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MOOP & Chronic Care

I have had to explain this too many times to people that are bright and should know better.

Let me start off by saying Health Insurance protects the Insured from the high cost of Healthcare.

When you purchase a Health Insurance Policy, you are asking an Insurer to accept the risk you are transferring to them. For this, the Insurer will request some things like a premium amount, a share of the cost in the form of co-insurance or scheduled costs for services (co-pay), and risk retention in the form of a deductible.

The biggest fear most people have is that large medical bills will negatively affect their way of life and/or subject them to bankruptcy due to the high cost of care. This fear is a valid one, as recent studies still show that over half of all personal bankruptcies are due to medical related costs.

If you are not sure how your MOOP, Deductible, and Co-Insurance work together think of this.

Let us say for argument sake you are presented with an insurance policy that costs $700 per month. One would argue that they could not afford $700 per month. 

The other side to that is, if you could not afford $8400 a year to transfer the risk, can you afford $52k+ in cost of services?

The way I approach this is which would you rather?

When transferring risk to others there is always a cost. The example below is fictional but there are real world implications.

You buy an insurance policy to set a cap on your exposure.
The cap is contractual and the carrier assumes the majority of the risk for a fee.

This enables you to focus on other items like meeting your risk retention and co-insurance/co-pay amounts with the guarantee you will not have to pay more.

Let us take a gander at a fictional case study that has real world implications.

Insured: Jane Doe

Case Detail:
Jane has a chronic condition which requires treatment and diagnostic services every month of the year.
Jane opted into the plan and the coverage period is January to December.

Insurer XYZ Plan

Plan annual deductible: $2000
Maximum Out Of Pocket (Annual) $8500
Co-Insurance: 30%
Specialist Co-Pay: $35
Primary Co-Pay: $55

In this case, for simplicity we will exclude all other coverage usage Jane may require such as covered in full services as well as acute care instances from the EOB’s. While they are relevant to the total cost of Jane’s care they are not to illustrate the effect a chronic condition can have on a plan with a MOOP. The EOB examples for each month includes all insurer negotiated discounts.

The EOB for each treatment cycle totals: $5000

Now let us work it out. 

 

January

February

March

April

May

June 

July

August

September

October

November

December

Totals

Premium

700

700

700

700

700

700

700

700

700

700

700

700

8400

Deductible

2000

0

0

0

0

0

0

0

0

0

0

0

2000

Co-Insurance

900

1500

1500

1500

1500

1500

100

0

0

0

0

0

8500

Carrier Responsible

2100

3500

3500

3500

3500

3500

4900

5000

5000

5000

5000

5000

49500

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Insurer Responsible

49500

 

 

 

 

 

 

 

 

 

 

 

 

Total Insured Responsible

18900

 

 

 

 

 

 

 

 

 

 

 

 

Insured Cost Avoidance (Benefit)

30600

 

 

 

 

 

 

 

 

 

 

 

 

Total Cost of Care

68400

 

 

 

 

 

 

 

 

 

 

 

 

What if you are healthy, should your costs be lower? It depends, specifically on the makeup of the risk pool and input costs from negotiated contracts with providers among other factors.

If 100,000 people are on this plan paying the same amount in premium how many chronic cases can the insurer cover just from premiums collected.  Roughly 6.3% or a little over 15k people.

How does the insurer balance all this risk?

By using contracts with providers across the healthcare spectrum to contain costs to amounts that are predictable, and by ensuring claims submitted are medically necessary. That last part is tricky as what is medically necessary for one person may not be for another but that is a whole other topic. 

While there is much more to this topic, than this blog post will indicate it is important for the average person to understand what they are signing up for when reviewing insurance contracts and what the benefit or protection will be for them and their circumstance. This is very important for those who have a chronic illness.