Fixed-benefit insurance policies an alternative to ‘comprehensive’ insurance

Today the Wall Street Journal has a fascinating op-ed piece titled ‘The Man Who Was Treated for $17,000 less,’ written by Dr. Jeffrey Singer of Arizona. The story resembles many that I’ve written about here, with unsuspecting self-pay patients potentially being hit with huge, inflated medical bills.

A gentleman in his early 60s came in with a rather routine hernia in his lower abdomen, one that is easily repaired with a simple outpatient surgical procedure. We scheduled the surgery at a nearby hospital.

My patient is self-employed and owns a low-cost “indemnity” type of health insurance policy. It has no provider-network requirements or preferred-hospital requirements. The patient can go anywhere. The policy pays up to a fixed amount for doctor and hospital bills based upon the diagnosis. This affordable health-insurance policy made a lot of sense to this man, based on his health and financial situation. 

When the man arrived at the hospital for surgery, the admitting clerk reviewed the terms of his policy and estimated the amount of his bill that would be paid by insurance…The insurance policy, the clerk said, would pay up to $2,500 for the surgeon—more than enough—and up to $2,500 for the hospital’s charges for the operating room, nursing, recovery room, etc. The estimated hospital charge was $23,000.

It would be easy to use this story to explain once again how self-pay patients need to find doctors and hospitals that will treat them fairly and give them a real price, instead of the ‘chargemaster’ prices they too often are stuck with. But instead I’m going to focus on the insurance policy that this particular self-pay patient had, and explain how it can be an option for people who don’t or can’t afford the sort of ‘comprehensive’ health insurance that dominates the market and that the Affordable Care Act is attempting to help more people buy.

The op-ed describes the policy as a ‘low-cost “indemnity” type of health insurance.’ I’m not sure, but it may actually be a fixed-benefit policy –the two terms are sometimes used interchangeably even though there are important differences. Because I’m more familiar with fixed-benefit policies, that’s what I’m going to focus on here.

A fixed-benefit policy pays directly to patients a dollar amount based on a fee schedule, regardless of how much a provider actually charges. In the case of one policy I’m aware of, offered by Assurant Health, the dollar amounts on the fee scheduled between 100 and 150% of 2010 Medicare rates.

The policy described in the op-ed by Dr. Singer offered the patient a total of $5,000 for the hernia repair surgery that was needed. Even though the original hospital attempted to collect a total of $23,000, the $5,000 provided by the fixed benefit plan was more than enough:

So we canceled the surgery and started the scheduling process all over again, this time classifying my patient as a “self-pay” (or uninsured) patient. I quoted him a reasonable upfront cash price, as did the anesthesiologist. We contacted a different hospital and they quoted him a reasonable upfront cash price for the outpatient surgical/nursing services. He underwent his operation the very next day, with a total bill of just a little over $3,000, including doctor and hospital fees. He ended up saving $17,000 by not using insurance.

In many ways, the insurance policy used by Dr. Singer’s patient is the sort used by many Americans as little as 30 years ago, where insurers had a schedule of benefits that they would pay for specific treatments. Those policies typically required that the patient submit their medical bills to the insurance company after receiving treatment, and then either pay the provider themselves or if they’d already paid they would keep it as a reimbursement. Any balance was the patient’s responsibility.

One of the more attractive features about these sorts of fixed benefit insurance policies is that they are typically much less expensive than the sort of ‘comprehensive’ health insurance that most people have today. Assurant’s plan starts at $67 a month, presumably for younger people – as a 42 year old, I was quoted around $98 a month. Based on what I’ve seen of premiums in the Affordable Care Act’s exchanges in 2014, that is about half of what I’m likely to find for the least-expensive plan available to me.

Another key component of these fixed-benefit plans is that they often don’t have deductibles. There is generally minimal coverage for primary care such as routine doctor visits, but when it comes to major treatments such hernia surgery or a broken arm, or anything requiring hospitalization, the insurer simply pays the amount on its schedule of benefits – if there’s no balance due after that, then there’s nothing left to pay in terms of co-pays, co-insurance, or deductibles. In contrast, the least expensive ‘comprehensive’ insurance that will be available to me in Virginia will likely come with a $5,000 deductible.

Being a self-pay patient doesn’t have to mean having no insurance at all or having a high-deductible plan, it often just means having a different way of getting coverage, such as through a health care sharing ministry or a fixed-benefit insurance policy. There are other types of insurance as well that I hope to cover in the future, primarily critical illness and accident insurance policies. But for now, remember that there are options between expensive ‘comprehensive’ insurance and being totally exposed to high medical costs.

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12 Responses to Fixed-benefit insurance policies an alternative to ‘comprehensive’ insurance

  1. Dave says:

    Yup, 2 years here with a Christian, health care sharing ministry. Thanks for your blog which will grow in readership as the Unaffordable, Less Care Act begins to unfold itself in October.

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  8. Eliot says:

    If you have any of these insurance alternatives, do they cancel any penalties the ACA imposes, as though you had typical medical insurance?

    • says:

      Unfortunately, having a fixed-benefit or other alternative type of insurance policy doesn’t exempt you from the tax on being uninsured, only membership in a health care sharing ministry does that. However, you may be exempt on other grounds, such as if the least expensive health insurance policy available to you under Obamacare is more than 8% of your income.

  9. A High Deductible health plan or catastrophic plan wrapped around a Direct Primary Care ($50-100/mo) average complies with ACA (Obamacare)regulations and you will be able to get care from both as an outpatient and inpatient .

  10. Crystal says:

    The fixed-benefit plans may not exempt you from the “cost-sharing tax”, but combined with the cost of the fixed-benefit plan, is usually still cheaper than conventional insurance. The company I work for is offering us a “Minimum Essential Coverage” policy with a fixed-benefit policy piggy-backed along with it. The monthly cost of the dual-coverage is affordable and at least according to the HR manager, it will keep us from having to pay the tax for not having insurance. They are also offering a much richer, traditional plan but it comes with a hefty price tag. A lot of employees are upset about it. I’ve done a lot of research on it, and while I’m not ecstatic about the lower cost plan, it is more in line with what my family will probably need. The lower cost is helping me to be able to afford other benefits that I really DO need such as life, vision and dental, which before now, I could not afford to add to my benefits package. Only time will tell if this will be a good deal or not. But the bottom line is, nothing is “ideal” when it comes to insurance. The truly “ideal” thing is to never die, get sick, or have an accident.

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