FAQ

Stethoscope and gold coins on a golden background

The Frequently Ask Questions, in the list below, are ones that I have been asked multiple times.  I am under no delusion that they will answer every question that people have, but hopefully, they will cause people to pause before buying insurance to think about what they are spending their money on.

WHAT IS “HEALTH INSURANCE”?

Health insurance is a financial tool designed to help people pay medical bills.  In recent years the phrase has been used often without a clear definition.  With the passing of the People’s Protection and Affordable Care Act the federal government outlined 10 “Essential Benefits” that must be included in any plan that uses the federal definition of health insurance.  That law gives the Secretary of Health and Human Services the authority to add requirements to the list in the future but under the ACA all “Health Insurance” plans must have, at least, the 10 “Essential Benefits.”

However, long before the federal government got interested in health insurance, individual states regulated the industry and they have their own definition of what is, and is not, health insurance.  Within state laws, the term, “HEALTH INSURANCE” is a more comprehensive category.  “HEALTH INSURANCE” not only includes more comprehensive Major Medical type of plans, but it also includes more limited type of plans.  Disability, Accident, Named Disease, Long Term Care, etc. are all forms of “HEATH INSURANCE” in the eyes of the state.

DO I NEED FULL MAJOR MEDICAL INSURANCE FOR A VIRUS?

While it may be a nice luxury to have, remember that the Coronavirus is an acute medical problem and not a chronic issue.  It can make your feel bad, but eventually it will be gone, one way or the other.

A comprehensive Major Medical policy would be ideal, but those type of plans can be very expensive.  For those who are budget conscious and/or don’t want to spend any more money than absolutely necessary, I recommend a portfolio approach that combines a very inexpensive Telehealth plan that will allow you to speak with a doctor if you have flu symptoms who is able to call in a prescription to help with any symptoms you might be having.

I also recommend adding a “Fixed Indemnity” type of plan to your portfolio that would pay a set amount of money in the event you end up in the hospital.

Together, those plans will provide the basic health insurance you need during the Coronavirus scare.

Keep in mind that these type of plans are not nearly as comprehensive as a true Major Medical plan is.  I do not recommend using this strategy for the long term, but this would prevent you from having to file for bankruptcy because of medical bills in the event you are a victim of the flu.

DO I HAVE TO SET UP AN “AUTOMATIC BANK DRAFT” (EFT)?

The most common problem I have to deal with is because of Automatic Bank Drafts.  EFT (Electronic Fund Transfers) are wonderful when they work as advertised.  However, they are a major pain when something goes wrong.

EFT plans are arrangements, that you authorize, between your insurance company and your bank.   With them, you grant permission to your insurance company to automaticall draft your premium from your account.

Sadly, I know, from experience, that if I have 10 client complaints, 6-9 of them will be directly, or indirectly, caused because of a problem with an EFT account.

The most common problem, but not the only one, is because a client forgot that the insurance premium would be drafted from their bank.  If there is not enough money, in that account, to pay the monthly premium, unless the client calls the insurance company to make premium payment arrangements, their insurance policy will lapse the following month and they run the risk of having no insurance when they need it.

Most insurance companies will offer members the convenience of setting up an automatic EFT but they will also accept premiums that are mailed in.  You will need to know what your insurance company will, and will not accept.

HINT:  Personally, I do not like EFT arrangements, but I also know that others do.  I tell my clients, who ask, that if they must set up an EFT, go to their bank to see if they are able to set up a checking account exclusively to use for EFTs.  If so, they can just transfer enough money into that account to pay their bills.  If there is ever a problem, it will only be with that EFT account and their monthly cash flow will not be affected.  However, people who use that strategy need to remember to transfer enough money into that account to pay their drafts each month or run the risk of NSF fees, from the bank, and a lapsed insurance policy when they need it.

DO I HAVE TO HAVE A MEDICARE SUPPLEMENT?

The answer to this question is, technically, NO.  However, it is a good idea to look into getting one.  Original Medicare, parts A and B, do not pay every medical bill.  A Medicare Supplement plan pays all, or part, of what Original Medicare does not pay.

WHAT IS A “DEDUCTIBLE” ?

Many health insurance plans use a financial tool called, “deductible.”  The term, “deductible” can also be described as, “retained risk.”  Both of those terms can be confusing to people who do not deal with those concepts on a daily basis.  I will try to explain them using regular words.  However, I still recognize that people can still be confused.  If this is not sufficient to help you, I suggest you contact an insurance agent that you trust will spend the time required for you to fully understand the concept.  If you do not have a full understanding of deductible, it is very possible that you could make a very expensive mistake as you shop for health insurance.

A “DEDUCTIBLE”, when dealing with health insurance, is the amount of your medical bills that you agree to pay for directly, with money out of your own pocket, before the insurance company will pay for any medical bills.

WHAT IS THE IDEAL DEDUCTIBLE?

To be honest, there is no deductible level that is ideal for every person.  When shopping for health insurance, you will have to decide how much of the medical bills you are willing to pay before your insurance company must send a check to help.

Sadly, while the “Law of Large Numbers” allows the insurance companies to predict how much they will have to pay in medical bills, assuming there is no unexpected pandemic, there is absolutely no way to predict who will need medical attention during the year and who will not.  The best any of us can do is review the odds.

Those people who feel like the odds of them needing medical attention during the year are lower may want to opt for a health insurance plan with a higher deductible and lower premium.

Those people who feel like they have a higher probability of needing medical attention during the year may want to opt for a health insurance plan with a lower deductible but higher premium.

WARNING:  In recent years Americans have been led to believe that the most important variable to consider when buying a health insurance plan is the premium.  Granted, the premium is a very important variable to consider, but it should not be the only variable considered.  It is important that you have access to the money to pay your deductible in the event “the worst” happens.

For example.  Don’t spend your money on a plan with a $10,000 deductible when all you could get your hands on is $2500 in a worst case scenario.  The difference is premium between a plan with only a $2500 deductible and a $10,000 deductible is not enough to justify the $7500 difference that you would be personally liable for in a worst case scenario.

WHAT IS A “CO-PAY”?

Like a “deductible” a “co-pay” is a form of “risk retention”.  The difference is that a “co-pay” is a fixed amount of money that an insured must pay when seeking medical attention.  The provider remains free to bill the insurance company for more money to pay his/her fee, but is limited on how much the insured may be billed.

“Co-pays” are typically a part of an insurance plan that is not subject to the plan’s deductible.

Typically a “co-pay” is only applicable to providers who have a contract, with the insurance company, to participate in their network of providers.

(Just be careful.  There are other elements of health insurance plans that can look very similar to a “co-pay” but can use a loop-hole in the contract that makes them subject to the plan’s deductible.  It is very easy to get confused about the difference between a “co-pay” and a usage fee.)

WHAT IS “CO-INSURANCE”?

“Co-insurance” is another “risk retention” tool that insurance companies use.  However, it is not the same thing as a “co-pay”.  “Co-insurance” is typically expressed as a percentage (i.e. 70/30).

After you pay 100% of your plan’s medical bills until your payments equal your “deductible”, it is likely that, if your plan has a “co-insurance” element, you and your insurance company will share liability for medical bills for a while.

For example.  If your plan has a 70/30% “co-insurance, after you have paid 100% of your deductible, you will still pay 30% of the remaining medical bills, for the term of your plan, until what you have paid equals whatever “Out of Pocket Maximum” your plan has.

What is OOP (Out Of Pocket Maximum)?

Years ago this concept was referred to as, “Stop Loss” but in recent years that term has been replaced with “OOP” or “Out of Pocket Maximum”.

Regardless of what term is used, the idea is the same.  Once you have paid both your “deductible” and “co-insurance” up to a pre-determined level, your health insurance company will pay 100% of your medical bills for the rest of the term of your policy.

Just do not allow yourself to confuse OOP with policy limits.

What are policy limits?

There are two type of policy limits that you need to consider when you are shopping for health insurance.

  1. The first is the maximum amount of money the insurance company will pay over the lifetime of your policy.
  2. The second is the maximum amount of money that the insurance company will pay for certain losses.

Also, be aware that most policies have “Exclusions” in them that limit the insurance company to pay $0 of a claim when a loss occurs because of an excluded cause.

For example, most plans exclude pre-existing conditions, self-inflicted injury or injuries sustained while participating in a felony.  Also, many state laws prevent an individual from profiting from health insurance.  It is common for many health insurance plans to specifically exclude paying for something that is, or should have been, paid for by someone else.

When people have problems with their insurance company “not paying their claim” the confusion is often caused because the insured did not fully understand the policy Limits and Exclusions.

WHAT IS “CRITICAL ILLNESS” INSURANCE?

“Critical Illness” insurance is a form of “Named Disease” health insurance.  What makes is special is that it is designed to pay a flat sum of money, to the insured, upon diagnosis of a named disease.

The idea is that the patient can then use the money to help pay for expenses that their other insurance arrangements do not.

All plans will pay a benefit in the event of a diagnosis of cancer.  Most will also cover risks associated with heart attack and/or stroke.  Many will also include other risks as well.

Just be aware that “Critical Illness” insurance is a supplement to a good health insurance plan and not a substitute.

For example.  Bob has a “Critical Illness” insurance plan with a benefit of $20,000.  He is paying about $25 a month for it.  If Bob is diagnosed with cancer, his insurance company will send him a check for $20,000 once they get his completed claim form.  The check will be sent to Bob and not his doctor.

Bob can then use $6000 of it to pay his $6000 deductible and still have $14,000 left over to help him pay his other bills while he recuperates from whatever treatment was required for his cancer.

DO I NEED LONG TERM CARE INSURANCE?

“Long Term Care” insurance (LTC) is not appropriate for everyone.  In fact, state insurance regulations often require an applicant to verify the appropriateness of this type of insurance before insurance companies are permitted to issue a policy.

In most states, the largest expenditure for Medicaid is for LTC for those, of any age, who are not able to care for themselves.

However, LTC insurance is no longer just for those who are concerned about the risk of needing a nursing home in the future.  Many of the plans sold today cover the risk of financial loss when an insured is able to live, independently in an Assisted Living Facility or in their own home if they are able to get help with the Activities of Daily Living.

LTC insurance can be complicated because of all the different variables and options it has.  However, when it is appropriate for an individual, it can often be a better investment than other types of insurance.

WHAT IS “PARTNERSHIP” INSURANCE?

A “Partnership” plan is a type of LTC insurance plan that forms a partnership between an insured and Medicare.

If an individual has a “Partnership” LTC plan, the private insurance company will pay for LTC bills up to a stated amount of money.  However, if the insured exhausts the stated amount of money, Medicare will take over where the insurance company left off, if the plan was set up correctly.

Technically, in the event of a “partnership” arrangement, Medicare will agree to waive their asset test and recovery rights, on a dollar for dollar arrangement.  However, Medicare’s income requirements still apply for benefit qualification.

For example, assume that Steven has $100,000 of rental property and $44,000 of cash savings.  He has elected to purchase a “LTC Partnership” plan with a $144,000 benefit.  Later in life Steven is afflicted with Alzheimers Disease and must be admitted to a nursing home for his own safety.  Over the course of 3 years the fees, charged by the nursing home, eat up his $144,000 benefit but after it is gone he still needs to live in a nursing home.

In that event, Medicare will waive the value of his rental property and savings and take over the bills for Steven to stay in the nursing home.

When Stephen passes away, 2 years later, Medicare has no claim on either his rental property or his remaining cash savings.  Those assets are free to be passed on to his heirs according to his will/probate.

DO I NEED DISABILITY INSURANCE?

Not every person NEEDS Disability insurance.  It is a unique type of health insurance.

When our former president said, “Every president since Teddy Roosevelt has wanted a national health insurance plan.”, he misinformed America.  What the government calls, “health insurance” today did not even exist until 1929.  When Teddy Roosevelt talked about, “Health Insurance” he was talking about what we know today as Disability Insurance.

The purpose behind Disability Insurance is not to pay doctors and hospitals.  The purpose of this type of insurance is to allow an injured worker to continue to pay his bills while he/she is recovering from an injury that prevents him/her from earning a paycheck.

This type of insurance is not appropriate for “unemployed” individuals, home makers earning no income or children.  Neither is this appropriate for people who already have sufficient cash in savings.  This type of insurance is designed to replace a large part of a paycheck that has been lost due to an accident or illness.

DO I NEED DENTAL INSURANCE?

In years past I would have said that Dental Insurance is nothing more than a luxury.  However, in recent years my opinion is starting to change as more and more dentist are refusing to treat people unless they have dental insurance.

In addition, many dentist have seen how much money their physician friends are making and have raised their rates accordingly.

I am still not willing to say that Dental insurance is a “must have” part of a full insurance portfolio.  However, having said that, I urge you, if you already have a dentist to treat you, to call his/her office to see what the office policy is regarding Dental insurance.

DOES MEDICARE COVER DENTISTRY?

Medicare does not normally pay for routine dentistry.  If you think that you will need dental work during your Medicare years, you will need to either be ready to pay your dentist out of your retirement savings or have an individual Dental insurance plan.

However, there is one exception to this rule.  If the dental procedures are required because of an illness or injury that Medicare does cover, Medicare MAY pay for it.  If you think that is the case for your claim, have your dentist consult with Medicare BEFORE any treatment is done.  Otherwise, you could be in for a surprise bill, from your dentist, if Medicare ultimately declines your claim.

DO I NEED LIFE INSURANCE?

Like many/most insurance plans you do not NEED Life insurance, but unless you have sufficient savings to pay for a funeral, or have a prepaid funeral contract, it is a considerate plan to leave behind for the people who are required to settle your financial accounts and pay for your funeral.

Sadly, some aggressive insurance agents encourage people to buy more Life insurance than they actually need while some rookie agents, who are just happy to make a sale, leave people with less Life insurance than they need.

My rule of thumb is to calculate, both the type and amount, of Life insurance you want BEFORE you meet with any agent.

When I was training new agents for a national Life insurance company, I taught them that one of the first questions they should ask people, when they were competing with another Life insurance plan is, “How was the death benefit calculated?”  Sadly, in most cases, people have no idea of how the amount of insurance was determined and beneficiaries had no idea how the money was to be used.

If your goal is just to leave some undetermined sum of money to your heirs when you die, “Rules of Thumb” are just fine for establishing a death benefit.   However, if your goal is to replace a lost income or pay off an outstanding debt after you die, you need to actually spend some time and thought to determine how much cash, from Life insurance, your heirs would actually need.

I am constantly being asked about insurance.  The FAQs above are only some of the things I have been asked multiple times.  If you have an insurance related question that is not answered in the above collection, use the form below.  If I have an answer, that I can share with you, I will let you know my thoughts.

 

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