Understanding Health Insurance, It’s Not Rocket Science—or Is It?

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August 22, 2013 by Lisa Brammer

I’m just going to go ahead and say it. “Most adults do not understand the basics of health insurance.” Sounds kind of harsh doesn’t it? And what’s worse is if you ask most adults they will say that they do.

Okay, so there are only four basic insurance elements (five if you include premiums) how hard can it be? Let’s see, can you name them? They are copay, deductible, coinsurance, and out-of-pocket maximum. If asked about those four basic health insurance terms, most people will smile and nod their head knowingly. I know this because I asked some of my friends. I then asked, “Do you understand how your health insurance works?” The general response was a confident, “For the most part, yes.” What does that even mean?

I’ll tell you what it means, what it really means. Carnegie Mellon University conducted a survey with adults between the ages of twenty-five and sixty-four who had private health insurance and were the primary or shared decision maker for their own or their families’ health care. The study found that only 14 percent of all respondents accurately understood those four basic concepts—that’s right only 14 percent! But wait, it gets better (read worse). The survey also found that when presented with a traditional insurance plan, incorporating all 4 of these elements, only 11 percent of those who responded could actually compute the cost for a four-day hospital stay when they were given the necessary information to do so.

So to be clear, let’s recap what we just learned. People think they understand their health insurance and how it works, but in reality they do not.

Health insurance today is actually pretty complex. Not only do you have to understand what each element is, but how they interact together. According to the study, deductibles and copays were the least understood elements, but how about out-of-pocket maximums? I would bet most people do not understand that element. Personally, I find it a little misleading. Out-of-pocket maximum, to me, says the maximum I will pay out of my pocket during a given year—as in total amount taken out of my pocket. But no, copays and deductibles are not included in total out-of-pocket maximums. I could go on to say that if your plan has a maximum it will pay towards a specific disease treatment, like kidney disease for example and if the charges exceed the kidney disease treatment services maximum benefit in a given year then you will likely be responsible for the remainder of those charges. Confused? Welcome to the club.

As premiums continue to escalate, patients are more reluctant than ever to pay their balance after insurance especially if they don’t have a clear understanding of what’s the insurance company’s responsibility and what’s theirs. Couple that with the fact that most people know that insurance companies repeatedly deny or reject medical claims in order to delay paying on claims that should rightfully be paid, and you will have angry patients that don’t really believe that the balance is really their responsibility.

A 2011 Intuit health study revealed that 41% of all patients do not have confidence that the bill amount is correct. That adds up to quite a few people looking at their bill shaking their head saying, “Yeah, I don’t think so!”

As the health care industry continues to change and morph with the times, educating patients on how their health insurance benefits work will be a necessary component for a healthy revenue cycle. It’s sometimes hard enough to get people to pay money they know they owe.

I’ve read enough studies by the Medical Group Management Association (MGMA) and the Healthcare Financial Management Association (HFMA) to know that it requires 3.3 statements before good pay patients take action—and that’s at about $10.00 a pop for sending those statements. And that 49.3% of balance after insurance goes uncollected.

I’m going to repeat that last sentence again slowly for effect. Half. Of. Balance. After. Insurance. Goes. Uncollected. But, now knowing what we know—that patients really
don’t understand health insurance and how it works AND they really don’t believe the amount of their bill is correct—it is kind of no-brainer to understand why.

If you think insurance is confusing now, wait a couple of months when the Affordable Care Act really kicks in and people who never have had insurance before now do. How do you think these people will handle receiving their portion of the bill? Pretty easy to guess, huh?

Add to that, most states have opted to join federal exchanges (Wisconsin included). I’ve read that individuals who are eligible for high levels of subsidies in the exchanges will likely bounce between Medicaid and the exchange plans. Not only will the patients be confused but so will the provider. Who are we billing now??!!

I digress… let’s save that for next week’s posting.

The answer to the above mentioned woes—communicate and educate. I know we have talked about this before in other postings, but it’s because it is that important. If you want to get paid—especially for those high priced procedures—you need to communicate your financial policy to your patients and you need to educate them on what their insurance will pay and what will be their responsibility. The earlier you do this the better for all, preferably before the procedure (and while you are at it, you should be collecting what the patient owes pre-service). Nobody likes surprises when it comes to finances, patients and providers alike. The patient is not going to be happy if they owe way more for a procedure than they thought they would and the provider is not going to be happy when they find out how little they actually got paid for their services.

Communication and education really are key components to a healthy revenue cycle as well as happy patients (and providers).

If you want more information or need help with your revenue cycle United Credit Service, Inc. is a full revenue cycle management and debt collection agency providing highly effective, customized one on one management and recovery solutions for our business partners. We offer pre-service collection solutions as well as traditional back-end collections. Visit our website at http://www.unitedcreditservice.com or call 877-723-2902.

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2 thoughts on “Understanding Health Insurance, It’s Not Rocket Science—or Is It?

  1. […] reminded me of a blog I wrote back in August 2013, Understanding Health Insurance, It’s Not Rocket Science—or is it? My blog was based on the results of a survey conducted by Carnegie Mellon University. Their study […]

  2. […] reminded me of a blog I wrote back in August 2013, Understanding Health Insurance, It’s Not Rocket Science—or is it? My blog was based on the results of a survey conducted by Carnegie Mellon University. Their study […]

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