Health Insurance 101 - A Beginner's Guide

The term health insurance refers to a wide variety of insurance policies. These range from policies that cover the costs of doctors and hospitals to those that meet a specific need, such as paying for long-term care, cancer or critical illnesses. Even disability insurance—which replaces lost income if you can’t work because of illness or accident—is considered health insurance, even though it’s not specifically for medical expenses.

But when people talk about health insurance, they usually mean the kind of insurance offered by employers to employees, the kind that covers medical bills, surgery, and hospital expenses. You may have heard this kind of health insurance referred to as comprehensive or major medical policies, alluding to the broad protection they offer. But the fact is, neither of these terms is particularly helpful to the consumer nor are they accurate.

Group versus Individual Plans

Health insurance is generally available through groups and to individuals. Premiums—the regular fees that you pay for health insurance coverage—are generally lower for individual coverage. When you receive group insurance at work, the majority of the premium usually is paid by your employer.

Group insurance initially is guaranteed-issue. This means that with group insurance, if you enroll when you first become eligible for coverage, you generally will not be asked for evidence that you are insurable. (Enrollment usually occurs when you first take a job, and/or during a specified period each year, which is called open enrollment.)

Individual insurance is a great option if you work for a small company that does not offer health insurance or if you are self-employed. Buying individual insurance allows you to tailor a plan to fit your needs from the insurance company of your choice..

Pre-Existing Conditions

Many people worry about coverage for preexisting conditions. The Health Insurance Portability and Accountability Act (HIPAA) helps assure continued health insurance coverage for employees and their dependents moving from one group plan to another. Starting July 1, 1997, insurers could impose only one 12-month waiting period for any preexisting condition treated or diagnosed in the previous 12 months. Your prior health insurance coverage will be credited toward the preexisting condition exclusion period as long as you have maintained continuous coverage without a break of more than 63 days.

Although, with individual coverage, most insurance companies use underwriting to make sure that they are profitable.  Individual plans can and do deny coverage or exclude pre-existing conditions from coverage.

Three things to consider when buying individual health insurance:

• Health history - You do not buy health insurance with money.  You buy health insurance with your health... you only pay for it with money.  What plans do you qualify for based on your health history.

• Money - Once you figure out which plans you qualify for, your next step is to decide what you can afford to spend .  You are gambling when you buy health insurance.  You are betting that you are going to spend the insurance company's money.  The insurance company is betting that you are not.  The questions are: how much do you want to bet and what do you want to bet on.

• Hot Buttons - What benefits do you want in your health plan? This is where you answer those last two questions.  You are playing the odds when you buy health insurance.  When the odds are high that you are going to spend the insurance company's money, they are going to charge you more in premium.  If the odds are low, they will charge you less.

Most people do not realize that the Insurance Company is, in truth, a gambling house.  Each company has at least one "Bookie".  To make it sound better, they call him an "Actuary".  These people graduate from college with a degree in odds-making.  They figure the odds on each benefit in a policy.  Their job is to make sure that the odds are always in the Insurance Company's favor.

For example, what do you think the odds are that a person will go to the doctor at least once per year?   Better than "even-money", right?  Now answer the same question on the top end.  What do you think the odds are that a person will spend over $100,000 in a year.  Obviously, the odds are much higher on a person spending the first dollar than the 100,000th dollar, right?  So if you were the insurance company, would you gamble with - oh, sorry, change that to "insure" - someone "even-money" on first dollar benefits such as doctor visits?  The answer is obviously "No", you would not.  If you were going to place a $500 bet - oh, sorry, change that to "benefit" - that paid starting with the first dollar each year, you would only take that bet - sorry, (shame on me) benefit-  if you charged that person more than $500 for that benefit, right?  But, with the same token, you would definitely gamble "even-money" with someone on the $100,000th dollar in a year, right?

This is how insurance works - all insurance, not just health insurance.  The Actuary's job is to make sure that the odds are always in the house's favor.  Their job is to rate each benefit and decide what the premium should be.  Your premiums are your bet each month that you are going to spend the insurance company's money.  Realize this, Insurance Companies do not build those big buildings by loosing money.

For the last decade we have joined Health Maintenance Organizations (HMO) as our main health care plan. But in most areas the HMO has virtually disappeared.  That leaves us with a dilemma.  

Final Thoughts

Bear in mind: In most cases, when you initially apply for a policy, you are doing just that... applying.  Normally it will take time for an individual plan to be approved.  And remember when you actually receive the policy, most states mandate that you have 10 days, and  some up to 30 days, to return the policy and get your money back if you find that it does not meet your needs. This is called the "free look period."