Introduction

When choosing a health care plan, most of us agonize over the cost and are unsure what’s actually covered. We seldom get the chance to consult an insurance professional who can set us straight on the basic principles we need to know.

Our aim is to help you learn how to figure out the value of a health care plan. Every plan has three related components linked in a complicated dance: Cost, Coverage, and Control (3 Cs). A change in cost will affect both your coverage and control.  

Why do most of us know so little about this vitally important topic? There are two main factors:

1. Ten years of Internet-driven consumerism have spawned an explosion of websites for us to buy things - yet our need for information to help us buy intelligently seems to have been overlooked in favor of convenience. Health care plans are no exception. Just consider all the websites that tell you almost nothing, but have “Click here for a Quote” all over the site!

2. Most of us have never needed to shop for a health care plan. As the graphic below shows, the vast majority of the US population is covered by either an employer group plan or a federal/state subsidy plan (89.2% of the population). This is why most US consumers don’t know how health care plans actually work, the differences between plans or how those differences can affect them.

Generally, people covered under an Employer Group plan (70.8%) simply accept what the employer offers. If you are lucky enough to work for a large corporation or one that highly values health care coverage for its employees, you probably have a comprehensive plan. The same goes for those covered under the federal/state subsidy plans such as Medicare, Medicaid, or SCHIP plan. One just accepts what is available.

Typically, it’s only when we leave an employer, or no longer qualify for a subsidy program, that we are faced with the cost and variety of health care plans. No wonder people are confused when they start to examine the options!

Everyone wants a good health care plan, but few of us are sufficiently exposed to the process to be able to dig out what we need in order to choose from the bewildering range of plans or spot the implications lurking behind buzzwords and creatively worded marketing materials.

The following graph shows that only 10.8% of the US population is covered by an Individual/Family plan (all types combined). Two important points can be gleaned from the two graphics:

1. Almost 48 million (16.8%) of the US population is uninsured; and

2. Only 10.8% of the population has ANY previous experience with choosing their own plan; thus 88.2% have little or NO experience in making such a decision.

So, when we ask friends or colleagues for advice on choosing a health care plan, their experience probably comes from having an employer group plan, NOT a small group or individual/family plan. Even most independent health care plan Broker/agents know far more about employer group plans.

So what does all this have to do with the three Cs of health care plans?

With no easy access to reliable unbiased information, you have to do the work yourself! There is far too much at stake to rely just on family, friends, salespeople or Internet sales sites to help you decide. Because of the variety of plans and variation in details, you need to start by getting a basic grasp of what you are dealing with. Relying on marketing materials provided by the health care providers and insurance companies are not the ideal source of information as they are crafted with one thing in mind – selling you to make a profit.

Health care coverage providers and insurance carriers are highly regulated by state laws meant to protect us. Information they provide must be approved by the appropriate state agency. However, as in many other industries, product labeling is supposed to protect us - but we don’t understand the labels! In practice, it works to protect the health care coverage providers and insurance carriers from the consumer!

This site is for the real people who have to make the health care plan decision and who will be directly affected by that decision, but lack the resources to make a good “value” decision. The objective is to find a way to balance the three Cs to protect our health, finances, and family well-being.

In this age of Internet consumerism, making a purchasing decision has been reduced to basic issues of price and convenience. In the process, we have tended to become less intelligent buyers. Using the Internet to find a product and then search for the best price sounds simple and obvious – but when it comes to health care plans, this may not be the best way to go. This is one time where you want to be sure of what you are buying before you have to use it. Once you need to use your plan, it’s too late to change!

Cost, Coverage, and Control are the three linked components of all health care plans. Changes in any one component will result in differences to one or both of the others. For example, a decision on cost affects your coverage options, which, in turn, determine your control over your medical care.

Most people start with how much they want to spend. But - making cost your primary concern can be a major mistake – and it can be financially misleading as well. It’s better to address these concepts in reverse order: Control, Coverage, and Cost.

Control

This is the simplest of the three components, but can be the most important, as it affects your role in determining the course of any medical treatment. The graphic below gives the two basic types of plans and their variations. The plans are listed in order of the holder’s degree of control. It also indicates how involved the coverage provider or insurance company is in deciding the course of treatment.

Those who are most concerned about choosing doctors and treatments will probably want either an indemnity or a PPO plan. Those who aren’t concerned about seeing specialists or don’t wish to be involved in medical decisions may prefer an HMO plan. You will also note the differences in HMO plans (HMOcp, HMOn, and HMOrn see glossary).

 

 

As the above table shows, an Indemnity and large PPO Network plan offer the greatest degree of control to the plan holder, while a prepaid medical style HMO and POS type plan offers the least control.

To help give you some insight as to your own needs and preferences, we surveyed people with PPO and HMO type coverage and asked why they chose their plan. Please see Profile of Who Buys a PPO Plan (Click Here) and Profile of Who Buys an HMO Plan (Click Here).

Coverage

In order of importance, Coverage is second. At one time, most plans provided coverage for most medical needs. In the late 1980s, the cost of medical care ballooned and still continues at double the rate of inflation! The result is that an affordable Comprehensive Plan is now beyond most people. Therefore, in order to reduce the premium, health care coverage providers and insurance companies rely on exclusions, deductibles, co-insurance, and co-payment provisions as a way to share the cost with the plan holder.

In fact, at one point, the main difference between an HMO and PPO or Indemnity plan was that an HMO plan covered most medical expenses while the plan holder incurred only modest co-pay for preventive and routine care. In contrast, most PPO and Indemnity plans had deductible and co-insurance provisions. The attraction of an HMO plan was that the monthly premiums were quite competitive and you would have few Out-of-Pocket expenses, no matter what care was provided. Things have changed!

You now need to ask a lot more questions about the categories of expenses that concern you, before deciding which plan is the best value for you. We strongly recommend that you engage a Licensed Certified Field Broker/Agent ( Click Here) as part of your selection process. A local licensed certified field broker/agent can help you check out the plans available in your area and tell you how their members rate these. Your agent should have the skills to discuss your medical concerns and have access to a range of plans so you can choose one to suit. 

The yellow-orange shaded area in the graphic below represents the price range most people seek - a comfortable balance between monthly premium cost and financial exposure. You should note that it contains both HMO and PPO options. Clearly, the myth about an HMO being more or less expensive than a PPO does not stand up. It depends on the details of the particular plan.

Cost

The final component is cost. The cost of a health care plan comes in two parts:

1. What you pay in premiums; and

2. What expenses remain to be paid after medical treatment covered by the plan (out-of-pocket expenses).

Don’t assume the plan you choose will cover all your needs without any out-of-pocket expenses – this can lead to a big disappointment. It seldom works out that way. The cost of a plan can give you a good clue (the lower the premium, the higher your out-of-pocket expense is likely to be). If it sounds too good to be true, then it probably is! You may want to see [BPC-OOP] for further insight.

Hopefully, the discussion and graphics have also made it clear that:

1. The higher the premium, the greater the control; and

2. The higher the premium, the greater the coverage.

You can now see that setting an arbitrary monthly premium as your main way to select a plan can be bad news in terms of the control and coverage you may need. For example, having a plan with a $1,000 deductible and 30% co-insurance may seem reasonable, but if that plan doesn’t have a low Maximum Out-of-Pocket provision or you discover that 'non-plan providers' are paid at a much lower rate, you could end up with a vast financial obligation that will affect you for years to come. The time to consider your needs and budget is before you pick a plan.

As shown above, the plans with the lowest premium also create the highest possible financial exposure while, in general, the plans with the highest premiums provide the greatest financial protection. Going with the cheapest premium or the highest premium does not typically represent good value. With a low premium, you must be prepared to dig deep out of your own pocket.

Then again, a maximum coverage plan isn’t good value unless a person has serious or chronic medical conditions - in which case, they may not be insurable anyway. The yellow shaded area in the graph below shows a price range that balances premium cost with financial exposure. You can also balance control and coverage provisions in any plan.