In this article, we will discuss first dollar coverage. We will also talk about how you can explain the 1st dollar coverage plan to clients. Let’s begin.
What is first-dollar coverage?
A first dollar coverage is an insurance policy that does not have any deductible. In this type of insurance, the insurer assumes the payment when an insurable event takes place. When an insurable event or loss occurs, the client will not have to pay anything from their pocket. In other words, the insurer bears the entire expense of the losses.
The Basics of First Dollar Coverage
First Dollar Insurance is a policy that is usually available on homeowner’s insurance, car insurance, and health insurance. Other policies may also be obtainable in this form. Typically, this policy is a subtype of a complete insurance package.
However, there are a few limitations to the first dollar insurance. As the insurer is bearing a high risk by making the full payment, there is a limit to how much the insurance will cover for a damage. The coverage provided by first dollar policies is much lower than insurances that have a co-payment or a deductible associated with them. Therefore, if one gets first-dollar health insurance, there will be a limit to how much the policy will pay the client.
Another drawback of first-dollar insurance is higher premium. Again, since the insurer is bearing a higher risk, they charge more to the customer. For instance, in the case of health insurance, the customer will have to pay a higher premium since the insurer will cover the cost of all medical services of the customer. For this reason, first-dollar coverage is popular with health insurance policies. However, with the car and home insurance, this type of policy is not so prevalent.
The first-dollar policy has been criticized a lot because people misuse it, especially in the healthcare sector. This misuse drives up the cost of medical procedures or products. Those without first-dollar coverage do not get the care they need because of the expenses they have to bear. It unintentionally affects those who need medical attention but cannot afford the premiums for first-dollar insurance.
How First-dollar Insurance Works?
Let us take an example of first-dollar insurance on a car. Say a driver damages their vehicle during a driving incident. Now, they take the car to the repair shop, where the driver is charged $1000. If the driver has an insurance policy with a copay, they will have to pay a certain amount from their pocket as defined by the policy. So, they have to pay an amount between $200 and $500 for the repair, and the insurance company will pay the remaining amount.
However, if the individual has first-dollar coverage, the insurance policy will cover this entire amount. The customer will only have to file a claim, and the insurer will take care of the rest. However, the claim will have an upper limit to reduce the risk of the insurer.
For medical insurance, first dollar policies are generally available as basic packages. For instance, the insurer will cover the entire cost for a simple screening examination such as bloodwork or a routine test. However, for more extensive medical procedures such as surgeries, the customer will have a deductible or a co-payment. This setup keeps the premiums low for the customer while offering coverage for frequently used services. The risk for the insurer also reduces.
Medicare and Healthcare policies
First-dollar policies can be confusing since the US government has been rolling out Medicare. It is a healthcare program for individuals over the age of 65 and plays a crucial role in covering the medical costs of older people. One must note that Medicare and Medicaid are not the same things. Insurance agents must take special note of this when they are explaining these terms to their clients.
One must understand that Medicare benefits do not cover all medical expenses. That is where a first dollar policy may become essential.
Qualifying for Medicare
Any US citizen over the age of 65 and has been a permanent legal resident of the united states for over five years is eligible for Medicare. Besides Medicare, there is also Medigap. Medigap is a supplementary policy that an individual can buy to cover the areas that Medicare does not. Anyone can get such a policy from a private insurer.
Medicare Plan Naming Conventions
Medicare plans are named using different alphabets starting from A. US taxpayers with social security numbers are automatically enrolled in part A. There are also parts B, C, D, F, G, K, L, M, and N. As you may have noticed, there are missing alphabets. These alphabets correspond to the plans that have the government has dropped over. Every new policy comes with a new letter.
Explaining First Dollar Plans to Clients
First dollar coverage is easy to understand. When you explain a home insurance policy or an auto insurance policy to a customer, describe the concept of zero deductible or co-payment. The customer will not have to pay anything out of their pocket for an insurable event in such cases. However, they will have to pay a higher premium monthly or yearly.
Recent changes in Medicare
When it comes to health insurance, first-dollar coverage becomes tough to explain. Explaining first-dollar coverage for Medicare can be a challenging task as most of the Medicare jargon is quite confusing. Furthermore, Medicare plans have changed every year. Insurance agencies also have to update their products accordingly to provide their clients the best possible policies. The recent changes are straightforward. The difficult task is understanding how these changes will affect your existing clients and explaining it to them.
First dollar coverage for Medicare
Medicare plans A and B come with deductibles. So, the individual will have to pay a part of their medical expenses. There were supplement plans F, C, and J that offered first-dollar coverage. However, part J was discontinued way back in 2010. Part F and C were retired last year. Those who were eligible for Medicare plans before these dates could apply for plans C, F, or J. But new applicants will no longer get access to plans C and F.
As explained earlier, the government discontinued the first-dollar coverage because of misuse by some policyholders. For instance, a person would visit an ER even though they did not have any medical emergency. Therefore, when a beneficiary has to pay out of their pocket, they are more likely to seek care only when they need it.
However, as an insurance agent, you may come across clients who may seek First-dollar coverage for Medicare plan A. At present, plans B, D, G, and N offer full coverage on the deductibles of part A. Plans L and M offer partial coverage.
Explaining Medigap Coverage
As an insurance agent, you have to explain to clients what all Medicare plans are and how Medigap can help. Also, bring to their notice that the federal government regulates all Medicare plans. The letter-based naming convention of the policies determines the benefits. However, in certain states of the US, the standardization is different.
Customers must be made aware of all the benefits that they are getting from Medicare plan A. Furthermore, they should also understand the premium they are paying and how much deductible they need to pay. They can supplement Plan A with other Medigap plans that offer first-dollar coverage.
Next, one needs to explain the changes in the Medicare plans. It means that any individual who became eligible for Medicare from 1st January 2020 will not be eligible for Medigap Plan C or F.
However, those who were enrolled before can keep their Medigap plan that has first dollar coverage. If a customer did not have first dollar coverage, they may enroll for it, but it depends on the region.
At this moment, Medigap plan G is one of the most popular plans. It provides a good balance between deductibles coverage and premiums.
First-dollar insurance is prevalent with home insurance, auto insurance, and health insurance. Customers often pay a slightly higher premium to get hassle-free coverage during an insurable event. However, when it comes to medical insurances in the US, first-dollar coverage is federally regulated. The government provides a basic healthcare plan that has deductibles. But individuals can get supplementary policies that enable first-dollar insurance. Because the insurance plans and the regulations change every year, it is challenging for agencies to keep up with these changes and explain them to their customers.
To convey the correct information to clients, agents must stay up-to-date with product knowledge and federal regulations. Agencies can create an information repository and email all agents about the changes and steps they need to take.
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A deductible is an amount the client has to pay for covered health care services before their insurance plan starts to pay. After the client pays the deductible, they have to pay only a copayment or coinsurance for covered services, and the insurance company pays the rest.
Medicare first-dollar coverage is an insurance policy that pays healthcare costs beginning with the first service. It applies to some Medigap policies that cover the deductibles and copayments associated with original Medicare.
According to Medicare Nationwide, Plan G offers coverage with lower premiums than that of Medicare Supplement Plan F. However, Plan G does not pay for Medicare Part B deductible that Plan F does. But Plan G offers significant saving options for seniors.
First dollar savings corresponds to the HSA tax benefits that clients can avail.