Find Out What You (Don’t) Know About Health Insurance

By Richard A. McGrath, CIC, LIA

Based on a recent survey, Americans have an unhealthy lack of knowledge about health insurance.

LIMRA, an insurance trade organization, surveyed more than 2,000 consumers throughout the country, asking them 10 questions about their health insurance.

Considering that they were true-or-false questions, anyone taking the survey could guess and have a 50-50 chance of getting the right answer for each question, yet nearly eight out of 10 consumers answered five or fewer questions correctly.

While nearly 80% scored a 50% or less, only one in 10 answered at least seven questions correctly.  On average, uninsured consumers answered fewer than three out of 10 questions correctly.  Incredibly, no one answered all 10 questions correctly, according to LIMRA.

Insurance is about to become much more complex as the Affordable Care Act (ACA) takes effect; more than 10,000 pages of regulations have already been written for the new law.  Americans who don’t know the basics about health insurance today will be even more confused once the law’s regulations are in force.

So what were the questions on the LIMRA survey?  And how would you score?  You can take the test below.  The answer is provided in the paragraph following each question, so you may want to write “T” or “F” (true or false?) on a separate piece of paper as you read.

A PPO (Preferred Provider Organization) is a health plan that contracts with doctors, hospitals, and other health care providers to offer medical services to its members.

A PPO is a managed-care insurer that contracts at a discounted rate, in exchange for providing its doctors and hospitals the business of its members.  The answer to this first question is “true.”

HMOs (Health Maintenance Organizations) are a type of fee-for-service health plan.

A fee-for-service payment model offers unbundled services that are paid for separately.  Many believe that it causes doctors to provide more treatment than is needed, because payment is based on the quantity of care, not the quality of care.

Medical professionals in an HMO, conversely, are under contract to provide services in accordance with the HMO’s guidelines.  The answer to this second question is “false.”

The deductible is the amount you must pay out of your own pocket for health care for each visit before the insurance company or health plan pays the rest of the costs.

The statement describes a copayment, not a deductible, so the answer is “false.”  A deductible is the amount you have to pay out-of-pocket before your insurer picks up the cost.  If, for example, you have a $500 deductible and your procedure costs $5,000, you pay $500 and the insurer pays the remaining $4,500.

A health insurance plan with guaranteed issue means that an individual cannot be denied coverage because of current or past health status.

That is a correct definition of “guaranteed issue.”  The answer is “true.”  The ACA will require that insurers provide guaranteed-issue coverage.  That means individuals who are sick can no longer be denied coverage.  However, when individuals with serious illnesses are provided coverage, it will boost premiums for others.

A health plan’s drug formulary excludes non-preferred drugs.

A formulary is a list of drugs approved by the insurer.  Formularies can help manage drug costs; the insurer may, for example, include generic drugs in the formulary.  The insured can receive coverage of up to 100% for drugs in the formulary that are preferred by the insurer.  However, insureds can still have access to other drugs, if they are willing to pay a larger percentage of the cost of the drugs.  Therefore, the answer to this one is “false.”

A health insurance plan with a higher premium and lower deductible means you would pay less on a monthly basis and more “out-of-pocket.”

This is one that most people should be able to identify as being false.  The higher the premium, of course, the more you pay and the lower your deductible, the less you pay “out-of-pocket.”

A person’s out-of-pocket limit can include co-insurance, but not co-pays.

Co-payments are due whenever you have a doctor’s visit and are not connected to the out-of-pocket limit for a deductible.  The answer to this one is “true.”

A primary care provider (PCP) can be an internist, a pediatrician or a nurse practitioner.

The PCP is the person who not only provides routine healthcare for you, but who determines whether you should see a specialist.  Doctors provide most primary care, but nurse practitioners can also serve in the “gatekeeper” role of a PCP, so the answer is “true.”

Reasonable and customary fees are the charges doctors bill insurance companies or health plans for their services.

“Reasonable and customary fees” are the fees insurers are willing to reimburse for specific medical services, not what doctors charge, so the answer is “false.”

Federal law requires employers to offer health insurance to their employees.

Currently, most employers offer health insurance to full-time employees, but they are not required by law to do so.  The correct answer is “false,” but the ACA will require employers with 50 employees or more to offer health insurance or pay a fine.

That provision of the ACA was scheduled to take effect at the end of 2013, but was recently delayed for a year by President Obama.

Hopefully, this article provided you with a better understanding of the basics of health insurance.  If you have additional questions, your insurance agent should be glad to answer them.  The more you know about your health insurance, the better you can make decisions about your coverage.

Richard A. McGrath, CIC, LIA is President and CEO of McGrath Insurance Group, Inc. of Sturbridge, Mass.  He can be reached at

This article is written for informational purposes only and should not be construed as providing legal advice.