Health insurance is a type of insurance coverage that covers the cost of an insured individual's medical and surgical expenses. Depending on the type of health insurance coverage, either the insured pays costs out-of-pocket and is then reimbursed, or the insurer makes payments directly to the provider.
In health insurance terminology, the "provider" is a clinic, hospital, doctor, laboratory, health care practitioner, or pharmacy. The "insured" is the owner of the health insurance policy; the person with the health insurance coverage.
In countries without universal health care coverage, such as the USA, health insurance is commonly included in employer benefit packages and seen as an employment perk.
Is health insurance coverage a human right or another product one can buy?In some countries, such as the United Kingdom or Canada, health care coverage is provided by the state and is seen as every citizen's right - it is classed along with public education, the police, firefighters, street lighting, and public road networks, as a part of a public service for the nation.
Everybody at some time in their life, and often on many occasions, will need some kind of medical attention and treatment. When medical care is required, ideally the patient should be able to concentrate on getting better, rather than wondering whether he/she has got the resources to pay for all the bills. This view is becoming more commonly held in nearly all the developed nations.
Managing diabetes - researchers from the Kaiser Permanente Center for Health Research in Portlant, Oregon, found that diabetes patients need continuous health insurance coverage for the long-term proper management of their disease .
Since the late 1990s, millions of US citizens have found themselves with absolutely no health cover at all. A collection of several different studies and surveys puts the number of "uninsured" Americans at over 50 million; tens of millions more have inadequate insurance.
A Commonwealth Fund 2011 report informed that 26% of all US citizens of working age experienced a gap in health insurance coverage; many lost their health insurance when they either became unemployed or changed jobs.
Children in the USA with private insurance are considerably more likely to have a primary care physician in America compared to those with public insurance or no insurance at all, according to a study carried out by researchers at the Children's Hospital, Boston. The authors added that levels of treatment in emergency departments varied significantly, depending on what type of health insurance they had.
Americans with long-term or serious illnesses are the least able to pay for their medical bills among the leading developed nations in the world, a Commonwealth Fund International Survey reported in November, 2011.
The Affordable Care Act made it possible for young adults aged between 19 and 25 to join or stay on their parents' health plans in 2011. A Commonwealth Fund report informed that 13.7 million young adults remained or got onto their parents' health plans; this included 6.6 million people who would not have been able to do so if the Act had not been signed.
According to an eHealthInsurance survey carried out in 2010, the average monthly premiums among its customers were $167 per month for an individual, with an average deductible of $2,632. Family plans cost an average $392 per month with a $3,531 deductible.
Two broad types of health insurance or health coverage
Broadly speaking there are two types of health insurance:
- Private health insurance - the CDC (Centers for Disease Control and Prevention) says that the US health care system is heavily reliant on private health insurance. 58% of Americans have some kind of private health insurance coverage.
- Public (government) health insurance - for this type to be called insurance, premiums need to be collected, even though the coverage is provided by the state. Therefore, the National Health Service (NHS) in the United Kingdom is not a type of health insurance - even though it provides free medical services for its citizens, it does not collect premiums - it is a type of universal health coverage.
Examples of public health insurance in the USA is Medicare, which is a national federal social insurance program for people aged 65+ years as well as disabled people, and Medicaid which is funded jointly by the federal government and individual states (and run by individual states), SCHIP which is aimed at children and families who cannot afford private insurance, but to not qualify for Medicaid. Other public health insurance programs in the USA include TRICARE, the Veterans Health Administration, and the Indian Health Service.
The five main types of health insurance plans in the USA
There are five main kinds of health insurance plans, with indemnity plans at one end, and HMOs (health maintenance organization) at the other end of the spectrum. POS (point-of-service plans) and PPOs (preferred provider organizations) include a combination of features from indemnity plans and HMOs; however, they are usually seen as managed care plans.
In 2003, the US Congress introduced a new option, the HSA (Health Savings Account), which is a combination of HMO/PPO/Indemnity and a savings account which has tax-benefits.
Understanding the differences between different kinds of plans is useful and extremely important when you are considering choosing one for yourself, your family, or employees. However, as plans evolve and add more details and take others away, there is more overlap and their distinctions become progressively blurred. The majority of fee-for-service plans (indemnity plans) use managed care techniques to control costs and to ensure there are enough resources to pay for appropriate care. Similarly, many managed care plans have adopted fee-for-service characteristics.
What are managed care plans?Managed care plans are health insurance plans that have a contract with health care providers and medical facilities to provide medical care at special prices (lower costs). These providers form the plan's network. The network will have rules, which stipulate how much of the care the plan will pay for.
Restrictive plans usually cost the "insured" less, while flexible ones are more expensive. HMOs will typically only pay for care if you use one of the providers in their network. A primary care doctor (general practitioner) coordinates most of the patient's care. PPOs will cover more of the costs if the insured selects a provider within their network, but will also pay up some of the money for providers outside the network. POS plans allow the insured to choose between an HMO or a PPO each time care is required.
What are Indemnity Plans?
The insured can choose any doctor he/she wants. The doctor, hospital or the insured submits a claim for reimbursement to the health insurance company.
It is important to remember that, like any insurance plan, the insured will only be reimbursed according to what is listed and mentioned in the Benefit Summary. It is important to read the Summary carefully and understand all that is printed, even the "small print". Most indemnity plans claim to cover "the vast majority of procedures".
Coinsurance - while indemnity plans do not pay for all of the medical and surgical services, they typically pay for at least 80% of the customary and usual costs, while the insured is liable for the remaining 20 or so percent. The insured is also liable for any excess charges, e.g. if the provider charges more than what is considered as a reasonable and customary fee. Look at the example below:
Example of Coinsurance and excess charges
- You see a doctor for "diabetes care"
- The insurer deems that the customary fee for this type of diabetes care is $200.
- The insurance company pays $160 (80%), while the insured (you) is expected to pay for the rest ($40).
- However, if the provider bills you for $250, you will have to pay for those extra $50.
- So, you will have to pay $40 + $50 = $90.
Deductibles - the amount of covered expenses the insured has to pay before the reimbursement system kicks in and starts covering medical costs. The deductible total may range from $100 to $300 per person annually, or from $500 to $1,000 annually for a whole family.
Out-of-pocket maximum - as soon as the insured's covered expenses reach a certain amount during a 12-month period, the plan will cover all usual and customary fees from then on. The insured has to remember that any charges above what are considered as usual and customary by the insurance company will have to be paid for by the insured.
Lifetime limit - if the insured has a lifetime limit of $2 million, it means the insurance company will only cover costs up to $2 million during that person's lifetime. Ideally, one should have a lifetime limit of at least $2 million.
What are HMOs (Health Maintenance Organizations)?
Health Maintenance Organizations deliver care directly to the insured. The insured goes directly to an HMO's medical provider to see health care professionals. The insured does not pay for each individual service that is received. A set premium is paid to the HMO, which in return offers a range of services, including preventive care.
A primary care physician (general practitioner, GP, or family doctor), who is affiliated with the insured's plan usually coordinates the care.
In the majority of cases, the HMO will only provide coverage to specialists within the provider network that are referred by the primary care physician. The HMO will nearly always insist that the insured receive care from health care professionals, laboratories and medical centers which are within its network of providers. The HMO will have negotiated a list of fees for each medical service with them. This is done to keep costs at a minimum.
According to the majority of health insurance advisers, HMOs are usually the cheapest kind of health insurance plan.
Copayment - in most cases, the insured will also have to make a copayment for some services. Some HMOs may not require copayments for hospital stays.
What are PPOs (Preferred Provider Organization)?
A PPO is in many ways similar to an indemnity plan - the insured can see any doctor whenever they like. The Preferred Provider Organization gets together with health care providers, health professionals and laboratories and negotiates preferential prices. The providers that come to agreed deals with the PPO then become part of its network.
Deductibles - the insured may have to cover a certain amount of the expenses before the PPO can reimburse. As with indemnity plans, deductibles might range from up to $300 per year per person or $500 to $1,000 per whole family. When deductibles are high, premiums tend to be comparatively low.
Self-referrals - an attractive part of PPOs for many people. You can see the doctor of your choosing, including specialists not included in the insurer's network, without having to be referred to them by a primary care physician, for example.
What are POS Plans (Point-of-Service Plans)?
A POS Plan is like a hybrid of an HMO and a PPO. The insured can chose to either have a general practitioner coordinate their care, or opt to go directly to the "point-of-service".
When the insured requires medical care, there are usually two or three different choices, and they depend on what type of POS Plan is in place:
- Through a primary care physician - similar to an HMO plan. The insured is just required to make a copayment.
- PPO network provider services - the insured can receive care from a PPO provider that is within the PPO's network. The insured will have to make a copayment, and may also be liable for coinsurance (e.g. the insurer pays 80% of the bill and the insured the remaining 20%).
- Services from non-network providers - some of the medical expenses will be reimbursed. It is important that the insured reads the Benefit Summary carefully, where who pays for what, and how much, should be clearly laid out. There will usually be a copayment and a higher coinsurance charge.
What are HSAs (Health Savings Accounts)?
These are tax-free savings accounts aimed at building up coverage for future medical expenses. Only patients with a high-deductible plan and currently have no other insurance plans are eligible.
This type of plan is useful for those who are seeking some kind of protection, do not envisage having any or many ongoing medical costs, and would like to be ready for an emergency or catastrophic healthcare cost. Small businesses may find HSAs a useful alternative to the more traditional health plans on the market.
People can enter an HSA plan through their employer if such a plan is available through the company, or individually (in some states). The HSA plan needs to be paired with an existing health plan with an annual deductible of over $1,100 for individuals and $2,200 for families. There is a limit on total out-of-pocket costs, including copayments and deductibles. Limits can vary as time goes by. Even though deductibles tend to be much higher than in other plans, some of them do offer full coverage, while others offer nearly full coverage (with a small copayment for preventive care).
In general, health plans with high-deductibles have cheaper premiums; however, out-of-pocket costs are much higher. To compensate for that, the insured can contribute a certain amount of money to a tax-advantaged account - the amount as well as the details of tax benefits vary from year to year. The contributions can be used to reduce the insured taxable income. If payments are made by an employer on behalf of an employee, they are tax free. The money in the HSA plan can be used at any time for approved medical expenses.
An HSA plan can also act as a top-up for expenses the other paired plan does not cover, such as hearing aids. If the money is not being used, it can be invested; any investment growth is tax free, as long as the account holder only uses the money for medical expenses.
The USA's 25 largest health insurance companies
In 2009, the largest health insurance companies in the United States collected approximately $650 billion in premiums. The largest 25 (ranked by market share) accounted for over 60% of the total.
According to the NAIC (National Association of Insurance Commissioners), the top 25 health insurance companies in the USA in 2011 were:
- Unitedhealth Group
- Wellpoint Inc. Group
- Kaiser Foundation Group
- Aetna Group
- Humana Group
- HCSC Group
- Coventry Corp. Group
- Highmark Group
- Independence Blue Cross Group
- Blue Shield of CA Group
- Cigna Health Group
- BCBS of MI Group
- Health Net of California, Inc.
- BCBS of NJ Group
- BCBS of FL Group
- Regence Group
- BCBS of MA Group
- Carefirst Inc. Group
- Wellcare Group
- HIP Ins. Group
- Metropolitan Group
- Unumprovident Corp. Group
- Universal Amer Fin Corp. Group
- Lifetime Healthcare Group
- BCBS of NC Group
American health insurance premiums rose rapidly in ten yearsHealth insurance premium costs rose by 113% in the USA from 2001 to 2011. In 2011, a Kaiser Survey showed that the number of people with health insurance dropped by about 20 million in 2011 compared to 2010. In order to cope with rapidly rising premium costs, millions of people are opting for larger deductibles.
Recessions can often be good for health insurance company finances
If insured individuals keep up their premium patients, but seek medical help less, health insurance companies make more money because they spend less. It is ironic that during recessions, as people struggle financially and put off medical care, insurance companies get richer faster.
In 2011, two health insurance companies - Cigna and UnitedHealth Group said fewer people were staying in hospitals, hospital stays were of shorter duration, and medical use was down.
In 2011 many premium payers, insurance experts, economists and health care professionals wondered why the insurance industry was demanding higher premiums if their profits were shooting up . The insurance industry said it was so that they could prepare for a sudden rush in demand, which they claim would be considerable when the recession was over.
What health care coverage insurance systems exist in other countries?
Australia - has a combination of a public health system, called Medicare, and private health insurance organizations. Medicare provides free universal access to hospital care, as well as subsidized non-hospital medical treatment.
Canada - has a publicly funded universal healthcare system, which is nearly all free at the point of use. Most of the public health services are provided by private organizations. Approximately 27.6% of Canadian citizen's health care requirements are received through the private sector. Private health insurance is used to cover services that Medicare does not provide for, such as optometry, dentistry and prescription medications. Three-quarters of all Canadians have some type of supplementary private health coverage - many get this as a job perk.
A report issued in May 2012 by researchers from the Universities of Toronto and British Columbia found that about 10% of Canadians are not able to take their prescription drugs as directed because they cannot afford it.
All working French citizens have to contribute from a portion of their salaries to a not-for-profit health insurance fund, which mutualizes the illness risk, and reimburses patients at different rates. Insured people's spouses and offspring are eligible to be covered in the same policies. Each fund is financially autonomous, and is used to pay for medical expenses at pre-arranged prices. Recent reforms have harmonized many prices and benefits provided by different insurance funds.
Germany - this country has Europe's longest-standing universal healthcare system, which started during the last 20 years of the 19th century. 85% of German citizens are covered by a basic health insurance policy which the state provides - this provides "a standard level of coverage". 15% have chosen private health insurance plans. WHO (World Health Organization) says 77% of Germany's health care system is state-funded while 23% comes from the private sector.
Japan - the country has an Employees Health Insurance and a National Health Insurance system. The National Health insurance is aimed at those who are not eligible for Employees Health Insurance. Even though the country also has private health insurance, everybody in Japan, including foreigners with a one-year visa must be enrolled in an Employees Health Insurance plan or National Health Insurance.
United Kingdom - the NHS (National Health Service) provides free medical and hospital care and subsidized or free prescription medications to all its citizens. The NHS is a publicly funded universal healthcare system, which is not really an insurance system as no premiums are collected and costs are not charged at patient level. Nevertheless, the NHS achieves the same aim as insurance in spreading financial risk arising from ill-health. All NHS costs are met directly from general taxation.
The UK also has private health care which is paid for mainly by private insurance. Less than 8% of the country's population has any private health insurance. The largest private health insurance companies in the United Kingdom are BUPA, AXA, Aviva, Groupama Healthcare, PruHealth, and WPA.
On the next page, we look at how to find private health insurance.