Phew! Yes, this post and the ones that follow on this subject are going to touch on some sensitive subjects, but dealing with medical care is both sensitive and plays a large role in our comfort, security, and freedom to travel. This first post is intended to outline some of what conventional insurance is and how it works. The follow-on posts will cover some of the issues for RVers, including insurance alternatives, and my experiences with them.

WARNING: This series of posts about insurance contains some political commentary, along with both religious concerns and alternative lifestyles. If you’re offended by an approach to managing medicals costs that doesn’t offend someones preferences (religion, diet, or otherwise), this post probably isn’t for you.

Don’t have much time? Skip to ACA/Marketplace Insurance Policies for Full-Time RVers: One Size Fits Few for my experience.

What is Insurance?

With that in mind, we must start with at least some consensus as to what insurance really is. Let’s start with a couple of definitions:

insurance

noun in·sur·ance \in-ˈshu̇r-ən(t)s, -ˈshər- also ˈin-ˌshu̇r-, -ˌshər-\

coverage by contract whereby one party undertakes to indemnify or guarantee another against loss by a specified contingency or peril¹

Insurance is a means of protection from financial loss. It is a form of risk management primarily used to hedge against the risk of a contingent, uncertain loss²

In both definitions, there’s the element of risk or contingency. In other words, insurance is supposed to protect against a known peril that might happen. It is a way of protecting against costs we can’t otherwise afford directly in the unlikely event something happens. We could insure against costs associated with the common cold, and we could insure against rare conditions treated with costly procedures.

Insurance is for Managing Risk

I point out the risk element for an important reason. The PPACA (“Obamacare”) emphasizes a plan’s actuarial value–the percentage of your medical expenses the plan covers–and requires coverage of certain preventative services and pre-existing conditions. Sounds good, right?

The problem with that is there’s little distinction made between routine, known, and ongoing expenses and the expenses we might incur in the future. Let’s look at an example to illustrate it.

Suppose we’re buying insurance for our car. We have the option to include coverage for oil changes, allowing one every 3 months. It covers only the $19.99 oil change at Jiffy Lube.

If we stop and think about that for a minute, we can probably guess that the premium for that coverage is going to be more than $19.99 every three months. That’s in part because the likelihood of a claim is close to 100%, the company has expenses in administering the program, and has to provide a return for its owners/stockholders.

Given that, would you pay $25 every three months for that program, or simply buy the $19.99 oil change when needed? While the ACA did away with much of the policy-writing based on individual risk (i.e. insurance based on your likelihood of claims), we know that insurers don’t continue to operate long-term paying out more than they take in. On the whole, if you add coverage for a particular service, the aggregate premiums increase by the cost of the service times the number of people receiving it, plus overhead and return on investment.

At this point, you might be wondering where I’m going with this. In an individualized risk assessment, if you and your insurer both know you have a certain ongoing expense, you’re better off to pay for it yourself and exclude coverage from your policy. You and your insurer may not make the same assessment, however, so it’s not always the most straightforward.

Who Provides Covered Services?

One of the things that’s somewhat unique to the health insurance market is that it often restricts coverage to certain providers. If we look at the oil change example, let’s suppose that the plan didn’t make the insurer any money, and ignore administrative costs. In other words, it offers to provide a $19.99 oil change every three months, with a cost of exactly $19.99 every three months. But let’s suppose it requires the use of a particular Jiffy Lube location. We’d immediately say that’s worth less, as it’s both less convenient and more expensive to travel for the service.

Most health insurance plans, particularly since the implementation of “Obamacare,” have limited provider networks. In the case of the on-exchange providers in South Dakota, that currently means traveling to South Dakota for any non-emergency care to be covered as “in-network.” That’s not a big deal if you’re faced with a months-long million-dollar hospital stay, but it certainly makes that “free” physical in Rapid City pretty pricey if you’d have to make a special cross-country trip for it.

The extent of provider networks rises to a level of significance far greater for RVers than for our less-traveled friends.

Why would an insurer limit me like that?

There are various approaches to make it work, but part of what makes an in-network provider heavily preferred (if not required) is that it helps the insurer control costs. But not just for them–you too. If your insurer paid on a straight percentage basis, there would be no check against their portion, or yours. If they just paid a fixed amount, your portion wouldn’t be kept in check. Instead, in-network providers agree to a schedule of rates for various services. They also agree not to seek payment from you for billing in excess of those rates (known as balance billing). By agreeing to participate in the network, and charge fixed rates, the provider gets referral business (yours) by way of your insurer.

I Have a Pre-Existing Condition? Do I?

If I do, why would an insurer exclude them? This is perhaps one of the most misrepresented facets of health insurance underwriting, on both sides of the aisle. Recall the earlier part of the discussion about risk. If you already have a diagnoses, the risk is known–you will incur whatever expenses are required to treat that condition. So who pays?

Traditionally, insurers had several means of writing a policy while addressing pre-existing conditions, including:

Increased premiums according to the expected cost of treatment, and possibly also considering correlated risks (e.g. existing osteoporosis suggesting increased risk of bone fracture).
Exclusion of coverage for the pre-existing condition.
A waiting period before the pre-existing condition is covered

Particularly with group plans, where individual premiums weren’t based on individual medical evaluations, waiting periods are generally most common. They frequently exclude the condition for 12 months after the policy takes effect. Such exclusions generally make it hard to lure customers from other insurance companies, so there’s often an allowance for creditable coverage. In other words, if you’ve been insured, and are merely getting a new policy, the insurer is more accommodating.

This isn’t unlike auto insurance, where you’re usually asked if you currently have insurance when shopping around. If you don’t, the insurer isn’t unreasonable in wondering why. It’s part of the process of determining the level of risk you pose to them, just like your auto insurer will look at your driving record and claims history.

You’ve probably also seen memes and other comments to the effect of things like “being a woman is a pre-existing condition” or “I am a pre-existing condition”, as if to suggest that these people or groups are lepers to be cast away to the remote island of the uninsured. Whether under the ACA or proposed changes to it, pre-existing conditions are generally always covered, and what you pay for insurance is determined only by a limited set of health factors.

However, as we move to alternatives to conventional insurance, these generally applicable limits may not apply.

ACA Terms for Certain Types of Health Benefits

Many insurance policies–especially with the passage of the ACA–include coverage for many routine or preventative services, alongside the traditional insurance coverages. Some of these are attempts to reduce the likelihood of a future claim, while others are more in line with the concept of a service contract than insurance. I’ll try to discuss those concepts separately as much as possible.

Minimum Essential Coverage and the Penalty

Starting in 2014, if you didn’t have health insurance that qualified as minimum essential coverage (MEC) or qualify for an exemption, you’ve been assessed an additional tax with three components:

A flat, minimum amount plus
A percentage of your income, up to
A maximum of the average cost of a Silver Marketplace plan.

For 2017, that means a minimum of $695, and a maximum of $2,085 (per person).³ On a monthly basis, that means somewhere between $58 ad $174.

Ok, so what does MEC include? That can vary quite a bit. The law specifically names certain types of plans (like Medicare, TRICARE) provided by the government, regardless of what services are covered (go figure…). Only a qualifying private plan must provide all required services and protections.

MEC Protections

To qualify for a penalty exemption, a plan must have certain patient protections, regardless of services provided. The details are literally reams of regulation, but here are a few key points:

An MEC plan is limited in determining your premium based on health status, and limited in use of age, sex, geography, family size and tobacco use. For a plan to qualify, it must accept anyone who pays the premium.
There must not be annual or lifetime dollar limits on essential health benefits.
Renewability is guaranteed,* independent of health status. *Not really guaranteed, because an insurer can cancel a plan altogether, or would become a non-MEC plan with a choice not to renew your plan based on health status.
There are affordability standards, that require 60% coverage on required services.
There are limits on annual deductibles and out-of-pocket maximums.
At least 10 essential health benefits must be covered.

What this means, in short, is that your current health doesn’t matter for an insurance plan that exempts you from the penalty. The 10 essential benefits can vary by state, but all must include the set of preventive services outlined by the USPSTF.⁴

Essential Health Benefits

With the exception of the preventive care services, this list is the basic list of insurance coverages–hospital stays, outpatient surgeries, doctor visits, prescription drugs, etc. For now, we’ll leave it at that.

Preventive Care Services

These services fall into the realm of routine, “service contract” coverages. Generally speaking, anyone can seek any of the services on the list free of charge (as in paid for already!). This list includes certain vaccines, screenings, physical exams, and various counseling.

It has a few idiosyncrasies though. I think that’s a nice way of saying dumb inconsistencies. On the list of required coverages for women is screening for HPV, gonorrhea, and chlamydia,⁵ all sexually transmitted infections. Given that most women would contract these infections from a man, it would seem reasonable to screen men as well, but that’s not covered.

Obviously, there are certain procedures for men and women that aren’t relevant for the other. Where a woman might be screened regularly for cervical or ovarian cancer, a man might be screened for prostate or testicular cancer. So if the cervical cancer screening is a required coverage, prostate screenings logically are as well, but they aren’t.

I understand, and agree with, sharing the cost of things that involve both sexes (given current science) like pregnancy. But if you look at the healthcare.gov lists, there is a page for all adults, and another for the additional services for just women. There is no list for men. Given that, there’s no reason a policy for women shouldn’t be able to be priced higher if it includes those services, but that’s not allowed.

An ACA insurance plan that meets the MEC requirements for penalty exemption covers the full list of these services at zero cost, so it’s one of the simplest parts of the comparison shopping process.

What does all of this mean?

Insurers are trying to manage risk relative to premiums collected just like you’re trying to manage risk relative to premiums paid. They’re out to make a profit, which requires offering a product that people are willing to buy, and managing the cost of providing it. Keep that in mind, and make sure you understand what you’re buying.

Given that RVers are in many cases very concerned with coverage nuances that would only be minor issues for the average Joe, make sure you read the actual policy document, not just a Summary Plan Description. And while I would suggest asking the insurer for clarification when you’re unsure what something means, that has limited value. Even if they explain in writing, the policy itself will exclude anything not in it, which you will agree to on purchase. Be sure you understand the “four corners”⁶ of the document.

As with any of my posts, if there’s stuff in here where you think I’m wrong, I’m not clear, or you think I could add detail or otherwise make improvements, speak up!

Next up I’ll talk about what’s wrong with ordinary health insurance for full-time RVers.

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