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Understanding Health Insurance


Preventive care is next to impossible for those without health insurance.
Preventive care is next to impossible for those without health insurance.
©iStockphoto.com/imagepointphoto

In 2006, almost 43 million Americans had no health insurance, which translates into nearly 15 percent of the American population. This might be attributed to the fact that health care costs can be very expensive, and the cost of even the most basic care is steadily rising. Today, the amount Americans spend on health care is four times as much as the government spends on national defense. So it's no surprise that along with increased health care cost comes increased health insurance premiums. Employers typically bear the brunt of the expense for health insurance, but individuals are paying more and more each year as well. In 2006, employer insurance premiums increased 7.7 percent, twice the rate of inflation.

But what exactly is it you're paying for? Where does your monthly premium go if you don't get sick or go to the doctor? What do you do if you're not working or you're self-employed? What's the difference between all of the various plans there are to choose from? The maze of information you have to wade through about claims, co-pays, co-insurance, deductibles and more is enough to make your head swim.

In this article, we'll break down the main types of plans and explain their differences. Keep in mind that there are always variations in individual plans, but we'll at least give you a head start when you're trying to select the right plan and coverage for you.

 

Health Insurance Defined

© Photographer: Showface | Agency: Dreamstime

Insurance is a bit like a gamble between you and the insurance company. The company bets that they'll take in more money in premiums than they have to pay out in benefits, whether it's for health insurance, auto insurance, life insurance or homeowners insurance. You're paying a premium every month just in case something happens.

Health insurance is a contract between you and the insurance company that says that the insurance company will pay a portion of your medical expenses if you get sick or hurt and have to visit a doctor's office or hospital. Some contracts also specify that the insurance company will pay a portion of your medical expenses to ensure you don't get sick, such as paying for annual physicals or immunizations. However, the amount of your bill that the insurance company will pay, and under what circumstances they'll pay it is known as coverage and can vary greatly from policy to policy.

The contract, or policy, spells out what the insurance company will pay for and how much of the bill you will have to pay. For example, the policy may cover an office visit, but you may have to pay a $20 co-payment. Or, the policy may not cover anything until you've paid an agreed upon amount out of your pocket, which is known as a deductible. These deductibles and co-payments, along with any other nonreimbursable expense you may pay is referred to as an out-of-pocket-expense. Other policies may have co-insurance, which is a percentage of the bill that you're required to pay, which may be in addition to your deductible and co-payment. Often, the total amount of co-insurance you have to pay in a given policy is capped by the policy's maximum. The policy will also state the amount you have to pay each month for the coverage, known as the premium, and the total amount the insurance company will pay out for the life of the policy, which is commonly referred to as a lifetime maximum.

Since a single hospital stay could wipe out your savings (and more), not many people can afford to go without some kind of health insurance -- even if they're healthy. Not only will health insurance protect you from bankruptcy in the event of a major medical event, it also gives you peace of mind.

Next, we'll learn about the different ways that you can get insurance coverage.

Group Insurance vs. Individual Insurance

Before deciding on an exact type of health insurance plan, it's important to know what kind of coverage is out there. While there are a lot of different ways to get health insurance, it's good to know what you may be eligible for before you start your health insurance search.

Group Health Insurance

The majority of people under the age of 65 have medical insurance through their employers' group insurance. According to the National Coalition on Health Care, in 2005, over 80 percent of employees were eligible for employer-group insurance and 83 percent of those who were offered, opted for these types of plans. This is usually because employers and other organizations can get better rates because they have a large number of people to cover. The insurance company sees it as good risk because they'll probably end up paying out very little for many people in the group, while collecting premiums from everyone. Normally, this translates into premiums that are much lower than those found in individual health insurance plans and are the same price for everyone in the group regardless of their health.

While employers aren't required by law to provide health insurance, they may have a difficult time finding good employees if they don't. Also, once group insurance is offered, it falls under the protection of the Health Insurance Portability and Accountability Act (HIPAA) regulations. These regulations protect employees by ensuring that everyone is given access to the employer's health insurance plan regardless of their health status. The act also helps regulate waiting periods of health plans to help achieve continuous coverage for most employees and helps ensure that employees have access to health care if they lose their job.

Because health insurance rates are re-negotiated each year based on the previous year's health care costs, some employers offer wellness programs for their employees. By keeping employees healthier, they can lower medical costs. Participation in these programs can sometimes make employees eligible for reduced health insurance premiums. For employees who pay a portion of the premium themselves (which is typical), this can mean eliminating some or all of that charge.

Most employer's group insurance plans are managed care plans, typically either HMOs or PPOs. Both of these types of plans will be explored in detail later in this article.

Individual Health Insurance

Individual health insurance is the most expensive option for people who don't have coverage (or don't have enough coverage) through employers. Physical exams and questionnaires are usually a part of the application process, so poor health can really make a difference in the cost and eligibility. Types of insurance plans include fee-for-service plans, PPOs, HMOs and catastrophic insurance. Many companies offer health insurance for individuals and specialize in short-term coverage to fill in between employer coverage.

National Health Insurance

Projected distribution of Medicare funding for the 2006 fiscal year.
Projected distribution of Medicare funding for the 2006 fiscal year.
Source:

The federal government also has health insurance programs for those who are eligible. Medicare is health insurance for people age 65 or older, those who are under age 65 with certain disabilities, and people of all ages with end-stage renal disease (those with permanent kidney failure requiring dialysis or a kidney transplant). Medicare includes hospital insurance (Part A), medical insurance (Part B) and prescription drug coverage (Part D).

Medicaid is a state-administered health insurance program available to certain low-income individuals and families who fit into a recognized eligibility group. You must meet very specific requirements and considerations that include age, pregnancy, disability, blindness, income, resources, and U.S. citizenship or a lawfully admitted immigrant. These rules can vary from state to state.

If a family earns too much to qualify for Medicaid, they may still qualify for State Children's Health Insurance (SCHIP). Another state-administered program, SCHIP covers uninsured children under the age of 19 whose families earn up to $36,200 a year (for a family of four). For little or no cost, SCHIP pays for doctor visits, immunizations, hospitalizations and emergency room visits.

For those who don't qualify for the above programs and are in relatively poor health, there's another option: high-risk health insurance pools. High-risk health insurance pools are state-mandated programs designed to provide health insurance coverage to those who are unable to purchase private health insurance due to a pre-existing condition. By gathering together those seen as uninsurable into a single group, the state can set up a plan similar to private insurers and offer health care, though at a higher cost, to those previously denied coverage. Plans offered by high-risk pools are comparable to most major medical plans, and have a wide range of premiums and deductibles. Benefits also vary but usually include prescription coverage, maternity care and disease management.

Military Health Care and COBRA

There are insurance plans for all those in the military, including veterans and retirees.
There are insurance plans for all those in the military, including veterans and retirees.
©2006 Publications International, Ltd.

Military Health Care

There are three main types of health care offered to those in the military. The main system for military health care is known as Tricare, which is available to all active military employees and to retired members of the uniformed services along with their families. Tricare offers three basic types of plans including a fee-for-service, a PPO and an HMO. For those retired from the military, the Department of Veterans Affairs offers additional medical help when necessary. CHAMPVA is one such service that helps veterans pay for the cost of their medical services, as well as the medical costs of their dependents and survivors. The VA is a plan which offers the same services but to veterans only.

COBRA

So what happens if you have health insurance through your employer but are laid off from your job? Thanks to the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA), your employer may be required to continue your health coverage for a limited amount of time. Depending on the circumstances, it can be as long as 36 months. The reason for loss or reduction of employment must be a qualifying event, meaning there are specific circumstances that do and don't entitle you to continued coverage. For instance, if you're caught pilfering from the company and get fired, don't expect to continue your health benefits through COBRA.

However, just because they're offering you coverage doesn't mean they're still paying for it. You'll have to pay for it yourself. Because you're still participating in the group plan, however, you'll be paying less than you would for an individual plan. And, if you have an existing health condition, you won't have to go through a waiting period to get coverage for it when you do get another job and new health insurance.

Let's find out more about the different types of health insurance, beginning with indemnity insurance.

Indemnity Insurance

Fee-for-service (FFS) insurance, or indemnity, is the traditional insurance plan -- much like your grandparents had. You can get basic coverage, which includes doctor visits, hospitalization, surgery and other medical expenses. For serious illness or injuries, you can get major medical, which pays the big bills when basic coverage has run out. Comprehensive coverage combines basic and major medical. This type is typically what's offered in employer-sponsored group health plans.

FFS plans allow you to go to the doctor, clinic or hospital of your choice. You pay the bill and then submit forms for reimbursement by your insurance company. There are a few requirements, however, before you get to the reimbursement stage.

Deductible

Before you get reimbursed for anything, you must have already paid the full deductible amount for the year. Deductibles are usually around $250 for an individual, but they can be as high as $10,000. The higher the deductible, the lower the premium. If you're a very healthy person and don't have any potentially dangerous hobbies, you can get away with a really low monthly premium by choosing a higher deductible. However, you'll have to live with the realization that you might have to pony up a big chunk of cash in the event you get seriously sick or injured.

What's Typically Covered?

No plan covers everything, so you have to read the policy to ensure that it meets your needs. In many cases FFS plans focus on treating health problems rather than preventing them. Therefore, these plans don't usually cover annual check ups and other "well" doctor visits you might have. Families in particular can rack up a lot of expenses just in annual physicals and check ups. FFS plans may also limit the number of days you can stay in the hospital and still receive coverage.

Pros and Cons

FFS plans are typically more versatile than other types of plans. Being able to go to any physician is a big part of that versatility. Additional benefits include not having to get referrals before going to a specialist and not worrying about being "out of network" in the event of an emergency illness or injury when traveling. The drawback is that they can be more expensive for those that tend to use preventative health measures.

Other Out-of-Pocket Expenses

Insurance will only pay what they deem to be a reasonbable charge. If your doctor charges above that amount, it will come out of your pocket.
Insurance will only pay what they deem to be a reasonbable charge. If your doctor charges above that amount, it will come out of your pocket.
© Photographer: Visualfield I Agency: Dreamstime.com

Most FFS plans pay 80 percent of the total doctor bill (physician charges) once you meet the deductible. That leaves 20 percent for you to pay, called the co-insurance. Some plans do pay 100 percent of hospital charges that are separate from physician charges, but not all.

Because costs for procedures vary among geographic areas, what your doctor charges for a procedure may not be what your insurance company is willing to pay. The insurance company calls the amount they're willing to pay the reasonable and customary charge. Also, not all services and procedures are covered. What the insurance company doesn't pay is your responsibility.

So in addition to paying 20 percent of the total bill, you'll also be paying the differences between the reasonable and allowable charges. Here is an example: Your child has his tonsils taken out and the bill is $350. Since you've met the deductible already you should only have to pay 20 percent, or $70. But your insurance company says the maximum allowable charge for a tonsillectomy is $300, which means you really owe $110 (20 percent of $300, plus the extra $50 your doctor charged above what the insurance company will pay).

The good news is that most policies include stop loss protection. This is the annual maximum amount that you'll have to pay. So if you end up with a lot of medical bills, at some point the insurance company begins to pay 100 percent (of the reasonable and customary amount that is).

The flip side of this is that the insurance policy itself will have a lifetime (your lifetime) cap. That means that when your bills reach a certain amount (usually $1 million or above) the insurance company won't pay anymore. For some policies there may be a cap for the year or for a specific illness claim. At this point you may have to get insurance through a different company.

Recently some FFS plans have begun operating more like managed care plans. For example, they may require that you pay a deductible and 20 percent of the charges, but there may also be co-pays for doctor visits and other services. However, premiums for FFS plans are often fairly low compared to managed care plans.

Managed Care

HMOs require that you have a primary care physician that will manage all of your health care.
HMOs require that you have a primary care physician that will manage all of your health care.
©2006 Publications International, Ltd.

Managed care plans typically involve three variations similar to FFS plans, the health maintenance organization (HMO), point of service (POS) plan and the preferred provider organization (PPO) plan. While some managed care plans can bear a close resemblance to an FFS plan, the focus of managed care is on preventive health care. The idea is that by allowing coverage for check ups and other preventative services, doctors can identify potentially serious illnesses early.

Managed care plans use networks of selected doctors, hospitals, clinics and other health care providers that have contracted with the plan to provide comprehensive health services to members at a reduced group rate. Because of this, managed care plans are usually more affordable than FFS plans for similar levels of coverage. In addition, by centralizing billing and administrative functions, networks can lower their overhead costs.

Health Maintenance Organization (HMO)

Typical HMO coverage includes access to a primary care physician, emergency care, specialists and hospitalization when needed. These plans are usually cheaper than other managed care plans but you have the least amount of control over choosing your health care providers than any other plan. There are usually no deductibles, but there is a small co-pay for each office visit (usually $10 to $25). You're required to select one doctor from the organization's network as your primary care physician (PCP). This doctor is in charge of coordinating your medical care. If you need to go to a specialist, you must get a referral from your PCP first. Any specialist you see must work within the HMO network, otherwise you'll pay for the visit yourself.

HMOs can have their own medical facilities and staff, or the HMO can contract with outside physician groups or individual doctors. These outside groups are called Individual Practice Associations (IPA).

Exclusive Provider Organization (EPO)

An EPO is similar to a traditional HMO and uses contracted network physicians, hospitals, ancillary health care providers and facilities. With an EPO, however, you don't always have to have a primary care physician. You're also allowed to self-refer to other physicians (including specialists) within the network.

POS and PPOs

A common POS plan insurance card.
A common POS plan insurance card.

Point of Service (POS)

POS plans give you a combination of an HMO plan and a FFS plan. Like a traditional HMO, you have a PCP who will make referrals to other providers within the plan when needed. You have no deductible when seeing a physician within the network and will pay a small co-pay (around $10) for each office visit. If you want to go to a physician outside the network, you're free to do so without consulting your primary care physician. But, when going outside the network you'll usually have to pay a deductible (around $300 for an individual) as well co-insurance (usually 30 to 40 percent) as you do with FFS plans. You save money if you stay within the network, but you have the flexibility to go outside the network if you need to. However, if you choose to go outside the network, you're in charge of all paper work needed in order to get reimbursed for the expenses.

Preferred Provider Organization (PPO)

A PPO is a group of doctors and hospitals that provide medical service only to a specific group or association. The PPO may be sponsored by a particular insurance company, by one or more employers, or by some other type of organization. The most obvious difference between HMOs and PPOs is that members aren't required to work through a PCP in order to get referrals. In addition, members aren't limited to care from PPO physicians; they're free to go outside the PPO group. The insurance company may reimburse you for 100 percent of care obtained from network physicians, but will only reimburse you 80 percent for non-network treatment. Like POSs, there is a deductible if you go outside the network. An additional benefit of the PPO, however, is that there's a maximum on out-of-pocket expenses. An out-of-pocket expense maximum, or cap, is the amount that you have to meet in order for the insurance company to pay 100 percent of your policy's benefits. Your out-of-pocket expenses that go toward this cap include any deductible and co-insurance payments. Unfortunately co-payments and your monthly insurance premium do not count.

What's Typically Covered?

With preventive care as the focus, all general "well" visits are typically covered. Managed care plans won't pay for services not deemed medically necessary, but each plan's definition of medically necessity might be different. For plans that cover prescription drugs, there may be requirements for specific drugs (such as generic vs. name brand).

Pros and Cons

The primary benefits for managed care are the lower costs for preventive care with some plans not even requiring a copay. The drawbacks of HMOs are fewer choices in doctors and facilities, as well as having to go through a primary physician in order to see specialists. Drawbacks of PPOs include higher fees for those doctor's outside of the network, which at times can be substantial.

No matter what plan you have, prescription benefits can be confusing. Find out more about how these benefits work in the next section.

Prescription Benefits

Insurance companies have changed the way they offer prescription drugs in the last few years.
Insurance companies have changed the way they offer prescription drugs in the last few years.
©2006 Publications International, Ltd.

As a large amount of our population ages, spending on prescription drugs is increasing faster than other aspects of health care costs such as hospital visits or physician services. From 1994 to 2003, prescription drug costs rose at double-digit rates each year. Today, prescription drug spending is still rising, but the rise can now be measured in single digits. This slow-down in spending is attributed to a few changes in the world of prescription medication including the way health insurance companies offer prescription drugs to their users. Many insurance plans have excluded high-cost drugs from coverage, cut down on the amount of refills and increased co-pays. The basis of any insurance plan's prescription benefits is a formulary, which is a list of all the drugs your insurance company is willing to pay for.

A formulary can be used in several different ways depending on your exact insurance plan. Some plans will cover drugs both on the formulary, which are referred to as "preferred" drugs and usually include generic drugs, and drugs not found on the formulary, or "nonpreferred" drugs usually including brand-name drugs. However, use of nonpreferred drugs comes at a higher price and you'll usually be charged a higher co-pay. Other insurance plans may be more cut and dry, covering only those drugs on the formulary and denying payment for any drug not on the formulary without some sort of pre-approval process. However, the majority of formularies fall somewhere in between these two types of plans and into a "tiered" formulary. In these plans, drugs are assigned to a tier, with each tier increasing the co-pay amount. Normally, in a three-tier plan generic drugs are found at the cheapest tier-one level. Tier two includes brand-name drugs in which generics are not available, and tier three contains drugs that aren't found in the formulary, or are nonpreferred, and thus are charged an even higher co-pay.

However, if a drug prescribed by your doctor isn't included on your health insurance plan's formulary list, most plans have a prior-authorization process in which a drug may be approved on a case-by-case basis. Usually in these situations, you must have already failed the approved treatments or experienced adverse effects from the approved medication for your ailment. If your coverage is still denied an appeal process is usually available.

Personalizing Your Policy

With catastrophic insurance, you save money if you're healthy. But if something drastic happens, you're covered.
With catastrophic insurance, you save money if you're healthy. But if something drastic happens, you're covered.
Stockbyte/

In addition to the two major categories of plans, you could also opt for supplemental insurance. These types of insurance plans are designed to pay benefits in addition to your regular insurance plan. They're usually very specialized and while they may duplicate some of what your normal insurance policy covers, they shouldn't be used in place of a comprehensive plan like an HMO or PPO. Different types of supplemental insurance include:

  • Hospital-surgical, or Hospitalization Insurance: These policies have separate limits for hospital charges and physician charges associated with a hospital stay. Benefits usually include the hospital room and other hospital services, surgery, physicians' non-surgical services performed in the hospital, and diagnostic X-ray and lab expenses. They may also cover room and board in an extended care facility. Most don't require a deductible to be met before they'll pay for a covered medical expense, but they are limited in the amount they'll cover and shouldn't be used in place of a more comprehensive plan.
  • Catastrophic, or High Deductible Health Insurance: Catastrophic health insurance usually has high deductibles and low monthly premiums. Most cover expenses for hospital stays, surgery, intensive care, diagnostic X-ray and lab tests. If you don't have other coverage, this type of coverage may prevent you from having to file bankruptcy in the event of a major medical problem. This type of insurance also has the benefit of qualifying users for a Health Savings Account, or HSA. An HSA is a savings account in which tax-deferred deposits can be made that will then be used for qualified medical expenses. Unlike flexible spending accounts the money deposited in these accounts will not be lost if it's not used during that year.
  • Long-term Care Insurance: These policies cover medical care, nursing care and certain types of in-home care should you become ill or disabled to the point where you can't care for yourself.
  • Specified-dread Disease Insurance: These policies only cover treatment for a specific disease, such as cancer, stroke or heart attack. They're purchased before a diagnosis is made and won't be issued if a person already has the disease specified in the policy. These policies may be riddled with limitations including only paying for hospitalization for the specified disease and not the out-patient procedures needed, such as chemotherapy. Other limitations include a fixed amount of money they'll pay toward the specified disease, waiting periods and fixed time-frames that the coverage for the specified disease will run out.

Hospital Indemnity and Disability Insurance

  • Hospital Indemnity Insurance: Rather than paying the hospital or a physician group, this type of policy sends payments directly to you. They pay a designated amount of money each day you're in the hospital, for up to a designated number of days. These policies are useful for paying other bills and out of pocket expenses while illness prevents you from working.
  • Disability Insurance: Disability policies typically pay you 45 to 60 percent of your income on a tax-free basis if you're disabled due to an injury or illness and can't work. The benefits enjoyed from these policies vary widely depending on what you pay. They'll pay only for the length of time you specify when you sign up for the policy (commonly five, 10 or 15 years, but it can go up to age 65).These policies may have a period of time after your disability occurs and before the benefits kick in. This period of time is usually referred to as an elimination period and typically range from 30 to 90 days but can be as long as a year or more.
  • Dental and Vision Insurance: Individual check ups for vision or dental care aren't that expensive, but if you have problems related to your teeth or eyes, the bills can get costly. Some health insurance plans do offer coverage for these, but special coverage can also be purchased separately for those that don't.

Flexible Spending Account

While not a supplemental insurance, a flexible spending account (FSA) can be used along with your employer-sponsored health plan. An FSA is an account set up by an employer in which employees can automatically deposit a portion of their pre-tax paycheck into a tax-advantaged financial account that can be used to pay for qualified medical expenses not covered by insurance. These types of accounts can be beneficial to both employers and employees. Employers can tout an FSA as a great benefit in an effort to attract and keep employees, while both employer and employee can save money on payroll and social security taxes. In addition, if used correctly, an FSA can help to greatly offset an employee's out-of-pocket medical expenses and help pay for the monthly health insurance premiums. Different types of FSAs can even be used to pay for an employee's day-to-day expenses of caring for a dependent or to cover adoption expenses. The big down side to these accounts is that the money you don't use in your health insurance year can't be rolled over into next year's FSA. So basically, if you don't use it, you lose it.

Typical Insurance Limitations and Exclusions

Face lifts aren't covered by insurance.
Face lifts aren't covered by insurance.
©2007 Santa Barbara Plastic Surgery Center

Polices will vary quite a bit on their limitations and exclusions so it's always very important to read the actual policy (not the marketing information) carefully before making a selection. Here are some limitations and exclusions common for many health insurance policies:

  • Pre-existing conditionsMost health plans will have waiting periods of six months to a year for pre-existing conditions if you have had a lapse in health insurance coverage that's longer than 63 days. For example, if you're diabetic and leave your job but don't begin a new job right away, you would have to pick up an individual insurance policy or find coverage somewhere else (through a spouse's employment, for instance) in order to avoid a waiting period with your next policy.
  • Cosmetic surgeryHealth insurance rarely covers cosmetic surgeries. Usually they must be for reconstructive purposes after an injury or due to a birth defect. They may also be covered if a doctor states that there's a medical need for it such as a reconstruction of a clef palate. That means that the face lift or liposuction that you have your heart set on must be paid out of your own pocket.
  • Non-traditional treatments Alternative and complementary medicine often isn't covered by health insurance. Alternative medicine is defined as treatments that are used in place of conventional medicine and complementary medicine refers to treatments and procedures that are used together with conventional medicine. These types of treatments include acupuncture, yoga, acupressure, massage and biofeedback. In some health insurance plans, even chiropractic treatments can fall under alternative medicine and therefore isn't covered. These services often aren't covered as they're considered by health care companies as experimental or non-traditional in nature.
  • Home care and private nursing care Home care and private nursing expenses are some of the most common expenses that aren't covered under your insurance plan. According to the CDC there are over 1.4 million patients using home health care with the average patient needing at least 60 days of treatment. Without any coverage, these health care expenses can add up fast and end up bankrupting patients and their families.
  • Mental health treatment Some plans cover mental health treatment as well as drug rehabilitation. Although, some only cover substance abuse if it co-occurs with mental illness. To get access to these types of services you may be required to get a referral from your regular doctor first. Mental health and substance abuse services may also be offered through an employee assistance program (EAP) if your employer has one.
  • Common Drug Benefit ExclusionsIn addition to the procedures, treatments, and surgeries discussed above, many exclusions fall under drug benefit exclusions. Many of the drug benefits that are excluded can be included in the same cosmetic or nontraditional categories as those mentioned above. Drugs used only for cosmetic purposes usually aren't covered by your plan. These can include hair growth stimulants and supplements for clear skin or strong nails. Non traditional drugs like food supplements and any drug considered experimental are usually not included in your plan either. Like elective abortions, drugs that are used to abort a pregnancy also aren't covered for the same political reasons.

Along with limitations and exclusions in your health insurance policy, waiting periods can also affect your overall health care. Find out more about how these waiting periods work and how some can be eliminated all together.

Insurance Waiting Periods

Most insurance plans enforce a waiting period before coverage begins.
Most insurance plans enforce a waiting period before coverage begins.
Photographer: Capturednuance I Agency: Dreamstime.com

Waiting Periods

The idea of a waiting period in the world of health insurance may seem simple enough: It's the period of time specified in a health insurance policy which must pass before some or all of your health care coverage can begin. However, the definition is just the tip of the iceberg. Underneath are the types of waiting periods, the rules that apply to each and how they each apply to a given type of health insurance plan.

In general, there are three main types of waiting periods that you encounter in health insurance: employer waiting periods, affiliation periods and pre-existing condition exclusion periods.

  • Employer Waiting Period The most common is referred to as the employer waiting period and is found in an employer group plan in which a new employee must wait a given time period, often within three months, before being eligible for health care services. This waiting period is imposed by the employer and is usually done to avoid hit and run behavior by their new employees, in which they file a large claim right after joining, and then quickly leave the company.
  • Affiliation Period A waiting period that's imposed by an HMO and not an employer is referred to as an affiliation period. This type of waiting period can't last longer than three months and has specific rules attached to it.
  • Pre-existing Condition Exclusion Period A pre-existing condition exclusion period is a type of waiting period that involves those who have a condition during the six months prior to signing up for health insurance. This type of waiting period means that your insurance coverage can be limited or excluded for any pre-existing condition. The length of this type of waiting period can vary from one to 18 months. However, once you've proven that you've had uninterrupted insurance previous to your current plan, this insurance coverage can be added up and credited toward any pre-existing condition exclusion you may have. In fact, if you had at least one year of group health insurance at one job and then received health insurance at a new job without a break of more than 63 days, the new health insurance plan can't impose a pre-existing condition exclusion on you.

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Selecting Your Policy

Whether you're trying to decide which plan to get through your employer (since they often offer several choices) or you're trying to decide on an individual health plan, you need to think first about your needs.

  • Do you want a plan that covers preventive care like annual check-ups? Remember that most fee-for-service plans don't cover these visits, but managed care plans do. It's particularly important to consider this aspect if you have (or are planning to have) children.
  •  How healthy are you? If you need a low premium and are healthy, you might consider a plan with a higher deductible. Keep in mind that accidents happen, however, and a single hospital stay could wipe out your savings and put you into debt. Think about how much money you would be able to put toward medical expenses if it should become necessary.
  • Do you have a specific doctor or hospital you want to be able to use? Remember that managed care plans use networks of doctors, and unless your doctor is in that network you'll pay all or some of the bills whenever you see him. If a specific doctor (or doctors) is necessary, you might need a fee-for-service plan.
  • How important is it to you to have easy access to specialists? Many managed care plans require a referral from your primary care physician before you can see a specialist. If they don't feel it's necessary, then you'll be paying for the visit out of your own pocket.

For lots more information about health insurance and related topics, check out the links on the next page.

Related HowStuffWorks Articles

More Great Links

Sources

  • About Disability Insurance.com http://www.about-disability-insurance.com/
  • Census.gov: Health Insurance Definitions http://www.census.gov/hhes/www/hlthins/hlthinstypes.html
  • CDC: Media Brief on Percentage of People Without Health Insurance http://www.cdc.gov/od/oc/media/pressrel/2007/b070625.htm
  • National Coalition on Health Care: Health Insurance Costs http://www.nchc.org/facts/cost.shtml
  • National Association of Insurance Commissioners: Shopper's Guide to Cancer Insurance http://www.naic.org/documents/consumer_guide_cancer.pdf