance policy for any number of reasons. If it means greater income, you can afford a better policy. If it entails a total career change, the level of risk associated with your new occupation could affect your cost and require different coverage. Finally, if you previously had health insurance through the plan sponsored by your old employer, the job change will require that you either join your new employer's plan, take out an individual policy on your own, or sign up for COBRA benefits.

You haven't been satisfied with the policy

Nothing has really changed about your circumstances since you chose the policy, but you realize that you made a mistake in choosing it. You miscalculated your finances and found out the hard way that you couldn't afford the premiums. Or you discovered over the course of a year that you need more coverage than you anticipated. Or maybe you just haven't been happy with the way the company has handled the policy, processed your claims, and treated you as a customer.

Your premium skyrockets through no fault of your own

Say that you have a policy for a year and never file a claim. All of a sudden, you learn that your premium for the next year has gone way up. This can happen depending on the number and nature of claims filed with your company by other policyholders. If the new cost seems disproportionate to the old coverage, switch to a less expensive policy that provides the same or better coverage.

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Your insurance company's quality rating plummets

This could happen for any number of reasons. Perhaps the company is experiencing financial difficulties or has done a poor job of handling client claims over the past year. In any case, a low rating may be cause for you to switch to another company and start a new policy. However, you should probably consult your accountant or insurance professional before doing so.

You become eligible for Medicare

When this happens, you can probably abandon your old policy for a less comprehensive supplemental policy that fills in the gaps left by Medicare .

When should you keep your existing policy?

Generally speaking, you should probably just stick with the same health policy as long as you are happy with the policy and the company and as long as there haven't been any dramatic changes in your circumstances that warrant a change. It's as simple as that.

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Heritage Trust Retirement and Investment Dennis Bailey Financial Advisor 200 Marymeade Drive 843-832-7529 [email protected] All Securities Through Money Concepts Capital Corp., Member FINRA / SIPC

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