Kevin* is fortunate to have health insurance through his job with a local construction company. Like most of us, he didn’t look very carefully at his options; he’s 34, generally healthy, and chose the plan with the lowest monthly cost. He makes about $35,000 a year, enough to keep the wolves away, but not enough to save very much. He told me he has about $2000 in his savings.
Recently he woke up with horrific pain in his stomach, and when it wouldn’t go away he went to the emergency room at an in-network hospital for his plan. After a complete work up, it was pretty clear he had appendicitis, and needed surgery. He wasn’t too concerned about the cost; after all, he had insurance.
When he got the bill, the statement showed that the hospital had billed the insurance company almost $25,000 for the emergency room and his surgery. And the insurer had said, “Nope, we only allow $11,000 for those services.” Whew. But the bill he got from the hospital said he owed $8,500.
He had insurance, but still, he owed the hospital $8,500. How does this happen? Could it happen to you?
Insurance is a way to lessen financial risk. Or another way of saying this is we have insurance so that if something bad happens our financial loss gets capped at a certain point, a point we can hopefully afford. That certain point is known as the “out of pocket maximum” (the amount you have to pay before insurance kicks in at 100%).
Even with employer sponsored health insurance, one disconcerting trend is that in order to afford providing health insurance, employers have pushed those deductibles and out of pocket maximums higher and higher. And many times, the deductible (the amount you have to pay on your own before there is any insurance coverage) and the out of pocket maximum are pretty close., if not the same. This is true for individual plans as well. Essentially Kevin’s plan had a deductible and out of pocket maximum of $8500, and he hadn’t used any health care up to that point. So his insurance limited his exposure, but he had to pay that $8500 before the insurance kicked in. Ultimately his insurance paid the other $2500, but Kevin still owed his deductible. Which he didn’t have.
Dave Chase, the Founder and CEO of Health Rosetta, says that when your life savings is less than your health insurance deductible, in effect you’re not really insured at all. He calls this being “functionally un-insured.” We call it being financially squeezed. If your insurance isn’t going to keep you from depleting your savings if something bad happens, is it really insurance?
As we’re coming into Open Enrollment season, this question is really important and it applies to individual insurance plans, employer sponsored insurance plans, and Medicare and Medicare Advantage plans. What options do you have?
- Look carefully at the plan deductibles and out of pocket maximums you can choose from. Can you cover the deductible if something bad happens?
- It’s better to choose a plan with a higher deductible that has a monthly premium you can afford than to not have insurance at all.
- Be sure you know what the deductible and out of pocket maximum is for whatever insurance you have; at least the sticker shock if you use healthcare and get a bill won’t be quite so startling.
- Don’t avoid healthcare if you’re worried you can’t afford your deductible; there are other alternatives to pay for care. A patient advocate can help you find the best options for your situation.
*Name and other identifying information has been changed to protect confidentiality.