Choosing the Right Type of Health Insurance for You and Your Family

By Tom Gotuaco, RFP®

Nowhere is insurance more relevant to you today than in the area of health. Health is the #1 line of insurance among 12 broker categories tracked by the Insurance Commission. And nowhere is health insurance more relevant to you today than in the field of financial planning because health insurance protects you from losing your money in the event of a medical emergency – the most common cause of financial insecurity!

How can you save money, or invest in a home, education, or retirement, if you or someone you love keeps losing money to medical emergencies? Sure, inpatient cases only happen 10% of the time, but cost thousands of pesos; and outpatient cases only cost hundreds of pesos, but happen 300% of the time (3x per person per year)! So it’s not if you will see a doctor, but when. And when you do, would you rather be protected with health insurance, or would you rather assume the risk? Would you rather pay a small premium, or pay a big bill upon checkout?

Health insurance can be either Medical Insurance or HMO. In my previous MoneySense article entitled “Choosing the Best HMO for your SME” (May-June 2012), I noted that HMO plans absolutely dominate the employee benefits landscape. The reasons are obvious: 1) most employees do not like to cash out and file for reimbursement; 2) most employees do not want to decrease their outpatient limits in order to increase their inpatient limits; and 3) most employers and employees prefer the simpler design of an HMO to the complicated design of medical Insurance. But you can throw out this logic when we talk about individuals.

While it is true that an HMO offers you a network of accredited doctors, hospitals and clinics (unlike medical insurance), and stops you from losing your money through its no-cash-out feature, medical insurance allows you to manage your own health (seek your own treatment), and makes you financially whole through reimbursement. So in a very real sense, both medical insurance and HMO can be said to protect your health and wealth in their own separate ways.

Why medical insurance?

If you are the type who prefers to have your own choice of doctor, hospital or clinic worldwide for reimbursement, outpatient benefits that include non-HMO goodies such as prescribed medicines, and much bigger inpatient limits, then go with medical insurance: it offers limits that match your risks (smaller limits for smaller outpatient risks; bigger limits for bigger inpatient risks), and can provide the most financial protection against a Big One (even if it only happens 1% of the time).

Why HMO ?

If you are the type who prefers to have a nationwide network of doctors, hospitals and clinics for no-cash-out, seamless inpatient, outpatient and emergency room benefits, and combined inpatient and outpatient limits per disability per year, then go with HMO; it offers the more user-friendly limits, and can provide the most financial protection against multiple sicknesses or accidents (as their room and board and maximum benefit limit combinations are good up to 99% of the time).

So which should you get: medical insurance or HMO? Ultimately, that choice is up to you! Do you want to protect against the frequency of outpatient, or do you want to protect against the severity of inpatient? If you protect against frequency, you risk being wiped out because of severity; if you protect against severity, you risk being wiped out because of frequency. It’s a calculated risk – unless you are willing to either splurge on: 1) medical insurance with higher outpatient limits; 2) HMO with higher inpatient limits; or 3) both medical insurance and HMO for their inpatient and outpatient limits, respectively (i.e., augmenting a regular HMO plan with an inpatient-only medical insurance plan).

Unfortunately for individuals, the freedom to choose your room and board and maximum benefit limits creates the phenomenon of adverse selection, wherein the sick tend to sign up first. This tendency wreaks havoc among insurers, as it represents a sure loss, and not a risk of loss; that is why so many insurers do not sell individual plans, whether medical insurance or HMO.

Fortunately, however, there are still a handful of local and foreign medical insurers, as well as another handful of local HMOs, who continue to sell individual plans in the marketplace – at seemingly little risk to underwriting or profitability. Therefore, we can assume that the choice of medical insurance or HMO, for individual health, is essentially a crapshoot. If you pick a psychographic type from the choices above, that will be the right type of health insurance for you and your family!

6 Tips When Buying Individual Medical Insurance Plans

1. Look for medical insurance plans that have high maximum benefit limits (preferably dollar plans that can be legally sold in the Philippines), so you can protect against the Big One
2. Look for medical insurance companies that offer inpatient, (optional) outpatient, and emergency room benefits (be aware of those that offer outpatient only as a follow-up to inpatient confinement).
3. Look for medical insurance plans that have fewer inner limits (e.g., room & board / surgical / professional fees / hospital services / surgical schedules [basic & major med] / outpatient limits / etc).
4. Look for medical insurance plans that provide direct access to doctors, hospitals and clinics of your choice (be aware of those that require you to get prior approval before going direct, like an HMO).
5. Look for medical insurance companies that 1) Accept, 2) Accept with Rating, 3) Accept with Exclusion, or 4) Reject your application: it shows they exercise best practices.
6. Look for medical insurance companies that treat you as part of a pool: otherwise, they might try to double or triple your premiums after a “bad” claims year.

6 Tips When Buying Individual HMO Plans

1. Look for HMO plans that provide you with dual access to healthcare each time you avail: as an HMO patient for no-cash-out, or as a private patient for reimbursement (even if it is at the lower HMO rate).
2. Look for HMO plans that provide access to the best hospitals and clinics: Makati Med, both St. Luke’s, Cardinal, Asian, Medical City, and Healthway (these facilities attract the best doctors).
3. Look for HMO plans that offer 100% pre-existing conditions (even if in the 2nd year) and 100% special procedures coverage (for MRI, etc.) up to your limits (otherwise, what good are higher limits?).
4. Look for HMO plans that are independent of Philhealth, so you won’t need to file for Philhealth (otherwise, if you don’t have Philhealth, you will have to pay for the Philhealth portion of your bill upon checkout).
5. Look for HMO plans that provide nationwide dental and nationwide APE benefits, for truly comprehensive Health (Medical & Dental) & Wellness (APE) coverage.
6. Look for HMOs that treat you as part of a pool: otherwise, they might try to recoup their losses immediately after a ‘bad’ claims year.

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Tom Gotuaco is the Founder of PurpleCow.ph, the latest, greatest Employee Benefits for SME (Individual plans will be available soon). A graduate of Entrepreneurship from AIM, Registered Financial Planner, and director of Gotuaco, del Rosario Insurance Brokers, Inc., Tom matches financial planning concepts with financial services products to help clients achieve financial security. In his spare time, Tom runs the Notre Dame Club of the PH, and organizes the ME & US Alumni Clubs. You can reach him at 0918-808-8888, or email him at tom@gotuaco.com.