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California Health Insurance guide:

Introduction Doctor Networks Monthly Premium The Big Bill The Small Bills Prescriptions

1. Introduction to California health insurance

Okay...so you've visited countless websites, received instant quotes and colorful benefit descriptions with enough small print to make you scream...WHAT DOES IT ALL MEAN (and who writes this stuff)!!!

Well we didn't write it but after years of reading it, we have boiled down the various plans to 5 key elements...and if you understand just these points...you will be able to walk into the health insurance market with confidence (and a fair amount of sanity left).

So before we get started, let's list the 5 points:

    1. Doctor doctor...which doctors you can see and how
         that access is handled
     2.   Premium premium premium...are people paying too
           much to over-insure the small bills?? Let's see.
    3. The Big What-if...the real reason you are buying health
         insurance...big bills
    4. Pennies on the Nickel??...from the doctor visit to the
         broken leg - getting the real story on the small bills
    5. RX dollars...prescription coverage going up up up

Now granted, there are tweaks and twists between the plans, but with the above 5 points, you already have 90% of it...the other 10% you can ask us.

So let's get started. HMO, PPO, EPO...what does it all mean. We will take a good look at what they are but more importantly...how they affect your care. Let's take a closer look...

2. Understanding the doctor network - HMO, PPO, EPO and how it affects you.

HMO...PPO...EPO??? What does it all mean. Well... rather than give you the long version of each term, let's get to the heart of what each is, and more importantly, how it affects you.

First a stroll down medical memory lane. Up until the mid 80's (wow...last century), medical insurance was pretty straight forward. You can go to any doctor and the insurance company is going to pay a certain amount. It was around this time however, that they came up with "managed care". And voila, terms like HMO, PPO, and EPO made their entrance. Well what are they?

They are essentially volume discounts.

In order to control costs, the insurance company went to doctors and said, "Look. If you join our PPO, we'll bring you a lot of customers (us the insured) but we want you to discount your costs 30-60%. That $100 doctor visit should be $60. And if you join our HMO, we'll pay you $50/month for each person who signs up with you. In turn, there will be a lot of people to make up for this discounted amount.

Now there are variations in a contract between insurance companies and doctors, but essentially, they are offering volume discounts to help contain medical cost inflation...and it worked!! From the early 90's to about 1997...all was relatively calm on the insurance premium front. We may have reached the extent of what managed care can do as premiums have risen significantly since 1998.

Now that we have a behind-the-scenes view of what HMO, PPO, and EPO are from a doctor point of view...how do they affect us??

First let's break each one down.

If the old way (Fee for Service) was that you can go to any doctor you wish, then the HMO (Health Maintenance Organization) is the polar opposite. You choose one doctor up front, and essentially all care is managed through that doctor and with a local hospital and medical group. This doctor is referred to as a Primary Care Physician and he or she makes most decisions on care and/or referral to quotes. The trade-off with this highly structured system is that the benefits are very rich...i.e. low out-of-pocket expense when you get sick or hurt. Some people swear by it...others swear at it. It works for people who are flexible and want low-out-of-pocket expense. You typically do not find HMO's available in rural areas...because remember, they need lots of people to make it work.

Back to our spectrum, the PPO's (Preferred Provider Organization) are somewhere in between the "go to any doctor" method of the past and HMO's "choose one doctor/hospital". There is an extensive list of doctors and hospitals in Texas from which you can go to. You refer yourself out to quotes and you are not locked into one area or one doctor. You receive the negotiated rates (30-60% discounts mentioned above) with a PPO plan which can amount to significant savings. That being said, you will help pay along the way...either in the form of a percentage or a deductible (we'll get into these in section 4). Now with PPO's, you can go to doctors who are not in the network but then your benefits are significantly reduced. Why?? These doctors are not offering the "volume discount" we mentioned above.

Another variation not as often seen is an EPO (Exclusive Provider Organization). An EPO has the exact same doctors/hospitals as the PPO list but with no out-of-network benefits. If you go to a doctor not listed on the EPO list, you have no benefits.

Some more interesting facts:

In a true emergency (and be very conservative on this definition...it better be serious!!), your benefits will likely cover you even out of the above networks.

Sometimes doctors participate in HMO and PPO...sometimes just one of them. You can verify your doctor's participation here under "provider".

This HMO or PPO question is really the big one to answer first if possible. You can always ask us to explain further the differences between the two.

Next...Premium premium premium. Just like real estate, it's critical when choosing a plan. But don't assume that a more expensive plan is necessarily better for you. Let's take a closer look...

3. Premiums...the amount you pay each month to keep the policy in effect...but there's more

Such a loved topic...health insurance premiums. Just the thought can raise blood pressure faster than the actual rates seem to go up. Let's take a closer look and find out why an expensive plan might not necessarily be the right plan.

It is a pretty straight forward contract...as long as you pay the premiums...the insurance carrier will cover you, but what exactly are we paying for? Before we take a look at big bills and small bills...etc...you need to understand a fundamental truth about health insurance.

If you are getting great benefits for the smaller bills...believe me...you are PAYING FOR IT. It's the equivalent to buying a car warranty that also covers a weekly car-wash, oil change every 3,000 miles, and a new set of tires every two years....sounds great but the cost would be so high...no one could afford it!! Health insurance is very similar...

A simple example (real life) will help explain this.

Let's say you have a PPO High-deductible at $47/month that mainly covers the big bills...any small stuff will be your responsibility. Compare that to a 30% PPO plan for $167/month that will cover right away...leaving you to pay 30%. That means your doctor visit is going to be pretty cheap. Remember, it will handle the big bills pretty much the same.

Now the first reaction to our $47 plan is..."You mean I HAVE to pay for the doctor visits and anything else up to $2,250??? That doesn't sound too good!!"

But let's look at it more closely...The difference in premium is $120/month. That's $1,440 a year. That's a lot of small bills you better be having in order to get any value out of the more expensive plan. So you're paying a definite $1,440 to cover a potential $2,250 expense. That's not smart insurance. You want to pay pennies on the dollar...i.e. protect with $47/month from a potential $20,000+ surgery bill.

Some other interesting facts on premiums:

Rate increases tend to hit the most expensive plans hardest. Why?? We are now in a period of extreme medical inflation. As mentioned in the previous section, managed care (HMO's and PPO's) did a pretty good job of keeping costs down but there is only so much they can do and the results have shown over the last three years. So with this rate increase, the plans that are paying the majority of the bills will feel it the most. Typically it has been the HMO's and No-deductible PPO's.

Sometimes, a person can save money by splitting up policies. For example: a family rate is based on the average...father, mother, 2 children. If you have 1 child and a significant difference in age between father and mother...it may be better to have older spouse alone and other younger spouse and child together. Try the different options or tell us your situation and we will find out the best option.

Next...the real reason you buy health insurance...The big what-if. It sounds ominous but a car accident can quickly add up to $80-100,000 of medical expenses. Let's look at how the plans handle this big what-if...

4. The real reason to buy health insurance...The "Big What-if"

I hear it almost daily..."I'm healthy - what do I need health insurance for??"

The average person lands in the hospital every seven years. Almost 50% of bankruptcies in the U.S. are the result of a sudden medical condition or accident...and believe me...they were all probably "healthy".

There is a double-edged sword in today's medical world. Improvement in medical technology and capability is unprecedented with even further developments around the corner through new genetic advancements. All this is great but as the capabilities increase so do the resulting costs. The possibility for the large medical bill is really why you need health insurance and this should be ultimately what your plan protects against.

Maximum out of Pocket

Most plans handle this Big What-if with a "maximum out-of-pocket", quite possibly the most important part of your medical plan.

It basically means, if you have a big bill (or a series of bills) when does the plan pay at 100%. Of course, this maximum applies to in-network (see Section 1 Doctor doctor) and for covered benefits. It usually applies to a calendar year, from January to December after which it is reset. Typically, the Maximum includes deductible (we'll talk about the deductible in the next section - small bills).

For a simple example...

You have a $2,250 deductible and then a 10% co-insurance up to another $500 maximum. The unforeseen "what-if", a car accident occurs with $80,000 of covered, in-network medical bills. After you have paid $2,750 (your $2,250 deductible and $500 max), then the insurance carrier will pick up the rest of the bills according to your covered benefits.

An interesting fact...

Sometimes plans have great benefits for smaller bills but the "back-end", meaning the big bill is not as good. What good is a $45 doctor office visit copay if you have to pay $5,500 for a big bill?!? Remember, this "back-end" is really why you are buying health insurance. If you are getting better benefits for the small bills...guess what...you are probably paying for it in your monthly premiums. That being said, let's look at how the plans handle the small bills.

Pennies on the nickel?? Understanding how plans treat the smaller bills from doctor visits to minor surgery...

5. Pennies on the nickel?? Insight into how plans handle the smaller bills.

Now small bills basically refers to everything up to your maximum-out-of-pocket (see Section 3 - Big Bills). There are different ways each plan handles these expenses so lets explore them and more importantly...their costs to you.

Up to your maximum, each plan handles smaller bills in one of three ways. By small bills, we mean everything from your doctor visit charge to minor surgery...essentially what falls below your maximum (because it goes 100% after that anyway!!). Let's first understand what these terms are, and then really understand how much it costs to have the bells and whistles.

Deductibles, Copays, Co-insurance.

A deductible is an amount that you will pay 100% of before the plan starts to pay. Think of if as a pool of money. Once you have spent your pool of money out of your pocket, the insurance then starts to kick in. This amount is usually in a calendar year, January-December. Sometimes there are separate deductibles for specific care such as maternity. Now remember, if you are in-network i.e. you are Blue Cross and the doctor is a Blue Cross doctor, then you will get 30-60% off because of the negotiated rates. Let's look at an example...

Doctor visit is $100. Because you are Blue Cross PPO and doctor is Blue Cross PPO, then this charge may drop to $60. You pay this $60 and it applies to your deductible.

This negotiated rate is a great benefit even before you have met your total deductible. Now out in the market today, they primarily have what's called a high deductible plan (from around $1,000 to $3,000) which is for the person who is really worried about the big what-if and wants to keep their monthly premiums down. A great example of this is the HSA plan which has special tax advantages for the self-employed and small group.

A Copay is simply an amount you pay for a given service. For example, a $40 copay usually means you will pay $40 for the doctor consultation. Keep in mind that additional services, i.e. labs, x-rays, etc...will have additional costs. Sometimes there are copays on specific services. For example, ambulance or emergency room visit might have a copay.

Co-insurance refers to a percentage you will pick up for services. For example, a 30% plan means that you will pay 30% (insurance will pay 70%) of the negotiated rate.

For example on a 30% plan:

minor surgery              $1,000
negotiated rate            $   700
30% coinsurance        $     210      (30% of $700)

In this case, in-network for a covered benefit, you would pay $210.

These are essentially the three ways an insurance plan handles the smaller bills.

deductible   You pay 100% up to a certain amount
co-insurance You pay a percentage up to a certain amount
copay You pay a fixed amount for a certain service

That "certain amount" above is typically your maximum out of pocket.

Now that we know how a plan handles the small bills, let's understand what it will costs us.

Obviously the co-insurance in nice because you have "first dollar" coverage meaning the insurance company will help pay with your first bill. That being said...you don't think they will do it for free do you? This is critical. Let's look at an example.

35 yr old, Riverside County, good health

$2,500 Deductible PPO plan        $85/month
HMO plan                                  $219/month

Now with the first plan, you have to meet a $2,250 deductible...translation, this is mainly for the big bill. You'll get negotiated rates but all the small stuff will fall on your shoulders. Now the other plan will start paying 70% from your first bill...very nice right?? But wait a minute...we are paying an extra $134/month for that first bill coverage. They both handle the big bill about the same (max is about the same). $134/month is $1,608 per year!! That almost makes up for the deductible amount in one year!!

Paying a guaranteed $1,608 a year to save a potential $2,500 per year is not good insurance and you would need a lot of small bills to make it worth $1,608. Remember, you want to pay pennies on the dollar...not pennies on the nickel. Paying $85/month to protect against a $20,000 surgery is smart insurance...pennies on the dollar.

Now for those people that absolutely want first-dollar coverage...great...you can have it. Just keep in mind the above example. Also, over the last three years health insurance has been hit by significant rate increases. Guess where they typically hit hardest...Co-insurance and HMO's.

Now that we feel pretty good about the doctors, big bill and small bill coverage let's look at prescriptions. With brand name prices increasing 20% a year recently, it is important to see how a plan handles this....

6. How plans handle what is increasingly the most costly part of visiting the doctor...prescriptions

Brand name prescriptions have been increasing 20% per year and despite the political rhetoric...that's probably not going to change for a while.

In case you have been away the last couple of years, pharmaceutical companies have changed the way they market their products. It use to be that they would primarily market through the doctor...a "push" method. Now, with huge advertising campaigns, they are advertising directly to you, the consumer in the thought that you will then go and request that medication from your doctor...the "pull" method. Guess what...there is a cost to all this and you want to make sure your plan covers it.

Most insurance plans handle prescriptions with a copay, a fixed amount you pay. Typically, there is a different copay amount for brand name and generic stemming from the situation I mentioned above. Across the board, you usually find a $10 generic copay and a $25 brand name copay but make sure to check the policy...it might be different.

They also talk about Fomulary vs. non-formulary. Formulary simply means that the company recognizes the drug as being effective and therefore covered. In all our years, we have yet to have a problem with a person receiving a prescription that was non-formulary.

A recent change which we feel will probably become the trend is to put a deductible on brand-name prescriptions. This basically says, "Try to use generic if you can." Why?? Well if a month's supply of Prylosec is $150 and a person is paying $65 month for comprehensive coverage...you can see the problem. Either rates will shoot up (as with the last 3 years) or something has to absorb these costs. That is where the deductible comes in.

Example...All major health plans have instituted varying deductibles based on the plan for brand name prescriptions for their PPO plans. The other carriers will either have to initiate a similar deductible or continue to raise monthly premiums. This specific brand name deductible will be the standard.

Well we have made it through...hopefully with few scars and a great deal more understanding of how to read the plans.

Again, there may be specific questions you have which we would be happy to help you with here.

For a final exam, go here to review plans, rates, and providers for California Health Insurance. There will be a test afterward...you pass by choosing the right plan at the right price for you!!