FEBRUARY 2006 :: CONSUMER ED

Think Health Insurance Is Costly?
Going Without Can Hit Your Finances Hard

BY KAREN BLUMENTHAL
Staff Reporter of The Wall Street Journal

No matter how carefully you plan your spending and count your pennies, unexpected expenses always seem to pop up. The trickiest—and probably the most expensive—of the unanticipated budget busters is health care.

With health-care costs climbing every year, it's hard to properly plan for the cost of a major illness or injury. That's why medical costs are the No. 1 reason people file for bankruptcy.

I recently got my own lesson in the staggering cost of health care, underscoring how important health insurance is and how costly medical care can be. I hurt my knee during a workout, and a quick Internet search of my symptoms gave me a pretty good diagnosis: torn cartilage, probably the most common knee injury.

The only fix: Surgery.

Eager to avoid the knife, I tried to ignore the pain for months. Unfortunately, it kept coming back. Finally, I went to see an orthopedic surgeon, who confirmed my Internet conclusion and promised the simplest of arthroscopic surgeries. It would take less than an hour, I would walk out without crutches and I wouldn't need to spend time with a physical therapist afterward. All I needed to do was elevate and ice my knee for a few days.

Easy enough, I thought. Because I have a good insurance plan through work, I assumed the costs would be relatively minor, like around $500 for the surgery. After all, insurers can negotiate lower rates with doctors and hospitals, saving me money.

Turns out, my estimate was low.

Freedom to Choose

My company offers a couple of different health plans. The basic plan is called a PPO, or preferred-provider organization. That plan allows participants to pay just $20 for each doctor's visit and it pays for 100% of the cost of surgery. But it has some unpleasant requirements. Participants are expected to use only doctors in the insurance company's network and to get a primary doctor's permission before they can see a specialist.

Because I want the freedom to choose my doctors, specialists and hospitals, I've opted for a somewhat more expensive plan, called an "open choice" PPO. This plan requires me to pay for the first $400 in medical expenses before the insurance kicks in, a cost known as the "deductible." The plan also pays 85% of the cost of surgery if I use a doctor on the insurance company's list, leaving me to foot the remaining 15%. The plan would pay less if I chose a doctor who isn't on the list.

For this insurance coverage for my whole family, my husband and I pay roughly $120 a month, or $1,400 a year. That's considered pretty cheap. Some companies charge $200 to $400 a month for roughly the same coverage.

Even so, before I get any major coverage from my insurance, I've paid about $1,800 a year—our monthly cost, plus my deductible.

The first inkling of the costs ahead came the day before the surgery. The hospital called to "pre-admit" me, a fancy term for making sure I would be paying my portion of the bill. I had already met my deductible, but I still needed to provide a credit card or a check for about $600 for my 15% of the cost before the surgery would take place. That told me the hospital costs alone would run close to $4,000 for a few hours of care.

The surgery went well and was as easy as promised. I arrived at about 7 a.m. and was home before 11 a.m.

Weeks later, the bills arrived. The doctor and the hospital each sent one, of course. So did the anesthesiologist. A bill or two came for lab work from people I never met.

The "explanation of benefits" forms that my insurance company sent highlighted the clout that insurance companies have. To be on the insurer's preferred list, doctors and hospitals must agree to negotiated, reduced rates. For instance, my doctor sent in a bill for $3,653. But the insurer's negotiated rate for this surgery was just $813.35, not even 25% of the doctor's bill.

My 15% of that amount was a modest $122. But if I hadn't had insurance, I would have had to pay the entire $3,653 out of my own pocket. That might have been more painful than the surgery itself.

Similarly, the original bill for anesthesia was $610. But the insurer's rate was half that, $300.

Just Over $10,000

Altogether, just over $10,000 was billed to the insurance company. Because of the negotiated rates, however, the real cost was about half that, $5,256. The insurance company paid 85% of that amount and my total came to just under $800. Since the hospital had required my payment up front, my remaining costs were easy to swallow. Still, it was an impressive amount of money for less than four hours of medical treatment.

The whole experience was sobering. If I hadn't been well-insured, a $10,000 medical bill would have put a dent in my savings—but it would have been a much bigger financial hit to a young person just starting out.

And that was for a small procedure. Cancer treatments or regular care for a chronic disease could run to tens or even hundreds of thousands of dollars. No wonder, then, that schools want to be sure students are insured and those starting out are encouraged to find at least a minimal insurance plan to cover a major crisis.

If you think you are young and healthy and can save a few bucks by forgoing health insurance, put a pencil to it. What's the cost of the insurance and your out-of-pocket expenses, like the deductible and your portion of the remaining cost? And what would happen to your finances if the worst happened, if you were in a car accident—or even if you just tore a little cartilage in your knee?