How does health insurance work?

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Duke Student Health Insurance

If you are a student at Duke, you must have health insurance coverage to be enrolled. 

You may elect to go with the student health insurance plan offered through Duke, or you may opt to purchase a policy from another insurer. Either way, it’s important to understand the types of coverage available and to be able to select the one that is most beneficial to you.

Why do you need health insurance?  Because you cannot predict your medical costs, and health care is expensive.  There may be some years in which you incur very little medical expense, and then there will be years in which the costs may be more than you can afford.  Health insurance gives you peace of mind that you will be able to receive medical attention without taking a major hit to your finances.  

Consider the following factors in comparing plans:

  1. Premiums – the cost for coverage
  2. Benefits – what and how much the policy will cover
  3. Network – what access to doctors, hospitals, emergency care, and other providers the policy offers
  4. Co-payments, exclusions, and limitations – the costs that the insurer will not pay and must come from the insured’s pocket

There are three basic sources of insurance: group coverage through employers, individual policies, and government policies such as Medicaid and Medicare.

Group Policies

Almost all large employers and many small companies offer group health coverage.  Unions, professional associations, and other organizations may also be a source for purchasing group health insurance.

Group policies have relatively low cost.  Because the risk is spread over a pool of participants and administrative costs are less, the premiums are generally lower than for individual coverage.  Additionally, the employer will usually pay a portion of the premium.

In addition to cost, eligibility and portability are two more advantages.  Group insurance policies usually don’t require a medical exam or other evidence that you are “insurable” (i.e., an acceptable risk to the insurer).  And when you leave your current employer, you will have the option of keeping your coverage, thanks to a federal law known as COBRA. COBRA entitles you to keep your existing coverage for up to 18 months after leaving your job, although the entire cost of the premium will be on you.  The idea is to give you some time to find a new job with a new health plan or to obtain an individual policy on your own.

Another federal law you should know about is HIPAA, which ensures portability of coverage for “preexisting conditions” such as diabetes, heart disease, and cancer.  Preexisting conditions are those that have already occurred before coverage begins.  So, before HIPAA was enacted, if you changed jobs and thus had to change insurers, you might have lost coverage for costs associated with expensive conditions that had manifest since you last signed up for insurance. Today, HIPAA requires insurers to provide coverage for preexisting conditions when employees sign up for a new group plan, although under some circumstances insurers may impose a 12-month waiting period for any preexisting condition that has been diagnosed or treated within the preceding 6 months.

Individual Policies

What if you’re self-employed, unemployed, or a student no longer on your parents’ healthcare plan?  If you are unable to access health insurance through a group policy, you’ll need to buy it on your own.  Usually, buying insurance as an individual is more expensive than the other options.

You will need to know the main differences between basic types of individual health insurance plans. The two most common types are the HMO (Health Maintenance Organization) and the PPO (Preferred Provider Organization).  An HMO plan provides comprehensive basic coverage at a relatively low cost, but limits your healthcare provider options to those within its “network” and requires a referral to see a specialist.  A PPO has slightly higher premiums, but enables you to see any provider of your choice, and you will be partially reimbursed (typically around 60 to 70 percent) for costs incurred out of network.

The following table summarizes the basic features of HMOs and PPOs.

Features of HMO and PPO
Types HMOPPO
choosing health care providersYou must choose doctors, hospitals and other providers from your network.You may choose doctors, hospitals and other providers from outside your network, but there may be additional costs and paperwork.
specialistsTo see a specialist, you must be referred by your primary care physician.  Exception: emergenciesReferral by a primary care physician is not required, though individual specialists may require it and the PPO may require pre-approval.
filing insurance claimsThe provider is required to file the claim.In-network providers handle the paperwork, but out of network, you will have to file the claim.
costPremiums (usually less than for a PPO) + co-paymentsPremiums (usually more than for an HMO) + co-payments + in some cases, an annual deductible

As an alternative to the HMO and PPO, you can opt for a Health Savings Account and High Deductible Health Plan, which are bundled together to make lower-premium, higher-deductible insurance plans more attractive. High deductible health plans usually work like PPOs, but have lower premiums because you pay more out-of-pocket costs towards your annual deductible. In order to offset the additional out-of-pocket expenses you’ll have to pay, you are permitted to open a Health Savings Account (HSA).  An HSA is a savings account that allows you to deposit up to 3,000 pre-tax dollars (as of 2012) annually. You can then withdraw the money to pay your out-of-pocket health costs without penalty, meaning you get a discount on your healthcare deductible costs equal to your income tax rate. Because the money is rolled over from year to year, an HSA serves as an on-going medical emergency fund. Once you reach 65, you can take the remaining money out without paying a penalty, though you will have to pay taxes on the portion not used for medical expense.

On the plus side, in contrast to group plans, individual health insurance allows you to choose a plan tailored to your needs. Plans vary widely in terms of premiums, co-payments and deductibles, policy limits, and the services and network of doctors and specialists for which you will be eligible. If flexibility and options are essential to you, then look for PPO plans that provide some out-of-network coverage. If you’re more concerned about cost, stick to an HMO plan. If you are unusually healthy and don’t go to the doctor a lot, choose a plan with higher co-payments, fewer frills, and lower premiums—perhaps a high deductible plan and HSA bundle. Don’t rush into the decision; look for hidden exclusions and compare costs and benefits carefully.

Medicaid

Medicaid provides health coverage for low-income individuals and families. To be eligible, you must also be elderly, part of a household with children, or disabled. The specifics vary from state to state. You can learn about Medicaid from the U.S. Department of Health and Human Services.