Dollars & Sense

Health insurance - Can you afford to live without it?

By Jeff Jensen, Editor and Lisa Brooks, Associate Editor
Posted Jul 14th 2003 6:33AM

Jerry and Ruth Fulton's story is not atypical of the self-employed in the United States. Jerry is the sole breadwinner for his family of four. He's an expediting straight truck owner/operator and, as is often the case for small business people, he and his family have no health insurance.

Several years ago, the couple accumulated substantial medical bills when Ruth experienced a miscarriage, the treatment of a thyroid condition, and the birth of a second child and a host of "routine" medical problems.

Over a two-year period, these expenses totaled $11,000. As Ruth says, "These bills really hurt us; it wiped out the small savings we had and if a relative had not helped us with a loan, it would have been very difficult to get ourselves out of this."

The couple has been able to repay the loan, and with a program of economic self-discipline and expense cutting, Jerry and Ruth have been able to pay off the medical debt. They say that this has shown them the value of medical and health insurance. Ruth has since found employment that, "pays next to nothing, but it does offer health benefits and that's very important to us now."

The state of health insurance coverage

According to the U.S. Census Bureau, some 44.3 million Americans, one in six, had no health insurance coverage in 1998, about the same proportion as a year earlier. The survey found that the number of people without coverage grew by nearly a million, but overall population growth kept the rate about steady.

The United States loses at least $65 billion to $130 billion every year because of the poorer health and earlier death experienced by the 41 million Americans without health insurance.

Many Americans believe that essential health care should be -- and in fact, is -- provided to those who need it, regardless of a person's financial resources or health insurance status. But the reality is that uninsured people are significantly less likely than those with insurance to receive health care deemed necessary by physicians, including preventive services and care for chronic conditions.

As a result, uninsured Americans are more likely to have poorer health and die prematurely than those with insurance. Being uninsured for even one year appears to diminish a person's general health.

Uninsured families also suffer financially. Their average annual out-of-pocket medical expenses are less (in dollars and relative to income) than those of insured families, in part because they forego routine care.

But for the same reason, uninsured families are at greater risk of needing very expensive care relative to their income; one out of every 4 uninsured low-income families faces medical bills that total more than 5 percent of their income.

On average, uninsured families pay up to 40 percent of their health care costs out-of-pocket. More than half of working age adults who report serious problems paying medical bills are or recently were uninsured; most of them borrow money from family or friends, or mortgage their homes to pay expenses. Some eventually declare bankruptcy.

But you need some kind of health coverage. Without it, even a relatively minor operation could ruin you financially.

Logic would suggest that the percentage of uninsured owner/operators and drivers in the expediting business is greater than that of the general public because of the self-employment status of the majority involved in expediting.

Some owner/operators are fortunate to enjoy coverage under a spouse's employee insurance plan, but for many in expediting, the high price of health and medical insurance puts coverage out of their reach.

Even for those who have enjoyed health insurance coverage, expenses have increased dramatically for the self-employed. Premiums have had double-digit increases in recent years with a rise of 13 percent in one year alone.

Although it can be expensive, there are ways for owner-operators to get at least a minimal level of health insurance or, for those who have coverage, to reduce their costs. The basic options include:

Major medical
Major medical insurance provides more comprehensive medical coverage than catastrophic insurance does. Not surprisingly, the premiums are also higher.

Typically, a major medical policy offers a range of deductibles per calendar year. Most major-medical plans specify the health providers you can see and you will pay higher percentages if nonpreferred providers are used.

Catastrophic insurance
Catastrophic health insurance is characterized by high deductibles and low monthly premiums. These plans typically cover only major hospital and medical expenses above a certain deductible, while you pay out-of-pocket for everything else, such as routine doctor visits and prescription drugs.

The majority of catastrophic health plans cover expenses for hospital stays, surgery, intensive care, diagnostic X-ray, and lab tests.

People who buy catastrophic health insurance tend to fall into two groups: young adults in their 20's and adults between the ages of 50 to 65. Young adults who buy this coverage are usually self-employed or do not have coverage through their employers.

Older adults who purchase catastrophic health are primarily concerned with financial losses associated with heart attacks, cancer, and other serious illnesses. They are generally healthy, have few or no prescription medications, and would rather pay out of pocket for office visits to save on their premiums.

High-deductible health insurance can be purchased as an individual plan as well as through an employer in a group plan. According to Frank McArdle, a spokesperson for Hewitt Associates, companies with 1,000 or more employees typically offer higher deductible plans. He also says that retirees who aren't yet eligible for Medicare choose these plans in order to keep premiums down.

If you have certain pre-existing conditions you often won't be eligible for a catastrophic health plan. Health conditions such as AIDS, diabetes, emphysema, heart disease, multiple sclerosis, and schizophrenia, along with others, can prevent you from buying a catastrophic plan.

Before you buy a catastrophic health plan, consider:

How much is the premium per month, quarter, and year? How much is the deductible? How much of a deductible can you afford? How extensive do you want your coverage to be? Do you need prescription medications? Can you afford to pay for your own doctor's office visits? Do you have any pre-existing conditions? Do you get sick often? What is the lifetime annual benefit?

The deductible question - how much?
Your cash flow should be a consideration in determining how much of a deductible you want. Someone who has a lot in cash reserves may be able to afford a larger deductible, and increasing a deductible from $100 to $2,000 can cut health insurance premium payments in half over the course of a year.

In some cases, you can save a bundle of money by opting for a health plan that does not cover your doctor visits, hospital services, medical tests, and other medical costs - something known as catastrophic coverage.

"It's a very subjective assessment and varies from individual to individual," says Richard Coorsh, a spokesperson for the Health Insurance Association of America, an industry trade group in Washington, D.C. "Some people are happy with only catastrophic health coverage in case they get hit by a bus. Others want more comprehensive coverage if they use health care services."

Generally, the plans offered by insurance providers fall into three categories:

Health Maintenance Organizations (HMO's)
Health Maintenance Organizations represent "pre-paid" or "capitated" insurance plan in which individuals or their employers pay a fixed monthly fee for services, instead of a separate charge for each visit or service.

The monthly fees remain the same, regardless of types or levels of services provided, Services are provided by physicians who are employed by, or under contract with, the HMO. HMOs vary in design. Depending on the type of the HMO, services may be provided in a central facility, or in a physician's own office (as with IPAs.)

Indemnity Health Plans
Indemnity health insurance plans are also called "fee-for-service." These are the types of plans that primarily existed before the rise of HMOs, IPAs, and PPOs. With indemnity plans, the individual pays a pre-determined percentage of the cost of health care services, and the insurance company (or self-insured employer) pays the other percentage.

For example, an individual might pay 20 percent for services and the insurance company pays 80 percent. The fees for services are defined by the providers and vary from physician to physician. Indemnity health plans offer individuals the freedom to choose their health care professionals.

Preferred Provider Organizations (PPOs)
You or your employer receive discounted rates if you use doctors from a pre-selected group. If you use a physician outside the PPO plan, you must pay more for the medical care.

None of the health insurance options on the market offers a perfect solution. Most involve a tradeoff-either taking on more risk, or accepting limits on choice. The trick is to find the policy most closely tailored to your needs and, of course, your pocketbook.

Health and medical insurance sources for the self-employed:

Individual health insurance
If you need to purchase individual health insurance, it can be expensive. Unlike group plans, in which the costs and risks associated with health care are spread among many people; individual health policies are "medically underwritten" to take into account your personal health history.

Any "pre-existing" condition such as heart disease, diabetes, and even pregnancy, can nix your chances of acceptance or boost your premiums. Some states require individual health insurers to offer everyone a plan, a mandate known as "guaranteed issue."

In addition, there is no guarantee that an insurer will take you on. That's because unlike group plans, if you have health problems, individual plans are medically underwritten and the insurer may reject your application or attach exclusions to your policy.

However, some states don't allow this practice and require that any insurer selling individual health plans must offer you a policy, no matter what medical problems you have.

Pricing is probably the most bewildering aspect of individual health policies, so it's worth your while to shop around. For instance, the premiums for similar products from different insurers can vary by as much as 50 percent for the same person.

What's more, the rules and regulations about individual health insurance vary from state to state, making comparison-shopping a bear for the uncertain consumer.

Group insurance
Depending on the state in which you live, your options might be more varied - and even more confusing. In Florida, for instance, a self-employed, sole proprietor can be eligible to buy health insurance as a business - even a home-based one - if he can prove that he's been in business for at least 30 days.

If you live in a state that does not offer these "group of one" insurance policies, you might still qualify for a group rate if you own a business and have at least one other partner or employee. Does your wife do some bookkeeping for your company? That's a two-person business, eligible for a group rate and a group policy.

There's strength in numbers, particularly when you're buying health insurance. As part of a group plan, you can enjoy a significant discount on premiums as well as comprehensive policies.

You may be able to find a group plan through your fraternal organization, alumni association, trade association, or your chamber of commerce. All of these are potential sources of group health insurance.

Finding a cost-effective individual health policy can be tricky but it's not rocket science. Talk to other people around you who are in the same circumstances. Do your homework and you'll find the health insurance policy that's right for you.

Trucking specific groups
Organizations such as the Owner-Operator Independent Drivers Association (OOIDA) can offer discounted rates, although premiums are higher than a company employee would pay through his group plan.

"Truckers are considered a high risk to the insurance industry," says Brenda Reynolds, a 17-year veteran as OOIDA's medical benefits supervisor. "It can be very difficult for the owner/operator in trucking to obtain health benefits, so many are forced to simply do without."

"They have the substantial cost of the monthly truck payment along with other truck expenses and often they are required to supply workers compensation or occupational accident insurance - all their expenses they have just to make a living."

She says that many owner/operators put off securing health and medical benefits because they feel it is just to expensive with all the other mandatory costs they have to maintain their business.

"Because we're a trucking organization, we understand what the independent business people in this business require. There are a lot of different plans out there for people to choose from, we try to offer a plan that will fit the needs of the majority of the membership at reasonable rates".

OOIDA currently has about 2,000 of its 97,000 members enrolled in its medical benefit plans.

OOIDA offers two different plans to its membership: A comprehensive medical that provides a $2 million lifetime maximum benefit per covered participant. The plan offers the choice of five different deductible options, $300, $500, $750, $1,000 and $2.500.

This plan includes benefits for inpatient & outpatient services, prescription drugs, DOT physicals, $10,000 life insurance (doubles to $20,000 for accidental death), $10,000 for dismemberment and more.

The other plan is a Catastrophic Plan that is a hospitalization plan with a $1 million life time maximum benefit per covered participant. The plan includes benefits for inpatient room & board, intensive care, surgeon fees, and services and supplies while hospital confined. The plan has a $5,000 calendar year deductible.

OOIDA Homepage

Purchase coverage directly from the insurer
A few insurers specialize in writing policies for truckers because they also provide truck liability insurance. Several companies offer free quotes on their websites.

Agents
Your first step in getting health coverage is to contact an insurance agent in your area, or an insurance company. An agent should be familiar with the insurance companies that do business in your state, especially those able to provide the coverage you need.

You might do business with either a "captive" agent who works for one insurance company, or an independent agent or broker who sells policies for a variety of companies. A list of agents can be found in your phone book or by contacting your state department of insurance.

You should discuss with your agent your own particular health insurance needs. Think carefully about what coverage you must have. Do you need health insurance for your whole family, or just yourself? Do you want to choose your providers? If you're over 65, do you need insurance to fill the gaps in Medicare? Do you need - and can you afford - long-term disability and/or long term care coverage?

When you've found the right coverage, you need to fill out an application or give information to your agent to complete the necessary forms. Be honest. It's important to disclose your medical history thoroughly and accurately. Report all of your health problems to your agent. If any of your health information is misstated or incomplete, the company might refuse to pay your claims and could cancel your policy.

Medical savings accounts - Another way to pay for health care

Many self-employed, who often scramble for every dime as it is, say they can't spend their hard-earned cash on health insurance. So they take a gamble that they won't get sick and don't buy any health insurance at all.

But if you're self-employed or work in a small company, you do have another option: an Archer Medical Savings Account (MSA). The Archer MSA is named for United States Representative Bill Archer (R-Texas), the lawmaker who wrote the current legislation.

Although an Archer MSA won't eliminate your need to buy a health insurance policy, advocates say it does make insurance more affordable while also offering tax incentives.

How an MSA works
An MSA is a tax-deferred trust or custodial account, similar to an IRA, in which you set aside money to pay for your routine, out-of-pocket health care expenses and to build up savings for your future medical costs.

MSAs can be purchased only by self-employed people or their spouses and by workers at businesses with 50 or fewer employees, since small companies are often priced out of the health insurance market.

You or your employer contribute money to an MSA throughout the year or by making a lump-sum payment at the beginning of the year. Your contributions are 100 percent tax deductible. Any insurance company, bank, or similar financial institution is allowed to be a qualified MSA trustee or custodian. Your health insurance agent can also help you set up an MSA or find a qualified company.

You pay your medical expenses by withdrawing money from your account via a "distribution" paid to you by the trustee. You may also get a checkbook or a debit card specifically for your MSA. If you have money left in your MSA at the end of the year, it is carried over to the following year, earning interest in the meantime.

An MSA must be paired with a major medical health insurance policy (sometimes called a "catastrophic plan") that has a high deductible. By definition, a high-deductible health insurance policy has lower monthly premiums.

Thus, the "forced" savings, in combination with low premiums, is what, in theory, makes health insurance more affordable: You'll take the money you save on premiums and put some of it in your MSA. High-deductible health insurance policies are generally traditional, indemnity-style plans, not HMOs.

The government has set rules defining high-deductible health insurance. For an individual health policy, the deductible must range from $1,650 to $2,500 annually.

For a family policy, it must range from $3,300 to $4,950 a year. The money you contribute to your MSA can be used toward meeting your deductible, but, in general, it can't be used to pay your health plan's premiums.

Once you've met your annual deductible, your health insurance policy kicks in. How much of your medical expenses it pays depends on the type of policy you have. In some cases, your health policy will pay 100 percent of your medical expenses after your deductible. In other cases, you'll have to pay 20 percent of the costs, known as coinsurance, which you can also pay from funds in your MSA.

Employers also benefit by offering MSAs. Small employers that often change health plans every year not only create administrative headaches for themselves but also disrupt their employees' health care. But with MSAs, employers can buy less expensive health insurance policies and thus are less inclined to change plans every year.

Another type of coverage
Some insurance experts say that disability insurance is at least as important as life insurance.

Disability insurance makes payments to you if a physical or mental illness, disease, or bodily injury prevents you from working. People of working age are more likely to become disabled than they are to die - making disability insurance at least as important as life insurance.

In general, the disability insurance needs of a business owner will be no different than those of a regular employee. However, the business owner should consider a policy with a short waiting period before benefits kick in.

Waiting periods are usually anywhere from 30 days to 180 days after the onset of the disability or illness, but those can be negotiated. If your business is your main source of income, you can't afford to become disabled. Bear in mind, though, that shorter waiting periods will mean higher premiums.

A consumer's glossary of health insurance terms

Admitting Privileges: The right granted to a doctor to admit patients to a particular hospital.

Advocacy: Any activity done to help a person or group to get something the person or group needs or wants.

Association: A group. Often, associations can offer individual health insurance plans specially designed for their members.

Benefit: Amount payable by the insurance company to a claimant, assignee, or beneficiary when the insured suffers a loss.

Capitation: Capitation represents a set dollar limit that you or your employer pay to a health maintenance organization (HMO), regardless of how much you use (or don't use) the services offered by the health maintenance providers. (Providers is a term used for health professionals who provide care.

Usually providers refer to doctors or hospitals. Sometimes the term also refers to nurse practitioners, chiropractors and other health professionals who offer specialized services.)

Case Management: Case management is a system embraced by employers and insurance companies to ensure that individuals receive appropriate, reasonable health care services.

Claim: A request by an individual (or his or her provider) to an individual's insurance company for the insurance company to pay for services obtained from a health care professional.

Co-Insurance: Co-insurance refers to money that an individual is required to pay for services, after a deductible has been paid. In some health care plans, co-insurance is called "co-payment." Co-insurance is often specified by a percentage. For example, the employee pays 20 percent toward the changes for a service and the employer or insurance company pays 80 percent.

Co-Payment: Co-payment is a predetermined (flat) fee that an individual pays for health care services, in addition to what the insurance covers. For example, some HMOs require a $10 "co-payment" for each office visit, regardless of the type or level of services provided during the visit. Co-payments are not usually specified by percentages.

Deductible: The amount an individual must pay for health care expenses before insurance (or a self-insured company) covers the costs. Often, insurance plans are based on yearly deductible amounts.

Denial Of Claim: Refusal by an insurance company to honor a request by an individual (or his or her provider) to pay for health care services obtained from a health care professional.

Dependent Worker: A worker in a family in which someone else has greater personal income.

Employee Assistance Programs (EAPs): Mental health counseling services that are sometimes offered by insurance companies or employers. Typically, individuals or employers do not have to directly pay for services provided through an employee assistance program.

Exclusions: Medical services that are not covered by an individual's insurance policy.

Health Care Decision Counseling: Services, sometimes provided by insurance companies or employers, that help individuals weigh the benefits, risks and costs of medical tests and treatments. Unlike case management, health care decision counseling is non-judgmental.

The goal of health care decision counseling is to help individuals make more informed choices about their health and medical care needs, and to help them make decisions that are right for the individual's unique set of circumstances.

Health Maintenance Organizations (HMO's): Health Maintenance Organizations represent "pre-paid" or "capitated" insurance plan in which individuals or their employers pay a fixed monthly fee for services, instead of a separate charge for each visit or service.

Indemnity Health Plan: Indemnity health insurance plans are also called "fee-for-service." These are the types of plans that primarily existed before the rise of HMOs, IPAs, and PPOs. With indemnity plans, the individual pays a pre-determined percentage of the cost of health care services, and the insurance company (or self-insured employer) pays the other percentage.

Independent Practice Associations: IPAs are similar to HMOs, except that individuals receive care in a physician's own office, rather than in an HMO facility.

Long-Term Care Policy: Insurance policies that cover specified services for a specified period of time. Long-term care policies (and their prices) vary significantly. Covered services often include nursing care, home health care services, and custodial care.

LOS: LOS refers to the length of stay. It is a term used by insurance companies, case managers and/or employers to describe the amount of time an individual stays in a hospital or in-patient facility.

Managed Care: A medical delivery system that attempts to manage the quality and cost of medical services that individuals receive. Most managed care systems offer HMOs and PPOs that individuals are encouraged to use for their health care services. Some managed care plans attempt to improve health quality, by emphasizing prevention of disease.

Maximum Dollar Limit: The maximum amount of money that an insurance company (or self-insured company) will pay for claims within a specific time period. Maximum dollar limits vary greatly. They may be based on or specified in terms of types of illnesses or types of services. Sometimes they are specified in terms of lifetime, sometimes for a year.

Medigap Insurance Policies: Medigap insurance is offered by private insurance companies, not the government. It is not the same as Medicare or Medicaid. These policies are designed to pay for some of the costs that Medicare does not cover.

Open-ended HMOs: HMOs that allow enrolled individuals to use out-of-plan providers and still receive partial or full coverage and payment for the professional's services under a traditional indemnity plan.

Out-Of-Plan: This phrase usually refers to physicians, hospitals or other health care providers who are considered nonparticipants in an insurance plan (usually an HMO or PPO). Depending on an individual's health insurance plan, expenses incurred by services provided by out-of-plan health professionals may not be covered, or covered only in part by an individual's insurance company.

Out-Of-Pocket Maximum: A predetermined limited amount of money that an individual must pay out of their own savings, before an insurance company or (self-insured employer) will pay 100 percent for an individual's health care expenses.

Outpatient: An individual (patient) who receives health care services (such as surgery) on an outpatient basis, meaning they do not stay overnight in a hospital or inpatient facility.
Many insurance companies have identified a list of tests and procedures (including surgery) that will not be covered (paid for) unless they are performed on an outpatient basis. The term outpatient is also used synonymously with ambulatory to describe health care facilities where procedures are performed.

Pre-Admission Certification: Also called pre-certification review, or pre-admission review. Approval by a case manager or insurance company representative (usually a nurse) for a person to be admitted to a hospital or in-patient facility, granted prior to the admittance. Pre-admission certification often must be obtained by the individual.

Sometimes, however, physicians will contact the appropriate individual. The goal of pre-admission certification is to ensure that individuals are not exposed to inappropriate health care services (services that are medically unnecessary).

Pre-Admission Review: A review of an individual's health care status or condition, prior to an individual being admitted to an inpatient health care facility, such as a hospital. Pre-admission reviews are often conducted by case managers or insurance company representatives (usually nurses) in cooperation with the individual, his or her physician or health care provider, and hospitals.

Preadmission Testing: Medical tests that are completed for an individual prior to being admitted to a hospital or inpatient health care facility.

Pre-existing Conditions: A medical condition that is excluded from coverage by an insurance company, because the condition was believed to exist prior to the individual obtaining a policy from the particular insurance company.

Preferred Provider Organizations (PPOs): You or your employer receive discounted rates if you use doctors from a pre-selected group. If you use a physician outside the PPO plan, you must pay more for the medical care.

Primary Care Provider (PCP): A health care professional (usually a physician) who is responsible for monitoring an individual's overall health care needs. Typically, a PCP serves as a "quarterback" for an individual's medical care, referring the individual to more specialized physicians for specialist care.

Provider: Provider is a term used for health professionals who provide health care services. Sometimes, the term refers only to physicians. Often, however, the term also refers to other health care professionals such as hospitals, nurse practitioners, chiropractors, physical therapists, and others offering specialized health care services.

Reasonable and Customary Fees: The average fee charged by a particular type of health care practitioner within a geographic area. The term is often used by medical plans as the amount of money they will approve for a specific test or procedure.

If the fees are higher than the approved amount, the individual receiving the service is responsible for paying the difference. Sometimes, however, if an individual questions his or her physician about the fee, the provider will reduce the charge to the amount that the insurance company has defined as reasonable and customary.

Risk: The chance of loss, the degree of probability of loss or the amount of possible loss to the insuring company. For an individual, risk represents such probabilities as the likelihood of surgical complications, medications' side effects, exposure to infection, or the chance of suffering a medical problem because of a lifestyle or other choice. For example, an individual increases his or her risk of getting cancer if he or she chooses to smoke cigarettes.

Second Opinion: It is a medical opinion provided by a second physician or medical expert, when one physician provides a diagnosis or recommends surgery to an individual. Individuals are encouraged to obtain second opinions whenever a physician recommends surgery or presents an individual with a serious medical diagnosis.

Second Surgical Opinion: These are now standard benefits in many health insurance plans. It is an opinion provided by a second physician, when one physician recommends surgery to an individual.

Short-Term Disability: An injury or illness that keeps a person from working for a short time. The definition of short-term disability (and the time period over which coverage extends) differs among insurance companies and employers. Short-term disability insurance coverage is designed to protect an individual's full or partial wages during a time of injury or illness (that is not work-related) that would prohibit the individual from working.

Triple-Option: Insurance plans that offer three options from which an individual may choose. Usually, the three options are: traditional indemnity, an HMO, and a PPO.

Usual, Customary and Reasonable (UCR) or Covered Expenses: An amount customarily charged for or covered for similar services and supplies which are medically necessary, recommended by a doctor, or required for treatment.

Waiting Period: A period of time when you are not covered by insurance for a particular problem.