Health Insurance

For many of us, our health insurance benefits are the most important employee benefit. This may be especially true considering an estimated 47 million Americans -- many of them working Americans -- lack basic health insurance according to an August 2007 report published by the U.S. Census.

Before you have a medical emergency, it's important to know how to understand the basics of your health insurance benefits. Some of the basic features include:

Premiums. You want to know how much your monthly insurance premium is and whether your employer pays a part of it. Monthly premiums can easily reach $100 for single persons and two or three times that amount for families.

Employers often obtain health insurance for their employees with a group policy. By spreading the risk among more insureds, group insurance plans are often able to obtain more affordable premiums.

Deductibles. A deductible is the amount you pay the physician before your insurer pays its share of your medical bill. Generally, the larger your deductible is, the smaller your premium. You may wish to consider increasing your deductible in exchange for a lower premium. Higher deductibles are a common way for insurers to make insureds share in the cost of health care.

Copayments. A copayment is the amount you pay when you visit a doctor. Like a deductible, a copayment is a means of sharing the costs of health care to discourage excessive use of benefits. Copayments are often in the range of $5 to $25 -- not too much but high enough to discourage frivolous use of your benefits.

Out-of-pocket expenses. Out-of-pocket expenses are the costs you have to pay, in total, before an insurer pays for any remaining amounts. Amounts you pay as deductibles are included in your out-of-pocket expenses, which are kept as a running total. Most health insurance plans also have a yearly maximum for out-of-pocket expenses that you have to pay. Once you have reached your maximum for the period, you're usually done paying for that period.

Coverage of services. When it comes to the coverage of medical services, some employer-sponsored health plans are simply more generous than others in the scope of services that they cover. You should be aware of any procedures or medical disorders that your health insurance plan does and does not cover.

Ancillary care. A good health insurance plan pays for visits to a doctor. However, a more comprehensive plan also provides benefits coverage for such ancillary care as pharmacy and vision. Dental insurance is often offered as a separate benefit but it may also be included in a comprehensive health insurance plan as a policy rider.

Health insurers often contract with a network of doctors to provide health care for insureds. These networks are often managed care networks, which include health maintenance organizations (HMOs). HMOs focus on providing preventive care by encouraging early diagnosis (when treatment is cheaper). HMOs actively use copayments, deductibles and out-of-pocket expense caps to manage health care costs.

With managed care, you select a doctor from a roster of physicians in your area. This physician is called your primary care physician. You use your primary care physician as a gateway for your health care, obtaining a referral from him or her to obtain specialized medical care. This gateway approach is another way that managed-care networks seek to control health care inflation, which has easily outpaced general inflation over the past decade.

Health care critics argue that the gateway process penalizes consumers by slowing down the time it takes to receive timely health care for specialized needs. In spite of these criticisms, HMOs and other managed-care networks have become the dominant system for providing health care in the U.S.

Another type of health care insurance is fee-for-service health care. Fee-for-service care is more expensive than HMOs since it is a pay-for-what-you-get insurance system. Fee-for-service health care plans use a network of physicians called preferred provider organizations (PPOs). An advantage of fee-for-service health insurance is that you have more latitude in choosing a doctor.

A major issue in health care today is declining reimbursement rates, particularly with respect to Medicare reimbursements. Health insurers often use a contracted reimbursement system to pay physicians and rely on a similar system to be reimbursed by Medicare. For example, an insurer might reimburse a doctor or hospital $10,000 for a kidney dialysis, or $5,000 for a birth given by Caesarean section. However, if Medicare is reimbursing at lower rates, the health insurer eats the difference and is forced to increase insurance rates.

When you receive health insurance, you often have an open-enrollment period. Open enrollment is generally a once-a-year period that lets you modify your insurance coverage. If you give birth to a child or have a change in your marital status, you are allowed another opportunity to modify your health insurance coverage.

If you and a spouse have your own health insurance plans with the other spouse as a beneficiary, you should see how each spouse's plan affects the other. Health insurers use coordination of benefits to determine which insurer pays for which services and to prevent from paying twice for the same procedure or visit.

If you anticipate paying health care costs each year that your employer does not reimburse, you may wish to set up a health care reimbursement account. These accounts let you make before-tax contributions to fund the account during the year, potentially saving you hundreds or thousands of dollars in taxes. Health care reimbursement accounts are also called cafeteria or Section 125 plans after the section of tax code that governs their use.