by Robert I. Field, J.D., Ph.D.
What’s the point of health insurance if it doesn’t cover much?
Many policies today are so skimpy they leave patients with thousands of dollars in medical bills even after the coverage kicks in. They’re hardly worth the cost of the premiums.
This kind of barebones policy is sold mostly to individuals, rather than through employers. If you get your health insurance at work, odds are you have good coverage. But if you buy it straight from an insurance company, there’s a good chance you do not.
A recent study financed by the nonprofit Commonwealth Fund revealed just how big the difference is between individual and employment-based coverage. (Click here to see the study, itself.) It found that over half of all individual policies cover less than 60 percent of medical costs. (This percentage is known as the policy’s actuarial value.) Another third covers only between 60 and 69 percent.
Patients with these policies pay an average of $4,127 a year out of their own pockets for costs that are not covered by insurance. Those who are very sick can find themselves paying much more, over $27,000 a year in some cases.
The opposite is true for employer-sponsored insurance. Almost two-thirds of people enrolled in these plans are covered for more than 80 percent of their medical expenses. Less than one percent of them have a barebones policy that covers less than 60 percent. Average out-of-pocket spending is much lower at $1,765.
This situation will change under health reform. Starting in 2014, policies that are sold directly to individuals must cover at least 60 percent of medical costs. They must also include a broader range of benefits, including treatment for pre-existing illnesses. Coverage will be offered through insurance exchanges that will enforce these requirements.
As a result, the gap in coverage between individual and employment-based policies will shrink dramatically or possibly even disappear.
The days of facing ruinous levels of unreimbursed expenses if you have an individual policy will largely be over. The law caps annual out-of-pocket costs at $6,050 for individuals and $12,100 for families.
Of course, better coverage may mean higher costs. Premiums could rise if insurance companies have to pay more in claims.
However, several factors will lessen the impact on consumers. For one, the exchanges will reduce overhead costs for insurance companies by taking care of many administrative aspects of selling policies.
For another, many more people will be purchasing individual policies under health reform - as many as 16 million more according to some estimates. That means the cost of insuring patients with expensive conditions will be spread over a much larger group of people.
And government subsidies will help those with lower incomes cover the cost of premiums.
So, if you have to buy health insurance on your own, it will be easier to find coverage and the coverage you find will be more extensive.
Unless, of course, the Supreme Court rules against the law. Then, it will be back to the drawing board for guaranteeing that everyone can get health insurance that is worth having.
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