The 4 Core Things You Buy with Health Insurance Premiums
Month after month, small businesses in Hampton Roads send a check to an insurance company for health insurance. Each time—especially as prices have risen so quickly and the ‘Obamacare’ politics linger as top-of-the-fold news—folks might wonder, “Where is all this money going?”
Here’s the answer:
1. Peace of Mind
This is the single-most important ‘commodity’ that health insurance—or any insurance—ostensibly offers. With appropriate insurance, you should be considering whether you’d be able to manage an unexpected calamitous event with minimal financial devastation.
A proxy term for ‘Peace of Mind’ that insurance companies use to measure financial risk exposure is, “Out of Pocket Max,” which is the total amount you pay—above your premiums—for healthcare. In a given year. If you stay in network. And get things pre-authorized appropriately. And the care is deemed medically necessary.
2. Network ‘Discounts’
This is trumpeted as how much you save by buying a health insurance plan from a company and using the providers (doctors, hospitals, pharmacies) that it has contracted with.
Say a doctor charges $300 for a particular service. If she has a contract with Happy Rhino Insurance Company, and you have Happy Rhino insurance, then she may have agreed to accept only $200 for the right to see patients with Happy Rhino insurance. If you have a plan with a co-pay, which most people are used to having, then you may only pay $25 and Happy Rhino would pay her the other $175. If you have a Health Savings Account (HSA) -eligible high-deductible plan, then you’ll likely pay the full ‘discounted’ rate of $200 until you meet that deductible.
If she doesn’t have a contract with Happy Rhino? Well, depending on the network that comes with your plan—a limited health maintenance organization (HMO) network, or extended access with a preferred provider organization (PPO)—then you’ll either be responsible for all $300 (HMO) or whatever part of the expense Happy Rhino doesn’t pay (PPO).
If you’re uninsured? Oh, that’ll be $300.
(For some background on where the “$300” price came from, learn more here.)
3. Participation in a Social Contract
A core premise of any insurance is that a significant majority of buyers won’t need the financial benefits, thereby helping to manage the unexpected burden of the few in need. Fire insurance on a house is not overly expensive, but also rarely needed. So, when houses do burn down, there is a pot of money gathered from many different individuals to help assuage the expense of the unfortunate few.
As mentioned previously, this is the Peace of Mind—the most vital part of any insurance purchase—that comes with managing an unexpected calamitous event with minimal financial devastation.
4. Preventive Care
This included component is fairly new, required by the Affordable Care Act, and counterintuitive to the purist’s interpretation of ‘insurance.’ Preventative care is a fixed cost that is, almost by definition, not an unexpected event. Nor is it calamitous. It’s generally predictable and routine.
In over-simplified theory, and with the proper stakeholders, preventive care averts the unexpected, calamitous events that have not yet happened. Thereby saving lives and saving money.
At least, that’s the theory.
About the Expert