Private Health-Care Coverage

Health-care insurance companies, like all businesses, make a profit by taking in more in revenue (premiums) than they spend on costs (claims). And it's a very profitable business. According to U.S. Securities and Exchange Commission filings, the top five health-care insurers made $12.2 billion in net profit in 2009 (up 56 percent from 2008) even though they insured 2.7 million fewer people.

Spreading Risk

• Profit equals premium revenues less coverage costs; beware of coverage loopholes.

  Private insurance companies spread their risk through volume, having many more healthy, rather than sick, customers. They reduce costs by negotiating lower provider fees, limiting coverage, denying claims for expensive care, and canceling the policies of those with high claims.

"Private" Health-Care Coverage

• Private health insurance does not give the individual purchasing power.

  All insurance companies are, like other businesses, privately owned corporations in the business of making a profit. Insurers give discounted "group" rates to businesses for bringing them a large group of customers (their employees). Some companies pay the premiums as part of their employees' compensation. More often, employees get the group rate, but have to pay all or part of the monthly premium themselves. When companies do not have an insurance plan, the employee must purchase "private" health insurance from one of the same insurance companies that provide group insurance, without getting the group discount.

Discounts

• Private insurace coverage typically requires a medical exam or detailed disclosure.

  In exchange for delivering a large group of customers, the insurance company accepts all the employees who want (or can afford) the group insurance. Individuals must "apply" for private health insurance and they are generally required to submit to a health exam prior to acceptance. Insurers can refuse to insure individuals who have had, or are perceived to be at risk of developing, health problems.

Cost

• Private insurance policies can have low-lifetime maximums and other restrictions.

  Private health insurance typically has higher deductibles and co-pays and lower annual or treatment maximums. For instance, some policies may cover only $500 per year in prescription medication; this can be less than one month's supply for someone who gets cancer. Or a policy could limit the annual number of doctor visits they will pay for. One chronic illness, and you could be paying for most of your medical bills yourself--in addition to your monthly premiums.

Fine Print

• It's difficult to find out if a condition is exluded until it's too late.

  Many consumers discover that an expense isn't covered only after the expense has been incurred, when the insurance company denies their claim. Through pre-approvals, insurance companies effectively dictate what medical treatment you receive by choosing which treatment they will pay for. When purchasing private health insurance, it is wise to contact your state's department of insurance and ask about how many complaints they've received on the insurer.

Private versus Public

• Health-care insurance companies are projecting record profits for 2010.

  Unlike private insurance companies, public health programs don't take in profits. Pubic health-care systems get the highest benefit from volume-diversified risk because they insure the entire population. Also, according to U.S. Securities and Exchange Commission filings, CEOs in the top 10 private insurance companies received $228 million in 2009 (a 167 percent raise from 2008--not including $114 million in exercised stock options); public health-care programs don't pay high executive salaries and they operate much leaner with streamlined claim processing, no agent commissions, no advertising expenses and no coverage disputes.