Low Cost Health Insurance - Oxymoron?

by Joseph Smith

Some people would underscore "oxymoron" when reading the words "low cost health insurance," especially since healthcare costs have been rising by double digit inflation over much of the past decade, slowly now to the 8-9% level, still way ahead of overall inflation. Yet, just "Google" the term and you will receive dozens if not hundreds of opportunities to purchase "low cost health insurance" through broker groups.

In fact, it is possible to obtain lower cost health insurance with a slightly different proviso, i.e., "There’s no such thing as a free lunch." Regardless of the advertising you will see on-line and elsewhere about low cost health insurance, these offerings are based on one of two models: some type of group-like coverage at negotiated rates or some type of general discounting program.

Let’s look at general discounting first. Companies that offer a medical care discount card, usually for an annual fee, have established networks of medical providers who will accept a discount on their fees when presented with a discount card. In general, these discounts are very simple for providers to agree to because in most cases, they never expect to get full, established prices for services. Most providers have fees that are established at higher than expected levels because those fees will necessarily be discounted by major insurers as well as Medicaid and Medicare. Anyone who opts for a discount card, by definition, does not have any other insurance, and will be required to pay by cash or charge. Providers are happy to provide the usual discounting in exchange for a simple billing arrangement. So, are these cards useful? Yes, they can be helpful in dealing with medical providers, pharmacies and medical supply companies. If you have no insurance and need to be hospitalized, you are better off working directly with the hospital to negotiate the best arrangement.

Companies offering low cost insurance, or brokers who offer to find such insurance products for you, may have legitimate offerings and may be able to help you select the right coverage, but you must understand that by purchasing low-cost coverage, you are trading payment today for some type of risk or payment tomorrow.

These insurers or brokers have not discovered some new, secret formula for lowering healthcare costs. They are simply manipulating risk or payment options. In general, health insurance can become lower cost, that is, lower premium payments, in one of the following ways:

• High deductible. You may pay a low monthly premium but need to pay a large amount out of pocket before the insurance begins to cover expenses. This may be an excellent type of coverage for someone who is healthy and probably won’t need much medical care during the year but does need to insure the risk of a major accident or some other hard-to-predict major medical event.

• Coverage exclusions: Some health plans keep premiums low by not covering services that they consider to be expensive, such as prescription drugs, allergy treatment, etc. Again, this type of coverage may work for you if you can live with the exclusions.

• Pre-existing conditions: Some plans will not cover pre-existing conditions for a period of time. This tactic does not save enough money over the long term to be a viable single strategy so pre-existing condition clauses are usually just one cost-saving component of a low cost insurance plan.

• High cost-sharing. Some plans reduce the cost of health insurance by creating significant cost-sharing requirements. For example, instead of requiring a $15 co-pay for a doctor’s visit, the plan may require a 40% cost share that could translate into a $50 to $100 cost to you, depending upon the services rendered.

In general, the healthier you are, the more likely you will be able to manage well with a plan that requires less monthly premium payment in exchange for higher payments if you actually need service. If you have chronic medical conditions, you will need to look very carefully at which plan provides the best benefit for your situation.

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