Introduction To California Health Insurance In 5 Easy Pieces

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Okay...so you've visited countless websites, received instant health insurance 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 California health insurance market with confidence (and a fair amount of sanity left).

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...

1. Understanding the California insurance 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), California health 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 California 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.

2. 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.

3. The real reason to buy California 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 or catastrophic health coverage 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).

4. Pennies on the nickel?? Insight into how insurance 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 Health Savings Account 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.

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

5. 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.

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

Dee Jarvis is a licensed California broker with extensive knowledge of the Indivual and Small Group health market in California. http://www.calhealth.net

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