| FAQ - Health Insurance |
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Why did my monthly premium increase? Insurance companies determine your monthly premium after determining three items; 1) they calculate the expected future cost medical bills for you and your neighbors who have purchased the same HMO, PPO, or HSA products as you (these are called "risk pools"); 2) They then calculate the cost of administering all of their products (i.e. enrolling applicants, answering customer and provider calls, negotiating hospital rates, and paying claims); and 3) they calculate their targeted profit margin.
Your premium rate fluctuates primarily due to item #1 above (medical expenses). For example, assume an insurance company offers a product called "A+ Health". During the year the insurance company charges 100 customers (or members) $80 per month. So, during the year they've collected $9,600 (100 members x $80 per month x 12 months). Also assume they paid the medical expenses of $8,544 for those members during the year (in other words, they paid 89% of the premiums collected during the year to medical expenses). These medical expenses paid for everything from routine check-ups to ER visits. The remaining 14% of premium went to administering the claims and profit margin (most large insurance companies pay 12-16% of premiums toward administration).
At the end of the year the insurance companies' actuaries (the people who determine premium rates) reviewed the product and determined that paying 89% of all premiums toward medical expenses is not healthy for the "pool". In other words, if the 89% continues for an extended period of time the "pool" will eventually run out of money to pay the medical expenses for the members. So how does the insurance company fix this? During the annual renewal period (all product rates must be "renewed" or submitted to the State Department of Insurance for approval); the insurance company raises their rates to $100.51 per member per month. Why? Keeping all other inputs from above equal (medical inflation, admin expense ratios, number of members in the pool, etc.) they should expect to collect $10,051 in premiums next year. Additionally, assume next year the insurance company pays $8,544 in medical expenses on behalf of members in the pool (now it's just 85% of premiums). During the following renewal period the actuaries will evaluate the health of the pool and determine that the pool is healthy because 85% of premiums were spent on medical expenses. Finally, assuming all other inputs being equal they would set the premium rate next year at $100.51 per member per month (in theory).
What does this mean for you? I'm hopeful the simple example above demonstrates how the price of certain products can quickly change as a result of the expenses incurred by it's members. Ideally, this knowledge will prompt you to choose insurance products that offer highest quality healthcare at the lowest cost. I also hope that you will be a smart shopper when you have the option of electing to use healthcare services. Please contact a Customer Advocate at BenefitRiver today to determine which product in the market is the right fit for you. What is a network and how is an HMO different from a PPO or an HSA? Health Maintenance Organizations (HMO) and Preferred Provider Organizations (PPO) are two of the most common types of a networks provided by insurance carriers. Carriers create their networks by negotiating with providers (hospitals, doctors, specialists, etc.) for healthcare services within a city, a state, or other geographic region. The carrier then charges you, their member, a monthly premium to use services within that network. How do provider networks work? Providers benefit from the carriers’ networks because they gain access to a large number of patients--and because carriers will reimburse them at the negotiated rate. Carriers prefer networks because they create the basis of their product portfolio (i.e. the larger the network the better access provided the products within that network) and it also provides carriers with additional leverage when negotiating reimbursment rates. What are hidden costs?
The network you purchase certainly helps determine your monthly premium but it also determines how much "hidden costs" you incur for the product. What's a hidden cost? I like to think of these as items you know about but commonly overlook when considering how much your product will cost you annually. For example, out of network fees in my mind are a hidden cost. If you assume your OBGYN is in the network of the insurance you just purchased--and is not--you'll incur the hidden cost of full billed charges after your first (and maybe last) visit after purchasing your new health insurance product. I also like to think of hidden costs as any medical service or supply that you routinely need but is not covered under your product--like medications or medical supplies. This is not to say that you can avoid all hidden costs (like being approved for dental surgery and then surprised that the IV sedation for dental surgery is "not reasonably necessary for the procedure"). However, you should take hidden costs into consideration when comparing health insurance products.
What does this mean for you? The BenefitRiver.com website provides detailed comparisons of a product's coverage. Simply enter in your demographic information, next a screen will appear that shows all of the products available to you. Select the two or three products that best fit your needs. Then, under each specific product, select the button "View plan details" or the button "Find doctors". This will allow you to research if your doctor and routine medical needs are covered by the product. If you need additional help, BenefitRiver's Customer Advocates are available to answer any questions you may have. The call is free and so is the consultation--no hidden costs here.
Is the HMO evil? During the 1990’s the HMO network design was leveraged by many carriers. This network structure reimbursed providers a flat fee each month (based on the number of members in the network) regardless of the number of patient visits the provider experienced that month. The intent of the HMO network design was to improve the overall health of the patient, reduce the number of medical visits required by a population of people, and thus reduce the overall cost of providing healthcare services for a community. In theory, if the provider could successfully improve the health of the patient then providers could generate profit margins, carriers could control costs, and the savings could be passed to members in the form of more affordable premiums. The HMO model was successful in developing the concept of preventative medicine, and to a lesser extent, in curbing medical inflation. However, it was extemely unsuccessful in popularity. In fact the HMO is best known for the concept of the medical gatekeeper (i.e. your primary doctor who refers you to a specialist). It is also known for denying services because of medical necessity, stiff penalties for selecting out-of-network services, and for requiring authorization prior to a medical service. In my opinion, the word "HMO" ranks right up there with the terms "communism", "pollution", and "taxes". As such, HMO’s are generally being phased out across the U.S. in favor of more friendly Health Savings Accounts (H.S.A.) and other PPO network designs.
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