Health Insurance
There are all types of insurance plans designed to protect you should a catastrophic health event occur. Generally speaking “health insurance” refers to Major Medical Health insurance. Major Medical Health Insurance is a type of medical insurance developed for protection against a broad range of catastrophic medical expenses, such as Doctor’s office visits, inpatient and outpatient surgeries, emergency room visits, prescription drugs and more. What this protection does is reduce and diversify the risk that is incurred with the simplest of everyday activities.
The reason we use the term catastrophic coverage when referring to healthcare is because with the origination of health insurance, insurance companies were protecting individuals or businesses against any large claim in exchange for a premium payment. What this means to individuals and/or employees is with any catastrophic event there would be a certain dollar amount to be met by the person; and then all costs above and beyond would be covered by the insurance company.
Co-pay and Coinsurance
The materialization of healthcare as an employee benefit spawned the idea of the co-pay and coinsurance. What these benefits do is reduce and diversify the risk of the individual even more.
Doctor’s office visit co-pay: is the flat dollar amount that an individual must pay upon entry to the Doctor’s office, the remainder of the amount charged by the Doctor will be negotiated and paid by the insurance company.
Prescription drug co-pay: is the flat dollar amount paid to the pharmacy or clinic the individual must pay at the time of service to receive his requested medications.
Coinsurance: refers to the percentage of the total amount due that the individual and insurance company will pay to the facility where services were rendered.
Example:
80 / 20 is a very common coinsurance pay scale. The way this would pay out in the event of a hospital visit would work as followed:
$2,200 Total bill to insurance company
$1,600 Negotiated charges as contractually agreed (Hospital and Insurance Company)
20% paid by Individual $320
80% paid by Insurance $1280
$1,600
Deductible and Out of Pocket Maximum
As time went on through the 1980’s and 1990’s, insurance premiums were continuing to grow from year to year. In response to the increasing costs within healthcare, the insurance companies began to endorse deductibles:
Deductible: The first dollar amount to be paid by the individual for care at a facility other than a Doctors office, before the insurance company pays anything to the facility.
Out of Pocket Maximum: is the cap on how much you have to pay for covered medical expenses that are subject to coinsurance in any given calendar year. After meeting the out of pocket maximum, the insurance company will pay 100% of all remaining covered expenses for that year.
Preferred Provider Organization (PPO)
In health insurance, a preferred provider organization (or "PPO", sometimes referred to as a participating provider organization) is a managed care organization of medical doctors, hospitals, and other health care providers who have contracted with an insurer or a third-party administrator to provide health care at reduced rates to the insurer's or administrator's clients.
The idea of a preferred provider organization is that the providers will provide the insured members of the group a substantial discount below their regularly charged rates. This will be mutually beneficial since the insurer will be billed at a reduced rate when the covered person utilizes the services of the "preferred" provider. Also, the provider will see an increase in business because almost all people insured in the organization will use only providers who are members. Even the insured should benefit, as lower costs to the insurer should result in lower rates of increase in premiums. Preferred provider organizations themselves earn money by charging an access fee to the insurance company for the use of their network. They negotiate with providers to set fee schedules, and handle disputes between insurers and providers. PPOs can also contract with one another to strengthen their position in certain geographic areas without forming new relationships directly with providers.