What are you actually getting when you buy a health insurance policy?  According to Paul Zane Pilzer, economic advisor to two While House administrations, the health insurance policies you buy today are mostly not even insurance at all.  Rather, they are a composite product made up of three distinct parts with insurance making up only about 40% of the premium.

The first part, Access, accounts for 10% of the premium you pay.  Often just referred to as the network, this is a group of doctors, hospitals and other medical providers who make their services available at a discount to the contracting company in exchange  for patients to be driven their way.  These discounts can be substantial, often in the range of 70% to 80% or more, especially for America's largest insurers .  Buying access to these discounts is what enables an insurance company to offer you much better benefits for using in-network providers and also helps to keep your out of pocket expenses down until you have satisfied your deductible.   Beware of low cost discount medical plans which are basically just selling this access but without any insurance protection.

Prepaid Services make up about half of a typical insurance premium.  These are the familiar copayments that you make for doctor visits and prescription drugs and, with the passing of Health Care Reform or the Patient Protection and Affordable Care Act  in 2010, now also include a variety of preventive services with no out of pocket charges.  Many people do not realize that the copayments they make directly to doctors and pharmacies are not applied towards their deductible and, in most cases, are not included in their maximum out of pocket expenses.  However, if you opt out of these Copay plans and instead buy an HSA qualified plan  you will not only lower your premiums but doctor and prescription charges can then be applied towards your deductible.  Check if the insurance carrier you select has substantial in-network discounts and if they will make them available to you under your HSA plan.

It is the remaining 40% of your health insurance premium that buys actual insurance, which is defined as financial protection against expenses due to a major illness or accident.  Look beyond the deductible to your maximum out of pocket expense to determine your worst case liability when comparing plans so you don't fall victim to clever marketing.  For instance, a $1,000 deductible plan with one company may have a premium the same or slightly higher than another company's $2,500 deductible plan, which at first glance make make it seem like a bargain.  However, the $1,000 plan is a coinsurance plan which then covers you at 80% and you pay 20% until you have spent an additional $3,000, so your worst case scenario (maximum out of pocket) is $4,000.  The $2,500 deductible plan pays 100% after the deductible is met so your worst case scenario here is just $2,500.


Contact Ronald Haines at ronald@hcibenefits.com