What makes up your Medical Insurance Costs (Part 2 of 3)
In the previous article we discussed how Medical Insurance Plan costs are determined. We mentioned the following three components and discussed the first two.
Three areas of medical insurance costs impact the employee:
1) The total cost for the entire medical insurance plan
2) How that total cost is shared between employer and employee through “premium” contributions
3) Employee out-of-pocket costs
This article will address the member’s out-of-pocket responsibility.
The out-of-pocket responsibility exists to create friction for the use of medical services. The out-of-pocket costs are designed to create balance by having a member incur enough cost to encourage them to use the Medical Plan appropriately, but not so high that members avoid necessary care which could result in higher costs to the Plan later.
Typically, an employee chooses from a couple Medical Insurance Plan options with coverage and member responsibility varying for each plan. Some of this is due to employer preference, but some is due to Federal regulations. For example, if an employer wants their employees to be eligible to make Health Savings Account contributions (or maybe even make contributions on behalf of the employee), The Plan must meet IRS requirements regarding the level of the deductible before the employee is eligible to contribute to a Health Savings Account.
As discussed in the previous article there is a relationship between what the member pays out-of-pocket and the premium contribution. In general, a higher member out-of-pocket responsibility results in lower premium contributions and vice versa.
In Part 1 we discussed how a Plan Document provides information on “What is Covered” and “How It Is Covered”. The costs paid by the member when services are used are addressed in the “How It Is Covered” portion of the Plan Document. This information is also included in a Federally required Summary of Benefits and Coverage (SBC) document that is required to be available for employees when making enrollment decisions. Employers usually ensure that an SBC is posted along with the Plan Documents.
Understanding what medical services you use, and how your health plan covers them (specifically, what the Plan will pay and what you will pay out-of-pocket) is important to understand when electing Medical Insurance during an enrollment event.
Many of us are risk adverse. We don’t like the thought of having to come up with a large amount of money required in a higher deductible Plan option. Individuals in this situation may willingly pay more each pay period (through premium contributions) to avoid the need to come up with money to cover a higher deductible in the future.
If you are hesitant to take on that risk, but are also not a very heavy user of healthcare services you could be overpaying for medical insurance simply to avoid the risk of paying a high deductible.
To avoid that possibility, it is important to understand what services you utilize and what you will pay out-of-pocket for those services.
When Do Out-of-Pocket Expenses Occur
When you use the services of a healthcare provider (a doctor, hospital, etc.) the provider will document the services they provided to you using a coding structure developed by Medicare and will submit a claim for your Medical Insurance to pay.
During a physician office visit the office staff will review the information on your medical ID card (or look up your account with Insurance carrier) and determine your out-of-pocket responsibility for the services they will provide.
If you have a Traditional PPO-type plan, your care provider will collect a copay from you at the time of service. If you have a High Deductible Health Plan(HDHP), you are required to meet the deductible and your portion of any coinsurance before the Insurance Plan pays. The office staff may estimate an amount due at the time of service, but they may also wait until the claim is filed and bill you later.
When using more expensive services at a hospital or surgery center, the billing staff may require you to pay an estimate of your expected out-of-pocket costs at the time of service.
Being familiar with the plan design, the services you typically use during the year, and your out-of-pocket responsibilities, will help you determine if the estimate is reasonable. It is OK if it isn’t 100% correct, but you should monitor what gets billed and what the insurance company pays the provider so you can make any adjustments when you settle your account. You may need to make an additional payment later, but you also could have overpaid and be due a refund.
In the third article in this series we will talk about how you can determine your out-of-pocket costs. Reviewing your Explanation of Benefits (EOB) is helpful in understanding these costs.
Written by Brian Mitchell
Brian Mitchell has experience leading Total Rewards strategy and implementation for large employers.
Benefit Boosts by Brian Mitchell© – Vol 2024-011
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