Tag Archives: Insurance

Health Insurance: Part 3 – COBRA Coverage

This is Part 3 of a series on health insurance. Part 1 discussed deductibles. That post discusses  how they affect your plan and costs. Part 2 discussed stop-loss provisions and co-insurance.

The Consolidated Omnibus Budget Reconciliation Act of 1985 or COBRA, is a set of provisions that require some employers (those with 20 or more employees) to continue health insurance coverage for employees after termination of employment.

Termination of Employment

Under COBRA, the employer must offer continued health insurance coverage for 18 months from the date of termination or demotion to part-time.¬† If the employee was fired due to “gross misconduct”, COBRA benefits do not have to be offered. COBRA coverage can be terminated before the 18 month period if any of the following occur:

  • the employer terminates the health plan for all employees
  • the employee neglects to pay the required premium
  • the employee becomes covered under a new medical plan (however, if pre-existing conditions are excluded on the new plan, the employee must be allowed to continue COBRA)

The employer is allowed to require the employee to pay for some of the costs of COBRA coverage. However, they are not allowed to charge more than 102% of the cost of the insurance.

Disability

If termination is due to disability, coverage must be allowed to be continued for up to 29 months. All of the requirements set above are still applicable.

Other Options

There are several other events where an employer must offer 36 months of continued coverage to an employee or their beneficiaries. These events include:

  • death of employee
  • divorce or legal separation of the employee
  • employee’s entitlement to Medicare
  • bankruptcy

Recommendations

COBRA can be a very beneficial for many individuals, especially in these tough times. If you lose your job, check with your previous company about COBRA coverage. The coverage may be more expensive than you are accustomed to, but may be considerably less than if you were to purchase individual coverage. It also allows you to avoid the possibility of having pre-existing conditions placed on your new policy. For example, if you were recently treated for cancer, your new policy may not cover you for those related expenses. COBRA coverage may help ensure that those expenses are covered for a period of time.

Has anyone had a specific COBRA experience they would like to share?

Health Insurance: Part 2 – Co-insurance and Stop-loss Provisions

It’s been quite awhile since I wrote the post Health Insurance: Part 1 – Deductibles. In that post I discussed the general idea of deductibles and how they work. In this post, I will be discussing co-insurance and stop-loss provisions and what they mean to you and your wallet.

Once your deductible has been met, many health insurance companies will pay for all of your medical expenses. On the other hand, many companies will pay for medical costs on a co-insurance basis. Many co-insurance provisions are stated in a percentage format such as 80/20, 70/30, etc. The first number is what the insurance company will pay after the deductible and the second number is what you will be responsible for. You will continue to pay that percentage (after the deductible) until you reach a stop-loss provision or out-of-pocket maximum.

The stop-loss provision is the point where the insurance company will begin to pay 100% of a claim. Once your out-of-pocket expenses reach that limit, the insurance company will pay the rest. Without a stop-loss provision, you could be responsible for the co-insurance of an indefinite amount. For example, if you have medical bills of $500,000, your co-insurance clause is 80/20 and you do not have a stop-loss provision, you would be responsible for $100,000 of that particular bill. Make sure that your health insurance has a stop-loss provision for this reason! The higher the stop-loss, the lower the premium.

Let’s look at a comprehensive example for clarification:

Assume that John has an insurance policy with a $1,000 deductible, 80/20 co-insurance and a $5,000 stop-loss provision. Let’s also assume he has a hospital bill for $2,000. How much is he responsible for?

He is responsible for the first $1,000 of the bill due to the deductible. He is then responsible for 20% of the remaining $1,000 bill or $200. His total out-of-pocket expenses for this bill are $1,200.

Now let’s assume he has another bill for $25,000 (due to a surgery) in the same year. Since he has already paid his deductible, he will go straight to the co-insurance. He will be responsible for 20% of the bill or $5,000. However, he has a stop-loss provision of $5,000. Since he already paid $1,200 from a previous bill, he will only be responsible for $3,800 of the surgery bill. This is due to having met his $5,000 stop-loss. The insurance company will now pay any additional bills that come in during the same calendar year. Keep in mind that these provisions and deductibles are on a yearly basis and reset each year. So in this example, if John has the same bills next year, he will have to pay the same amounts again.

Health Insurance: Part 1 – Deductibles

This is part 1 of a series on health insurance. I will be explaining several components of health insurance contracts in order to help you make a better decision on your purchase.

Deductibles are a part of health care plans that require you to pay an initial amount before you receive some type of reimbursement. In other words, if you have a $100 deductible, the first $100 is on you and after that your insurance company will reimburse you some or all of your covered payments. Typically, HMOs do not have a deductible although some are starting to have a small one. PPOs typically have some sort of deductible.

If you are considering a PPO, you more than likely have the option to choose your deductible. Typically, the higher the deductible, the lower the cost. This is because you are responsible for a greater amount before the insurance company will have to pay. You should consider your past medical history when choosing your deductible. If you are prone to injury and visit the doctor often, it may not be wise to choose a high deductible because you will have more out-of-pocket. The opposite is true for someone who is very healthy. You may be able to get away with the higher deductible in order to lower your costs.

If you are purchasing a family policy, you typically will also have a family deductible in addition to the individual deductibles. Let’s say for example that you have three family members on your plan. The plan has a $200 individual deductible and a $500 family deductible. If person #1 has an insurance bill of $300, the first $200 is paid in full by person #1 because of the deductible and then the insurance company will pay for part or all of the remaining $100. If person #2 has a $300 bill as well, the same payment structure will apply. If person #3 has a $300 bill, the family deductible applies. Since the already have paid $400 out-of-pocket, only the first $100 of person #3’s bill will be out-of-pocket. The final $200 of their bill will be covered by the insurance company at the appropriate rate.

If you get your health insurance through your employer, you may also have the option of a HSA. I will go over HSAs in a future post but I will give you a quick overview now. An HSA is a health savings account. It is a tax sheltered account that allows you to save pre-tax money for your healthcare bills. As long as you use the money for healthcare expenses, it is tax defered as well as tax-free. These accounts are paired with high-deductible health plans. These plans have higher than normal deductibles. Typically, you should only consider a HSA if you are in good health. Like I mentioned before, I will discuss these in a later post.

HMO vs PPO: And The Winner Is…..

…..whatever works best for your current situation!

With open enrollment coming around the corner, I thought it would be nice to give a brief description of the differences between a Health Maintenance Organization (HMO) and a Preferred Provider Organization (PPO).

HMO

First off, a HMO is a prepaid health plan. The doctors that are in the network are already compensated for providing you health care. They get paid regardless. With a HMO you typically choose a primary care physician (PCP). The PCP is the first person that you go to if you are in need of medical care. If you need to see a specialist (such as a dermatologist), you need to go to your PCP first and then they will refer you to a dermatologist in the HMO network. This is one of the nuisances of a HMO that seem to turn people off to them. HMO’s also may have less participating doctors than a PPO. If you like your current doctor and are thinking of switching to a HMO, make sure and ask them if they participate in the HMO. Otherwise you will be stuck searching for a new doctor. Although, HMOs seem more comprehensive, they are typically quite considerably cheaper than their PPO counterparts. I will explain why next.

PPO

A PPO is a network of participating doctors that your insurance company has negotiated discounted rates with. As long as you stay within the network of doctors, you pay lower fees, copayments, etc. The thing that makes a PPO different than an HMO is the ability to choose your doctor. If you do not like any of the doctors in the network, you are free to choose an out-of-network doctor. However, doing this means you will pay more out of pocket. You also do not need a referral to see a specialist. These added freedoms also add to the price. The premiums for these plans are typical double or triple the amount of a HMO. These plans also typically have deductibles, larger copayments, etc.

When you are comparing HMOs vs. PPOs, you need to weight all of the costs. Look at your past bills and see what it would have costed you for each plan you are comparing. I hope to have a future post about all of the options in PPOs and HMOs to help you undertand them better. I also want to do a post on health savings accounts (HSAs) since many companies are now moving toward them to cut costs.

Does anyone have any specific questions that they would like addressed in a future post? Any interesting stories about your health insurance? You can leave a comment or send me an e-mail with a question. I love reading them!