Health insurance

Types of Health Insurance - Health insurance includes both medical expense insurance and disability income insurance. Both types are provided through group insurance (generally as an employee benefit), individual insurance and government programs.

Medical Care Cost Factors - Medical care costs have risen dramatically over the last two decades and have caused an increase in the cost of medical expense insurance. Inflation is the main reason. However, the medical care area has been affected by a number of other factors. These include:

• The aging of the population and the availability of Medicare coverage which have increased the demand for medical care and have added to cost pressures.

• Government reimbursement of hospitals for Medicare and Medicaid at levels below the true cost of care, which has caused a shift of additional costs to the private payer, including those covered by insurance.

• New medical techniques and procedures, equipment, tests, which also have increased medical costs.

• A greater awareness of health care among the public

Any person who has an economic interest in maintaining his or her own or family's financial needs also should have protection against the loss of income due to injury or sickness. Not only should extended, total disabilities be covered, but also short term disabilities.

Health insurance may be obtained from many different sources. The major providers of insurance are private insurers and the government.

Insurance Companies

Insurance companies sell health insurance through either group or individual policies. Of these types, group health insurance represents about 90 percent of the medical expense insurance and 80 percent of the disability income insurance. Policies issued by insurance companies provide for payment directly to the insured or, if assigned by the insured, to the provider of services for reimbursement of expenses incurred.

One major source for persons to obtain health coverage is through the private sector. Coverage is provided in several ways which include "full insurance," prepayment programs, employers' "self funded" plans, or some combination of these.

Full insurance coverage may be purchased from an insurance company or from a "service corporation" (Blue Cross and Blue Shield).

Prepayment programs are better known as Health Maintenance Organizations (HMO).

Under employers' self funded plans, corporations and other organizations establish self funded health plans to provide a form of group coverage for employees.

Extent of Private Coverage

The great majority of Americans are covered by one or more forms of private medical expense health insurance. Hospital expense, surgical expense, and physician's expense are the most common of medical expense coverage. Most people with these coverages have them combined and supplemented in major medical expense insurance through insurance company policies, Blue Cross Blue Shield, HMOs and other independent plans.

Available to most people through their place of employment. Other people who have an affiliation, such as a professional association, fraternal society or labor union, may also be eligible for group coverage, depending on the state law applicable to group size and requirements.

The group contract is between the insurer and the contract holder (for example, the employer). The covered persons receive certificates of coverage. The cost of the benefit may be paid by the contract holder, the covered person, or any combination of the two. Generally, a person need not individually demonstrate he or she is in good health to join a group program for which he or she is eligible. In some cases limited evidence of insurability must be provided.

A direct contract between the insurance company and the covered person. Generally the individual will bear the full cost of the policy. Normally, full evidence of insurability must be provided before coverage can begin.

The Blue Cross and Blue Shield associations are non profit organizations which provide coverage for hospitalization and doctors' services, respectively. The "Blues" provide this medical expense health insurance to their members through either individual or group policies. Both Blue Cross and Blue Shield are administered locally as far as rates and coverages are concerned.

The Blue Cross/Blue Shield organizations have contracts with participating hospitals and doctors to set the amount they will pay for covered services. Often this is less than the amount charged to cash patients and insurance companies. The "Blues" always pay the hospital or doctor directly. In other respects, the "Blues" operations and contracts are similar to those of insurance companies.

Health Maintenance Organizations, more commonly known as HMOs, were first developed in the early 1970s as a new health care delivery method which contained an incentive for doctors to eliminate unnecessary services and thus provide lower costs for the customer and a profit for themselves. For a fixed annual fee the HMOs provide comprehensive medical care, but require that the member must use those physicians and facilities belonging to, or contracted with, the particular HMO. HMOs often include in their benefit plans preventive checkups and services.

The physicians may be located in a single facility and work only for the HMO; or they may be at different sites, and may even have a fee for service practice in addition to their contracted service for the HMO. In any case, because an annual fee is prepaid it is advantageous for an HMO to minimize the number of office visits while still rendering adequate, quality care. The HMO contracts with one or more hospitals at specified daily rates for when hospitalization is needed, but tries to minimize hospitalization in order to reduce costs and maximize profits.

Employers who have at least 25 employees and already provide another health plan are required by law to offer an HMO option to the employees if an HMO wishes to solicit the employees for membership.

The second major division of private health insurance is disability income insurance. This insurance provides periodic payments for the time during which the person is disabled. This type of insurance is used for several purposes. They include:

• Personal Income Replacement. This coverage may be provided through a benefit program on a group basis, or may be individually purchased, in order to replace purchasing power lost by employees as the result of an accident or illness. The benefit amount may vary depending upon whether the disability is total or partial. But the benefits, when combined with anticipated Social Security benefits, should not exceed the insured's after tax income.

  Benefits range from several months to the remainder of the time to retirement. Benefits resulting from accident caused disabilities may run longer.

  Business Overhead Expense Disability Coverage. It reimburses a business which is dependent upon the skills of one person for those expenses which continue while business ceases during the disability of that person. This may provide benefits beginning one month after total disability. The benefits would continue for one to two years.

• Business Buy-out Disability Coverage. It provides a lump sum benefit to a business partner after his or her partner has been disabled 18 months or longer. The benefit is to finance a buy out of the ownership share of the disabled partner.

• Installment Purchase Protection. This coverage may be purchased in relation to a large purchase, such as a home, or in the form of credit insurance with a smaller purchase, to guarantee payment of installments due during the period of disablement.

• Underwriting of Disability Income Insurance. It is necessary to "financially underwrite" a disability income applicant to assure that a disabled person will not be better off financially by receiving disability benefits in lieu of normal income. Physical risk underwriting is similar to that on life insurance.

Differences Among Medical Expense Policies - There are various ways in which policy benefits may differ and these can have a significant impact on the policyholder's premium. Some of these variations are:

Basic, Major Medical, and Comprehensive Coverage. A medical expense policy can cover many combinations of benefits. It might be a basic hospital surgical policy, for example, which provides benefits only for hospitalization and surgical operations. It might be a major medical expense policy which covers virtually all types of medical expenses on a broad, substantial basis, after the insured has personally paid a deductible, a specified amount which may range from $100 to $1,000 or more. A "comprehensive" medical insurance plan combines coverage of both the initial deductible expenses, and the continuing major expenses usually as insured in a major medical expense policy.

Reimbursement v. Indemnity. A reimbursement policy provides benefits which depend upon the actual expenses incurred. An indemnity policy provides a specified benefit when the event insured against occurs, regardless of whether the actual expenses are greater or less than the benefits.

Inside Limits v. Aggregate Limits. A policy with "inside limits" will limit the benefit for specific expenses (for example, daily hospital room and board reimbursement). Other policies may have a limit only on the total or aggregate amount of coverage (for example, $1 million major medical expense benefits), or no limits.

Deductibles and Coinsurance. The size of the deductible, the initial amount the insured must pay toward medical expenses before the insurance company pays, can greatly affect the cost of an insurance policy. Similarly, the degree of coinsurance, the share of expenses the insured must pay (for example, 20 percent), will affect the premium.

Out of Pocket Limit. A policy which limits the total of coinsurance and deductibles which an insured must pay (for example, $1,500) will limit the insured's financial risk, but will add to the premium cost.

Benefits Based on Reasonable and Customary Charges. A policy which covers medical expenses which are "reasonable and customary," limits reimbursement to a level which is usual and consistent with the charges of medical providers in the area and helps avoid overcharging.

Supplementary Insurance is intended to complement other coverage. Some are tailored to a specific program (for example, Medicare Supplement), while others are general supplements to any program (such as the hospital daily indemnity supplement). Some may fill a need while others may duplicate coverage.