Tuesday, July 7, 2009

Insurance - What You May Not Know

There is an important part of medical insurance coverage that many people are unaware of. This is that your employer may actually be paying more than your premium, they may be paying your medical bills.

There are 2 different types of funding arrangements when it comes to health insurance. The first, the one most people associate with insurance, is that the insurance company pays all your bills and administers your plan. They offer standard benefits with some options, you select what you want, and pay the premium. This type of coverage is subject to state mandates and the oversights and rules of the NAIC (National Association of Insurance Commissioners).

But there is another finding type. This one is commonly referred to as either Self-Funded or Administrative Services Only. In this situation an employer writes their own benefit plan, deciding what they will cover and what they will not, and what the deductible, copay and benefit percentage will be. The employer then absorbs the cost of those medical bills and pays an insurance company to administer the plan that they themselves have written. Most of the large employers in the country offer this type of coverage. These plans are also not subject to the rules of the NAIC, so should the government pass regulations on what must be covered or what deductibles have to be, since these are not insurance companies, they would not be subject to these regulations.

As a result of how these are funded, the cost of the employee health benefit may be much more than we think it is. Knowing that, could we really blame employers if they stopped offering health care coverage to their employees if a government option is created? Eliminating that benefit could potentially save employers hundreds of millions of dollars.

Having all of these different plans also increases the administrative costs of insurance. Things are much easier to admminister if it's a cookie cutter plan. But when things vary greatly from one employer group to another, the administration of the plans becomes more complicated, and the administrative costs go up. So should the government offer that cookie cutter plan only, they will have an administrative cost advantage as a result. Of course you won't have as many options, but they know more about what we need than we do anyway, right?

Although we are told we will still have the option to keep the health care plan we have if we are satisfied with it, how can we do that if our employer decides not to offer it? And their incentive to no longer offer it will be high. So here we have another unintended consequence of legislation which our leaders are not considering.

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