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Health Insurance

Unless you're a millionaire and can pay for your health care out of pocket, health insurance is a crucial purchase. The time to buy it is before you have an accident, suffer a serious illness or discover you're pregnant.

Individual health insurance doesn't cover health care for medical problems or conditions that start before the date you were issued a policy, although there are now Pre-existing Condition Insurance Plans available from the government. Finding adequate coverage might seem overwhelming, but knowing the basics can help make your search less daunting.

Much of the information below will change in the coming months and years as health reform laws kick in.

Your employer doesn’t have to provide health insurance

There are no state or federal laws requiring private employers to offer health benefits to their workers. However, many employers offer health insurance as a way to attract and keep workers. When group health plans are offered, they are then subject to a variety of state mandates about what benefits must be included, unless the employer is self-insured (meaning it pays the claims costs itself, not an insurance company).

Although health insurance mandates make coverage more broad, they can also pump up the cost. For example, the Council for Affordable Health Insurance (CAHI) estimates that adding coverage for contraceptives adds 1 to 3 percent to the cost of a group health plan. See CAHI's list of state-mandated health insurance benefits.

State mandated benefits do not apply to individual (private-market) plans that you'd buy on your own.

Bridging the insurance gap

The federal COBRA law (Consolidated Omnibus Reconciliation Act) could provide you with a much-needed short-term safety net. COBRA allows workers to keep their group health coverage if they lose their jobs, provided they pay the full premium and a small administrative fee. It applies to those firms with 20 or more workers and generally lasts for 18 months.

Buying continued coverage through COBRA won't be cheap.

Another federal law that offers some protection to workers switching group health plans is HIPAA (Health Insurance Portability and Accountability Act). HIPAA imposes limits on the extent to which some group health plans can exclude coverage for pre-existing conditions. For instance, if you've had "creditable" health insurance for 12 straight months, with no lapse in coverage of 63 days or more, a new group health plan cannot exclude your pre-existing conditions. It must cover your medical problems as soon as you enroll in the plan.

Other ways to buy health insurance when you're between group health plans include short-term health insurance and major medical health insurance.

Primer on individual health insurance

If you can't buy group health insurance through work, you may be shopping for a private-market health plan (a.k.a. individual health plan). Unlike group plans, in which the costs and risks associated with health care are spread among many people, individual health policies are "medically underwritten" to take into account your personal health history, occupation, age and gender. Any "pre-existing" condition such as heart disease, diabetes and even pregnancy can nix your chances of acceptance or boost your premiums. Some states require individual health insurers to offer everyone a plan regardless of their health conditions, a mandate known as "guaranteed issue."

Once you have an individual health plan, don’t expect your premiums to remain the same. Health insurance companies often seek permission to raise premiums. Additionally, some states allow health insurers to "file and use" rate increases, which means the insurers only have to submit their increases in writing and then they may immediately begin charging more. Unless state regulators determine the rates are excessive, the insurers are allowed to keep charging the higher premiums.

If you're a college student and you need coverage, your school might offer reasonable health insurance.

No matter what your age, there are several federally sponsored programs to help you if can't afford the premiums for individual health insurance, providing you meet eligibility guidelines.

Medicare: A health insurance program for people age 65 or older, certain younger people with disabilities and people with end-stage renal disease.

Medicaid: A program for the poorest individuals and low-income families with children.

State Children's Health Insurance Program (SCHIP): Plans that provide health care to children whose parents make too much to qualify for Medicaid but earn too little to afford individual health insurance. Some states extend their SCHIP plans to include parents and pregnant women.

Making sense of alphabet soup

Whether you're buying individual or group health insurance, there are several health plan varieties, including traditional indemnity fee-for-service (FFS) plans, health maintenance organizations (HMOs), point of service (POS) plans and preferred provider organizations (PPOs).

Each plan has its own features to consider before making your choice. HMOs, PPOs and POS plans fall under the umbrella of "managed care" plans, which emphasize cost-effective medical care.

Fee for Service (FFS), also called indemnity

FFS coverage offers flexibility in exchange for higher out-of-pocket expenses, more paperwork and higher premiums.

FFS advantages

  • You may choose your own doctors and hospitals. There are no networks.
  • You may visit any specialist without getting permission from a primary care physician (PCP).
  • Most FFS plans have a cap, which is the most you will have to pay for medical bills in any one year. You reach your cap when all your out-of-pocket expenses (deductibles and co-insurance) total a certain amount. The insurance company then pays 100 percent for anything covered under your policy. The cap amount doesn't include your premium.

FFS disadvantages

  • There's typically a deductible (anywhere from $500 to $1,500) before the insurance company starts paying claims, and then doctors are reimbursed 80 percent of the bill while you pick up the remaining 20 percent. You portion is called co-insurance.
  • You might have to pay up-front for medical services and then submit the bills for reimbursement. To receive payment you have to fill out forms and send them to your insurer, or find a doctor who will do this for you. You also need to keep receipts for drugs and other medical costs.
  • FFS plans pay for "reasonable and customary" medical expenses. If your doctor charges more than the average for your area, you will have to pay the difference.
  • Not all health expenses you have count toward your deductible. Only services covered by the policy.

Health Maintenance Organizations (HMOs)

HMOs are often the least expensive in premiums but also the least flexible of all the health insurance plans. A major objective of an HMO is to reduce medical care expenses by increasing the use of preventive health services. HMOs are designed to maintain the individual’s health as well as provide adequate medical care when an illness or injury occurs.

HMO advantages

  • They offer low co-payments, minimal paperwork and coverage for many preventive-care and health-improvement programs.
  • Usually you have a wide selection of physicians and hospitals on HMO plans.
  • Participants pay a small fee (or a co-payment) of usually $15 to $20 for each visit to a physician in the HMO network.
  • Basic health services with an HMO typically include physician services, outpatient services, medical treatment, short-term mental health services and outpatient/inpatient emergency room visits.

HMO disadvantages

  • You must choose a primary care physician (PCP).
  • If your physician is not on the plan, you will have to obtain special permission and pay a higher proportion of the cost of the office visit or you will have to pay for the entire treatment from that physician.
  • HMOs require you to see network doctors, or you'll have to pay most of the bill or all of it.
  • The HMO directly and indirectly controls the amount of health care that the doctor is allowed to provide to you.
  • You must get a referral from your PCP to see a specialist.
  • If you require lab work and don't use a lab physician in the network, you will not be reimbursed for lab work.
  • If your regular physician drops out of the HMO plan, you must look for another physician that is in the plan, or pay a higher cost for using the same physician.

Point of Service (POS) plans

POS plans are more flexible than HMOs, but they also require you to select a primary care physician. A POS plan combines the care aspect of an HMO with the freedom of choice of traditional medical insurance. Sometimes HMOs will include a POS plan to be used for out-of-network benefits.

The POS plan arranges a network of health care providers who will treat plan participants for a small fee or co-payment, but at the time of an illness or injury, the patient may choose to visit a doctor outside the network. You then seek reimbursement from the POS plan.

POS advantages

  • Depending on your insurance company's rules, you may choose to visit a doctor outside the network and still receive coverage — but the amount covered will be substantially less than if you go to a physician within the plan's network.
  • POS plans tend to offer more preventive care and well-being services, such as workshops on smoking cessation and discounts to health clubs.

POS disadvantages

  • You must choose a PCP.

Preferred Provider Organizations (PPO) plans

PPOs give policyholders a financial incentive — reasonable co-payments (also called co-pays) — to stay within the group's network of practitioners.

PPO advantages

  • The standard co-payment is $10 for a routine office visit during regular hours.
  • You may go to any specialist without permission, as long as the doctor participates in the network.

PPO disadvantages

  • If you see an out-of-network doctor, you might have to pay the entire bill yourself and then submit it for reimbursement.
  • The PPO deductible is often the highest among small to midsize employers and rising. The median deductible for individual coverage for PPO plans was $1,000 in 2008, up from $500 in 2007 and $250 in 2000, according a national survey of health plans by Mercer, a human resources consulting firm.
  • You might have to pay a deductible if you choose to go outside the network, or pay the difference between what network doctors and out-of-network doctors charge.
  • PPO plans may charge you higher co-payments than what is specified on the plan if the physician charges more than what is considered “reasonable and customary.”

How to find an individual health plan

You should discuss with your agent your own particular health insurance needs. Think carefully about what coverage you must have. Is your doctor in the network? How much will you pay out of pocket for a routine check-up? How much could you pay out-of-pocket if you have a hospitalization? Are well-child visits included? Do you need prescription drug coverage? What about dental coverage too? .

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