Health Care Insurance
Insurance against loss by illness or bodily injury. Health insurance provides coverage for medicine, visits to the doctor or emergency room, hospital stays and other medical expenses. Policies differ in what they cover, the size of the deductible and/or co-payment, limits of coverage and the options for treatment available to the policyholder. Health insurance can be directly purchased by an individual, or it may be provided through an employer. Medicare and Medicaid are programs which provide health insurance to elderly, disabled, or un-insured individuals. There are a number of companies which provide private health insurance, including Blue Cross, United Healthcare, or Aetna.
Health insurance like other forms of insurance is a form of collectivism by means of which people collectively pool their risk, in this case the risk of incurring medical expenses. It is sometimes used more broadly to include insurance covering disability or long-term nursing or custodial care needs. It may be provided through a government-sponsored social insurance program, or from private insurance companies. It may be purchased on a group basis (e.g., by a firm to cover its employees) or purchased by individual consumers. In each case, the covered groups or individuals pay premiums or taxes to help protect themselves from high or unexpected healthcare expenses. Similar benefits paying for medical expenses may also be provided through social welfare programs funded by the government.
By estimating the overall risk of healthcare expenses, a routine finance structure (such as a monthly premium or annual tax) can be developed, ensuring that money is available to pay for the healthcare benefits specified in the insurance agreement. The benefit is administered by a central organization such as a government agency, private business, or not-for-profit entity.
A health insurance policy is a contract between an insurance company and an individual or his sponsor (e.g. an employer). The contract can be renewable annually or monthly. The type and amount of health care costs that will be covered by the health insurance company are specified in advance, in the member contract or “Evidence of Coverage” booklet. The individual insured person’s obligations may take several forms:
- Premium: The amount the policy-holder or his sponsor (e.g. an employer) pays to the health plan each month to purchase health coverage.
- Deductible: The amount that the insured must pay out-of-pocket before the health insurer pays its share. For example, a policy-holder might have to pay a $500 deductible per year, before any of their health care is covered by the health insurer. It may take several doctor’s visits or prescription refills before the insured person reaches the deductible and the insurance company starts to pay for care.
- Co-payment: The amount that the insured person must pay out of pocket before the health insurer pays for a particular visit or service. For example, an insured person might pay a $45 co-payment for a doctor’s visit, or to obtain a prescription. A co-payment must be paid each time a particular service is obtained.
- Coinsurance: Instead of, or in addition to, paying a fixed amount up front (a co-payment), the co-insurance is a percentage of the total cost that insured person may also pay. For example, the member might have to pay 20% of the cost of a surgery over and above a co-payment, while the insurance company pays the other 80%. If there is an upper limit on coinsurance, the policy-holder could end up owing very little, or a great deal, depending on the actual costs of the services they obtain.
- Exclusions: Not all services are covered. The insured person is generally expected to pay the full cost of non-covered services out of their own pocket.
- Coverage limits: Some health insurance policies only pay for health care up to a certain dollar amount. The insured person may be expected to pay any charges in excess of the health plan’s maximum payment for a specific service. In addition, some insurance company schemes have annual or lifetime coverage maximums. In these cases, the health plan will stop payment when they reach the benefit maximum, and the policy-holder must pay all remaining costs.
- Out-of-pocket maximums: Similar to coverage limits, except that in this case, the insured person’s payment obligation ends when they reach the out-of-pocket maximum, and the health company pays all further covered costs. Out-of-pocket maximums can be limited to a specific benefit category (such as prescription drugs) or can apply to all coverage provided during a specific benefit year.
- Capitation: An amount paid by an insurer to a health care provider, for which the provider agrees to treat all members of the insurer.
- In-Network Provider: (U.S. term) A health care provider on a list of providers preselected by the insurer. The insurer will offer discounted coinsurance or co-payments, or additional benefits, to a plan member to see an in-network provider. Generally, providers in network are providers who have a contract with the insurer to accept rates further discounted from the “usual and customary” charges the insurer pays to out-of-network providers.
- Prior Authorization: A certification or authorization that an insurer provides prior to medical service occurring. Obtaining an authorization means that the insurer is obligated to pay for the service, assuming it matches what was authorized. Many smaller, routine services do not require authorization.
- Explanation of Benefits: A document sent by an insurer to a patient explaining what was covered for a medical service, and how they arrived at the payment amount and patient responsibility amount.
Prescription drug plans are a form of insurance offered through some employer benefit plans in the U.S., where the patient pays a copayment and the prescription drug insurance part or all of the balance for drugs covered in the formulary of the plan.
Some, if not most, health care providers in the United States will agree to bill the insurance company if patients are willing to sign an agreement that they will be responsible for the amount that the insurance company doesn’t pay. The insurance company pays out of network providers according to “reasonable and customary” charges, which may be less than the provider’s usual fee. The provider may also have a separate contract with the insurer to accept what amounts to a discounted rate or capitation to the provider’s standard charges. It generally costs the patient less to use an in-network provider.
Health plan vs. health insurance
Historically, HMOs tended to use the term “health plan”, while commercial insurance companies used the term “health insurance”. A health plan can also refer to a subscription-based medical care arrangement offered through HMOs, preferred provider organizations, or point of service plans. These plans are similar to pre-paid dental, pre-paid legal, and pre-paid vision plans. Pre-paid health plans typically pay for a fixed number of services (for instance, $300 in preventive care, a certain number of days of hospice care or care in a skilled nursing facility, a fixed number of home health visits, a fixed number of spinal manipulation charges, etc.). The services offered are usually at the discretion of a utilization review nurse who is often contracted through the managed care entity providing the subscription health plan. This determination may be made either prior to or after hospital admission (concurrent utilization review).
Comprehensive vs. scheduled
Comprehensive health insurance pays a percentage of the cost of hospital and physician charges after a deductible (usually applies to hospital charges) or a co-pay (usually applies to physician charges, but may apply to some hospital services) is met by the insured. These plans are generally expensive because of the high potential benefit payout — $1,000,000 to 5,000,000 is common — and because of the vast array of covered benefits.
Scheduled health insurance plans are not meant to replace a traditional comprehensive health insurance plans and are more of a basic policy providing access to day-to-day health care such as going to the doctor or getting a prescription drug. In recent years, these plans have taken the name mini-med plans or association plans. The term “association” is often used to describe them because they require membership in an association that must exist for some other purpose than to sell insurance. Examples include the National Association for the Self Employed and the Health Care Credit Union Association. These plans may provide benefits for hospitalization and surgical, but these benefits will be limited. Scheduled plans are not meant to be effective for catastrophic events. These plans cost much less than comprehensive health insurance. They generally pay limited benefits amounts directly to the service provider, and payments are based upon the plan’s “schedule of benefits”. Annual benefits maximums for a typical scheduled health insurance plan may range from $1,000 to $25,000.
Healthcare benefits are employee benefits which offer assistance with healthcare costs. They are most commonly seen in the United States, where citizens do not have a national health system to rely upon for healthcare, and therefore employers use healthcare benefits as a perk to attract employees. The type of coverage offered under such benefits varies widely, and for people who are interested in receiving healthcare benefits as part of a compensation package, it is a good idea to research a company’s policy on benefits and to talk to existing employees about the company health plan, if possible. An employer offers employees some form of group health insurance, or a set amount to spend on healthcare or personal insurance plans each year. Employees may be offered insurance after working for a set period of time, or right away, and the level of coverage is usually linked to employment status, with part time employees receiving fewer benefits. Depending on the company’s plan, employees may have to opt into the healthcare plan, paying a small fee while the company pays the bulk of the premium, or the employer may cover all insurance-related costs. Under group benefits, employees can have access to a variety of healthcare plans, including indemnity plans, under which people pay for services at the time they are rendered, and submit a bill to the insurance company for reimbursement, and managed care plans like health maintenance organizations (HMOs) and preferred provider organizations (PPOs), which provide care through a network of providers.
Standard healthcare benefits just offer basic healthcare. For things like dental and vision care, employees may need to pursue additional insurance plans. The plan may also fail to cover elective surgical procedures, focusing specifically on wellness and emerging conditions, with people paying out of pocket for plastic surgery, fertility treatment, and other types of medical care which are viewed as elective or optional. While there is no federal law that requires employers to provide employees with healthcare insurance, historical factors, tax law incentives, and competitive requirements have resulted in an employment-based health insurance system in the United States. As a result, most employers (except for the smallest organizations) sponsor health benefit plans.
Since health benefits were introduced in the U.S. marketplace in the 1940s, they have been both a blessing and a curse. No one wants to be without them, but few of us can afford to pay full freight either. Most people get health insurance through their jobs or are covered through a family member’s insurance. This is called group insurance. Group insurance is generally the least expensive kind. In many cases, the employer pays part or all of the cost. Some organizations offer only one health insurance plan and others offer a choice of plans: a fee-for-service or indemnity plan, a health maintenance organization (HMO), or a preferred provider organization (PPO).
Managed care coverage
Unlike an indemnity plan, managed care is a health insurance plan like an HMO, PPO, or POS (described below), that encourages insured individuals to use certain providers. A managed care plan requires or creates incentives for an insured person to use providers that are owned, managed, or under contract with the insurer. These incentives may be financial incentives or additional benefits. Managed health care plans differ widely in their details, however, all will seek to steer a patient toward a pre-approved network of doctors and facilities, as well as limit coverage of any treatment sought outside the network.
Most private sector health plans are covered by the Employee Retirement Income Security Act (ERISA). Among other things, ERISA provides protections for participants and beneficiaries in employee benefit plans (participant rights), including providing access to plan information. Also, those individuals who manage plans (and other fiduciaries) must meet certain standards of conduct under the fiduciary responsibilities specified in the law.
The Department of Labor’s Employee Benefits Security Administration (EBSA) is responsible for administering and enforcing these provisions of ERISA. Click on the agency to find out more about the agency’s program. As part of carrying out its responsibilities, the agency provides consumer information on health plans as well as compliance assistance for employers, plan service providers, and others to help them comply with ERISA.
The Fair Labor Standards Act (FLSA) does not address benefits such as life insurance, long-term care insurance, medical insurance accounts or wellness benefits. These benefits are generally a matter of agreement between an employer and an employee (or the employee’s representative).
Employee Benefits in the United States (PDF 3.5Mb) This Bureau of Labor Statistics (BLS) bulletin shows access and participation in and key provisions of employee benefit plans for workers in private industry and state and local governments.
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