I think one of the most common terms used to describe a good health insurance plan is “80/20”. I will hear someone say “Yeah, I got this great 80/20 plan through work.” But, I am not sure they really understand what that means. Apparently, it was the gold standard of health coverage with employers and that term was passed on to others as to what to look for when enrolling on a plan.
To me that just means most folks were struggling to understand all the moving parts of a typical major medical plan and their father just said “Look for the 80/20 and get that one.” So they did. And, that’s not wrong.
Most of the plans offering the 80/20 coinsurance option were usually the better of the lot. However, it is not the standard for choosing a health insurance plan. There are, in fact, several factors you should look at when enrolling on a plan, either through your employer or privately.
What exactly does that 80/20 represent? Well it represents the share of the bill that you and the insurance company will have to pay when a claim is filed. It’s called coinsurance. The larger portion is typically on the insurance company.
However, that does not even come in to play until you meet your deductible. Huh? Yes, you have to meet your deductible before the health insurance company will spend any of their money on your bills. So you have to spend out of your own pocket whatever the amount of the deductible is (say $3000) on your health care before the insurance company with open its wallet for you.
That is probably the most common structure of a major medical plan. Deductible 🡪 Coinsurance 🡪 out of pocket maximum. Then the rest of the qualifying bills are covered 100% by the insurance company. I am coming to the point of this article believe it or not. I wanted to lay some ground work so you really get the point.
If you only enrolled on a plan based on it being 80/20 and that you could afford the payments, you could end up in serious financial trouble. The real question to ask regarding any health insurance plan is “What is the out of pocket maximum?” That means what is the most you will have to pay each year towards your medical expenses. Is it $5000, $8000, $20,000? Unlimited? Yes, on some plans there is no annual maximum you can pay towards your medical expenses.
That means that your 80/20 plan could have unlimited out of pocket expenses for you. Even if the insurance pays 80% of a $100,000 bill your responsibility is $20,000. Yikes! Yes, that is why the coinsurance is not that important. Especially if you have a medical condition that requires occasional hospitalization, frequent treatment or pricy medications.
Just so you have a real life example. I recently enrolled a client on plan and one of the first questions he asked was in regards to the out of pocket maximum. He had seen a video online I posted that was addressing this point which is why he called.
He had been to a funeral of a family friend recently and after the services they had gathered at their home and the subject of the deceased family member’s illness came up. The family mentioned that he had left them with a massive hospital bill despite having, what they thought, was a good 80/20 insurance plan. However, they discovered too late that the insurance plan did not have an out of pocket maximum.
The cancer treatments went on for months and he had racked up over $2 million dollars in bills. The insurance company was in contact with the hospital and paid their share of that. But, when the family received their final statement the balance was nearly $400,000. They were shocked.
This is why I am writing this article. Anyone I know would be emotionally and financially devastated to discover they now had to figure out how to pay a bill so large. But, this can be avoided if people know what to expect from their health insurance.
Bills that large are rare, for sure. Although, that is not the first time I have heard from a friend or personal acquaintance of such a large bill due to cancer treatment. But, I’m in the industry, so of course it’s more likely that I would hear of such things. But, for most folks that is probably unheard of or at least shocking to hear.
An 80/20 plan with no out of pocket maximum may be just fine. Especially for bills in that are under $20,000. The premiums may be lower and you may see other benefits available outside of the deductible. But, if a four day stay in the hospital with no surgery can run $35,000 how safe would you feel with a plan like that? Not very, I bet.
So when considering a new health insurance plan you should look at limiting your personal financial liability as much as possible. It may cost you a few dollars more per month, but I feel it would be a worthwhile investment.
