In retirement, money (and the allocation of it) is often a bigger issue than it was at other times of your life. Coupled with other financial strains that can happen with retirement, medical issues related to aging can throw limited budgets off course. It can, therefore, help to have an idea (a “best guess”) of what your health insurance pays if you need it. The answer depends, in part, on the type of health insurance arrangement that you have.
With few exceptions, you can’t anticipate what the exact medical needs will be, but you should generally be prepared to deal with the cost of the care. That’s where health insurance comes in; it takes much of the financial burden off of you. Much, but not all.
This article will discuss “fee-for-service” major medical insurance policies. Subsequent health insurance articles will discuss other types of plans.
Policies of this type are becoming scarce, but some readers may still have them. They have mostly been replaced by managed care arrangements, such as Health Maintenance Organizations (HMOs) and Preferred Provider Organizations (PPOs). You may remember fee for service plans from the early or middle parts of your career. They might have been called “indemnity plans.”
Among the main characteristics of indemnity policies is that the cost of the medical care is “shared” only by the insured (you) and the insurance company. By use of the word “shared,” we refer to the division of the financial cost of getting health care.
In a fee-for-service plan, the doctor or hospital does not have a “dog in the fight” from the standpoint of controlling health care costs. Instead, the provider delivers the care and sends a bill to the insurance company. Subject to the factors discussed below, the health insurance company pays the bill.
- The policy will provide for a co-payment. A co-payment is an amount of money that you, the insured, usually must pay each time that you see a provider or get a prescription.
- The policy will also provide for a deductible. This is a dollar amount of covered medical services that must be reached before the insurance company’s obligation to pay is triggered. You are responsible for all medical costs until that deductible is met. Remember that you may incur medical expenses that are not covered by the policy at all. If that happens, you will be responsible for them and they do not count against the deductible.
- Once the deductible is met, the health insurance policy pays a portion of the covered expenses; you will be responsible for the rest. A common division is that the insurance company will pay 80% and you will be responsible for the remaining 20%. Other divisions are available and they usually affect the amount of premium paid for the insurance. That is, if you are willing to be responsible for 30%, you will probably pay a lower premium because the insurance company assumes less financial risk.
How Much Does the Insurance Company Really Pay?
Major medical insurance policies often use the terms usual, customary, and reasonable to describe the amount that it will pay. This is sometimes abbreviated as the UCR fee. But again, remember that the underlying claim has to be covered by the policy in the first place.
A health insurance company considers the medical procedure, the geographic area in which it will be done, and sometimes, national statistics as to what that procedure usually costs. From this data, a health insurer determines what it will pay for a type of procedure in a given locale. After that, when an insured or a provider submits a claim, the insurer pays all or part of it depending upon whether the amount is within the scope of the UCR fee.
If you have a fee-for-service major medical plan and find that you will need “big ticket” medical services, it is a good idea to discuss fees with the physician, hospital, and everybody else involved in advance. Barring medical complications, they can usually give you a general estimate of expected cost. Then, get in touch with your health insurance company and discuss what’s going on. Put the provider and the insurer in touch with one another if they are willing. The provider wants to render the best care to you. The insurer doesn’t want surprises with big medical expenses to pay, or to turn down claims (regardless of what you hear). You want the care that you need and also don’t want surprises, so you have a lot in common with both sides.