In this week’s Cavalcade of Risk, an article from Chatswood Consulting caught my eye. The article pertains to the standardization of the definitions involved in total permanent disability (TPD) policies in the UK, in an effort to make policies more easily understood by the public. Although TPD claims amount to only 3% of the critical illness claims submitted in the UK, more than half of those claims are denied because the insureds didn’t understand what counted as eligible claims.
This made me think about health insurance, and how easy – or not – it is for consumers to understand the basic definitions involved in their coverage, and how readily two or more policies can be compared. In Colorado, all policies have long been required to have a standardized plan description form (separate from the carrier-created marketing brochure), and House Bill 1166 passed earlier this year, requiring that all policy information be written at no more than a 10th grade reading level. But I think that most consumers tend to look at brochures, mailers, online advertising, and other marketing materials designed by each insurance carrier.
Clients frequently tell us that they’re confused by insurance policy wording. Some carriers explain their out of pocket maximum as being just the coinsurance, while others include the deductible in that amount. Coverage for emergency room visits often includes a small copay, but with individual policies that copay is almost always in addition to the deductible and coinsurance unless the insured is admitted to the hospital from the ER (insureds often see the copay listed on their policy and don’t notice the wording that notes that the coinsurance and deductible must also be paid). Coverage for prescription drugs varies widely from one policy to another, and is often misunderstood – especially since different carriers have different criteria for assigning drugs to the various copay levels.
My own preference is for simplified policies like 100% coinsurance HSA-qualified plans. I prefer the lower cost that goes along with a high deductible policy, and I like knowing that once we meet our deductible in a given year, most expenses will be covered 100%, without having to think about separate categories for office visits, prescriptions, and hospitalizations. I know that there is no such thing as one-size-fits-all when it comes to health insurance policies, but more standardized language and definitions from one carrier to another would make for less confusion in the overall market.