Prozerran
01-23-2008, 2:16 AM
I hope discussion results from this, but if not, so be it. At least I put it out here for your general knowledge and advantage.
In October I began working for a company called United American Insurance. I received my license to sell insurance in December, and for the last 60+ days, I've been helping some of the 46 Million uninsured Americans acquire Health Insurance through our company. This is not a promotional tool. Quite the contrary. There are probably very few of you that live in the state I work in, and those that do are probably kids that have insurance coverage through their parents. So, no, I'm not selling you insurance.
But I've gotta tell you, folks, there's a lot out there you need to know, and I'm not typing this from a book. I've had hundreds of conversations with people already impacted by the problem. Many of the baby boomers from the 60's, 70's, and 80's are coming from a time when health coverage cost them nothing. Every employer offered it through employment. People didn't even have to pay for it. That's not the case now, and if you are in a situation where you don't have it and you live in Florida, you are welcome to bring specific questions to me via PM. I'm happy to answer anything I don't explain below.
Major Medical Insurance is offered in two forms: group and individual. I work in the individual market with business owners and other sole proprietors who don't qualify or can't afford group coverage for themselves or their employees. What is happening is quite unfortunate, because as more employers are forced to move away from group coverage because of cost, more employees (specifically those with pre-existing conditions) are left to find individual coverage. The problem comes with underwriting these people, because if they have a pre-existing condition that isn't insurable, these individuals don't get coverage. Simply put, individual insurance companies do not have to write a policy for you. You have to qualify for coverage.
So, if you're an individual that has a pre-existing condition and your employer just dropped his group plan, you have an 18 month period where you can enroll in COBRA. This is guaranteed issue, meaning they cannot deny coverage to you for those 18 months. The costs are, again, incredibly high and more often people cannot afford to pay for it. Following this, you have to either find a job that offers group health insurance or find an insurer to write you insurance at guaranteed issue that isn't higher than what you're already paying with COBRA.
Now, contrary to what most people generally think, that health insurance should completely cover you (I used to believe this), insurance today does nothing of the sort. You essentially have two options of what we in the industry call "exposure." That means "what you as the insured individual pay on any given incident." You can opt for front end exposure where you pay a higher premium with a deductible and get stronger performance with a small amount of exposure on the back. Take, for instance, a couple who begins a policy on January 1st paying $400 per month with a $1000.00 deductible who are in good health and both share the same birthday, July 1st. Here's the typical scenario over the average span of 18 months:
The first year, the couple pays $400 until their respective birthdays. Their policy is a major medical plan where the premium increases as their age changes. In addition, on each annual renewal of the policy, the premium increases again. So, they go from $400 per month to about $480 in the span of a year. The following year, they have their annual increase and their premium increases once more, getting us to $500 per month. Now, let's assume the wife goes to the hospital once in the first year for something minor and once the next year for something major (and there's so much more involved here in the cost, but I'll try to keep this simple). The first time, she just suffers a deep cut and needs stitches. It costs her $500, and that's out of pocket because the annual deductible is $1000. The next year, she gets in a major car wreck and suffers injuries, she's in the hospital for 4 days recovering, and her total bill is around $75,000. Here's what happens financially in this time period.
$400 for the first 6 months = $2400.00
$480 for the next 6 months (attained age increase) = $2880.00
$500 for the stitches in the first year brings us to a total expense of $5,780.00
The following year:
$500 for the first 6 months (annual policy increase) = $3000.00
$1000 for the deductible before insurance takes over with the car wreck = $1000.00
Here's what people don't know about insurance. That $75,000.00 isn't all paid by the policy. See, there is such a thing called Coinsurance on certain portions of the policy. They minimize the costs on the "back end", but they do not completely cover all costs. On the kind of policy we're talking about here, let's take another easy number to factor in for coinsurance. I'm going with another $750.00, or 1% of the total hospital bill. Get it yet?
You're looking at a total cost for the insurance and the claim in the amount of roughly $10,530.00, $5,000.00 per year. Where do you think all that money for your protection goes? Well, it's an insurance company, and these companies don't make money by being benevolent.
There is another option, one that I believe is more sound in reason and design. See, in individual coverage, there's always going to be coinsurance. You can't get around it in most cases, even if you add a supplement that would pay the extra expenses. This involves a tricky little thing called the "Coordination of Benefits" that many companies try to avoid offering or even telling you about unless you're buying two products from them and keeping it all under the same company. The standard coinsurance is 80/20, or 80% paid by the company, 20% paid by the client.
What I sell is insurance that lowers your exposure on the front end while opening it just a bit more on the back with policy limitations (all policies have limitations, even major meds, but our limitations are more restrictive). So, in essence, the idea is to use "issue age" to lock in the premium so rates don't increase, eliminate the deductible so benefits start on the first dollar, and negotiate the price with the hospital (all PPO's do this, it just so happens that major meds don't do it well because of their financial stability and cost exposure to claims - it's not essential that you know this to understand, but it helps to know for your benefit). Take the same couple, let's cut the cost and apply the same scenario.
Couple pays $250 per month locked in. No annual deductible. Negotiation of 50% in force (general rule of thumb here, don't count on 50% reduction of cost on everything, some costs will be negotiated by 30%, others by 60% or more). Now, what happens.
The couple pays their $250 premium for 18 months (1.5 years): $4500.00
The stitches cost $500. With no annual deductible, let's assume a minimum 20% negotiation of the bill.
$400 with 80/20 coinsurance brings the cost to the client at: $80.00
That $75,000.00 hospital bill... wow. Ok, so what happens now? First, you can count on at least 50% or more the higher the amount (hospitals aren't stupid, they know that the more the amount the longer they have to wait for payment if they get any of it at all), because a majority of that cost is associated with the hospital expenses on their own, not including the surgery. Let's go with a moderate 60% of the bill is negotiated down and the rest is paid. 40% of 75,000 is 30,000 (60% was taken off the bill, and more often it's 70% depending on the insurance company). That's right, the negotiation takes place first (another rule of thumb if you have individual coverage with a PPO: DO NOT PAY THE HOSPITAL UNTIL THE INSURANCE COMPANY TELLS YOU WHAT YOUR COST IS. IF YOU PAY BEFORE THE INSURANCE COMPANY NEGOTIATES, YOU LIMIT THEIR ABILITY TO NEGOTIATE OR RECOVER THE MONEY IF NEGOTIATION TAKES PLACE LATER).
So, let's take our $30,000.00 amount and apply the 80/20. 20% of $30,000 is $6,000.00. So, now, let's add up all our costs for this second example.
$4,500 for premium for 18 months.
$80 for the stitches.
$6000 exposure from the car wreck.
$10,580.00 for the PPO with no deductible and a locked-in premium per month. And our first example was $10,530.00. Did I rig the numbers? Absolutely not. I used the same example with two different policies, one of which I work with. But I use this to illustrate a very important point for you about health insurance.
First and foremost, people, health insurance is not security. You're going to pay the same amount regardless of whether you spend more on the front or more on the back. But look at the difference if you never go to the hospital and you're on the major med... $2400, $2880, and $3000 from the example above in premium alone is $8280.00. With the alternative, you're spending $4500 ($250 x 18 months). Do you understand where the major medical companies are making the money? Because it's really very, very simple.
They sell their product on the basis of security, by minimizing costs on the back and charging you more up front. But does it make sense to spend that much money for something that hasn't even happened or is even less likely to happen to the vast majority of people who hold these policies?
I'm proud that I do what I do right now, but I'm also very disgusted at times by what I learn about the industry. This is just one of many dirty little things I've learned. It's a product that sells on the basis of alleviating the fear of further financial loss for the sake of charging more up front. If anyone has anything extra to add to this (their own experience or maybe industry knowledge), I'm more than happy to hear it. But this is the discussion, I hope I haven't bored everyone to tears, and I hope I've been of some help to those of you getting out of college that don't know what kind of circus they're about to be in. It's crazy out here. MAD CRAZY!
In October I began working for a company called United American Insurance. I received my license to sell insurance in December, and for the last 60+ days, I've been helping some of the 46 Million uninsured Americans acquire Health Insurance through our company. This is not a promotional tool. Quite the contrary. There are probably very few of you that live in the state I work in, and those that do are probably kids that have insurance coverage through their parents. So, no, I'm not selling you insurance.
But I've gotta tell you, folks, there's a lot out there you need to know, and I'm not typing this from a book. I've had hundreds of conversations with people already impacted by the problem. Many of the baby boomers from the 60's, 70's, and 80's are coming from a time when health coverage cost them nothing. Every employer offered it through employment. People didn't even have to pay for it. That's not the case now, and if you are in a situation where you don't have it and you live in Florida, you are welcome to bring specific questions to me via PM. I'm happy to answer anything I don't explain below.
Major Medical Insurance is offered in two forms: group and individual. I work in the individual market with business owners and other sole proprietors who don't qualify or can't afford group coverage for themselves or their employees. What is happening is quite unfortunate, because as more employers are forced to move away from group coverage because of cost, more employees (specifically those with pre-existing conditions) are left to find individual coverage. The problem comes with underwriting these people, because if they have a pre-existing condition that isn't insurable, these individuals don't get coverage. Simply put, individual insurance companies do not have to write a policy for you. You have to qualify for coverage.
So, if you're an individual that has a pre-existing condition and your employer just dropped his group plan, you have an 18 month period where you can enroll in COBRA. This is guaranteed issue, meaning they cannot deny coverage to you for those 18 months. The costs are, again, incredibly high and more often people cannot afford to pay for it. Following this, you have to either find a job that offers group health insurance or find an insurer to write you insurance at guaranteed issue that isn't higher than what you're already paying with COBRA.
Now, contrary to what most people generally think, that health insurance should completely cover you (I used to believe this), insurance today does nothing of the sort. You essentially have two options of what we in the industry call "exposure." That means "what you as the insured individual pay on any given incident." You can opt for front end exposure where you pay a higher premium with a deductible and get stronger performance with a small amount of exposure on the back. Take, for instance, a couple who begins a policy on January 1st paying $400 per month with a $1000.00 deductible who are in good health and both share the same birthday, July 1st. Here's the typical scenario over the average span of 18 months:
The first year, the couple pays $400 until their respective birthdays. Their policy is a major medical plan where the premium increases as their age changes. In addition, on each annual renewal of the policy, the premium increases again. So, they go from $400 per month to about $480 in the span of a year. The following year, they have their annual increase and their premium increases once more, getting us to $500 per month. Now, let's assume the wife goes to the hospital once in the first year for something minor and once the next year for something major (and there's so much more involved here in the cost, but I'll try to keep this simple). The first time, she just suffers a deep cut and needs stitches. It costs her $500, and that's out of pocket because the annual deductible is $1000. The next year, she gets in a major car wreck and suffers injuries, she's in the hospital for 4 days recovering, and her total bill is around $75,000. Here's what happens financially in this time period.
$400 for the first 6 months = $2400.00
$480 for the next 6 months (attained age increase) = $2880.00
$500 for the stitches in the first year brings us to a total expense of $5,780.00
The following year:
$500 for the first 6 months (annual policy increase) = $3000.00
$1000 for the deductible before insurance takes over with the car wreck = $1000.00
Here's what people don't know about insurance. That $75,000.00 isn't all paid by the policy. See, there is such a thing called Coinsurance on certain portions of the policy. They minimize the costs on the "back end", but they do not completely cover all costs. On the kind of policy we're talking about here, let's take another easy number to factor in for coinsurance. I'm going with another $750.00, or 1% of the total hospital bill. Get it yet?
You're looking at a total cost for the insurance and the claim in the amount of roughly $10,530.00, $5,000.00 per year. Where do you think all that money for your protection goes? Well, it's an insurance company, and these companies don't make money by being benevolent.
There is another option, one that I believe is more sound in reason and design. See, in individual coverage, there's always going to be coinsurance. You can't get around it in most cases, even if you add a supplement that would pay the extra expenses. This involves a tricky little thing called the "Coordination of Benefits" that many companies try to avoid offering or even telling you about unless you're buying two products from them and keeping it all under the same company. The standard coinsurance is 80/20, or 80% paid by the company, 20% paid by the client.
What I sell is insurance that lowers your exposure on the front end while opening it just a bit more on the back with policy limitations (all policies have limitations, even major meds, but our limitations are more restrictive). So, in essence, the idea is to use "issue age" to lock in the premium so rates don't increase, eliminate the deductible so benefits start on the first dollar, and negotiate the price with the hospital (all PPO's do this, it just so happens that major meds don't do it well because of their financial stability and cost exposure to claims - it's not essential that you know this to understand, but it helps to know for your benefit). Take the same couple, let's cut the cost and apply the same scenario.
Couple pays $250 per month locked in. No annual deductible. Negotiation of 50% in force (general rule of thumb here, don't count on 50% reduction of cost on everything, some costs will be negotiated by 30%, others by 60% or more). Now, what happens.
The couple pays their $250 premium for 18 months (1.5 years): $4500.00
The stitches cost $500. With no annual deductible, let's assume a minimum 20% negotiation of the bill.
$400 with 80/20 coinsurance brings the cost to the client at: $80.00
That $75,000.00 hospital bill... wow. Ok, so what happens now? First, you can count on at least 50% or more the higher the amount (hospitals aren't stupid, they know that the more the amount the longer they have to wait for payment if they get any of it at all), because a majority of that cost is associated with the hospital expenses on their own, not including the surgery. Let's go with a moderate 60% of the bill is negotiated down and the rest is paid. 40% of 75,000 is 30,000 (60% was taken off the bill, and more often it's 70% depending on the insurance company). That's right, the negotiation takes place first (another rule of thumb if you have individual coverage with a PPO: DO NOT PAY THE HOSPITAL UNTIL THE INSURANCE COMPANY TELLS YOU WHAT YOUR COST IS. IF YOU PAY BEFORE THE INSURANCE COMPANY NEGOTIATES, YOU LIMIT THEIR ABILITY TO NEGOTIATE OR RECOVER THE MONEY IF NEGOTIATION TAKES PLACE LATER).
So, let's take our $30,000.00 amount and apply the 80/20. 20% of $30,000 is $6,000.00. So, now, let's add up all our costs for this second example.
$4,500 for premium for 18 months.
$80 for the stitches.
$6000 exposure from the car wreck.
$10,580.00 for the PPO with no deductible and a locked-in premium per month. And our first example was $10,530.00. Did I rig the numbers? Absolutely not. I used the same example with two different policies, one of which I work with. But I use this to illustrate a very important point for you about health insurance.
First and foremost, people, health insurance is not security. You're going to pay the same amount regardless of whether you spend more on the front or more on the back. But look at the difference if you never go to the hospital and you're on the major med... $2400, $2880, and $3000 from the example above in premium alone is $8280.00. With the alternative, you're spending $4500 ($250 x 18 months). Do you understand where the major medical companies are making the money? Because it's really very, very simple.
They sell their product on the basis of security, by minimizing costs on the back and charging you more up front. But does it make sense to spend that much money for something that hasn't even happened or is even less likely to happen to the vast majority of people who hold these policies?
I'm proud that I do what I do right now, but I'm also very disgusted at times by what I learn about the industry. This is just one of many dirty little things I've learned. It's a product that sells on the basis of alleviating the fear of further financial loss for the sake of charging more up front. If anyone has anything extra to add to this (their own experience or maybe industry knowledge), I'm more than happy to hear it. But this is the discussion, I hope I haven't bored everyone to tears, and I hope I've been of some help to those of you getting out of college that don't know what kind of circus they're about to be in. It's crazy out here. MAD CRAZY!