The Right Health Insurance

Why do we need health insurance? Why is it so expensive? What is co-insurance? Ever wonder about these kinds of things? Well now you don't have to wonder anymore! Let me try to answer the the first question for you.

We need health insurance because the doctors and hospitals charge such exuberant rates today. It's pretty much that simple. I have seriously seen patient's Explanation of Benefits where the hospital charged them $120,000 for their hospital stay. Just by having insurance, the rate was discounted to $4,000. That is before the insurance even paid anything. I would so much rather pay $4000 than $120,000. It is very unfair that the hospital charges someone without insurance a rate that is 20 times higher than someone with insurance. So even if you have an insurance plan with a $10,000 deductible, that will give you access to these discounted rates.

Now why is health insurance so expensive. I'm sure there are a million reasons, but I'll give you just a few.

1. Many prescriptions are very expensive. If your insurance company charges you a $30 co-pay for a brand medication, that prescription could cost $800 retail. So the insurance company just paid $770 and you paid $30. Now imagine you have to get this prescription every month and your health insurance premium only costs $500 a month. The insurance company would be losing $270 on you each month from just that prescription!

2. Inflation. If the cost of buying medical supplies go up and the electric company has raised their rates, the doctors and hospitals must charge more to make the same amount of money. Since the doctors have to charge more, the insurance companies have to pay the doctors more. Not to mention the increased inflation costs hit the insurance company as well.

3. Malpractice Insurance. Doctors are required by law to carry Medical Malpractice Insurance. Since the government has not placed any restrictions on how much a doctor can be sued for, Malpractice Insurance can end up paying out extremely large settlements. So Malpractice Insurance is very, very expensive. This alone can cause a doctor to go out of business because they can't afford to stay open.

Those are just a few reasons why insurance is so expensive. Now I'm going to define a few common health insurance terms so you have a better idea when shopping for your health insurance.

HMO - This stands for Health Maintenance Organization. You must choose a primary care physician with this type of insurance. Every time you need to see any kind of doctor you must see your primary care physician first. Your primary care doctor will then refer you to a specialist within your medical group or order a test if necessary. You must stay within your medical group which usually only has a few specialists in each area. You can switch your primary care physician once every month if you'd like. Doctors get paid a monthly fee from the insurance companies on HMOs whether you see them or not.

PPO - This stands for Preferred Provider Organization. With a PPO you do not need to see a primary care doctor to get a referral. You can go straight to a specialist. I personally have a PPO because I want to be able to go to any doctor whenever I need to. PPOs typically have higher expenses for patients because they have deductibles and co-insurance. But you are paying for the freedom to go to any doctor, even doctors not in the network. Many doctors will get you in quicker if you have a PPO because they don't get paid until they see you.

Co-pay - This is the dollar amount you will be required to pay for a service or prescription. I have a $20 co-pay for doctor visits and I must pay that amount when I see my doctor on that day.

Deductible - A deductible is typically on PPO plans. This is the dollar amount you must pay before the insurance company starts paying for their portion of the co-insurance. It doesn't always apply to the doctor visits or prescriptions. With many plans you do not have to pay your deductible in order to pay your Rx co-pay or Office Visit co-pay.

Co-Insurance - This is a percentage of the bill you will pay. Many health insurance plans have an 80/20 co-insurance. What this means is the insurance company will pay 80% of the bill and you pay the other 20%.

Let me give you one last example of how the co-pays, deductibles, and co-insurance works.

Patient went to the hospital to have knee surgery. The hospital billed the patient $8,000 for the stay. Just by having insurance, the bill was discounted to $2,000. This patient has a PPO plan with a $500 deductible and 80% co-insurance.

Patient pays their $500 deductible first, leaving $1500 left.
Insurance company pays 80% of the $1500, which is $1200.
Hospital bills the patient for the remaining $300 which was their 20% portion of the co-insurance.

Without insurance this patient would have paid $8000. Instead they paid $800.