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Blue Cross and Blue Shield Originally two separate non-profit organizations, Blue Cross and Blue Shield (BCBS OR BC&BS) have merged, but still maintain separation in the services each covers. Blue Cross pays physicians, The "Blues" as they are sometimes called, have contracts with hospitals and doctors, under which services typically cost slightly less than rates otherwise charged. For example, a physician might charge $35 for an office visit, but when the patient is covered by Blue Cross-Blue Shield, the physician agrees to receive only $32 as payment in full. Hospitals and doctors who have agreements with the Blues bill the service provider, and the Blues pay the health care providers directly. Since not every hospital or physician has an agreement with Blue Cross-Blue Shield, people covered by such plans are encouraged to receive medical services from those that do. Individuals may have medical services performed elsewhere, but often must pay for the difference in charges. Using the example from the previous paragraph, Blue Shield would pay a physician with whom it does not have a contract only $32 and the physician then would bill the patient the $3 difference. The Blues, like commercial insurance companies, require members to pay a certain deductible amount before the coverage begins to pay for medical expenses. In addition, the coverage might pay for only a portion of some bills, with the member paying the remainder. This latter concept is called coinsurance. Both deductibles and coinsurance are discussed later. Back to top New Ways to Cover Health Care Costs HMOs and PPOs are considered part of the concept of managed care, theoretically a cost control measure wherein savings result from management and oversight of the types and extent of health care services delivered. Another concept you'll be hearing more about in the public arena is managed competition, an idea that is not yet crisply defined. The premise underlying managed competition is that large health alliances will serve a big city or a region of the country, managing health care systems and delivery for that area. These alliances would complete with each other in offering consumers a menu of health coverage options, including HMOs, PPOs and more traditional insurance plans. One controversial idea is that the health alliances would approve plans and the plans would be required to cover everyone who wanted the coverage, no matter what the health risks. Look for managed competition to be praised, criticized and thoroughly debated as part of the contemporary health care coverage upheaval. Back to top Health Maintenance Organizations (HMOs) Health Maintenance Organizations or HMOs are distinctive because they not only provide payment for medical services, but they also arrange for the services to be provided to HMO members as part of the managed care concept. Typically offering more comprehensive coverage than traditional Blue Cross-Blue Shield and individual health insurance, HMOs charge users a pre-set monthly fee. In return, members have access to a broad range of medical services, rather than paying fees for individual services. Following is a brief description of how HMOs operate. The HMO offers a wide range of services, including preventive care such as routine exams and immunizations, diagnostics, emergency and specialist services, and hospitalizations. HMOs emphasize prevention as one way of managing health care costs. This is one reason HMOs pay for routine services not usually covered by the Blues and commercial insurance. In return for paying the pre-set monthly fee, HMO members may receive any of the services the HMO offers. The only additional charge might be a minimal co-payment the member makes, such as $5 per visit to the HMO provider or $2 for prescription drugs. In order to gain these benefits, members must use the services of medical personnel and hospitals that have contracts with the HMO. Some people do not like the HMO concept because individuals do not necessarily have the privilege of seeing any doctor or being admitted to any hospital of their choice. That is, the HMO agreement names the providers the facilities to be used. In addition, only HMO personnel may approve hospitalization. While these features of an HMO can limit choices, many people feel the benefits outweigh the disadvantages. In addition, some HMOs have agreements with such a wide range of medical personnel that, as a practical matter, the choice of practitioners is nearly unlimited. The freedom of choice under an HMO is somewhat subject to the type of arrangement the HMO has with medical providers. There are two general types. Back to top Basic Medical Expense Coverage Medical expense coverages range from very basic payments for a limited number of specified medical services to comprehensive plans that cover a variety of both basic and sophisticated procedures. We will first examine basic medical expense coverage. Coverages for basic medical expense generally are the most limited plans available, placing restrictions on the types of services covered, the amounts that will be reimbursed, and the duration of services. A basic medical expense policy or plan is typically written with separate specifications for three different types of services: • Basic hospital expense • Basic surgical expense • Basic physicians' nonsurgical expense Expenses under these categories may result either from an illness or from an accident. Later we'll talk about policies that pay only for costs associated with accidents, but not for costs associated with illness. Back to top Hospital Expense Coverage for basic hospital expense pays for various costs incurred during hospitalization. In more recent policies developed since many procedures that formerly required hospitalization are now performed on an out-patient basis, coverage is also provided for out-patient procedures performed at the hospital without an overnight stay. Back to top Room and Board Expenses For hospital confinement, the hospital expense portion of the policy pays for hospital room and board. This covers the cost for using the hospital room and for food. Any routine nursing expensed associated with hospitalization are also included here. Health coverages differ considerably in how the amount of the benefit is determined. Room and board expense is most frequently paid on a reimbursement basis. For example, the policy might stipulate it will pay the full amount of the hospital's rate for a semi-private room, or possibly only 80% of that rate, In any event, the policy reimburses all or a specified portion of actual expenses. Some policies, however, pay on an indemnity basis, specifying a pre-set dollar amount that will be paid per day of room and board used. For example, if the contract stipulates that $200 per day will be paid, but the individual's semi-private room actually cost $350 per day, the individual is responsible for paying the difference. Some basic hospital expense plans limit the duration of payments. One plan might pay for 365 days while another limits coverage to 90 days in a calendar year. Many basic plans have an additional room and board provision for confinement in an intensive care or other special care unit. Typically, the policy provides an additional amount that is a multiple of the regular room and board rate. For example, if the policy pays twice the regular rate, a $200 rate for a standard hospital room results in a $400 benefit available for intensive care confinement. Usually, there is a limit on the number of days this benefit will be paid. Back to top Combining Basic Medical with Major Medical Coverage Basic medical expense coverage is highly limited. Most companies that write basic medical expense insurance also offer the optional purchase of a supplement to cover a greater range of medical services. By the term "supplement," we mean an item added to make something more complete - the insurance coverage, in this case. In combining a basic medical expense policy with a additional policy - the supplement - to provide what is commonly known as major medical expense coverage, the insurer agrees to pay for more services. The next section describes major medical coverages available either as this type of supplement or, more commonly, as a comprehensive policy that includes both basic and major medical insurance in a single policy. Back to top Major Medical Expense Coverage Often called simply major medical, this type of coverage pays benefits for numerous services excluded from basic policies. Although it is important to examine each policy carefully for the specific items covered, major medical policies typically cover all or many of the following items. • Hospital room and board, including special care units such as intensive, cardiac and burn care. • Miscellaneous hospital expense. • Surgical expense. • Physicians' nonsurgical expense. • Hospital and home nursing services. • Outpatient and ambulatory services. • Blood, blood plasma, oxygen and similar services. • Services from non-physician medical practitioners, such as physical or occupational therapists. • Ambulance service and emergency care. • Convalescent, hospice and home health care. • X-rays, laboratory and other diagnostic and therapeutic services. • Prosthetics and orthotics. • Durable equipment such as wheelchairs. • Casts, splints, crutches and similar items. • Treatment for mental and psychological infirmity. • Maternity care. • Prescriptions. As you can see, major medical coverage greatly expands the services for which health benefits are paid. Each individual policy describes the extent of those benefits, but coverage is generally broader and the benefits are greater. Back to top Supplemental Major Medical A supplemental major medical policy added to a basic medical expense policy expands the coverage. The basic medical portion pays for basic services such as those previously described. The major medical supplement then pays for numerous items excluded by the basic portion and also covers expenses that exceed limits for certain items in the basic medical expense policy. For example, if the covered person uses up the basic dollar limits for a particular service, the major medical picks up any remaining amount due the provider. Or, if the basic policy covers a service for only 90 days, the major medical supplement covers any expense for the same service beginning with the 91st day. People who have a supplemental major medical policy in addition to a basic medical expense policy may have to file their health claims separately under each part of the policy in order to be reimbursed. This means the insured would submit certain expenses first under the basic portion, then submit them a second time under the major medical supplement to be reimbursed for any costs that exceed the basic coverage. Back to top Comprehensive Major Medical More commonly, health coverage is provided as comprehensive major medical, which still combines basic and broad coverages, but does so in a single policy. Comprehensive major medical policies cover, to some extent, most types of medical expense that might be incurred in conjunction with an illness or accident. Back to top Stop-Loss Limit Good major medical policies include a stop-loss limit or coinsurance limit that protects the insured person against massive losses. The $200 coinsurance payment on a $1,000 charge, as mentioned previously, is not excessive for most people, but medical cost can rapidly exceed reasonable limits. Hospitalization for a serious coronary condition or other major illness can result in a $100,000 bill. If there are no limits on the coinsurance amount, $100,000 in expenses could require the insured to pay 20% or $20,000 for just this one situation. With a stop-loss limit included in the policy, the insured never pays more than a specific dollar amount per year. Stop-loss amounts vary widely. Here are two examples: $2,000 per year per person or $4,000 per year for a family; $5,000 per year per person or $10,000 for an entire family. Each health policy specifies the applicable stop-loss limits. Another way of viewing this concept is that the insured pays 20% coinsurance up to $10,000, after which the insurer pays all covered charges. Back to top Lifetime Maximum Most major medical coverages stipulate a lifetime maximum benefit that will be paid for any covered person or family. Ranges are generally from $25,000 to $1,000,000, but some policies have an unlimited lifetime benefit, which means there is no cap on total dollar benefits payable while the person is insured. Lifetime maximums can be woefully inadequate if a catastrophic illness or accident occurs; $25,000, for example, would cover only a small portion of such a loss at current health care prices. Back to top Dental Expense Coverage Dental expense coverage, which is usually offered as part of a group insurance plan, has become one of the most popular limited risk coverages. You'll recall that dental car costs are generally excluded from major medical coverage unless the expenses result from accidental injury. Dental coverage is offered through commercial insurers, HMOs and PPOs in a variety of forms. Especially in group plans, dental benefits may be part of a comprehensive health care plan with most dental expenses included in the same deductible and coinsurance requirements. Covered costs typically include prevention, such as cleaning and routine X-rays, and restoration such as fillings. Many plans also cover more significant dental procedures - orthodontia, root canals, oral surgery - But usually on a different basis. Orthodontia, especially, is likely to be subject to different deductibles and the insured often must pay a larger coinsurance share -- frequently 50%. Dental expense coverage is more frequently offered separate from other medical expense coverage, with covered procedures listed on a schedule. The schedule may be divided into different categories of procedures with different deductibles for each category. Payment of the usual, customary and reasonable (UCR) rates for each procedure is common. Dental plans typically include limits on the dollar amount of benefits that will be paid annually and these limits vary significantly. One plan might impose a $1,000 annual limit on all benefits, while another might limit major dental work benefits but impose no maximum on preventive care expenses. Many plans allow two free check-ups per year for each covered person with no limit on the cost of the check-up, while in other plans the two "free" check-ups are reimbursed only up to a specified dollar amount. Plans that include orthodontia often have separate annual limits for orthodontic and non-orthodontic care. For orthodontia, some insurers impose lifetime maximums. Back to top Vision Care Expense Coverage Like dental care, vision care expense not associated with an illness or injury is generally excluded from health insurance coverages, but may be covered separately, especially as part of a group plan. Typically, vision care insurance is even more limited than dental expense coverage, providing for one eye examination annually and, and if required, one set of lenses, either eyeglasses or contact lenses. Coverage for new eyeglass frames is usually limited to every two years. Vision care policies usually exclude surgical procedures, sunglasses, and replacements for broken or lost glasses or contact lenses. Other exclusions may apply. Back to top Prescription Drug Coverage Found most often in group plans that do not otherwise cover prescriptions, prescription drug coverage pays most of the cost. Typically, the insured pays only a flat dollar amount, perhaps $2 to $5, for each prescription filled, regardless of the cost of any individual drug. These plans commonly include a "drug card" or "prescription card" that the insured presents when purchasing any prescription. The popularity of this coverage is easily understood when compared to major medical plans under which the insured pays the specified coinsurance percentage, ranging from 10% to 50% of the cost. Some prescription drug coverages require the insured to pay a deductible amount, after which the insurance covers 80% or 100% of drug charges. Annual dollar limits may apply to both types of prescription drug plans. Back to top Hospice Care Coverage Coverage for hospice care is a relatively new concept outside of Medicare coverage. A hospice is a facility that cares for terminally ill people who no longer require hospital services, but are too ill to be cared for at home. This type of coverage begins to pay benefits when an individual is admitted to the hospice after a physician determines life expectancy is six months or less. The benefit period for hospice care coverage ends at the earlier of the date of the insured's death or the period specified in the policy - typically either six or twelve months. Expenses incurred at the hospice are reimbursed at the UCR rate and are limited to services that would normally be performed by hospice personnel and at a physician's direction. A limited benefit may be available to cover counseling for the terminally ill person's family. This fairly new type of coverage is not yet commonly offered by insurers, but the need for such coverage has increased, opening a potential market that makes the search for coverage worthwhile. Back to top Medicare No discussion of senior products is complete without considering the government-sponsored Medicare program since most older people use Medicare as their primary health insurance coverage. The gaps in Medicare coverage offer agents the opportunity to provide health insurance products that further protect seniors from financial problems associated with reimbursed medical expenses. Although people older than age 65 are the primary Medicare beneficiaries, certain younger people are also eligible for Medicare coverage. The base requirement for people under 65 is either that they are receiving Social Security disability payments or they have permanent kidney disease requiring dialysis or a kidney transplant. Medicare coverage is divided into two sections, Parts A and B. Every worker who pays Social Security taxes helps fund Part A, which becomes available as soon as the worker reaches age 65 or becomes eligible for Social Security disability benefits. Part B is optionally available to cover certain medical expenses that Part A doesn't cover. People who want this coverage must pay a monthly premium to cover part of the cost, with the remainder subsidized by taxes. Back to top Medicare Part A Hospital Insurance Medicare Part A provides hospital insurance that covers expenses incurred when an individual is: • Admitted as an inpatient to a hospital or a Christian Science sanitarium certified by the First Church of Christ, Scientist, in Boston. • Admitted to a skilled nursing facility. • Receiving home health care under certain circumstances. • Receiving hospice care under certain circumstances. This discussion refers to services provided in hospitals, keep in mind that Medicare covers comparable services provided by Christian Science sanitaria exactly to the same extent. When a Medicare recipient is hospitalized, he or she is responsible for paying a specified deductible, the amount of which changes periodically. The deductible is paid for each so-called "spell of illness," which extends for a 60-day benefit period. A spell of illness is considered a "new spell" if it occurs after the individual has received no hospitalization or skilled nursing care for 60 days. In other words, an illness that requires hospitalization for two weeks in February requires payment of the deductible. If the same person recovers, then has another spell of illness in April, he or she pays the deductible again. However, if the person is readmitted to the hospital a week after the first admission in February, no new deductible is required because this is considered the same spell of illness, whether it is the same illness or a different one or even an accidental injury. After the deductible, Medicare pays 100% of covered costs for 60 days of hospitalization. Individuals hospitalized longer must pay a specified daily co-payment, which also changes periodically, for each day of hospitalization from day 61 through day 90. Hospitalization for longer than 90 days requires the individual to use funds from a "lifetime reserve" of 60 days and to pay an even larger daily co-payment. Coverage for the 90-day period is renewed with the start of each new benefit period - when the person has been out of the hospital for 60 days and has a new spell of illness. The lifetime reserve days, however, are not renewed, so when a day is used it is gone forever. Medicare Part A pays for most costs associated with hospitalization, including a semi-private room, special care units such as intensive or coronary care, operating and recovery rooms, meals, nursing and similar inpatient services. Within specified limits, Part A also pays for skilled nursing facility care, home health, hospice care and inpatient psychiatric care. In all cases, a physician must order the services as "medically necessary" and the amounts Medicare pays are those the Medicare overseers consider "reasonable." Back to top Medicare Part B Supplementary Medical Insurance Medicare's optional, voluntary Part B provides supplementary medical insurance, covering numerous items Part A does not cover. Medicare users must pay a monthly premium if they want Part B coverage. In addition, users pay an additional annual deductible that is smaller than the Part A deductible. The amount of both charges may change periodically. After the deductible is paid, Medicare Part B pays 80% of covered services and the individual pays 20%. Like Part A charges, Part B charges must be "reasonable" according to Medicare rules. If a charge exceeds the amount Medicare approves, the Medicare recipient pays the difference in addition to all other co-payments. Part B covers a broad range of medical expenses. Physician and surgeon services are covered wherever they are provided - in hospitals, clinics, physicians' offices, nursing homes and patients' homes. There is coverage for outpatient hospital treatment, medical supplies and equipment, X-ray and other diagnostic testing, ambulance service, rental of equipment such as wheelchairs and hospital-type beds, and other miscellaneous expenses. Even without an in-depth explanation of Medicare's coverages and exclusions, it is clear that people using Medicare may be required to pay large amounts out of their own pockets when a significant illness occurs. These gaps in coverage offer the potential for commercial insurers and service organizations to provide Medicare supplements, however, let's briefly look at Medicaid, which precludes the need for supplements for many people with low incomes. Back to top Medicaid The individual states administer Medicaid programs with additional funding from the federal government. We mention Medicaid here even though it is not designed specifically for seniors because the program is available to older people who meet Medicaid's eligibility requirements based on factors such as income and disability. These requirement vary slightly from state to state. For people who are eligible for both Medicare and Medicaid, the Medicaid program pays the coinsurance and deductible amounts as well as premiums for Part B. Medicaid may even offer benefits for items that Medicare does not cover at all, such as prescription drugs. While Medicaid helps those who qualify, many people who are covered by Medicare are not eligible for Medicaid. These individuals may face high cost for medical services, deductibles and coinsurance that neither Medicare Part A nor Part B covers. These people can benefit greatly from Medicare supplement policies. Back to top Medicare Supplements (Medigap) Commercial insurers, Blue Cross-Blue Shields and Health Maintenance Organizations offer Medicare supplements, which are also called Medigap insurance. The specific benefits any individual Medicare supplement policy pays can vary considerably. Some policies cover only the amounts of Medicare's deductibles and coinsurance, while others may pay benefits for services Medicare does not cover. Back to top |