Is This the Wrong Start?

Many consumers are making decisions on health care coverage that are potentially deadly. Rising premiums force many employers to cut back or even eliminate group health insurance coverage. COBRA premiums can create “sticker shock” for those who have always enjoyed the shelter of an employer plan. Medical discount plans, illegal in some states, still prevail and consumers choose these plans as an alternative to INSURED health coverage.

All of these factors, and more, force consumers into the market place in search of affordable health care. In an attempt to make coverage more affordable, some carriers are introducing limited benefit plans with premium savings of 40% or more. Sadly, many agents are pushing these plans in an attempt to gain new clients and compete in a market place where low price is a deciding factor.

But how much will these limited benefit plans really cost you?

Those who purchase these plans will not know the TRUE cost of coverage until they have a major claim . . . by then it is too late.

Limited benefit plans DO have a place in the market. Some use streamlined underwriting to allow them to issue policies to people who would ordinarily be declined, rated or restricted by more traditional health insurance plans. THESE kind of limited benefit plans, especially when used in conjunction with a true major medical plan, can keep you from financial ruin. Even if you cannot qualify for traditional medical coverage, some limited benefit plans can help you pay the bills that come due while you are recuperating from a medical crisis.

I am not addressing the almost “guaranteed issue” limited benefit plans, but newer plans that have arrived on the market in the last 6 months or so. The pitch is lower premiums saving you 40% or more. Most people fear a hospital stay for more reasons than just the dread of having something life threatening. They hear stories of hospital stays running $5,000 per day and more.

These newer policies promise to save premiums by providing good inpatient coverage while limiting outpatient benefits. They say you can get off on the right start with their plan by getting the coverage you need but at a lower price. One such plan has a $2500 outpatient limit as their “standard” offering. The “big” print pitch tells you a family of 4 in Atlanta can save around $200 per month over a popular “Blue” plan with a similar deductible.

Saving $200 per month is quite attractive and it makes the sale of these policies easy for the uninformed agent and buyer. Who doesn’t want to save $200 on health insurance?

What most people don’t know is that overall, hospital inpatient claims are approximately half of all claims paid by insurance companies. On a $50,000 claim maybe $25,000 is from inpatient care and the other $25,000 is incurred out of hospital in follow up care.

So how much did you really save in buying a plan with a limited outpatient benefit?

A traditional major medical plan with a $2000 deductible and coinsurance will result in an out of pocket expense of around $4000 on a $50,000 claim.

That same claim when paid under a limited benefit plan results in an out of pocket expense to the insured of more than $26,000!

If you use your $200 per month premium savings and apply it toward a $26,000 loan at 8%, you will have the loan paid off in 25 years and will have paid back over $60,000.

Is it really worth the $200 per month savings? Or did you get off on the wrong start with your health insurance plan?

Bob Vineyard, CLU
(The Prof will return in a few days. In the meanwhile he has kindly allowed me to vent. He WILL regret it . . .)