The Solution to the High Cost of Individual Health Insurance

  • Affordable Health Insurance

If you are someone who must pay for his/her own health insurance than you are aware of just how expensive it is. Over the last twenty year the cost of individual health insurance has increased virtually every single year. But it is not just the monthly premiums that have risen. In addition to the increasing monthly premiums which have made health insurance almost unaffordable most people have also seen their deductibles and coinsurance costs dramatically increase as well. For individuals buying their own health insurance, the average individual deductible is $4358 with another potential $3800 out of pocket in coinsurance costs.

For an individual living in North Carolina the average premium for an individual health insurance policy is $490 or $5880 annually. And if this individual were to have a major medical event such as an appendectomy this same individual would spend another $8150 in total out of pocket expenses – and that assumes that all the providers were in their healthcare network!

In a nutshell the problem is simple – the average Working American cannot afford to spend $5880 a year for health insurance and another $8150 if he/she has a major medical event for a grand total of $14,030.   

Before we go any further, we need to step back and define what we mean by “health insurance.” When most people talk about health insurance they are really talking about “major medical” health insurance. This is the kind of insurance that will pay doctor, other medical professionals and hospitals directly when you have a medical event.  These plans always have an annual deductible, coinsurance and a maximum out of pocket liability.  Some plans also include a copay for certain event such as a doctor’s appointment or prescription drug.

  • Deductible: This is the amount that you are required to pay before your policy will pay any benefits. If your policy had a $5000 deductible and you had a medical event with total costs of $10,000, you would be responsible for the first $5000.
  • Coinsurance: After you pay the policy deductible costs are shared between you and the insurance company. In the previous example the insured paid the first $5000 leaving the insurance and the insured to share the remaining $5000. In an 80/20 plan the insurance company would pay 80% of the $5000 which is $4000. The insured would have to pay the remaining $1000 in addition to the deductible of $5000.
  • Maximum Out of Pocket Liability: This is the maximum amount of medical bills that the insured will have to pay regardless of the total amount of medical bills. If the individual had a maximum out of pocket of $8150, then even if the medical bills totaled $50,000 this individual’s costs would be capped at $8,150.
  • Copays: Many major medical policies include a provision that allows the insured to access certain medical services without having to first meet the deductible. The two best known examples are the doctor visit copay and the prescription drug copay. Many people have a plan that allows then to visit their primary care physician by paying a $25 copayment instead of having to meet their deductible.

The Way Health Insurance Used to Be

A long, long time ago in a United States that is barely recognizable health insurance was simple. You purchased a policy that had a deductible and coinsurance with a maximum out of pocket and went to any doctor or hospital. There were no copays for doctor visits and no copays for prescription drugs. Those things were paid for by the individual. And if you wanted an annual physical you paid for it.

The biggest difference was that there was no “healthcare network.” The insurance company did not dictate what doctors or hospitals you could utilize. When you had a medical event the insurance company reimbursed based on “reasonable and customary” so as an insured it was in your best interest to try to ascertain what a procedure would cost and then contact the insurance company and ask if it was reasonable and customary.

While everyone complained about the increasing premiums, most people were extremely happy with their coverage. Not so in today’s world. Everyone that I talk with who is responsible for paying for their own health insurance is unhappy today.

A Better Way – The Alternative to Major Medical                                                     

Education concept: Think Different on Paper background

First, we must define the purpose of health insurance. Health Insurance (major medical) is simply one way to finance the purchase of medical care. Because medical care can be so expensive, we need a way to limit our own financial exposure. My colon surgery in 2014 incurred medical bills in excess of $45000 which would bankrupt most people if they had to pay those bills themselves. At the end of the day the goal of health insurance (major medical) is no different from any other insurance; to protect us from financial ruin.

So, the question is this: if health insurance is supposed to protect us from financial ruin as a result of a medical event are there other, better ways to pay for medical care? The answer is a resounding “yes!”.

One alternative to major medical insurance is to simply self-fund for a medical event.  Consider the case average North Carolinian paying $490 monthly or $5880 annually. That means that over five years this individual will have spent $29,400 in premiums. If at the end of the fifth year this individual had a major medical event and met their maximum out of pocket costs of $8150 the total amount spent would have been $37,550. We also know that according to a TransUnion Healthcare study 88% of Americans incur medical bills that are less than $1000. Only 12% of medical claims ever exceed $1000. Unfortunately, no one knows whether tomorrow might be the day that we become part of the 5% of American who account of more than 50% of medical bills. Not only do not know whether we will incur large medical bills tomorrow, we also do not know whether we will become one of the many Americans with a chronic, ongoing medical condition. That is why some type of protection is necessary.

Fixed Benefit Health Insurance

As the name of this type of implies, the policy specifies how much will be paid each specific medical event. Example of this might be:

  • Primary Care Visit: $160
  • Hospital Stay per Day: $4500
  • Surgery: Three times the Medicare reimbursement
  • MRI, CT Scan: $700

A very robust medical cost sharing policy will likely be enough for most of the medical events that a person might encounter. In fact a really good Fixed Benefit Health Insurance policy should be able to cover 70% to 80% of the medical events that you are likely to experience. None-the-less it is the other 20% to 30% of events that can result in huge medical bills that an individual cannot afford. Because of these gaps any Fixed Benefit Health Insurance policy should be combined with an umbrella that shields the individual against potentially large medical bills. In today’s marketplace there are only two options that I recommend: a multi-year short term major medical health insurance policy or a solid Medical Cost Sharing benefit plan.

Medical Cost Sharing

My favorite solution for individuals who do not qualify for a subsidy on the ACA exchange and who do not have a major preexisting condition is a combination of a robust Fixed Benefit health insurance policy and a secular Medical Cost Sharing plan. This provides a permanent and very affordable solution for most people.

Medical Cost Sharing is a great alternative to major medical health insurance all by itself. Medical cost sharing has its roots in the faith-based health sharing arrangements. These programs have been around for a very long time but really launched in a major way in 1981 with Christian Healthcare Ministries. After the passage and implementation of the Affordable Care Act these plans received a lot of attention since they met the requirements of health insurance mandate even though these plans are not actually insurance. The faith-based plans required that you adhere to their belief system in order to participate. Since there are thousands of Americans who may not be able to affirm a specific belief system secular versions of cost sharing arose. Participation in these plans have a cost that is about half or less than a traditional major medical.

Medical cost sharing is a group of people with a common bond who commit to a regular monthly contribution to a personal account which accessed by the community and shared when a member incurs a medical bill. The shared amount is then used to pay any medical bills in excess of specified dollar amount. As an example, a member might be responsible for the first $1500 in medical expenses for a given medical event. This is an important distinction. If this person was in an accident and incurred medical expenses of $3000 the community would share $1500 of expenses resulting in the member receiving a check for $1500. If a month later the same individual needed an appendectomy, he/she would be responsible for the first $1500 once again. It is this per event treatment is one of the costs are so much lower than a traditional major medical policy.

One of the drawbacks of Medical Cost Sharing is that it is not insurance and therefore does not offer the same guarantees of major medical health insurance. It is possible that some medical bills may go unpaid if the community lacks the funds to meet the obligation. That said, the longest running of these plans has never failed to meet a member’s medical bill obligation. That said, when combined with a very robust Fixed Benefit Health Insurance Policy that becomes significantly less of concern.

An Example of Cost for a 40-year-old male non-smoker – This is only a partial listing of possible charges and cover expenses.

 

Major Medical – $395 monthly with an $8150 deductible and a Limited Statewide Network

  • Primary care – Subject to the deductible
  • MRI/CT Scans – Subject to the deductible
  • Surgery – Subject to the deductible
  • Hospitalization – Subject to the Deductible

The Fixed Benefit Alternative – $286 monthly (a savings of $107 monthly) with No Network. Member can use any provider

Fully Insured Benefits

  • Primary Care – The individual is reimbursed $120 per appointment
  • MRI/CT Scans – Reimbursed $500
  • Surgery – Paid at 2 times the RVRBS (medicare)
  • Hospitalization – Immediate benefit of $3000 plus additional benefits beginning day 4
  • Medical Cost Sharing with an Initial Unshareable Amount of $5000. All medical bills in excess of $5000 per event are shareable and reimbursable from the community.

 

In the alternative the member gets first dollar benefits and saves over $1200 annually. In addition, this is a permanent solution and can follow the individual anywhere in the country.

The Medical Cost Sharing Alternative – $250 monthly (a savings of $145 monthly over Major Medical Health Insurance) with No Network. Member can use any provider

Fully Insured Benefits

  • Primary Care – The individual Has unlimted access to a Virtual Primary Care Physician
  • MRI/CT Scans – Healthcare Concierge will negotiate the lowest possible cost
  • Maximum Out of Pocket – $1000 per illness or accident with a maximum of three event then the plan pays 100% of all bills
  • No Network – Freedom to use any doctor or hospital, anywhere in the world.

In the Medical Cost Sharing alternative the member saves $174 annually. In addition, this is a permanent solution and can follow the individual anywhere in the country.

If you have any questions feel free to send me an email at mel@myhealthcare360.org or schedule a time to talk by using my calendar at https://mels.youcanbook.me