Health Insurance works on the principle of sharing risk between the carrier and the insured. The carrier I represent is BlueCross of California. If you were to subscribe to a particular insurance plan, you would be the insured.
The number one way to avoid frustration when using insurance is to understand how it is meant to perform when it’s time to drive it. If you purchased a Ferrari but no roads you drove on allowed you to exceed 30 mph, you might get a bit frustrated . You simply bought too much car. To avoid buying more than you need, it’s important to understand the nature of what you are purchasing. Health Insurance is no exception.
Health insurance carriers share the risk of the insurance plan with the insured through the following overall approach:
You Pay the Deductible
You Pay the Co-insurance and/or Co-pay
You reach an out of pocket max and get everything covered at 100% after that.
Hey, what’s with all the “you pay” stuff? Well, along the way different insurance plans cover a percentage of other costs, such as office visits, prescription drugs, hospitalization, etc. However, the above three step approach is a good way to frame the process. We will define the terminology used in the above three steps further down.
The amount of “you pay” within each of the above three steps depends on your insurance plan. This is why there are so many plans.
Lets look at each of these steps individually and use two plans from BlueCross of California to demonstrate their performance. Remember, higher performance carries with it higher cost.
We will use two plans that are at opposite ends of the coverage spectrum. You can view them here [http://www.lifegotsafer.com/articles/Proposal.htm]. PPO Basic 2500 is a “hospitalization plan”, or a “major medical” plan. It performs best in extreme situations where you are seriously injured and need hospitalization. It is terrible at helping you meet less tragic expenses such as routine prescription drugs, office visits, and dental. It is great for stopping the financial bleeding you would otherwise experience without medical coverage should you be hospitalized. But once out of the hospital you’re pretty much on your own again; until (God forbid) you are hospitalized again. This is an inexpensive plan (about $50/mo. in most areas of California) and is in fact very popular.
The deductible on a PPO Basic 2500 is $2500.00. Most BlueCross plans use the deductible built into the plan as part of the plan’s name. What does a $2500.00 deductible mean? It means this is the amount you are going to have to pay before BlueCross will contribute any coverage at all on your behalf. The good news is that once you meet the deductible BlueCross starts to share some of the burden with you. You are starting to ramp down your expenses.
Now we get to Co-insurance. This is the percentage you end up paying after your deductible is met. With PPO Basic 2500 it is 20%. What? You paid your deductible and you STILL have to pay 20%?! Yes. Remember, this is “Mack Truck Insurance”. You get hit by a Mack Truck and I guarantee you the Co-insurance period will not last long. You will probably sail quickly on to the “Maximum Out-Of-Pocket Expense” horizon.
What about the term, “Co-Pay?” In this case, there is none. The co-insurance you pay is considered sufficient by the carrier to share the risk on this type of policy. Again, each policy is designed for specific purposes; to perform at specific levels in specific situations.
Finally, we get to the magic milestone called “Maximum Out-Of-Pocket Expense” (MOPE….an appropriate acronym if ever there was one). This is very often confused with “deductible”. Mixing these two terms up can result in a rather nasty surprise. The MOPE is where your responsibility for cost sharing ends and the insurance company starts picking up 100% of the tab. Finally and at last, you’re free and clear…until the annual period comes around again and then everything resets.
Now let’s contrast PPO Basic 2500 with Tonik 1500; a “Comprehensive Plan” aimed mostly at people between the ages of 19-29 years old . Like PPO Basic 2500 there is a deductible, but here we find a co-pay instead of co-insurance, and there is also a MOPE.
Tonik 1500 is the Ferrari of Tonik Plans. It has a higher premium than PPO Basic 2500. Tonik 1500 has a $1500.00 deductible. Your risk starts to end much sooner than with the PPO Basic 2500 plan. Even better; with the Tonik Plans your MOPE is exactly the same as your deductible! Now this is unusual. In most cases the deductible and the MOPE will not be identical. Keep that in mind.
Another big difference is the presence of a co-pay instead of a co-insurance percentage. A co-pay is a fixed amount you pay each time a service is rendered. No percentage here, you just pay a fixed amount. This takes a LOT of uncertainty out of the equation for you.
But the premium…ouch…you may say. This is where you apply your knowledge of the ideas covered in this article and look at the differences between the plans. You get a lot more for your money with Tonik 1500 than with PPO Basic 2500…but ONLY if you use the things Tonik 1500 offers (like prescription drugs, office visits, etc.).
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