Do I need health insurance? Yes, and here’s what to look for.

On June 20, 2012 by Andy Bandy Man

What kind of health insurance should American 20-somethings get? This question is highly relevant to me: as a 27-year old freelance worker, I don’t have a company-provided insurance plan, but I am also too old (!) to be covered under my parents’ health insurance. Even though I am young and healthy, I want to avoid medical bills that some of my friends have recently received:

  • X-ray reading and follow up appointment for sprained wrist: $600+
  • ER visit for stomach pains: $3,000 (later reduced to ~$400 after negotiation)
  • ER visit for severe head pain with 1-night stay: $10,000
  • Dislocated shoulder surgery and therapy after basic skiing accident: $40,000 ($1K for initial checkup, $2K for follow up MRI, $30K for surgery, 9 months of physical therapy sessions at $60+ per session)

According to the US Department of Health and Human Services, the average cost of an emergency room visit is $1,318 and the median cost is $615; any tests or scans can quickly cause bills to skyrocket into the multi-thousand dollar range. Let’s discuss what type of insurance to buy so you can avoid getting stuck with a crazy medical bill.

 

INTRODUCTION: A QUICK SUMMARY OF AMERICAN HEALTHCARE

In America, if you have an accident or develop an expensive health problem (e.g., diabetes, broken bones), and you don’t have a decent health insurance policy, you are pretty much screwed. Let’s quickly look at the numbers (statistics are from T.R. Reid’s excellent book on healthcare):

  • Every year, 20,000 Americans die because they can’t get access to health insurance
  • According to Harvard Medical School, 700,000 Americans go bankrupt every year because they can’t pay their medical bills
  • 45 million Americans don’t have access to health insurance. Don’t let yourself be one of those people!!

While America is awesome at many things, like personal freedom, technology, space rockets, and reality TV shows, we SUCK at healthcare. Only 18% of Americans think our healthcare system works well, so this is by no means a controversial statement. Therefore, it’s your job to make sure you are covered.

 

STEP 1: MAKE ABSOLUTELY CERTAIN THAT YOU HAVE SOME KIND OF HEALTH INSURANCE

There are three scenarios under which you can typically get a comprehensive insurance plan at reasonable cost:

  1. You are still in school and have a school-sponsored insurance plan: Many schools offer affordable insurance packages to students. Check with your health center.
  2. You have a great job with employer-sponsored health benefits: If you have a high paying or competitive job, chances are your employer provides health benefits. You are one of the lucky few, so make sure to take advantage of your health benefits.
  3. You are 25 or under AND your parents have a decent insurance plan: With the health reform act, you can now get on your parents’ health insurance plan, provided that you don’t have access to an employer-sponsored health plan (scenario 2). You can get coverage through your parents’ insurance plan at any point until you reach your 26th birthday.
If you do not fall under one of these categories, I highly recommend finding your own private health insurance plan.

QUICK DISCLAIMER ON PRE-EXISTING MEDICAL CONDITIONS: I am not a fan of private insurance companies, and grudgingly make this recommendation. Private insurance companies maintain their profits by providing (usually) poor service at high cost. Cigna Health’s CEO alone makes nearly $20 million a year; 5 executives at Aetna Insurance make nearly $30 million annually. How can they afford to pay such high salaries to their executives? By generating lots of revenue (charging customers high monthly fees), and minimizing costs (refusing to cover a variety of tests and treatments, and sometimes even finding creative ways to deny your insurance claims).

The profit-driven insurance model (unique to America among developed countries) is really bad news for people with pre-existing medical conditions. Since patients with pre-existing conditions (e.g., asthma, diabetes, Crohn’s disease, HIV, cancer) typically require expensive ongoing medical treatments, they harm insurance company profitability. Therefore, if you have a pre-existing condition, most insurance companies will either 1) refuse to provide you medical coverage, or 2) charge you an extremely high premium, and provide zero coverage for the pre-existing condition in the first year of coverage.

People with pre-existing conditions remain in a difficult position, and often their best option is to work for a company that provides strong employee health benefits (and hence absorbs their high premium costs). In any case, the recommendation is to make sure you find a way to get some type of insurance coverage, which is absolutely better than not having any coverage at all.

 

STEP 2: HOW TO GET YOUR OWN HEALTH INSURANCE PLAN

The cheapest health insurance I could find is at www.ehealthinsurance.com or www.gohealthinsurance.com where you can shop for plans from a variety of different carriers. If you have a pre-existing condition, I recommend checking out the COBRA program if you were previously employed (a program that allows you to extend your previous employer-provided benefits), or explore HealthCare.gov for other affordable options.

When shopping for health insurance, there are a few basic definitions that you must know:

  • PPO / HMO: PPO stands for preferred provider organization, while HMO stands for Health Maintenance Organization. HMOs are supposedly cheaper and more restrictive, as all your care must go through your primary care physician (you can’t go directly to a specialist), and all doctors must be in your network. From my experience shopping for healthcare, PPO plans have always ended up being cheaper, so I have always ended up going that route. You can read more here.
  • Monthly premium: The amount you have to pay each month for your insurance coverage.
  • Deductible: The amount that you have to pay out of pocket over the course of the year before the insurance company starts chipping in for your expenses.
  • Office visits: In insurance-speak, an “office visit” is when you schedule a visit with a doctor in advance – you can’t just walk in for an office visit. Without insurance, seeing a general doctor (no tests, just going in and talking to them for 10 minutes) is usually $200 – $230 and a specialist is $300+. In some cities, there are “walk-in” clinics, often run by non-profits, that will see uninsured people for $50 – $100 per visit.
  • Urgent care / emergency visits: Urgent care and emergency room visits typically do not require advance booking, and are available on nights and weekends. A visit to the emergency room or urgent care clinic is generally much more expensive than an office visit.
  • Co-pay: A pre-set fee (agreed upon in your health insurance plan) that you pay when you visit a doctor’s office or emergency room. The co-pay amount is always significantly cheaper than what you would pay without insurance. For example, you may have a $20 co-pay for office visits, $50 for urgent care and $100 for emergency room visits. You are eligible to pay just the co-pay amount even if you haven’t exceeded your deductible; however, note that any test, scans, and procedures are extra.
  • Co-insurance: Co-insurance is the amount that you are responsible for paying after reaching your deductible. Your monthly premium will be cheaper if you choose a 70-30 or 80-20 coinsurance plan, meaning that the insurance company will only pay 70% or 80% of expenses after you reach your deducible for the year. (For example, if you have a $10,000 deductible plan with 70-30 coninsurance and require $11,000 in medical treatment for the year, you will personally be responsible for $10,300. You pay the first $10,000, and 30% of the remaining $1,000).
  • Limited benefit plans: These plans cap the amount of expense reimbursement you can get from the insurance company. For example, the insurance company will stop paying once you reach $200,000 in expenses – note that you can reach high expenses very quickly if you end up in the hospital. Avoid limited benefit plans at all costs.

 

STEP 3: WHAT TO EXPECT FOR PRICING

I called my current carrier so I could share some rates. Note that I am a healthy, non-smoking, 20-something male with no pre-existing conditions, so my insurance rate is close to the lowest that you would probably be able to find. Also, as you can see, this insurance plan is really bare bones; it is really just ”disaster insurance” that protects me from going broke if I have a horrible accident. Note that the cheapest plan ($10,000 deductible with 70% coverage) is $563 a year, or about $45 / month. Here are the relevant stats:
  • Insurance type: Network / PPO
  • Co-pay rate for office visits: $35 co-pay for my first 4 office visits during the year; physicians must be in my insurance company’s network. Note the office visit portion is $35, but any tests, scans, or other procedures are 100% my responsibility until deductible is met.
  • Urgent care and emergency visits: no coverage until deductible is met.
  • Procedures (x-rays, blood tests, scans, etc.): no coverage until deductible is met.
  • Prescription drugs: $15 co-pay for generic drugs only; no coverage for brand name drugs.
  • Coverage limit: none. For example, if I end up spending 2 weeks in the hospital and the bill is $800,000, the insurance company is responsible for covering all of my expenses after I have paid off the deductible.
  • No coverage for certain conditions: for the first 6 months of coverage, no coverage for tonsils, hemorrhoids, androids, hernia, middle ear disorders, or any diseases of the reproductive organs. In other words, you can’t sign up for insurance coverage this week and get treatment for a weird rash the next week (sorry, couldn’t resist making at least one bad joke…)
  • Pre-existing conditions: since I wrote on my application that I didn’t have any pre-existing conditions, if I file an insurance claim asking for expense reimbursement, the insurance company will research to make sure that I haven’t filed any similar claims in the previous 2 years. If the insurance company determines that the condition was “pre-existing,” they reserve the right to deny my coverage, and also to kick me off of the insurance plan altogether.
The chart below shows the ANNUAL cost of health insurance based on coverage levels. Again, this is the absolute minimum you can expect to pay (these are based on Ann Arbor, MI prices. Sorry Californians, if you live in SF Bay Area expect to pay 2x for similar plan. Note that comprehensive insurance plans, even for a healthy 20-something, can cost upwards of $500 / month!)

 

CONCLUSIONS:

1. If you are lucky enough to have a good employer-provided health insurance plan, or can sneak onto your parents’ insurance plan (provided you are 25 years old or younger), then you are luck. Do it.

2. If not, I highly recommend looking on www.ehealthinsurance.com or www.gohealthinsurance.com to find at least a “disaster” emergency plan. You never know when an accident or medical emergency will come up, and it’s best to protect yourself so you won’t go bankrupt from medical bills. If money is short, at the very least get a high deductible plan (resulting in a lower monthly rate).

  • Select a plan that has a low co-pay for office medical visits; paying a $20 co-pay instead of a $200 fee will definitely impact whether or not you decide to see the doctor when you are sick!
  • If you have money to spare, worry a lot, or get easily freaked out about health conditions, then it might be well worth it to look for a more expensive plan that has a low co-pay for urgent care / emergency visits as well.
  • Make sure your plan does not have lifetime coverage limits (AKA “limited benefit plans”)

Until America develops a better healthcare system, this is the best we can do. Please leave comments if you agree / disagree, and I would be happy to discuss more about this topic with anybody else that’s interested!

 

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Disclosure: I do not have any relationships or financial arrangements with any healthcare companies. Please follow on Twitter @andybandyman20, or leave comments below. Thanks for reading!

 

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