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"Know" Surprises with Health Insurance Plans

Posted Nov 22 2008 8:43pm

I am going to discuss the different types of health insurance plans in the next few blog posts. If you have an employer sponsored health plan, there may be different options presented to you. If so, you really need to understand how they work so you can make the best selection for you. If you are purchasing individual insurance, it is really important to know what you are purchasing.

Today we are going to talk about the traditional "indemnity plan". This is what most people experienced in the early years of health insurance. Although it is not common to see this plan in today's healthcare market, it is good to understand how it works in order to help build the understanding of the evolution in health insurance. These plans are generally very simple. There is no restriction on the choice of doctor or hospital. For most encounters, you will pay a fixed percentage of the health bill. Common co-insurance (the part you pay) runs from 10% to 30% although it can be any number. Be sure you know what your co-insurance will be...a large bill could surprise you with a large part to pay.

On the other hand, the insurance company will pay either 90% or 70% respectively. While insurance companies have always had contracts with health providers (as far as I know) to discount their services, the providers would increase their charges to off-set the discount. An example of this might look like this: a $500 dollar service would be discounted to $400. It would cost the insurance 80% ($320), cost you 20% ($80) and the provider collects the entire discounted $400. Then, so the provider can collect the total $500 for the same service the prices would be raised by 25%. The scenario then becomes 80% ($400) and 20% ($100) and the provider collects $500. Within these scenarios, note that your actual cost is higher. These scenarios have occurred repeatedly through the years. The more the cost the more that the provider collected from you and the insurance company.

This cycle of increased pricing to off-set the insurance discounts, is in a big part, the stimulus for creating other ways of negotiating and pay healthcare costs. That brings in the HMO and the term “managed care”. Refer back to the primary title of my blog as to how that played out. Our next discussion will be the HMO.

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