Part 4 - Jump Menu

What does “coinsurance” mean in a health insurance policy? What is the purpose of “coinsurance”, “stop-loss”, “maximum    out of pocket”, etc. Isn’t this just complicating the policy? What does a disability income policy do? What does “disability” mean? How long can I collect under a disability income policy? Must I be disabled for a certain length of time before    my disability benefits begin? What is a PPO? What is a HMO? What is the purpose of PPOs and HMOs? What if I want to go to any doctor or hospital I choose?     Also See Part 1/Introduction - General - Health and Life; what is Life Insurance; How much life insurance should I have Part 2 - Who receives benefits and how much; does it matter how I die; paid as lump sum or distributed; who can be beneficiary and how often can that change; different types of life insurance; must I die to collect; requalification requirements; how price is set; permanent versus term Part 3 - Understanding Term Life versus permanent; How much will the cash be worth if I need to cash the policy; Major purpose of health insurance, major types of individual policies; Individual versus group insurance at work; Major Medical Health Insurance; How does deductible work

What does “coinsurance” mean in a health insurance policy?

In a health policy, coinsurance represents the percentage of the medical bills the insured will be responsible to pay after the deductible is met. For example, if your policy is “80% coinsurance”, then once the deductible is met, the insurance will pay 80% of covered medical bills and you pay 20%. Typically there will also be a provision called a “stop-loss”, which is basically a maximum amount you will ever have to pay out of your own pocket for covered medical bills. For example, let’s say your policy states it is “80% coinsurance, with a $1,000 stop-loss.” Once you’ve paid your deductible, your covered medical bills are $7,000. Here’s how that would work: First, the coinsurance provides the carrier will pay 80% of the $7,000 ($5,600) and you will pay 20% ($1,400). But, your “stop-loss” says your maximum payable for this claim is $1,000! So you only pay the $1,000, and the additional $400 comes from your insurance company. Notice this provision gets more valuable as the claim gets larger—no matter how large the final claim, or what percentage of coinsurance you’ve purchased, your stop-loss says your share of the covered expenses will never exceed $1,000.

Please note some polices refer to “stop-loss” as “maximum out-of-pocket”. And many polices include the amount of the deductible in determining when you hit your maximum, also a helpful provision.

What is the purpose of “coinsurance”, “stop-loss”, “maximum out of pocket”, etc. Isn’t this just complicating the policy?

All of these are provisions meant to help control the cost of the policy. For example, if the coinsurance percentage tells you how much of the covered expenses the insurance company is on the hook to pay, then clearly the higher the coinsurance percentage, the higher your policy premium will be. Similarly, the lower your deductible and stop-loss, the more you are asking the insurance company to pay, and the higher your policy premium. While these terms my seem complicated, the bottom line is the more of your medical expenses you can afford to pay out of your own funds, the lower your medical insurance premium can be. As your Trusted Choice^SM agent, we can discuss the various options available to you, and the amount of difference each will make to your insurance premiums. You can then choose the combination of provisions that best fits your budget and needs.

What does a disability income policy do?

Disability income is a form of health insurance that is designed to provide you with an income during the time you are unable to work due to illness or injury.

What does “disability” mean?

In its simplest sense, it means you are unable to work. But it’s important you realize the definition of the term under a given disability income policy will be specified by that policy. The broader the definition of disability, the higher the cost and increased limits to the underwriting restrictions. For example, some policies will define “disability” to mean “the inability to reasonably perform the duties of your occupation,” while another will define it as “the inability to reasonably perform the duties of any occupation”. How significant is this difference of a single word? To use an extreme example, if you were a highly trained surgeon, the first policy would pay you if you were sufficiently injured that you couldn’t perform surgery. The second would refuse to pay if you could perform any job—even sweeping floors or answering phones. Despite the obvious loss of income when going from surgeon to receptionist, the policy definition of disability will determine whether you will receive benefits for specific policy. As you might guess, the second policy is likely to be great deal less expensive. Also, you can see your current occupation is the single most important factor in determining what type of disability policy and coverage options you will be eligible for.

How long can I collect under a disability income policy?

Policy provisions vary, as do the premiums depending upon which provisions you choose. Generally the policy will specify a maximum period of time it will pay for a covered disability. Typical policy terms are for two years, five years, or to age 65. If during that time you recover from the disability and return to work, the policy will provide that a new disability will start a new benefit period. For example, if under a “five year” disability policy, you meet the definition of disability for three years, then return to work, the policy will have paid you three years worth of benefits. Four years later you suffer a new disability. For that new disability, your policy will pay benefits for up to five full years.

Must I be disabled for a certain length of time before my disability benefits begin?

Typically a disability policy will provide for some length of time the disability must last before benefits begin. This is usually referred to as a “waiting period.” Similar to a deductible under major medical insurance, the purpose is to avoid paying benefits for minor injuries or illnesses, thus saving the insurance to apply to major times of need. The length of the waiting period can vary, and usually you will have several options. Clearly the longer you are willing to wait, the lower the premium. We can discuss your available options with you.

What is a PPO?

This stands for “Preferred Provider Organization”. Basically, this is a network of health care providers who have agreed to provide certain services at agreed-upon costs for individuals whose coverage is a part of the network. (Some suggest it is best described as a discount-buying club for medical care.) You are free to use any medical provider within the network, and all will honor the agreed services and fees. If you choose to use a provider who is not an approved member of the network, your coverage may be diminished, your personal cost higher or, in some cases, benefits for non-emergency services may be totally denied. Be sure to discuss with us, your Trusted Choice^SM agent, if your coverage will utilize one or more PPOs, who are the current approved providers, and how utilizing an out-of-network provider will affect your coverage.

What is a HMO?

This stands for “Health Maintenance Organization”. Unlike a PPO network of independent care providers, HMOs are typically fixed facilities, and benefits are designed to cover services obtained at the HMOs facilities and supplied by HMO personnel. HMO coverage plans must specify how and under what circumstances services may be obtained from non-HMO providers, and this information is crucial to determining the value of the HMO under your particular circumstances. We can assist you in determining whether there are good HMO options available in your area, their benefits and any limitations for you to consider in making your final medical coverage choices.

What is the purpose of PPOs and HMOs?

By assembling a network of providers who agree to provide services at a discount (PPO) or by requiring you get all of your services from a specific provider, with an emphasis on preventative care (HMO), the hope is to provide you the best possible care at the lowest possible costs. A downside is such benefits and discounts require a great deal of control over your health care options by the PPO or HMO, and not all the limitations are popular or convenient. And whether these approaches are always successful is subject to ongoing debate, and results can vary greatly by where you live.

What if I want to go to any doctor or hospital I choose?

You can buy health insurance which basically says “go to whomever you want and have them send us the bill” (often referred to as “indemnity” coverage), but it lacks the negotiated cost discounts and overview of services (meant to dissuade providers from over treating and over billing) that PPOs and HMOs utilize to try and keep costs lower. Thus an indemnity policy may be readily available to you, but may be significantly more expensive than a coverage plan utilizing a PPO or HMO. Ask us for your options and possible premiums, and then choose the coverage method that best meets your personal preferences and needs.

 

This is part 4 of a four-part
article on Life and Health Insurance.

Part 3

Date Posted to Site:   May 2005

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