In addition to broad coverage for medical, surgical, and hospital expenses, there are many other kinds of health insurance.
Hospital-surgical policies, sometimes called basic health insurance, provide benefits when you have a covered condition that requires hospitalization. These benefits typically include room and board and other hospital services, surgery, physicians’ nonsurgical services that are performed in a hospital, expenses for diagnostic X-rays and laboratory tests, and room and board in an extended care facility.
Benefits for hospital room and board may be a per-day dollar amount or all or part of the hospital’s daily rate for a semi-private room. Benefits for surgery typically are listed, showing the maximum benefit for each type of surgical procedure.
Hospital-surgical policies may provide “first-dollar” coverage. That means that there is no deductible, or amount that you have to pay, for a covered medical expense. Other policies may contain a small deductible.
Keep in mind that hospital-surgical policies usually do not cover lengthy hospitalizations and costly medical care. In the event that you need these types of services, you may incur large expenses that are difficult to meet unless you have other insurance.
Catastrophic coverage pays hospital and medical expenses above a certain deductible; this can provide additional protection if you hold either a hospital-surgical policy or a major medical policy with a lower-than-adequate lifetime limit. These policies typically contain a very high deductible ($15,000 or more) and a maximum lifetime limit high enough to cover the costs of catastrophic illness.
Specified or dread disease policies provide benefits only if you get the specific disease or group of diseases named in the policy. For example, a policy might cover only medical care for cancer. Because benefits are limited in amount, these policies are not a substitute for broad medical coverage. Nor are specified disease policies available in every state.
Hospital indemnity insurance pays you a specified amount of cash benefits for each day that you are hospitalized, generally up to a designated number of days. These cash benefits are paid directly to you, can be used for any purpose, and may be useful in meeting out-of-pocket expenses not covered by other insurance.
Hospital indemnity policies frequently are available directly from insurance companies by mail as well as through insurance agents. You will find that these policies offer many choices, so be sure to ask questions and find the right plan to meet your needs.
Some policies contain limitations on preexisting medical conditions that you may have before your insurance takes effect. Others contain an elimination period, which means that benefits will not be paid until after you have been hospitalized for a specified number of days. When you apply for the policy, you may be allowed to choose among two or three elimination periods, with different premiums for each. Although you can reduce your premiums by choosing a longer elimination period, you should bear in mind that most patients are hospitalized for relatively brief periods of time.
If you purchase a hospital indemnity policy, periodically review it to see if you need to increase your daily benefits to keep pace with rising health care costs.
Medicare supplement insurance, sometimes called Medigap or MedSup, is private insurance that helps cover some of the gaps in Medicare coverage.
Medicare is the federal program of hospital and medical insurance primarily for people age 65 and over who are not covered by an employer’s plan. But Medicare doesn’t cover all medical expenses. That’s where MedSup comes in.
All Medicare supplement policies must cover certain expenses, such as the daily coinsurance amount for hospitalization and 90 percent of the hospital charges that otherwise would have been paid by Medicare, after Medicare is exhausted. Some policies may offer additional benefits, such as coverage for preventive medical care, prescription drugs, or at-home recovery.
There are 10 standard Medicare supplement policies, designated by the letters A through J. With these standardized policies, it is much easier to compare the costs of policies issued by different insurers. While all10 standard policies may not be available to you, Plan A must be made available to Medicare recipients everywhere.
Insurers are not permitted to sell policies that duplicate benefits you already receive under Medicare or other policies. If you decide to replace an existing Medicare supplement policy – and you should do so only after careful evaluation – you must sign a statement that you intend to replace your current policy and that you will not keep both policies in force.
People who are 65 or older can buy Medicare supplement insurance without having to worry about being rejected for existing medical problems, so long as they apply within six months after enrolling in Medicare.
Long-term care policies cover the medical care, nursing care, and other assistance you might need if you ever have a chronic illness or disability that leaves you unable to care for yourself for an extended period of time. These services generally are not covered by other health insurance. You may receive long-term care in a nursing home or in your own home.
Long-term care can be very expensive. On average, a year in a nursing home costs about $40,000. In some regions, it may cost much more. Home care is less expensive, but it still adds up. (Home care can include part-time skilled nursing care, speech therapy, physical or occupational therapy, home health aides, and homemakers.)
Bringing an aide into your home just three times a week – to help with dressing, bathing, preparing meals, and similar chores – easily can cost$1,000 a month, or $12,000 a year. Add in the cost of skilled help, such as physical therapy, and the costs can be much greater.
Most long-term care policies pay a fixed dollar amount, typically from$40 to more than $200 a day, for each day you receive covered care in a nursing home. The daily benefit for at-home care is usually half the benefit for nursing home care. Because the per-day benefit you buy today may be inadequate to cover higher costs in the future, most policies also offer an inflation adjustment feature.
Keep in mind that unless you have a long-term care policy, you are not covered for long-term care expenses under Medicare and most other types of insurance. Recent changes in federal law may allow you to take certain income tax deductions for some long-term care expenses and insurance premiums.
Disability insurance provides you with an income if illness or injury prevents you from being able to work for an extended period of time. It is an important but often overlooked form of insurance.
There are other possible sources of income if you are disabled. Social Security provides protection, but only to those who are severely disabled and unable to work at all; workers’ compensation provides benefits if the illness or injury is work-related; civil service disability covers federal or state government workers; and automobile insurance may pay benefits if the disability results from an automobile accident. But these sources are limited.
Some employers offer short- and long-term disability coverage. If you are self-employed, you can buy individual disability income insurance policies. Generally:
- Monthly benefits are usually 60 percent of your income at the time of purchase, although cost-of-living adjustments may be available.
- If you pay the premiums for an individual disability policy, payments you receive under the policy are not subject to income tax. If your employer has paid some or all of the premiums under a group disability policy, some or all of the benefits may be taxable.
Whether you are an employer shopping for a group disability policy or someone thinking of purchasing disability income insurance, you will need to evaluate different policies. Here are some things to look for:
- Some policies pay benefits only if someone is unable to perform the duties of their customary occupation, while others pay only if the person can engage in no gainful employment at all. Make sure that you know the insurer’s definition of disability.
- Some policies pay only for accidents, but it’s important to be insured for illness, too. Be sure, as you evaluate policies, that both accident and illness are covered.
- Benefits may begin anywhere from one month to six months or more after the onset of disability. A later starting date can keep your premiums down. But remember, if your policy only starts to pay (for example) three months after the disability begins, you may lose a considerable amount of income.
- Benefits may be payable for a period ranging anywhere from one year to a lifetime. Since disability benefits replace income, most people do not need benefits beyond their working years. But it’s generally wise to insure at least until age 65 since a lengthy disability threatens financial security much more than a short disability.
A Final Word
If you get health care coverage at work, or through a trade or professional association or a union, you are almost certainly enrolled under a group contract. Generally, the contract is between the group and the insurer, and your employer has done comparison shopping before offering the plan to the employees. Nevertheless, while some employers only offer one plan, some offer more than one. Compare plans carefully!
If you are buying individual insurance, or any form of insurance that you purchase directly, read and compare the policies you are considering before you buy one, and make sure you understand all of the provisions. Marketing or sales literature is no substitute for the actual policy. Read the policy itself before you buy.
Ask for a summary of each policy’s benefits or an outline of coverage. Good agents and good insurance companies want you to know what you are buying. Don’t be afraid to ask your benefits manager or insurance agent to explain anything that is unclear.
It is also a good idea to ask for the insurance company’s rating. The A.M. Best Company, Standard & Poor’s Corporation, and Moody’s all rate insurance companies after analyzing their financial records. These publications that list ratings usually can be found in the business section of libraries.
And bear in mind: In some cases, even after you buy a policy, if you find that it doesn’t meet your needs, you may have 30 days to return the policy and get your money back. This is called the “free look.”