Health Insurance

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to be used by teachers and parents. Each week we
introduce a new financial concept, from which we try
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Timothy Liptrap here for the 101 Financial Lessons
newsletter. This week's topic is on Health Insurance.

Currently in the United States, 41.2 million Americans (14.6%
of the population) are without Health Insurance coverage,
this is up 2.5 million people from 2001.

Experts believe the rising number of uninsured Americans
is caused by individuals losing a full time job, thus propelling
them into poverty and not being able to afford commercial
health insurance.

Although many of your students may not be buying health
insurance until they are out of college, I feel that it is important
for them to understand the concepts of health insurance
before they enter the world of work.

If you have any questions or comments regarding this subject,
please send me an email.

Thank you for being a subscriber to our newsletter.

Coming soon...

Currently, 85 out of 100 Americans are covered by either
a government based health insurance (Medicare or
Medicaid) or private health insurance plan.

A health Insurance plan is a contract between you and an
insurance company. The insurance company promises to
pay your medical expenses, as needed, in exchange for
a monthly payment or premium made by you or your employer.

Co-pay

The amount of "out-of-pocket" money used to pay for
Doctor's visits and prescriptions.

Deductible

A deductible is an amount of money that the insurance
policy holder is responsible for paying for medical expenses.

As an example, if you were to get into a car accident and
your medical expenses totaled $10,000 and you had a $500
deductible, you would only be responsible for $500 and
the insurance company would cover the remaining $9,500.

Employee Contribution

An Employee Contribution is the amount of money deducted
from your paycheck to cover a percentage of the cost for
you medical insurance. This could range from 0% - 100%
depending upon your company's health plan.

There are three common types of private health insurance plans
are HMO, Indemnity and PPO plans that we will cover.

Health Maintenance Organization or (HMOs) are the most
common type of health plans used in the United States.

HMOs were designed with the concept of reducing medical
costs by using prevention and regular wellness visits, to
minimize the risk of their members becoming sick.

The HMO contracts with Doctors and health care providers
to provide medical service in return for a pre-paid monthly
charge. As a member, you can visit the Doctor as many
times as needed each month, with no additional costs other
than the co-pay.

The disadvantage of an HMO, is that a member must use
a Doctor or medical services within their HMO's "network",
in order to receive the benefits of the insurance plan.

Indemnity plans are also known as: major medical plans,
traditional medical plans and freedom of choice plans.

Although they may be sold under different names, the
concept is the same. These types of plans allow you to
choose any hospital or doctor, unlike a PPO or HMO plan
which requires you to stay in network.

The difference between an indemnity plan and an HMO, is
that you can choose the "deductible" amount, such as $1,000,
$2,500, $5,000 or $10,000. By choosing a higher deductible,
you can lower your monthly premiums.

An indemnity plan plans work well for people who are looking
for a choice of medical services and are willing to assume a
higher financial risk (deductible). These plans are purchased
by small business owners and younger (healthy) individuals
who look for a lower cost health insurance.

A PPO is similar to an HMO, but will provide the members
more flexibility in their choice of Doctors.

A PPO plan allows a member to use Doctors and medical
service outside the PPO network. However, by going outside
the network, the PPO may only cover a small percentage
or none of your medical costs.

Often times employee's expect that a company will provide
benefits such as health insurance, vacation time and sick
time. Employees have come to believe that companies
are required to provide such benefits.

In reality, this is not always the case. It is only required
if your job is negotiated by a union contract that includes
health insurance as a benefit or if health insurance is
offered to others in the company, it must be offered to you.

Health insurance coverage can be an expensive benefit
that companies provide to their employees. Many employees
do not understand that if the company covers your family's
health insurance 100%, it can cost the company up to $600
a month per employee.

In 9 out of 12 months of the year, people are not eligible to make
changes to their health insurance plan, unless they have a
"qualifying event". A qualifying event would include having
or adopting a child and losing or changing jobs.

3 months of the year are known as the "Open Enrollment Period".
During the open enrollment period, you are allowed to make
changes to the policy, including switching a spouse or child
from another health plan without being required to have a
qualifying event take place.

Note: Although you may have only been able to add members
and services to your plan during open enrollment, you can
drop coverage for people and services at anytime. However,
you cannot drop coverage for person from your health insurance
without their permission.

To protect individuals from losing health insurance when they
switch jobs, the Federal Health Insurance Portability and Accountability
Act of 1996 requires insurance companies to accept all new
employees, regardless of medical history.

Note: New insurance coverage must be initiated within 60 days
from the original job termination date.

Under Federal law, corporations with more than 20 employees
and who offer medical insurance, are required to allow you to
continue medical coverage under their health plan, for up to
18 months after termination of your job.

To maintain the health insurance coverage, employees would
be required to pay 102% of the premium, each month.

It is important to understand that the insurance premiums under
COBRA will be more than your current contributions. Corporations
often subsidize the cost of your health insurance premiums and
thus your contributions are lower.

Your health insurance premiums can be affected by many variables,
some of which you can control.

Health insurance costs can rise depending upon variables such as:
where you live, the type of work that you do, your age, the amount of
your deductibles, co-pay or previous insurance claims.

Note: Small company health plans can be affected by the employee's
insurance claims. If a company's employees have serious medical
claims over a short amount of time (one-year), the insurance
company will raise rates to protect their investment.

Teaching students about health insurance plans, may not
be relevant until they start working and making their own
insurance decisions.

We believe that they should have a basic understanding of health
insurance, how it works, what can affect their rates and the risks
of not having health insurance.

To start a discussion with your student(s), we recommend using
the talking points below:

• Health insurance is designed to cover medical expenses, in which
  a person may not be able to afford.
  
• Insurance plans offer various benefits and expenses, be sure
  to understand your plan before going to the hospital or Doctor.
  
• Take advantage of preventive and wellness programs
  (weight watchers, health clubs, stress relief programs, flu shots).
  
• Plan ahead and have enough cash to cover your deductibles in
  case of a medical emergency.

Word Problems

Directions: Find a solution to each of the word problems
below.

1. Mr. A's health insurance plan cost his company $200
a month for his individual coverage. Mr. A is responsible
for paying 25% of the cost. How much money does Mr. A
contribute towards his health insurance plan each month?

2. Elizabeth lost her job with the State last week. To keep
her health insurance plan she must pay for COBRA. The
State health plan costs $350 a month. Elizabeth will be
required to pay 102% of the premium. How much money
will be required to pay each month?

3. Amy, who was feeling sick, visited her Doctor this week.
She paid a "co-pay" of $10 for the Doctor visit and $3 for each
of the two prescriptions. How much money did she pay "out-of-
pocket" this week for her co-pays?

4. Randy, who owns a small company of 10 employees in
Florida decided to offer his staff a health insurance plan. Each
employee would be responsible for paying 50% of the costs.
Six employees joined the health plan. Three employees are
singe adults at a cost of $190 a month and other three needed
family plans at a cost of $450 a month each. How much money
will Randy need to spend each month to provide this benefit?

Answers

1. $200 x 25% = $50 a month

2. $350 x 1.02 = $357 a month

3. $10 +$3 + $3 = $16 out of pocket

4. 3 x $190 = $ 570 / month total for single plans
3 x $450 = $1,350 / month total for the family plans
$570 + $1,350 = $1,920 total monthly payment for insurance

$1,920 x 50% (employee contribution) = $960
$1,920 - $960 = $960 Randy's contribution

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