Industry Insight: Key guidelines simplify health care options
By Paula Dougherty
Posted online
It seems that few topics are the subject of more discussion and debate today than the U.S. health care system.
Though it may be subject to dramatic change in the future, many people struggle to interpret the current health care system and determine the best health care options for their individual circumstances.
If your medical bills leave you scratching your head about the difference between copayments and coinsurance, here are some basic guidelines that may help.
Footing the bill
Paying for health care is not as simple as buying groceries, a new TV or a new car.
• Insurance premiums are the dollar amount that people tend to pay the most attention to, because it represents the out-of-pocket cost, usually monthly, for a health insurance plan.
• Deductibles are the out-of-pocket costs that must be paid directly to providers for health services, and many insurance plans require that deductibles that range from several hundred to several thousand dollars be incurred first by the policyholder before the insurance company begins to cover expenses.
• Coinsurance is the amount of medical expenses that must be paid by the individual after the deductible has been satisfied.
• Copayments require those enrolled in some plans to contribute a flat amount for each visit to a medical provider, and these payments are typically made at the time service is provided.
Popular plans
Just as there are different types of medical costs, there also is a variety of health coverage options available. Most people participate in one of three types of managed-care plans that try to emphasize preventive medicine and wellness as a way to keep treatment costs down.
• Health maintenance organizations are plans that generally require individuals to utilize doctors, clinics and hospitals that are part of their approved network of providers. Typically, these HMO plans do not require deductibles, but they often include co-payments for medical services.
• Preferred provider organizations encourage individuals to use a specific network of providers, but they also allow patients to choose out-of-network service.
• Point of service plans are a managed-care option designed to keep costs down by having a primary physician manage referrals as needed, typically within the same network of providers.
A shift from managed care
Those who prefer fewer restrictions on their ability to choose providers may opt for a private fee-for-service plan. This is a more traditional approach to insurance where premiums are more competitive and health care costs are shared by policy owners and the insurance company.
Another approach to health insurance is the consumer-directed option, which centers on combining a high-deductible, lower-premium health insurance plan with regular investments in a health savings account. Money is saved in an HSA, and the accumulated funds can be used to help pay out-of-pocket expenses. Contributions made to an HSA are tax-deductible; any earnings generated by the account are not taxed, and withdrawals to pay for qualified expenses are tax-free.
The money saved in an HSA can be used to help pay for current and future medical costs. By putting the money under your control, an HSA can provide more choice in health coverage. HSAs also are portable, meaning that the money goes with you if you lose your job or change employers.
Understanding the basics of the system as it now stands is important in order to get the most out of current and ongoing investments in health care.
Paula Dougherty, CFP, ChFC, CLU, is a senior financial adviser with Dougherty & Associates, Ameriprise Financial Inc. in Springfield. She may be reached at paula.j.dougherty@ampf.com.
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