Discount health
plans in the
California insurance
market
Over the last 10
years, as
California
health insurance
costs have increased
significantly, there
has been an
explosion in both
the availability and
marketing of so-called
discount health
plans as we term
them in the
industry. It's
important to
understand how they
work and more
importantly, how
they do NOT work.
First a quick
refresher on the
whole point of
health insurance
protection to begin
with. Health
insurance is coming
full circle back to
its original design
and intent.
Originally, health
insurance was
structured to
actually protect
from the really big
bill.
Typically, you had a
choice of
high
deductible and a
very simple plan
design. As the
market matured, copays,
co-insurance, and
other bells and
whistles began to
appear. This
trend started in the
group health
insurance market.
Group health plans
became a tool to for
attracting and
keeping valued
employees.
This benefits "arms
race" came with a
price tag. In
the early 90's,
medical claims and
the resulting
premium increase
exploded on to the
scene. In
response, plan
designs retreated
towards their
original form with
higher deductibles.
The advent of
Discount health
plans
Around this time,
advertisements began
to appear for plans
that were
significantly lower
- even $10 monthly.
What were these
plans and more
importantly, how
were the companies
able to offer them
for such a low
monthly premium.
These were the
"discount plans".
Essentially, a
discount plan allows
the member to take
advantage of
negotiated rates
across a network.
This is the same
discount afforded to
PPO members when
they use a PPO
provider. The
discount plans can
reduce the cost of
the medical care by
a certain percentage
(usually 30-60%) but
they lack the one
crucial feature of a
California
comprehensive health
insurance plan...the
maximum
out-of-pocket.
This max out of
pocket is the real
reason to have
health insurance or
any type of
insurance for that
matter. The
whole part of
insurance is to cap
your exposure in a
given situation of
catastrophic health
issues. The
problem with
discount plans is
that they typically
do not have a cap on
the back-end.
This means that with
a $100,000 health
claim, you may have
it discounted by 40%
but you're still
responsible for
$60,000. The
underlying health
insurance costs have
skyrocketed and it's
possible to have
claims of 100's of
thousands of
dollars...especially
for facility based
care (hospital, surgicenter, etc).
I good way to tell
if a prospective
plan is a "discount
plan" is the
pricing. If it
seems to good to be
true, it probably
is. They other
big determining
factor is if they
advertise that they
that you cannot be
declined due to
health. For
individuals and
family health
insurance plans in
California, people
are required to go
through
medical
underwriting, which
means that they must
qualify based on
health. This
doesn't apply to
Group health
insurance plans
which are guaranteed
issue. If the
ad says that you
will not be
declined, that is a
clear signal that
there is an issue.
In health insurance,
there is something
called "Adverse
Selection".
This means that a
plan which attracts
higher risk members
will eventually
collapse under the
weight of its claims
issues. The
only way a discount
plan can avoid this
"adverse selection"
is to not really pay
claims. They
are offering
discounts...not
payments to claims.
Alternatives to
discount plans
It's important to
make sure you cover
the big bills.
To keep costs down,
we recommend quoting
the lowest cost,
comprehensive plans
on the market.
This typically falls
under the HSA
(Health Savings
Accounts) or high
deductible plans.
The nice thing about
the HSA plans is
that they are
comprehensive...they
don't carve out
benefits as some of
the hospital plans
on the markets do.
You can run your own
individual/family
health plan instant
quote on HSA and
other health plans.
