How does Co-Insurance work?
When you purchase a PPO health plan (versus an HMO) you have to decide how
much you want your deductible to be. Just like the deductible on your auto insurance that
goes into effect when you are in an accident, you pay 100% of your deductible when you have
a hospital or outpatient claim. There is a second element though known as co-insurance,
which is essentially a second type of deductible, or a "shared cost" deductible. To illustrate the concept, let's say you go to a restaurant with a friend, and the bill is $10, they decide to
pay $8, therefore you pay the other $2. This would be of course what 80/20% co-insurance
would be.
When you decide on your plan, you decide how much risk you want to assign the insurance company, and how much you want to assign yourself. A low $500 deductible and
90/10% co-insurance means you are assigning more risk back to the insurance company.
A $3500 deductible and 70/30% co-insurance means you are assigning more risk back to
yourself. You are going to pay for health insurance in the form of premium or deductible and
co-insurance, think of it as a big "see-saw" trade-off. You can't control what you haven't
measured, once you have determined how much risk to assign yourself, than you are in a
better position to control your costs. Below is an example of how a hospital claim might look.
Hospital Bill => $30,000
Network Discount
(Approx. 40%) <$12,000>
__________
Net Bill $18,000
Your Deductible <$ 2,000>
Net Bill due before
Co-insurance $16,000
80/20% Co-insurance
of the next $10K <$ 2,000>
Net amount paid by
Insurance company $14,000
=========
Patient Responsibility $4,000
In the above example it doesn't matter if the bill is $30,00 or $300,000
the patient would stop out at $4,000 out of pocket. Of course all plans are
different, and some plans might have inside limits which would add to the
patient portion due, but this would be a typical example. Once you have met your
deductible and co-insurance responsibility for the year, then the insurance
company typically would pay 100% of all covered items for the rest of the calendar
year, except co-pay items which are patient responsibility. Keep in mind, if two or
more family members had to go to the hospital as a result of the same accident,
then only one deductible would apply as a result of the "common cause" law.
Also, Dr. visit co-pays are usually first dollar benefits, and therefore
are not dependent on any deductible requirement before they can be utilized.
Co-pays of course then are never counted toward satisfying your calendar year
deductible.
Essential Areas of protection in a Comprehensive Major Medical Plan
Use this as a checklist when reviewing different plans
Hospitalization (Surgery/Intensive Care/In-Patient Rehabilitation)
Outpatient Surgery
Hospice Care
Organ Transplant Coverage
Skilled nursing facility
Home Healthcare with visiting nurse
Durable Medical Equipment (wheelchairs, oxygen tanks, etc.)
E.R./Urgent Care Centers
Ambulance (air & ground)
Chiropractic (optional)
Mental Health coverage
Routine Exams (Colon, cholesterol screening, Preventive Lab/X-Ray,
blood, urine, EKG, bone density screening)
State Mandates (Mammograms, PAP smears, PSA tests, Well-Child
Shots/Visits)
Dr. visits/Lab/X-Ray
Rx coverage (Generic/Brand/Mail/Specialty)
On the job coverage
World-wide coverage (first 30 days of travel)
What is the difference between a PPO and an HMO?
HMO - Health Maintenance Organization
HMO's came into the marketplace in the 1970's, originally
started by physician groups. They are also know as managed
care, and popularized the "gatekeeper" system with the use of
the Primary Care Physician (PCP) and the required referral to
see a specialist. Although in recent years HMO's have started
backing off the need to have referrals, they still require you to
utilize their facilities, or private physician groups they have
contracted with. Their business model is focused more on
cost containment by using global capitations to reimburse the
doctors for example, overtesting is typically not an issue
within an HMO (where it can be in a PPO).
An HMO tends to give you a little more up front in terms of
copay covered items, but they tend to take it away on the
"back end" in terms of getting various procedures approved.
Deductibles and co-insurance aren't as prominent in HMO plans.
According to an article in the AMA journal (2001), if you belong to
an HMO you are 15% - 40% less likely to be admitted to a hospital,
35% - 40% more likely to be discharged sooner, and 22% more likely
have fewer expensive tests run.
PPO - Preferred Provider Organization
PPO's were started by insurance companies to compete with
HMO's. While PPO's also utilize copays, there tends to be more
emphasis on deductibles and co-insurance in the makeup of their
plans. However in PPO's, the networks tend to be much bigger, and they
give better geograpic coverage as well (if you wanted to go to a reknown
out of state clinic for example). The emphasis in a PPO is more on the
patient and doctor making decisions together, rather than the insurance
company telling the doctor more what to do, as in an HMO.
PPO's operate under a network structure employing discounts
that are passed on to the insurance company by the healthcare
providers. It's not unusual for hospitals to discount the services 40%
or more back to the insurance carrier. These discounts in many cases
will flow directly to the insured if the claim is below the deductible and
co-insurance maximum (as can be the case with outpatient procedures).
