Understanding the Business of Health Care

Most people can get a handle on the business end of cancer treatment from their own point of view, and from the point of view of the hospitals, doctors, therapists and treatment centers.  You know what a bill is.  You no doubt can appreciate that pharmacists need to be paid for the drugs they dispense, that surgeons need to be paid for their expertise and the equipment they use, that diagnosticians have to be compensated for their labor and for the cost of the expensive equipment they use. 

Where things get complicated, financially, is when insurance becomes involved.  Sometimes it seems like health insurance companies wave a magic wand over bills that make additional, magical , difficult to decipher numbers appear at random all over them.  To understand the business of health care is really to understand the business of insurance.  One of the most important steps in getting a handle on your health finances is getting a handle on health insurance. 

Insurance works on a simple principle: we pay a small amount of money to a company, who in turn guarantee to cover certain large expenses we may, or may not, face in the future.  Insurance companies make money by calculating the odds that anyone in a large population will need them to make good on their promise, and then collecting more money from all their clients put together than they will need to pay out to the few who need it.  The business of health insurance is to ensure that more money is collected than is paid out, by increasing the amounts of money collected and decreasing the amounts of money paid out.  Once you understand this basic principle, you will understand a great deal about how insurance companies work. 

Having said all that, things get a lot more complicated in practice.  There is no one “kind” of health insurance: there are several kinds.  Within each kind, there are different plans which cover a lot of expenses, and some which cover few.  Most health insurance plans, however, use the same terminology to explain their coverage.  Here is a quick glossary of some commonly used “health insurance business” terms:

• Coinsurance: this is the amount that the insurance company expects you to contribute as your “share” of medical expenses.  It is usually expressed in terms of a percent of costs, often around 20 percent.
• Copay: a type of ‘coinsurance’ in which, for certain services, you pay a fixed dollar amount up front and the insurance company pays the rest. Copays are usually around $15 to $30, and usually apply for regular doctor’s appointments or trips to an emergency room.
• Deductible: the amount of money a patient pays out of their own pocket for a particular medical service or product.  This amount is usually set on a yearly basis and can vary greatly from plan to plan.  Once this deductible is “met,” the insurance company will begin to carry a greater amount of medical costs based on the specifics of the plan.
• Premium: the amount you and / or your employer pays to a health insurance company on a regular basis to pay for your coverage. 

Here is an overview of the most basic types of health insurance plans and how they work.

Indemnity Insurance

An indemnity health plan allows you to choose any doctor, hospital, or health care facility you want for treatment.  That’s the benefit of the plan.  The downside is that this freedom of choice often comes at a price.  The insurance company usually sets what it believes is an appropriate “cost” for a particular service, then promises to pay a set portion or percent of that cost.  If a doctor, hospital or treatment facility chooses to charge more for that particular service, you are left to pay the difference.  Many indemnity policies also have lifetime limits.  A limit of at least $1,000,000 is recommended by most experts. 

Health Maintenance Organizations (HMOs)

HMOs are the least expensive of all managed care health insurance plans.  For the sake of a lower premium, you choose to use only the health care centers and medical professionals approved by your insurance plan to offer you treatment.  This often limits the geography where you can receive services.  If you travel, for example, to an area where your HMO has no facilities, you may end up paying as much as 100% of your medical care.  In the event that you need to be treated for cancer, an HMO plan may greatly restrict your choice of doctors and treatment centers.  However most treatment within the HMO system comes without or with very little copay and coinsurance, and a great many services come at highly reduced fees.

Preferred Provider Organizations (PPOs)

More expensive than HMOs but less expensive than an indemnity policy is a PPO plan.  Patients have more choice when it comes to selecting a doctor, but the lowest costs come from choosing treatment from a physician or treatment center from the PPOs “preferred” list of providers (hence the name, PPO).  There are generally different costs for being treated by someone who is a preferred provider and someone who is not.  Unlike HMOs, there is usually no need to get approval for treatment by someone not on the preferred provider list. 

Point of Service Plans (POSs)

In a POS plan, patients can choose their own physician as in a PPO or indemnity plan, but only from a list of physicians who have previously agreed to provide services at a discounted fee.  You need to have a chosen “primary care” physician, who will be the one to refer you to a specialist if required.  If you need a different or another specialist, you must once again refer your primary care physician. 

Understanding Insurance Companies

In the American system of health care, insurance companies are encouraged to look out for their own interests first, and for your interests only if they are in line with their own.  It is important to remember this when you run into difficulty with a health insurance company.  In negotiating with them, try and find ways to paint a solution in such a way that the benefit to the health insurance company – even if the benefit is simply avoiding bad publicity – outweighs the disbenefit.