Module 11: Managing Health Expenses
Health care expenses are a big concern for many people. Insurance is a big part of
managing those expenses. This module will look at health insurance, disability
insurance, and long-term care insurance.
Health Insurance
You may find that health insurance is one of the most expensive insurances you need to
get. A person may spend the following amounts on insurance:



$400 a year for homeowners insurance
$800 a year for auto insurance
$400 a MONTH for health insurance
Why is there such a jump for health insurance? We are paying for the level of risk. How
many people do you know that had their home burn down in the last year? How many do
you know that were in an auto accident in the last year? How many do you know that
were in the hospital in the last year (including to have a baby)? Probably the numbers
went up for each question I asked, just like the premiums go up for each of those.
Health Insurance is not only one of the most expensive insurances, it is one of the most
important. In the last module I suggested that you ask “How financially devastating
could it be if I did not get this insurance?” With health insurance, the answer is, very
devastating!
One way to help with the cost of health insurance is to try to get it from an employer as
part of a benefit package. When you are looking for a job, remember to ask about
benefits, especially health insurance.
In the chapter reading and the following article, you will read about different types of
insurance. If you have children but don’t have medical insurance, your state should have
a program for children called Children’s Health Insurance Program (CHIP). To find out
more for your own information, visit http://www.insurekidsnow.gov/ or call 1-877-5437669.
Article – Medical Expense Insurance, at the end
Disability Insurance
When you are looking at the potential losses in your life, don't forget the possibility of
losing your income because of a disability. Many people do forget this one. Most articles
that I read say that individuals are much more likely to become disabled than to die at
younger ages.
Many experts say that it is more important than life insurance. Yet, a lot more people
have life insurance than disability insurance. The only reason I can come up for that is
that maybe insurance agents don't push disability insurance like they do life insurance.
Therefore, many people don't get it. Or maybe many people just don't know the
importance of it. Either way, it is very important if anyone is dependent on your income,
including yourself.
Some people are relying on Social Security Disability benefits to help them out if they
become disabled. One article I read said that nearly 3/4 of all disabled people are rejected
for Social Security benefits. I don't recommend relying just on Social Security for
disability income.
Again, it is great if you can get disability insurance through an employer. Be sure to ask
if it is available. This is a much less expensive way to get coverage.
Article – Disability Income Insurance, at the end
Long-Term Care Insurance
You may wonder what is long-term care insurance. It pays for the care of the person
covered, usually at a nursery home facility. It does not pay for any medical bills or
replace any income. It is generally purchased by older individuals, but not always.
Therefore, as you read about it, ask yourself if you need it but also try to learn about it so
you can help others make the decision. Maybe your parents need help deciding if they
need long-term care insurance.
Experts recommend that you consider long-term care insurance if you have significant
assets and income that you want to protect. Also, if you want to pay for your own care
and stay independent of the support of others. They also recommend that you don't get
long-term care insurance if you can't afford the premiums and have trouble paying for
utilities, food, medicine, and other important needs. If someone has limited assets they
might qualify for Medicaid to pay for long-term care.
AARP has some great information about long-term care insurance. You do not need to
read about it for this class, but if you want more information, either go to this link, or go
to their website and search for Long-Term Care insurance.
http://www.aarp.org/relationships/caregiving-resource-center/info-112010/lfm_what_is_long_term_care_insurance.html
Medical Expense Insurance
Overview
Medical-expense insurance, often referred to as health insurance, has become a big
issue for many people. The costs associated with health care have been increasing,
and if you find yourself in poor health, the cost of obtaining the care you need may
be alarming. Health insurance helps you protect against the risk of high health-care
costs by paying for some or all of these costs if you need health care. However,
because health-care costs have been increasing, health insurance premiums (which
must be paid to maintain the insurance) have also been increasing.
About 90 percent of people covered by a health insurance plan receive it as a benefit
from their employer. However, if you are not covered by an employer-sponsored
plan, you can buy a health policy on your own. This publication identifies some of
the most popular types of health-care insurance plans, and discusses their features.
Traditional Plans
Until the mid-1970s, most employees were covered under a "traditional" or
"indemnity" health plan. Under a traditional plan, you are allowed to see any doctor
you want. You or your doctor can then submit a claim to the insurance company to
be paid back for the expense. Not all expenses are covered. For example, cosmetic
surgery, diagnostic testing, x-rays, and sometimes pregnancy are excluded.
Therefore, you are not reimbursed for these expenses.
Traditional plans probably will not reimburse you for the entire cost of covered
expenses. Generally, the insurance will cover 80 percent of the expense, and you
may be asked to pay the remaining 20 percent of costs. This cost sharing is known
as co-insurance. There also may be a maximum amount an insurance company is
willing to pay. Therefore, you would be responsible for paying 100 percent of any
costs over the maximum amount or what is sometimes called the "usual and
customary" charges.
Due to a focus on costs by many insurance companies, these types of plans are
offered less often. The most popular types of health insurance today are "managedcare plans."
Managed-Care Plans
Managed-care plans have grown rapidly over the years. These plans include
Preferred Provider Organizations (PPOs), Health Maintenance Organizations
(HMOs), and Point of Service (POS) plans.
Preferred Provider Organizations (PPOs)
A PPO is the type of managed-care plan most like a traditional health plan. Under a
PPO plan, you can choose to see any doctor at any time. However, you may save
money on your costs if you choose to see a doctor who is part of the PPO network.
The PPO contracts with a group of doctors for discounted prices. This practice is
known as developing an "in-network" relationship. Therefore, if you choose to see
an "in-network" doctor, the costs may be discounted. When you visit the "innetwork" doctor, you will likely be asked for a co-payment, which may average $10
to $30. Then, the PPO pays the doctor's remaining charges.
As with a traditional plan, the PPO will not pay 100 percent of the costs after the copayment has been deducted. The percentage that the PPO will pay varies. However,
let us assume that for a particular "in-network" doctor visit, they are willing to pay
80 percent. This means you will then be billed for the remaining 20 percent.
If you see an "out-of-network" doctor, the PPO will likely pay for some of the costs,
but the percentage will be lower than if you had seen an "in-network" doctor.
Therefore, using the same example as above, the PPO may pay only 60 percent of the
costs, leaving you to be billed for the remaining 40 percent.
In summary, with a PPO plan, you have the option to see any doctor you want,
including specialists. In addition, because the PPO has contracts with doctors, the
premiums for a PPO policy are generally lower than for traditional plans.
Health Maintenance Organizations (HMOs)
Under an HMO, you will need to choose a "primary care physician." This physician is
usually a general practitioner. As with a PPO, the HMO develops relationships with a
network of doctors, but unlike a PPO, the HMO generally will require you to visit
only those doctors within the established network. Therefore, your "primary care
physician" will need to be an "in-network" doctor.
If you require care, you will need to visit your "primary care physician" first. If you
visit your primary care physician, and that physician then refers you to see another
doctor or a specialist, the visit to the specialist will then be covered under your HMO
policy.
A co-payment (usually $10 to $30) will be required for each visit. However, once the
co-payment is made, there will be no additional co-insurance amount billed. The
entire cost (100 percent) will then be paid by the HMO.
Another important aspect of an HMO is the emphasis on "preventive" care.
Preventive care means seeing your doctor about your health before there is a
problem so that the doctor may help you prevent the illness. An HMO will cover
preventive care. Traditional plans and PPO plans may also cover some preventive
visits, but not to the degree that HMO plans are willing to provide.
Point of Service (POS) Plan
A POS plan combines characteristics of both a PPO and an HMO. Under a POS plan,
you may choose to see your "primary care physician." If you do see your primary
care physician, the expense will be covered like an HMO plan.
However, you may also choose to see any other doctor of your choosing. If the
doctor you choose to see is "in-network," but not your primary care physician, the
expenses will be covered similarly to that of an "in-network" PPO. Therefore, you
may only be required to pay 20 percent of the covered expenses. However, if the
doctor is "out-of-network," you may still visit the doctor, but may be required to pay
40 percent of the covered expenses.
In-Network or Out-of-Network
When you sign up for any managed-care plan, your insurance representative or
insurance agent will provide you with a list of "in-network" physicians. You may
then choose your "primary care physician" if the plan is an HMO or POS plan from
the provided list. Your family physician may already be part of the network, so be
sure to check if you can choose your favorite family physician as your primary care
physician.
Complaints about Your Managed-Care Policy
If your managed-care organization turns down a claim or refuses to authorize
treatment, you should first follow the complaint procedure in the document you
received from the organization. If you are still having problems contact the Managed
Care Ombudsman at the Virginia Bureau of Insurance. For more information visit
the Bureau of Insurance website at
http://www.scc.virginia.gov/division/boi/webpages/boiombudman.asp.
What Is a Deductible?
Most health-care plans will require you to pay a pre-set dollar amount, known as a
deductible, on your covered expenses before they will begin to pay you back for
your medical costs. You may be given a choice of deductibles to choose from when
you sign up for your policy. Deductibles may range from $250 to $1,500 per year.
The higher you set your deductible, the lower the premiums will be for your
coverage.
What if I Can't Get Health Insurance from My
Employer?
If you cannot get employer-provided coverage, you may purchase an individual
health insurance policy. Talk to a local health insurance agent, or call an insurance
company and ask about the policies they have to offer.
Be aware that individual coverage may be more expensive than an employer
provided plan. If you can't afford health insurance, and you are over 65 years old or
have certain disabilities, then you can obtain health coverage from Medicare. If you
cannot afford coverage, but don't meet the Medicare requirements, you may still be
able to obtain health insurance from the Medicaid program.
When shopping for a policy, it is important to consider what medical expenses you
need covered. Are you more interested in preventive care for your whole family or
covering against a catastrophic illness for yourself only? Are both important to you?
If possible, be sure to buy a policy that meets all of your health needs and is also
within your budget. Generally, the more flexible a policy is and the lower its
deductible, the more it will cost. An insurance agent may be able to help you decide
on exactly what type of policy fits your needs. If you need help finding an agent, you
may want to visit the Association of Health Insurance Advisors at
http://www.ahia.net/.
Virginia Cooperative Extension materials are available for public use, re-print, or
citation without further permission, provided the use includes credit to the author
and to Virginia Cooperative Extension, Virginia Tech, and Virginia State University.
May 1, 2009
Celia Ray Hayhoe, CFP®, Extension Family Financial Management Specialist, Virginia
Tech; and Mike Smith, CFP®, graduate assistant, Virginia Tech
Retrieved from: http://pubs.ext.vt.edu/354/354-170/354-170_pdf.pdf
Disability Income Insurance
Overview
What is your biggest asset? Some people may think it is their house or car, but for
most people, their biggest asset is their ability to earn an income.
Here is an example. Assume that you are 30 years old and earn $30,000 per year at
your job. If you also assume that your earnings will increase at 3 percent per year,
and you plan to retire at age 65, you will earn $1,898,278 in your working career.
Obviously, being able to work is a large asset.
Now assume that you become injured and you are unable to work. Your income will
drop and your expenses will rise, which means you will go into debt.
This may be a pretty scary thought, but there are ways to protect your income if you
become injured. One way is with disability income insurance.
The purpose of disability income insurance is to partially replace your income if you
are unable to work because of sickness or an accident.
Types of Disability Insurance
The government provides some disability coverage, known as social insurance
programs. These include:


Workers’ compensation programs – This is insurance that employers are
required to have on their employees. It covers workers who get sick or
injured while on-the-job. However, if you are not injured while working, this
program will not apply. Check out the federal Office of Workers’
Compensation Programs website at http://www.dol.gov/esa/owcp_org.htm.
Social Security disability – pays benefits to you and certain members of
your family if you are “insured,” providing you have worked long enough and
paid Social Security taxes. Check out the Social Security Online “Disability
Programs, Benefits for People with Disabilities,” website at
http://www.ssa.gov/disability/
Important Things to Know
Social Security has a very strict definition of disability. It will pay no benefits for a
partial or a short-term disability. Social Security will consider you disabled if:

You cannot do the work you did before and it is decided that you cannot
adjust to other work because of a medical condition. In addition, your
disability must last or be expected to last for at least a year or result in your
death.
To qualify for Social Security disability benefits, you must have worked long enough
and recently enough while paying into Social Security. You can earn up to a
maximum of four work credits per year. Generally you need 20 credits earned in the
past ten years, ending with the year you become disabled.
Also be aware that if you do receive benefits under Workers’ Compensation, your
Social Security Benefits will be reduced.
Because of the difficulty in qualifying for Social Security disability benefits, it is wise
to use other methods to protect yourself from the risk of a disability.
Employer Provided Benefits
You may have employer-provided benefits; however, not all employers offer these
plans. Check with your company’s human resources department to see if you are
covered by any of these plans, which include:



Sick leave plans – these plans allow you to take time off from work when
you are ill. Sometimes, employers will still pay you for a certain period of
time while you are on sick leave.
Short-term disability income insurance plans – these employer-provided
benefits may pay you all or some of your current income if you are unable to
work for a short time, usually from 180 days to two years.
Long-term disability income insurance plans – these employer-provided
benefits may provide you with a portion of your current income if you are
unable to work for a longer period of time than a short-term policy will
cover. These benefits may vary. Plans may cover you for two years or
possibly until you are age 65.
Individual Disability Income Insurance
It may be possible that your employer does not offer any disability protection plans,
and due to the nature of your injury, you may not qualify for any of the social
insurance programs. If this is the case, or your current employer-provided
protection will not provide you with enough income to meet your family’s needs,
you may want to talk to an insurance agent about an individual disability income
insurance policy.
An individual disability policy is the best way to protect your income from the risk
of a disability. An individual policy will usually only allow you to insure 50 percent
to 70 percent of your income. There is a limit because insurers do not want you to
make more money when you are disabled than when you are working. If you did,
there wouldn’t be much incentive to return to work when you are able.
While individual policies may cost you more in premiums when you pay the
premiums yourself, disability benefits are not taxed. (Benefits from employer-paid
policies are subject to income tax.) You may also keep your individual disability
policy as you move from job to job. You will need to check with your human
resources department to see if your employer-paid policy can be converted to an
individual policy if you change jobs.
Most disability insurance companies will offer short-term and long-term individual
disability policies. Think about how long you will need benefits if you are disabled.
Many people believe that having both short and long-term protection is important
to their financial security.
Talk to your insurance agent about other policy features and benefits. Be sure to ask
how each feature changes your premium payment. Work with your insurance agent
to find a disability policy that provides you with enough protection, and that you can
afford.
You can find additional information on disability insurance at the following
websites:




Life and Health Foundation – http://www.life-line.org/
Insurance Information Institute – http://www.iii.org/
America’s Health Insurance Plans – http://www.ahip.org. Type “Guide to
Disability Income Insurance” in the search box.
U.S. Department of Veterans Affairs – http://www.va.gov/
Information from The Review for CFP® Certification Examination: Insurance
Planning and Risk Management, The American College, Bryn Mawr, Pennsylvania
was used in the preparation of this publication.
Celia Ray Hayhoe, CFP®, Extension Family Financial Management Specialist, Virginia
Tech; Mike Smith, CFP®, graduate assistant, Virginia Tech 354-171
Retrieved from: http://pubs.ext.vt.edu/354/354-171/354-171.html