Wednesday, April 30, 2008

Better Choices, Better Results

[Welcome Insurance Forums readers!]

If given a choice between a lobster meal for $30 and one for $3, most folks would naturally ask, what is wrong with the $3 meal?

Or gasoline for $3.50 a gallon vs. gasoline for $0.35 per gallon.

Or . . .

Well, you get the idea.

When faced with choices, the lower priced product, especially if it is dramatically lower, causes most of us to ask . . . "what's the catch".

Apparently not so with health insurance.

Lisa Kelly has leukemia.

She also has a limited benefit plan purchased through AARP.

Lisa was referred by her doctor to M. D. Anderson hospital in Houston for treatment, but when she arrived "the nonprofit hospital refused to accept Mrs. Kelly's limited insurance. It asked for $105,000 in cash before it would admit her."

Limited insurance.

Low premium, limited insurance.

Should be a tip off.

Unlike many without insurance, or limited benefit plans, Mrs. Kelly has assets. She and her husband have real estate holdings and other investments.

They are not destitute. They could have afforded more comprehensive coverage but they opted for a plan with a very low limit.

Typically, hospitals have billed people after they receive care. But now, pointing to their burgeoning bad-debt and charity-care costs, hospitals are asking patients for money before they get treated.

Hospitals say they have turned to the practice because of a spike in patients who don't pay their bills. Uncompensated care cost the hospital industry $31.2 billion in 2006, up 44% from $21.6 billion in 2000, according to the American Hospital Association.

School pictures typically have signs that say, no cash, no flash. But hospitals (and other care givers) have typically billed in arrears.

Those days are over.

It is one thing to stiff the photographer for $100 worth of senior class pictures. Another to stiff a hospital for $100k or so.

Asking patients to pay after they've received treatment is "like asking someone to pay for the car after they've driven off the lot," says John Tietjen, vice president for patient financial services at M.D. Anderson. "The time that the patient is most receptive is before the care is delivered."

Good analogy.

Hospitals are a business.

The article, and many bloggers, have chosen to blame the insurance carriers, or the health care system, for Lisa Kelly's plight. But the fact is, she made a choice, and that choice was to buy a limited benefit plan because "at the time, she hardly ever went to the doctor. "I just thought I needed some kind of insurance policy because you never know what's going to happen," says Mrs. Kelly."

This kind of rationale, assuming that because you have had good health in the past all you need is a "good health policy", is convoluted.

My house has never burned down, so why do I need a policy that covers replacement? Why not just buy one that covers the gutters, paint and roof?

No one would ever do that but they do buy limited benefit plans every day. They are great until you need them then they are almost worthless.

According to the article, the Kelly's have gone through roughly $45,000 of their own money and are still on the hook for $145,000 at this point.

The Kelly's are self employed. Why didn't they purchase a small group plan rather than going through their own money?

Individual carriers would turn her down in a heartbeat, but most states (and TX is one of them) have small group laws. In most cases, carriers are required to issue coverage (including for pre-ex conditions) when the policy is a group plan.

Texas also has a risk pool that is supported in part by taxes. That is another possible option.

For whatever reason, the Kelly's are using their own funds because of poor choices in the past.

Making better choices before she got sick would have left them in better financial shape.

Making better choices after she got sick would also have left them in better financial shape.
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