Understanding the financial exposure of owning a health insurance policy

Al Ertel, Chief Operating Officer, Alliant Health Plans

Every employer is struggling with health insurance costs. How much can we afford and how much will employees share? For many people, health insurance equals peace of mind. But you have to look at the total cost of care — insurance plus cost sharing (deductible, co-pays, co-insurance).

“A lot of people are under the impression that if the doctor says you need it, the health plan should pay for it,” says Al Ertel, chief operating officer for Alliant Health Plans. “Many figure, under a worst-case scenario, they might be out a few hundred to a few thousand dollars and, overall, they think they have complete protection. Most people don’t understand their responsibility or, in numerous cases, their financial exposure.”

Smart Business spoke with Ertel about why it’s important to be aware of your financial exposure when purchasing health insurance, and how employers can pick a plan that works for their employees and their bottom line.

Why have financial exposures gotten so large?

As premiums increase, employers must look for ways to offset the cost. They can raise the employee contribution or change benefits by raising the deductible or co-pay amounts. Each time an increase occurs, it shifts the financial obligation onto the back of the employee or plan member. That seems to be the fairest way for employers to continue to offer benefits and engage the members in an ever-changing health care environment. By changing benefits there may be no increased cost on the premium itself.

How does this cost shifting impact employees?

For example, the employer increases the physician office co-pay from $25 to $40. If you are healthy and see a doctor once or twice a year, that increase may be no big deal. If you are chronically ill and need to see a doctor frequently, that change may have added $500 or more to the cost of care in the new year.

What are the dangers of not understanding your exposure?

Many decisions are made by looking at co-pays and whether your physician is ‘in-network.’ People think, ‘I’m not going to be in the hospital for a week, or have any outpatient surgeries. I’m going to pay $25 to see my doctor, $10 for my prescription (and my monthly premium).’ But that isn’t the total picture. In many plans, co-pays apply for prescriptions and physician office visits. Then there are the tests, labs, x-rays or other outpatient testing, CT scans or MRIs. What about an outpatient procedure or surgery or an extended hospital stay? The deductible and co-insurance applies, but to what and how much? Statistically, most people do not have enough claims to reach their deductible. Those that do may end up meeting their deductible and the co-insurance out-of-pocket maximum ($5,000 to $10,000.)

How can these exposures occur?

Let’s say eligible expenses from the hospital are $20,000. You immediately owe the deductible. For this example, consider a $2,000 deductible. There is 20 percent co-insurance on the next $18,000. Or $3,600 is still owed by you. You’ve paid $5,600, and it’s assumed that once out of the hospital you’re healthy and can go back to work. This is not likely as there are usually residual costs associated with rehabilitation that may require co-payments. Those costs are determined by the plan. The actual items covered are explained in the information provided by the insurance carrier or the benefit booklet from the employer in the case where the health coverage is being self-insured. The point is the information is usually available before benefits are required. Employers must continue to communicate and educate employees about the health coverage being offered.

How can employers determine what level of exposure is best for their health plan?

The higher the cost sharing or risk being moved to employees, the lower the premium you will have to pay out. What is ‘fair’? The hard part is how to strike a balance when deciding. Employers are making financial decisions for the company. Yet the new benefits will apply to them and their family. The total financial exposure has to be considered. If the benefits remain ‘rich,’ premiums increase as benefits are enhanced or added. Many employers are looking to offer a more complete program that includes employee responsibility for wellness or at least health improvement. If you practice healthy behavior, out-of-pockets or premium sharing may be reduced.

How can employers ensure they are making the right choice?

Employers struggle with this. What is the most cost-effective and best value for the company and in the best interest of my employees? In simplistic terms it is an economic decision for the company. But we want to take care of our employees and recruit for the best and brightest. One of the answers is choice. Offer a couple of benefit plans.

Employers are freezing contributions. By defining their contribution now and in the future employers are limiting their exposure. That means greater responsibility to educate and communicate available options to the employ. What does the health coverage include — deductible amount, out-of pocket maximums, co-pays, drug cards, physicians, hospitals and exclusions? Any required activities that may lower employee costs — smoking cessation or exercise? Any additional value-added programs? Employees tend to look at health coverage differently than an employer and especially if there are specific health care needs.

The right choice is the one determined by you. Each employer’s specific needs and circumstances are different. And with the unknowns created by health care reform, it’s bound to get just plain crazy.

Al Ertel is the chief operating officer with Alliant Health Plans. Reach him at (800) 664-8480, ext. 234, or [email protected]