California Health Insurance
The Big Bill
The Small Bills
Introduction to California health insurance
Okay...so you've visited countless websites,
received instant quotes and colorful benefit
descriptions with enough small print to make you
scream...WHAT DOES IT ALL MEAN (and who writes
we didn't write it but after years of reading it,
we have boiled down the various plans to 5 key
elements...and if you understand just these
points...you will be able to walk into the health
insurance market with confidence (and a fair
amount of sanity left).
before we get started, let's list the 5 points:
1. Doctor doctor...which doctors you
can see and how that access is handled
Premium premium premium...are people paying
much to over-insure the small bills??
3. The Big What-if...the
real reason you are buying health
4. Pennies on the
Nickel??...from the doctor visit to the
broken leg - getting the real story on the small
5. RX dollars...prescription
coverage going up up up
Now granted, there are tweaks and twists between
the plans, but with the above 5 points, you
already have 90% of it...the other 10% you can ask
let's get started. HMO, PPO, EPO...what does
it all mean. We will take a good look at
what they are but more importantly...how they
affect your care. Let's take a closer
the doctor network - HMO, PPO, EPO and how it affects
HMO...PPO...EPO??? What does it all mean.
Well... rather than give you the long version of
each term, let's get to the heart of what each is,
and more importantly, how it affects you.
a stroll down medical memory lane. Up until
the mid 80's (wow...last century), medical
insurance was pretty straight forward. You
can go to any doctor and the insurance company is
going to pay a certain amount. It was around
this time however, that they came up with
"managed care". And voila, terms
like HMO, PPO, and EPO made their entrance.
Well what are they?
are essentially volume discounts.
order to control costs, the insurance company went
to doctors and said, "Look. If you join
our PPO, we'll bring you a lot of customers (us
the insured) but we want you to discount your
costs 30-60%. That $100 doctor visit should
be $60. And if you join our HMO, we'll pay
you $50/month for each person who signs up with
you. In turn, there will be a lot of people
to make up for this discounted amount.
there are variations in a contract between
insurance companies and doctors, but essentially,
they are offering volume discounts to help contain
medical cost inflation...and it worked!!
From the early 90's to about 1997...all was
relatively calm on the insurance premium front.
We may have reached the extent of what managed
care can do as premiums have risen significantly
Now that we have a behind-the-scenes view of what
HMO, PPO, and EPO are from a doctor point of
view...how do they affect us??
let's break each one down.
the old way (Fee for Service) was that you can go
to any doctor you wish, then the HMO
(Health Maintenance Organization) is the polar
opposite. You choose one doctor up
front, and essentially most (if not all) care is managed through
that doctor and with a local hospital and medical
group. This doctor is referred to as a
Primary Care Physician and he or she makes most
decisions on care and/or referral to quotes.
The trade-off with this highly structured system
is that the benefits are very rich...i.e. low
out-of-pocket expense when you get sick or hurt.
Some people swear by it...others swear at it.
It works for people who are flexible and want
low-out-of-pocket expense. You typically do
not find HMO's available in rural areas...because
remember, they need lots of people to make it
Back to our spectrum, the PPO's (Preferred
Provider Organization) are somewhere in between
the "go to any doctor" method of
the past and HMO's "choose one
doctor/hospital". There is an extensive list of
doctors and hospitals in California from which you can go to. You refer yourself
out to quotes and you are not locked
into one area or one doctor. You receive the
negotiated rates (30-60% discounts mentioned
above) with a PPO plan which can amount to
significant savings. That being said, you
will help pay along the way...either in the form
of a percentage or a deductible (we'll get into
these in section 4). Now with PPO's, you can
go to doctors who are not in the network but then
your benefits are significantly reduced.
Why?? These doctors are not offering the
"volume discount" we mentioned above.
variation not as often seen is an EPO
(Exclusive Provider Organization). An EPO
has the exact same doctors/hospitals as the PPO
list but with no out-of-network benefits. If
you go to a doctor not listed on the EPO list, you
have no benefits.
more interesting facts:
a true emergency (and be very conservative on this
definition...it better be serious!!), your
benefits will likely cover you even out of the
Sometimes doctors participate in HMO and PPO...sometimes
just one of them. You can verify your
HMO or PPO question is really the big one to
answer first if possible. You can always ask
us to explain further the differences between the
premium premium. Just like real estate, it's
critical when choosing a plan. But don't
assume that a more expensive plan is necessarily
better for you. Let's take a closer look...
amount you pay each month to keep the policy in effect...but there's more
Such a loved topic...health insurance premiums.
Just the thought can raise blood pressure faster
than the actual rates seem to go up. Let's
take a closer look and find out why an expensive
plan might not necessarily be the right plan.
is a pretty straight forward contract...as long as
you pay the premiums...the insurance carrier will
cover you, but what exactly are we paying for?
Before we take a look at big bills and small
bills...etc...you need to understand a fundamental
truth about health insurance.
If you are getting great benefits for the smaller
bills...believe me...you are PAYING FOR IT. It's
the equivalent to buying a car warranty that also
covers a weekly car-wash, oil change every 3,000
miles, and a new set of tires every two
years....sounds great but the cost would be so
high...no one could afford it!! Health
insurance is very similar...
A simple example will help explain
say you have a PPO High-deductible at $50/month
that mainly covers the big bills...any small stuff
will be your responsibility. Compare that to
a 30% PPO plan for $170/month that will cover
right away...leaving you to pay 30%. That
means your doctor visit is going to be pretty
cheap. Remember, it will handle the big
bills pretty much the same.
Now the first reaction to our $50 plan
is..."You mean I HAVE to pay for the doctor
visits and anything else up to $2,400???
That doesn't sound too good!!"
But let's look at it more closely...The difference
in premium is $120/month. That's
$1,440 a year. That's a lot
of small bills you better be having in order to
get any value out of the more expensive plan.
So you're paying a definite $1,440 to cover a
potential $2,400 expense. That's not smart
insurance. You want to pay pennies on the
dollar...i.e. protect with $50/month from a
potential $20,000+ surgery bill.
Some other interesting facts on premiums:
increases tend to hit the most expensive plans
hardest. Why?? We are now in a period
of extreme medical inflation. As mentioned
in the previous section, managed care (HMO's and
PPO's) did a pretty good job of keeping costs down
but there is only so much they can do and the
results have shown over the last three years.
So with this rate increase, the plans that are
paying the majority of the bills will feel it the
most. Typically it has been the HMO's and
Sometimes, a person can save money by splitting up
policies. For example: a family rate
is based on the average...father, mother, 2
children. If you have 1 child and a
significant difference in age between father and
mother...it may be better to have older spouse
alone and other younger spouse and child together.
Try the different options or
us your situation and we will find out the
real reason you buy health insurance...The big
what-if. It sounds ominous but a car
accident can quickly add up to $80-100,000 of
medical expenses. Let's look at how the
plans handle this big what-if...
real reason to buy health insurance...The "Big What-if"
I hear it almost daily..."I'm healthy - what
do I need health insurance for??"
average person lands in the hospital every seven
years. Almost 50% of bankruptcies in the
U.S. are the result of a sudden medical condition
or accident...and believe me...they were all
is a double-edged sword in today's medical world.
Improvement in medical technology and capability
is unprecedented with even further developments
around the corner through new genetic
advancements. All this is great but as the
capabilities increase so do the resulting costs.
The possibility for the large medical bill is
really why you need health insurance and this
should be ultimately what your plan protects
out of Pocket
plans handle this Big What-if with a "maximum
out-of-pocket", quite possibly the most
important part of your medical plan.
basically means, if you have a big bill (or a
series of bills) when does the plan pay at 100%.
Of course, this maximum applies to in-network (see
Section 1 Doctor doctor) and for covered benefits.
It usually applies to a calendar year, from
January to December after which it is reset.
Typically, the Maximum includes deductible (we'll
talk about the deductible in the next section -
a simple example...
have a $2,250 deductible and then a 10%
co-insurance up to another $500 maximum. The
unforeseen "what-if", a car accident
occurs with $80,000 of covered, in-network medical
bills. After you have paid $2,750
(your $2,250 deductible and $500 max), then the
insurance carrier will pick up the rest of the
bills according to your covered benefits.
plans have great benefits for smaller bills but
the "back-end", meaning the big bill is
not as good. What good is a $45 doctor
office visit copay if you have to pay $5,500 for a
big bill?!? Remember, this
"back-end" is really why you are buying
health insurance. If you are getting better
benefits for the small bills...guess what...you
are probably paying for it in your monthly
premiums. That being said, let's look at how
the plans handle the small bills.
on the nickel?? Understanding how plans
treat the smaller bills from doctor visits to
on the nickel?? Insight into how plans handle the
Now small bills basically refers to everything up
to your maximum-out-of-pocket (see
Section 4 - Big Bills). There are
different ways each plan handles these expenses so
lets explore them and more importantly...their
costs to you.
to your maximum, each plan handles smaller bills
in one of three ways. By small bills, we
mean everything from your doctor visit charge to
minor surgery...essentially what falls below your
maximum (because it goes 100% after that
anyway!!). Let's first understand what these
terms are, and then really understand how much it
costs to have the bells and whistles.
A deductible is an amount that you will pay
100% of before the plan starts to pay. Think
of if as a pool of money. Once you have
spent your pool of money out of your pocket, the
insurance then starts to kick in. This
amount is usually in a calendar year,
January-December. Sometimes there are
separate deductibles for specific care such as
maternity. Now remember, if you are
in-network i.e. you are Blue Shield and the doctor
is a Blue Shield doctor, then you will get 30-60%
off because of the negotiated rates. Let's
look at an example...
visit is $100. Because you are Blue Shield PPO and doctor is
Blue Shield PPO, then this charge
may drop to $60. You pay this $60 and it
applies to your deductible.
This negotiated rate is a great benefit even
before you have met your total deductible. Now out
in the market today, they primarily have what's
called a high deductible plan (from around
$1,000 to $3,000) which is for the person who is
really worried about the big what-if and wants to
keep their monthly premiums down. A great
example of this is the
plan which has special tax advantages for the
self-employed and small group.
A Copay is simply an amount you pay for a
given service. For example, a $40 copay
usually means you will pay $40 for the doctor
consultation. Keep in mind that additional
services, i.e. labs, x-rays, etc...will have
additional costs. Sometimes there are copays
on specific services. For example, ambulance
or emergency room visit might have a copay.
refers to a percentage you will pick up for
services. For example, a 30% plan means that
you will pay 30% (insurance will pay 70%) of the
example on a 30% plan:
(30% of $700)
this case, in-network for a covered benefit, you
would pay $210.
These are essentially the three ways an insurance
plan handles the smaller bills.
You pay 100% up to a certain amount
co-insurance You pay a percentage up to a
copay You pay a fixed amount for a certain
That "certain amount" above is typically
your maximum out of pocket.
Now that we know how a plan handles the small
bills, let's understand what it will costs us.
Obviously the co-insurance in nice because you
have "first dollar" coverage meaning the
insurance company will help pay with your first
bill. That being said...you don't think they
will do it for free do you? This is
critical. Let's look at an example.
35 yr old, Riverside County, good health
$2,500 Deductible PPO plan
HMO plan $219/month
Now with the first plan, you have to meet a $2,250
deductible...translation, this is mainly for the
big bill. You'll get negotiated rates but
all the small stuff will fall on your shoulders.
Now the other plan will start paying 70% from your
first bill...very nice right?? But wait a
minute...we are paying an extra $134/month for
that first bill coverage. They both handle
the big bill about the same (max is about the
same). $134/month is $1,608 per year!!
That almost makes up for the deductible amount in
Paying a guaranteed $1,608 a year to save a
potential $2,500 per year is not good insurance
and you would need a lot of small bills to make it
worth $1,608. Remember, you want to pay
pennies on the dollar...not pennies on the
nickel. Paying $85/month to protect
against a $20,000 surgery is smart
insurance...pennies on the dollar.
Now for those people that absolutely want
first-dollar coverage...great...you can have it.
Just keep in mind the above example. Also,
over the last three years health insurance has
been hit by significant rate increases.
Guess where they typically hit
hardest...Co-insurance and HMO's.
Now that we feel pretty good about the doctors,
big bill and small bill coverage let's look at
prescriptions. With brand name prices
increasing 20% a year recently, it is important to
see how a plan handles this....
How plans handle what is increasingly the most costly part of
visiting the doctor...prescriptions
Brand name prescriptions have been increasing 20%
per year and despite the political
rhetoric...that's probably not going to change for
case you have been away the last couple of years,
pharmaceutical companies have changed the way they
market their products. It use to be that
they would primarily market through the doctor...a
"push" method. Now, with huge advertising
campaigns, they are advertising directly to you,
the consumer in the thought that you will then go
and request that medication from your doctor...the
"pull" method. Guess what...there is a cost
to all this and you want to make sure your plan
Most insurance plans handle prescriptions with a
copay, a fixed amount you pay.
Typically, there is a different copay amount for
brand name and generic stemming from the situation
I mentioned above. Across the board, you
usually find a $10 generic copay and a $25 brand
name copay but make sure to check the policy...it
might be different.
They also talk about Fomulary vs. non-formulary.
Formulary simply means that the company recognizes
the drug as being effective and therefore covered.
In all our years, we have yet to have a problem
with a person receiving a prescription that was
A recent change which we feel will probably become
the trend is to put a deductible on brand-name
prescriptions. This basically says, "Try to
use generic if you can." Why?? Well if
a month's supply of Prylosec is $150 and a person
is paying $65 month for comprehensive
coverage...you can see the problem. Either
rates will shoot up (as with the last 3 years) or
something has to absorb these costs. That is
where the deductible comes in.
Example...All major health plans have instituted
varying deductibles based on the plan for brand
name prescriptions for their PPO plans. The
other carriers will either have to initiate a
similar deductible or continue to raise monthly
premiums. This specific brand name
deductible will be the standard.
Well we have made it through...hopefully with
few scars and a great deal more understanding of
how to read the plans.
Again, there may be specific questions you
have which we would be happy to help you with
For a final exam, go
to review plans, rates, and providers for
California Health Insurance. There will be a
test afterward...you pass by choosing the right
plan at the right price for you!!