Money and You: Course Notes

As you are probably aware, medical (health) insurance in the US is a bit messy. We have a much different system than most developed countries. Most developed countries have form of “single-payor” medical coverage. In such a system, most medical expenses are paid for by government funds, which is in turn funded through taxes. There are exceptions to what is paid for and what is not, but that is basics of a single-payor system. There are still medical insurance companies in these countries, who provided “supplementary” insurance on any medical care, supplies, or procedures that are not covered in the basic system.

The US does not have a single-payor system. We have a “private” system. In such a system, medical care is not guaranteed and citizens are responsible for paying for their own medical care. To help pay for medical expenses, people can get medical insurance to cover many of those expenses. There are certain forms of government-funded medical coverage. For example, Medicaid is a program in the US that provides basic medical bill coverage for certain people (pregnant women, low-income citizens, the elderly, people with disabilities). It is funded via Social Security and taxes. Most people have basic medical coverage via Medicare when they reach age 65. For most, Medicare is mandatory. Both Medicaid and Medicare cover very basic medical procedures, visits, prescriptions. Most people find they need to pay for “supplementary coverage” for many medical issues. Some states have their own medical programs. Massachusetts has Mass Health, which provides medical coverage for children, low-income individuals, etc.). It usually provides more medical coverage than Medicaid.

Private medical insurance can be paid for individually or as a group. Many employers offer to pay for some or all of an employee’s medical insurance premiums as part of their compensation package. However, these employers usually pay for a group insurance, meaning that employees do not pick their own plan and go with what is offered through group insurance. Most commonly, employers will pay for 75-80%of insurance premiums. If you do not have subsidized insurance through your employer and do not have government-funded coverage, you would pay for medical insurance on your own. Generally, employer-sponsored medical insurance can cover the employee’s spouse and children as well (up until age 26) for an increased premium.

Medical insurance is expensive. Like, really expensive. Medical insurance premiums are about on par with what people pay for housing. The worst thing is that, as people age, the need for medical insurance drastically increases. Some people even delay retirement because they do not want to lose their subsidize medical insurance. There are a variety of factors that control medical insurance premiums, including rising costs of medical procedures, hospital and insurance company executive greed, people living longer, etc.

No matter the form of health insurance someone has, there is an issue of coverage. You medical insurance policy dictates what medical-related expenses are covered. Often, insurance plans will only cover the most financially-efficient option. For example, suppose you need a particular surgery. There is an older, more risky surgery that has been done for 50 years. There is also a newer, safer surgery that is more expensive. Based on a number of factors, your insurance may refuse to cover that newer, safer surgery if they deem the older one more financially prudent long-term. Particularly in countries with private medical insurance, people often worry about whether the medical care they need will be covered by their insurance plan or not. Sometimes, it is a huge surprise to people when they find out after receiving medical care that their care wasn’t covered by insurance and are stuck with a massive medical bill.

Here is one thing most people don’t know about medical bills. Medical bills can be negotiated. Insurance companies are very good at negotiating medical expenses. So, if you are given a copy of your medical bill, you may notice that the “amount billed” and “amount paid by insurance” are quite different. Generally, medical insurance companies have a maximum amount they will pay for certain medical procedures, supplies, prescriptions, etc. Medical provider may be willing to accept the negotiated amount. However, some providers will not accept the amount offered by insurance companies. In such a case, medical providers may refuse to “accept” your medical insurance, meaning that you cannot get medical care from that provider unless you pay for everything yourself, without insurance. Usually, medical providers will have a list of insurances they won’t accept or they will check prior to giving you medical care. So, it shouldn’t be a surprise that a provider doesn’t accept your insurance. This issue is particularly relevant for people on Medicare or Medicaid; many provider do not accept them.

You may see the term “in-network.” This essentially means that the medical provider has made a long-term agreement with your insurance company to accept the negotiated rates they pay. Some insurances only pay for “in-network” providers. Some will pay for “out-of-network” providers, but will make you pay higher co-pays.

Whether you self-fund health insurance or get it through your employer, you are likely to have a choice in some of the details of your health insurance plan. In fact, some people choose employers based on what insurance they subsidize. Most people consider the following: premium amount, deductible amounts, co-pay amounts, and network area. Plans with higher deductibles and co-pays and smaller networks will have lower monthly premiums. Plans with lower deductibles and co-pays and larger networks will have higher deductibles. What is right for you varies.

Younger, healthier individuals often are okay taking the risk of plans with higher deductibles and co-pays, taking the position that they are less likely to need expensive medical coverage. Older, more fragile individuals often prefer lower-deductible plans as they are more likely to need more frequent or more intensive medical care. There is no right answer. It depends on your income, risk tolerance, and personal/family health status.