FI or ASO, I don’t know

When an employee group goes to insurance company to cover its members, it has two basic types of contracts it can buy. The bells and whistles will change dramatically within the type, but there are only two types.  The first type is a full insurance model where the insurance company takes on the medical cost risk.  The insurance company defines the network, it defines payment rates, it defines the deductible amounts and co-pays (if the group is sufficiently large, there is a lot of wiggle room here, but Al’s Autobody with 3 employees will only get the standard otpions), and it defines the premiums.  Those premiums are expected to be sufficient to cover the actual cost of care, overhead and kick into the general pool to cover the high cost individuals in a product line.  The other type is a self-administered plan where the insurance company has far less say as it works primarly as an extension of the buyer’s finance/accounting and HR departments.  The buying company takes on the medical risk, it takes on some network decisions, and it takes on benefit and cost configuration decisions.  The insurance company handles regulatory compliance, customer services and claims payments.

Why the split and what are the advantages of each model?

The split is a function of the law of large numbers. 

Full insurance models work well for small companies that are operating on thinner margins of error.  If Al’s Autobody is hit with a $500,000 bill because Al Jr. has cancer, there is no where near enough cash flow through Al’s Autobody to make paying that bill anything other than a macabre fantasy.  A full insurance model allows Al’s Autobody to absorb some of the cost of that $500,000 bill while also providing coverage to Florence the Florist and her 3 employees and Ronnie the Restauranter and her five employees.  Full insurance spreads risk across a pool and this is neccessary when the individual groups of members that comprise a pool are small.  A full insurance model is the basic model that is being used for all of the Exchange/Obamacare products.  (and yes, Kid #1 had career day yesterday at pre-school)

Larger companies have different dynamics.  Big companies with large employee bases have the ability to function as decent risk pools.

Initech with its 1,250 employees can spread the cost of a $500,000 bill across its population base and not go bankrupt.  It can spread several quarter million dollar bills across its employees and still come out in decent shape.  A self-insured model allows Initech to pocket the difference on most years when it does not have outlier expenses.  It also allows Initech to include the CEO’s cardiologist and the development neurologist that treats the kids of the CFO when both of those specialists would normally be out of network.  This is because the insurance company has to process payments to those out of network providers but the insurance company does not actually have to foot the bill, so it does not particulary care that both of those providers are getting two or three times the standard rate.  The insurance company in this case works to pay claims, apply negoatiated discounts to regular network providers, and take care of the mundane tasks of insurance.  The company gets a regular fixed fee per member per month to handle the back-end tasks. 

There is a mild hybrid in self-insured companies can buy a second level of protection against outlier expenses in the form of stop-loss insurance.  Stop-loss insurance is a type of reinsurance that we discussed a while back.  The self-insured company would buy a policy where the self-insured company is on the hook for the first $500,000 of expenses per member but the reinsurance pays 80% above that OR if there was a series of outliers that pushed total costs to two standard deviations above projections, the reinsurance policy would kick in.  These types of policies provide protection against a cancer cluster or an employee going postal or just plain bad luck.


74 replies
  1. 1
    MomSense says:

    The site has been totally borked–thanks ObamaCare.

    We looked into health insurance (full insurance model) for our small business with just 3 employees and it was outrageously expensive so we are all thankful for the exchanges. Even the plan that we could have joined through a professional organization was not feasible.

  2. 2
    jeffreyw says:

    You broke it you’ve bought it.

  3. 3
    Ash Can says:

    Thank you for yet another highly informative post. And I’m loving the idea of pre-school kidlets going home and explaining insurance models to their parents after your classroom visit. :)

    (Re-reposting this after the Ghost of Tunch apparently took a massive dump in the BJ server this AM.)

  4. 4
    rdldot says:

    Seems like a slow day so I’m just going to ask my stupid question. What’s the difference between a deductible and out-of-pocket maximum? If you keep paying after your deductible is met (when you have 100% coinsurance, I mean), then how is there another maximum?

  5. 5
    sparrow says:

    Very interesting post as always. I wonder if you could use your experience/intuition to explain to me why the following scenario happened:

    When I was in graduate school, we had about 1000 graduate students who needed to purchase health insurance after no longer being on their parent’s or not having a spouse with a plan. That’s 1000 mostly young, majority unmarried, well-educated people (low smoking rate, low drug rate). I would think that the pool would be very attractive to insure for the fact that we should be, demographically speaking, very healthy, and people have a built-in clock for graduating so no one stays to old age. However our school administrators were completely allergic to hiring a broker or doing any kind of shopping for a decent plan for us (they claimed no one would insure us except current provider), and would not consider at ALL the idea of self-insuring (even though I think we had the numbers to do it). Instead we were stuck with the same crappy, crappy plan for year after year. (Short summary: it cost $2700 per year, paid out at 70%, had low caps (like 100,000 per accident/illness if I remember), high deductible (3000) didn’t cover any mental health, didn’t cover kids visits or shots, and the company was notorious for finding loopholes to not cover things. It wouldn’t probably surprise you that our medical loss ratio was in the 0.30’s. But the school could not be persuaded that this was bad. Meanwhile the insurance co pocketed millions every year from the students. So was I probably correct to assume that someone in the administration was getting kickbacks for this shit show? Or am I missing something?

  6. 6
    Richard Mayhew says:

    @rdldot: Let’s go back a little bit to an earlier post:

    Deductibles serve two purposes. The first is to transform insurance from being purely pre-payment of average medical expenses for a particular population into an insurance product. Insurance is the payment of defined sums for protection against uncertain losses for an individual. The first purpose of deductibles is to get the insurance company off the hook for the first chunk of expenses.

    Co-insurance is a percentage of costs that a member is responsible for after their deductible has been satisfied. The primary purpose is to make the member become extremely cost sensitive. For instance, a 20% co-insurance for a non-complicated labor and delivery when my wife gave birth to Reproductive Success #1 and #2 could have put me on the co-insurance hook for roughly a paycheck at the local mid-wife center or a couple of paychecks at the hospital. These type of variable marginal costs for identical services are designed to get people going to the cheaper providers or to eliminate the less essential services.

    To review – deductibles are designed for adverse selection identification and effective repricing of risk while co-payments are designed to steer people to cheaper option with fairly simple incentives. Co-insurance is designed to get members to price compare between a variety of providers for a single array of services. Finally, total out of pocket exposure is often capped because there is no reasonable ability of people to finance $30,000, $40,000, or $50,000 in medical expenses from a single incident.

  7. 7
    Richard Mayhew says:

    @sparrow: A few different things could be going on here:

    1) The grad students may hav been in the same risk pool as university employees, so there would be massive cross-subsidization of young and reasonably healthy grad students to old tenured professors.

    2) Kick-backs

    3) Administrative laziness

  8. 8
    Richard Mayhew says:

    @Ash Can: I did not get to present but my daughter got to tell me what all the other kids parents did and then we had to draw pictures of the business that they worked at and she told me stories as she delayed going to sleep (that is her core competency right now — not going to sleep in a non-screaming manner)

  9. 9
    Violet says:

    Hi, Richard. Thanks again for a very informative post. I’m dealing with trying to decide what insurance plan to get (large company, employer-provided). There are two plans. One is high-deductible plus HSA (if you want), the other is supposedly low deductible, but doesn’t seem all that low to me. The premium difference is huge.

    Have talked to two different HR reps and got completely different answers to questions, like “Does the pharm drug benefits, which has a per-person annual maximum, count toward the Plan annual out-of-pocket maximum?” One said yes, one said no. Who knows?

    The out-of-pocket maximum is a crock as well if more than one person is covered because each person has to meet their annual deductible, so if one person has the misfortune to have enough health issues to meet the annual out-of-pocket maximum for the plan on their own, the other person STILL has to meet their own deductible. So the out-of-pocket max for the year could be the Plan OOP max PLUS the other person’s deductible, depending on how the OOP max is met.

    Completely unable to find out other info, like how physical therapy is coded and billed (I have a hip injury and occasionally need therapy, so this is important to me). Are physical therapists considered “Specialists” or something else? How do I find out?

    My next call is to the insurance company itself–the HR people pawned me off to them–but given my poor track record of getting correct info out of them, I am not confident calling them will help.

  10. 10
    Gypsy Howell says:

    Let me see if I have this right (Richard, please correct me if I don’t)

    The deductible is the amount of medical bills you have to pay yourself before your insurance kicks in to cover anything.

    The annual out of pocket max is the MOST you’ll end up paying yourself each year with co-pays (for example, under a 70% plan, the 30% you’d have to pay after your deductible). After that amount, your insurance covers all of the expense.

    What’s not entirely clear to me is: is the OOP Max in addition to your deductible?
    IOW, if your deductible is $3000 and your OOP max is $6500, is the most you could end up paying in a year $6500, or is it $3000 + $6500 = $9500?

  11. 11
    Violet says:

    Richard, could you offer an opinion on how to choose between a high-deductible plus HSA plan and a lower deductible (but higher premium) plan? The high-deductible plan has the consumer pay percentages of the cost at doctor’s visits. The other plan seems to have a co-pay most of the time. OOP max is higher for the lower-deductible plan, which seems backward to me.

    What sort of things should I be considering to make the choice? It’s quite different from previous years where the choice seemed easier to me. Is age a factor when going with an HSA? How about age in terms of potential need/use of medical services? The “estimator” tool asks you to “estimate how many major medical events you’ll have in the coming year.” WTF? How could you know, outside of someone being pregnant or a very planned surgery? Or maybe ongoing cancer treatment? Otherwise, huh?

    I would really appreciate any insight.

  12. 12
    aimai says:

    @MomSense: Last time I tried to find insurance was years ago, and I was trying to find it for our babysitter. I was (stupidly) shocked to see there was no one offering a group plan for self employed people in a given category. It seems to me like a no brainer that people in a certain line of work who are self employed should have been good candidates for someone to construct an enormous group policy. There are thousands of women, for example, in the child care business running family day cares or working as nannies. Why wasn’t there some kind of group insurance plan they could buy into? But there was nothing. Now, of course, we’ve had Romney care for years so its not an issue. Thanks Governor!

  13. 13
    japa21 says:

    There is another aspect to self-insured, ASO policies that is somewhat important, and the impact of which varies around the country.

    Most insurance companies have some sort of utilization review and case management services which authorize services or assist more care oriented cases go through the care continuum. The main reason, which has some validity, is to assure that unnecessary or high cost/low outcome treatment is either followed closely or denied in terms of insurance payment. The problem with these services is that the insurance company has a vested interest in reducing costs and therefore denying payment.

    This is particulalry true with the fully insured plans and that is where you tend to see the most egregious denials taking place.

    However, the self-insured plans, where the employer takes the risk and pays separately for these services, may be approached differently. I once was a Mental Health/ Substance Abuse Case Manager for for a large review company, which, while owned by a large insurance carrier, also provided services for other payers and large employer groups.

    There were very strict guidelines we had to follow for the fully insured plans. In fact, it was expected that a certain percentage of our cases would be sent for a higher level review, and the higher level reviewers were judged by how many times they denied payment for services.

    However, some of the larger, self-insured employer groups made it clear that they wanted a looser review criteria to be used. It was interesting to see how various companies approached thiose decisions. Companies in the Midwest and West were far more willing to pay for extra care that the fully insured policies did not allow, while companies in the East were not.

  14. 14
    Violet says:

    @Gypsy Howell: That seems to vary by plan. You probably need to check with the insurance company if your HR rep (if it’s employer-provided) can’t help. Some plans roll the deductible into the OOP max, some do not–the two plans I’m looking at seem to do it differently.

    Also, as I said above, if more than one person is on the plan, BOTH have to meet their deductible, so the OOP max for the year might not be accurate. It could be the max PLUS the second person’s deductible, if one person spends a ton of money and the other one doesn’t.

  15. 15
    pseudonymous in nc says:

    The law of large numbers is also the answer to people who whine about a benefits package that covers X, Y and Z (when those things usually involve ladyparts or something they’d never have).

    People seem desperately to want individual insurance to cover them in intimate personal specificity, and they simply don’t understand that a standard benefits package means a larger risk pool, and less likelihood of tail effects.

    On the self-insurance model for corporations: can you go into a little more detail about the process by which a company and an insurer agree the terms of that arrangement, calculating the per-member fee when taking into account the various riders? What kind of variance in payouts to receipts is considered acceptable? What’s the minimum size for a member pool, and at what size do you get only marginal benefits by increasing the pool further? (That’s surely dependent to some degree upon the kind of work a company does, but not massively so.) That might be worth a post in itself.

    To me, it seems inefficient to have large enough companies getting bespoke terms, just in terms of the administrative burden, but it makes sense in the context of the system’s structural inefficiency.

  16. 16
    beth says:

    @Violet: That brings up a question I had – why is it so hard to get answers out of insurance companies? At a doctor’s visit, they asked me if my insurance covered my daughter’s HPV vaccine. I had no idea so I called them from the office, thinking it would be a routine, two minutes on hold kind of question. Forty five minutes and one supervisor later, I still didn’t have a clear answer. I finally just paid the doctor the full cost and told them to refund me whatever the insurance covered (they wound up covering all of it). My child takes daily medication and the cost is different many times. I’ve paid $8, $6, $10, $12, and $20 for the same amount of pills. When I asked the pharmacist, they said they get the amount from the insurance company and I should call them. I called them a week ago and couldn’t get a good answer – they’re supposed to be calling back but I’m not holding my breath. Neither of these things is a difficult question, why such a problem getting answers?

  17. 17
    lamh36 says:

    U know I’ll just admit it, health care discussions are just not my cup of tea (and I work in a freakin hospital lab!). I live a relatively simple life. I am a single female, relatively young (I’m 37 as of today), have no children, no spouse or significant other, I do have weight issues (translation, I need to lose it) and a history of the usual family illnesses for African Americans and yet I rarely if ever have a need to go to the doctor aside from well visits. So I admit that I don’t really pay much attention when open enrollment comes along a my job. I just go for the basic coverage enough for 1 person. The only thing I really change is the amount of my HTC flex plan, which I barely use. I select $500 and I swear I still end up with most of it left to get rid of at the end of the year. For example I just went to the urgent care clinic yesterday the copay was $50. So I still have $450 to spend by the end of the year. This has been a year of flux for me so I just have been putting off getting my medical stuff together from DFW to Baton Rouge.

    So now with the new ACA stuff I have to really pay closer attention. I kinda just wish I had someone to just tell me “ok, just get this, this, and this” to make it easier for me. I consider myself a little above average intelligence (tooting my own horn), but I freely admit it has become a bit more overwhelming than it use to when it comes to choosing my plan this year.

    Anyway all that is to say thx for all the info provided in post like these.

  18. 18
    kindness says:

    Kaiser started offering Self Funded insurance a few years ago. Large groups (B of A, Federal Express) essentially demanded it. Those enrolled are typical Kaiser members with all the benefits (most outside vendors signed on for these people but not all of them, the outside providers had to be given the choice). Companies when they looked at it thought it was going to save them tons of money. All they saw was the tiny Admin fee that was required. All actual medical costs are carried by the group buying the policy. No doubt numbers were given to these people in terms of amortalization of expected costs but I think they never saw beyond the first line. The tiny admin fee. All it takes is a few transplant patients, a bunch of chronic conditions and some unexpected injuries and several of those companies found they weren’t saving what they had expected to save. Some have transitioned back to the more typical HMO plan as a result. The lesson to be learned? I guess it’s that spreadsheets only tell part of a story.

  19. 19
    Elie says:

    I really appreciate your posts, Richard. You are doing a real public service and I for one, appreciate it. You are also very good at explaining complex things like insurance and benefit design…

  20. 20
    Violet says:

    @beth: I once spent about 24 hours over several days trying to find out how much a CAT scan plus radiology read would cost. NO ONE could tell me. I called the doctor’s office, the billing office, the radiology group, the radiology group’s billing office, the health insurance company about ten times, was referred to some sort of billing group that put me through to some “preferred provider” and we had a conference call with all three of us to hear what they would charge.

    Bottom line, I could NOT find out. Even though I had the exact code for reading the film from the doctor’s office, the radiology group said that they could NOT give me their charge “because I wasn’t a patient”. I told them I was going to be a patient when the doctor sent over the film–but they wouldn’t budge. There was NO WAY to find out the info. Absolutely none. I’d exhausted all the avenues.

    Republicans and their “educated consumers can shop around” style of medical coverage can go fuck themselves with a rusty farm implement.

  21. 21
    pseudonymous in nc says:

    Neither of these things is a difficult question, why such a problem getting answers?

    My sense is that it is a difficult question for the insurer, for weird reasons.

    A family member had the same problem working out in advance whether a mammogram would be covered. I always think of it as the quantum theory of insurance: the cost and coverage only flashes into existence once you’ve done something and there’s a bill with codes on it, and then it doesn’t obey the normal laws of mathematics.

  22. 22
    rdldot says:

    @beth: Why are you getting bad answers? Call centers, that’s why. They all suck.

  23. 23
    Violet says:

    @pseudonymous in nc: This is absolutely true. But even if you have the EXACT code from the doctor’s office, they won’t tell you how much it’s going to cost.

  24. 24
    sparrow says:

    @Richard Mayhew: Nope, they kept us totally separate from the regular staff/faculty plan. (they were extra-fond of reminding us that we were “just students” and not employees, despite the fact that graduate students teach and carry on research for the university… not bitter, nope).

    I think I would have accepted ‘admin laziness’ except that our miserable prescription coverage (max $1000) was turning away several great applicants for grad programs every year, and we had a high-profile case of a student with a complicated birth going bankrupt after exceeding her 100k cap.

    Anyway, thank god for the ACA! I’m happy to think that the current grad students are finally able to get a better deal than I got.

  25. 25
    KithKanan says:

    @Violet: Violet, having been an HSA individual policy holder since 2006, there’s one thing to keep in mind about HSA policies:

    According to the legal rules around those type of policies and aside from the preventive care services they’re required to provide (one visit a year under my policy for an annual physical and associated services) the insurance company doesn’t pay a dime for any medical care or drugs below the deductible. Since 2006, and since I have a $4,000 deductible, my insurance company has paid a grand total of around $500 one year when I had an unusually expensive ER visit that just pushed me over. They’re also mandated to have an out of pocket maximum within a certain limit ($6,250 this year).

    Non-HSA policies have a lot more flexibility. Look at some of those copays more closely — they may apply before the deductible is met (or they may not). Same with drug copays that may have no deductible or a separate drug deductible depending on the plan.

    Ultimately, which is cheaper will depend on your expected usage – the HSA plan may leave you better off in a year with unusually high medical expenses because of the lower out of pocket maximum, the non-HSA plan may be better (depending on the structure) if your usual medical costs are high but not catastrophic.

  26. 26
    sparrow says:

    @Violet: I wonder if a law saying you had to give the exact amount for a person to know up-front would help? Medical practice is so convoluted that it wouldn’t surprise me if it made things worse.

  27. 27
    Violet says:

    @KithKanan: Thanks for the insight!

    Non-HSA policies have a lot more flexibility. Look at some of those copays more closely — they may apply before the deductible is met (or they may not). Same with drug copays that may have no deductible or a separate drug deductible depending on the plan.

    it’s really hard to find out exactly what applies where. No one seems to know the answer.

    the HSA plan may leave you better off in a year with unusually high medical expenses because of the lower out of pocket maximum, the non-HSA plan may be better (depending on the structure) if your usual medical costs are high but not catastrophic.

    With the online tool they have for calculating costs, we went in and changed variables one at a time to see what might be better. The high-deductible plus HSA plan is cheaper until you have six “major medical events” (whatever they think that is and however they calculate it). Then the lower deductible plan is cheaper. For more routine stuff, it seems the high-deductible/HSA plan is cheaper. The premium cost difference is so large, I think that’s part of the cost estimation.

  28. 28
    MomSense says:


    There was no mechanism to do that before the ACA. Really the ACA is a way to provide group health insurance plans for people on the individual and small business market plus a bunch of great patient protections and benefits for seniors.

  29. 29
    Ash Can says:

    @lamh36: Many happy returns!

  30. 30
    Violet says:

    @sparrow: The thing is, the doctor’s office did give me their price, so I knew that part. They said on the paperwork they were sending the film to X radiology group and to contact them to find out what that cost would be.

    As a patient you have NO control over whether or not the radiology group the doctor sends the film to is in-network or out-of-network. You are at their mercy. So again, Republicans and their “educated consumer” blather is a total load of crap. You can’t find out the answers you need.

    The radiology group would give me the price if I were a patient. But since I had not yet had the scan done, and the film had not yet been sent to them, technically I wasn’t a patient, so they would tell me nothing. It’s impossible to find out.

    You’d think the insurance company could fill in the blank. Nope. “It varies by state, city, etc.” was all they’d tell me. They don’t want to tell anyone their negotiated rates, so you are unable to find the info.

    It’s a completely ridiculous and convoluted system that makes it impossible to find out the information you need, even with plenty of time on your hands and the determination of a bulldog. They won’t give up the info.

  31. 31
    rdldot says:

    Richard, for your reply. Another question. Is there a way to compare insurance companies within the state? Like an independent rating agency or something? It seems like some companies are better at being straight-forward about what and how they pay out.

  32. 32
    Violet says:

    @lamh36: Happy Birthday! I hope you have a great one. Celebrate!

  33. 33
    jl says:

    Thanks to RM for another very informative post, and to commenters above for great comments.

    ASO stands for an ‘administrative services only’ contract, is that right? I never saw the acronym spelled out in the post.

    I especially liked the point about how the law of large numbers interacts with pooling of benefits made by commenter above. I never thought about that before.

    And, wrt to comments on networks in this and a previous post. I am interpreting RM’s explanations of the role of networks, as implying that network design is part of the gigantic socially wasteful, and expensive, risk-management (aka cream skimming and cherry picking) machine run by insurers and some providers. Not sure if RM agrees with that, and would be curious to know whether he does.

    Edit: and I forgot my hobby horse that too much cream skimming and cherry picking may also destroy any competitive equilibrium that could exist in insurance market. So, I am way down on that stuff. It seems impossible to control without extremely strict regulation. There is a Netherlander health professional working in my office right now, who is saying that the same stuff is springing up in the Netherlands, since their ‘hidden single payer’ system has been run through private providers, who are beginning to try to steer what they deem to be profitable cases through their systems, and get rid of the less profitable.

  34. 34
    raven says:

    @rdldot: We are having an issue with the payment for my wife’s root canal in April. We have MetLife group dental insurance and they denied us twice in writing after our dentist submitted the bills. I called their help # yesterday and the young lady could not have been more helpful. It took about 45 minutes to untangle the issue and, even though our group is changing insurers this year, it looks like it will be taken care of.

  35. 35
    KithKanan says:

    One other thing on HSAs – if you’re higher income and healthy, they’re an even better deal (shock, they’re a Republican idea!)

    What you’re supposed to do is put the premium difference between the HSA plan and the non-HSA plan into a Health Savings Account, then use it to pay for services not covered by the HSA because you haven’t reached the high deductible — all the money you put into your HSA is an above the line tax deduction (you get the deduction even if you don’t itemize).

    Obviously, this is worth a lot more to you if your income puts you in the 35% bracket than the 15% bracket.

    When I started my policy, my HSA was a great deal – I was healthy and making decent money. After the recession started, I had my pay and hours cut and had unexpected medical expenses so my HSA went from being a fantastic deal to a so-so deal and currently it’s a pretty lousy deal because I can’t afford to put money into my HSA, I’m in a low enough tax bracket the savings aren’t what they were, and I’m still on the hook for all medical expenses up to that high deductible. YMMV.

  36. 36
    jl says:

    @raven: My dentist claims that a common game in dental insurance is to deny or delay payment until a cheaper solution (at least in the short term) is required, like pulling. So he says you need to make a fuss, and that he always tries to plan ahead to anticipate what he deems to be common denial or delay of perfectly reasonable claims.

    Not sure how much of that is true and how much is his attempt to advertise he thinks is his superior case management technique to patients, but that is what he says.

  37. 37


    Double-check the prescription coverage as well. Our company’s high deductible “consumer choice” plan might have made sense for me, but I would have had to pay full price for my prescriptions up to the deductible, and even the generic would have been $400 for a 90-day supply. So the more expensive plan in terms of weekly paycheck deductions turned out to be the most economical overall.

  38. 38
    Violet says:

    @KithKanan: The HR people said that the deposits into the HSA are pre-tax. Apparently this varies by state. However, anything you take out is taxed. Doesn’t seem like that good of a deal to me. Although it’s not use it or lose it, like the Flexible Spending Accounts.

    Edit: I got the impression the HSA is better for younger people because you can build up in the money in it and have it for later when you are older and might need money to pay for medical expenses. Is that impression incorrect?

  39. 39
    Richard Mayhew says:

    @Gypsy Howell: Correct:

    Let’s work through an example:
    Deductible $2000
    Coinsurance 20%
    OOP Max $5000

    So you receive Bill #1 for $1500 from an in-network par provider.
    You are responisble for all of this.

    Next month you get Bill #2 for $10,500
    You pay $500 to satisfy the rest of your deductible
    and then you pay $2000 for your coinsurance and the insurance company pays $8000.

    Next week you get Bill #3 for $7,500
    you pay $1,000 for your co-insurance as you have hit your OOP max and the insurance company picks up the remaining $6,500

    The day after you get Bill #4 for 77,000 and you pay nothing.

  40. 40
    Richard Mayhew says:

    @rdldot: NCQA is an accreditation agency that looks mainly at quality. Look at the state attorney general and the state insurance commissioner websites on what types of problems different plans have.

  41. 41
    the Conster says:


    I’m covered under my husband’s high deductible HSA, no premium plan. The advantage is that it’s deducted from his pay in pre-tax dollars and it’s all yours – it doesn’t have to be spent in a calendar year, and it covers dental costs. For someone relatively healthy, it’s nice to know that the money is going into another kind of retirement fund, and not to an insurance company who will try their best to deny your claim. I wish car insurance had a high deductible no premium plan – I’ve given AMICA tens of thousands of dollars over the last 30 years I’ll never see again.

    ETA: It’s taxed if used for other purposes than health care, is my understanding. Medical invoices are paid by third party administrators. This is the kind of plan of choice for people with higher incomes.

  42. 42
    KithKanan says:

    @Violet: It’s like an IRA – initially tax free, but you pay taxes if you take money out and a penalty if you take money out before age 65 – WITH a major exception. You can spend money from your HSA on medical expenses completely tax free.

    And yes, it made my CA taxes more complicated because CA doesn’t recognize the HSA tax exemption. So for my CA taxes I had to treat it like a regular savings account – deposits were taxable, interest was taxable, etc.

    EDIT: One other note – the definition of ‘medical expenses’ you can pay for tax-free from an HSA is broader than just the deductible for your health plan. You can also use it to pay for dental care, eye exams and glasses/contacts, etc.

  43. 43
    Richard Mayhew says:

    @Violet: Best would be to speak with an insurance agent or a navigator. I don’t know your circumstances.

    HSAs are great if you are very young and healthy and male (pregnancies are expensive) OR know you have a very major expense coming up in the next plan year (pregnancies are great for this, as is major surgery, being John Cole and his knowledge that Steve is trying to kill him, or long term chronic and expensive conditions) where low premiums compensate for the high deductible.

    Regular insurance is better when you don’t fit into either category most of the time.

    As far as the prescriptions being included or excluded in the deductible or Out of Pocket max — that varies by plan, by company, by which way the wind is blowing. Ask if the deductible is comprehensive/aggregated or seperate — seperate means pharmacy is probably not included. Talk to a broker./agent/HR rep.

  44. 44
    StringOnAStick says:

    @sparrow: My job at a university’s student dental clinic will probably be eliminated (along with the clinic) next school year because they went the student policy for medical/dental being a self insured plan to a medical-only plan through an insurance company this year, thus eliminating the funding source for the dental clinic. And even then, the health insurance for the students cost so much more this year that they used reserve funds to partially subsidize it so it wouldn’t be such a shock to the students. The DDS I work with is concerned that they are just toying with us so that the students who knew and loved the dental clinic will all graduate and the new ones will never know we were there and thus not miss us.

    The reason administration gave for changing from a self insured plan to a private insurance company? They thought that by being self-insured they were taking on the medical liability from the doctors that the students might end up seeing, which sounds like totally fascile BS to me. Once I heard this excuse, I lost all hope that my job might be saved.

  45. 45
    Violet says:

    @KithKanan: So HSA money can be spent on medical expenses tax free? Hmmm…that’s not what the HR people said. I wonder if it varies by state. I read that the pre-tax deposit part varies by state. I didn’t know there was any sort of age issue with it–like if you take money out prior to age 65 you’re penalized.

    Question: Can you use HSA money for things other than medical expenses? I had no idea that was an option.

  46. 46
    Richard Mayhew says:

    @lamh36: If you are getting your insurance through work, you really don’t need to do much. Maybe keep a little money out of the Flex Spend account, maybe add a little more — go to your PCP and ObGyn annual and make sure your cat does nto try to assainate you, and otherwise, you are doing fine.

  47. 47
    Original Lee says:

    Thank you, Richard, for this timely post. My company is self-insured, and we just finished open season. Of course, the only part that was open was how much the HSA contributions would be. And as usual, the completion page had the Monthly Cost to the Employer of each piece of the plan. We have a Cadillac plan, I think – full medical, dental, vision, and mental health coverage. I expected the cost number to be less than $1000, to be honest, but it was $1750 plus my contribution of $90 for a family plan. Now I know why it was so high. Thanks!

  48. 48
    Violet says:

    @Richard Mayhew: Thanks for the insight. I appreciate your knowledge and thoughts. I wasn’t expecting you or anyone to tell me which one to get, but as a consumer who doesn’t really understand this stuff, it’s hard even to know what thing to consider. It feels like I’m playing r o u l e tt e with my health and might put the money down on the wrong number.

  49. 49
    Richard Mayhew says:


    And, wrt to comments on networks in this and a previous post. I am interpreting RM’s explanations of the role of networks, as implying that network design is part of the gigantic socially wasteful, and expensive, risk-management (aka cream skimming and cherry picking) machine run by insurers and some providers. Not sure if RM agrees with that, and would be curious to know whether he does.

    Sometimes it is skimming and sometimes it is cost control — if a PCP wants 140% of the going rate and there are good options nearby that want 103% of the going rate, guess who is going in network and who is going out of network. Cherrypicking can occur with the higher end specialties — for instance if a health insurance plan wants to minimize the number of diabetics it covers but it can not deny based on pre-exisiting conditions, a “work-around” would be to include the minimal number of podiatrists in the network and the ones who are included are in the bad neighborhoods with shitty hours.

  50. 50
    KithKanan says:

    @Violet: The tax treatment of HSAs varies from state to state for your STATE income taxes. For your FEDERAL income taxes, deposits are always tax-free up to the limit. So in CA where HSA deposits are taxable, you’re still saving the 10-35% federal taxes but on the hook for the 2-9% state taxes (depending on your income level).

    As a single male making ~$60,000 when I first got my HSA, I was still on the hook for the 9% CA taxes, but saving 25% on my federal taxes was significant.

    Re: Using HSA money. As I said, for medical/dental/vision expenses it’s completely tax free (FEDERAL, STATE varies).

    For non-medical expenses, you’re always free to take the money out but you’ll pay FEDERAL income taxes on it (STATE may vary – depending on if you had to pay state taxes putting the money in and on interest earned or not), and you’ll pay an extra 20% penalty if you’re under 65.

  51. 51
    raven says:

    @jl: Yea, our guy teaches at the university med school and is pretty savvy. That said his wonderful office manager was fighting, and lost the battle, with breast cancer and we think that may have something to do with the submissions. It was a three stage process with the tooth and they submitted the first one as a “root canal” with only $100 in charges. Then there was a second billing that was also modest and the third, also billed as a root canal that carried the $1200 ticket. The young lady wrestled with all this for a while but was pretty sure it got rejected because they don’t pay for 2 root canals on the same toofie.

  52. 52
    Yatsuno says:

    @lamh36: Happy Happy Birfday!!! Any big plans for it?

    Just don’t do what I did and get two shots then stay up until 2:30 AM. But I get to blame the work Dawg for that at least.

  53. 53
    Violet says:

    @KithKanan: Thanks. Interesting info.

    The differences in the two plans is so stark this year, it’s really hard to decide which way to go. It’s very difficult to estimate costs, because they treat things differently. Calculating a percentage of a doctor’s visit is not easy to do when you don’t really know what the doctor charges to begin with. Doctors I see regularly, I’ve got the EOB and can look at charges and estimate. A new doctor? No idea.

    And then things that should be easy to find out–how is physical therapy coded and what would my charge be for that? No one seems able to answer that question.

  54. 54
    debg says:

    Richard, can you post something I can use for a particular situation? How much more will the additional coverage mandated by the ACA increase the cost of individual policies, and/or why is that a good thing?

    My extremely RW dad and stepmom (Fox News and Limbaugh all the time–visits are excruciating) need to replace her canceled policy, as she’s 64 and not yet eligible for Medicare. Dad hinted that he feels gypped, having to pay for birth control and what he called “abortion care” when they don’t and won’t need it.

    I fear that he won’t be persuaded by arguments about the public good, as he’s the kind of guy who thinks that all government programs simply redistribute his hard-earned income to lazy people who have never worked a day in their lives. I’ve been mentally preparing analogy to auto insurance–yes, you have to pay for stuff that you might not need, but that’s how insurance works. And at least with the ACA, you won’t be paying for uninsured motorists, which personally grates MY cheese. Am I far off base?

  55. 55
    Mnemosyne says:


    Happy birthday!

    I’ll be obnoxious and recommend Weight Watchers again — your workplace may even have a meeting on-site if you’re okay talking about weight with your co-workers. But also get a full checkup and make sure you don’t have any underlying issues (like thyroid or PCOS) that are affecting your weight.

  56. 56
    Violet says:

    @debg: Have they ever had need of using any kind of insurance–replacing the roof on the house after a hail storm? Car accident? Medical insurance for something like cancer or maybe something male–prostate-related, possibly? Does your dad use the little blue pills?

    Did you or anyone else have the exact same need of the insurance? Probably not. So you and others paid for their roof/car/urologist.

    As for arguments for–avoid the “public good” and focus on costs. “All those uninsured people cost a ton of money when they show up at the ER. It’s much, much cheaper (have data at hand) to make sure they have insurance.” Also, “Treating things like diabetes is much more cost effective than treating the effects of diabetes in the ER.”

    Re: “abortion pills”, try “Women who can plan their families cost society a lot less. I’m all for saving money. We’re paying for them one way or another. Don’t you want to spend less on those people?” I realize this sounds horribly heartless, but you are dealing with people who have that mindset. Sometimes to get through you have to use a little of their language.

    Bottom line: avoid touchy-feely, good for society angles–focus on the costs.

  57. 57
    sparrow says:

    @StringOnAStick: If there is still time to reverse course, I highly recommend going to the local press about it, especially if (like in our case) the school in question has a holier-than-thou attitude to the locals. Bad press gets the attention of “too busy” admins in a hurry. This goes double if you think there’s any evidence of payoffs (there were in our case, but I was hesitant to expose it… I wish I had).

  58. 58
    JustRuss says:

    @Violet: “

    Women who can plan their families cost society a lot less.

    Still too touchy-feely. Just pulled this off the web, use at your own risk:
    The average charge for an uncomplicated cesarean section was about $15,800 in 2008.
    An uncomplicated vaginal birth cost about $9,600, government data show.
    Average prenatal care: $2000

    Cost of birth control pills: About $400 per year
    So 25 years of birth control cost less than one healthy, no-complications, unwanted pregnancy. Which would they rather pay for?

    Personally, I just don’t engage in politics with my wingnut relatives. Nobody wins, and it’s just hurt feelings all around. There’s plenty of other things to talk about.

  59. 59
    pseudonymous in nc says:


    Really the ACA is a way to provide group health insurance plans for people on the individual and small business market plus a bunch of great patient protections and benefits for seniors.

    There were some ad hoc methods — the Freelancers’ Union (which is really a federation) managed to get a sort of group rate in NY. And the union method has been the way that actors, writers and crew in film/TV/stage have got health insurance, because they’re all basically self-employed or on temporary contracts.

  60. 60
    MomSense says:

    @pseudonymous in nc:

    And other associations offer plans, but you still have to organize, incorporate, pay for plan administrator(s), and lots of other things that make it tough for a lot of self employed people to manage.

  61. 61
    MomSense says:


    I’ll never have to worry about prostate cancer but I do want men to get screenings. Do we really want to have a la carte insurance?

  62. 62
    wrb says:

    One thing about Obamacare I didn’t known was somewhere in there was a provision in there to support non-profit co-ops.

    By far the best quotes I’ve gotten are from one of these that covers NY, NJ & Oregon.

    A platinum plan for a male in his 50s w high income $100 deductible, $1000 oop cap and no co-pay that also covers Chiropractic, acupuncture and naturopathy is available for $450/mo

  63. 63
    Mnemosyne says:


    Because I am a bad person, I’d be like, “Really, you’re upset because you have to pay for one whole year of insurance before you’re on Medicare? Suck it up!”

  64. 64
    fuckwit says:

    Thank you again and again for these posts. It’s so nice to learn how all this shit functions. Information is power.

  65. 65
    fuckwit says:

    @debg: A first-generation German-American friend nailed this whole mindset recently. He said, “it like we aren’t really a country, we’re a bunch of individual atoms and silos, nobody gives a shit about anyone else but themselves or their immediate circle”. That really is the RW mindset in the USA, and that individualism runs very deep, back to the original pioneer days.

    The demographic changes, the continued immigration, continued globalization and the internet, really will bring major changes to the American political mindset. Compare the Chinese cultural mindset, the Latino cultural mindset, etc. and how those have been and will continue to influence what it means to be American– or to live in a world where those cultures become more dominant globally. It’s much more collective, much more social. That influence will help us a lot. The FAUX/Limbaugh mindset really is on the way out. We live on an interconnected planet with 7 billion people, we’re connected to them via information networks more broadly and widely than ever before, and the things we do all affect each other. The days of pretending we are each individual atoms are over.

  66. 66
    FlipYrWhig says:

    @debg: You could try explaining that no insurer in the world would want to cover exclusively older, sicker people. Why should younger, healthier people subsidize them? Well, because we’ll all eventually be, if we’re lucky, older, sicker people. You overpay, and then you underpay.

    Or, think of flood insurance: the people who need it are the ones at risk, and the risk is also why companies wouldn’t be in the business of selling it, if not for the Feds.

  67. 67
    FlipYrWhig says:

    @Mnemosyne: one whole year of insurance at age 64, too. If you’re as much a hard-nosed capitalist as you think you are, you’d have to see that rather few companies would want to bet on your continued health being a profitable proposition.

  68. 68
    FlipYrWhig says:

    @fuckwit: but it’s not even really true. A lot of people THINK they’re rugged and individualistic, but at the same time they clamor for being subsidized and taken care of. (A notorious recent example: Matt Taibbi’s descriptions of mobility-scootered protesters against government intrusion into health care.). It’s an inconsistent and ignorant faux individualism that’s probably even dopier than true state-of-nature individualism would be.

  69. 69
    David Brooks (not that one) says:

    Do self-insured schemes hurt community rating?

    I’m fortunate enough to be an old guy working for a very large company (in Washington State) that self-insures. The demographic is mainly young and very well-educated; I would imagine that we see more than the average costs related to childrearing, but much fewer for the truly expensive diseases.

    I don’t think exactly this question has been asked above: by removing a pool of relatively lower-risk individuals from the community pool, is my company effectively cost-shifting by making others pay more for their premiums than if we were all in the geographic pool? Isn’t this a the same effect as is the Young Invincibles don’t sign up on the exchanges and drag the community pool’s costs up? Or does this cancel out when you consider that each demographic group within the company essentially removes itself from both the costs and the outlay side of the equation?

  70. 70
    pseudonymous in nc says:


    Dad hinted that he feels gypped, having to pay for birth control and what he called “abortion care” when they don’t and won’t need it.

    Law of large numbers, again. Tell him not to think about the benefits (zomg, generic contraceptives!) but how the standard package means that everybody in that group is paying their premiums into a big pot of money that covers his heart attack brought on by Faux News rage. If he were in a risk pool solely comprised of 64-year-old men, with a smaller pot of money, and premiums were based on covering the total costs, then his premiums would be way higher.

    @MomSense: Totally agree. And I hope that the ACA, kludge though it is, marks a turning point towards sensible thinking: if you’re going to do risk pooling, make the pools big.

  71. 71
    Debg says:

    @Violet: Will do, but again they’re focused on their up-front costs. To them, paying money for birth control coverage in their insurance policy just sounds like flushing money away. Other commenters have also raised really good points. Thanks, everybody.

    One thing I offered to do, which I’m actually hoping will happen–if they want help navigating the ACA website, I’ll gladly give them a hand looking through policies. Then they can call the toll-free number and talk to a real person to avoid some of the site headaches.

  72. 72
    Debg says:

    @MomSense: no we do not. I’ll try that line of argument. Really, though, dad is just eager to hate on Obama and everything he does. But I do want them to find suitable insurance, AND I’m afraid they’ll just accept whatever BS the insurance company tells them, so I’m diving in.

  73. 73
    Debg says:

    @fuckwit: Heh. One of our state legislators came to the Kansas university where I teach, which has lost huge amounts of state funding over the last few years, and actually asked people to explain why taxpayers should fund higher education. It’s horrifying to live in a state where the legislators actually wonder, out loud, whether education is a public good.

  74. 74
    Debg says:

    @Mnemosyne: I’m a bad person too, I guess–wondered the same thing.

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