How Insurance Agents Can Find Creative Solutions to the High Cost of Health Coverage

Posted on August 31, 2010.

Author: Frank N Darras

Whether your client is an individual, a family of five, or a company of 700, the rising costs of medical insurance impacts them all. How is the average American supposed to afford today's astronomical increases in insurance rates? What was once assumed to be standard in any company's benefits package is not necessarily available today. Companies are cutting back and either no longer provide medical insurance at all or have limited the benefits they will offer to employees.

Some of your clients may question whether they even need health insurance if they are healthy and don't have a family history of illness. But that could be very risky thinking, as no one knows when an accident might happen.

At the very least, everyone should have some sort of coverage that protects them against major illnesses and catastrophic events. But if you're hearing objections such as, "I can't afford insurance" or "I don't need a full insurance plan right now," don't despair. There are plenty of options to choose from that can meet your clients' coverage needs.

Traditional coverage

Traditional medical insurance covers such things as accidents, illness, and injuries. Some policies cover physical therapy, home care, and psychological services. A few policies even cover alternative medical care such as acupuncture. Typically, the more a plan covers, the higher the premiums. Be sure to evaluate the essence of what coverage your client needs, and cover only that – no more, no less.

As far as medical insurance is concerned, you should consider several companies and their benefits and costs before choosing the one that is the best fit for your client. Full disclosure is key; keep your client informed every step of the way.

Indemnity plans

If your client can afford the up-front costs of medical care, indemnity plans will reimburse them for medical expenses, with no restrictions on which medical professionals they can see. There is a deductible and reimbursement is based on a percentage of the expense they incur.

Managed care plans

Another option is managed health care plans, which are quite popular these days. In a managed care plan, the cost of medical care is managed by the insurer. It is their job to negotiate rates with different medical care entities. HMOs (health maintenance organizations) and PPOs (preferred provider organizations) are managed health care providers.

The upside is that the premiums are less expensive. The down side is that the plans restrict the insurer to a list of physicians, service providers, and locations the insured can use to get medical attention. A deductible of some sort is also mandatory in most cases.

Consumer-driven health care

Some people who like to make their own choices prefer to use a health care spending account. Funds can be placed in a non-taxable account to cover deductibles, vision care, and other medical expenses not covered by standard insurance policies. It is best for clients to spend a little time each year estimating how much money they need to place into this account and then budgeting for monthly deposits to ensure the money is securely put aside. Most health care spending accounts are not available on the individual market.

There are three types of health care spending accounts:

Flexible spending accounts (FSA) are employer-established benefit plans that reimburse employees for specified medical expenses as they are incurred. There is no statutory limit on the amount of money that can be contributed to health care flexible spending accounts. However, some companies place a limit of $2,000 to $3,000 on flexible spending accounts. By law, the employee forfeits any unspent funds in the account at the end of the year.

The second type of health care spending account is a medical savings account. Medical savings accounts are savings accounts used to pay for unreimbursed health care expenses. In order to qualify, the employee must be covered by a high-deductible health insurance plan and must be self-employed or employed by a firm with 50 or fewer employees. Savings are rolled over every year and are portable, regardless of employment status.

The third type is health reimbursement arrangements. Health reimbursement accounts consist of funds set aside by employers to reimburse employees for qualified medical expenses, just as an insurance plan will reimburse covered individuals for the cost of services incurred. All unused funds are rolled over at the end of the year.

What to recommend

The decision about which health insurance plan to enroll your client in is an important one. In order to determine which is best for them, use the following checklist:

Evaluate the overall health of the client and their family.

Look at how much they spend on medical services in a year (pull receipts and statements from the previous year if needed).

Consider several different insurance companies and/or products.

Keep your client informed along the way.

Understand completely what each provider offers (even the fine print) – and make sure your client understands it, too.

After you have done your comparison of carriers and their offerings, compare the annual cost of premiums to your annual costs for services.

Determine the type and level of medical insurance you need.

Medical insurance can be expensive, but with some time and effort, you can feel satisfied that you have made the most cost-effective decision you can for your client.

Frank N. Darras is an insurance lawyer specializing in disability, long term care, life, health, and more. He can be reached at 800-458-4577.