The Bogleheads' Guide to Retirement Planning (39 page)

Read The Bogleheads' Guide to Retirement Planning Online

Authors: Taylor Larimore,Richard A. Ferri,Mel Lindauer,Laura F. Dogu,John C. Bogle

Tags: #Business & Economics, #Investing, #Personal Finance, #Business, #Business & Money, #Financial, #Non-Fiction, #Nonfiction, #Retirement, #Retirement Planning

BOOK: The Bogleheads' Guide to Retirement Planning
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MEDICAL INSURANCE
Medical insurance is obtained primarily through three avenues: employers, government programs, and purchased individually. It helps pay for health-care costs for doctors, hospitals, prescription drugs, home health care, and a wide variety of other services. That availability of health insurance and its costs and benefits vary widely, and it is wise to learn as much as you can before choosing a plan. The medical insurance system is very complex and changes rapidly. There are many terms and acronyms. Familiarity with the jargon can help you understand your choices. Some of the more common terms follow:
•
Copayment
is the amount an insured pays toward the cost of a particular benefit, such as $10 for each doctor visit.
•
Co-insurance
is the percentage of expenses the individual shares with the carrier, for example, 80 percent paid by the company and 20 percent paid by the insured.
•
Coordination of benefits
is the health plan provision that determines the order in which benefits will be paid when an individual is covered under two medical insurance plans. This prevents double payment of benefits.
•
Deductibles
are the amounts an insured pays annually, before policy benefits are paid. A low-deductible plan might be $100 and a high deductible plan might be $1,000 or more.
•
Exclusions
are expenses that are not covered under a medical insurance plan.
•
HIPAA
is the Health Insurance Portability and Accountability Act of 1996. It’s a law that improves portability of health insurance plans.
•
In network
refers to a group of doctors, hospitals, and other providers contracted with a specific health plan. You generally pay less when using an in-network provider.
•
Maximum plan limits
cap an insurer’s liability for medical expenses. Plans can have both a yearly and a lifetime maximum dollar limit.
•
Maximum out-of-pocket expense
is the most an insured has to pay during a plan year before the insurer begins to pay all covered expenses.
•
Medicare-approved amount
is what Medicare will pay for medical services. Providers who treat Medicare patients agree to accept this amount.
•
Preexisting conditions
are medical conditions that are known or treated before you enroll in a new plan. Individual plans and some small group plans deny or restrict coverage because of these preexisting medical conditions.
•
Providers
are persons or entities that provide medical care. They include doctors, hospitals, home health agencies, and licensed nursing homes.
•
Preventive care
aims to keep you healthy. It includes physical exams, cancer screening, and flu shots.
•
Primary care physician
is the doctor who manages your health care and authorizes referral to specialists and hospitals.
•
Usual, customary, and reasonable charges
are the amounts that an insurer will pay for services in a particular geographic area. Usually associated with indemnity plans, the insured is responsible for any excess amounts.
The Internet is an excellent resource for a more complete list of terms. Often a plan or policy comes with brochures that explain terminology used in the plan. Health insurance has a language of its own. Take a little time to learn the language before reviewing the many options available in the market.
TYPES OF MEDICAL INSURANCE
The two main types of medical insurance are indemnity plans and managed care plans. The major differences between the two are choice of providers, out-of-pocket costs for covered services, and how bills are paid. Most individual, group, and government plans are one of these types or some combination of the two.
Indemnity Plans
Indemnity plans are also know as major medical plans. They have an annual up-front deductible, after which the insurance company pays a percentage of the charges. When your out-of-pocket payments reach a set maximum for the year, the insurance company pays 100 percent of any remaining costs that year, up to the plan limit.
Indemnity plans allow you to choose your own doctor and provide the greatest amount of flexibility in managing your health care. High-deductible indemnity plans can work well with health savings accounts, as we will explore later in the chapter.
Managed Care Plans
Managed care involves contracts between insurance companies and health care providers. These plans control costs by negotiating fees, limiting choice of providers, and requiring referrals from your primary care physician when you need to see a specialist. Managed care plans usually cost less than indemnity plans but limit flexibility and choices. A variety of managed care plans are available. They include the following:
• Health maintenance organizations (HMO) offer access to a network of participating health-care providers. You choose a primary care doctor from an approved list. Your doctor then coordinates your care and manages referrals to specialists. You are required to obtain your care within the network to receive full benefits. HMOs are the least flexible of all the plans.
• Preferred provider organizations (PPO) allow you to see any doctor within the plan. All or most of your costs are paid for after a small copayment as long as you use network providers. You pay more if you go out of network. The primary advantage is that you do not need a referral to see a specialist.
• Point of service plans (POS) offer several options, including using a primary care physician, using a network provider, or going outside of the plan. Reimbursement will vary, depending on which option you select.
Medical Care Providers
Medical coverage in the United States is provided by employers, the government, or individually purchased plans. Large employer group plans and government plans typically cover all enrolled participants, regardless of prior health conditions. Small group and individual policies require underwriting and can exclude or limit coverage to unhealthy applicants. It’s possible that some form of national health care could be proposed in the next few years. In the meantime, choosing health care wisely remains of paramount importance.
EMPLOYER POLICIES
Many Americans obtain medical insurance through their employers. Negotiated group rates are less expensive to employees because the employer typically pays part of the cost and for underwriting reasons. The benefits of group plans may be better than those offered by individual plans. Larger groups offer even lower premiums, better benefits, and ease in obtaining coverage. With smaller groups, employees pay more for fewer benefit choices, and medical underwriting can severely restrict coverage. Employer health insurance is valuable and can be a factor in an employee’s decision to change jobs or to become self-employed.
A federal law called COBRA allows you to keep your group coverage for up to 18 months after you leave a company that has 20 or more employees. If you leave voluntarily, you would be required to pay full price for COBRA. The American Recovery and Reinvestment Tax Act of 2009 includes a 65 percent government subsidy to employees who are involuntarily terminated between September 1, 2008, and December 31, 2009. The employer must first provide this payment and then be reimbursed by the government.
Another choice is to be added to your working spouse’s group policy if that option is available. Another federal law, HIPAA, helps workers with preexisting conditions who have lost their group coverage to obtain new coverage with less limiting exclusions. Information on these federal laws can be obtained at the web site of the U.S. Department of Labor at
www.dol.gov.
.
Note that not all employer group plans are created equal. Employers are increasingly passing on a greater share of the cost of health-care insurance to their employees. In some cases, employers subsidize the premium only for the employee, not the family. The full premium an employee has to pay to cover spouse and children can be high. In these situations, it may make sense for the employee to stay with the group and for the family to receive individual coverage. Make sure the individual coverage for the spouse and children is already in place before opting out.
POLICIES FOR INDIVIDUALS AND THE SELF-EMPLOYED
Some people do not qualify for group medical insurance because they are self-employed or work for a small company that doesn’t offer insurance. Or perhaps they are unemployed and their COBRA benefits have run out. Individual policies are available from many companies, although getting covered may be difficult if you have serious or chronic medical problems. The insurance company will ask you to answer health questions, request authorization to access your medical records, and possibly require a physical exam to prove insurability. It is extremely important to provide correct and truthful answers to all medical and underwriting questions. At the time of a claim, the insurance company can look back to make sure you did not omit anything on your application. They can deny coverage and cancel your policy if they find out that you lied.
Ask for referrals or look in the Yellow Pages to find agents or brokers in the area. Look for a health insurance broker who is knowledgeable in medical insurance and does business with a number of companies. The best health insurance brokers often specialize and can save you a lot of time by finding the best coverage for your situation. Many Internet sites provide information and quotes if you decide to shop for yourself. Be prepared to do a lot of homework to get up to speed on the subject, as health insurance choices can be quite complex.
GOVERNMENT HEALTH PLANS AND ACCOUNTS
Government health insurance plans are funded at the federal, state, and local level. The major categories of government health insurance are Medicare, Medicaid, the State Children’s Health Insurance Program (SCHIP), military health care, the federal employees health benefit program, state plans, and the Indian Health Service.
Medicare is the federal program that helps pay health-care costs for people age 65 and older and for certain people under age 65 with long-term disabilities. The program does not cover all medical expenses or the cost of most long-term care. Medicare is financed by a portion of payroll taxes paid by workers and their employees. It is also financed in part by monthly premiums that are deducted from Social Security checks.
Medicare has four parts:
1. Hospital insurance (Part A) helps pay for inpatient care in a hospital or a skilled nursing facility following a hospital stay. Part A also pays for some home health and hospice care. You automatically get Part A when you sign up for Medicare. Most Americans, age 65 and older, are eligible for free Part A coverage, because they have paid Medicare taxes over the years. Those with less than 40 quarters of Medicare-covered employment have to pay a premium for Part A. A deductible and copay provisions apply, resulting in some out-of-pocket expenses for the insured for hospital and skilled nursing facility stays. In 2009, the hospital deductible is $1,068 for each benefit period. A benefit period begins when you enter a hospital or a skilled nursing facility, and ends when you have been out of the hospital or skilled nursing facility for at least 60 days in a row.
2. Medical insurance (Part B) helps pay some of the costs for doctor bills and for many other medical services and supplies. Part B is optional, but if you enroll, you pay a monthly premium. The monthly premium for 2009 is $96.40 for people with individual income up to $85,000. Higher-income individuals pay more. Deductible and copay provisions apply when you receive services. The deductible for 2009 is $135, after which the insured pay 20 percent of the Medicare-approved amount.
3. Medicare advantage plans (Part C) are available in many areas. They are also known as Medicare replacement plans. People with Medicare Parts A and B can choose to receive all of their health-care services through a provider organization under Part C. Some advantage plans offer prescription drug, vision, hearing, and dental coverage, so the prices will vary, depending on the benefits. Advantage plans replace Medigap policies, which will be discussed a little later.
4. Prescription drug insurance (Part D) helps pay for medications that doctors prescribe for treatment. Part D is available to those who have Parts A and B and are willing to pay an extra premium. There are a number of plans to choose from, and benefits vary. Part D does not pay for all prescriptions, and it is infamous for the doughnut hole—a large coverage gap where the insured pays 100 percent. Premiums, deductibles, copays, and covered drugs will depend upon the plan you choose.
Medicaid is a joint federal-state program that provides some coverage to low-income people with few or no assets. States establish their own eligibility and benefits rules and administer the programs. Medicaid is a means-tested program and not all low-income people qualify. The groups of people served by Medicaid include children, seniors, low-income parents, and those with disabilities. Only your state Medicaid office can tell you if you are eligible for benefits. Their offices can be accessed at
www.healthsymphony.com
. More information is available at the web site of the U.S. Department of Health and Human Services, listed at the end of this chapter.
Military and Indian health care is provided through several programs, including Tricare/Champus, ChampVa, and the Veterans Administration (VA). Military care is further divided into active duty, retired, and other honorably discharged veterans. Each program is unique and handles health care differently. Historically, some form of medical care has been provided for the military. That dates back to the seventeenth century. However, it wasn’t until the twentieth century that federal laws began to guarantee benefits to the military. More information is available from the U.S. Department of Defense Military Health System at
www.health.mil.
.

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