How Insurance Works

Health insurance is a form of risk management - it protects you against loss through illness. You pay or your employer pays a monthly premium for coverage. Premium costs vary, depending on whether the coverage is for group or individual, the type of plan, benefits offered and age and health of the insured.

Health maintenance organizations (HMOs) are typically the least expensive plans and offer the fewest choices. Fee-for-service plans are at the opposite end of the spectrum, offering the most health-care choices but costing the most as well. In between are preferred provider organizations (PPOs) and point-of-service (POS) plans, which are combinations of the two extremes. (To read more about managed care organizations, click here.)

A plan's cost can't be judged by the premium alone. Out-of-pocket costs must be factored in. A big consideration here is the deductible - the amount you must spend on care before insurance kicks in. In general, the higher the deductible, the lower the premium.

Another out-of-pocket expense is the co-payment, the amount of each bill that you are expected to cover. With HMOs, the co-payment is often nominal.

With PPO and POS plans, the co-payment is usually a percentage ranging from 10 percent to 30 percent of the bill. But the insurer bases its payments on what it considers "reasonable and customary," and if your physician charges more than that rate, you are responsible for the difference.

Prescription coverage is also a consideration. Formularies - lists of medications an insurer will cover - can vary widely.

Getting Insurance

Health insurance is often provided as a benefit of employment. Employers might cover employees' premiums entirely or pay a major portion. But not all employers offer this benefit, especially if it's a smaller company.

Some options:

• If you can't get insurance through work, you might be eligible for group health coverage through membership in a labor union, professional association or other organization.

  Many groups for the self-employed make such coverage available, including organizations for writers, real-estate appraisers and agricultural workers, to name only a few. Sometimes you can join the group at a nominal fee specifically to obtain health insurance.

• Coverage may also be obtained by individuals, though it might cost more than through group plans. If you're self-employed, don't assume you can't afford coverage. With today's constantly escalating healthcare costs, you probably can't afford to do without.

  To explore your options, check with an independent health-insurance broker or refer to an online resource such as eHealthInsurance.com (http://www.ehealthinsurance.com) or the Agency for Health Care Research and Policy (http://www.ahcpr.gov).

• If you leave your job, you can continue the same health coverage at your own expense through the Consolidated Omnibus Budget Reconciliation Act of 1985 - better known as COBRA - for 18 months in most cases.

  Medicare is the federal health insurance program for Americans 65 and older and for some disabled Americans. Coverage for the poor is available through Medicaid, which is administered by each state.

• If you can't obtain health insurance because of previous health history, most states offer high-risk pools. You must prove you've been denied coverage by private insurers to qualify. To find out if your state has a high-risk pool, contact your state's department of insurance or the National Association for Insurance Commissioners at (816) 842-3600.

 Know Your Plan

It's important to know what your plan covers and what your responsibilities are. Get a copy of the policy from your agent or insurer, or check with your employer's plan administrator.
An insurer's claims representatives handle claims relating to a variety of plans and are rarely as familiar with the specifics of your plan as you should be. Sometimes claims are denied when they shouldn't be.

If you don't know what your plan covers, you won't know to challenge an incorrect denial. Often, all that's necessary to fix the problem is a call the insurer to report the error. If this doesn't resolve the problem, ask to speak to a supervisor. If the error persists, move up the chain of command. If you have insurance through your employer, talk to your plan administrator.

It's always a good idea to keep notes of your telephone inquiries, listing time, date and the name of the person you talked to. This record will allow you to quote with accuracy anything you've been told along the way, should a bigger problem develop with the claims process.

No policy covers everything. If coverage (or pre-approval) of a procedure is denied -- say a new medical treatment won't be covered because the insurer regards it as experimental --don't give up hope: There usually is an avenue of appeal. You'll need to get your doctor's office involved at this point.

Flexible Spending Accounts

If your employer offers a flexible spending account, take advantage of it. A flexible spending account, or FSA, allows you to set aside part of your pay before taxes -- which should reduce your federal, state and Social Security taxes to reimburse yourself for covered medical expenses. The annual federal limit on FSAs is $5,000, but an employer may opt for a lower level. A $3,000 limit is common. Employees can elect to contribute a lesser amount based on what they expect their expenditures to be.

Reimbursable expenses include medical, dental, vision, prescription and hearing care costs that aren't paid by an insurance plan. (No double dipping allowed!) Health-care deductibles and co-payments, dental charges, prescription drugs not covered by insurance (such as contraceptive pills), vision or hearing care, acupuncture and chiropractic are some of the costs that can be reimbursed.

 But take note of the "use it or lose it" rule: If you sign up to contribute $2,000 to a medical FSA but have actual qualified expenses of only $1,500, you will lose the $500 difference. And you can't change the amount you have chosen to contribute once you've signed up.

Still, financial advisers counsel that if you have qualified expenses, the tax savings generally outweigh the potential disadvantage.
And if, toward the end of the year, you find that your expenses are running under the amount you've had withheld, you can splurge on a new pair of prescription sunglasses, schedule that dental work you've been putting off or try acupuncture -- and be reimbursed.

Help With Medications

• Many pharmaceutical manufacturers offer prescription drug assistance to people who need expensive medications and don't have insurance coverage for it. This help is usually supplied through physicians whose patients wouldn't otherwise have access to the drugs.

   In many cases, medications are supplied at no cost.

   Specific requirements vary, but in general an applicant can't have insurance coverage for medicines and can't be eligible for any other source of drug coverage. The applicant's income must often be below poverty level, or sufficiently low that retail purchase would cause a substantial hardship.

   Information on how to apply for drug-assistance programs is available through the Medicare Web site at http://www.medicare.gov (look for the prescription drug assistance program link) and through RxAssist (http://RxAssist.org). Individual drug companies may also be contacted.

• If you don't qualify for help under pharmaceutical companies' guidelines, there are still ways to lower your prescription costs. Ask your physician and pharmacist for suggestions.

  For instance, your doctor might prescribe a generic version of a particular medication. Even where a generic isn't available, there's usually a lower-cost alternative to try.