CoverHassleFreeHealthCoverageTableofContentsChapter1:TheBasicMechanics...Chapter2:KeyHealthInsuranceTerms...Chapter3:HowTraditionalIndemnityInsuranceWorksChapter4:TheMajorMedicalApproach...Chapter5:HowManagedCareWorksChapter6:WhyMostPeopleAreCoveredbyGroupPlansChapter7:HowMedicareandMedicaidWorkChapter8:TheInsandOutsofWorkers'CompChapter9:Cancer,COBRAandOtherSpecialCoverageChapter10:ChoosingtheRightPlanChapter11:...IfYouHaveTroubleMakingaClaimChapter12:TipsforSmartShoppersChapter13:PoliticsandtheFuture...

Hassle-FreeHealthCoverage

HowtoBuytheRightMedicalInsuranceCheaplyandEffectively

SILVERLAKEPUBLISHINGLOSANGELES,CAABERDEEN,WAHassle-FreeHealthCoverageFirstedition,thirdprinting2005Copyright©1999-2005by

SilverLakePublishingSilverLakePublishing111EastWishkahStreetAberdeen,WA98520

ForalistofotherpublicationsorformoreinformationfromSilverLakePublishing,pleasecall1.360.532.5758.Fax1.360.532.5728.OrvisitourWebsiteatwww.silverlakepub.com.

Allrightsreserved.Nopartofthisbookmaybereproduced,storedinaretrievalsystemortranscribedinanyformorbyanymeans(electronic,mechanical,photocopy,recordingorotherwise)withoutthepriorwrittenpermissionofSilverLakePublishing.

LibraryofCongressCatalogueNumber:PendingTheSilverLakeEditorsHassle-FreeHealthCoverageHowtoBuytheRightMedicalInsuranceCheaplyandEffectivelyPages:266

ISBN:1-56343-1602PrintedintheUnitedStatesofAmerica.

ACKNOWLEDGMENTSAssembling a book that includes this much information on asubjectthat’schangingeveryfewmonthsistough.Explainingcomplexissuesinsimpletermstakesalotofwork.

TheSilver LakeEditorswho contributed to this book includeMegan Thorpe and Christina Schlank. Thanks also to SanderAlvarez andSueElliot-Sink,whohelpedwith the early draftsandresearch.

Hassle-FreeHealthCoverage is the sixth book in Silver LakePublishing’sseriesonpersonalinsuranceforconsumers.

This book is designed to give consumers a basic knowledge of healthinsuranceformsandterms.Nothinginthisbookshouldbeconsideredlegaladvice.Ifyouhavealegalproblemwithaninsurancecompany,pleaseseekprofessionaladvicespecifictoyourlocationandcircumstances.

TheSilverLakeEditorswelcomeany feedback.Pleasecallusat1.360.532.5758. Fax us at 1.360.532.5728.Or you can e-mailusateditors@silverlakepub.com.

CONTENTSTABLEOFChapter1TheBasicMechanicsofHealthInsurance1

Chapter2KeyHealthInsuranceTermsandDefinitions21

Chapter3HowTraditionalIndemnityInsuranceWorks35

Chapter4TheMajorMedicalApproachtoHealthCare51

Chapter5HowManagedCareWorks71

Chapter6WhyMostPeopleAreCoveredbyGroupPlans95Chapter7HowMedicareandMedicaidWork 117Chapter8TheInsandOutsofWorkers’Compensation 145Chapter9Cancer,COBRAandOtherSpecialCoverage 167Chapter10ChoosingtheRightPlan

195

Chapter11WhattoDoifYouHaveTroubleMakingaClaim 213Chapter12Tips

forSmartShoppers

235

Chapter13PoliticsandtheFutureofHealthCoverage 251

1CHAPTER

THEBASICMECHANICSOFHEALTHINSURANCE

Ifyou’veeverbeensickorinjured,youknowthatit’simportanttohavetherightkindofhealthinsurance.Itpaysforthepainto be abated...and the damage to be repaired. But, if youremployer offers you a choice of health plans, do you haveenough knowledge to make the right choice? In addition tomedical expense coverage, do you need any other kind ofinsurance?Whatwillhappenifyouaretoosicktowork?Or,ifyou are over 65, will Medicare pay for all your health careexpenses?

Ifyou’reconfusedaboutthetypesofhealthcoverageavailableandwhatcoverage isbest foryou,your familyandevenyourbusiness,you’renotalone.

Today’s consumers are asking these same questions; and thequestionsaren’talwayseasytoanswer.Manyoftheinsuranceagents andbrokerswhoused to explain thedetails topeopleare gone. Companies that sell medical insurance rely on ashrinkingnumberofexpertstoexplaincoveragestopeople—andmostoftheseexpertsfocustheirpitchonthestartofa

new plan with a client. If questions come up later—which isusuallythecase—peopleoftengetsomebrochuresandashrugoftheshoulders.

MAKINGSENSEOFINSURANCE

Health coverage refers to a collection of insurance policiesandgovernmentprogramswhichpayforarangeofcosts—fromdoctorsandhospitalstomorespecificneeds,suchaslong-termcare expenses or disability insurance (which replaces lostincomeifyoucan’tworkbecauseofanillnessoraccident).

Healthinsurancedoesn’tjustcovermedicalexpenses.Itprovidespaymentofbenefitsforthelossofincomeand/orthemedicalexpensesarisingfromillnessorinjury.So,healthinsuranceissometimescalledotherthings,likeaccident and sickness insurance or accident and health insur ance. Thedifferent kinds of health insurance cov erages vary according to themethodsofunderwriting,the injuryor illnesscovered,typesof insurers,typesof benefits and servicesprovided, typesof losses covered, and theamountofbenefitsavailable.

When people refer to health insurance, they usually meangroup insurance offered by employers—insurance that coverssuch things as medical bills, surgery, and hospital expenses.Insurance companies call this comprehensive or majormedicalcoverage,becauseofthebroadprotectionitoffers.WhenhealthinsurancefirstappearedintheUnitedStates—inthemid-1800s—itwassoldbycasualtyinsurancecompaniesona stand-alone basis and as an add-on to life insurancepolicies. Early policies covered losses due to accidentalinjuries.Lateronesprovidedbenefitsdueto illnessaswellasaccidents.

Today, health coverage includes insurance policies andgovernment-provided benefits. Most consumers are familiarwith some of these. The terms fee-for-service and managedcare appear just about everywhere. The specific kinds of

managed care plans— health maintenance organizations(HMOs), preferred provider organizations (PPOs), andpointof-service(POS)plans—arealsofairlycommon.Butwhatdothesetermsmean?

Bothfee-for-serviceandmanagedcareplanscoveranarrayofmedical, surgical, and hospital expenses. Most offer somecoverage for prescription drugs; and some even includecoverage for dentists and other providers. But because thereare differences that will make one or another plan right foryou,itisimportanttounderstandeachkindofplan.

FEE-FOR-SERVICEPLANS

Fee-for-service coverage generally assumes that a medicalprovider (usually a doctor or hospital) will be paid a fee forservices rendered. The term refers to the way doctors arepaid...regardless of who pays. Paying cash—that is,unreimbursedout-of-pocketexpenses—formedicaltreatmentisafee-for-servicearrangement.However,mostpeopledon’tpaycash for their medical care. Traditional health insurance—what insurancecompanies call indemnity coverage— is a fee-for-servicearrangement.

Withfee-for-serviceinsurance,youchoosethedoctoryouwantto see; and you can chooseadifferentdoctor for any reaons,anytimeyoufeellikeit.Afteryou’vebeentreated,youoryourdoctor submits a claim to your insurance company forreimbursement. You will only receive reimbursement for thecoveredmedicalexpensesthatarelistedinyourplan.

Servicesthatarecoveredunderyourpolicyaregenerallyreimbursedforsome—butnotall—ofthecost.Manypoliciespay80percentofthecosts.

(Forasamplelistofcoveredexpensesand/orexamplesofnon-covered expenses, turn to page 41 of Chapter 3.)With somevariation, fee-for-service policies reimburse bills for a

percentageofareasonableservicecharge. (Thisamount isderived by the prevailing cost of a service in a geographicarea.) The portion of the covered medical expenses that youpay,theother20percent,iscalledcoinsurance.

Sometimes a doctor will charge more than a reasonableamount for a service. If this is the case, you’ll enduppayingthedifferenceoutofyourownpocket.

Example: If the reasonablecharge fora service is$100, yourinsurerwillprobablypay$80andyouwouldpay$20.Butifthedoctorcharged$105,youwouldhavetopay$25.

Manyfee-for-serviceplanspayhospitalexpensesinfull,sobesuretocheckwithyourplanprovider.

Deductiblesaretheamountofthecoveredexpensesthatyoumust pay each year before your insurer will reimburse you.These can range from as little as $100 to $300 per year perperson to $500 ormore per family. Generally, the higher thedeductible, the lower the premiums, which are the monthly,quarterly,orannualpaymentsfortheinsurance.

Most policies have anout-of-pocketmaximum—when yourcoveredexpenses reachacertainamount inagivencalendaryear,areasonablefeeforthebenefitsthatarecoveredonyourplanwillbepaidinfullbyyourinsurerandyounolongerpaythe coinsurance.However, if your doctor bills youmore thanthe reasonable charge, youmay still have to pickup someofthetab.

Inadditiontotheout-of-pocketmaximum,manypoliciesplacelifetime limits on benefits. When shopping for a plan, it’ssmart to look for a policy whose lifetime limit is at least $1million. If the limit is lower, you could run through thecoverageifyouhadmajorhealthproblemsforseveralyears.

MANAGEDCARE

Managedcareplansprovidecomprehensivehealthservicestotheirmembersandofferfinancialincentivesforpatientstouseproviders under contract with the plan. That’s howmanagedcareplanskeeptheircostslow.(Inrecentyears,though,eventhistactichashadadiminishingeffect.) Insteadofpayingforeach service that you receive separately, the plans payproviders in advance. That’swhy insurance professionals calltheseplansprepaidcare.

HMOshavebeen inexistence formanyyears.However, theirpopularityhasincreaseddramaticallysincethepassageoftheHealth Maintenance Organization Act by the federalgovernmentinthelate1970s.

IfyoujoinanHMO,you’llpayamonthlyorquarterlypremium.That premium will remain the same—whatever your medicalhistory and whether or not you use the plan’s services. Theplan will also charge a copayment for certain services. Forexample:$10foranofficevisitor$5foraprescription.Thisisoneof theways inwhich theplansadjust forpeoplewhousetheservicesmoreheavilythanothers.

By joining an HMO, youmay have only a few out-of-pocket expenses formedical care—as long as youuse doctors or hospitals that participate, orarepartof,theHMO.HMOsgenerallydon’trequireyoutopaydeductiblesorcoinsurance.

HMOsdelivercaredirectlytopatients.Whetherpatientsgotoamedicalfacilitytoseeadoctorortoaspecificdoctor’soffice,thebusinessrelationshipiswiththeHMO.Tomanypeople,

thehealthcareprovidersseemtobeinterchangablesubcontractors.

This appearance isn’t exactly accurate. If you belong to anHMO, you usually have to receive yourmedical care throughthe plan by selecting a primary care physician whocoordinates your care. A primary care physician may be afamilypracticedoctor,aninternist,pediatrician,etc.Heorshe

isresponsibleforreferringyoutospecialists.

WhilemostofthesespecialistswillbeparticipatingprovidersintheHMO,there are circumstances inwhich patients enrolled in an HMOmay be referred to providers outside the HMO network and still receive coverage.(However, this issue is a major controversy in HMOs. We’ll consider thematter in greater detail in Chapter 5.) Preferred providerorganizationsandpoint-ofserviceplansaretheothermajortypes of managed care. These plans combine the features offee-for-service plans and HMOs. These plans provide choiceregardingphysician,hospital,etc.;anHMOrestrictschoicetoa network provider. PPOs and POSs generally offer moreflexibilitythanHMOs;buttheirpremiumstendtobesomewhathigher.

With a PPO or a POS, unlikemost HMOs, youwill get somereimbursementifyoureceiveacoveredservicefromaproviderwhoisnot intheplan.Ofcourse,choosingaprovideroutsidethe plan’s network will cost you more than choosing aproviderinthenetwork.Theseplanswillactlikefee-forserviceplans and charge you coinsurance when you go outside thenetwork.

What’s thedifferencebetweenaPPOandaPOSplan?APOSplanhasprimarycarephysicianswhocoordinatecare;inmostcases,PPOplansdonot.

Inmanycases,aPPOisundercontractto—orasubsidiaryof—acommercialinsurer. The overall plan benefits may include preventive health care,diagnosticservices,physicians’services,inpatientandoutpatientbenefits,etc. These types of services and benefits are provided under the ba sicmedicalplanand/orthePPOoption.

COMMERCIALINSURERS

Manyofthemajorlifeandhealthinsurancecompaniesmarket

variousformsofhospitalizationcoverage,includingbothgroupandindividualpolicies.Yourinsurancecompanymayissueoneormoretypesofhospitalizationinsurance.

The structure of the commercial insurer offeringhospitalization policies generally includes a marketingdepartment, underwriting department and a claims andadministrationsection.These are organizations which provide prepaid medical andhealth benefits. The best example of this type of provider isBlueCross/BlueShield.This systembegan in1939aspart oftheCaliforniaPhysicians’Service.Thisearlyplanwasdesignedto pay doctors’ fees. The American Medical Association wasclosely involved with the early development of medicalassociationserviceplans.

MostBlueCross-BlueShieldplansareorganizedinaccordancewith state laws which recognize them as nonprofit serviceorganizationsandexemptthemfromstatepremiumtaxation.Dependingonthestate,BlueCross-BlueShieldmayormaynottechnically operate as an insurer. Regardless, they areregulatedbythestateinsurancedepartments.

Normally, Blue Cross pays hospital expenses and Blue Shieldcoversphysician charges.Unlike a commercial insurer,whichissues a policy and has a contractual relationship with theinsured,serviceorganizationshaveacontractualrelationshipwith the providers of health care, namely doctors andhospitals.Subscriberstothishealthcareservicethenusetheservices of the contracted doctors and hospitals commonlyreferred to as participating providers. All claims are settleddirectlywiththeprovidersbyBlueCross-BlueShield.

OTHERCOVERAGES

Various kinds of insurance—most tied to some form of lifeinsurance or related coverages—can provide health coveragefor people or groups who can’t get the protection they want

fromstandardpolicies.Used on a stand-alone basis...or combined with eachother...these alternative coverages can work for peoplewhose health or medical history makes traditional healthinsurancedifficult.

We’llconsidersomeofthesecoveragesingreaterdetaillaterinthisbook.Here,we’lltakeaquicklookattheimportantones.

ACCIDENTALDEATHANDDISMEMBERMENT(AD&D)

Although a health insurance product, AD&D benefits arefrequently provided as riders—attachments to a policy thatmodify its conditions by expanding or restricitng benefits—toindividualandgrouplifeinsurancecontracts.

AD&Dbenefitsmaybeincludedasridersonlifeinsurancepolicies,aspartofdisabilityincomeinsurance,aspartofhealthinsurance,orasaseparatepolicy.

AD&Dcoveragepaysthepolicy’sprincipalsuminaccordancewithpolicyprovisions.Aprincipal sum is similar toapolicy’sfaceamount.Thissameamountispaidifyousuffertheactualseverance of two arms, two legs, or the loss of vision in twoeyes due to an accident. If the policy is paying an accidentaldismemberment benefit, this amount is identified as thecapitalsum.MEDICALEXPENSEBENEFITS

Medical expense insurance, commonly referred to ashospitalization insurance, provides benefits for expensesincurred for hospital medical treatment/ surgery as well ascertain outpatient expenses like doctor’s visits, lab tests anddiagnosticservices.

The policy can be issued as an individual policy covering all

family members or as a group insurance policy providedthroughanemployer-sponsoredprogram.

Dentalexpensebenefitsaregenerallysoldaspartofgrouphospitalization coverage. Most insurers do not provideindividual dental coverage. Dental benefits are provided forpreventivemaintenance(cleaningsandx-rays),repair(fillings,rootcanals,etc.)andreplacementofteeth.

Long-termcare(LTC)insurancepaysforthecareofpersonswith chronic diseases or disabilities, andmay include awiderange of health and social services provided under thesupervisionofmedicalprofessionals.LTCoftencoversnursinghomecare,home-basedcareandrespitecare.

LIMITEDHEALTHCONTRACTS

There are a variety of special health insurance policiesprovidinglimitedcoverage.Toensurethatyouhavesufficientnoticethatyourcoverageislimited,yourpolicy,bylaw,shouldstateplainlythatitisalimitedpolicy.

Travel accident insurance provides coverage for death orinjuryresultingfromaccidentsoccurringwhiletheinsuredisafare-payingpassengeronacommoncarrier.

Specified disease or dread disease insurance provides avarietyofbenefits foronlycertaindiseases,usuallycancerorheartdisease.Thiscoverageisespeciallyimportantforpeoplewithahistoryofaparticularillness—becausethisishowtheycaninsureagainstotherproblems.Forexample,apersonwhohassurvivedcancermayhavetrouble findingstandardhealthcoveragebutmaybeabletogetcoverageforhearttrouble.

Hospital incomeinsurancepaysaspecifiedsumonadaily,weekly or monthly basis while the insured is confined to ahospital.Theamountof thebenefit isnotrelated toexpensesincurredortowageslostwhiletheinsuredishospitalized.

Accident only insurance provides coverage for injury fromaccident—butexcludessickness.Benefitsmaybepaidforallorany of the following: death, disability, dismemberment orhospitalexpenses.

Blanket insurance is a form of group coverage. Often theindividual’s name is not known because the individuals comeandgo.Thesegroupsincludestudents,campers,passengersofacommoncarrier,volunteergroups,andsportsteams.Unlikegroup insurance the individuals are automatically coveredundertheblanketpolicy,andtheydonotreceivecertificatesofinsurance.

PRESCRIPTIONCOVERAGE

Prescriptiondrugcoverageisnormallyprovidedasanoptionalbenefitunderagroupmedicalexpensepolicy.Theinsuredandeligible dependents are provided with a stated cost for anyprescriptionmedication required.This specific cost isusually,two,three,orfivedollarsperprescription.Thus,regardlessofthe cost of themedication, the insured only pays the statedamountandthebalanceoftheprescriptioncostispaidbytheinsurancecompany.

MEDICAREANDSTATEPLANS

Medicare ishealth insurance for theagedordisabled.Agedmeans 65 years old or older. (Though Congress has recentlyconsidered raising the qualifying age to 67.) Disabledmeansthat the person is totally disabled as determined by SocialSecurity or an individual has a major kidney problem whichrequires dialysis treatment. Reaching age 65 or havingdisability status qualifies an individual for this federal healthcareprogram.

MedicareisfinancedthroughthepaymentoftheMedicaretaxwhich is part of the total Social Security taxes paid byworkersandtheiremployers.TheothermainfederalhealthcareprogramisMedicaid.Like

Medicare,thiscoveragehasmanylimitations.QualificationforbenefitsunderMedicaidisbasedonfinancialneed.And,eventhen,thecoverageislimited.It’snotgreatcoverage.

In addition to state and federal programs in which thegovernment becomes a health care provider, there areother organizations and entities which serve as health careproviders.

We will consider these programs (including Medicare andMedicaid)ingreaterlengthlater.

HOWDOYOUGETINSURANCE?

Nowthatyouhaveaworkingknowledgeofthetypesofplansout there, you probably want to know how to purchase thiscoverage.

Health insurance is generally available on an individual orgroupbasis.Premiumstendtobelowerforgroupcoverage—andthisishowmostpeoplegettheirhealthinsurance.

Group coverage is typically offered through your employer,but unions, professional associations, and other organizationsalsoofferthistypeofinsurance.

When you receive group insurance at work, the premiumusually is paid through your employer. In some cases, theemployer pays some or all of this premium as an additionalbenefit;inothers,thepremiumwillbedeductedfromyourpay.Groupcoveragehasdistinctadvantages.Mostofthecostsmaybebornebyyouremployer.Premiumsare lowerdue to loweradministration costs for large groups. Eligibility for groupcoverageisusuallyopenwhenyoustartajob—youwon’thavetoundergoaphysicalexamtoproveyou’reinsurable.

Knowyour choices.Someemployersofferemployees a choice of fee-for-serviceandmanagedcareplans.Inaddition,somegroupplansofferdental

insuranceaswellasmedical.

Individualinsuranceisamainoptionifyouareself-employedor work for a small company that doesn’t offer healthinsurance.Mechanically,anindividualpolicyworksinthesameway that a group policy does; themain difference is that thepremiumsareusuallyhigherbecausetheadministrativecostsare,too.

Oneadvantageofindividualinsurance:Youcantailoraplantofit your needs. However, shop carefully. Coverage and costsvary widely, so be sure to evaluate the medical servicescovered, benefits paid, andwhat youmustpay indeductiblesandcoinsurance—foreachkindofcoverage.

SELF-FUNDEDPLANS

Your employermay have set up a financial arrangement thathelps cover employees’ health care expenses. Sometimesemployersdothisandhavethehealthplanadministeredbyaninsurance company, but sometimes there is no outsideadministrator.

A self-funded plan is a program which allows a financiallysecure employer to assume the risk for health care costsinsteadof transferring the risk toan insurancecompany.Theemployer’s funds are used to pay benefits directly to theemployees.

Insteadofpayinginsurancepolicypremiumstoaninsurer,theemployer places a sum ofmoney into a secured account toprovidehealthcarebenefits,usuallywithcertainlimitations.

In essence, the employer has become a “mini-insurer”providingvarioustypesorlevelsofhealthcare.

A self-insured plan is a less expensive way for an employer to provide

healthcarebenefits,providedtheclaimsexperience is favorableandtheemployercanrealizeagoodrateofreturnonthemoneydeposited inthetrust account. Employers often choose a self-funded plan to cover theiremployees’dentalexpensesbecauseitislessexpensivethanpurchasingadentalplan.

Withaself-fundedplananemployer,notaninsurancecompany,provides the funds to pay claims for company employees andtheir dependents. In the event that claims are higher thanpredicted,a self-fundedhealth insuranceplancanbebacked-upbyastop-losscontract.Astop-losscontractisdesignedtolimittheemployer’sliabilityforclaims.

Thereare twovariationsof thiscoverage.Specific stop-losscoveragebeginstoapplyafteranindividual’smedicalexpensesexceedapredeterminedthreshold—suchas$5,000.Aggregatestop-loss coverage applies when the employer’s liability forgroup insurance claims exceeds a specified amount. Theinsurancecompanypaysallclaimsoncethespecifiedamountisreached.

A self-funded plan may be an indemnity program whichreimburses covered employees for medical care they havereceived. Or, the employer may provide benefits through theservice plan offered under an HMO, or through a company’sPPOnetwork.

An insurance company can also be used by a self-fundedemployer under an “administrative services only” (ASO)contract. Under anASO agreement the insurance companyprovidesclaimforms,administersclaimsandmakespaymentstoproviders;buttheemployerstillprovidesthefundstomakepayments.It’seasytoconfuseanASOcontractwithtraditionalinsurance—buttheyaren’tthesamething.

WHATISNOTCOVERED?

While HMO benefits are generally more comprehensive than

those of traditional fee-for-service plans, no health plan willcovereverymedicalexpense.Most plans won’t cover eyeglasses or hearing aids becausethese are considered budgetable expenses. Very few coverelectivecosmeticsurgery,excepttocorrectdamagecausedbya covered accidental injury. And some plans covercomplications arising from pregnancy—but not normalpregnancyorchildbirth.

Fee-for-service plans generallywon’t cover experimental procedures andsometimestheydon’tcovercheckups.

Youshouldalsorememberthatinsurerswillnotpayduplicatebenefits. You and your spousemay eachbe coveredunder ahealth insurance plan at work but, under what is called acoordination of benefits provision, the total you can receiveunderbothplansforacoveredmedicalexpensecannotexceed100percentoftheallowablecost.Alsonotethatifneitherofyourplanscovers100percentofyourexpensesyouwillonlybecovered for the percentage of coverage (for example, 80percent)thatyourprimaryplancovers.Thisprovisionbenefitseveryoneinthelongrunbecauseithelpstokeepcostsdown.

PREEXISTINGCONDITIONS

If you or a family member covered under your policy has apreexistingconditionyouwon’thavetoworryaboutwhetherornotyourcoveragewilltransferwhenyouchangejobsthanksto a recent change in federal law. As of July 1997, insurancecompanies can impose only one 12-month waiting period foranypreexistingconditiontreatedordiagnosedintheprevioussixmonths.Aslongasyouhavemaintainedcoveragewithoutabreak formore than 62 days, your prior health insurancecoverage will be credited toward the preexisting conditionexclusion period. Pregnancy won’t apply here, but the 12-monthwaiting period iswaived for any newborns or adopted

childrenwhoarecoveredwithin30days.

If you’ve had group coverage for two years, switch jobs andmove to another plan, the new health plan can’t imposeanotherpreexistingconditionexclusionperiod.

Federal lawalsomakes iteasier foryoutoget individual insuranceundercertainsituations. If youaren’t coveredunderagroupplanandcan’tgetinsuranceonyourown,checkwithyourstateinsurancedepartmenttoseeif it has a risk pool. Like risk pools for automobile insurance, these canprovide health insurance if you can’t get it elsewhere. But they can getexpensive.

SUMMARY

Theinformationeconomyistearingdowntraditionalnotionsofcompanies and employer/employee relations. This is having amajorimpactonhowpeoplegethealthinsurance.Atthesametime, large parts of the insurance industry—especially thosedealingwith life and car insurance—are dealing directlywithconsumers. Whether by mail, telephone or Internet, the bigcompaniesarecuttingoutthemiddlemen.

However, these middlemen—insurance agents— provideimportant information and advice to consumers. As theirnumbersdecline,agrowingnumberpeoplewillbeleftwithoutthetoolstomakegooddecisions.

Thisbookwillgiveyouthosetools.Itmaynotanswerallyourquestions,butitwillgiveyoutheconceptsandlanguagetoasktherightquestions—andthedirectionstotherightpersontoask.

2

CHAPTERKEYHEALTHINSURANCETERMSANDDEFINITIONS

Obviously,understandingthejargonofanyfieldisessentialtomastering the business done there. In this chapter—beforemovingontodetaileddiscussionsofspecifichealthcoverages—wewillreviewsomeofthekeytermsanddefinitions.

ACCIDENTAL

In a health insurance policy, accidental means anunexpectedcauseofbodilyinjury.Arelatedterm—accidentalmeans—the mishap itself must be accidental...not just theresultinginjury.Anexample:Youarechoppingwoodwhentheax slips fromyour hand and cuts your foot; this is accidentalmeans.However,ifyourfingergetsinthewayoftheax,itmaynotcountasaccidentalmeans.

ACCIDENTALDEATHANDDISMEMBERMENT

AD&Dcoverageisapolicyoraprovisionofapolicythatpayseither a specific amount or a multiple of a weekly disabilitybenefit.Thefullcoveragetakeseffectifthepolicyholderloseshisorhersight—ortwolimbs—inanaccident.(Aloweramountispayableifthepersonlosesoneeyeoronelimb.)

ACUTECARE

AcuteCaremeansskilled,medicallynecessarycareprovidedby medical and nursing professionals in order to restore thepersontohealthortheabilityto function.Forexample,acutecare would be rendered to persons recovering from majorsurgery.

ADDITIONALINSURED

Apersonotherthanthenamedinsuredwho isprotectedunder the terms of a policy. Usually, additional insureds areadded by endorsement or are described in the definition ofinsuredinthepolicy.

AGECHANGE

The date on which a persons age—for insurance purposes—changes is an important coverage point. In most policies,health insurers use the age at the previous birthday for ratedeterminations.

ASSISTEDLIVINGFACILITY

Assisted Living Facility means a senior residentialcommunitywhichmakes custodial and nursing care availabletoresidentswhoneedit,whileallowingthemtoliveinahome-likesetting.BASICPREMIUM

Thisisafixedcostchargedinaretrospectiveratingplan.Thebasic plan is a kind of starting point—a percentage of thestandard premium, designed to give the insurance companyenough money to cover administrative expenses andcommissions.

BENEFITPERIOD

Thebenefitperiod defines the period during which you areeligibleforbenefits.Usually,a90-daybenefitperiodstartswitheach illness and commences the day you are admitted to ahospital and ends when you haven’t been hospitalized for aperiodof60consecutivedays.

CAPITATION

Capitation (CAP) is the fixed amount of money paid on amonthly basis to an HMO medical group or to an individualhealthproviderforthefullmedicalcareofanindividual.

CASEMANAGEMENT

CaseManagementmeans the assessment of a person’s LTCneeds and the appropriate recommendations for care,monitoring and follow-up as to the extent and quality of theservicesprovided.

CASEMANAGER

Acasemanager is a health professional (e.g. nurse, doctor,socialworker)affiliatedwithahealthplanwho isresponsiblefor coordinating and approving the medical care of anindividualenrolledinamanagedcareplan.

CLOSEDPANEL

This is a system in which insured people must select oneprimarycarephysicianwhowill referpatients tootherhealthcare providers within the plan. This is also called a closedaccessorgatekeepersystem.

COINSURANCE

CoInsurance is thepercentageofyourmedicalbills thatyouareexpectedtopay.CoInsurancepaymentsusuallyconstituteafixedpercentageofthetotalcostofamedicalservicecoveredby the plan. If a health plan pays 80 percent of a physiciansbill, the remaining 20 percent which the member pays isreferredtoascoinsurance.

COPAYMENT

A copayment is the fee paid by a plan member for medicalservices.Acopaymentwouldbetheout-of-pocketexpensesyouareexpectedtopay,suchas$10foranofficevisitor$5foraprescription.

COVEREDEXPENSES

Health care expenses incurred by an insured person that

qualify for reimbursement under the terms of a policy are,simply,coveredexpenses.Thisisaneasyconcepttodescribeintheabstract—butitcanbecomequitecomplicatedinadispute.DEDUCTIBLE

Thesumofmoneythatanindividualmustpayoutofpocketformedicalexpensesbeforeahealthplanreimbursesapercentageof additional covered medical expenses is called thedeductible.Deductiblesforfamilycoverageareoften$200to$500peryear.

ELIMINATIONPERIOD

Elimination Period (EP) means the period of time, usuallyexpressedindaysormonths,atthebeginningofaconfinementin a long-term care facility, during which no benefits arepayable.TheEPcouldbedefinedasa“timedeductible.”

FEE-FOR-SERVICE

Health insurance plans which reimburse physicians andhospitals for each individual service they provide are calledfee-for-serviceplans.Theseplansallowinsuredstochoseanyphysicianorhospital.

FORMULARY

Thisisahealthplan’slistofapprovedprescriptionmedicationsforwhichitwillreimbursemembersorpayfordirectly.

GATEKEEPERPHYSICIAN

The primary care physician who directs the medical care ofHMOmembersisthegatekeeperphysician.Theprimarycarephysician determines if patients should be referred forspecialtycare.HEALTHCAREFINANCINGADMINISTRATION

TheHealthCareFinancingAdministration(HCFA),partoftheDepartment of Health and Human Services, administers

MedicareandMedicaidwith theassistanceofSocialSecurityAdministration offices throughout the country. The HCFAestablishes standards formedicalprovidersandorganizationsif they are to satisfy the requirements to be certified as aqualifiedMedicareprovider.

HEALTHMAINTENANCEORGANIZATIONS(HMOS)

These are health plans that contract with medical groups toprovideafullrangeofhealthservicesfortheirenrolleesforafixedprepaid,per-member fee.Thereare threedifferentkindofHMOs:

Group model HMOs contract with independentgroups of physicians that provide coordinated careforlargenumbersofHMOpatientsforafixed,per-member fee. These groups will often care for themembersofseveralHMOs.

Staff model HMOs employ salaried physicians andother health professionals who provide care solelyformembersofoneHMO.

Independent practice associations (IPA) contractwithgroupsofindependentphysicianswhoworkintheirown

offices. These independent practitioners receive a per-memberpaymentorcapitationfromtheHMOtoprovideafullrangeofhealthservicesforHMOmembers.TheseprovidersoftencareformembersofmanyHMOs.

A growing number of HMOs now offer a Point of Service(POS)option.These“escapehatch”plansallowHMOmembersto seekcare fromnon-HMOphysicians,but thepremiums forPOS plans are more costly than those for traditional HMOs.Moreover, when an HMOmember receives care from a non-participatingphysicianorhospital,theHMOpaysfarlessthanitsusual100percentcoverageofnecessarymedicalservices.

HEALTHINSURANCEPLAN

ThistermincludesanHMO,preferredproviderorganizationortraditional health insurance plan that covers a set range ofhealthservices.

HOMEHEALTHCARE

Home Health Care is care received at the patient’s home,such as part-time skilled nursing care, speech, physical oroccupational therapy, or part-time services of home healthaides.

HOSPICECARE

Hospice Care refers to nursing services provided to theterminally ill. It’s offered in a hospice, a nursing home, or inthepatient’shome—wherenursesandsocialworkerscanvisiton a regular basis. The purpose of the care is to keep thepatient comfortable and to enable the patient to die withdignity.

INDEMNITYCONTRACTS

Indemnity Contracts are policies which provide a dailybenefit, such as $50, $60, $70 per day, for each day ofconfinement in a hospital or long-term care facility. Thismethodofpaymentcanbecontrastedwithanexpenseincurredcontractwhich reimburses foractualexpenses incurredwhileconfined.

INTERMEDIATENURSINGCARE

Medically supervised health care and services for individualswhodonotrequirethe levelofcareandsupervisionprovidedbyhospitalsornursinghomesiscalledIntermediateNursingCare.Typically, thedegreeofcareprovided isbetweenacuteandcustodialcare.

INTERMEDIARY

Intermediary:Aprivateinsurancecompanycontractedbythe

DepartmentofHealthandHumanServices for thepurposeofprocessingpaymentstopatientsandhealthcareproviders.

LIMITEDHEALTHINSURANCE

These special health insurance policies provided limitedcoverage for specific injuries or illnesses—such as travelaccidents,particulardiseasesandhospitalincome.

LONG-TERMCARE

Long-TermCare (LTC) is carewhich isprovided forpersonswith chronicdiseaseordisabilities. The term includesawiderangeofhealthandsocialserviceswhichmayinvolveadultdaycare, custodial care, home health care, hospice care,intermediate care, respite care and skilled nursing care. LTCdoesnotincludehospitalcare.

MANAGEDCARE

Managed care refers to a broad and constantly changingarray of health plans which attempt to control the cost andquality of care by coordinating medical and other health-related services. The vastmajority of Americanswith privatehealthinsurancearecurrentlyenrolledinmanagedcareplans.

Proposals currently being considered by the United StatesCongress would, if enacted, guarantee that many millions ofAmericans who are covered by Medicare and Medicaid willsoonjoinmanagedhealthcareplans.Thefollowingaresomeofthekeytermsassociatedwithmanagedcare.

MEDICAID

Medicaidisthefederal-statehealthinsuranceprogramforlowincome Americans. Medicaid also foots the bill for nursing-homecarefortheindigentelderlyandmentallydisabled.MEDICARE

Medicare is a federal health insurance program for persons

age65orolder,individualswithpermanentkidneyfailureandcertain persons who are totally disabled. The program wasimplementedin1965aspartoftheamendmentstotheSocialSecurityActof1935.

Hospital Insurance of Medicare provides for inpatienthospitalcare,skillednursinghomecare,homehealthcareandhospice care. Part A of Medicare is automatically madeavailable to persons age 65 who have been covered underSocialSecurity.

MedicalInsuranceofMedicareisavoluntaryprogramwhichcovers physician’s services, physical therapy, ambulanceexpenses, medical equipment and generally, outpatientservices.Apremium ischarged to the individualwhenPartBcoverageiselected.

NURSINGHOMECARE

Nursing Home Care includes nursing and custodial careprovidedinanursinghomesetting.

PEERREVIEW

Groupsofdoctorswhoarepaidby the federalgovernment toconductpre-admission,continuedstayandreviewsofservicesprovidedtoMedicarepatientsbyMedicareapprovedhospitalsarereferredtoaspeerrevieworganizations(PROs).PREVENTIVECARE

An approach to health care which emphasizes preventivemeasuressuchasroutinephysicalexams,diagnostictests(e.g.PAPtests),immunization,etc.

PREFERREDPROVIDERORGANIZATION

A health plan that encourages savings by establishing anetwork of preferred providers—health professionals whoagree to provide medical services to plan members for

discounted rates. Plan members may go “out of network” toseekmedicalservicesfromnon-affiliatedmedicalprofessionals.Membersarechargedhighercopaymentsforthisoption.

PRIMARYCAREPHYSICIAN

These physicians provide basic health services to theirpatients. General practitioners, pediatricians, family practicephysicians and internists are recognized by health plans asprimary care physicians. HMOs require that members beassigned to a primary care physician who functions as agatekeeper.

PROSPECTIVEPAYMENT

A system of Medicare reimbursement which bases mosthospital payments on the patient’s diagnosis at the time ofhospital admission rather than the costs the hospital actuallyincurspriortodischargingthepatientiscalledaprospectivepaymentsystem.RESPITECARE

Normallyassociatedwithhospicecare,respitecareisforthefamilyofthepatient.Thepatientmaybeadmittedtoanursinghome or hospice for care. This care constitutes a respite—orbreak—forfamilymemberstakingprimarycareofthepatient.

RISKCONTRACT

Thisisanarrangementthroughwhichahealthprovideragreesto provide a range of medical services to a population ofpatients for a prepaid sum of money. The physician isresponsible formanaging thecareof thesepatientsand riskslosingmoneyifexpensesexceedthepredeterminedamount.

SKILLEDNURSINGCARE

Skilled Nursing Care is daily nursing and rehabilitativecare that is performed only by, or under the supervision of,

skilled professional or technical personnel. The care is basedonaphysician’sordersandperformeddirectlybyorunderthesupervision of a registered nurse. This care would includeadministering prescription drugs, medical diagnosis, minorsurgery,etc.

ASkilledNursingFacility isafacility, licensedbythestate,which provides 24-hour-a-day nursing services under thesupervisionofaphysicianorregisterednurse.UTILIZATIONREVIEW

This includes the various methods used by health plans tomeasure the amount and appropriateness of health servicesused by itsmembers. These checks can occur before, duringand after services have been sought or received from healthprofessionals.

SUMMARY

Theseareafewofthebasicdefinitionsandtermsthatapplytoinsuringyourhealth.Youwillseethesedefinitions—andothers—throughoutthebook.

Where needed, we will reiterate and expand definitions toprovide you with the tools necessary to understand thelanguageofhealthcarefinancing.

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3

CHAPTERHOWTRADITIONINDEMNITYINSURANCEWORKS

Therisingcostofhealthcareoverthepast25years—largelyshoulderedbybusiness—hasdriventheproblemsinthehealthcaresystem.

Untiltheearly1980s,mostpeoplereceivedhealthcoveragethroughatraditionalindemnityorfee-for-serviceplan.Underthistypeofplan,yourinsurancecompanypaysallorpartofthebillforanydoctor,hospitalorotherhealthcareproviderthatyoumaychoose.

Withtraditionalinsurance,alsocalledindemnityinsurance,youarefreetovisit the doctor of your choice. You can change to another doctor at anytime for any reason. And you can use any hospital or licensed medicalfacilityyouchoose.

IndemnityplansexistedbeforetheriseofHMOs,PPOsandothertypesofmanagedcareplans.How

ever, indemnityplans—with their focus on flexibility—aren’tvery effective at controlling costs. In the early 1990s,indemnity plans lost their leading position in the U.S. healthcoverage market. Starting in 1993 or 1994 (depending onwhich survey you believe) more Americans got their healthcoveragethroughmanagedcareplans.

Still,indemnityplansarethestandardbywhichAmericanhealthcareplansaremeasured.Theyremainthemainalternativetomanagedcaresystems;eventhoughthey’remostlythechoiceoflargercorporationsandwealthierindividuals.

The conventional wisdom—within the medical profession andamong consumers—is that people with traditional indemnityinsurance get better treatment. And, most importantly, thetraditional plans give policyholders the assurance that anydecisions a health care provider makes are squarely in thepatient’sbestinterest.

But,wewewillseeinthischapter,thesedistinctionsarenotasclear-cutassomepeopleliketothink.

WHAT"INDEMNITY"MEANS

When insurance people talk about indemnity insurance, thething that’s being indemnified is...you, thepolicyholder. Anindemnity insurance contract states that the insurancecompany will pay your medical bills. In some cases, it willreimbursetheinsuredpersonforbillspaidout-of-pocket; inothercases,itwillpaybillsdirectlytothedoctororhospitalproviding services. In either case, it pays fees for medicalservicesaftertheyareprovided.

Thisstructureputsmostofthedecisionsabouthealthcareandtreatment on the shoulders of the policyholders, who usuallydefertothesuggestionsthattheirdoctorsmake.

With the service provider (the doctor) strongly influencing the decisionsabouthowmuchandwhatkindofserviceshouldbeprovided,atleastonetruth emerges about indemnity coverage: It’s not very effective forcontainingcosts.

Because indemnity coverage was just about the only kind ofhealth insurance around in theUnited States during the firstthree-quarters of the twentieth century, doctors andhospitalsmadealotofmoney...foralongtime.

Conceptually, the coverage is pretty simple. In practice, itcomes with some qualifiers. Insurance companies recognizedpretty quickly that orthopedists in Miami and ob/gyn’s inSeattle were driving Mercedes, building second houses andsendingtheirkidstoHarvard—oftenatthesametime.

So, the companies started to put limits on how much anindemnitycontractwould…indemnify.The first limit is the deductible. The deductible works thisway:Theinsurancecompanywillpaythedoctorsandhospitals

bills—after you pay a small amount first. This small fee isdefined at the start of the policy period; and it’s usuallystructuredtospreadoverthewholeperiod.

For example, the insurance companymight indemnify you forallmedicalcostsafterthefirst$500eachyear...orthefirst$50eachmonth.

Thepointisn’tsomuchtogetyoutopaypartofthecostasit istomakesureyouonlygotothedoctorwhenyou’rereallysick.

Said anotherway: It’s not that the insurance company needsyou to pay the first $50 in medical bills each month. Thecompany just figures that if you have to pay $50, you’re lesslikelytogotothehospitalwithalow-gradefever.

In health coverage, as in other kinds of insurance, these up-front fees are very effective at reducing bills generated bypolicyholders.

Anotherlimitiscoinsurance.Thismodificationisanefforttogetyoutobearpartofthecost.

Inacontractwithacoinsuranceclause,theinsurancecompanyagreestopayacertainportion(80percentiscommon)ofthemedicalbillsyouincur.Thissharedburdenappliesfromthefirstdollarofcoveragetothepolicy’sabsolutelimit.Therest—theother20percent—youhavetopayout-ofpocket.

This is a major compromise on the concept of fullindemnification. Insurance companies usually make itfinanciallyappealingtotakethelessercoverage.

It’seasytocalculatehowmuchthe insurancecompanywantsyoutosharetheburden.Comparetheannualpremiumforfullindemnity coverage with the annual premium for indemnity

coverage with an 80/20 coinsurance split. (Many companieswill sellbothkindsof insurance.)The full indemnity coverageshouldbeabout25percentmoreexpensive. If it’s thatmuchmore or less, the company doesn’t mind the risk—and youshouldbuythefullcoverage.Ifit’smorethan25percentmore—and most will be—you may be better off with the cheapercoverage.

Acaveat:Manyindemnitypolicieshavebothadeductibleandacoinsuranceclause. In these cases, you’ll probably want to focus your negoti atingeffortsonloweringyourportionofthecoinsurance.Thedeductibledoesn’tusuallyimpactthevalueofthepolicyasmuch.

Anotherlimitisthatsomeindemnitypoliciesdon’tcoverspecifically-namedmedicalservices.Thesemaynotcover

prescriptiondrugsorroutinedoctorvisits.The final limit is the category of exclusions the indemnitycontract includes.Many companieswill agree to paymedicalbills—except for those related to a list of specific illnesses orconditions.

The best example of this: Many individual indemnity policiesexclude coverage for pregnancy and childbirth. Thecompanieslookatthisasanoptionalconditionwhichhasmorecomplexities—andhiddencosts—thanmostpeoplerealize.

USUAL,CUSTOMARYANDREASONABLEFEES

Most of the limits and conditions we’ve considered so farmerely trimat theedgesof indemnityhealthcoverage.Therearebiggerchanges thathave impacted—andusually limited—coverage.

Beginning in the1970s, some indemnity insurancecompaniesborrowed a few cost-saving tricks from the federalgovernment’sMedicare program and started using schedulesofusual, customary and reasonable (UCR) fees that theywouldpayforspecifickindsofmedicaltreatments.

Approvedproviders (agroup slightly less rigidlydefined thannetwork providers in a managed care plan) would agree toacceptthesefeesasfullpaymentforeachserviceprovided—withinthepolicy’slimits,ofcourse.Thistrendhascaughtonwithindemnitycompaniestothepointtheyarequitecommon.UCRfeesdon’tgetalotofattentionintheinsuranceindustry—whichiscurious.Theyareabigreasonthat the distinctions between indemnity insurance andmanagedcarearebeginningtoblur.

IfyourindemnityinsurancecompanyusesanUCRfeeschedule—and if you don’t use a participating provider—you may beresponsibleforthedifferencebetweentheUCRfeeandwhattheproviderchargesforaservice.

Even if youadhere to theUCR feeschedule, you’ll alsobesubject toanydeductiblesandcoinsurancerequirements.

As you can see, taken together, these coverage limitationsbegin to erode the impression of blanket coverage thatindemnityplanshave formostpeople.Theyarethetools thateven indemnityplansuse fordenyingoronlypartiallypayingclaims.

TRADITIONALINSURANCEVS.MANAGEDCARE

Ifyouwanttoshare inthedecision-making,greaterflexibilityand direct access to providers, you’ll want to look into anindemnityplan.Ifyouwantlowerpremiums,managedcarewillusuallyworkbetter.Mostpeopleknowthismuchabouthealth insurance.Buthowdo these twomain versions of health coverage compare in amore detailed way? Here are some quick comparisons: •Choice

Indemnity Insurance: You can select any doctor,hospitalorotherhealthcareprovider.

ManagedCare:Youcanselectanyhealthcareproviderin the network. If you use a provider outside of thenetwork,youpaysomeorallofthebill.

•SeeingaspecialistIndemnity Insurance: You can use any specialist.However, some plans require pre-approval for certainproceduresperformedbyspecialists.ManagedCare:Yourprimarycaredoctordeterminesifandwhenyouneedtoseeaspecialist.(Sometimesyoucanseeaspecialistwhoispartofthenetworkwithoutpermission.) If you use a specialist without HMOapproval(oroutsidetheapprovedlist),youwillhavetopaytheentirebill.

•Out-of-pocketcostsIndemnityInsurance:Youmayhavetopayanannualdeductible of $200 to $1,000. You also may beresponsibleforcoinsurancepaymentsofsomethinglike20 percent of your medical bills, up to a certain limit(the stop-loss amount) each year. Sometimes, you payforroutinedoctorvisitsandprescriptiondrugs.Managed Care: You may have to pay copayments(usually $3 to $10) for network doctor visits andprescriptiondrugs.Whenyouuseaprovideroutsideofthe network, you may have to pay a deductible—afterwhichtheplanwillpaypartofthetotalcharges.

In short, an indemnity plan—even with its limitations—offersyou the freedom of choice but usually requires you to paymoreout-of-pocketexpenses thanyouwouldwithanHMOorPPO.

The idemnity plan may not cover you for any routine care—annualcheckupsandotherpreventativetreatments—either.

Someofthesepreventativetreatmentsinclude:

bloodtests,prostateexams,genetictraittests,hearingandsightloss,electro-cardiogram(stresstests),mammograms,CATscans(ifyouhaveahistoryofproblems).

Inanageofheavily-toutedpreventivemedicine,thefactthatthesetreatmentsaren’tcoveredmayseemstrange.

Ofcourse,youcangettheseservicesunderanindemnityplan.You just have to be willing to absorb the related costs—atleastlargepartsofthem—byyourself.

CHOOSINGADOCTOR

Anindemnityinsuranceplanwillusuallyrequireyoutochoosea primary care physician, if only to give the company arecognizablenametousewhenreviewingmedicalbills.

This selection ismuch lesscritical than choosing a primaryphysicianunderamanagedcareplan.Forone thing,youcanchooseanyphysicianyouwishandanyhealthservicestouse.Youcanalsochange“yourdoctor”anytimeyouwant—youjusthave to let the insurance company know. (And, frankly, youdon’t even need to do that too scrupulously.)The same ruleapplies to seeing specialists.An indemnity plan allows you togotoanyspecialistwheneveryoupreferto—withouthavingtogetareferralfromyourprimarycarephysician.

Anindemnityplanputsnolimitondoctorvisits,asidefromyourownfinancialwell-being.However,certaintypesofvisitsmaynotbecoveredunderanindemnityplan(i.e.,mentalhealth).youwillhavetobearthe

bruntofthecosts.This is all different from managed care plans, in which youchooseaprimarycarephysicianfromalistofdoctorsthatyourhealth plan has contracted with to provide health services.

With an HMO, your primary care physician is your primarycontact for all health services. Instead of having a choice,primary care doctor coordinates the services—provided byspecialistsandothers—thatyouwillreceive.

PRESCRIPTIONS

Ifyouhaveanindemnityplan,prescriptionsmayormaynotbecoveredunderyourplan.

If it is covered, youmayhave topay the largerportionwhileyour insurance company pays a smaller share for yourmedications.However,youwillhavetheoptiontochooseeitherthebrandnameorthegenericdrug.

PREVENTATIVECARE

As we’ve noted, one major difference between an indemnityplanandamanagedcareplanisthatunderthefirst,therearetypicallynowellnesseducationalprograms.

Usually,whenyouhaveindemnitycoverage,youseekcareonlywhen it is needed for a particular condition. And bills arepaidonlyafterthecareisdelivered.

Managed care plans stress prevention and offer programs tohelppeoplelearnabouttheirconditions.

Thisappliestofacilitiesaswellasphysicians.The indemnityplan lets you choose to go to any hospital you wish—but itdoesn’t let you choose any service from that hospital. If yousubmitbillsfromahospital’swellnessprogram,theywilllikelybedenied.

During the 1970s and early 1980s, some indemnity insurance companiesdid pay for certain wellness programs affiliated with hospitals. Theystopped doing this in the late 1980s and early 1990s. However, thependulumseemstobeswiningbackinthelate1990s—assomeindemnityplansareallowingpreventativecareclaimsagain.

DISPUTINGDECISIONS

Unlike HMOs (which usually have to respond within sixmonths), traditional indemnity plans are not required torespond to your complaints within a set time frame or haveprovisions fora formalhearingorappealsprocess.But if youarenotsatisfiedwithyourinsurer’swillingnesstopayaclaim,youcanaskforareconsiderationofthedecision.Ifyouhaveproblemsgettingreimbursed,anindemnityplanallowsyoutochoose your method of recourse, i.e., the court system or mediation. Inaddition, you have the option to appeal any decision by your insurancecompanytopayordenyaclaim.

Youcanalsofileacomplaintwithyourstate’sDepartmentofCommerce (or equivalent agency)—and you don’t have to tellyour insurance company first. You will have to fill out acomplaint formandsupplyany informationneededtosupportyourpositiontotheDepartment.

Department investigators will usually then contact yourinsurance company; and, if the problem cannot be resolvedwithin about 10 days, they will investigate whether theinsurancecompanyfollowedthetermsofyourpolicy.

SUMMARY

In today’s business world, employers have come to rely onmanaged care at the expense of traditional indemnityinsurance.Infact,manyemployersnolongeroffertraditionalinsuranceindemnityatall.

Buteconomicrealitiesandemployeepreferencesclearlyshowthat, despite its dramatic growth, people want freedom tochoose their doctors and hospitals, and the networks thatincludethem.Oneof theadvantagesof the indemnityplan is that therearetypically no limits on which providers you can use or howoftenyouseethem.

Whilecostwillbeoneofyourbiggestconcerns inchoosingaplan,qualityshouldalsobeanimportantconsideration.

Theconceptbehindanindemnityplanistoreduceyourshareof the costs as much as possible—without compromising thequalityofthecareyourecieve.

Some insurance companies do this more aggressively thanothers.

Generally,youhavetoshelloutmore for this typeofplan—indeductibles,copayments,premiumsandoutofpocketexpenses—butyouhaveanunlimitedamountofchoices.So,ifyoudon’thavefinanciallimitationsholdingyoubackandyouwanttobe able to go to the doctor you want, when you want andwherever you want, youmay want to look into an indemnityplan.

Underafee-for-servicetypeplan,youpayadeductible—afixedamountthatmustbepaidbeforeyourinsurancecompanywillstart to pay—and all costs for services that your insurancecompanywon’tpayfor.

To recount, what are the advantages of traditional indemnityinsuranceoveranHMO?

•Youcanchooseanydoctor.Youcangotovirtuallyanyhospital,anywhereinthecountry.

You can continue seeing the samedoctor you alwayshave even if you change jobs or insurancecompanies.

You have some assurance that your doctor’smedicalrecommendations are being made in your bestinterest—andnottheinsurancecompany’s.

Even if you choose an indemnity health coverage plan, youcan’t rest assured that everything will be covered. It’simportanttoinvestigateandlearnasmuchaboutthetypesof

policies available, the companies offering insurance, theagentandthelocalcompanyrepresented,whatthepolicywillorwillnotpay for,andhowyouwillbereimbursed forvisits,prescriptions,etc.

Be sure to review your policy at least once a year. Today’shealthcaresystemcontinuestochangeatarapidpaceandyouwouldn’twanttobemakingupthedifferenceyourselfinordertomeetthesechangingdemands.

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4CHAPTER

THEMAJORMEDICALAPPROACHTOHEALTHCARE

Indemnityhealthinsurancecomesinseveralcommonvariations.Thevariationsarebasedonspecificcoveragelimitationsthatchangethetraditionalindemnitypolicysubstantially—sothatitbecomes,forallpurposes,adifferentkindofcoverage.

Themostcommonvariationonindemnityhealthcoverageisthemajormedicalpolicy.Thiscoveragefocusesonhospitalizationcosts,ratherthanhealthcarecostsingeneral.Anditusesdeductiblesandabsolutedollarlimitsdifferentlythantraditionalindemnityinsurance.

Major medical can be sold on an individual and group basis—and is soldaggressivelytoboth.Itprovidesbenefitsuptoahighlimitformosttypesofmedical expenses incurred, subject to a large deductible. The contractmaycontainlimitsonspecifictypesofcharges,likeroomandboard,andacoinsuranceclause.These policies usually pay covered expenses whether anindividual is in or out of the hospital. Another name for thiscoverageisacatastrophepolicy.

Becauseitcoverscostsrelatedtohospitalizationandhashighdeductibles,majormedical is usually an insurance company’s favorite kind of healthpolicy.Itcanworkwellforyou—asaconsumer—too.Butyouhavetolookatthiscoverageasonepartofalargerapproachtohealthcarefinance.

In other words, the major medical approach tohospitalization coverage is designed to provide you withprotection against catastrophic expenses that are a genuineriskintoday’sworld.

You need to think of major medical as an approach becausetherearealotofexpensesthattheplansdon’tcover.Andyou’regoingtohaveto fundthoseexpensessomehow—eitherwith out-of-pocket payments or some kind of supplementalinsurance.We’llconsidertheoptionsinthischapter.

THECONCEPT

Majormedicalplanscanbethoughtofasconsistingofabagofmoney, containing $1 million, $2 million, $5 million or anunlimitedamount.Themoneyistobeusedtopayforcoveredmedical expenses, either as an inpatient or as an outpatient.Theonlylimitationishowmuchmoneyisinthebag.Unlike a traditional indemnity policy with benefit amountlimitations,majormedical insurance is designed to provide alarge sum of money from which to pay covered medicalexpenses.

Majormedicalplansarecharacterizedbythefollowing:

deductibles,coinsurance,stop-lossprovisions,and

•annualrestorationprovisions.Wewillconsidereachoftheseitemsinsomedetail.DEDUCTIBLES

The deductible associated with a major medical policy hasessentially the same function as it does for any other kind ofinsurance—whetherhealthorcarorhomeowners.Forexample,you are responsible for the first $100 of medical expensesrelated to a hospital visit; then your insurance company paystheexcesscoveredmedicalexpenses.

Mostmajormedical planswill offer a variety of deductibles from$100 to$1,000...orevenhigher.Somehigh-riskpolicyholders—usuallypeoplewithhistories of health problems—pay as much as $5,000 or $10,000deductibles.Thisistrulycatastrophiccoverage.Thedeductiblemaybeexpressedasacalendaryeardeductibleor as a per cause deductible. A calendar year deductiblemeansthatyousatisfythedeductibleonceinacalendaryear.

Apercausedeductible is similar to thedeductible found inthe auto policy. Each time you ding a fender, you areresponsible for adeductible.Aper causedeductiblebasicallystatesthateachmedicalclaimyouincurwillhaveadeductiblerequirement. Thus, if youhad three claims, threedeductibleswould need to be satisfied before your insurance companywouldbegintopaybenefits.

Example:IfScooterhasthreeseparatemedicalclaimsinagivenyearandhis Allstate policy con tains a $250 per cause deductible, then he mustsatisfy threeseparatedeductiblesbeforeAllstatewillpayhisclaim. IfhispolicywithAllstatecontainsacalendaryeardeductible,heonlyhastopayonedeductibletocovertheentireyear.

Anotherversionof thecalendaryeardeductible is the familydeductible. Most plans will specify an individual deductiblesuch as $250 and a family deductible equal to two or threetimestheindividualdeductible.

So, if the plan had an individual deductible of $250 and afamily deductible of $750, after the family incurred expensestotaling $750, there would be no further deductibles for the

balanceofthatcalendaryear.

Most of the major medical plans contain a deductiblecarryover provision. If you haven’t incurred any claims orreceivedanybenefits fromtheplan,expenses incurred in thelastthreemonthsofacalendaryearmaybeappliedtowardthenewyear’scalendardeductible.

Inthiscase,ifScooterhasnoclaimsinmostof1998butdoesincur$100ofcovered medical ex penses in November 1998, he can apply that $100towardtheannualdeductiblefor1999.

Deductiblesdohavealargeaffectonthecostofmajormedicalplans. A plan with a $100 deductible will cost considerablymorethanaplanwitha$1,000deductible.So, ifyouwanttosavepremiumdollars,selectaplanwithahigherdeductible—itwillreducethecostofthepremium.

COINSURANCEPROVISIONS

Onceyourdeductibleissatisfied,themajormedicalinsurancecompany will then pay for covered medical expenses, on acoinsurancebasis.

(As we’ve seen, coinsurance—sometimes called copayment—meansthatyouandthe insurancecompanysplit thecostofaclaim.The companyusuallypays the largerpart and youpaythe smaller part.) Coinsurance requirements are typicallyexpressed as 80 percent to 20 percent, 70 percent to 30percent, etc. If you have a plan with an 80 percent to 20percent coinsurance requirement, the company will pay 80percentof thecoveredexpenses following thedeductibleandyou are responsible for the additional 20 percent of theexpenses.Just as deductibles affect the cost of a plan, so too willcoinsurance.An80/20percentcoinsuranceprovisionwillcarrya higher premium than a 70/ 30 percent coinsurance split. If

youneedtokeepyourpremiumlow,onewaytomeetthisgoalistohaveahighdeductibleandalowcoinsuranceprovision—suchas60/40percent.

This is anothermechanism that insurance companies canusetolimittheimpactof insuredswhohavehistoriesofhealthproblems. If you’ve had heart bypass surgery and beaten amild case of skin cancer, youmay have to settle for amajormedicalpolicyincludesahighdeductible—say,$5,000—andaheavycoinsurancesplit—say,60/40percent.

STOP-LOSSPROVISION

The coinsurance requirement continues until you reach thepolicy’s stop-loss point. This is the point at which theinsurance company begins to pay 100 percent of a claim.Withoutastop-loss,youwouldberesponsiblefor20percentofanindefiniteamountsuchas$100,000oreven$1million.

Thestop-lossamountwillvary. Itcouldbereachedat$2,500,$5,000or$10,000ofcoveredexpenses.For example, a plan with a $250 deductible and an 80/20percent coinsurance split on the next $2,500 of coveredexpenseswouldresultinatotalout-ofpocketexpensetotheinsured of $750—the $250 deductible plus 20 percent of$2,500. The stop-loss provision establishes themaximumout-ofpocketexpensetoyoutobeequaltothedeductibleplustheyourcoinsuranceamount.

The out-of-pocket maximum is a major consider ation when you areshoppingforapolicy.Regardlessofthesizeofapotentialclaim,themostthatyouwillhavetopayoutofyourownpocketisthedeductibleandthecoinsuranceamountuptothestop-loss.

Thestop-losspoint isalsoacontributingfactor inthepolicy’spremium.Thehigherthestop-loss—thelowerthepremium.Astop-lossat$2,500willcostmorethanastop-lossat$10,000.

Thus,ifyouwanttokeepthepremiumaslowaspossible,theformulabecomes:Highdeductible+lowcoinsurance+high

stop-loss

ANNUALRESTORATIONPROVISION

Let’s look again at themajormedical plan as consisting of abagofmoney—holdingalargeamount,possibly$1million,$2million,etc.Thissumisthemaximumamountavailable forclaims.You incuraclaimsubject to theplan’sdeductibleandcoinsurance requirements (including the stop-loss point).Whateverthetotalclaimamount, itwillbedeductedfromthebagofmoneyleavingasmallersumforfutureclaims.

Example: Scooter has a $1million dollarmajormedical planwith a $500deductible,80/20percentcoinsurancesplitupto$5,000,and100percentcoverage thereafter. He’s hit by a mete orite and incurs $300,000 inhospital costs recovering.After thedeductible and coinsurancearepaid,$294,100iswithdrawnfromthebagofmoney—leaving$705,900forfutureclaims.IfScooterhasnolargeclaimsfortherestofhislife,hehasnothingtoworryabout.

But, ifhe’sstruckby lightningtwelvemonths later, themoney inthebagwoulddwindleto$411,800.Ifhebreakshisbackinaskiingaccidentayearafterthat,themoneyinthebagwouldbedownto$117,700.Andthenhestartshavingtroublewithhisprostate....

Theannualrestorationprovisionputsbackacertainamountofmajor medical dollars used each year. These amounts aregenerallysmall,suchas$2,000,$3,000or$5,000peryear.If Scooter’s plan contained a $5,000 restoration provision, one year afterhisclaim(and,assum inghedoesn’thavesuchahard-luckexistence)thetotal amount available for future claimswould be increased to $710,900.Aftertwoyearsitwouldbe$715,900—andsoforth.

The size of a claim is usually several times larger than the

amountrestored.Manyviewthisasatokenreassurancethatsomesumofmoneywillbe in theplan forclaims. If theplanonlyhasa$1millionlifetimemaximum,itispossibletoexhaustthis sumwithamajor illness suchasaprolongedbattlewithcancer. To offset this disadvantage, many insurers providemajor medical plans with $2 million lifetimemaximums orunlimitedmaximums.

A $2 million dollar maximum is more realistic with regard to the size oftypicalclaims.Evenwithamajorprolongedillness, itwouldbedifficulttoexhaustbenefitsof$2million.

The following chart illustrates the major medical conceptswe’veconsideredsofar.

MAJORMEDICALINSURANCEDeductibleCoinsuranceStopLossMustbesatisfied

TheinsuredpaysTheinsurerpays

beforeanyasmallpartof100%whenstop

benefitsarepaid theclaims

lossisreached

USUAL,CUSTOMARYANDREASONABLECHARGES

Coinsurance amounts are based on what the insurancecompany considers the usual, customary and reasonable(UCR)expensesorcharges. Inaddition,when thestop-loss isreached,theinsurerwillpay100percentoftheUCRexpenses.

The introduction of reasonable and customary language intothe policy means you may incur some additional out-of-pocketexpenses—iftheexpensesincurredarenotconsideredreasonableandcustomary.

TheUCRamounts aredeterminedby the insurance company.Periodically, the services provided and charges made bydoctorsandhospitalsarereviewedbytheinsurancecompany.

Thereviewtakesintoaccountgeographicaldifferencesthatallow for differences in the charges relative to the provider’soverheadexpenses,location,etc.Theinsurancecompanythenestablishes UCR charges for specific services in a specificgeographicalarea.

Example:JuliehasantonsillectomyperformedinasmallfarmcommunityincentralNebraska.Sheischarged$1,500fortheprocedure.Bycoincidence,Julie’sfriendSuzyhasthesameprocedureperformedataNewYorkCityhospitalandherchargeis$2,000.It’spossiblethatJulie’sincurredexpenseof$1,500forthetonsillectomywouldbeconsideredreasonableandcustomarybyherinsurancecompany.ItisalsoconceivablethatSuzy’s$2,000chargewouldbereasonableandcustomaryfortheNewYorkCityarea.Ifso,theirclaimswouldbepaidinfullbytheirrespectiveinsurancecompanies.Ontheotherhand,assumethatJulieincursa$2,000chargeforhertonsillectomy.Shehasn’treachedthestop-losspointbuthassatisfiedherdeductible.Julie’sinsurancecompanywillpay80percentof$1,500—theUCRcharge—or$1,200.Julieisresponsiblefor20percent($300)andnowshemustcontendwitha$500excesscharge.Herinsurancecompanyviewsthe$500asexcessorunreasonableforthatpartofNebraska.Juliehastopay$800outofherownpockettocovertheexpense.Theexcessisanadditionalout-ofpocketexpenseforJuliewhichisnotcountedbytheinsurertowardsthestop-losspointoranyotherprovisionofthepolicy.

WhatcansomeonedealingwithaUCRdisputedo?Oneoption—theonethat insurancecompaniesandhealthcareprovidershope you will choose—is simply to pay the difference andforget it. Another option is toappeal the decisionwith theinsurance company’s internal review structure. A third is tofile a complaint with state regulatory authorities, thoughmajormedical insurance companies are usually allowedwidediscretioninsettingUCRfeeschedules.But there’s a less contentious approach that often works.Explain to your health care provider that your insurancecompany uses a UCR limit that’s lower than the fee you’vebeencharged.Ifyoubackthisargumentupwiththeinsurancecompany’spaperwork,youmaybeableconvincetheprovidertobringthebillinlinewiththeUCRfeeschedule.

Often, doctors and hospitals would rather coordinate their

feeswithaninsurancecompany’sUCRschedulethanfightit.They don’t want to be identified with difficult claims...thissometimesbringsscrutinyandslowerpayments.

InJulie’scase,shecouldtellherdoctorthatherinsurancecompanyconsiders$1,500tobeaUCRfeeforhertonsillectomyandwillonlyreimbursethatamount.Thedoctormayagreetoaccepttheinsurancecompany’sreimbursementandJuliewillonlyowethe$300coinsuranceportion.Ifthedoctorinsiststhatthefullamountbepaid,Juliecouldsimplyignorethebill—andthedoctor’scollectioneffortswhichwilllikelyfollow.Thereisalwaysachancethatthedoctorwillgiveup.Butthat’sariskyapproachthatmostpeopleshouldprobablyavoidtoprotecttheircreditratings.

The problem with UCR disputes is that a doctor may notconsider a high fee to be unreasonable; only the insurancecompany does. And you are caught in the middle.Unfortunately, there is no simple answerwhen the insurancecompanydeemsachargetobeunreasonable.

One obvious preventive measure is to find out the cost of aprocedurebefore itbecomesaclaimand thencheckwith theinsurancecompanytodeterminehowmuchofthischargewillbepaid.Thisgivesyouthechancetodiscussthefeewithyourdoctorbeforeincurringanyexpense.

Andyourdoctorwillprobablybemore inclined to reduce thefeebeforeitbecomesaclaimsmatter.

Another alternative is to find a doctor or surgeon who willperform the surgery for the UCR charge as determined bythe insurance company. However, this is probably anunacceptable option because, if you are considering havingsurgery or some similar medical work, you have enough toworryaboutwithoutshoppingforabargainfromanunknowndoctor.

People usually take the position that they buymajormedicalinsurancebecausethey’dprefertohavesurgerydonebytheir

owndoctors.

So—as difficult as it may be—the best strategy is to get a copy of yourinsurancecompany’sUCRfeescheduletoyourproviderbeforeyouundergomajortreatment.MAJORMEDICALVS.BASICMEDICAL

Formany,majormedical is themost feasiblehealthcareplaninspiteofitsdeductibleandcoinsuranceprovisions.The“bagof money” concept works bet-ter—is more affordable oravailable—inthepresenthealthcareenvironmentthanapureindemnityplan’sfirst-dollarcoverageapproach.

Animportantpoint:Withthemajormedicalapproach,notonlyinpatient expenses are covered but outpatient expensesare, too. Outpatient diagnostic services, doctors office calls,etc.,arecoveredexpensesunderthemajormedicalplan.

Thesamebagofmoneyusedtopayinpatientexpensescanbeused to cover outpatient expenses subject to the plan’sdeductible and coinsurance features. In addition, the majormedical approachmaynot involve the limitationsof timeandmoneythatabasicplandoes.

The major medical plan will have a lifetime maximumbenefitsuchas$1millionor$2million.Someplansareevenwrittenwithanunlimitedlifetimemaximum.

Thisformoflimitationismuchmoreworkablethanonewhichlimits dollars for specific expenses such as surgery and roomandboardexpenses.Itisunlikelythataninsuredwill“runoutofmoney”withthemajormedicalplan.Withregardtothecostoftheplans,thepremiumforamajormedicalplancouldbe less than thepremium for abasicmedical expenseplan. This isespeciallytrueiftheindividualisrelativelyyoungandhasnodependents.Thesizeofthedeductibleandthecoinsuranceprovisionscanusuallyresultinalowerpremiumthanforaplanwhichhasnodeductiblesorcoinsurance.

COMPREHENSIVEMEDICALEXPENSE

Aswe’ve already seen,majormedical coverage is consideredhospitalizationinsurance.Itdoesn’tcoverallmedicalexpenses—the way that traditional indemnity coverage does.What doyou do about theseotherexpenses? Paying for them out-of-pocket is thesimplestoption.Butyouneedtobecash-rich todothis.So,mostpeoplewilllookforsomekindofinsurancetoaddontotheirmajormedical.

Anadditionalchallengetoasmartinsuranceconsumeristhatmany companies don’t sell traditional indemnity healthcoverage that starts with the first dollar. These companiesforce policyholders to start with major medical and buildadditionalcoveragefromthere.

So, insomesituations,youmaybefacedwiththeprospectofbuyingacomprehensivemedicalexpenseplan.Thiskindofinsurance adds coverage for basic—and not necessarilyhospital-related— medical expenses to the major medicalcoverage.Aswesawinthepreviouschapter,basicmedicalexpensesaresometimesinsuredonastand-alonebasis.

Thecomprehensiveplanissimplyacombinationof:

BasicMedicalExpense+MajorMedicalThismay seem like a longway towalk around the insuranceblock in order to get back to something like the traditionalindemnity coverage we’ve considered earlier. It is. The longwalkisatestimenttohowconvolutedinsurancecoveragecanbe.

The comprehensive plan consists of a block of first dollarbenefitsfollowedbyadeductibleandatypicalmajormedicalplan. This plan might specify that 100 percent of the first$5,000or$10,000of reasonableandcustomaryexpenseswillbe covered. Once this bundle of first dollar benefits isexhausted,youmustsatisfyadeductible,usuallyreferredtoas

a corridor deductible, and then the major medical benefitsareactivated.

Alloftheprovisionscommontoabasichospitalizationplanaswell as the provisions and concepts related tomajormedicalplans,ie.,deductibles,coinsurance,stoploss,etc.,arefoundinthistypeofplan.

Thefollowingtableillustrateskeyfeaturesofacomprehensivemedicalexpenseplan.COMPREHENSIVEMEDICALEXPENSEPLANBasicMedicalPlan100%ofthefirst$10,000ofexpenses80/20%coinsuranceonthefirst$5,000

CorridorDeductible$500

MajorMedicalPlanNodeductibleorcoinsurance100%after$10,000tothepolicymaximumThequestionraisedbythecomprehensiveplaniswhetherornotyouwouldbebetteroffwiththisplanorsimplya“straight”majormedicalplan.Doestheblockoffirstdollarbenefitsreallyenhanceyouroverallprotection?

Toanswerthesequestions,let’susethesame$20,000hospitalbilljustusedtoreflectthepaymentofmajormedicalexpenses.We’llusethecomprehensiveplanillustratedabove.

Calculationofthecomprehensivebenefitswouldbeasfollows:

TotalExpense:$20,000100%ofthefirst$10,000:Balanceof$10,000:($10,000-$500deductible)$9,50080%of$5,000:100%ofbalance($4,500):Totalpaidbycomprehensiveplan:

$10,000$4,000$4,500$18,500

Totalbenefitsprovidedbythecomprehensiveplanare$18,500which is thesame92percentofcoveredexpenseswe sawwiththeregularmajormedicalplan.Inotherwords,aslongasthe expenses exceed the package of first dollar benefits($10,000) and the deductible and coinsurance amounts (an

additional $5,500), there is no difference in the benefitsprovided.

There usuallywill be adifference in thepremium, since ahigherpremiumwillbechargedforthefirstdollarbenefits inthe plan. You are getting into your insurance company’spocketsimmediately(upto$10,000)whenaclaimisincurred;soyouwillhavetopayforthisbymeansofahigherpremium.

Aregularmajormedicalplanwilldoessentiallythesamejobasthehigher-pricedcomprehensiveplan,unlesstheclaimisrelativelysmall($10,000orless).Thefirstdollarbenefitswillcovertherelativelysmallclaimwithoutanydeductibleorcoinsurance.

In small claim situations, the extra premium for thecomprehensiveplanhastobeweighedagainstthelikelihoodofasmallclaimofafewthousanddollars.Bytoday’shealthcarecosts, it is difficult to spend a few days in a hospital, havesurgeryandnotincurexpensesexceeding$10,000.

Comprehensiveplansvary,butgenerallycoverthesamekindsofservices.Someoftheseinclude:

professional services of doctors of medicine andosteopathyandotherrecognizedmedicalpractitioners;

hospital charges for semiprivate room and board andothernecessaryservicesandsupplies;

surgicalcharges;servicesofregisterednursesand,insomecases,licensedpracticalnurses;

homehealthcare;physicaltherapy;anestheticsandtheiradministration;x-raysandotherdiagnosticlaboratoryprocedures;

x-rayorradiumtreatment;

•oxygenandothergasesandtheiradministration;blood transfusions, including the cost of blood whencharged;

medicinerequiringaprescription;specifiedambulanceservices;rental of durable mechanical equipment required fortherapeuticuse;

artificial limbs and other prosthetic appliances, exceptreplacementofsuchappliances;

casts,splints,bracesandcrutches;rentalofawheelchairorhospitalbed.

SUMMARY

Major medical coverage is considered by many people withhistories of health problems to be a realistic approach togetting indemnity-type coverage. The major medical planprovidesasupplyofmoneytobeusedoverthelifetimeoftheinsured.

Major medical plans are characterized by deductible,coinsurance and stop-loss provisions. After the deductible issatisfied, you and your insurance company coinsure claimsexpenses.Butcoinsuranceonlyappliesuptoapre-setstop-lossamount.Oncethestop-lossisreached,theinsurancecompanytakesoverpayingtheclaiminfull.

(Most major medical plans contain an annual restorationprovisionwherebyasmallamountofmoneyisrestoredtotheplaneachyearafterplandollarshavebeenusedtopaymedicalexpenses.)ExpensesarecoveredbasedonthepremiseofUCRfees. The plan’s coinsurance provisionswill provide coveragefor those expenses deemed reasonable and customary bygeographical reason per the research of the insurancecompany.

Some people supplement major medical coverage with basic

medical expense coverage to create a comprehensive healthinsurancepackage.Thiscomplexapproach ismadenecessaryby the fact that many people can’t qualify for or affordtraditionalindemnitycoverage.

5CHAPTERHOWMANAGEDCAREWORKS

The broad health coverage provided by traditional insuranceplansprovideslittleincentiveforefficientcost-effectivehealthcare delivery. Starting in the 1980s, it became clear that toomuch money was being spent on health care in the UnitedStates. One response from insurers and providers was toreorganize the health care delivery system into a form ofmanagedcare.

Managed care imposes controls on the use of health careservices,usuallythroughhealthmaintenanceorganizations(HMOs)orpreferredproviderorganizations(PPOs).

Managed care plans can be organized as forprofit(commercial) corporations or nonprofit corporations. Inmost scenarios, however, a managed care plan is a forprofitcorporation with responsibilities to stockholders that takeprecedenceoverresponsibilitiestoyou.TheHMOdirectlyandindirectlycontrolstheamountofhealthcarethatthedoctorsinitsnetworkareallowedtoprovidetoyou.What’s worse is that, if you switch your insurance to amanagedcareplanandyourpersonalphysician isn’t inthenetwork,youprobablycan’tcontinuetogotothesamedoctor.And,evenifheorsheisamember,yourofficevisitsstillmayberestricted—particularlyifyourdoctorisaspecialist.

Mostmanagedcareplansrequireyoutochooseaprimarycaredoctorfromtheirlistofdoctors.Theprimarycaredoctor,alsocalledagatekeeper,controlsyouraccesstomedicalcare.Andunlessyourprimarycaredoctordecidesyourmedicalproblemis outside his or her own realm of expertise, youwill not beabletoseeaspecialist.

Therootsofmanagedcaregobacktoprepaidhealthplansofthe 19th century, but many of the concepts used in today’shealth care system were embraced in ancient times. KingHammurabiofBabylonincorporatedthesesamemanagedcareconcepts in the Codex Hammurabi—a huge stone stele—around1700B.C.ManagedCarepointedtoseveralsimilaritiesbetweentheCodexandwhatweknowtodayasmanagedcare,including:

ratessetforvariousprocedures:generalsurgery,eyesurgery, setting fractures, curing diseasedmusclesandotherspecifichealthcareservices;

feessetaccording toaslidingscalebasedonabilitytopay;

property owners to pay for health care for theirhouseholds;

• objectiveoutcomemeasurement standards to assurequalityofcare;•outcomesinformationmanagementtoinclude data collection and evaluation; • patient’srights to be publicized, explained andmade known toall.

The Codex Hammurabi indicates that during this timeBabylonianscouldexpecttreatmentnotunlikethatenvisionedbythevariousversionsofthepatientsbillofrightsthatarecurrentinthe1990s.

HOWANHMOWORKS

Today’s health maintenance organizations are a relativelyrecent service approach to providing prepaid doctor and

hospital care. Their growth has been encouraged by risinghealthcarecosts—andfederallegislation.

AnHMOisanentity thatcontractswithmedicalfacilities,physicians, employers and sometimes individual patients toprovide medical care to a group of individuals. This care isusuallypaidforbyacompanyorothergroupatafixedpriceper patient. Patients generally do not have any significant“out-of-pocket”expenses.

TheprincipalobjectivesofHMOsaresimilar to thesystemoftheCodexofHammurabi,inthattheyaimtoreducemedicalexpensesby:•stressingpreventivemedicine—physicalexamsanddiagnosticprocedures;

reducing the number of unnecessary hospitaladmissions;

reducing the average number of days per hospitalvisit;

reducingduplicationofbenefits;andsavingonadministrativecosts.

Federal employee benefit law passed during the 1970srequires employers who offer health care benefits to offerenrollment inanHMOasanalternativetoanindemnityplan.EmployersfallingunderthisActarethosethat:

have25ormoreemployeesandarewithintheserviceareaofafederallyqualifiedHMO;

are paying at least minimum wage; and • offer ahealthplantotheiremployees.

HMOs are sometimes owned and controlled by commercial insurancecompanies,however,manyare independentlyowned.BlueCrossandBlueShield plans—or their affiliates—own and operate several dozen of thelargestHMOs in theU.S.Other organizers ofHMOs include governments,hospitals,employers,unions,consumergroupsandlocalcommunities.

HMOs must operate within a specified geographical areaknownastheservicearea.TheserviceareamustbeapprovedbythestateDepartmentofInsurance and all members of the HMO must reside in theprescribedservicearea.Theserviceareaisusuallyacity,orapart of a city and occasionally an entire state. In the later1990s,serviceareasbegantoplayadiminishedrole.

HMOsmust be state qualified (able to provide services within a a singlestateorstates)orfederallyqualified(abletoprovideservicesinspecifiedareas throughout the nation for national con tracts like the United AutoWorkers, Teamsters or government employees). If an HMO is federallyqualified, it must also be state qualified in the states where it servesmembersobtainedthroughanationalcontract.

HMOsprovideservicethroughoneormoreofthree“models”ofoperation.

TheGroupPracticeModel(GPM),alsoknownastheMedicalGroupModel, iscomposedofagroupofphysiciansofvaryingspecializationspracticinginonefacility.Itissimilartoaclinic-type operation. Under the group practice model, your HMOcontractswithamedicalgrouptoprovideyouwithhealthcareservices.

IfthemedicalgroupprovidesservicestoHMOmembersonlyitiscalledaclosedpanelmedicalgroup.UnderaclosedpanelHMO, physicians are usually salaried employees of the HMOandworkataclinicownedbytheHMO.If themedicalgroupprovides services to HMO members in addition to other,nonmemberpatients,itiscalledanopenpanelmedicalgroup.Underanopenpanel,doctorsarenotsalariedandtreatHMOsubscribersintheirownoffices.Generally,youwouldnotneedtogofartherthanthemedicalgroupforthehealthcare,unlessofcoursehospitalizationisneeded.

The medical group refers you internally, within the medical

group,tophysiciansofdifferingspecializationsasneeded(i.e.pediatrician,surgeonetc.).Specialarrangementscanbemadeifaspecialistofaparticulartypeofmedicineisneededandnota part of the medical group. Your HMO also contracts withhospitals intheareatoprovideyouwithservicesthatarenotavailablethroughthemedicalgroup,orifyourequiresurgery,etc.

TheStaffModelhealthcaredeliverysystemisactuallyowned,operated, staffed etc., by your HMO. The HMO controls thephysician group, and the physicians and other health careprofessionalsareemployeesoftheHMO.TheHMOcouldalsobuildamedicalgroupfacilityandhirephysicianstostaffitandprovidehealthcareservicestomembers.

The key element of a Staff Model is that the HMO’s own employees andfacilitiesarebeingusedtoprovidehealthcareservicestotheHMO’smembers.An Independent Practice Association Model (IPA) is anetworkof individualphysicianswhocontractwithyourHMOto provide you with health care services. Unlike the GroupPracticeModel, an IPA’s physicians are located throughout ageographicareaandoperateindependentlyofeachother.

IfyouselectanIPA,youwouldreceivealistofphysiciansofvarying specializations to choose from. Initially, you wouldchoose your own primary care physician (usually a generalpractitioner,orifforachildoftentimesapediatrician)andvisitthisphysicianfortreatment.

However, if your primary care physician cannot rendertreatment, then he or she will refer you to the appropriatespecialist within the IPA network. Like the Group PracticeModel,thephysiciansofanIPAmayutilizehospitalsaffiliated(that is, contracted) with your HMO to render services notavailableattheirindependentpractices.

Physicianswho are part of an IPA treat patients on an open panel (HMOmembersandnonmembers)orclosedpanel(HMOmembersonly)basis,dependingontheircontractwiththeHMO.

COPAYMENTS

ManyHMOsandothermanaged careplans requirememberstomakeacopaymentwhentheygettreatment.Acopaymentisspecificdollaramount,orpercentageofthecostofaservicethat you must pay in order to receive a basic health careservice.

Copaymentsarerarelymorethan$10—buttheyaredueeverytimeyouvisitahealthcareprovider.

Example:youmayberequiredtopaya$5copaymentforanofficevisittoyourphysician,oryoumightbe required topaya30percentcopayment(30percentofthecostoftheservices)foralcoholanddrugrehabilitation.

SomeHMOs don’t require any copayment for a considerablenumber of their services. Copayments foralcohol and drugrehabilitation, and services for mental and emotionaldisordersareusuallyexpressedasapercentageofthecostofthe service and are therefore more costly to the member.Copayments for supplemental services are often considerablymorethanforbasicservices.

HMOEXCLUSIONS

Exclusions or limitaions are used to either limit a benefitprovided or specifically exclude a type of coverage, benefit,medical procedure, etc. HMOs may not exclude and limitbenefitsasreadilyascommercialinsurancecompanies.Thisisusually because the rationale of an HMO is to providecomprehensive health care coverageBenefits that your HMOmay exclude from coverage include: eye examinations andrefractions for persons over age 17, eyeglasses or contact

lenses,dentalservices,prescriptiondrugs(otherthanthoseadministeredinahospital), long-termphysicaltherapy (over90 days) and out-of-area benefits (other than emergencyservices).YourHMOisrequiredtohaveacomplaintsystem,oftencalledagrievance procedure. It should provide forms for writtencomplaints,includingacontactaddressandtelephonenumber.Additionally, your HMO must notify you of any time limitsapplyingtoacomplaint.

Complaints must be resolved within 180 days of being filedwith theHMO(witha fewexceptions).Theymaybe resolvedthroughbindingarbitrationifsospecifiedbytheHMO.

ENROLLMENT

YourHMOmustprovideyouwithevidenceofcoveragewithin60daysofenrollment.

EvidenceofcoverageisequivalenttoaCertificateofInsuranceforstandardinsurancepolicies.

The evidence of coverage should include your coverages andbenefits (including your required copayments), benefit limits,exclusions, and specified conversion privileges. It should alsoinclude:

the name, address, and telephone number of theHMO;

theeffectivedateandtermofcoverage;a list of providers and a description of the servicearea;

termsandconditionsfortermination;acomplaintsystem;a31-daygraceperiodforpremiumpaymentprovision;

acoordinationofbenefitsprovision;incontestabilityclause;andaprovisiononeligibilityrequirementsformembershipintheHMO.

Other provisions may also be found in the evidence ofcoverage;butthoselistedabovemustbeincluded.

HMOBENEFITS

HMO benefits are not limited to treatment resulting fromillness or injury; they include preventative measures likeroutine physicals and programs for quitting smoking, losingweightandmanagingbloodpressure.HMOmemberspayasetfee,usuallyonamonthlybasis,whichentitlesthemtoabroaddefinitionof“necessaryhealthcare.”

HMOs provide a wide range of health care services. Theserequired services are referred to as basic health careservices.AndanyservicesorbenefitsprovidedbyyourHMOinexcessofthebasicservicesarereferredtoassupplementalhealthcareservices.YourHMOmustprovideyouwithalistof the basic services that are covered under the plan. Thefollowingisanexample:

•inpatienthospitalandphysicianservices forat least90 days per calendar year for treatment of injury andillnessorinjury;If inpatienttreatment isformental,emotionalor nervous disorders—including alcohol and drug rehabilitationtreatment—servicesmay be limited to 30 days per calendar year.Treatmentforalcohol anddrug rehabilitationand treatmentmayberestrictedtoa90-daylifetimelimit.

• outpatient medical services when prescribed by aphysicianandrenderedinanon-hospitalhealthcarefacility(i.e. physician’s office, etc.) including diagnostic services,treatment services, short-term physical therapy andrehabilitation services, laboratory and x-ray services and

outpatient surgery; • preventative health services,including well child care from birth, eye and earexaminations forchildrenunderage18andperiodichealthevaluations and immunizations; • in-and out-of-areaemergency services, including medically necessaryambulance services, available on an inpatient or anoutpatientbasis24hoursperday,sevendaysperweek.

Supplemental health care services may take the form ofadditional coverages over and above those provided as basic,oradditionalamountsofthebasicbenefitsalreadyprovided.

GUIDELINESPLANSMUSTFOLLOW

HMOs,liketraditional indemnityinsurancecompanies,cannotengage in certain types of business practices, policies, etc.Specifically, your HMO is prohibited from excluding yourpreexisting conditions from coverage, from unfairlydiscriminating against you based on age, sex, health status,race,color,creed,nationaloriginormaritalstatus.

YourHMO is also prohibited from terminating your coverageforreasonsotherthan:

nonpaymentanyofpremiumsorcopayments;fraudordeception;aviolationofcontractterms;failure to meet or continue to meet eligibilityrequirements;or

a terminationof thegroup contractunderwhich youarecovered.

Because an HMO provides service benefits rather thanreimbursementbenefits,theyarerequiredtofollowguidelinesprescribed by the Insurance Department to assure qualityservicetomembers.

These guidelines specify the requirements for reasonable

hoursofoperationandafter-hoursemergencyhealthcare—and standards to ensure that personnel will be available toattend to your needs. The guidelines also require adequatearrangements to provide inpatient hospital services for basichealth careanda requirement that the servicesof specialistsbeprovidedasabasichealthcareservice.

PROBLEMSPLANSFACE

Consumer advocates made much during the late 1980s andearly1990sabouttheharshtreatmentHMOsgivemembers.They told stories—many factual, someexaggerated—about so-called“drivethroughdeliveries”(womensenthomehoursaftergivingbirth),assembly-linesurgeriesandmiserlygatekeepers.

Oneofthelegitimateissuesraisedbythismuck-racking:Someplans put business-oriented administrators—rather thandoctors—in decision-making positions with regard to thedeliveryofcare.

AnimpersonalapproachhasbeenthesourceofmanyproblemsforHMOsinthepublicmind.So,mostoftheplanshavebegunusingnetworksofso-called“individualpractitioners.”Intheseindividual practice associations (IPAs), you will get yourcareinaspecificphysician’soffice.MorethanhalfthepeopleenrolledinHMOsareinIPAs.Atfirstglance,managedcareappearsbetterthanatraditionalindemnityplan,onaverage,atgettingdoctors to followbasicpractices that safeguard health. But critics say thatoftentimes, the companies don’t follow through tomake surethedoctorsaretacklingproblemsaggressively.

More often than not, managed care has been criticized forcompromising the quality of care just to cut costs. Onecommon, highly controversial techniques that managed carehas been criticized for is the use of bonuses or incentivepools to reward doctors for not wasting medical resources.And unfortunately, these incentive pools sometimes cause

doctorstodenyappropriatecare.

Someindustryexpertssuggestthatwhat’smostunnervingaboutmanagedcareisthatthecareisn’tnecessarilyworsethanbefore,butitbringsintofocuswhatahighlyvariable,randomapproachdoctorsandmanagedcarecompanies take towardmedicine. In fact, some researchers suggest thatthere is little evidence that managed care has nudged doctors towardproducingthemostcost-effectiveoutcomes.

Recently,thefederalgovernmenthasbeguntodraftlawswhichwilllimitthelimits—reducingthediscretionHMOscanuseindelivery expensive health care services. These proposalsanswer the outrages raised by consumer advocates...but theymay end up destroying the beneficial cost controls that theplanshavemastered.

PREFERREDPROVIDERORGANIZATIONS(PPOS)

UnlikeHMOs,PPOsdonotutilizeprimarycaregatekeepers.Asinglephysiciandoesnotmanageanindividual’shealthcareservices. PPOs—a cross between regular fee-for-service plansand HMOs— are designed to provide you with increasedbenefitsifyouusedoctorsandhospitalswithinitsnetwork.

Commercial insurers implemented PPOs as an answer tosomeof the negative aspects ofHMOs, such as a the limitedchoiceofphysicians.

A PPO is a nice compromise if you don’t want to pay fortraditionallyexpensivefee-for-servicecoverage,butwantmorechoice thananHMOoffers.Andagrowingnumberofpeopleare making that choice, according to a survey by benefitsconsultingfirmFosterHiggins.

AccordingtoFosterHiggins,employersarecontinuingtoenrollagrowingnumberofworkersinmanagedcareplans—however,only in those plans that retain employee choice of physician.More than half (53 percent) of the nation’s employees were

enrolledinamanagedcareplanin1993,upfrom48percentin1992andPPOscapturedthelargestshareof themanagedcaremarket,with27percentofemployeesenrolledin1993.Small and large employers continue to add PPOs. The number of smalleremployersofferingPPOsincreasedfrom21percentin1992to24percentin1993.Amonglargeemployers,PPOsgrewform33percentto36percent.

Here’showaPPOworks.Your insurancecompany,astheydoin HMOs, contracts with certain physicians and provides a“preferred provider” network of doctors and specialists thatyoucanchoosetogoto.However,unlikeHMOs,youdon’thavetogotothedoctorsinthepreferredprovidernetwork,andyoudon’thavetogetreferralsfromyourprimarycarephysiciantoseeaspecialist.

However, if you are in a PPO, youwill be encouraged tousethepreferredprovider tokeepcostsdownforbothyouandyour insurance company. If you do, you will pay for serviceswith copayments, just like an HMO, or you receive a highercoinsuranceamountthanyouwouldifyouusedadoctorthatisnotinthepreferredproviderorganization.

APPOallowsyoutochoosebetweencostsavingsandfreedomofchoiceinselectingaprofessional.

Example: If Joan used a doctor in the PPO net work, she might get 90percentcoinsurance,soshewouldonlyhavetopay10percentofthecostofthemedicalservice,andshewouldhavealowdeductible(thepartthatshemustpayfirstbeforetheinsurancecompanystartspayinganything).

Generally,adeductibleforPPOcoveragerangesbetween$150and$300peryear.Ifyoudon’tusethePPOnetworkoften,youmight only have 70 percent coinsurance and a higherdeductible. That would mean that you’d pay a higherdeductible (somewhere between $300 and $500 per year perindividual)and30percentofcostsafterthat.

PPOs are considered to be closer to indemnity plans thanmanaged care, since the insurance company pays discountedratesformedicalserviceswithoutbecomingoverlyinvolvedinhealthcaredecisionsaboutthetreatmentsrendererd.

WHYSOMEPEOPLELIKEPPOSBETTERTHANHMOS

PPOs are a better choice than fee-for-service plans if youdon’t make a lot of money but you want to have someflexibility in your choiceof aphysician.Theyarealsogood ifyou have built a relationship with a physician not in thenetwork andwant to continue that relationship. You can stillusepreferredprovidersforotherservicesandkeepseeingyourspecialist.

PPOs are also good when you know you will exceed thedeductible amount. However, if you don’t exceed thedeductible, youwill basically be getting no value out of yourinsurancebecausethedeductibleamountmustcomeoutoftheyourpocketbeforeyourinsurancecompanystartspaying.

EXCLUSIVEPROVIDERORGANIZATIONS(EPOS)

Exclusive provider organizations are a type of PPO in whichyoucanuseaparticularprovider,insteadofchoosingfromalistofpreferredproviders. In this situation,providersarenotpaidasalarybutarepaidonafee-for-servicebasis.

EPOs are characterized by a primary physicianwhomonitorscareandmakesreferralstoanetworkofproviders(thisisthesame gatekeeper concept), strong utilizationmanagement,experienceratingandsimplifiedclaimsprocessing.

EPOscanserveasanalternativetoorcompaniontoHMOsandPPOs.

OPENENDEDPLANS

Another managed care alternative to an HMO, is an open

ended HMO (also known as a “leaky HMO” and “pointof-serviceHMO”) is ahybridarrangementwherebyyoucanusenon-HMOprovidersatanytimeandreceiveindemnitybenefitswhich are subject to higher deductible and coinsuranceamounts.Theout-of-pocketcost toyou(andprobablyyouremployer, too) ishigher,but thearrangementallowsyou to remain incontrol inchoosingahealthcareprovider.

MULTIPLEOPTIONPLANS

Youmightwanttolookintoamultipleoptionplan.ThistypeofplanisanintegratedhealthplanthatincludesservicesofanHMO,PPO,EPOandatraditionalindemnityplan—allofwhichare administered by a single vendor (usually a traditionalinsurancecompany).

And there are many variations of managed care systems,including:pointofserviceplans(POSs),physicianhospitalorganizations(PHOs),practicemanagementorganizations(PMOs), and provider-owned networks. Most of thesealternatives combine the mechanical controls of HMOs, theflexibilityofPPOsandsomekindofprovider(thatis,physician)ownership.

Thegoalofthesealternativemanagedcareplansistoreapthebenefits of cost control while keeping doctors in on thedecision-makingprocess.

INDEMNITYVS.MANAGEDCARE

Thereisahighlevelofconcernoverthepracticesofmanagedcareproviders.Managedcareisknownforitsatrocities:gatekeepersrefusingto give referrals; HMO requirements to notify or getpermissionfromaprimarycarephysician;financial incentivesforphysicianswhorestrictcareforcostcontainmentpurposes;“gag” clausesprohibiting doctors fromdiscussing expensive

treatments; drive-through deliveries; drive-throughmastectomies;capitatedpaymentsystems,Areportsponsoredby the Patient Access to Specialty Care Coalition—a groupcomprised of organizations representing consumers andprovidersofmedicalservices—wentsofarastosaythatmostpatients trust the federal government and auto mechanicsmorethanmanagedcarecompanies.

ThenumberoflargeemployersofferingaPOSplanalsogrewin 1993. Some 15 percent of large employers offered a POSplan in1993,up from10percent in1992.And,enrollment inPOSplansgrewto9percentofemployeesin1993,upfrom6percentthepreviousyear.However,POSplansarerareamongsmalleremployers,offeredbyonly4percentthereportsaid.

WhiletherewassomeincreaseinthenumberofemployersofferingHMOsto employees in 1993, enrollment remained unchanged. Among largeremployers,46percentofferedanHMOin1993,comparedto43percentin1992.HMOenrollmentalsoremainedstablebetween1992and1993at19percentofemployees.Beginning in the 1990s, various political groups inWashington,D.C.startedlobbyingforvariousversionsofaso-calledPatients’BillofRights tobepassed into law.While thedifferent plans included specific details of their own, theytendedtosharesomebasicpoints.

The proposals tended to eliminate many of the cost-controlmechanisms that managed care plans use to keep theircoverage less expensive than traditional indemnity insurance.Among the common targets: gatekeeper referral systems,appealsboardsmadeupofadministrators(ratherthandoctors)andrestrictivelistsofapprovedproivders.

(Formoredetailsonthisissue,seeChapter13.)

SUMMARY

In the early 1990s,managed care plans surpassed indemnityplans as the most common mechanism for delivering health

care services in the United States. Although the plans mayseemliketheinnovation,theyareinfacttherule.

Some facts about managed care in the United States, as of1998:

NumberofHMOsintheUnitedStates:574NumberofPPOsintheUnitedStates:1,036NumberofAmericansinHMOs:51.0millionNumberofAmericansinPPOs:50.2millionPercentage of insured employees (working in firmswithatleast10employees)inmanagedcarehealthplans:66

Percentageofdoctorswithatleastonemanagedcarecontract:75

PercentageofdoctorswithatleastoneHMOcontract:48

PercentageofHMOsthatareforprofit:69PercentageofHMOsthatarenot-forprofit:31PercentageofHMOmembersinforprofitplans:58Percentage of HMO members in not-for-profit plans:42

PercentageofHMOsthatoffernutritioncourses:87Percentage of HMOs that offer smoking cessationcourses:67

Ultimately,thebiggestissuefacingmanagedcareintheUnitedStates is whether all the talk of a patient’s bill of rights willleadfederalregulatorsorthecourtsystem(federalorstate)toerodeHMOsandPPOssomuchthattheyceasetohaveanycost-savingadvantageoverotherhealthcoverageplans.An example of this erosion came up in early 1999, when aCaliforniajuryorderAetna/U.S.Healthcaretopay$116millionin punitive damages for refusing to cover experimentaltreatmentforacancerpatient—whoeventuallydied.

In 1992, David Goodrich was diagnosed with a rare form ofstomachcancer.DoctorsintheAetnaHMOrecommendedthatGoodrichundergohigh-dosechemotherapyandabone-marrowtransplant. But the system’s administrators denied thecoverage.

However,nothingintheplan’shandbook—themaindocumentabout coverage issues thatmembers receieved—said that thetreatmentsrecommendedbyitsowndoctorswereexcluded.

One California-based managed care expert summed up theissueswrappedinthebigverdict:“Thisshowstheissuethatisdrivingtheconsumerdebateisthefearthatplansarelookingover the shoulders of doctors and are denyingwhat a doctorperceivestomedicallynecessary.”

Managed care advocates would argue that the problemsreflectedintheAetna/U.S.Healthcarecasehadbeenresolvedyearsbefore.But the tideofpublicopinionwascontinuing toflowagainstmanagedcarecostcontrols.

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6

CHAPTERWHYMOSTPEOPLEARECOVEREDBYGROUPPLANS

Healthcoverageispackagedforsaletobothindividualsandgroups.MostpeopleintheUnitedStatesgettheircoveragein

a group package. And most of the group plans are sold tocompanies.

Businesshealth care spending increased more than six-fold between 1965 and 1994.Withmedical costs on the risethroughthe1990sand2000s,healthcareexpendituresremainthesinglemostimportantbenefitsconcernforU.S.employers.

Althoughgroupand individualhealth insurancepoliciessharemany of the same policy provisions, there are significantdifferences.

In an individual policy, the contract is between you and your insurancecompany.Inagrouppolicy,thecontractisbetweenthecompanyandyouremployer,union,trustorothersponsoringorganization.A caveat: Your familymembersmay be covered under bothgroupand individualpolicies.Butyoushoulddeterminedhowtheywillbecoveredbeforesigningontoeitherkindofpolicy.

Whilegrouppoliciesmayhavefewerlimitations,theydohaveone important drawback. If you change jobs, you may nolonger be covered under your last employer’s group policy.However, individual health insurance contracts continueregardlessofchangeofemployment.

THEGROUPINSURANCECONTRACT

A group insurance policy, ormaster policy is issued to thepolicyowner—usually your employer, association, union, ortrust, etc.And if youare coveredunder thegrouppolicy youare issued a certificate of insurance. The certificate listswhatthepolicycovers,andexplainssuchthingsashowtofilea claim, the termof insurance, and the right to convert fromgroupcoveragetoanindividualpolicy.

Manyof thegrouphealth insurancecontracts featuresare similar to thecontractfeaturesofgrouplifeinsurance.

Group health insurance is generally subject to experiencerating, under which the premium modification factor isdetermined by the experience of the group as a whole. Incontrast, individual policies may be subject to communityrating, under which the insurance company’s overallexperienceisadjustedindifferentareastoreflectvariationsinlocalcostsfordoctorandhospitalservices.

EMPLOYEEGROUP

Anemployeegrouppolicymaybeissuedtoanemployer(orto the trustee of a fund established by an employer) whereinsurance is secured for the benefit of the employees, or forpersons other than the employer. The employer is thepolicyowner,andestablishestheeligibleclassofemployeestobecoveredunderthegrouppolicy.

Usually,thisclassificationwillincludeallfull-timeemployees(including the employer). Further, the classification can alsospecify full-time, salaried, nonunion employees.By classifyingtheemployeegroupinthismanner,theemployerislegallyabletoexcludecertaingroupsofemployees(part-time,union,etc.)fromtheeligibleclassofcoveredemployees.Theeligibleclassofemployeesmayalsoincluderetiredemployees.

UNIONORASSOCIATIONGROUP

An association, including a labor union, must have thefollowingcharacteristicstobeconsideredanauthorizedgroup:

haveaconstitutionandbylaws;be organized and maintained for purposes other thanobtaininginsurance;

•haveinsuranceforthebenefitofpersonsotherthantheassociationoritsofficersortrustees(inthiscontext,theterm“employee”mayincluderetiredemployees).

TRUSTEEGROUP

Apolicymaybeissuedtothetrusteesofa“trustgroup”ifthefundhasbeen:

establishedbytwoormoreemployers inthesameorrelatedfield;

established by one or more labor unions orassociations (this is also known as a “Taft-HartleyTrust”).

Thetrusteesarethepolicyholderoftheplanwhichcoverstheeligibleemployees.Suchplanmustnotbeforthebenefitoftheemployer,unionorassociation.The individualswhomaybe considered “employees” as defined by this section are thesameasthosepreviouslylistedunderEmployeeGroup.

Group health coverages track closely with benefits availableunder individual coverages. We will discuss them under theheadings of disability income, accidental death anddismemberment,andmedicalexpensebenefits.

DISABILITYINCOME

Group disability income coverage provides for loss of incomebenefitsduetoadisabilitycausedbyanaccidentorsickness.Theamountofbenefitspaid isusuallyapercentageofyourweeklyormonthlycompensation;suchas60percentor70percent. This is intended to encourage you—the disabledemployee—torecoverandreturntowork.

Benefitsarepayablefollowingthepolicy’seliminationperiod(EP). The EP is a waiting period during which you must betotallydisabledasdefinedbythepolicy.AnEPcanbe30daysorlonger.

Group benefits may be short-term or long-term. Short-termbenefits are usually payable for up to one or two years—thoughusuallyoneyear.Short-termpoliciesusuallyhaveshorteliminationperiodssuchas15or30days.

Long-termdisability (LTD) benefits are usually paid out forlongerbenefitperiodssuchas fiveyearsoruntilyouturn65.Generally,LTDpolicieshavelongereliminationperiods,suchas90or180days.

ACCIDENTALDEATHANDDISMEMBERMENT

Accidentaldeathanddismembermentcoveragepaysspecifiedamounts for specific injuries or for death. Benefits are onlypayable if the injury ordeath is causedbyaccident. Injuriesmustresultinspecificlossessuchaslossofsight,arms,legsorfeet.

Thiscoveragecanbewrittenasaseparatepolicyoraspartofapolicyprovidingothergrouphealthinsurancebenefits.MEDICALEXPENSE

Basic group medical expense policies usually providebenefitsforinpatientservicessuchashospitalroomandboardcosts,surgicalexpensesandmiscellaneouscharges.Outpatient(outofthehospital)expensesareusuallynotcovered.

Groupplanshavelimitations.Usually,benefitsarelimitedtoaspecifiedamount.Roomandboardchargesmaybelimitedto$300or $400per day.Miscellaneousbenefits (privatedutynurses,bandages,medication,in-hospitalx-rays,labwork,etc.)areusually limitedbyanamountequal to10or20 times thedailyroomandboardrate.

Basicplansarealso limited in termsof time.Mostplanswill specify thatpolicybenefitswillbepaidfor30daysorpossiblyupto365days.

Because of these limitations, basic medical expense plansusuallydonotcoveryourmedicalexpensesinfull.Asaresult,youwillberesponsibleforcertainout-of-pocketexpenses.

In contrast to basic group medical plans, group majormedicalpoliciesprovidemorecomprehensivebenefits.Groupmajor medical will “limit” benefits normally to what isreasonable and customary as opposed to a specific dollaramount. Inessence,youareprovidedwithasumofmoneytocovermedical expenses.Most insurers require 75 percent or

more of the eligible members to participate. Under a non-contributoryplan,theemployerpaystheentirepremium.Theinsurance companies in this case require 100 percentparticipation.

The minimum participation requirement is to help guardagainstadverseselection. If a freechoiceweregiven,manypeopleingoodhealthmightnotchoosetheinsurance,whereasmanyinpoorhealthmostcertainlywould.

Groupmedical coveragemaycost less than individualpoliciesdependingontheagesanddependentstatusoftheparticipants.Ifyouaresingle,youcan usually purchase individual cov erage for less premium than ifcomparablecoveragewasobtainedunderagrouppolicy.

Whenagrouppolicy israted, thepremiummaybehigherorlowerthanindividualcoveragebecauseeveryoneinthegroupis paying for every other group member. If the ages of theparticipants are relatively high, the premiumswill be high.Asingle person, age 21,will pay a relativelyhigher premium(duetotheageof thegroup)thanheorshemightpayonanindividual policy—rated on the age and insurability of theapplicant,notagroup.

On the other hand, a married person with several childrenwouldprobablyfindthatthegrouppremiumwouldbelessthanan individual family premium. On an individual basis, thispersonmust“paybythehead”—mustpayapremiumforeachcovered familymember.Usually, a group policywill charge afamily rate regardless of the number of dependents theparticipant may have. This is a good deal for people withfamilies.

CREDITHEALTHCOVERAGE

Not all forms of group health insurance are cost effective.

Credit health insurance is usually written as a groupdisability income contract although it could also be anindividual policy. The purpose of credit health is to providepayment of your debt if you are disabled due to accident orsickness.

Thecreditor isthepolicyowner.Disabilitybenefitsequaltoyourdebtarepaiddirectlytothecreditor intheeventthatyoubecomedisabled.Thesebenefitsareusuallypaidonamonthlybasisas longasthedebtremainsandyouaresick.

Bymostreckoning,credithealthcoverage—evenpurchasedona group basis—is not a very cost-effective kind ofinsurance.

SELF-INSUREDPLANS

Ifclaimcostsarefairlyconsistent,youremployermayconsideraself-fundedhealthcareplan.Withaself-fundedplan,youremployer—not an insurance company—makes claimpaymentsforcompanyemployeesandtheirdependents.

If claims are higher than predicted, a self-funded healthinsuranceplancanbebacked-upbyastop-losscontract.Thestop-losscontract isdesignedto limityouremployer’s liabilityforclaims.

Generally, there are two variations of this coverage.Specificstop-loss coverage begins to apply after your medicalexpenses exceed a predetermined threshold such as $5,000.Aggregatestop-loss coverage applieswhen your employer’sliabilityforgroupinsuranceclaimsexceedsaspecifiedamount.The insurance companywill pay all claims once the specifiedamountisreached.

An employer self-funded plan may be an indem nity program which

reimbursesyouforthemedicalcareyouhavereceived.Or,youremployermay provide benefits through the service plan offered under an HMO, orthroughtheinsurancecompany’sPPOnetwork.

An insurance company may also be used for a self-fundedemployertohelpoutwithneededadministrativeservices.

Under this arrangement, the insurance company will provideclaims forms, administer claims, and make payments tohealthcareproviders;buttheemployerwillprovidethefundstomakeclaimspayments.

Self-insurancehasfourmajoradvantages:

Thecompanycansavemoneyifactuallossesarelessthanthosepredicted.

The expense of carrying insurance may be reducedbecause of the elimination of administrative costs,agent commissions, brokerage fees, and premiumtax.

Because the company has assumed the entire risk,there may be a greater effort on its part to seekways to reduce claims, and encourage employeesto actively participate in “wellness” programs andimprovedlifestyles.

The company has use of the money that wouldnormallybeheldbytheinsurancecompany.

Themaindisadvantagesofself-insuranceincludethefollowing:

Actuallossesmaybemorethanpredicted,causingtheunexpected loss of funds that were to be used forotherpurposes.

Expenses couldbehigher thanexpected if additionalpersonnel have to be hired to administer claims,manageriskorofferemployeeinformation.

•Incometaxescouldbehigherbecausethecompanywill

notbeabletotakepremiumspaidasadeduction;onlythe claimspaid, and operating expensesmaybe takenasataxdeduction.

Withself-insuredhealthplans,certainfederallawsmayapply;if a plan is not state regulated, you may want to talk to anattorneyspecializinginhealthlawbeforegettinginvolved.

Asarule,partnersandsoleproprietorsareconsideredself-employed individuals, not employees, so the rules forpersonally-owned health insurance apply. Government allowsanyonewhoisself-employedtodeductaportionoftheirhealthinsurance premiums. The deduction was 30 percent for taxyears1994 through1996.Undernew tax laws thisdeductionwillbegraduallyincreasedto80percentbytheyear2002.

If the partnership pays the premiums for insur ance without regard topartnership income,premiums are deductible by the partnership but areincludedinthepartners’taxableincome.

Self-insuredplans are typically offeredby financially strongcompanieswhoareabletodepositadequatesumsofmoneytocoveremployee’smedical expenses.Generally employerswhoinstallself-insuredplanswillusetheadministrativeservicesofaninsurerorathird-partyadministrator(TPA).THIRD-PARTYADMINISTRATORS

Athird-partyadministratorisafirmwhichprovidesadministrativeservicesforyouremployerorotherassociationshavinggroupinsurancepolicies.Thethird-partyadministratoractsasaliaisonbetweentheinsurancecompanyandyouremployerinmatterssuchascertifyingeligibility,preparingreportsrequiredbythestateandprocessingclaims.

Theuseof third-partyadministratorsbecamecommon in the1990s,asaresultoflargeremployersself-fundinghealthbenefits.

SMALLEMPLOYERS

Smallemployers(usuallydefinedasthosewithfewerthan20-25 employees) have been especially hard hit by increases inhealth care insurance premiums. Because many group plansare experience rated, small employers see an immediatepremiumincreasewheneverclaimsareparticularlyhigh.Iftheaverageageoftheparticipantsisparticularlyhigh,orifclaimsexperience is high, or if there has been even one long orcatastrophic illness in a small employer plan, it can have adevastating effect, making health insurance unaffordable forthewholegroup.

RecentsurveysbytheHealthInsuranceAssociationofAmerica(HIAA)indicateasubstantialdecline inthenumberofsmallfirmsthatareabletoofferhealthcoveragetotheiremployees.

Several states have acted to ensure that health insurancecoverages are available at a reasonable cost and underreasonable conditions for small employers. Among the newrequirements:

standard benefit plans thatmust be offered to smallemployers;

maximumwaitingperiodsforpreexistingconditions;the insurance company may not exclude particularindividualsormedicalconditionsfromcoverage;

insurancecompaniesmayonlycancelsmallemployerplans for nonpayment of premium, fraud,misrepresentation or noncompliance with planprovisions.

CAFETERIAPLANS

Withacafeteriaplan,youselecthealthbenefitsfromavarietyofoptions,basedonyourindividualandfamilyneeds.Cafeteriaplans tend to be more complex (and more expensive) than

traditionalplans,especiallywithregardtoplanadministration,andusuallymakethemostsenseforlargeremployers.

Benefitsareelectedinadvanceoftheyearinwhichtheywillbeused(benefitstobeusedin1996willbeelectedattheendof 1995). Taxation of cafeteria plans is regulated by Section125oftheInternalRevenueCode.

MEDICALSAVINGSACCOUNT

A medical savings account (MSA) is an employer-fundedaccount linked to a high deductible medical indemnity plan.Usually, your employer raises the existing plan deductible(usuallyby300percent to400percent)and in turnreturnsaportionof thepremiumsavings toyouascontributions to themedical savings account. You can use these contributions topay for health care expenses throughout the year, and at theend of the year, you may withdraw whatever remains in theaccountas(taxable)cash.

MULTIPLEEMPLOYERTRUSTS

Multiple employer trusts provide health insurance benefits tosmallbusinessesthroughaseriesoftrustsusuallyestablishedbasedonspecificindustriessuchasmanufacturing,salesandservice,realestate,etc.Moststateshavegroupsizeeligibilityrequirements for employer groups to qualify for groupinsurance.

Generally, statesmay require aminimumof five to ten participants for agroup to be eligible for group benefits. METs typically have no such requirements and in reality a group of one could be eligible for groupbenefits.METs are formed by insurance companies or third-partyadministratorswhoarecalledsponsors.Thesponsordevelopstheplan,setstheunderwritingrulesandadministerstheplan.

To help prevent the possibility of adverse selection, theunderwriter must make sure that the sponsor’s underwriting

rulesareadequateandthatheorsheadherestothem.

Thisisnecessarybecauseanemployerwithonlytwo,threeorfiveemployeescouldelecttojoinanMETbecausetheyknowofthepoorhealthconditionofoneoftheemployees.

Theunderwritingstandardsmustbeabletopreventthisfromhappening.

If state law allows,METsmay be noninsured. Anoninsuredplanisaself-fundedplan;thatis,aplanthatoperateswithoutthe services and funds of an insurance company. The trusteehas charge of the funds and the policies and all financialactivitiesoccurthroughthetrust.

Aswitha traditionalgroup insuranceplan,amasterpolicy is issuedtoatrusteewhoisoperatingunderatrustagreement.Themastercontracthasits own policy effective date and renewal dates which the insurancecompanymayuseforchangingratesontheMET’sentireblockofbusiness.Also, every employer under the MET has its own effective dates andanniversary dates. Rates are generally changed on an employer’sanniversarydate,butusuallynotmorethanonceayear.

MULTIPLEEMPLOYERWELFAREARRANGEMENTS

Multiple Employer Welfare Arrangements (MEWAs) areemployer funds and trusts providing health care benefits(among other benefits) to employees of two or moreemployers.

ERISA, the federalEmployeeRetirement IncomeSecurityAct which is designed to protect you if you are in a grouphealth insurance plan, restricts states’ ability to regulateemployee welfare benefit plans while preserving stateinsurancelawshavingtodowithreserverequirements.

Astatemayregulateinsurance,butmayormaynotconsideran employeewelfarebenefit plan an “insuranceplan” for thepurposeofregulation.

Some self-funded MEWAs claim they are not sub ject to InsuranceDepartment regulation and operate under a supposed preemption underERISA. As a result, many have gone unregulated, and have fraudulentlycollectedpremiums fromsmallbusinessonly to foldand leavemillionsofdollarsofunpaidclaims.Regulators are attempting to resolve the question ofjurisdiction.Meanwhile,inmoststatesMEWAsneedtoobtaina Certificate of Authority in order to transact insurancebusiness, and must be fully insured by a licensed insurancecompany.

Usually, agents and brokers are prohibited from assistingMEWAs to transact insurance until and unless the agent orbroker files a report with the Department of Insuranceoutlining the MEWA’s organization, insurance contracts,benefit plan description, and the designated third-partyadministrator.

DEDUCTIBLE,COPAYMENT,REIMBURSEMENT

Insured employeeswithdependentcoveragemustmeet thedeductiblebeforeexpenseswillbecovered.But,planstypicallyinclude some type of family deductible in order to limit afamily’sexposureforhealthcareexpenses.

A family deductible is usually somemultiple of the individual deductible,often two or three. For a family deductible to be satisfied, the combinedexpensesofcoveredfamilymembersareaccumulated.Someplansrequirethatatleastonefamilymembersatisfytheindividualdeductiblebeforethefamilydeductiblecanbemet.Coinsuranceisafeaturetypicallyfoundingrouphealthplans.Itsetsthepercentageofcoveredexpensesthattheemployeesand the health plan will pay. The most common coinsurancelevel is one in which the employee pays 20 percent of theexpensesandtheinsurancecompanypays80percent.

A covered expense is an eligible expense under a grouphealthinsuranceplan.Itisanexpensethatwillbereimbursedinwholeorinpart.

An example: Most health plans, consider doctors’ visits acoveredexpense.Thatis,anydoctor’sfeeyouincuruptotheamountprovidedbyyourplan.

However, just because an expense is covered does not meanthat the coverage is unlimited. Both basic andcomprehensiveplanshavelimitsontheamountofexpensesforwhichtheywillreimburse.Inaddition,youusuallyhavetopaysomeformofdeductibleandcoinsurancebefore theywillreimbursetheexpenses.

Insurancecompanieslimitcoveredexpensesinanumberofways.Example:Your insurance com pany can cap allowable payments for a certainprocedureorservice(i.e.,asurgicalschedule).Someinsurersalsorestrictcoveredexpensesbylimitingthenumberofvisitsordaysforhomehealthcareorskillednursingcare,orbyestablishingareasonableandcustomarycharge.DENTAL,VISIONANDPRESCRIPTIONDRUGPLANS

Dentalcareisconsideredabudgetableexpense,soit’susuallynot included in grouphealth plans.However, you canusuallyobtaindentalcarefromyouremployerintheformofemployeebenefits.

Afewhealthplansincludedentalcoverage;othersincludeitasa separate add-on. And some plans provide coverage fornoncosmetic dental work resulting from an accident Youremployer may also offer direct reimbursement for dentalcare—this is a dental coverageplan typically usedby smalleremployers—in which your employer agrees to pay for apercentage of the expenses. Small employers usually go thisroute to avoidboth the costs associatedwith an insuredplanand the administrative complexity of going through aninsurancecompany.Inaddition,theriskisconsiderablysmallerbecausedentalexpenses,unlikemedicalexpenses, tend tobemorepredictableandseldominvolvecatastrophicexpenses.

Visioncoverage is similar to dental, in that it is a relatively

new benefit, usually offered by employers that can afford toaddcertainfringebenefitstypicallyconsideredbudgetable.

Mosthealthplansprovidecoverageformedicalcarerelatedtoeye injury or disease, but not for costs associated withperiodiceyeexaminationsorcorrectivelenses.Visioncareistypicallycoveredonascheduledbasisthatpaysafixeddollaramountforexaminations,lensesandframes.

Mostoften,onlyprescriptiondrugsthatarefortreatmentofan illness or injury are covered by a health plan—subject toapplicabledeductiblesandcoinsurance.

Example: Your insurance company might not cover your contraceptiveprescriptiondrugs,orthenicotinechewinggumyouneedtohelpyouquitsmoking.

Different insurance companies offer different types of drugplans, but the basic types of prescription medication plans,includeopenpanel, closedpanel,mail order andprescriptiondrugcardplans.

SUMMARY

Group health insurance dominates the market because itreceives a number of critical subsidies from the federalgoverment. Most of the subsidies come in the form of taxbreaks.

An employer can deduct all premiums paid for group orfranchise health insurance on employees as a businessexpense, provided the employer is not the beneficiary of thepolicy (benefits are payable to the employees, not theemployer).Thevalueofthecoverageprovidedbytheemployerisnotconsideredtaxableincometotheemployee.

Paymentsforpermanentlossesunderaccidentaldeathanddismemberment

coverage(suchaslossofalimborbodilyfunction,lossofsightorhearing,or permanent disfigurement) are not included as taxable income to theemployee,regardlessofwhopaidthepremium.

Effective in 1997, long-term care insurance provided on agroupbasisenjoysthesametaxstatusasgrouplifeandhealthinsurance, meaning premiums paid by the employer are taxdeductible and benefits are received tax free up to specifiedlimits.

Medical expense benefits are generally considered to bereimbursements for medical expenses already incurred, andthereforearenottaxableasincome.

Ataxpayercannotdeductmedicalexpensesfromincomefortaxpurposesthathavebeenreimbursedbytheinsurancecompany.Thisistruewhetherpremiumsforthepolicywerepaidforbyanemployerorbytheindividual.

Withallofthesetaxbreaks,it’slittlewonderthatsomanypeoplegettheirhealthcoveragethroughgrouppoliciesat

work.Theonlyquestion:Willthefederalgovernmenteverendthesubsidiesitgivesemployers—aspartofsomelargerhealth

insurancereformplanorotherwise?

7

CHAPTERHOWMEDICAREAND

MEDICAIDWORK

Medicareisafederalhealthinsuranceprogramfortheaged(people65andolder),peopleofanyagewithpermanentkidneyfailure,andcertaindisabledpeople.So,ifyou’reoneof38millionAmericanswhoqualifyaseitheragedordisabled,youcangetMedicareinsurance.

Enrollmentcanbeeitherautomaticoroptional—dependingonthecoverageinquestion.So,makesurethatyoufiledtherightpaperworktogetthefullpackageofMedicarecoverage.

Technically, Medicare is part of the Social Secu rity System and isadministered by the Health Care Financing Administration—an agency oftheDepartmentofHealthandHumanServices.Theprogramis federallyfunded—whichmeansparticipantspayvery littleforthecoveragetheyreceive. The coverage applies to hospitalization as well as basic medicalexpenses.The basic medical care needed when you are older andcoveredbyMedicareincludes,butisnotlimitedto:•necessaryday-to-day outpatient medical care; • occasionalhospitalization for care of chronic or acute ailments oraccidents; and • possibly skilled nursing care in a nursinghome.

Medicareisdesignedtoprovidesomebenefitsforeachofthesemajor needs. The benefits aren’t great— most private sectorhealthinsurancecoversmore...morecompletely.ButMedicaredoesofferthefunctionallevelofhealthcoveragethatmostolderpeopleintheUnitedStatesuse.

Thisa roughoutlineofMedicare.Thepractical issuesofhowtheprogramworkscangetcomplicated.Evenifyou’vebeeninthesystemfora fewyears,youmaybeunclearaboutwhat itcovers,whatitexcludes,howmuchofyourmedicalexpenses

youwillberesponsible for,andwhetheryouneedadditionalhealthinsurance.

We’ll answer these questions—with as little drudgery aspossible.

LIMITATIONSUNDERMEDICARE

Medicarewillpayforsomeofyourhealthcareexpenses;itbyno means pays for them all. There are limits on coveredservices—and the program includes both deductibles andcoinsurance.

Your doctor often will charge you more for services thanMedicarewill pay. To fill in these gaps, insurance companieshave developed special policies known as Medicaresupplementpolicies.

Thesepoliciesareprofitable.Insurancecompaniesandretireeassociations deluge the senior population with ads forMedicare supplement policies. Agents selling Medicaresupplements don’t always practice the professionalism andethical conduct they should. Often, the combination of thesefactors results in poor decision-making with regard tosupplemental coverage—buying too much coverage, or thewrongkind,ornoneatall.

Inaddition,moredirectmarketingabuseshaveoccurred.Onecoomonscenario:Animpresionableolderpersonwouldendupbuyingsixorsevensupplementalpolicies—whenone isallhe or she needs. As a result,Medicare supplemental policiesareheavilyregulatedbythegovernment...andconsumershavebeenassuredbylawofcertainimportantlegalrights.

Keep in mind that, even though agents are by law required to exercisegreatcareinrecommendingandsellingMedicaresupplementpolicies,theyarepaidbycommissionsonthepoliciestheysell.Theymaybemotivatedtosellyouhighercostpoliciesthatyoumaynotneed.

WHAT'SMEDICARECOVER?

The first step in determining whether you need a Medicaresupplement policy is clearly understanding what types ofhealthcarecostsareandarenotcoveredbyMedicare.

Medicare pays only for services determined to bemedically necessary byfederalhealthcareexperts.EventhentheservicesarecoveredonlytotheextentthatMedicaredetermineschargestobereasonable.

MEDICAREPARTA

Medicare is made up of two parts: Part A is HospitalInsurance;PartBisMedicalExpenseinsurance.

MedicarePartAcoverscostsassociatedwithinpatientcareinahospitalandskillednursingfacilitycareafterahospitalstay.Italsocovershomehealthcareandhospicecare.Itpaysforthecostofwholebloodorunitsofpackedcells,afterthefirstthree pints during a covered stay in a hospital or skillednursing facility. In addition, it pays 80 percent of durablemedicalequipment—suchaswheelchairsandwalkers—whenapproved.

Justabouteveryworkingpersonwill receiveMedicareatage65.Under Part A, any person eligible for Social Securitywillautomatically be eligible for hospital insurance at no charge.Youwillbeautomaticallyenrolledifyou’rereceivingbenefitsbeforeyoureach65fromeithertheRailroadRetirementBoardorSocialSecurityAdministration.

YourMedicarecardwillbemailedtoyouapproximatelythreemonths before your reach your 65th birthday and coveragebeginsonthefirstdayofthemonthinwhichyouturn65.

Some Medicare reform efforts have suggested raising thePartAenrollmentageto67...orsomeotherpoint.Butthese

reformsremainmorespeculativethanpractical.

If you’re disabled and receiving benefits from ei ther organization for 24months,yourcardwillbeautomaticallymailedaswell.

However,ifyou’renotreceivingretirementbenefits,youmustapply directly to either the Social Security Administration orRailroad Retirement Board. Be sure to do so at least threemonthsbeforeyoureach65, toavoidanydelays incoverage.Youonlyhavesevenmonthstoenroll,beginningthreemonthspriortoyour65thbirthday;otherwise,you’llhavetowaituntilJanuary 1 thoughMarch 31 just to enroll. In that case, yourbenefitsdon’tkickinuntilJuly1.

So,besureyouknowyourdates.Youarealsoeligibleforbenefitsifyouareoneofthefollowing:

a disabled person who has been receiving SocialSecuritydisabilitybenefitsforatleast24months;

a person who is diagnosed as having permanentkidney failure which requires dialysis or a kidneytransplant;

an individualbornpriorto1909whohasnoquartersofcoverageunderSocialSecurity;or

aretiredrailroadworker.Furthermore, if you don’t qualify for Medicare hospitalinsurance(youdon’thavetherequiredworkcredits,etc.),youcanbuycoverage for amonthly premium. In themid-1990s,themonthlypremiumwasaround$200.

If you plan to take this route, youmust also enroll in Part BMedicare, be a resident of the United States and either acitizenoralawfullyadmittedalien.

STILLWORKING?

Ifyoudecidetocontinuetoworkaftertheageof65,youwillstillbecoveredbyMedicare.However,suchcoveragewill—inmostcases—besecondarytootherinsurance.Example:Ifacompanyhasatleast20employees,employeesover65mustbeofferedthesamehealthbenefitsasyoungeremployees.Medicarebecomesasecondarypayorofbenefitsfortheemployeesover65.Thecompany’shealthplanisprimary.Accordingly,anyhealthclaimmadebyanage65orolderemployeewillfirstbepaidbythegrouphealthinsurance.Ifanypartoftheclaimisnotsatisfiedbythecompany’splan,thatportionoftheclaimwouldthenbesubmittedtoMedicare.

An important note: Youmay reject your employer’s plan andelectMedicare as the primary payor...but your employermaynot—in any way—encourage you to make Medicare yourprimarycoverage.

Common tactics employers use to encourage the decisionsubtly:offeringtopayforPartBcoverageonyourbehalfandofferingtopurchaseaMedicaresupplementpolicyforyou.

Medicare also becomes the secondary insurer in caseswheremedical care is to be provided under the provisions of aliabilitypolicy,includinganautomobilepolicy.

HOWMUCHDOESITCOST?

If you or your spouse worked for at least 10 years in aMedicare covered job (meaning you were having deductionswithheld fromyourpaycheck forpayrollwithholding tax) andyou are a citizen or permanent resident of theUnited Statesand eligible for Medicare, there is no charge for Part A(HospitalInsurance).

Disabled individuals, kidney dialysis and certain transplantpatientsarenotchargedeither.

If none of these fit your particular circumstances, you may purchaseMedicare Part A if you are at least 65 years of age and meet otherrestrictions. The per-month cost in 1997 (based on 30 to 40 quarters of

Medicare-qualifying employment) was $187. If you worked fewer than 30quartersduringyouradultlife,themonthlycostwas$311.

There is, however, a fee for Part B (Medical Expenses). In1997, the monthly premium was $43.80 and automaticallydeducted from Social Security payments. Enrollment isautomatic—unless you state you don’t want it—when you areeligibleforpremium-freePartA.

Ifyoudon’tqualifyforpremium-freePartA,butare65orolder,youcanstillbuyPartB.

Medicareclaimsareusuallypaidonareimbursementbasis,meaning directly to you, the patient— usually after you’vealreadypaidthedoctor.Benefitpaymentsmayalsobemadedirectly to a participating provider. Participating health careprovidersarecertifiedandapprovedbyMedicareforpaymentofbenefitsandhaveagreedtoaccepttheamountreimbursedbyMedicareaspaymentinfull.

This kindof agreement is important, becausehospital insurance canhelppayforinpatienthospitalcare,inpatientcareinaskillednursingfacility,homehealthcareandhospicecare.

For this part of Medicare coverage, you will have to pay adeductibleof$760foreachbenefitperiod,beginningwiththefirstdayofadmissiontoahospitalandcontinuingfor60days.Ifyouarereleasedorhospitalizedformorethan60days,anewbenefitperiodbeginsandanewdeductibleapplies.That’sthebadnews.Thegoodnewsis:Thereisnolimitonthenumberofbenefitperiodsyoucanhave.

WHATPARTADOESNOTCOVER

Hospital insurance under Medicare does not cover thefollowing:

privatedutynursing;charges for a private room, unless medicallynecessary;

conveniences,suchasatelephoneortelevisioninyourroom;

the first three pints of blood received during acalendaryear(unlessreplacedbyabloodplan).

MEDICAREPARTB

MedicarePartBisMedicalExpenseinsurancecoveringcostsassociated with doctors’ services, outpatient care, laboratorytests, x-rays, mammograms and pap smears, and medicalsupplies.You’llhavetopaythefirst$100,whichistheannualdeductible,thenMedicarewillpay80percentofallapprovedcharges for any eligible medical expense. The approvedchargemayormaynotbeclosetotheactual feechargedbyyour provider, and you are responsible for the difference...aswellastheadditional20percentoftheapprovedcharge.

Fortunately, when doctors accept a Medicare as signment, they agree tochargenomorethanMedicare’sapprovedcharge.

Here’swhatPartBcovers:

doctorsservicesprovidedonaninpatientoroutpatientbasis,nomatterwherereceived intheUnitedStates,andincludingsurgicalservices,diagnostictestsandx-rays, medical supplies furnished in a doctor’s office,andservicesoftheofficenurse;

services of clinical psychologists, chiropractors,podiatristsandoptometrists;

•outpatientdiagnosticservicesandmedicallabfees,suchascareinanemergencyroomoroutpatientclinicofahospital;•outpatientphysicalandspeechtherapy;

certified nurse-midwife services for pregnancies (ofcourse,thisbenefitisn’tusedmuchbythoseover65);

dentalworkwhichisrequiredduetoaccidentordisease;theuseofoutpatientmedicalequipmentsuchasironlungs,braces,colostomybags,andprostheticdevicessuchasartificialheartvalves;

ambulanceservice,ifthepatient’sconditionrequiresit;• outpatient psychiatric care (there is a 50 percentcopaymentinsteadof20percent);the cost of certain vaccines and antigens. (Onlymedicineswhichareadministeredatthehospitaloratadoctor’s office are covered by Medicare. Drugs whichcan be self-administered— taken at home—are notcovered,evenifprescribedbyadoctor.);

an unlimited number of home health care visits, if allrequired conditions are met and you do not haveMedicarehospital(PartA)coverage;

•preventivehealth care expenses such as pap smearsandmammography(however,mammogramsarecoveredonlywhenperformedinaMedicare-approvedfacility);•onepairofeyeglassesfollowingcataractsurgery.

Blood is a covered expense under Part B (also Part A). Inessence,thereisa“3-pintdeductible”forblood.Whichmeansthatyouareresponsibleforeitherpayingforthefirst3pintsofbloodor replacing theblood.Theblooddeductible forPartBcan be used to satisfy the blood deductible for Part A. Thus,only one 3-pint deductible is required. However, any bloodprovided under Part B is still subject to the 20 percentcopayment.

Under Part B, there are a number of services that do notrequireadeductibleoracopayment,including:

the cost of a second opinion required byMedicareforsurgery;

home health services (except the 20 percentcopayment applies to the use of certain medicalequipment);

pneumococcalvaccine(flushots);• outpatient clinical diagnostic lab tests conducted byMedicare-certified facilities or doctors who acceptassignments.

MEDICARESUPPLEMENTS

EvenwithPartAandBcoverage,thefinancialrisksrelatedtodeductibles and copayments can be financially overwhelmingforaretireelivingonamodestfixedincome.

This is particularly true should you develop a major chronic ailment andhavetocomeupwithtensofthousandsofdollarsoutofyourownpocket.

Medicare is not going to pick up the tab for all of yourhealthcare needs. The government estimates that Medicarereally only pays about half of the costs needed to cover theelderly and there are large gaps in coverage. For instance,Medicaredoesn’tcoverthecostofhearingaidsoreyeglasses,itemsvirtuallyessentialtoseniorstoday.

Asaconsequence,insurancecompaniessteppedintofillthosegaps in coverage. Approximately 89 percent of all Medicarerecipientssupplementtheircoveragewithwhatarecommonlyreferred to as Medicare Supplement policies or “Medigap”insurance.

TheOmnibusBudgetReconciliationActof1990 (OBRA1990)enhanced other protections for Medicare supplementconsumers. Under this law, Medicare supplement insurancemay not be denied on the basis of the senior citizen’s healthstatus, claims experience, or medical condition during thefirstsixmonthsaMedicarebeneficiaryage65orolder firstenrolls in Part B of Medicare. This is known as the open

enrollmentrequirement.

Duringthisperiod,youmaypurchaseaMedicaresupplementpolicywithoutproviding a proof of insurability. After this period of time, evidence ofinsurabilitywillhavetobeprovided.

Toclarifybenefitsandstandardizethetypesofpoliciesoffered,Congress passed a laweffectiveAugust 1, 1992, directing allinsurance companies to standardize the policies they offer asMedicareSupplements.Asa result,10standardplansweredeveloped by the National Association of InsuranceCommissioners(NAIC)andaretheonlyplansthatmaybesoldasMedicareSupplementpolicies.

Thebestpartisthatyoucan’tbeturneddown,foranyreason,aslongasyou’re65andapplywithinsixmonthsafteryoufirstenroll in Medicare Part B. The policies are guaranteedrenewable, meaning you have the right to renew the policywithnochangeinterms,aslongasyoupaythepremium.

Theonly catch is your insurance company can—andoftendoes—increaseyourpremiumwhenclaimscostsexceedpremiumrevenue.Medicare Supplement policies have letter designations,correspondingtothelevelofbenefitsprovided,beginningwiththe basic plan labeled “A” and progressively increasing inbenefitstothemostcomprehensiveplanlabeled“J.”

EachstatemustallowcompaniestosellPlanAandallMedigapcompaniesmustmakePlanAavailableiftheysellthemoreextensiveandexpensiveplans.However,companiesarenotrequiredtomakeall10plansavailable.Theycanselljustafew—aslongasPlanAisoneofthem.

ThepoliciesaredesignedspecificallytoworkwithMedicare,toprovide supplemental accident and sickness insurance forhospital,medicalorsurgicalexpenses.Most,ifnotall,pickup

Medicare’scoinsurancechargetoyou—andmayevenpayyourdeductible.

ManychargesnotcoveredbyMedicare,suchasprescriptiondrugs for outpatients, are included in some of the plans.(However,coverageforprescriptiondrugcostsmaybesubjecttoanannual limit.)Themorecomprehensiveplansalsocoverthe copayment required for hospital and skilled nursingfacility stays. They also cover the 20 percent of approvedchargesyouwouldordinarilypayunderPartBofMedicare.WHAT'SINCLUDED?

You can think of buying Medicare supplement coverage likebuying a car. The core benefits represent the basic stickerpriceofthevehicle;youcanaddoptionalbenefitstothecorepackageinmuchthesamewaythatyoucanaddoptionstothecar. The optional benefits included depend on the needs andwantsoftheindividual.

Basic Benefits (Plan A) supplement Medicare benefits byproviding coverage for your hospitalization coinsurancepaymentfromday61-90and91-150.Thismeansthatthe$190and $380 per day you would be required to pay underMedicare,willbepaid forby thesupplement. Ifyourbenefitsendduringaperiodofhospitalization,thesupplementpaysforanadditional365daysat100percent.

Inaddition,the20and50percentcoinsurancepaymentunderMedicare Part B is covered after you pay the required $100deductible.The first threepintsofbloodorpacked redbloodcellsarecoveredaswellunderbothPartAandB.

PlanB includes theBasicBenefits and adds on coverage forthe Medicare Part A deductible of $760 per benefit period.Therefore, if youhadPlanB,youwouldhaveyourdeductiblemetandallcoinsurancepayments.

Plan C includes everything in Plan A and B and adds thecoinsuranceamountof$95aday forskillednursingcareyou

wouldberequired topayunderMedicarePartA fordays21-100.Itpaysthe$100deductibleunderMedicarePartBand80percent of emergency carewhile in a foreign country after a$250deductible.Ifyoutraveloutofthecountry,youmaywanttoconsiderthis!

PlanD includes everythingpreceding it except theMedicarePart B deductible and adds on coverage for custodial care(dressing, laundry, shopping, etc.). Medicare Part A HomeHealthCarecoveragedoesnotpayforcustodialcareandmanyseniors need assistance with daily life functions, especiallyafterrecoveringfromaseriousillnessorinjury.Thispaysupto$1600ayearforshort-termassistance.

PlanEdoesnot cover theMedicarePartBdeductible orAt-HomeRecoveryservicesbutdoesincludePreventiveCare.Thebenefit amount is $120 per year for routine physical exams,screening procedures such as blood pressure and cholesterolaswellaspatienteducation.

PlanFdoesnotincludedPreventiveCareorAt-HomerecoverybutdoesaddonExcessChargesforMedicarePartBexpenses.What thismeans is ifyougo toadoctor thatdoesnotacceptMedicare assignments (meaning they will not honor theMedicareapprovedcharges),youwouldbeobligatedtopaytheentirebill.Thisbenefitpaystheamountyou’llbebilledforateither100percentof80percent. If80percent,youwouldbeobligatedtopaytheremaining20percent.

Plan G excludes the Medicare Part B deductible andPreventiveCareandpaystheExcessChargesata levelof80percent,ratherthan100percentasinPlanF.

PlanH includes coverage for prescriptionmedications at 50percentwith anannual limit of $1,250per year, after a$250deductibleismet.ThisiscalledtheBasicBenefit.AnExtendedBenefit is available only in Plan J that increases the annualamountto$3,000.

Plan I excludes Medicare Part B deductible and PreventiveCare but includes Prescription Drugs at the basic level of$1,250annually.

PlanJisthemostcomprehensiveandincludescoverageforallbenefitspreviously listedatthemaximumlevels.It isalsothemostcostly,however.

Which one of these plans should you buy? Plan A generallyabsorbs most of the potential expenses not covered byMedicare—withtheexceptionofthenursinghomecopayments.So,many peoplewould have enough coverage if they boughtPlanA.However,datafromthefederalgovernmentshowthatPlanFisthemostcommonlypurchased.

While thebenefitswillbe thesame,nomatterwhatcompanyissues the policy, prices will vary from state to state andcompany to company. That’s because not all states have thesame medical costs and insurance companies have differentclaimsexperience.Duringthe1980sand1990s,Medigappricesincreasedsteadily.Thisforcedmany people—and companies—to opt for a managed care approach tocoveringseniors’healthcareissues.

SincePlanCisPlanC,nomatterwhichcompanyisofferingit,whenyoushoparoundforcoverage,you’llbelookingatprice,service and reliability. It’s also vital to find an insurancecompanyyoufeelcomfortablewith—andonethat isreputableandingoodshapefinancially.Yourstateinsurancedepartmentcanalertyoutoanyproblemcompanies.

Amajorcaveat:YouonlyneedoneMedicaresupplementpolicy,becauseonlyonepolicywillpaybenefits.Althoughitisunethicalandillegaltoduplicateexistingcoverageforthesakeofgeneratingapremiumandcommission,agentshavebeenknowntodoso.Therearepenaltiesforagentswhoduplicateor“pileon”supplementalcoverage,includingthelossoftheirlicensetosellinsurance,jailtermsforuptotwoyears,andfinesofupto$10,000.

PREEXISTINGCONDITIONS

Many older people are being treated for some medicalproblems. These conditions may be significant (high bloodpressure,heartconditions,etc.)orminor(suchasallergiesormildhearing loss). Inanyevent, for insurancepurposestheseproblemsaredefinedaspreexistingconditions.

Aswith any health insurance policy, you should investigate the coveragelimitations for preexist ing conditions. First, read through the policy andask your agent for an explanation. Most Medicare supplement contractsdefineapreexistingconditionasanyconditionforwhichthepolicyholdersoughttreatmentoradviceinthesixmonthspriortotheeffectivedateofthepolicy.

MostMedicaresupplementshaveasixmonthwaitingperiodfor coverage of preexisting conditions. Some companies haveno preexisting condition exclusion, some impose a 90-day orthree month exclusion, but none can be greater than sixmonths.

CHOOSINGADOCTOR

Abouthalfofthedoctorsinthecountrywillaccepttheamountspaid byMedicare aspayment in full. This is referred to asaccepting the Medicare assignment. As an example, if apathologist or radiologist who performs services on aninpatient basis will accept a Medicare assignment, Medicarewillpay100percentofreasonablecharges.MedicarewillalsopaythecostofaMedicare-requiredsecondopinionforsurgerywith no 20 percent copayment. Medicare will also pay forservices of other specialists on the same 80 percent ofreasonablechargesbasis.

Doctors who do not accept Medicare assignments are prohibited by lawfromchargingmorethan140percentoftheMedicareprevailingchargeforoffice andhospital visits. For other services, such as surgery, the limit is

125percent.

In the past, some doctors have tried to circumvent theselimitingchargesbyrequiringpatientstocontracttopayfullcharges. The Health Care Financing Administration hascautionedthatthesecontractsarenotvalid.

Doctors and other providers must submit claims for coveredPart B services directly to Medicare, regardless of whetherthey are a participating or a nonparticipating provider. SomedoctorsaskpatientstowaivetherighttohavedoctorssubmitMedicare claims and obligate the patient to pay privately forMedicare-covered services. These waivers are also invalid,according to the HCFA, and could subject physicians to civilpenalties.

IfyourdoctorhasnotacceptedyourMedicareassignment,hewillsendthebillforPartAservicesdirectlytoyou.Inturn,youfill out a Medicare claim form and attach any itemized billsfrom your doctor—including date of treatment, place oftreatment,descriptionoftreatment,doctor’snameandchargefor service. The documents are then sent to the Medicareadminstrator in your area. Upon receiving the claim, theadministrator will send an Explanation of MedicareBenefits,showingwhichservicesarecoveredandtheamountsapproved.

APPEALINGYOURCLAIM

IfyourMedicareclaimsaredenied,youareprobablygoingtowanttoappealyourclaim.

Within six months of receiving the Explanation of MedicareBenefits notice, you must file a written request for review.The administrator will check for miscalculations or otherclericalerrors.Iftheadministratordeclinestomakeachange,anappealcanbemadetotheSocialSecurityoffice(butonlyiftheamountdisputedis$100ormore).

Youmustappear inperson to attend a hearing and presentevidence, such as a doctor’s letter, to support your point. Awritten notice of the decision will be sent to you after thehearing.

MEDICAREHMOS

Due to the increasing costs ofMedicareSupplement policies,manyseniorsareswitching tomanagedcareplans. In1998,the federalgovernmentestimated thatsome70,000Medicarerecipients amonthwere switching to some form ofmanagedcare. At that point, of the 38 million seniors and disabledeligible for Medicare, almost 6 million were enrolled in aMedicareHMO.MedicareHMOscombinethebenefitsofMedicareandMedigappoliciesallin one. However, some participants have complained about the non-responsivenessthattheplanssharewithothermanagedcareprograms.

Thefederalgovernment fundsmostof therevenue foreachparticipating HMO, which makes the cost to you about thesame as the premium you would normally pay for MedicarePart B ($43.80/ month for 1997), depending on the HMO.(However, that may be changing soon, with rising costs andincreasedclaims,companiesarebeginningtochargepremiumsin addition to the government’s funding.) Items such aseyeglassesandprescriptiondrugsarecoveredundermostHMOs.AslongasyouhaveMedicarePartB,continuetomakethepaymentsandliveinaserviceplan’sarea,youareeligibleforenrollmentwithouthealthscreening.

Youcan find thenamesofHMOplans inyourareabycallingyourstate’sinsurance office. Remember, however, the same criticisms previously discussedintermsofHMOsstillapply.

OnceyouenrollinaMedicareHMO,youcanswitchbacktoMedicareanytime.However,youmaynotswitchbacktoa

MedicareSupplementpolicyyoupreviouslyhadwithoutthe

company’spermission.Youcanbesureitwillreviewyourhealthrecord—andpossiblyturnyoudown.That’swhysomeseniorshangontotheirMedicareSupplementpolicywhileinanHMO.Thisassurescontinuouscoverageunderthesupplementiftheychangetheirmindsandgobackto

traditionalMedicareservice.Theothermanagedcareoptionyouhaveisthroughaprogramcalled Medicare Select. Basically, this is another form ofMedicare supplement insurance sponsored by the federalgovernment, that may or may not be continued. In 1998,MedicareSelectcameupforreviewand—bytheendof1998—theMedicaresystemstillwashavingtroublereplacing itasaMedicareoption.

Congress proposedMedicare Select in 1990 as a pilot program for thoseseniors who wanted some level of choice in where and with whom theycouldsecurehealthservices.ServicedeliveryisintheformofaPreferredProvider Organization (PPO) and provides standard Medicare supplementbenefits,dependingonwhichpolicyyoubuy.

IfyoubuyaMedicareSelectpolicy,youarebuyingoneofthestandard Medicare Supplement policies. You can purchase apolicythroughaninsurancecompanyorHMO—butbesuretoinquire which policy you are buying. When you enroll in aMedicare Select policy (should such policies continue to beavailable),youchooseaphysicianormedicalproviderfroma list provided by the company of “preferred providers.” Toreceivefullbenefits,youmustgotoadoctororproviderfromthelist.

Ifyouchoosetogoelsewhere,MedicareSelectpoliciesarenotrequiredtopayanybenefitsfornon-emergencyservices.So,itpays togo to yourdoctorof choice.And, if youdecideyoudon’t like the policy, you can always return to an individualMedicare policy. You will, however, have to reapply for aMedicareSupplement—justaswithHMOs.

THELASTRESORT:MEDICAID

Ifinsurancecompaniesconsideryouuninsurable—becauseofyourageorapreexistingcondition—youprobablycanobtaincoverageforastate-sponsoredhealthinsuranceprogram.

Theseprogramsshouldbeusedasalastresort,becausetheytypicallyofferonly limitedbenefits, are expensiveandusually includeawaitingperiodbeforeyourcoveragekicksin.Butatleastthey’rethere,ifyouneedthem.You can find out about these plans by calling your state insurancedepartment.

Medicaidprovidesmedicalassistancetolow-incomefamiliesandindividualsofallages.Theprogramworkswellfor

seniorswhohaverunthroughmostoftheirassets.Infact,TheHealthCareFinanceAdministrationreportsthatabouthalfofallMedicaidspendinggoestopeoplewhohadfinancial

resourceswhentheyenteredanursinghome,butreachedthepovertylevelwhiletheywerethere.

Athirdofthe$55-billion-a-yearbudgetforMedicaidgoestothoseover65,primarilytosupporttheminnursinghomes.

WHATSERVICESARECOVEREDUNDERMEDICAID?

Medicaid offers aminimum set of services includinghospital,physician and nursing home services. Additionally, stateagencieshavetheoptionofcoveringanadditional31servicesincluding prescription drugs, hospice care and personal careservices.

Medicaidisthelargestinsureroflong-termcare(LTC)intheUnitedStates—coveringthebulkofwhatmostpeoplewouldconsiderthemiddleclass. Itcovers 68 percent of nursing home resi dents and over 50 percent ofnursinghomecosts.

In1995,Medicaidexpendituresforhealthcareamountedto$152billion.Statespaid$66billion(43percent)andtheFeds

paid$86billion(57percent).Using up a lifetime of assets is a frightening scenario for anolderpersononhisorherown.Butwhatifyourspouseisstillliving at homeand youmustmove into anursinghome?Willyou have to sell the house to cover you nursing home costs?Wherewillyourspouselive?

At one time, Medicaid rules required you to liquidatevirtually all of your assets—including cash, investments,bank accounts and real estate—to qualify for coverage. Thefederalgovernmentmodifiedtherequirementsin1993toallowsurviving spousesanddisabledchildren to retainmoreof thefamily’sassets.

Now, if you aremarried and you enter a nursing homewhileyour spouse remains in your house, the at-home spouse ispermittedtokeepthefollowing:•onehome;

•onecare;thegreaterofone-halfofthecouple’sassetsor$75,740;and

upto$1,919inmonthlyincome.These amounts are indexed annually for inflation and aresignificantly lower for unmarried seniors. However, onceneitherspouse is living inor likely toreturn to thehomeandthehouse is sold,Medicaidmaydemandreimbursement forexpensesassociatedwithpriornursinghomeservices.An entire “Medicaid Planning” specialty has emerged to helppeople avoid running through their life savings beforequalifying for Medicaid. Some people are tempted to giveawayassetssothattheycanqualifyforMedicaidandstillpasssomething along to their heirs. However, the governmentfrowns on this: Federal provisions enacted in 1996 setcriminalpenaltiesfortransferringassetsforthesolepurposeofqualifyingforMedicaid.

SUMMARY

Medicare andMedicaid aren’t the onlygovernmentprogramsthat provide subsidized health insurance to Americans. Thefederal government offers smaller programs directed atfocusedgroups;andstategovernmentsusuallyoffertheirownversions of subsidized health care for poor people. ButMedicare and Medicaid are the main programs in thegovernment system. Understanding their mechanics shouldhelpyounavigatesimilarterrain.

And “navigating” is the right word. Whatever governmentagencyruns them, theseprogramsare fullof intricatedetailsthatcanmakeclaimstoughtofile.Counselingservicesmaybeavailable in your state to provide advice concerning thepurchase of Medicare supplement insurance and concerningMedicaid.

This chapter has considered the basicmechanics of themaingovernment health insurance programs. It should give you afunctional understanding of how to move through themeffectively.

8CHAPTER

THEINSANDOUTSOFWORKERS'COMPENSATION

Sofar,wehaveconcentratedonhowthevariouskindsofpersonalhealthcarecoveragework.Outsideof—orinadditionto—thosekindofcoverageisahealthcarefinancingmechanismthatcomesfromthecorporateworld:Workers’compensation.

Workers’compprogramsaredesignedtoprovideasatisfactory

meansofhandlingoccupationalinjuriesanddisabilities.Asaconsumer,you’llprobablyneverbuyaworkers’comppolicy...butyoumaycarealotabouthowthethingsworkifyou’reeverhurtonthejob.

Intermsofclaimspaideachyear,workers’compsystemsaccountformorehealthcarethanindemnityplans,managedcareplansorMedicare.

Workers’compisadministreredonthestatelevel.Andeverystaterequiresemployerstoprovidesome

form of workers’ comp benefits for their employees. Somehistoryhelpsexplainwhytheprogramsaresoimportant.

The industrial revolution gave birth to new industries andbrought together great numbers of employees: unskilled,undisciplined—andoftenselectedwithoutregardtocharacter.Workerswere exposed tohazards not in existence before,suchasrapidlymovingpowerbelts,movingmachineparts,hotormoltenmetals,poisonousgasesandchemicals.Moreoftenthannot,workerstoiledinplacesthatwerepoorlylightedandventilated. Laborwas plentiful,wageswere low, andworkerswereexhaustedfromlonghoursonthejob.

Industrial development proceeded rapidly, though at theexpenseoftheworkers.Anindustrialaccidentcouldleaveaworkerinjuredwithlittleornorecourseinresponsetoinjuriesorlostwages.

During the 19th Century, if you were injured on the job youonlyhadonesourceofredressagainstyouremployer:Instituteasuitundercommonlaw.

There were no written laws or statutes with regards to theemployer/employee relationship. Common law cases favoredthe employer—the only way you could recover money forinjuries was to prove that the injuries were due to youremployer’snegligence.

Negligencewas defined as “the lack of that degree of carethatapersonof ordinaryprudencewouldexerciseunder likeor similar circumstances.” In this case, person refers toemployers—butit’sagoodideatokeepinmind,generally.

When an injured employee could establish that injuries werethe result of the employer’s negligence, damages could berecovered. However, the common law allowed the employerthreedefensesagainstnegligencesuitsbroughtbyemployeesfor injuries sustained in thecourseof employment.The threecommonlawdefenseswere:

assumptionofrisk,contributorynegligence,andfellow-servantrule.

Theassumptionofriskdefensestatedthatanemployercouldnot be held liable for injury to an employee who voluntarilyenters into the employment, knowing about any unsafeconditionsof thepremisesorwork,andwhounderstands theriskslikelytoaccompanytheemployment.

The contributory negligence defense held that even if theemployerviolatedhisdutytoprovideasafeworkplaceandwasnegligent, the injured employee was not entitled to recoverdamages if theemployee’sownnegligencehadcontributedtotheinjuries.

Thisconceptevolvedintocomparativenegligence,orconsiderationgiventotheextenttowhicheachparty’snegligencecontributedtotheinjury.Thatremainsabigemploymentissuetoday.The third principle, the fellow-servant rule, stated that anemployerwas not liable for an injury to an employee injuredsolelyasaresultofthenegligenceofafellowservant(thatis,afellowemployee),whowasactingwithin the scopeofhis orheremployment.Thiswasanoften-usedargument.

Needless to say, getting your employer to pay during the industrialrevolutionwasn’texactlyapieceofcake.This inability increasedthenumber of industrial injuries and diseases and resulted in a large number ofuncompensatedworkersandtheir families.Eventually, thisbegantoposeserioussocialproblemsandimpactthenation’seconomichealth.

Today,with the enactment ofworkers’ comp laws, things aredone somewhat differently. Now, the law holds that theemployershallassumethecostsforbenefitsthatthelawsaystheemployeeisowed.

You—the employee—pay nothing for this protection. Youremployer includes the cost of workers’ comp benefits in thepricechargedforproductsorservicesjustasheincludesotheroperating costs— such as salaries, rent, telephone expenses,suppliesandotheroperatingandproductionexpenses.

This coverage isn’t completely free. In most situations,employees have given up their right to file suit againstemployersforworkplaceinjuries inexchangeforthebenefits.Some classes of employees are exempt from the laws, andsuitsmaystillbe filed fordamageswhicharenot coveredbythecompensationlaw.Inthosecaseswhichdofalloutsidethelaw, the three common law defenses are still available to theemployers.

The workers’ comp system benefits both you and your employer. Eventhoughyouremployer losestherighttodefendhimself incaseswherehemay not have been negligent, he can predict the costs necessary foremployee injuries by means of his workers’ compensation insurancepremium. In most states, he can even reduce the insurance premium byreducinglossesthroughimplementingasafetyprogram.

Through the 1980s and 1990s, however, the cost of workers’compexploded.In1991,thesystemcostemployers$70billion—that’salmost twicewhat theypaid in1985.The impactwasevenwider than the1986-to-1991 statistics suggest.Thecost

oftheaverageworkers’compclaimmorethantripledintenyears,passingthe$20,000mark.

While all state systems have the same objective— to providebenefits to injured workers—the similarity ends there. Statelaws differ not only in detail, but in almost every majorfeature.So, it’s important thatyou look into the features thatmake up your state laws and figure out how the program isadministeredinyourstate.ELIGIBILITY

It is important to distinguish between the eligibilityrequirements for health insurance and those for workers’compinsurance.Withahealthinsurancepolicy,theemployermay decide to offer coverage only toa class of employees;such as “all salaried employees” or “employees who haveworkedoneyearormoreforthefirm.”

With workers’ comp insurance, singling out classes ofemployees for coverage is not permitted. Eligibility forworkers’ comp is statutorilydetermined.Full-timeemployees,part-time employees and even illegal workers (in California)arecoveredbyworkers’compinsurance.

In order to be eligible for workers’ comp benefits you must work in anoccupationthat iscoveredbyworkers’compandhavehadanaccidentorsicknessthatiswork-related.

Inmoststates,allworkers(exceptthosespecificallyexcluded)comeunderworkers’complaws.Forthesestates,thelawmustlist the employees excluded. Commonly excluded employeeinclude:

farmlabor,domesticservants,andcasualworkers.

Even for these employees,workers’ comp coverage is usuallyavailableonavoluntarybasisattheelectionoftheemployer.

Early workers’ compensation laws applied only to very hazardousoccupations. Over the years, the scope of the laws has expanded toembracemoreandmoreoccupationalgroups.Everystatehassomeexemptclassifications, but it is estimated that about 90 percent of the nation’semployeesnowfallunderworkers’compensationlaws.

Some states exempt employers from workers’ comp laws ifthey employ fewer than a stipulated number of employees(usuallythree).But,evenifanemployerhasfewerthanthreeemployees, he may voluntarily decide to comply with theworkers’complawtoavoidliabilityclaimsdowntheroad.

Today, in most states, an employer subject to compensationlaws is obligated to buy workers’ comp insurance ordemonstrate an ability to provide the required benefits.However, most states permit an employer to set up a formalprogram of self-insurance—including specific loss-handlingproceduresandproperfundingofreservesagainstclaims.

Companies largeenough tooffer self-fundedhealth insurancetoemployeesareusuallygoodbetstoself-insuretheirworkers’comp.Thepurposeofworkers’compistoprovidebenefitsifyouhaveanaccidentorsicknessthatisjob-related—arisesoutofandinthecourseofemployment.Fallingon thedance floorwhileattempting theElectricSlideandbreakingyourarmdoesnotmakeaworkers’compclaim;slippingonawetflooratthejobsiteandbreakingyourarmdoes.

BENEFITS

Workers’ comp laws provide for the payment of four types ofbenefits:

medicalbenefits;

incomebenefits;deathbenefits;andrehabilitationbenefits.

For the purposes of this book, wewill focus on themedicaland rehabilitation portions of workers’ comp benefits. Theothersdonotdirectlyimpacthealthcoverageissues.

Medical benefits provided under workers’ comp areunlimited.Ifyouhaveaninjuryordisease,youareentitledtoreceiveallnecessarymedicalandsurgicaltreatmenttocureorrelievethecondition.

Certainmaximumsor limitsmay apply to a type of care or aparticular medical item—for example, stress-relatedpsychotherapymaybe limited toa specificnumberof visits—butoverallbenefitsareunlimited.Rehabilitaitonbenefitshavebecomerecognizedasavaluabletool for reducingworkers’ comp costs and returningdisabledemployees to their jobs, as soon as possible. These benefitscover physical therapy, alternative-medicine treatment andrelated treatment that does not necessarily fit in a strictdefinitionofmedicalservice.

Rehabilitation benefits under a workers’ comp policy will usually providecoverageforservicessuchastherapy,vocationaltraining,devicessuchaswheelchairs, and certain costs connected with travel, lodging and livingexpenseswhileyouarebeingrehabilitated.

Rehabilitation also aids the insurance company. It helps torestore the injured worker to his former earning capacity.Today,insurancecompaniesareamongtheleadersinprovidingrehabilitationfortheindustriallyinjured.

Moststatesofferrehabilitationbenefits.Somestateshavesetupaspecialfundtoprovidethesebenefits,whileothershavenot.Various states imposeweekly limits,maximum limits and

speciallimitsforspecifictypesofrehabilitation.

The laws—and the benefits provided—vary somewhat fromstate to state. But benefits tend to be low—about $300 aweekatthemost.Ifyouareseriouslyinjured,youmightneedtoseeaspecialistforfollow-upcare.Thesecostsare typicallycoveredbyyouremployer under workers’ compensation benefits. However,youremployermighthaveasayindecidingwhatspecialistyousee.

WHATDOESCOMPCOVER?

Asmentionedbefore,workers’compensationcoverageappliesto bodily injuries and diseases “arising out of and in thecourseofemployment.”Coveredlossesmustbework-related(losses that are nonwork-related are not covered byworkers’compensation).

Any covered injury must be accidental, and that termincludesdeathresultingfromtheaccident.

Only occupational diseases unique to the occupation arecovered.Acause-and-effectrelationshipmustexistbetweenthejobandthedisease,andordinarydiseasessufferedbythegeneralpublicarenotcovered.

Thelawscommonlyrequirethathigherbenefitsbepaidforcertainlossesasapenaltytotheemployer.Benefitsareoftenincreased if a loss results from the serious or willfulmisconduct of the employer (for example, failing to providerequiredsafetyequipment).

A number of states require that double benefits be paid forinjury to a minor who is employed illegally. These extrapaymentsarenot coveredbyaworkers’ compensationpolicy,andtheadditionalamountmustbebornebytheemployer.

The cumulative effect of two injuries combined can be greater than theeffect of the same two injuries in isolation. Example: An employee wholosessightinoneeyewouldstillbeabletofunctioninmanyjobs. Ifthatemployee suffered a subsequent injury causing loss of sight in the othereye,thedisabilitywouldbegreaterthanifthefirstinjuryhadnotoccurred.

Onceapersonhasbeenincapacitated,thereisagreaterriskthatanadditionalinjurymayleadtopermanenttotaldisability,requiringhigherstatutorybenefits thanmightbeexpectedforthesecondinjuryalone.

POLICYCOMPONENTS

Whenthefirstworkers’compensationlawswerepassed,therewere no insurance companies providing workers’ compcoverage.Companiespaidbenefitsoutofoperatingfunds.

Today,manypropertyandcasualty insurancecompaniesofferworkers’ comp insurance, while some companies specializeonlyinworkers’compensationinsurance.Six states have passed laws requiring that any workers’ comp insurancepurchasedinthatstatemustbepurchasedfromafundsetupbythestateandnotfromaprivateinsurancecompany.Whensucharrangementsexist,they are called “monopolistic state funds” or “exclusive funds.” The sixstates are Nevada, North Dakota, Ohio, Washington, West Virginia andWyoming.

Inotherstates,thereisnostateworkers’compensationfund—insurance must be purchased from private insurancecompanies.And in somestates,botha state fundandprivateinsurancecompaniescompeteforbusinessfromemployers.

Insurersarenotobligatedtouseanyparticularworkers’comppolicyform,and somevariationsmaybe found in the contract actually being is sued.However,theNationalCouncilonCompensationInsurancehasdevelopedastandardpolicyanditisfollowedwithadegreeofuniformity.

The standard policy provides a complete package ofprotection foranemployer’sobligationsunderworkers’ complawandliabilitywhichisoutsidethatlaw.Endorsementsmaybeusedtocoverexposureswhicharenotinsuredbythebasicpolicy.

Initscurrentform,thepolicyhaseightparts:Informationpage(orDeclarationspage)GeneralsectionPartI—Workers’compensationPartII—Employers’liabilityPartIII—OtherstatesinsurancePartIV—DutiesifinjuryoccursPartV—PremiumPartVI—Conditions

The policy includes two coverage parts. Part I, workers’comp,protectsthepolicyholderagainststatutoryclaims.PartII,employers’liability,protectsagainstcommon lawclaims.Somecommonprovisionsarerepeatedineachsection.

Under each coverage, the insurance applies to accidentalbodily injury, death or disease, occurring during the policyperiod and caused or aggravated by the conditions ofemploymentbytheinsured.

In short, workers’ comp is first-dollar coverage. You don’t have to worryaboutdeductiblesorcoinsurance.Youdon’thavetoworryaboutlimitstocoverage,etc.Ifyouareinjuredatwork,youwillbecoveredforwhatevermedicalcareyouneedtogetbetter.Theonlyissuesthatwillimpactyourtreatment are related to seeing the doc tor that your employer suggests(andeventhosearelimited).Supplementary payments are also provided, includingcoverage for appeal bonds, bonds to release attachments,interest on judgments, claim expenses, litigation costs taxedagainst the employer and certain other expenses (other than

lossofearnings)incurredattheinsurancecompany’srequest.

Underworkers’comp,youremployerhassubrogationrightsif anyone other than you is liable for a covered injury.Subrogationisdesignedtopreventacompanyfromcollectingtwice for the same loss. It only applies when a third partycaused the loss or was primarily responsible for it throughnegligence.

If any other insurance applies, the insurance company willonlypayitsshareofclaimsandcosts—subjecttoanylimitsofliability, all shareswill be equal until a loss is paid. (Note: incontrasttomostotherformsofcommercialcasualtyinsurance,workers’ compensation and employers’ liability coveragecontributeequalshares when other insurance applies.Mostother coverages contribute proportionally based upon therespectivelimitsofinsurance.)

COVERAGEISSUES

Certain payments will be the sole responsibility of youremployer and not the insurance company. Any requiredpayments which are in excess of the benefits regularlyprovided by the law are not covered by the policy. Suchpenaltiesmayberequiredifyouemployerisguiltyofseriousor willful misconduct, or knowingly employs someone inviolation of law, or fails to comply with health and safetyregulations.

Penalties may also be imposed for discharging, coercing, ordiscriminatingagainstanemployee.

Some legal provisions will apply automatically. Theseprovisions declare that the insurance company and youremployerareoneandthesamewithregardtonoticeofinjurygiven by a worker, and with respect to matters of legaljurisdiction.Bankruptcy of the employerwill not relieve theinsurance company of its policy obligations. The insurancecompany agrees to be directly and primarily liable to anyone

entitledtoinsurancebenefits.

The policy says that the insurance conforms to the workers’compensationlaw,andanypolicyprovisionsinconflictwiththelawareautomaticallychangedtoconformwithit.

EMPLOYERS'LIABILITY

The limits of employers’ liability include bodily injury byaccident,bodilydiseaseandbodilydiseasebyaggregate.Thiscoverageprotectsagainstavarietyofcommonlawexposures.It is needed to fill gaps in the compensation coverage and tocoverclaimsnotsubjecttothecompensationlaws.

Although you—as an employee—give up the right to sue inexchange forworkers’ compbenefits,notall employeescomeunderthelaw.Thosenotcoveredmaysue.Inrecentyears,successfulsuitsagainstemployershavealsobeenfiledbyspouses and children of injured workers. Employers’ liability insurancecoverstheseclaims.

Under Employers’ Liability coverage, the insurance companyagrees to pay all sums (subject to policy limits) which youremployerbecomeslegallyobligatedtopayasdamagesbecauseof employee injuries which are covered by the insurance—providing that damages result directly from an injury arisingoutofandinthecourseofemployment.

Employers’ Liability Coverage covers the following types ofclaims:

damagesclaimedbyathirdparty;careandlossofservice;consequentialinjurytoaspouseorrelativeoftheinjuredworker;

actions brought against the insured in a capacity otherthanasemployer.

Injuries to workers covered by federal laws—for example, theLongshoreman’sAct—areexcludedbecausethepolicyisdesignedtocoverexposureswhicharesubjecttostatejurisdiction,butcoverageformanyoftheseexposuresmaybeaddedtoapolicybyendorsement.Fines,penaltiesand damages for violations of law are ex cluded because the policy isdesignedtocoveronlytheactuallegalliabilityexposuresofemployers.

OCCUPATIONALDISEASES

Sincemanyoccupationaldiseases—suchasasbestosis,silicosisand diseases associated with radiation exposure—are slow todevelop,severaladministrativeproblemscanresult:

aworkermaybeemployedbyseveralemployersandbeunderaconstantdiseaseexposure,

the disablement may take place sometime after thelastinjuriousexposure,or

due to the time period involved, several differentcarriers may cover workers’ comp for the sameemployer.

Becauseworkers’componlyprovideson-the-jobcoverage, itdoesnotprovidecoverageafterworkhours, oronweekends,holidaysorvacations.

Traditionally, other forms of health insurance have providednonoccupationalcoverageonly,forinjuriesanddiseaseswhichare not work-related. Many of these policies contain aworkers’ comp exclusion. Coverage is specifically excludedforlosseswhicharecoveredbyworkers’complaws,disabilitybenefitlawsorsimilarlaws.

Many people have both occupational and non occupational coveragebecause employers fre quently provide or make group health insuranceavailable.Otherspurchaseindividualorfamilyplansofhealthinsurancefornonoccupational exposures. But this division of coverage means thatseparate insurancepoliciesandseparate insurance carriers are involved,thatthereisaneedtodeterminewhethereachclaimiswork-relatedornot,

andthatsomegapsincoverageorduplicationsofcoveragemayexist.

24-HOURCOVERAGE

Therehavebeenseveralproposalsaimedat24-hourcoverage—ablendofoccupationalandnonoccupationalcoverageintoasingle coveragepackage, or at least providea singledeliverysystemoradministrativesystem.Variousproposalsaccomplishthisgoaltodifferentdegrees.

Theproponentsof24-hourcoveragemaintainthattheconceptoffersanumberofpotentialadvantages.Mostoftheserelatetopossiblecostsavings—butafewlieinthecoveragearea.

The most significant advantages which have been identifiedare:

possiblereductionsingapsincoverage;possible reductions induplications of coverage forthesameloss,whichwouldreduceinsurancecosts;

possible administrative savings resulting fromcombiningtheclaimsprocessingsystems;

possiblestructuralefficienciesandsavingsresultingfrom integrating different health care deliverysystems.

Although it is generally understood that 24-hour coveragemeanssomecombinationofoccupationalandnonoccupationalforms of health insurance, there is no single definition ofwhat24-hourcoveragemeansorwhatitshouldinclude.

24-HOURACCIDENTCOVERAGE

Accident coverage would provide 24-hour medical anddisability coverage for accidental injuries, whether work-related or not, but only work-related diseases would becovered. Here, we find broad accident coverage and limitedcoveragefordiseases.

Example:Martha has 24-hour accident coverage and is injured in a rollerskating accident when she loses control and crashes into a cement wall.WhileexaminingandtreatingMarthaforherinjuries,thedoctorsdiscoverthatshehascancer.This policy will provide benefits for the medical treatment of Martha’sinjuries,and itwillevenpaydisability incomebenefits if she isunable toworkbecauseofthoseinjuries.However,itwillnotprovideanybenefitsforMartha’scancertreatmentsoranylostworktimeduetocancer(becausethediseaseisnotwork-related).

In yet another approach, 24-hour medical and disabilitycoverage would be provided for all diseases, whether work-related or not, but only work-related accidents would becovered. Here we find broad disease coverage and limitedcoverageforaccidents.

MEDICALANDDISABILITYPACKAGE

This coverage package provides the most completecombination of 24-hour occupational and nonoccupationalcoverage. It includesmedicalanddisabilitycoverage forbothaccidentsanddiseasesona24-hourbasis(ithasbeenreferredtoasUniversal24-HourCoverageforthisreason).

In recent years, the National Association of InsuranceCommissioners (NAIC) has assisted its membership in thegathering and sharing of information about 24-hour coverageand pilot programs in various states. Key components of thiseffort includedtheworkdoneby theNAIC24-HourCoverageWorkingGroupandtheWorkers’Compensation(D)TaskForce.The task force identified a number of significantbarriers totheimplementationof24-hourcoverage.Thesebarriersmaybe classified as legal, institutional and regulatory. While notattempting a complete discussion of these barriers, we willsummarizethenatureofthesebarriersforyou.

There are a variety of barriers that haveprevented the rapiddevelopmentandimplementationof24hourcoverageproducts.Therearealsosomepotentialconflictswithfederallaw.There

is a need to preserve the “exclusive remedy” aspect ofworkers’compbenefits.Thereareinstitutionalbarriersduetothe different nature of occupational and nonoccupationalbenefits,which entities have traditionally provided them, andhowthebenefitsareusuallystructured.Additionally,thereareafewregulatoryissuestoberesolved.

SPECIALEXPOSURES

If you are an independent contractor, a subcontractor, anemployee of a subcontractor, self-employed, a principal orinvestor who doesn’t earn wages and—in most cases—avolunteer,youwillnotqualifyasanemployeeunderworkers’comp.

If this is the case, youmight want to secure certificates ofworkers’ comp coverage from the parties with whom youwork. Principals may be held liable for the employees ofcontractors who fail to meet obligations under the law, andcontractors can be held liable if their subcontractors fail tomeettheobligations.SUMMARY

Workers’compensationprovidesmedicalanddisabilitybenefitsfor occupational injuries or diseases—accidental injuries thatoccuratworkoroccupationaldiseasesthatarecontractedonthe job. Workers’ comp laws have drastically altered theemployee-employerrelationship.

This chapter has examined various methods of coverage andhealthbenefitswhichareavailable toyouasanemployee. Inthe next chapter, we will discuss using other forms ofinsurance.

9CHAPTER

CANCER,COBRA

ANDOTHERSPECIALCOVERAGE

In the heated debate between managed care and traditionalindemnity insurance, some smaller but equally importanthealthcoverageissuesarelost.Thesesmallerissuesareoftenrelatedtospecialtyhealthinsurancepolicies—matterswhicharenotbroadenough tobecomepolitical debates...butwhichcanbe devastatingwhen they impact an individual person orfamily.

In this chapter, we will consider how some of these smallercoverageswork.We’ll also takeaquick lookat the financialandmedicalfactorswhichimpacttheircoverage.

Ifinsurancecompaniesconsideryouuninsurableduetoyourhealthormedicalhistory,orifyouareinthemarketformorethanjustyourtypicalmedicalandhospitalizationcoverage,youmightwanttoexploretheoptionsofother,lesscommonlyusedformsofhealth-relatedbenefitsorpolicies.

Some people opt to purchase alternative coverages— on astand-alonebasisorcombinedwitheachother—suchasdentalcoverage, vision coverage, a separate prescription plan oreven long-term care coverage. Of course, some of thesepeople look for the coverage precisely because they suspecttheywillhaveaparticularkindofneed.

On the other hand, some people choose these coverages forfinancialreasons:Becausetheiremployersoffertheinsurancefor free...or for a discounted fee via a tax-advantaged“cafeteriaplan.”

Whatever the reason people choose specialty cov erages, the plans willlikely grow in importance as technology and financial sophistication ad

vance. Some risk experts in the insurance indus try predict that soon“healthinsurance”willbeacollectionofspeciltycoveragesforspecificdiseases and conditions. This would allow maximum flexibility for thepolicyholder—andmaximumprecisionfortheinsurancecompany.

In themeantime, specialtycoverages remain...a specialty.Butonethat’sworthconsideringindetail.

CANCERPOLICIES

Cancerinsuranceissometimesreferredtoasalimitedriskpolicy or the even older name dread disease policy. Thenamesreflectthebasictruthofthecoverage:Itonlyprovidesbenefitsforasinglecategoryofhealthrisks—cancer.Generally, this type of policy provides a daily benefit orindemnity (such as $50, $75, $100, etc.) if you or a familymember is hospitalized for cancer or is receiving regularcancer treatment on either an inpatient or outpatient basis.However, a specific insurance company or particular policymay limit coverage even more steeply. In this case, dailybenefitsmaybeprovidedonlyforinpatienttreatmentofcancerwithoutpatientexpensesexcluded.

If you have a cancer policy and are hospitalized for cancer-related treatment or surgery, over and above any otherbenefits, the policy will indemnify you at a specified amount($100 per day is common) for as long as the treatment orhospitalconfinementcontinues.

Ofcourse,ifyou’rehospitalizedduetoabrokenleg,thecancerpolicywillpaynothing.

Cancer policies do contain limitations in terms of both thedailybenefit, apolicymaximum or a time limitation.Forexample, a plan may pay $100 per day for up to 30 days ofconfinement,90daysoftreatment,etc.

Abasicmedicalexpensepolicyormajormedicalplanwillcovercancerlikeany other illness would be covered—on an expense-incurred basis. Thecancer policy indemnifies you on a daily basis without regard to actualexpensesincurred.If you have hospitalization insurance do you need anadditionalpolicy for cancer insurance?Theanswerdependsuponyourabilitytopayextrapremium,awarenessoftheriskofcancer,etc.Becausecancer isoneof the leadingcausesofdeath,mostpeopleareawareof its risksandcosts.However,this awareness may not create any urgency for “extraprotection”bymeansofacancerpolicy.

For example, almost everyone is aware of the re lationship betweensmokingandlungcancer;yet,hundredsofthousandscontinuetosmokebecausetheydon’tcareordon’tbelievethecancerwillhappentothem.Or,evenmoreunfortunately,theysimplycan’tquit.

Do smokers buy cancer insurance? Probably not. Before theyissueapolicy,mostinsurersthatwritecancercoveragewillaskyouifyousmoke.Ifyouanswer“yes,”thepremiumsareveryhigh.

In most other cases, the premiums for cancer insurance arerelatively low—just a few dollars in annual premium perthousanddollarsofcoverageforahealthypersoninhisorherthirties.

So,whydon’tmorepeoplebuytheinsurance?Severalreasonsstandout.First,manypeopledon’tseeareasontobuyextracoverage when they already have regular health insurance.Second,mostconsumersdon’t liketothinkabouttheirhealthin terms of contracting specific, deadly diseases. Third, mostinsurance companies would rather focus on broad coveragessold to largeaudiences...theydon’tencouragetheiragentstosellspecialtypolicies.

Ofcourse,aparticularpersonmaybemoreawareofcancer’seffects,duetohisorherownexperience—thelossofaloved

onetothediseaseorafamilyhistory.Thispersonwillprobablybemoreinclinedtobuytheextraprotection.

Buyingcancerinsuranceisachoicethatyouwillhavetobaseon your own specific needs and motivations. The coverageoften will duplicate what you are paying for in yourcomprehensive medical plan. Be sure you understand thelimitations and exclusions—andwhether or not you have anyrealneedforthiscoverage—beforeyoubuythepolicy.

ACCIDENTALDEATHANDDISMEMBERMENT(AD&D)

AD&D is a form of coverage that pays either a specifiedamount or a multiple of theweekly disability benefit if apolicyholderdies,loseshisorhersight,orlosestwolimbsasaresultofanaccident.

Thisplanhastwoparts:theaccidentaldeathbenefitandtheaccidentaldismembermentbenefit.

The accidental death benefit—commonly referred to as theprincipalsum—isactuallythe“faceamount”ofthepolicy.So,ifyoubuya$100,000AD&Dbenefit,theprincipalsumpaidtoyourbeneficiaryifdeathiscausedbyanaccidentis$100,000.

Your insurancecompanywilldefine—ina liberalorrestrictiveway—thewordsaccidentandaccidentaldeathinthepolicy.

We will examine the definition of accident here, because ifyou’re in themarket forhealth insurance,youprobablywon’tneed to determine how your insurance will define accidentaldeathforthepurposesofreceivinghealthbenefits.

Ifyougetinanaccidentandsufferthelossofalimb—butdon’tdie—the policy’s accidental dismemberment benefit will bepaid.Thisbenefitisreferredtoasthecapitalsum.Thecapitalsumisthesameasthefaceamount.So,ifyouhavea$100,000AD&Dbenefit,thecapitalsumisthesame$100,000.

Eligibilityforthedismembermentbenefitusuallyrequirestheactualseveranceofabodylimbsuchasanarmoraleg.Thisisdifferentthan lossofuseofa limb.Andthedistinctiongetsalittlegory.

Ifyouareseverelyinjuredinanaccidentandsuffersthelossofuseofyourlegs, the capital sumwill not be paid for loss of use. Your legsmust beseveredasaresultoftheaccident.Mostpolicieswillrequiretheseveranceoftwolimbs(suchasbotharms)inorderforthefullcapitalsumtobepaid.Lossofonly one limb frequently results in just 50 percent of thecapitalsumbeingpaid.AD&Dpoliciesusuallyrequirethatthelossmustoccurwithinaspecifiedperiodoftimefollowingtheaccident,suchas90days.

For example, if you are injured in an accident and lingerbetween lifeanddeathand then finallydie fourmonths later,theprincipalsumwouldnotbepaid,sincedeathoccurredafterthe90-dayperiod.

AD&Dbenefitsarenormallypurchasedintheformofariderratherthanasaseparatepolicy.Thepremiumisusuallylow;oftenjust10or20centsperthousanddollars. Itwouldbe tooexpensive for the insurancecompanytoissue a complete policy in return for just a $25 or $50 annual premium.Becauseofthis,thebenefitsareusuallymadeavailableasaridertoalifeorhealthpolicy.

HOSPITAL-SURGERYCOVERAGE

This specialty coverage—which was more common in pastdecadesthatinthe1990s—insuresyouagainstspecific,limitedcosts related to surgical procedures and breif hospitalstays.

Mostpoliciesmayprovidefirst-dollarcoverage. Thatmeansthatthereisnodeductible,oramountthatyouhavetopay,foracoveredmedicalexpense.Otherpoliciesmaycontainasmall

deductible. In either case, the coverage has to start quickly,becauseit’sdesignednottolastverylong.

Hospital-surgical policies usually do not cover lengthyhospitalizationsandcostlymedicalcare.Intheeventthatyouneed these types of services, youmay incur large expensesthataredifficulttomeetunlessyouhaveotherinsurance.

A caveat: These benefits are generally considered to bereimbursements formedical expenses already incurred, andthatcanraisesometaxissues.

Youcan’tdeductmedicalexpensesfromyourincomefortaxpurposesthathavebeenreimbursedbytheinsurancecompany.Thisistruewhetherthepremiumsforthepolicywerepaidbyyouoryouremployer.

CATASTROPHICMEDICALCOVERAGE

Catastrophic medical coverage pays hospital and medicalexpensesaboveacertain—usuallyhigh—deductible.Youmayberesponsiblefor$15,000or$25,000inmedicalbillsbeforeacatastrophicpolicybeginstocoveryou.

Onceyougetthere,themedicalexpensebenefitsusuallyhavenolimit—soyouareentitledtoreceiveallnecessarymedicalandsurgicaltreatmenttocureorrelieveacondition.However,your insurance company might set certain maximums orlimits for a particular type of care or a particular medicalprocedure.But, even in this case, overall benefits areusuallyunlimited.

In many ways, a catastrophic policy will function just like amajormedicalpolicy.Thepoliciesprovidebenefitswhenyouhave a covered condition that requires hospitalization. Thesebenefits typically include roomandboard and otherhospitalservices, surgery, physicians’ nonsurgical services that areperformed in a hospital, expenses for diagnostic x-rays and

laboratory tests, and room and board in an extended carefacility.

Benefits for hospital room and boardmay be a per-day dollar amount orpart of the hospital’s daily rate for a semi-private room. Benefits forsurgerytypicallyarelisted,showingthemaximumbenefitforeachtypeofsurgicalprocedure.

Generally,smartconsumersusecatastrophicpoliciesinoneofseveralways:

as additional protection to combine with a limitedhospital-surgical policy or a major medical policywithalowerthan-adequatelifetimelimit;

asalast-resortpolicyforpeoplewhoare inpoorhealthanddon’tqualify foranyother formofcoverage;

• as back-up coverage for companies that self-fundhealthinsurancebenefitsofferedtotheiremployeeesorindividuals using alternative funding tools likeMedicalSavingsAccounts(MSAs).

Generally,acatastrophicpolicyisnotanyone’sfirstchoiceforhealth coverage. Extremely wealthy people may not mindpaying a $25,000 deductible out of pocket. People with poorhealth may have no choice. Otherwise, another form ofcoverage—evenastingyHMO—willprovidemorecoverageperdollarspent(onpremiumsanddeductibles).

DENTAL,VISIONANDPRESCRIPTION

In addition to medical and hospitalization coverage, somepeopleopttobuycoverageforthingssuchasdentalexpenses,visionexpensesandevenprescriptionexpenses.

Dental insurance—whichyoucangetasadditionalcoverageunder most group plans, through a prepayment plan or

throughadentalservicecorporation—willreimburseyouforat least part of the money you spend on dental service andsupplies.

Dentalcoverageusuallyincludespaymentforpreventivecare,suchasregularcheckups,x-raysandcleanings.Italsopaysforthe thingsmostpeoplehate about dentalwork: fillings, toothremoval,bridgework,oralsurgeryand—ugh—rootcanals.This insurance also will help you in a more limited way—50 percent is acommonfigure—withexpensesfordenturesandorthodonture.

Normally, you’ll have to shell out a pretty hefty copayment,although that copayment may be smaller for preventiveservices. (Typically, insurance will not help pay for cosmeticwork on your teeth.) Vision plans typically are discountservices.Forasmallfee—about$15to$20ayear—yougetamembershipcardthatentitlesyoutodiscountsoneyeexams,glasses and contacts. These discounts (usually in the 50percentrangeforeyewear)oftenaregoodatawidevarietyofstores, includingmostof themajorchains.Someof theplansalso offer contact lenses at a discount by mail. Some evenprovideadiscountonnon-prescriptionsunglasses.

Ifyoupurchaseglassesorcontactlensesonaregularbasis(forexample,ifyouweardisposablelenses),theseplanscanbecost-effective.

Prescriptionplansaremuchlikevisionplans.Theyalsogetyouadiscountonprescriptionsifyouvisitaparticipatingpharmacy.Again,theytypicallyincludemostmajorchains.Discountsrangefrom5percentto50percentonmostdrugs.Discountsmaybehigherifyoupurchaseyourprescription

drugsthroughamail-orderprogram.Most people who have health insurance do not need aprescription plan—unless they have an extremely highdeductibleonamajormedicalplanandpurchaseprescriptiondrugsonaregularbasis.

LONG-TERMCAREINSURANCE

Acoveragethathasbeengainingnationalattentionduringthepastdecadeis long-termcareinsurance. In the late1980s,the number of companies selling this coverage doubled,accordingto theWashington InsuranceCouncil.ByDecember1991,morethantwomillionpeoplewerebuyinglong-termcareinsuranceprotection.

Long-term care insurance provides a wide array ofmaintenanceandhealthservices—medicalcare,nursingcare,therapy,etc.—ifyoubecomechronicallyillordisabledandareunable to care for yourself for an extended period of time. Itmaypayforyourcareonaninpatientoranoutpatientbasis—or even entirely at home. These services generally are notcoveredbyotherhealthinsurance.

Long-termcarecanbeveryexpensive.Onaverage,ayearinanursinghome costs about $40,000. In some regions, itmaycostmuch,muchmore.Homecareislessexpensive,butitstilladdsup.Home care can include part-time skilled nursing care, speech therapy,physical or occupational therapy, home health aides and homemakers.Bringing an aide into your home just three times a week—to help withdressing,bathing,preparingmeals,andsimilarchores-caneasilyadduptonearly$1,000amonth,or$12,000ayear.Add in thecostofskilledhelp,suchasphysicaltherapy,andyourcostscouldbegreater.

Most long-term care policies pay a fixed dollar amount,typically from$40 tomore than$200aday, foreachdayyoureceivecoveredcareinanursinghome.Thedailybenefitforat-homecareisusuallyhalfthebenefitfornursinghomecare.Becausetheper-daybenefityoubuytodaymaybeinadequatetocoverhighercosts inthefuture,mostpoliciesalsoofferaninflationadjustmentfeature.

Unlessyouhavealong-termcarepolicy,youarenotcoveredforlong-termcareexpensesunderMedicareandmostothertypesofinsurance.

Itmakessenseformostpeoplewithsomeassetstoprotecttobuy long-term care coverage. Recent changes in federal lawmayallowyoutotakecertainincometaxdeductionsforsomelong-termcareexpensesandinsurancepremiums.LIMITEDANDSPECIALRISKS

Limited risk policies generally include accident-onlycontracts or contracts that provide coverage for specificsituations.Forexample,atravelaccidentpolicypurchasedata local airport usually covers an individual for travel on theairplaneonthatparticularday.

In contrast, a special risk policy is one which covers anunusualtypeofrisk.Forexample,aprofessionalfootballplayerinsures his legs so that if he receives a career-ending injury,the policy would indemnify him for the loss (usually loss ofincomeandearningpotential).

This type of risk cannot be covered under a regular accidentpolicy.

Specified ordread disease policies provide benefits only ifyoucontractthespecificdiseaseorgroupofdiseasesnamedinthepolicy.

Becausebenefitsarelimitedinamount,thesepoliciesarenotasubstitute for broad medical coverage. And specified diseasepoliciesarenotavailableineverystate.

HOSPITALINDEMNITYPLANS

Intheory,whenapersonishospitalized,thereare—inadditiontomedicalexpenses—additionallivingexpensesincurred.If the hospitalized person turns out to be a homemaker andmother, her family may incur day care and housekeepingexpenseswhile she is in the hospital. And her hospitalizationinsurancemaynotcoverallofthemedicalexpenses.Inshort,thewomanmaywellneedadditionalmoneyatthetimeofahospitalization.

Ahospitalindemnityplanprovidesadailybenefitforeachdayyou are hospitalized—and this is paid without regard to thehospital expenses incurred. This daily amount is paid to youand the benefit is triggered simply by confinement as aninpatient.

Anindemnitybenefitmaybe$50,$150,etc.,perday.Thetotalbenefitduewillbeasimpletotalofthenumberofdaysyouareinthehospital.Ifyouarehospitalizedfor10daysandthedailybenefitis$100,thenyouareeligibleforatotalof$1,000.

Example: Tom has amajormedical policy with a $500 deductible and 80percentto20percentcoinsuranceonthefirst$5,000ofexpenses.Healsocarries a $100 per day hospital indemnity plan. Tom is hospitalized formajorsurgeryforatotalof20days.Inaccordancewithhismajormedicalpolicy, hewill have aminimumof $1,500 out-ofpocket expense. If Tom’stotalexpenseis$1,500,hishospitalindemnitypolicywillprovidehimwithacheck intheamountof$2,000.Thischeck ispayabletoTom,nottotheprovider.Tomcanusethisamountinanywayhepleases.Generally, hospital indemnity plans are considered to be asupplemental coverage. You can’t possibly cover all yourhospital expenses with a $100 or even a $200 per dayindemnity plan. If you need supplemental benefits—reimbursement for deductibles and coinsurance payments—thenahospitalindemnitypolicymaymakesense.

Hospitalindemnitypoliciesfrequentlyareavailabledirectlyfrominsurancecompaniesbymailaswellas through insuranceagents.Youwill findthatthesepoliciesoffermanyoptionsonbenefitsandterms,sobesuretoaskquestionsandfindtherightplantomeetyourneeds.

Some policies contain limitations on preexisting medicalconditions that you may have before your insurance takeseffect. Others contain an elimination period (EP), whichmeansthatbenefitswillnotbepaiduntilafteryouhavebeenhospitalizedforaspecifiednumberofdays.Whenyouapplyforthepolicy,youmaybeallowed tochooseamong twoor three

eliminationperiods,withdifferentpremiumsforeach.Althoughyou can reduce your premiums by choosing a longereliminationperiod,youshouldbearinmindthatmostpatientsarehospitalizedforrelativelybriefperiodsoftime.

If you purchase a hospital indemnity policy, review itfrequently to checkwhether youneed to increaseyourdailybenefitstokeeppacewithrisinghealthcarecosts—orwhetheryour financial circumstances have changed enough that youcandropthecoveragecompletely.

BLANKETHEALTHINSURANCE

Blankethealthinsuranceisprimarilyanaccident-onlypolicyissued to an organization to protect certain groups of peopleduring a particular activity or situation. Blanket policies arecommonly provided for schools to cover activities such asathletics,volunteerfiredepartmentsorsummercampsforsmallchildren.

For example, a high school student who is a member of theschool’s basketball team is probably covered by a blankethealth insuranceplan.So, if he is injuredwhileengaged inaschoolactivity,expenseswillbecoveredbytheblankethealthinsurance plan. This would also apply to other studentsinvolved in various school activities such as cheerleaders,membersofotherathleticteams,etc.Thecoverageisdesignedonly to provide protection against injuries incurred whileparticipatingintheparticularactivity.

The policy is issued to the organization and the coveredmembersmayreceiveacertificateofinsurance.Theremaybeapremiumchargedto the individuals.Often, theorganizationpays the premium—which ismodest since benefits are onlyprovidedforcertainindividualsundercertaincircumstances.CAFETERIAPLANS

Congressfirstauthorizedso-calledcafeteriaplansin1978,aspartoftheInternalRevenueCode(Section125).

The term “cafeteria” refers to theway inwhich you can spend proceedsfrom the account—on any specific needs which may arise, like choos ingdishesinacafeterialine.Sincewe’retalkingabouthealthcoverage,thisisanunfortunateimage.Cafeteriaplansarealsoknownas“flexible-spendingaccounts”and“Section125plans.”

Anycompanycansetupacafeteriaplanforitsemployees.Thisallows the employees to pay for a menu of health-related

expenseswithpre-taxdollars.

Thisnotonlyreducestaxableincomeforemployees—makingthe benefits virtually free—it also reduces taxable payroll fortheemployer.

Youcanusethemoneyfromacafeteriaplantopayforvariousdeductibleexpenses.Thesecaninclude:

healthinsurancepremiums,unreimbursed medical expenses (includingcopaymentsfordoctorvisitsorprescriptiondrugs),

dependentcareexpenses,alternativemedicaltreatments(includingacupunctureandchiropractic),

treatmentofalcoholism,programstoloseweightorquitsmoking,visioncare(eyedoctorvisits,glasses,contacts,etc.),birth control pills (which some health plans do notordinarilycover),

specialschoolingandcareforpeoplewithdisabilities(from wheelchairs and crutches to artificial limbsandBraillebooks),

dentalfees,denturesandorthodontia,psychiatriccare,andhearingaids.

Ifyouremployeroffersacafeteriaplan,youchoosetheamountyou would like to have withheld from each paycheck. If youtypicallyspend$200amonthonchildcareandanother$50onprescriptioncopayments,forexample,youmightelecttohave$250amonthwithheldfromyourpaycheck.Ifyoualsohaveannualexpenses forglasses,copayments forcheckups,dentalvisitsandsoon,youcanhaveanadditionalamountdeductedeachmonthtocoverthesecosts,aswell.

Thismoney isplaced intoanescrowaccount.Whenever youhaveamedicalcostthatisnotcoveredbyyourinsurance,yousubmitaclaimto thecompany thatmanagesyouremployer’scafeteriaplan,andthatfirmdebitsyouraccountandsendsyouacheck.

A cafeteria plan can be a very good way to save money onhealthcarecosts.However,thekeyistoavoidhavingtoomuchmoney deducted from your paychecks. Whatever money youput intoacafeteriaplaneachyearmustbeusedforhealthcarecosts.Ifthereismoneyleftover,itcannotberolledoverintotheaccountforthenextyearorreturnedtoyou.Asfarasyou’reconcerned,it’sgone.

MEDICALSAVINGSACCOUNTS

Anewoption,when it comes to specialtyhealth insurance, isthetax-freemedicalsavingsaccount (MSA). It combinesalong-term savings account and a high-deductible healthinsurancepolicy.

As of January 1, 1997, these accounts could be offered to alimited number of individuals who are self-employed oremployedatfirmswith50orfeweremployees.Theaccountsare part of a four-year pilot program of a health insurancecoveragethatwasputinmotionbytheKassebaum-KennedyHealthInsurancePortabilityandAccountabilityAct,passed in1996.Policiesarebeingsoldonafirst-come,first-servebasistothose who qualify. The pilot program allows no more than750,000policiestobedistributed.

HowdoMSAswork?They’relikeacombinationofacafeteriacontribution plan and an individual retirement account (IRA).Youcontributeacertainamountofmoneytotheaccounteachmonth. That money can be used to pay a variety of medicalexpenses—anditisnotsubjecttoincometax.

WhenyoustartanMSA,youalsoswitchtoahigh-deductiblecatastrophic

healthinsurancepolicy.(Bothareofferedintandembythesameinsurancecompany.) The annual deductible for a single person must be between$1,500and$2,250;forfamilies,itmustbebetween$3,000and$4,500.

Individuals then can contribute up to 65 percent of thedeductibleintotheMSAeachyear;familiescancontributeupto 75 percent. The contributions are not subject to federalincome taxes and are used to meet the deductible, until theinsurancecoveragebeginstokickin.

MSAsalsoallowyoutouseyourmoney forabroaderrangeofservicesthanmosthealthplans.

MSAs can cover small, everyday claims, as well as medicalexpenses that normally would not be covered by otherinsurance plans—such as dental care, eyeglasses,psychotherapyandhomehealth care.MSAsalso canbeusedtowardpaymentofpremiumsforlong-termcareinsuranceorcoverageuponleavingajob.Money that you put into an MSA grows tax-free, like an IRA or a 401(k)retirementplan.Whenyouturn591/2,themoneyintheaccountbecomesyour property and is no longer restricted to use for health care. Prior tothat time, the money can be withdrawn for non-health-related expenses,but you will have to pay ordinary income tax on whatever money youwithdraw,plusapenalty.

PremiumsforMSAswilldiffer,dependingonsuchfactorsasyourage, the typeofplanandyourplaceof residence.But ifthe annual premium is not exhausted at the end of the year,thisamountwillrolloverintothenextyear.

This is the big difference between an MSA and a flexible-spendinghealthaccount,whichsomecompaniesalreadyoffer.Flexible-spending health accounts also use pretax dollars formedical expenses not covered by insurance. However, theunused balance in a flexible spending account is forfeited atyearend.MSAfundscanaccumulateovertime.

This iswhyMSA policies are beingmarketed as investmenttools—sincetheleftovermoneycanberolledoveryearafteryearandcollectinterest.Leftovermoneycanbeusedforfuturehealth care expenses, or be invested in stocks, bonds andmoneymarketaccounts.

There are even managed care MSAs. Kentucky-basedHumanaInc.offersanMSAprogramthroughitswholly-ownedsubsidiary,EmployersHealthInsuranceCo.OtherinsurersthatareofferingMSAsincludeBlueCross/BlueShield,GoldenRule,AmericanMedicalSecurityGroupandFortis.

Attheendofthepilotprogram’sterm,whichisDecember31,2000,CongresswilldecidewhethertokeeptheMSAprogramandbroadenit,ordiscontinueit.

IFYOULEAVEYOURJOB

If you have health insurance through your employer and youleave the job—whether you’re firedor youquit—theoddsarethatyouwillwanttokeepyourcoverageforatime.

UndertheConsolidatedOmnibusBudgetReconciliationAct,orCOBRA, which is part of a federal law enacted in 1986, youhavetherighttokeepyourcoverageatgroupratesifyouloseyour group health insurance because of a reduction in yourhours of employment or because you leave or lose your job—unless,ofcourse,youarefiredforgrossmisconduct.Youalsohavetherighttocontinuecoverageforyourspouseandanydependents.

COBRAonlyapplies,however,toemployerswith20ormoreemployees,atleasthalfofthetimeduringtheprecedingyear.How long you can keep the coverage depends on yourparticular qualifying event—that is, dying, being fired,quitting. Different coverage periods follow each of theseevents.

Ifyouwerefired(foranythingotherthangrossmisconduct,inwhich case you don’t qualify at all), you, your spouse anddependentchildrenareentitledto18monthsofcontinuouscoverage.

If your COBRA coverage is about to expire—assuming youhaven’t taken another job in the interim that provides grouphealthinsurance—youcanapplytotheinsurancecompanyforconversionfromCOBRAtoanindividualpolicy.

Youmustdosowithin31daysofterminationofCOBRA.

The company is not obligated to provide you with anindividualpolicy,however,iftheyonlysellgroupinsurance.

Your former employer will not keep paying for healthinsurance,either.You’llhavetostartpickingupthetab.Thecompany can charge you 102 percent of what the coverageunderthegroupplanactuallycosts(theextra2percent isanallowancetocoveradministrativecosts).

Rest assured that, even with the two points, this amount isalmostalwayslessthanwhatyouwouldpayifyoupurchasedyourownindividualcoverage—anditisoftensubstantiallyless.By law,youremployer is requiredto letyouknowaboutCOBRAandwhatsteps you must take to retain your health insurance coverage. Your employeralsowillbreakdownthecostsforvariouscoveragesyoumayhave,soyoucanchoosetocontinuealloronlysomeofthem—for instance,youmaydecidetokeepyourHMOcoveragebutgiveupyourvisionanddentalplan.

The Health Insurance Portability and Accountability Act alsomadeafewchangestotheprovisionsofCOBRA,whichbecameeffectiveJanuary1,1997.

Now,newborn and newly adopted children of people whohaveCOBRAcoverageautomatically qualify for the coverage,aslongasyoucanenrollthemwithin30daysoftheadoptionor birth. In addition, a disabled COBRA beneficiary is

eligible for11additionalmonthsofcoverage ifheorshewasdeterminedtohavebeendisabledunderSocialSecurityatthetimeofaqualifyingeventoratatimeduringthefirst60daysof continuation.(The disabled individual must notify the planadministrator of his or her disability statuswithin 60 days ofthe determination and within the first 18 months ofcontinuation.) If yourCOBRAcoverage is about toexpireandyou anticipate getting another job that provides healthinsurance soon, you may want to consider a temporaryinsurancepolicy.

Atemporarymedicalpolicyisfairly limited,but itwillprotectyoufromcatastrophicmedicalexpenses.Itusuallywillhaveadeductible;afterthat,itwillreimburseyouforapercentageofyourcosts.

Someplanswill reimburseyouonapercentagebasisup toasetamount(sometimes$5,000), thenpay100percentofyourcostsabovethatthreshold.

A temporary medical policy will pay typical hospitalizationcosts—butonlyforproceduresthataremedicallynecessary,at rates that are usual and customary—as well as recoverycosts,includingtimeinanursinghomeorin-homevisitsfromaregisterednurse.

Itoftenwillnotpay foranyconditionyouhadduringthe24monthspriortothestartof thepolicy,or foranyself-inflictedinjuries or anything thatmight be covered byworkers’ compinsurance.

Also excluded are coverages for: injuries incurred in a war(youshouldbecoveredbythemilitary,ifyou’reserving),dentaltreatment, routine physicals and immunizations, routinepediatric care of a newborn child, normal pregnancy orchildbirth,sterilization(orthereversalofsterilization),mentalillness, alcoholism or drug abuse, prescription drugs andmedications that you get when not in a hospital, treatment

outsidetheUnitedStates—andthelistgoeson.

Inaddition,ifyoupurchase120days’worthoftemporarymedicalcoverageand get a job in 30 days, the temporary insurance cannot be can celed.(Ordinarily,ifyouhadsomeothersortofmedicalinsurance,youcouldgettheunusedportionthatyouhavepaidforrefunded.)However,thereisprobablyaprobationperiodwithyournewemployer,duringwhichyouarenoteligibleforthecompany’smedicalplan.So,a temporary policy to tide you over for that period may beworththemoney.

SUMMARY

Ifyouarebuyinganykindofspecialtyhealth insurance, readand compare thepolicies you are consideringbefore youbuyone, and make sure you understand all of the provisions.Marketingorsalesliterature isnosubstitutefortheactualpolicy.Readthepolicyitselfbeforeyoubuy.

Ask for a summary of each policy’s benefits or an outline ofcoverage. Good agents and good insurance companies wantyoutoknowwhatyouarebuying.Don’tbeafraidtoaskyourbenefitsmanagerorinsuranceagenttoexplainanythingthatisunclear.

Andbearinmind:Insomecases,evenafteryoubuyapolicy,ifyoufindthatitdoesn’tmeetyourneeds,youmayhave30daystoreturnthepolicyandgetyourmoneyback.

This is called the free look option. In order to use iteffectively,youneedtoknowtherightquestionstoask.

10CHAPTERCHOOSINGTHERIGHTPLAN

Choosingahealthplan isnot theeasiest task in theworld.Orthemostenjoyable.Butgoingwithouthealthcoverageisabiggerriskthanmostpeoplecanafford.Whatifyougetinjuredandrequiresurgery?Thecostofahospitalstaycanbeasmuchas$400aday.What if you or your significant otherbecomespregnant?Eventhroughaclinic,thepriceofprenatalcareanddeliverycanexceed$5,000.

Healthcoverageisdesignedtohelpyouinthesesituations—toassume the risk of paying your medical bills. A good planprovides you with necessary funds to cover hospital andphysician expenses associated with a serious illness, thuspreservingyoursavingsandotherassets.So, it’s importantthatyouputsometimeandeffort intodecidingwhichplan isbestforyouandyourfamily.

Although there is no one “creamof the crop” plan, there aresome plans that are better than others for your specificneeds.Healthplanstendtovary,bothincostandtheabilitytogettheservicesyouneed.Althoughnoplanwill pay for everyhealth care cost that youmayincur,somewillcovermorethanothers.

Healthinsuranceplansareusuallyindemnity(feefor-service)ormanagedcare.But,aswe’vediscussedearlier,thereareotherwaystoobtainhealthinsurance,including:

workers’ compensation benefits for occupationaldisabilities;

SocialSecuritydisabilitybenefits;Medicare,ifyouareeligible;work-related benefits through employer-sponsoredplans;and

healthcoverageunderanystatutoryplans.Anyof theseprogramsmayofferyouenoughhealthcoveragethat you would not need to buy standard policies. However,

thatwillusuallynotbethecase.

When considering a health plan, you should try to figure outthetotalcosttoyouandyourfamily,especiallyifsomeoneinyourfamilyhasachronicorserioushealthcondition.

Indemnity and managed care plans differ in their choice ofproviders,out-of-pocketcostsforcoveredservices,andhowbills are paid. Indemnity offers you more choice of doctors(including specialists, such as cardiologists and surgeons),hospitals, andotherhealthcareproviders thanmanagedcare.In addition, indemnity plans pay their share of the cost onlyaftertheyhavereceivedabill.

Managed care plans usually have agreements with certaindoctorsandhospitalstoprovideservicesatreducedcosts.Withthistypeofplan,youwillhavelesspaperworkandlowerout-of-pocketcosts.

Overthepastdecade,thedistinctionsbetweenindemnityandmanaged carehaveblurred. Indemnity plans offermanagedcare-type cost controls, and managed care plans allow theirmembers to use providers that are not within the plan’snetwork.

INDEMNITYPLAN

Withanindemnityplan,youcanuseanydoctororhospitalyouwish. You or they send the bill to your insurance company,which pays part of it. Under most plans, you have to pay adeductiblebeforeyourinsurancecompanywillpay.

Onceyoumeetthedeductible,mostfee-for-serviceplanspayapercentageoftheusual,customaryandreasonablecharge(UCR)foraservice.

Your insurance company usually pays 80 percent of the costand you pay the copayment (co-insurance), or the other 20percent.

Ifadoctorchargesmorethanthecompany’sUCRrate,youwillhavetopaythedifference.An indemnity plan typically pays for things like medical tests andprescriptionsaswellaschargesfromdoctorsandhospitals.But,itusuallywon’tpayforpreventivecare,likeannualcheckups.

MANAGEDCAREPLANS

Ifyoudecidethatanindemnityplanisn’tforyou,youmaywantto look into one of three basic types ofmanaged care: PPOs,HMOsandPOSplans.

APPOorPreferredProviderOrganizationistheclosestthingtoan indemnityplan.APPOcontractswithdoctors,hospitalsandotherproviderswhohaveagreedtoaccept lowerfeesfortheirservices. Ifyouchooseadoctorwithin thenetwork,youwillpayalowercopayment(around$10foradoctorvisitor$5foraprescription).

Youcanalsogooutsidethenetworkifyouchoose.

However, if you do go outside the network, you will have tomeetthedeductibleandyourcopaymentwillbehigherduetohigherchargesforservicesoutsidethenetwork.

HMOs—theoldestformofmanagedcare—offerawiderangeofbenefits,includingpreventivecare,forasetmonthlyfee.ThereareseveralkindsofHMOs.Therearestafforgroupmodelsinwhichyouvisitaplandoctoratcentralmedicalofficesorclinics.AnothertypeofHMO, an individual practice association (IPA), has network contractswithphysiciangroupsorindividualdoctorswhohaveprivateoffices.

HMOsprovideyouwithalistofdoctorsfromwhichtochooseaprimarycaredoctor,whowillcoordinateallyourmedicalcare.Yourprimary caredoctorwill be responsible forreferrals tospecialists.

SomeHMOsrequireyoutopayacopayment,usuallyaround

$5to$10,foravisit.ButmanyHMOsdon’trequireyoutopayanything.

If you belong to an HMO, it will cover only the costs fordoctorsinthatHMO.Ifyougotoadoctoroutsidetheplan,youcouldendupfootingthebill.

Point-of-Service(POSs)Plansaresimilartoindemnityplansinthatyoucanstillgetsomecoverageifyougooutsideoftheplan.

AlthoughaPOSrequiresyoutochooseaprimarycaredoctorfromtheplan’snetwork,heorshecanmakereferralsoutsideofthenetwork—andyourplanusuallyfootsallormostofthebill.In addition, a POS allows you to refer yourself to a provider outside thenetworkandstillfindsomecoverage—thatis,ifyouarewillingtopaycoinsurance.

GROUPPOLICIES

Manypeoplegettheirhealthinsurance—indemnityormanagedcare—asanemployeebenefitthroughtheirjoborthejobofafamily member. Health insurance first became an employeebenefitintheU.S.duringWorldWarII.

“Manycompaniesfoundthatofferinghealthcarecoveragewasaneffectivewaytoattractscarceworkerswithoutviolatingthewartimefreezeonsalaries,”saidKathleenSebelius,insurancecommissioner for the state of Kansas. “After the war, fullhealthcare coverage soon became an expected benefit of big-businessjobs.”

Youcanusuallyjoinorchangegrouphealthplansonceayearduring open enrollment. But once you make a decision, youhavetostaywiththatplanforatleastayear.

INDIVIDUALPOLICIES

If you are self-employed or if your company does not offergrouppolicies,youcanbuyindividualhealthinsurance.Thepolicies often cost more than group policies—but it’s usuallybettertobesafe200

withcoveragethansorrywithoutit.Especiallywhenonemajormedical expense can make two or even 10 years’ worth ofpremiumspayforthemselves.

Ifyoubelongtoaunion,professionalassociation,orsocialorcivicgroup,whichusuallyhavehealth carecoverageyoucouldbeeligibleforhealthcoveragetheyprovideformembers.

MEDICAREANDMEDICAID

If you are 65 or older, you are probably eligible for coverageunderMedicare,theFederalhealthinsuranceprogramrunbytheHealthCareFinancingAdministration.

Ifpriceistheproblem,youmightwanttolookintoMedicaid.This type of program provides medical assistance to low-incomefamilies(especiallyfamilieswithchildrenandpregnantwomen),anddisabledpeople.

In some cases, if you are covered under Medicaid, you arerequired to join amanaged care plan—so check with yourcounty’sSocialServicesDepartmenttolearnmore.

PREEXISTINGCONDITIONS

You’llalsowanttoinvestigatewhetherornottheplansyouarelookingatexcludecoverageforpreexistingconditions.Mostinsurerswouldprefernottopayfortreatmentforapreexistingcondition,suchasanulceroragallstoneandotherswillcoverthecondition,butnotuntil afterawaitingperiod (usually sixmonthstoayear).

However, under the Health Insurance Portability andAccountabilityAct,apreexistingconditioniscoveredwithout

awaitingperiodwhenyoujoinanewgroupplanifyouhavebeeninsuredtheprevious12months.

Yourinsurancecompanymayalsorestrictcertainbenefitsforasetperiodoftime.For instance, itmaynotcoveranyexpensesrelatedtopregnancyuntil your coverage has been in effect for one year. So, if you or yourspouse is planning to be come pregnant, you’ll want to get your healthcoveragesortedoutasfarinadvanceaspossible.

PLANBENEFITS

What kind of plan is right for you and your family?Only youknow for sure. The plan that is “best” for your nextdoorneighbormaynotbethe“best”planyouandyourfamily.

Inadditiontobasicbenefits,youmightwanttofindoutifthehealthplanyouareconsideringcovers:

physicalexamsandhealthscreenings;carebyspecialists;hospitalizationandemergencycare;

202prescriptiondrugs;visioncare;anddentalservices.

The Department of Health and Human Services Agency forHealth Care Policy and Research (AHCPR) also recommendslookingintohowaplanhandlesthefollowing:

careandcounselingformentalhealth;servicesfordrugandalcoholabuse;

• obstetrical-gynecological care and family planningservices;

careforchronic(long-term)diseases,conditionsordisabilities;

physicaltherapyandrehabcare;homehealth,nursinghome,andhospicecare;chiropractic or alternative health care, such asacupuncture;and

experimentaltreatments.Ifhealtheducationandpreventivecarebenefitsareimportanttoyou,youmightwanttoaskaboutservicessuchas,shotsforchildren,breast exams,Pap smears, orprograms tohelpquitsmoking.

MAKINGTHERIGHTCHOICE

When comparing coverage, it is vital to look into a plan’slimitations,exclusionsandreductions todeterminewhichexpensesarenotcovered.For instance,manypolicieswillpayonly for treatment that isdeemed“medicallynecessary”torestoreyoutogoodhealth.These policies often will not cover routine physicalexaminations or plastic surgery for cosmetic purposes.Additionally, some plans limit or won’t pay for programs forchronicdisease,orvariousmedicinesorequipment.

Indemnity andmanaged care plans typically won’t cover treatments thatare experimental. In this case, you would want to find out how the plandecides what is or is not experimental as well as your options if youdisagreewithaplan’sdecisiononcoverage.

WHATYOUWILLPAY

Aswediscussedearlier,yourhealthinsurancewon’tcoveryoufor everything. If you opt for a reimbursement-styleprogram,you’llalsohavetochooseadeductibleandatothertimesyou’llhavetopayacopayment.

In order to get a true idea of what your costs will be undereachplan,youneedtolookathowmuchyouwillpayforyourpremiumandothercosts.Youcan’tpossibleknowwhatyourhealth care needs for the coming year will be, but you canguesswhatservicesyouandyourfamilymightneed.

Tofigureoutwhatthetotalcoststoyouandyour

204familywouldbeforservicesundereachplan,itmakessensetoaskthefollowingquestions:

Are there deductibles you pay before the insurancebeginstocoveryourcosts?

After you have met your deductible, what portion ofyourcostsarepaidbytheplan?

Doesthisamountvarybythetypeofservice,doctororhealthfacilityused?

Are there copayments you must pay for certainservices,suchasdoctorvisits?

Ifyouusedoctorsoutsideaplan’snetwork,howmuchmorewillyoupay?

Ifaplandoesnot covercertain servicesorcare thatyouthinkyouwillneed,howmuchwillyouhavetopay?

Arethereanylimitstohowmuchyoumustpayincaseofmajorillness?

Istherealimitonhowmuchtheplanwillpayforyourcare inayearorovera lifetime?(Asinglehospitalstay for a serious condition could costhundredsofthousandsofdollars.)

Somepeoplechooseadeductibleinthethousandsofdollars—making theirs, in essence, a catastrophic insurance policy. Inthis case, you’d absorb all the everyday costs of medical

care, from doctors visits to prescriptions. But, if you gotseriouslyill,you’dbecovered.Ifyouaresingleandhealthy,thiscouldwindupsavingyoumoney.Formostpeople,adeductible inthe$100to$250range iseasiestto livewith.But look intootherdeductibles, too. Ifyour familyhasbeenhealthyforanumberofyears,youmaywanttoswitchtoadeductibleof$500or$1,000.You’llnoticeasizablereductioninpremiums.(Justrememberthatyou’ll have to pay your ownway until you satisfy the deductible.)You’llalsowanttoinvestigatewhattheinsurancecompanyconsidersusual,reasonableandcustomarycharges,ifatallpossible.

That’sbecausethechargesacompanyconsidersnormalforaparticular medical procedure in a specific geographic areaarethemaximumitwillpay.Ifthechargesarehigher,you’llbestuckpayingthedifference.

Another way you can save money on your premiums is by paying themannually. It’sworth look ing intohowmuch theservice fee is formonthlypayments—andinquiringaboutadiscountforprepayment.

Even if you don’t get to choose the health plan yourself (forexample,youremployermayselecttheplanforyourcompany),you still need to understandwhat kind of protection yourhealthplanprovides.

206Themore you learn, themore easily you’ll be able to decidewhatfitsyourpersonalneedsandbudget.

APPLYINGFORINSURANCE

Togetanaccuratequoteforhealthinsurance,youwillhavetofilloutanapplication—completelyandcorrectly.Ifyoulieontheapplication, the company cannot onlydeny you coverageforaproblemdowntheroad,itcanrescindthepolicyentirely.And,mostcompaniescangetyourmedicalinformationanyway

through a non-profit association called the MedicalInformationBureau(MIB).

TheMIBwasformedin1902byagroupofdoctorswhowerealso medical directors at several large insurance companies.Becausetheirinsurancecompanieshadlostsignificantdollarstodishonest applicants, they sought a means to centralizehealth-relatedinformationonindividualapplicantsandreducethepotentialforfraud.

Beforeyouapplyforinsurance,itmightbeagoodideatocheckifthere’sareportonfileforyou,it’satnocharge.And,ifthereisoneandit’swrong,youcancorrect it.TelephoneMIBat1.617.426.3660andaskforyourfreereport.

Theapplicationwill ask for yourageandhealthhistory. Inaddition, insurance companies often ask your doctor for yourmedicalrecords,andtheymay207

requireyoutoundergoaphysicalwithoneoftheirdoctors,orevengetadditionalbloodtests.(However,theycannotaskyoufor anHIV test, unless you are also applying for disabilityincome insurance—and then it has to be with informedconsent.)Incompletingtheapplication,youwillhavetolettheinsurancecompanyknowaboutpreexistingconditions—evenif you’re getting coverage through a new plan at work. Thecompanywillwanttoknowwhatillnessesandhealthproblemsyouhavehadduringthelastfewyears(possiblylonger).

Your age is an important factor in pricing and obtaininginsurance.Many insurancecompanieshaveagebands,whenitcomestocostsforcoverage.Forinstance,everyone21to25mayfall intoonepricerange.Everyone26to30wouldcostabitmoretoinsureeachmonth.Andsoon.

Insurancecompaniesprefertowritepoliciesforyoung,healthypeople—andtheyprefertostayawayfromolder,lesshealthyones.So,itpaystopickagoodplanwhenyou’rerelativelyyoungandstaywithit,ifyoucan.

Somecompaniesalsoallowyoutochangeyourmindafteryoupurchase health insurance—but only if the policy has a freelook or reviewperiod, which typically ranges from 10 to 30days.So,you’llwanttoreadyourpolicyassoonasyougetit.

208You may even want to ask your pharmacist and your doctorhowdifferentplansarehandledbeforeyousignonthedottedline—or sign your check. Your regular providers should bemorethanhappytotellyouwhichcompaniesandwhichplansare easy toworkwith, andwhich onesmake life difficult forprovidersandpatients.

CHOOSINGADOCTOR

Whatever type of plan you choose, youwill need to select adoctor,whetherit’sfromanetworklist,apreferredlist,oronyourown.Ifyouareinamanagedcareplan,askyourplanforalistordirectoryof itsproviders—theymayalsoofferhelpinchoosingadoctorthat’srightforyou.

Once you have the names of doctors who interest you, youshouldcheckthemout.TheAHCPRprovidesthefollowinglistofsuggestions:

Askplansandmedicalofficesforinformationontheirdoctors’trainingandexperience.

Look up basic information about doctors in theDirectory of Medical Specialists, available at yourlocal library. This reference has up-to-dateprofessional and biographic information on about400,000practicingphysicians.

Use “AMA Physician Select,” which is the American

Medical Association’s free service on the Internetforinformation

aboutphysicians(http://www.amaassn.org).Find out whether the doctor is boardcertified.Although all doctors must be licensed topractice medicine, some also are board certified.Thismeansthedoctorhascompletedseveralyearsof training in a specialty and passed an exam.Telephone the American Board of MedicalSpecialtiesat1.800.776.2378formoreinformation.

Find out if any complaints have been registered ordisciplinaryactionstakenagainstthedoctor.Tofindout,callyourStateMedicalLicensingBoard.

Findout if anycomplaintshavebeen registeredwithyour State department of insurance. (Not alldepartmentsacceptcomplaints.)

Set up a “get acquainted” appointment with thedoctor. Ask what charge there might be for thesevisits. Such appointments give you a chance tointerview the doctors—for example, to find out ifthey have much experience with any healthconditionsyouhave.

SUMMARY

Choosing the right health coverage comes down toaskingalotofquestions.Thesequestionswillgenerally fall into twocategories: first, how the plan responds to various medicalconditionsandneeds;second,what limitationsandexclusionstheplanusestocontrolcosts.

Inthischapter,we’veofferedsomeofthespecificquestionstoask.

It can be tough to find someone who will answer thesequestions at a specific insurance company or HMO. In some

cases,youmayneedtotalktoabrokeroragent.Inothers,youmay have to spend some time on the telephone finding therightperson.

You may not want to do all this research for six or eightdifferentplans—butmostinsurancedecisionsboildowntotwoorthreeoptions.

If you find yourself wondering whether to choose a flexiblemanaged care plan or a cost-saving indemnity plan, thedecisionisprobablyworthanhourorsoandacoupleofcalls.

If you get your health coverage through work, contact yourhumanresourcesmanager.Heorsheshouldbeablegiveyouinformationon thecoverageandplansavailable throughyouremployer.Or,youmaywishtocalltheplandirectly.

In theend, though, thedecisionwillusuallybeyours. It’s thewaythattheinsuranceandhealthcareindustriesaremoving.Self-servicecoveragemeansaskingquestionsforyourself.

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CHAPTERWHATTODOIFYOUHAVETROUBLEMAKINGACLAIM

All the work you put into choosing the right kind of healthinsurance foryouandyour familycomes toapointwhenyoumake a claim. Getting the best health care means

understanding how your health plan works, what your rightsare,andhowtocomplainifyouneedto.

It’s important to remember that this is aprocess. Making aclaim is like any other aspect of a contract transaction. Thebest companieswill be supportiveandunderstandingofwhatyou’veexperienced.Butwhatyoureallywant is tohaveyourclaimpaid.

This chapterwill show youhow you canmake a claim in themosteffectiveway.

Whenyoudohavetomakeaclaim,don’tbeafraidtocountonyouragent—ifyouhaveone.Agentswhoareeagertokeepyourbusinesscanbecomeyourbestadvocates.Although state laws vary on requiring consumers to makeclaims within a certain time period, most insurancecompanies prefer that claims be filed within 15 days, or assoon as reasonably possible. If someone’s been hurt in anaccident, there’s been serious damage or some law has beenbroken,callthepolicefirst.Thencallyourinsurancecompany.

Your insurancecompanymaygrantyoua littleextra time if, forexample,you’reseriouslyinjuredandnoticecannotbegivenwithinthe listedtimeperiod.Youcanusuallydo thisby calling the insurancecompanydirectly,throughyourlawyerorthroughyourinsuranceagent.

Ofcourse,insurancecompanieswanttobenotifiedasquicklyaspossible.Andit’struethat,thesooneryoufileaclaim,thesooneryou’llgetasettlement.

“Once something happens, you need to let us knowimmediately, because wemay need to investigate something,liketiretracksforexample,whichdon’tstayaroundverylong,”says one spokeswoman for State Farm Insurance Companies.“Knowwhoyouwereinanaccidentwith.Gettheotherparty’sinsuranceinformation,thenumberonthepolicereportand

thenameofthepersonwho’sinsuredbeforecallingus.”

After the insurance company receives notice of your claim, itwillusuallyfurnishclaimsformswithinaspecifiednumberofdays.Moststates require insurancecompanies toeitherprocess a claim, or atleasttellyouwhyithasn’tbeenprocessed,within60or90days.Ifitfailstodoso,youmaysubmitawrittenproofoftheoccurrence,characterandextent of the loss either in the form of an official accident report or anaffidavit.

Ifthecompanydoessendyoutheclaimsformsyoucanfilloutaproofoflossandsubmititwithin90daysofthecoveredlosstobereimbursed.Onceagain,extratimeisgrantedifit’snotpossibleforyoutorespondwithinthistimelimit.Butdon’tgoover one year unless you’re legally incapacitated becauseyoumay loseyouropportunity tocollectonaclaim. Issuesofincapacitation are less important than your forgetfulness andinaccuracy.

An important note: Remember to include all the expenses too. Mostdisputesoverclaimsformsinvolvesituationsinwhichpolicyholdersonlyincludeaportionoftheexpensesthey’veaccrued.Then,whentheinsurancecompanyonlycoverssomeofthebills,accusationsstarttofly.

GETTINGYOURCLAIMPAID

Benefits are payable directly to you—generally, medicalinsurance policies provide reimbursement for coveredexpenses. This means your insurance company wants you topay your medical bills first— and then it will pay you.Traditional insurance companies would rather not getinvolvedwithdoctorsorhospitalsatall.

Intheeventofyourdeath,thebenefitsmaybepaidtoyourestate.

Whether the benefits go to the estate or to an incapacitatedperson, the insurance company has the option of payingbenefits of up to $1,000 to any relative who appears to beentitledtoreceivethefunds.

Since your health insurance policy is a legal contract, theinsurance company is obligated to pay the described benefitsfor all covered expenses under the policy. If your insurerdoesn’t live up to it’s obligations, you have the right to suethem. However, no legal action may be taken against thecompany prior to 60 days after proof of loss has beenfurnished,ormorethanthreeyearsafterthedateproofoflossisrequiredtobefurnished.

For example, you submit proof of loss for hospital bills. The insurancecompany doesn’t deny the claim, but it doesn’t pay it either. You get onwithyourlifeandfouryearspassbeforeyourealizetheinsurancecompanyneverreimbursedyou.Atthispoint,youcan’tsuetheinsurancecompany,becauseyou’veforfeitedtherightoflegalactionbytakingtoolong.

While your claim is being verified, your insurance companyalso has the right—at its own expense, of course—to requireyou to submit to aphysicalexamination. But, this typicallycomes up only in rare cases in which an insurance companysuspectsfraud.

Onecommonerrorthatcanslowdowntheclaimsprocessisamisstated age on your insurance application. If this occurs,any benefits payable will be adjusted to the amount that thepremiumwouldhavebeen,ifpurchasedatthecorrectage.

This item usually governs situations in which olderpolicyholders lie about their age in order to get cheaperpremiums.

DELAYINGPAYMENT

Insurance companies used to settle claimsmore quickly than

theydotoday.Thetheorywasthatiftheysettledquickly,theycould do so for a smaller amount—they’d justmake sure thepolicyholder signed a release denying any further claimsrelatedto theaccident inquestion.But,policieshavebecomemore complicated and many insurance companies havechangedtheirtactics.Now, many insurance companies delay payments as long as they canwithoutinvitinglawsuits.

Youdon’thavetoacceptthedelays,though.Thereareseveralbasic principles that you should use in collecting frominsurancecompanies:

Analyzeeverypartoflossforhowitmightbecoveredbyyourpolicy.

Consideralloftheclaimsyoumightmakefollowinganaccidentorloss.Ifyouhavehealthinsuranceorare covered under workers’ comp can you makeclaimsunderthesecoverages?

Don’t accepta firstoffer—or even a first denial—byan insurance company as the final, unequivocalword.

Insurance companieswill delay or deny claims if they can. Iftheydo,askforanexplanation;inresponse,gatherfactsandrereadyourpoliciesyourself.Ifyoucan’tdeciphereverythinginthepolicy,talktoyouragentor—ifnecessary—alawyer.

Youmight check the policy’s exclusions too. Ex clusions identify types oflossesthatarenotcoveredbythepolicy.Theyhelptoshapethecoverageornarrow thescopeof coveragebyspecify ing the losses that the policywon’tpayfor.Exclusionsusuallyformthebasisofmostofthelegaldisputesthat occur between policyholders and insurance companies.They are generally included to accomplish these four broadpurposes:

toclarifyintentofcoverage;to remove coverages for losses which should becoveredbyotherinsurance;

to remove coverage for losses which result fromabove-average risk factors which are notanticipated in rates and premiums (usually thiscoverageisavailableatanadditionalcharge);and

to remove coverage for catastrophic losses whicharegenerallynotinsurable(althoughcoveragemaybe available through special insurance pools orgovernmentprograms).

Evenifdenialisn’tyourinsurancecompany’sultimategoal,byplayingthedenialgame, it canachieve somethingalmostasadvantageous—alengthydelayinpayingtheclaim.Thelongeraninsurancecompanycanholdontoitsmoney,thebetteroffitis.

But the law, and more importantly the courts, don’t give insurancecompaniesfreereintodelayfairsettlementsastheyplease.WHATTODOIFTHECOMPANYDENIESACLAIM

If your insurance company denies your claim, ask why theclaimwasrejected.Ifthecompany’sanswerinvolvesaservicethat isn’t covered under your policy (and you’re more thancertain it is covered), check theclaim form. It couldbe thatthe provider entered an incorrect diagnosis or procedurecode. Youmightalsowant to check that yourdeductiblewascorrectlycalculatedorthatyoudidn’tskipanessentialpartoftheprocess.

Ifeverythingstillseemstobeinorder,youcanthenaskyourinsurancecompanytoreviewtheclaim.

Forcases like these, it oftenhelps tokeepwritten recordsofthefollowing:

Allcorrespondencewiththeplan.Claimsformsandcopiesofbills.Phone conversations—the date and time, the peopleyouspeakwith,andthenatureofeachcall.

Iftheinsurancecompanystilldeniesyourclaimorinsistsyoutakeittocourtforyourmoney,don’tbeintimidated.Askforthe languageinyourpolicyor instate lawthatallows it todeny your claim. Save all paperwork and log all phoneconversationswithcompanyrepresentatives.

Ifwhatyour insurancecompanysaysdoesn’tagreewithyourreadingof yourpolicy, ask yourstate regulator.While stateinsurance commissioners usually have no legal authority toforce an insurance company to pay an individual claim, thecommissioner can fine a company or take other punitiveactions if an insurance companymakes a practice of unfairlyunderpayingordenyingclaims.

Most health plans have some sort of appeals pro cess that you and yourdoctormayuseifyoudisagreewiththehealthplan’sdecisions.Ifyourplanrefusestoprovideorpayforservices,youcancomplainorfileagrievanceaboutanydecisionyoufeelisunfair—oryoucanappealit.

BADFAITH

Lawsuitsorregulatorycomplaintsrelatingtodelaysordenialsusuallyallegebadfaithonthepartoftheinsurancecompany.This is one of the heaviest clubs a policyholder can wield tostrikebackataninsurancecompany.

Onewayinwhichaninsurancecompanycanactinbadfaithisby not investigating a claim with an eye toward providingcoverage.

“The investigationshouldbegeared towardpaying theclaim,notdenial.Nineoutof10times,however,thatinvestigationis

designedtoturnsomethingupthatjustifiesdenyingtheclaim.Their eye should be toward protecting their policyholder, butit’snot,”saidWilliamShernoffofShernoff,Bidart&Darras,aCalifornia-basedriskmanagementconsultinggroup.

REGULATORYREFORMISSUES

In 1993, California Insurance Commissioner John Garamendiput in place a number of regulations to simplify the claimsprocess. The California regulations were loosely patternedafter model standards adopted in 1991 by the NationalAssociation of Insurance Commissioners. Insurance industryanalystspredicted their use inCaliforniamay influenceotherstates’treatmentofsimilarstandards.

AmongGaramendi’s1993regulations:

Within15daysofanynoticeofclaim, an insurancecompany must acknowledge receiving the notice.The company must also start its investigationwithin15daysofreceivinganoticeofclaim.

Within 40 days of receiving a notice of claim, aninsurancecompanymustaffirmordeny theclaimandaffirmordenyliability.

If40daysisn’tsufficienttime,thecompanymustwriteto the claimant and specify why more time isneeded,andwhatfurtherinformationitneeds.

A denial of a claim, in whole or part, must beaccompanied by a letter that spells out the policyprovisions and factors on which the company isrely

ing.Alldenialsmustincludeanoticethatthecompany’sdecisioncanbereviewedbytheInsuranceDepartment.Insurance companies must disclose to theirpolicyholders all benefits, coverage, time limitsorotherrelevantprovisionsofanypolicytheyhaveissuedthatmayapplytoaclaim.

Anyothercommunicationthat“reasonablysuggeststhataresponseisexpected,”and that regardsaclaimnotinlitigation,mustberespondedtowithin15daysofreceipt.

OUTPATIENTSERVICES

Ifyouhavecoverageforoutpatientservicesunderyourplan,theplanwillusuallypay for80percentofcoveredoutpatientservices and supplies, subject to the maximum benefitamount shown in your policy’s benefit schedule. You will berequired to pay the other 20 percent of the charges orcopayment.

Here’s a list of outpatient services and supplies that healthplanstypicallycover:

x-rayandfluoroscopicexaminations;radium,andotherradioactivesubstance;electrocardiograms,microscopic,andlaboratorytests;drugsandmedicineswhichmaybepurchasedonlyontheattendingphysician’swrittenprescription;

casts,splints,braces,crutchesandartificiallimbs;•oxygenandequipmentusedforitsadministration.

Outpatient services are covered only when rendered due toinjuryorsickness,whilecoverageisinforcefortheinsuredperson,andas thedirectionofaphysicianor surgeon.Thesebenefits do not include benefits for the services of aradiologist,pathologist,anesthesiologist,physicianorsurgeon.

INPATIENTCARE

Hospitalinpatientcareprovidesyouwithbenefitsforchargesahospital makes on its own behalf. For example, room andboard,nursingcare,etc.Mostplanslimitroomandboardtoasemi-private room rate, amaximumdollar amount per day

andamaximumnumberofdays.

Sayyouhaveinpatientcoveragewithbenefitsof$300adayforamaximumof 365days. You’re confined for 10days in a private room. Thehospi talcharges $325 a day for a private room and only $250 a day for a semi-privateroom.Yourpolicywillonlypay$2,500—thesemi-privateroomratefor10days.Youenduppayingthedifference.Inpatient benefits can provide coverage for confinement formental, emotional, or nervous disorders, alcoholism anddrugdependency—butnotmorethan30daysinanyonepolicyyear.

Confinementmeansthatapolicyholderisconfinedinahospitalormentalhospital for 24 hours ormore and a daily charge ismade. In order for aperiod of confinement to be covered, itmust oc cur because of injury orsickness, begin while coverage is in force, and at the direction of aphysicianorsurgeon.

Also,youmightwanttocheckwithyourplanadministratortosee if your policy coversextendedcare facility coverage, orextra hospital miscellaneous expense coverage. Thesecoverages are optional and provide an additional amount ofinsurancewhile you are an inpatient. Hospital intensive careunitcoveragemayalsobecovered.

The termone period of confinement is important becausebasic hospital expense policies usually limit the maximumbenefit for eachperiod of confinement toanumberofdaysandatotaldollaramount.Inadditiontoacontinuousperiodof confinement, multiple confinements due to related causesandseparatedbylessthan180dayswillbetreatedasasingleconfinement.For example, you have an appendectomy and spend three days in ahospital.Afterrelease,theincisionsbecomeinfectedandyou’rereadmitted20dayslater.Forbenefitpurposes,bothperiodsinthehospitalrelatedtotheappendectomyaretreatedasasingleconfinement.

WHOISCOVERED?

In the general agreement of your policy, the insurancecompany states that it relied on the information given in theapplication and issued the policy because you paid the firstpremium.This is important, because coverageapplies only toeach person shown in the policy schedule (which may becross-referencedbypagenumber).Afterthepolicyisineffect,anychangesyoumaketothepersonsinsuredunderthepolicy,coverages, or benefits must be attached to the policy andcoverage will remain in force for any period in which theinsurancecompanyacceptsapremiumpayment.

PAYINGYOURPREMIUM

Your first premiumpayment usuallywill bedue in advance.Although the policy says that subsequent premium paymentsarealsodueinadvance,you’reusuallyallottedagraceperiodof 31 days after the premium due date. You can pay yourpremiumsannuallyor,ifacceptabletoyourinsurancecompany,semi-monthly,quarterlyormonthly.If you do not pay your premium on time, the insurancecompanymaydenycoverage.

Yourinsurancecompanyhastherighttoraiseyourpremiumoneachannualanniversarydatetoreflecttheadvancingageofthe insured persons under your policy, increased costs ofmedical care, and any changes in deductibles (higherdeductibles tend to reduce the premium, while lowerdeductiblestendtoincreasethepremium).

If youmove toanew residence, apremiumad justmentmaybemade toreflectthepremiumratesthatapplytothenewlocation.

Excluding the above premium changes, your insurancecompany may change premiums only if it does so for allpolicies of the same type in your state. It can’t change the

premium for an individual policy except for changes in age,medicalcost,deductiblesandlocation.

TERMINATIONOFAPOLICY

Yourinsurancecompanycanterminateyourhealthinsurancecoverageifyoufailtopayapremiumbeforetheendofagraceperiod.Itwon’taffectanyclaimsthatyouincurredbeforeyourcoverage ended, but it will terminate your coverage on theoriginalduedateofyourpremium.Anyclaims thatyoumakeduringthegraceperiodwillnotbecovered.Forexample,youfailedtopayyourpremiumdueFebruary15.OnMarch15,your coverage termi nated for nonpayment of premium. You werehospitalized in January,submittedatimelynoticeofclaim,and furnishedproof of loss on April 1 (within the 90 requirement). The claim for thehospitalexpensesiscovered.

HOWINDIVIDUALSARETERMINATED

In somepolicies, your insurancemaybecontinuedonlyuntilyou reach age 65—or become eligible for Medicare—whicheveroccursfirst.

Coveragewill end during themonth of the event on the daythatcoincideswiththepolicydate.For instance,your65thbirthday occurs on August 20 and you become eligible forMedicareonSeptember10.

EventhoughyourpolicydateisJanuary15,yourcoverageendsonAugust15(thedaythatmatchesthepolicydateduringthemonthofyourbirthday.

If you have children, their coverage usually ends when theyreachage25 (though somepolicieswill use other ages), getmarriedorarenolongerdependentonyouforcoverage.Coverage for a child will not end if you have a child that is mentally orphysicallyhandicapped, remainsdependentonyou,and isnoteligible forMedicare.Butyouwill have to showproofof incapacity and dependencywithin 31 days of the child’s 25th birthday in order to receive coverage.

Theinsurancecompanymayrequireyoutosubmitadditionalproof,butnotmorethanonceeachyearafterthechildreachestheage27.

Whenever a policy is terminated due to the above factors,coverage usually will continue for any period in which apremium has been accepted and claims for expensesincurredpriortoterminationwillstillbecovered.

EXTENSIONOFCOVERAGE

As mentioned earlier, your insurance company will usuallyextend your coverage if you are being treated for acontinuousinjuryorsicknessifthepolicyisnotrenewedorifcoverage terminates for a reason other than nonpayment ofpremium.Coverageistypicallyextendedupto90days.

Another option when coverage terminates due to age oreligibilityforMedicare,istoconverttoanotherpolicy.Youhavetoapply foraconvertedpolicyandyour insurancecompanywillonly issue this type of policy after it receives a written application andpaymentofthefirstpremiumatleast31daysbeforecoverageterminates.

PREEXISTINGCONDITIONS

As we have mentioned, preexisting conditions are animportant issue to look into when shopping for healthinsurance. Why? Limits on preexisting conditions are usuallythemostcommonissueinhealthinsurancecoveragedisputes.

Most plans don’t cover preexisting conditions during the sixmonths following the effective date of coverage, or anydisease or physical condition named or specifically describedasexcludedinanyendorsementattachedtothispolicy.

Pay close attention to any talk of specific or cus tom exclusions on anypolicy. This holds espe cially true if you’ve had any notable illness ordisabilityinthelasttenyears—evenifit’shealedorinremission.

Anexample:Whenyouappliedforinsurance,youdisclosedthatyou’dbeentreatedforaheartconditionduringthepasttwoyears.Ifthecompanydoesn’tattachaspecific

exclusion,youwouldhavecoveragefortheheartcondition—butonlyafterawaitingperiod.Iftheheartconditionis

excluded,youwillneverhavecoverageforthatcondition,nomatterhowlongthepolicyisineffect.

While some states are moving toward cost containment,others have moved in the opposite direction—stressing whattheycall“consumerchoice.”

ADDINGINSUREDSTOAPOLICY

If you’re about to have a baby, youmight want to read yourpolicycarefullyandbeextremelycautiousaboutchangingyourinsurance.

Undersomeplans,anewchildwillbeautomaticallycoveredfor 31 days after the date of birth. However, in order forcoverage to continue beyond that time, you must notify theinsurancecompanytorequestcoverageandpayanadditionalpremiumforthechildwithinthe31-dayperiod.

Coverageforanewbornchildincludescoveragefor:

congenitaldefects;birthabnormalities;andinjuryorsickness.

An important note: No benefits are provided for prematurebirth(wherenodefectsorabnormalitiesareinvolved)orwell-babycare.Ifyouwant toaddsomeoneother thananewborn,suchas,anewspouse,oradoptedchild,youmustmakeanapplicationforcoverage, submit proof of insurability, and pay an additionalpremium.

SUMMARY

When it comes to insurance,problemsdon’t surfaceuntil youmakeaclaimwhichisdeniedorunderpaid.

Many of the same issues that influence how much a healthcoverageplan costs also influencehow the sameplanpaysclaims.

Themainmistakepeoplemakewhentheyhavetroublegettinga claim paid is that they assume the insurance company ormanagedcaregrouphasmoreauthority than it reallydoes.Insurance companies don’t have any special power overpolicyholders—bothsidesaresimplypartiestoacontract.

That contract—the insurance policy—states how many issueswill be resolved.Claimsdisputes are certainly one of thoseissues.But,withintheparameterssetbythecontract,thereismuchroomfornegotiationandcompromise.Muchofthetime,theinsurancecompanyormanagedcaregroupiscountingonthatroomtoworktoitsadvantage—afterall,itemployspeoplewho spend their days reading and enforcing insurancecontracts.

Butthere’sroominthecontractforyou,thepolicyholder,too.Ifyoudon’tlikethefact...orthemannerinwhich...aclaimwasdenied, you can press your issue. Your pressure will usuallyneed to start within the insurance company’s own appealsprocess.Ifthatdoesn’taccomplishanything,youcanpressontoregulatoryagencies.

Theimportantthingtorememberisthatinsurancecompaniesareinbusinesstomakeaprofit.Thiswillusuallygivethem—despite how their employees may act—an impulse to settledisputesthattheycan’tavoid.Ifyourpositioniswell-reasonedand consistently made, you may get more satisfaction thanyou’llfirstexpect.

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CHAPTERTIPSFORSMARTSHOPPERS

Once upon a time, people could go to any doctor theywanted. If their general practitioner decided they needed toseea specialist, theycould seeany specialist theypleased. Iftheyneededmedicine,theycouldgotoanypharmacyandgetexactlywhatthedoctorordered.

Today, we have a lot more choices, includingHMOs, PPOs,generic drugs, lists of doctors we can and can’t see,treatments we are allowed—only after two or three doctorsagreethatitsnecessary.

Thechangesaredue,inpart,toskyrocketingmedicalcosts.Infact, according to theWashington InsuranceCouncil, in 1969percapitaexpenditures forhealthcarewereabout$268peryearintheUnitedStates.

By1990,thatfigurejumpedtonearly$2,567.Duringthesame20-year period, health expenditures grew from5.3 percent ofthegrossnationalproduct(GNP)to12.2percent.Insurershavehadtoeatsomeofthesecosts—andthey’vehadto contend with ever-increasing fees for doctors, lab tests,drugsandhospitals.

Ontheotherhand,theyhavepassedmanyoftheincreasedcostsontoyou—theconsumer—intheformofhigherpremiums.Buttherecomesatimeineveryindustry’slifecyclewhenitcan’tpassthecostsonanylongerandithastodosomethingelse.Ithastocutcosts.

Still, you do have choices when it comes to your healthinsurance—whether you are buying your own coverage or

gettingitthroughyouremployer.

GETTINGTHEMOSTOFYOURPLAN

In order to get themost out of your health plan, you shouldstay informed. How? Read your health insurance policyand/orplanmemberhandbook thoroughly,makingsurethatyou understand the sections that pertain to the benefits,coverage,andlimitsprovidedunderthepolicy.

Somecompaniesallowyoutochangeyourmindandgetyourmoneybackafteryoupurchasehealthinsurance—butonlyifthepolicyhasa“freelook”period,whichtypicallyrangesfrom10to30days.So,readyourpolicyassoonasyougetit.Insurance consumers—like consumers of anything—shouldcomparethevariousproductstheyareconsideringbuying.

Theproblemwithhealthinsuranceisthatpeopledon’talwaysknowwheretolook.

Youshouldhaveenoughinsurancetocoveryouandyourfamilyagainst the most serious and financially disastrous lossesthat can result froman illness or accident. If you are offeredhealthbenefitsatwork,carefullyreviewwhateachplanofferstomakesuretheoneyouselectfitsyourneeds.Ifyoupurchaseindividual coverage, buy a policy that will cover yourmajormedicalexpensesandpaythemtothehighestmaximumlevel.

Callthehealthplan.Mostofferbrochuresonthevariouscoverages,aswellas the information that you should and need to know. Additionally, theymayoffertelephonenumbersforhotlines,services,etc.whichmightalsobeusefulinyoursearchforthe“best”planforyou.

You might also want to speak with the Human Resourcesdirector or health benefits officer at your workplace to learnmore about your policy. They can usually provide you withsome information, brochures, and personal insight as well as

provideyouwithkeycontactnumbersforyourplan.COMPARINGPLANS

Most people tend to choose between a traditional indemnityplanandamanagedcareplan.Aswithanyplan,whetheryouend up choosing a fee-forservice plan or a form of managedcare,youmustexamineabenefitssummaryoranoutlineofcoverage. The benefits summary gives you a description ofpolicybenefits,exclusionsandprovisionswhichmakesiteasiertocomparepolicies.

Read the summaries carefully. Think about you and your family’s specifichealthcareneeds.Youmaynotwantcoverageforpregnancy;butyoumaywantcoverageforchiropracticservices.

Here’salistofimportantquestionstogetyoustarted:

Whatexactlydoestheplancover?Someservicessuchasmentalhealth,drugrehabilitationordentalcare,may not be included at all. While you can’tpossibly predict all of your health care needs, findout if the treatments that you need are covered.Also, find out if treatments that are consideredexperimental or non-traditional are permissibleand, if you’re interested, if alternative or holistictreatmentsarecovered.

Whatwillitreallycost?Don’tjustlookatthemonthlypremiums.Considerthe

overallcosts, includingcopaymentsanddeductibles.Someplansofferalimitonthetotalyouwillpayeachyear.Othersplace a lifetime limit onwhat theywill pay,which you canreachifyouhaveamajorhealthproblem.Do you have a choice of doctors? Be sure to have someflexibility.Alsobesureatleastafewlocalhospitalsandpharmaciesarecoveredundertheplan.

Is thereautilizationreview? In someplans, you cannot

switchdoctorsorseeaspecialistwithoutauthorization.Whathappensifyoudon’tlikethedoctoryouchoose?

Whodecideswhat isconsideredmedicallynecessary? Isittheinsurancecompanyorthedoctorthatdecides?

What about preexisting conditions? If you have apreexisting condition, such as high blood pressure, youmay be liable for all costs relating to the illness. Knowwhen and if your insurance pays for any illnesses youmayhave.

What is the relationship between your doctor and yourinsurancecompany?Ifyourdoctorreceivesasetfeeperpatient(capitation) or receivesabonus forminimizingcosts (incentives), your healthcare could getshortchanged.Adoctormaybe reluctant to order testsorreferralsunderthesesituations.

Gag clauses can prevent doctors from revealing their compensation ordiscussingtreatmentoptionsnotcoveredbytheplan.

• Does the plan you’re considering have a grievanceprocedure? What if something goes wrong? Can youappeal?Besuretotalkwithsomeonewhoisauthorizedtoansweryourquestions, like theplanadministrator—and keep good records. Who regulates HMOs in yourstateandwhat’s theprocedure to lodgea complaint ifyouthinkyou’rebeingtreatedunfairly?

When comparing coverage, it is critical to look into a plan’slimitationsandexclusionstodeterminewhichexpensesarenot covered and which are restricted. For instance, manypolicieswillpayonly for treatment that isdeemed“medicallynecessary”torestoreyoutogoodhealth.Thesepoliciesoftenwill not cover routine physical examinations, cosmeticproceduresoreventhecostsofeyeglassesorhearingaids.

Thefollowingisalistofservicesyoumightwanttoaskaboutwhenlookingintoaplan:

coveredmedicalservices,inpatienthospitalservices,•outpatientsurgery,physicianvisits(inthehospital),•officevisits,skillednursingcare,medicaltestsandx-rays,prescriptiondrugs,mentalhealthcare,drugandalcoholabusetreatment,homehealthcarevisits,rehabilitationfacilitycare,physicaltherapy,speechtherapy,hospicecare,maternitycare,chiropracticcare,preventivecareandcheckups,well-babycare,dentalcare,and•othercoveredservices.

OLDFASHIONEDVS.NEW

Isaccesstopreventivecareandroutinecheckupsanimportantfactorinyourchoiceofahealthplan?Ifyouanswered“yes,”youmightwanttogowithatraditionalindemnity-typeplan.But,ifyou’drathersavemoneyonpremiums,anHMOmightbeasmartchoice.

A traditional indemnity plan or fee-for-service coverage givesyoufreedomofchoice.Youchoosethedoctoryouwanttoseeand then pay a fee for each service rendered. If the servicesare covered under your policy, your insurance company willreimburseyouforsome—butnotall—ofthecost.Manypoliciespay 80 percent of the costs. Fee-forservice plans costconsiderablymorethanmanagedcareplans.

However, ifyouwant lowerpremiums, youwill have togiveup some of this freedom of choice (unless of course, your

doctorispartoftheHMOnetworkandlistedasyourprimaryphysician). Rather than being penalized by getting less of areimbursement, as in a PPO plan—which gives you somechoice,withanHMOyou’dhavetopaythewholebillyourself.(Clearly,thisisastrongincentivetoseeonlyproviderswithinthe HMO.) Today, many HMOs have added options to theirplanswhichallowyoutoseeadoctorofyourchoicewhoisoutof network—of course, this, too, will cost considerably morethanacopayment.

A PPO or POS combines the features of fee-for service plans and HMOs.These typesofmanagedcareplansprovidechoice regardingdoctors,hospital,etc.WhereasanHMO, restricts choice toanetworkprovider.Undertheseplansyouwillalsogetsomereimbursementforcoveredservicesfromaprovider.TheonlymajordifferencebetweenaPPOandaPOSplanisthatunderaPOSplan, aprimary carephysician coordinatesyour care; and inmostcases,PPOsdonot.

IfyourdoctorisalreadyacontractingproviderwithaPPOorHMO,youmaybeabletosavesomemoneybygoingwithoneof the more restrictive plans—and you’d still get to see thedoctor of your choice. In other words, read the preferredproviderlist,ortheHMO’sproviderlist,beforeyoudecide.

HMOscanbequiterestrictive;andmanypeopledon’t learnthedetailsoftheirplansuntiltheyhaveamedicalproblem—oraproblemwithcoverage.Criticsquestionwhethermanagedcarehasbeenstretching itsmethodofcostcontainment too far.Amongother things,managedcare is criticizedfordepletingfundsforscientistsandmedicalschools,proposinggagrulesto restrict treatment discussions between doctors and pa tients, andofferingfinancialincentivestoitsstaffforcurtailingmedicalcosts.

It’sworthlookingintohowmuchtheservicefeeisformonthlypayments—andinquiringaboutadiscountforprepayment.

243Even if you already have health insurance, you’ll want to

review your policy once a year to be sure it still matchesyourneeds.

As the health care system continues to change, your healthinsuranceshouldchangewithit.

INSURANCECOMPANIES,ETC.

Most life and health insurance companiesmarket both groupandindividualhospitalizationcoverage.

Therearealsoserviceorganizations,suchasBlueCross/BlueShield, that provide prepaid medical and health benefits inaccordance with state laws that recognize them as not-for-profitorganizationsandexemptfromstatepremiumtaxation.

The only difference between the two is that commercialinsurers have a contractual relationship with you, andservice organizations have a contractual relationship withproviders.Withaserviceorganization,youusetheservicesofthe contracted doctors or hospitals—participating providers—andclaimsaresettleddirectlywiththeproviders.

CANCER&OTHERCOVERAGES

Ifyouwantalittlemorecoveragethanastandardpolicyoffers,you can purchase—as a stand-alone policy or combinedcoverage—a number of alternative coverages to fill in thegapsintraditionalhealthinsurance.Accidental Death & Dismemberment riders cover you fortheseveranceofarms,legs,orthelossofvisionasaresultofaninjuryoraccident.

Individual dental coverage—typically not provided byinsurance companies—can be purchased separately formaintenance (cleanings, x-rays), repair (fillings, root canals)andreplacementofteeth.

If you or someone in your family has a chronic disease or

disability, you might want to purchase long-term careinsurance to cover a wide range of care services, includingnursinghomecare,home-basedcare,andrespitecare.

Therearealsoavarietyofspecialinsurancepoliciesthatprovidealimitedamountofcoverage—including,travelaccidentinsurance,specifieddiseaseor dread disease insurance, hospital in come insurance, accident-onlyinsurance,blanketinsurance,etc.

One optional coverage that may be well its worth isprescriptionmedication coverage. Thiswill cover the costsof medication required, in lieu of a stated cost—usually two,three,orfivedollars.

GOVERNMENTPLANS

There are two main programs in which the governmentbecomesahealthcareprovider:MedicareandMedicaid.Ifyouareage65orolder—ordisabled—youcouldbeeligibleforMedicare,afederalhealthcareprogramfinancedbytheSocialSecuritytaxesthataretakenoutofyouandyouremployer’spaychecks.

The other major federal health care program is Medicaid.Qualificationforbenefits inaMedicaidprogramarebasedonfinancialneedandthecoverageofferedundertheplanisfairlylimited.

INDIVIDUALVS.GROUPPOLICY

Healthcoverageisusuallyavailableonanindividualorgroupbasis.Group coverage—typically what most people have—issomewhatcheaperthanindividualcoverage.

You can get group coverage through your em ployer, but unions,professionalassociations,andotherorganizationsalsoofferthecoverage.

Youremployermaychoosetoassumesomeorallofthecostsof your premium—usually lower due to lower administrationcosts for large groups—or he could choose to deduct it fromyourpay.

Tosaveevenalittlemoremoney,youremployermightwanttosetasideasumofmoneyinasecuredaccounttopayforyourhealthcarecostswhentheyarise.Thistypeofplanisreferredtoasaself-fundedplan.

DEDUCTIBLES

Aswithothertypesof insurance,thehigheryourdeductible,theloweryourpremium.

Formostpeople,adeductibleinthe$100to$250rangeisthemostmanageable.Butcompareotherdeductibles, too. Ifyourfamilyhasbeenhealthyforanumberofyears,youmaywanttoswitchtoadeductibleof$500or$1,000.You’llnoticeasizablereductioninpremiums.

Savemoneyonpremiums, ifnecessary,by tak ing larger deductibles andcoveringsmallercostsyourself.

Most policies have anout-of-pocketmaximum—when yourcoveredexpensesreachaspecifiedlimitinagivenpolicyyear,a reasonable fee for thebenefits thatarecoveredunderyourplanwillbepaidinfullbyyourinsurerandyounolongerhavetopaytheco-insurance.But,ifyourdoctorbillsyoumorethanthereasonableandcustomarycharge,youmaystillberequiredtopaysomeofthecosts.

Mostpolicieshavelifetimelimits,too.It’ssmarttolookforaplanwithalifetimelimitofatleast$1million.Ifit’slowerthanthis, you could run through coverage if you ended up havingmajorhealthproblemsforseveralyears.

OTHERGOODQUESTIONS

Youshouldcheckwithyourstateinsurancedepartmenttoseeif there have been complaints about the insurancecompaniesyou’reconsidering.

There are agents and companies whose lack ofprofessionalism and ethics can cost consumers dearly. Butthere are alsoways for you to protect yourself.Knowledge ispower,andbeingawareofyourcoveragesaswellasyourlegalrights and responsibilities will help you avoid being takenadvantageofwhenchoosingaplan.

Insurance agents and companies may not claim that they represent theMedicare program, the Social SecurityAdministration, or any governmentagency.Theymaynotimplythatthepolicytheyaresellingisguaranteed,approvedorotherwisebackedupbythegovernment.Ifsomeonecallsyouclaiming to have been authorized by the government to to review yourexistinginsuranceprogramdon’tagreetoanappointment.

Anyonewhotellsyouthatheorsheisacounselororadviserfor any association of senior citizens, may in fact just be alicensed insurance agent trying to sell you a Medicaresupplement insurance policy. Ask for credentials, the licensesthey hold, andwhat kinds of products they are authorized tosell.Abusinesscardisnotalicense.

Neverletanagenttalkyouintosigninganyform,application,ordocumentinblank.Whenyouarebuyingapolicy,neverpayyourpolicypremiumincash or make out a check to the agent’s per sonal account. The agentshouldmake it clear that you have the option of paying your premiumsdirectlytotheinsurancecompany.

SUMMARY

Tips for smart shoppers always sound a little bit like basic

common sense. But the purpose of this chapter has been tooffer critical points in one place. If you know that you’regoing to have to reviewor change yourhealth coverage, thischapter may help—as a kind of crib sheet for the issues toaddress.

Thatsaid,remembersomegeneralshoppingtips.

Be careful of aplanwhosedescriptionof benefits sounds toogood to be true. It may be. Often, agents—in an attempt toconvince you to purchase a policy from them—will giveinaccurate, exaggerated, and misleading descriptions of thebenefitsprovidedbypolicies.Similarly, agents sometimes try to get you to surrenderinsurance you already own and replace your coveragewith apolicytheyaresellingbymisrepresentingthepolicy,bymakinganincompletecomparisonofthepolicies,orevenbytellingyouthatyourcurrentcompanyisinfinancialtrouble.

You can even check out the insurance companies’ financialstabilityratings.A.M.BestCo.rateseachcompanyonaletterscale fromA toF, inorder toprovideanoverall indicationofthecompany’sabilitytomeetitspolicyholderobligations.Theirratingsarebasedonfinancialstrength,thecompany’smarketprofileandoperatingperformance.For instance,A++andA+indicate Superior while F indicates the company is inliquidation.Theseratingscanbefoundatyourlocallibraryoron-line.

Aswith all insurance, it pays to compare the costs of similarpoliciesavailablefromdifferentinsurers.

Shop aggressively when you first buy a policy; after that,change insurers or policies only when you desire to makesubstantialchangestoyourcoverage.Ifyoucancelonepolicytopurchaseanother,there isgenerallynorefundofpremium,and you may be subject to new policy limitations andrestrictions.

There is a plan to meet your needs. You just have to keeplookinguntil you find it.Remember to review thecost, checkthebenefits and the service issues thatare important to you,before you make a choice. And, don’t be afraid to askquestions.

13CHAPTER

POLITICS AND THE FUTUREOFHEALTHCOVERAGE

With the end of the Cold War and the beginning of aninformation-based global economy, old crises have vanishedand politicians—desperate for something to do—have moretimetodevote toreformingtheAmericanhealthcaresystem.FromthePresidentoftheUnitedStatestoCongress...toangrypeople calling radio talk shows...everyone who thinks aboutpoliticshasanopinionaboutwhatshouldbedone.

Thisdoesn’tnecessarilymeanthingswillgetanybetterforyou—asyoutrytodecideintelligentlywhatkindofcoverage tobuy.Infact,thepoliticalgrandstandingcouldmakethingsevenmorecomplicated.Itusuallydoes.

But health care remains a heavily regulated industry; so, theposturing pronouncements of windbag politicos matter. Toconclude our look at themechanics of health coverage, we’llsurvey someof thepolitical issues that influence thehealthcoveragemarketplace.For some people, adequate health care has becomeunaffordable.

However, many of those who claim that health insurance isunaffordable reallymean that they electnot to spend theirmoneyonhealth insurancebecause theydonotconsider ita

reasonable spending choice—not necessarily that they don’thavethemoneytopayforhealthcare.

This can be a rationaldecision, especially if you are youngandingoodhealth.

The ranks of the uninsured are growing faster than rationaldecision-makingwouldseemtosupport,though.In1997,morethan 43 million people— almost one in five non-elderlyAmericans—had no health insurance. The year before, thefigurehasbeenaround41million.That’sa5percentincreaseintwelvemonths.

IfCongressaddressestheproblem,itwillprobablytakeonlyafew small steps: make health insurance fully tax-deductiblefor the self-employed or set up a system that lets privateorganizations (like religious groups and labor unions)negotiate health insurance deals for members...as employersdonow.

Butpoliticalactionmaynotbetheanswer.Andthat’sprobablya good thing. Politics and medicine are an unstablecombination.

Americans are rightly skeptical of politicians’ attempts toreform health care. A poll conducted for the AmericanAssociation of Health Plans found that 68 percent ofrespondents said that candidateswhopush formanagedcareregulations did so for political gain—not for the benefit ofpatients.

As the November 1998 federal elections approached, BillClintonstartedtalkingalotabouthealthcarereform.Heaskedvoters to make the vote a referendum for the so-calledPatients’BillofRights.

Inaweeklyradioaddress,Clintonsaidhewould“askthenextCongresstoguaranteeyourrighttoseeaspecialist,toreceivethe nearest emergency care, to keep your doctor throughout

yourcourseoftreatment,tokeepyourmedicalrecordsprivateandhaveotherbasichealthcarerights.”

Americans didn’t heed his call. A post-election surveyconducted by the Health Insurance Association of America(HIAA) asked voters about the most important issues indeciding how they voted. Their answers: education, abortion,taxes,theeconomyandjobsandadeclineinmoralvalues.

“Thesurveyshowscrystalclearthattherewasnomandateforso-calledpatientprotectionsorhealthreformbyvotersinthisyear’s Congressional elections,” said Chip Kahn, HIAA’spresident-designate.

“The anti-managed care activists are entirely off-base if theyattempttospintheelectionresultsintoamisguidedcallforso-calledpatientprotections,regardlessofwhattheymaysay.”Another survey finding: More than 4 out of 5 re spondents (81 percent)believedthatthehealthcaresystem—asitiscurrently—meetstheirneeds.And,fromalistoffivegoalsforchangingtheU.S.healthcaresystem,most(33 percent) chose “pro viding basic health insurance coverage to allAmericans”asthemostimportantgoal.

Of course, HIAA is an interested party in these matters. Itsmembers are insurance companies and HMOs. But theresults of theNovember 1998 elections—though largely goodforClinton’sparty—seemedtosupportthetheorythatvotersdon’tcaremuchforhealthcarereformthatwouldchangethesystemdramatically.Most of the candidateswho advocated atighterreinonmanagedcarelost.

Amongtheselosers:ScottyBaesler,runningforaSenateseatinKentucky;Lydia Spottswood, running for Congress in Wisconsin; and Gail Riecken,running for congress in Indiana. Riecken ran a campaign ad in which ayoung mother held a child whose brain damage had been caused—themother claimed—by her HMO refusing to pay for a cesarean section. Thechild’sfatheralsoappeared,criticizingReicken’sopponentforde fendingrapaciousHMOs.Thelooselyfactualaddidn’twork.But itwasinteresting

toseeold-fashioned,dirt-slingingpoliticswrappedaroundamundaneissuelikehealthcarereform.Clearly, somepoliticians still think the topic has...promise. Atleastforcampaignads.

HMOREFORMPROPOSALS

Clintonandhisalliesseemeddetermined to restrictmanagedcarecostcontrolsunderthebannerthePatient’sBillofRights.Specifically,thiswishlistincludedthefollowingassurances:

accesstoeasilyunderstoodinformationaboutahealthplananditsbenefits;

access to information about financialarrangementsbetweenaplananditsmemberdoctors;

a prudent-man standard for coverage ofemergencyservices;

accesstoappropriatespecialtycare;quality-assuranceprograms;abanondoctorgagclauses;aappealprocedurefortreatmentdecisions;confidentialityofmedicalrecords;andhealth-planliabilityininstancesofmalpractice.

AnearlydraftofthePatient’sBillofRightspassedtheHousein1998—butdiedintheSenate.Almostimmediatelyafterward,asmall group of Republican senators proposed a compromisepackageaimedatdrawingbipartisansupport.Compromise legislation would almost surely guar antee coverage ofemergency treatmentwithout authorization fromamanaged care plan. Itwould also provide that patients could appeal denial of treatment to anindependentreviewboard.Butsomeissues—likegivingpeopletherighttosue when a plan’s decision to withhold a treatment resulted in harm—remainedirreconcilable.

ClintonandmostcongressionalDemocratsbelievedthatthese

provisionswerenecessarytogivepatientsleverageovertheirmanaged care plans. Most Republicans favored the existingstandard,underwhichmanagedcareplanswereliableonlyforthecostofthedeniedcare.

A late 1998 editorial in theOmahaWorld-Herald argued thatthe managed care reform “debate this year consisted of toomuchpoliticalmaneuveringand too fewattempts to considerthe concerns of HMO members.... The voters should rejectattemptsbyeitherparty togetmileageoutof the issue.Bothpartieshavefailedtoaddressitforthrightly.Solongasthetwopartiesmaintaintheirunproductivestalemate,theconcernsofpatientsarebeingignored.”

While Congress spent two years debating newmanaged careregulation,severalstatesmovedaheadwith reformsof theirown.

TexasgavepatientsmuchofwhatCongresswasconsidering,including rights to appeal denials of coverage to anindependentboard of physicians and to recover substantialdamages in malpractice lawsuits. In two years after the lawwent into effect, the independent review board ruled on 293appeals—andsidedwiththepatientsinhalfofthecases.

California’s legislature,whichshotdownapatientprotectionbill in 1998, was expected to try again in 1999. The odds ofpassage improved with the election of Gray Davis—whosupportedtighterHMOregulation—asgovernor.Themanagedcare industry was bracing for a fight over letting patientsrecoverdamagesfrommanagedhealthcareplans.

“Ithinkareasonableamountofpatientprotectionshavebeenenacted and more is appropriate, especially on the issue ofindependent review,” said Walter Zelman, president of theCaliforniaAssociationofHealthPlans,representing40insurersandmanagedcareplanswithmorethan20millionpatients.

Zelman said his organization, in a sharp departure from

managed care plans in most states, was likely to supportcreating an independent panel of physicians to reviewtreatmentdecisions.Buthisgroupwasn’tsolikelytosupportenablingpatientstorecoversubstantialdamagesincourt.“ThegreatestconcernofmanagedcareplansinCaliforniaisthatifthedoorweretobeopenaninch,thelawyerswouldwanttotakeamile,”Zelmansaid.None of the state patient rights laws affected the 48 million patientsnationwide in self-funded health plans. Federal law exempts self-insuredplans from state regulation. As a result, the out come of the debate inWashingtonovermanagedcarewillbeparticularlyimportanttothisgroup.

GOVERNMENTPROGRAMS

Though there’s debate about the condition of the health careindustry and the possible need for national health care,Americaalreadyhasaprogramof“nationalhealthcare.”Thissocial insurance program is made up of Medicare andMedicaid.

Americans remain stubbornly ill-informed aboutMedicare...andtheyexpectmorefromthesystemallthetime.Fewer than 25 percent thinkMedicare is headed for a crisis,while nearly 30 percent think the program has only minorproblems or none at all. Roughly two-thirds are eager toexpandMedicare—tocoverprescriptiondrugsandlong-termhome care and to serve 62-to 64-year-old seniors. Thesechangeswould send theprogram into insolvencyeven soonerthan2008.

Still, toward insolvency itgoes.A1998 study releasedby theOffice of Inspector General (OIG), Department of Health andHuman Services, found that seniors are losing interest inmanaged care. Although awareness of HMOs among seniorsincreased from 70 percent to 79 percent from 1995 to 1997,thosewhosaidtheymightjoinonedeclinedfrom35percentto23 percent. Only 40 percent said they’d even listen toinformation about managed-care options—down from 64

percentin1994.

So much for the federal government’s ability to marketMedicareoptions.

In1997,CongresscreatedMedicare+Choice,aprogramthatwas to give seniors several alternatives to standard fee-for-serviceandHMOMedicare.But theprogramdidn’tworkoutasplanned.Attheendof1998,some40managed-careplanshad pulled out of Medicare. (Two or three a year was thehistorical average.)More than 400,000 seniors were affectedby managed care’s pullout; as many as 50,000 beneficiarieswere left with no HMO option at all. So, maybe it was ablessingindisguisethatonly20percentofseniorseligibleforMedicare+Choicehaveevenheardoftheprogram.

The managed-care industry blames the government for this. “There arestructural problems— payments, compliance and transition issues—thatneed to be addressed with the Medicare+Choice program,” said KarenIgnagni, president and CEO of the American Association of Health Plans.“De cisive steps can and should be taken now to pre vent this situationfromhavinganevengreaterimpactonMedicarebeneficiaries.”If all of thisweren’tenough, thepoliticiansareconstantlyontheprowlfornewproblems.Inlate1998,windbagsfrombothparties were interested in a new Medicare outpatientprescription drug benefit, seen as the biggest gap inMedicare coverage for seniors.SenatorTedKennedyplannedtointroduceadrugbenefitbillfinancedbynewtobaccotaxes.ButRepublicanswereleery,duetothehighcostofthebenefit.

The Congressional Budget Office estimated that a Medicaredrug benefit capped at $725 a yearwould cost$216billionduringtheeightyearsfrom2000to2008.So,insolvencywouldcomealmostaquarter-trilliondollarssooner.

MEDICINEANDPRIVACY

TheKassebaum-KennedyAct setAugust1999as thedeadlinefor Congress to enact federal privacy standards for healthcareinformation.IfCongressfailedtodoso,HHSwouldissue

regulations.

TheHouseplannedtostartwiththeconfidentialityprovisionsinthePatientProtectionActitpassed—buttheSenatekilled—in 1998. Major privacy bills introduced in 1998 would bereintroducedin1999.Disagreementexistedovertheextentofpre-emption of state confidentiality laws, the extent towhichhealthdatawasprotectedandexceptionsfordisclosureswere crafted, and the degree to which managed care planscould access patient records for normal operations such asutilizationreview.Whileprivacydidn’thaveabigpartofthepoliticaldebatethrough1998,somelegislativeexpertspredictedopponentsofbigchangestothehealthcaresystemwouldraiseitashurdlein1999andbeyond.

LONG-TERMCARE

The federal government has done a better job of copingwithmedicalcarefortheelderlythanofaddressinglong-termcare.

The current long-term care system is widely criticized forimpoverishing people when they become frail-and putting anunhealthystrainonstateandfederalbudgets.

Becausenursing-homecareissoexpensive(morethan$40,000ayearperpatientonaverage),andbecausetheaveragelengthofastayismorethantwoyears,notevenhalfofthemoney(48percent)paidtonursinghomescomesfromindividuals.Private insurancepays for3percentof the cost,Medicarecovers8percent,andMedicaidfoots41percentofthebill.

Thecurrentlong-termcaresystemcostMedicaid$30.4billionin1995.Spendingonlong-termcareeatsupone-thirdofMedicaid’sbudget.“MyguessisthatMedicaidcannotsurvivemuchbeyond...2010,”whenthefirstwaveofbaby

boomersretires,saysoneanalyst.TheAmericanCouncilofLife Insurancepredicts thatby2030

nursing-homecarewillcostMedicaid$134billion—andthatdoesn’t even include Medicaid expenditures for other long-term-careoptions,suchashomecare.

In his 2000 budget, Bill Clinton proposed spending $6.2billion over five years on long-term care, primarily to give$1,000taxcreditstohelpfamiliescoverthecostofhome-basedassistance. Some $125 million a year would be available tostates to give temporary respite to residents looking afterpeoplewithlong-termcareneeds.

Meanwhile, some states were showing signs of taking matters into theirown hands. A survey of legislators by the National Conference of StateLegislaturessuggestedthatlong-termcarewouldbeamajorpriorityinthestatesduring1999.Somestateswereconsideringtaxincentivestoencourage people to buy long-term care insurance,while otherswanted federalMedicaid waivers to use federal-state money for alternatives to nursinghomes,suchasassisted-livingfacilities.

Again,willfulignorancecontrolsalotofthepublicresponsetothisissue.ManyoftheboomersaresurprisedtodiscoverthatMedicaredoesn’tpayforlong-termcare.(Medicarecoversonlytemporarynursing-homecareafterhospitalization.)TheKassebaum-KennedyAct,whichmadeiteasierforpeopletocarryhealthinsurancefromonejobtothenext,includeda

provisionthatwasintendedtoencouragepeopletobuyprivatelong-termcareinsurance.Itclarifiedthattaxpayerscouldcountpaymentsforlong-term-carepoliciesasamedical

expensewhencalculatingwhethertheyhadenoughexpenses(7.5percentofgrossadjustedincome)toqualifyforanincome-taxdeduction.Also,employerswantingtocontributetothe

costoflong-termcareinsurancecoulddeductthatbenefitasabusinessexpense.

Theproblem:Mostpeopledon’tincurenoughmedicalexpensestoclaimadeduction—untilthey’reinanursinghomeandit’stoolate.Fortheirpart,mostemployersdon’twanttotakeonanotherretireeburden.

THESTANDARDOFPOLITICALIMPACT

HHS’sOfficeofInspectorGeneralreleasesanannualauditofMedicarepaymentseachMarch.Duringthelate1990s,thesereportstriggeredaregularpatternofresponsethatpeoplewhodealwithhealthcareissuesagreesumsupthepolicitalfarce.Thepatterngoessomethinglikethis:

Congressexpresses shockandoutrageat thevolumeof improperbillingsandreimbursements...andthenmovesontothenextoutrage.

Health care industry spokesmen attack the report’smethodology and worry loudly that opportunisticpoliticianswillblamedoctorsforgougingpatients.

Medicare’s bureaucrats announce new efforts todiscourage improperbilling andprosecute outrightfraudandabuse.

A few high-profile arrests take place, while doctorsandhospitalgroupslookonanxiously.

Businessgoesonasusual.ButnoteverythingthatWashingtondoesabouthealthcareisajoke. Anyone who still had doubts about the effectiveness ofgrass-rootspoliticallobbyingwasprobablyconvincedbytheHIAA’s famous “Harry and Louise” television ads. Theseappearedin1994tolobbyagainsttheClintonadministration’smassivehealthcarereformplan.

In contrast to complex charts andgraphs that the administrationused toillustrateitsplan,theinsuranceindustryranaseriesofadsthatfeaturedamiddle-classcouplefrettingovertheprospectofagovernment-runsystem.The $15 million ad campaign—one of the most expensive inAmericanpoliticalhistory—wascreditedwitherodingpublicsupportforClinton’shealthcareplan.Theplandiedwithoutaevenvote.

Since Harry and Louise, corporations and other groups have

been putting together ever more elaborate grass-rootscampaigns, and they now often start them long before acongressionalvoteisscheduled.

SUMMARY

Intheend,politicsfollowsmoney.Andthemoney inhealthcoveragecomesfromyou—onepremiumcheck,onedeductible,onecopaymentatatime.

The bad news is that Washington lobbyists don’t care muchabouttheplightofoneindividualpolicyholder.Theydon’tcareaboutyourcopayments.Theyprobablydon’tevenunderstandhowyourcopaymentworks.

The good news is that the decisions you make about healthcoverage—indemnity plan versus HMO, add-on coveragesversus lower deductible—ultimately control the largerfinancial and political issues. One dramatic lawsuit overexperimentaltreatmentdoesn’taffecttheinsurancemarket;athousandfamiliesbailingoutofanHMOwithtoofewdoctorsandbadcustomerservicedoes.

Whetherornotyouwanttothinkabouthealthinsurance,youprobablyareaskedaboutitonafairlyregularbasis.When you start a new job, you often have a choice of healthinsurance plans and group disability plans, as well as theoption of participating in a cafeteria plan (which can includecoveragefordentalcare,chiropractor’svisitsandvisioncare).Ifyourcompanychangesinsurancecarriers,youmaybeaskedallthesequestionsalloveragain.

You’veprobablyalsobeenofferedinsurancecoveragebyphone(say,fromoneofyourcreditcardcompanies),viathemailandevenovertheInternet.Thisdirectsalesapproachtomarketinginsuranceofallsortsisbecomingmoreandmorecommon,asinsurance companies try to cut costs by eliminating agents—andtheircommissions—fromthesalesprocess.

This new approach to insurance salesmaymake pricesmoreaffordable inthe longrun(orat leastkeepthemlevel).But italsomeansthatyou—asaconsumerbuyinginsurancedirectlyfrominsurancecompanies—havetoknowmorethaneveraboutthesepolicies.

The good news is: After reading this book, you know enoughabout the coverages you want and need to ask the rightquestions-andtobuyyour insuranceanywayyouseefit.Thiswillbesomethingthatyoufindyourselfdoingmoreandmoreas the insurance industrycompletes itsmove toaself-servicefocus.

Goodluck.