Term
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Description
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Pros
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Cons
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Coinsurance
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- Coinsurance refers to the benefit plan characteristic of
sharing the cost of each claim (Health, Drugs, Vision Care,
Hospital and Dental) between the benefits plan (insurer) and the
employee/member. Generally, a plan that pays for 80% of the cost
of each claim is said to have "80% coinsurance", meaning the plan
pays 80% and the employee/member pays the balance (20%) of all
eligible plan expenses. Some plans have no cost sharing--100% of
costs are borne by the plan and this creates some opportunity for
reducing plan costs by introducing coinsurance.
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- Near immediate reduction in plan costs.
- Further longer term reductions in cost (see below).
- Moving from no coinsurance (100% plan payment) to coinsurance
(e.g. 80% plan payment), provides incentive for employees/members
to share in managing plan costs because they bear part of the
cost.
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- If an employee is hit with unexpectedly high expenses, even
20% payment may to a burden and the ultimate objective of
"insurance" is to protect against such burdens which can
negatively impact a valuable employee's performance (see out-of
pocket maximum to counter this problem).
- There may be a negative reaction to a plan cut back.
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Cost Sharing (Premium)
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- Generally refers to the plan characteristic that requires the
employee to pay some portion of the monthly premium towards
benefits. There are a number of ways to achieve this split, one of
the most common being a percentage split: the employer pays 75%
and the employee 25% (through payroll deduction). Such a split is
usually applied to each benefit independently, and some benefits
may have sharing, while others are either 100% employer paid or
100% employee paid (usually optional benefits).
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- Immediate reduction in plan costs for the employer.
- Change and its impact is easily understood--the dollar impact
is clearly and definitively quantifiable.
- All reasonable expenses remain covered (as opposed to
containing costs by cutting eligible expenses) for services that
are genuinely and appropriately insured services. Cutting eligible
expenses can result in employee/member hardship when unexpected
health problems occur. (See also out-of-pocket expenses below).
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- No longer term reduction in plan cost: employees/members do
not receive any incentive to share in plan cost management; in
fact the opposite may be true: it can be argued there is incentive
to "get your money's worth" out of your share of the premium cost.
- Total plan costs are likely to remain unchanged.
- There will likely be a negative reaction to
increased payroll deductions.
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Deductible
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- Generally refers to the plan characteristic where claims
(Health, Drugs and Dental) are not paid until a certain dollar
level of the claims has been paid by the member before the plan
begins to pay expenses.
- Most commonly the deductible applies to the particular benefit
as a whole. For example, a $100 drug deductible would mean
that the first $100 of total drug expense is not reimbursed
by the plan (they are still submitted). After the $100 is reached
the plan reimburses eligible expenses at the coinsurance level of
the plan. Often a plan will prescribe a $100 deductible per
claimant with a family maximum deductible of, for example,
$250.
- One variation is a "per prescription" deductible for drugs.
- Such deductibles can also be applied to various health or
dental expenses and categories of expenses within these benefits.
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- Near immediate reduction in plan costs.
- Deductibles, when added for cost containment, move the plan
towards reimbursement for unbudgettable or unpredictable expenses.
For example, a $100 to $150 deductible applicable to drugs will
eliminate reimbursement of the typically low cost 1 or 2
prescriptions per year that can be expected for things like
antibiotics or prescription pain medicine.
- deductibles can reduce costs of the plan, while allowing a
100% reimbursement plan to ensure unexpected, unbudgettable and
potentially burdensome health or dental expenses are
covered--employees remain protected against catastrophic or near
catastrophic expenses.
- All reasonable expenses remain covered (as opposed to
containing costs by cutting eligible expenses) for services that
are genuinely and appropriately insured services. Cutting eligible
expenses can result in employee/member hardship when unexpected
health problems occur. (See also out-of-pocket expenses below).
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- No "Immediate Gratification" of having some expenses
reimbursed at the start of a new year and some people may have no
reimbursement for the year--may be perceived as devaluing the
;benefits plan.
- The effectiveness of deductibles is eroded by
inflation--future increases may be required.
- There may be a negative reaction to reduced reimbursement,
that disproportionately affects those with low expenses.
- Total impact on cost is limited with small deductibles.
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Out-of-pocket Maximum
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- An out-of-pocket maximum is not a cost containment feature on
its own. Its biggest value is as a compliment to deductibles and,
in particular, coinsurance. One
purpose of a group plan is to insure employees against unexpected,
unbudgettable, medically necessary and high expenses (relative
to the ability to pay). Applying coinsurance without an out-of-pocket maximum can leave
employees/members unprotected because very
high expenses (even when insured at 80%) can be catastrophic to a
family budget and cause hardship and stress for valuable employees (leaving the
very real possibility of sub par on the job performance or even
disability claims----avoiding these outcomes is one of the benefits to employers
of providing a well designed Group plan).
Out-of pocket maximums protect against this
possibility, while still providing cost reduction and
shared incentives to reduce plan costs. In effect the out-of
pocket maximum says to employees: we do require you to share the
cost of medical (dental);expenses, but if your share becomes
large, the insurance will kick in and cover 100% of expenses above
a certain level, for example $2,000. With coinsurance at 80%
and an out-of-pocket maximum set at at $2,000, the first 10,000 of expenses would be
covered $8,000 by the plan and $2,000 by the employee/member;
after that, the plan pays 100% of expenses.
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- When combine with coinsurance, has all the advantages of
coinsurance (and if a deductible is added, all the advantages of
deductibles) while still preserving ultimate insurance protection
against necessary and high expenses due to health problems.
- Reduces the negative impact on employees in a severe medical
crisis.
- Cushions against the negative reaction to adding coinsurance
or increasing coinsurance.
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- Reduces the savings from coinsurance, but if properly
implemented, minimally.
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Restrict Eligible Expenses
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- As the term describes, this is reducing cost by removing
eligible expenses from the plan.
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- Can reduce expenses.
- Coverage can be removed for expenses that are considered non-essential or that people
can budget for, thus making the plan affordable while
preserving quality core insurance against unforeseeable and
large expenses.
- Impact may be "hidden" because the reduction may not have
an obvious or immediate impact on employee/members (this is also a
disadvantage).
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- Must be implemented very carefully so as not to erode
essential and necessary protection.
- Even implemented with care, may be perceived negatively.
- May have unexpected future consequences (i.e. an expense or
a category of expenses is eliminated because it does not seem
essential today, but may become so in the future).
- Impact may be "hidden" because the reduction may not have
an obvious or immediate impact on employees/members.
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| Introduce Maximums or reduce maximums |
- As the term describes, this is reducing cost by specifying
that the plan only covers some or all expenses to a maximum
amount.
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- May reduce expenses.
- Introduction of limits for some categories of expense can stop excessive use of
"non-essential" expenses.
- Impact may be "hidden" because the reduction may not have
obvious or immediate impact on employees/members (this is also a
disadvantage).
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- Must be implemented very carefully so as not to erode
essential and necessary protection.
- Even implemented with care may be perceived negatively.
- May have unexpected future consequences (i.e. an expense or
a category of expenses is eliminated because it does not seem
essential today, but may become so in the future).
- Impact may be "hidden" because the reduction may not have
an obvious or immediate impact on employees/members.
- Depending on the category of expense, it can restrict coverage
when it is really needed and be catastrophic can be catastrophic to a
family budget and cause hardship and stress for valuable employees (leaving the
very real possibility of sub-par on the job performance or even
disability claims--avoiding these outcomes is one of the benefits to employers
of providing a well designed Group plan).
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