Health Insurance Plan Characteristics
Health insurance pays the medical expenses incurred by an individual pursuant to treatment of covered health risks. Health plans may include medical, pharmaceutical, dental, and vision services by health providers. A health insurer will often disclaim or limit coverage for known conditions of the insured present within a stated period of time prior to purchasing insurance. This is known as excluding “preexisting conditions”. Most health insurers are limited in the ability to exclude preexisting conditions for more than two years following issuance of the policy. The Affordable Care Act of 2010 (ACA) limits the ability for insurers to exclude preexisting conditions, while placing additional tax burdens on those who do not purchase a qualified health insurance plan. It also authorizes the establishment of state and federal insurance exchanges where individuals can purchase an insurance plan. This system allows individuals to purchase insurance plans at rates comparable to those of large, employer-sponsored, insurance plans. As part of an insurance plan, an insured may be responsible for:
⁃ Premiums – Payments for insurance coverage.
⁃ Deductibles – This is a minimum amount that an insured must pay towards the cost of services addressing a contingent risk or occurrence before the insured will begin to pay.
⁃ Co-Insurance – This is an amount or percentage for which the insured is responsible for any costs incurred pursuant to the occurrence of a covered event.
⁃ Co-pay – This is a fixed amount that an insured must pay toward costs incurred as part of a contingent event.
• Common types of health insurance include:
⁃ Preferred Provider Organizations (PPO) – These policies provide a rate of expense coverage for medical treatment received within a specific network of physicians, hospitals, and clinics. The PPO will generally provide a lower rate of expense coverage when the insured receives treatment outside of the established network.
⁃ Health Maintenance Organization (HMO) – These policies provide a rate of coverage for medical treatment received within a specific network of physicians, hospitals, and clinics. The key characteristic is that the insured is assigned to a primary care physician who must refer the insured for treatment at any of the network participants. The insurer provides a rate of coverage for these in-network providers. The insurer provides no coverage for treatment received outside of the network, except in the case of emergency treatment.
⁃ Exclusive Provider Organization (EPO) – EPO plans cover specific types of medical treatment within a specific provider network. These plans are more limited in their coverage than HMO plans, but the costs for the plan are generally lower. Any treatment received outside of the EPO is not covered.
⁃ Point of Service (POS) – A POS plan is similar to a PPO plan in that it provides a rate of expense coverage for in-network healthcare providers. The insured is assigned to a primary care physician or network for certain types of services. The insured has flexibility, however, to visit out-of-network healthcare providers, but the expense coverage is lower than in-network.
⁃ High Deductible Health Plan (HDHP) – A HDHP is a plan that provides a stated rate of health expense coverage after a high annual deductible amount is paid by the insured. Once the insured covers her medical expenses up to the deductible amount, the insurer will pay a stated percentage of costs. HDHP plans are generally grouped with a Health Savings Account (HSA). A HSA allows an individual to make tax-free contributions to a qualified trust account to cover the costs of medical expenses. These contributions allow the insured to pay for much of the deductible costs of HDHPs with pre-tax funds.
⁃ Note: HSA funds must generally be used in the years of contribution or they are lost.
⁃ Flexible Spending Account (FSA) – This is a form of self-insurance that is similar to an HSA. An FSA is an employer-sponsored account that allows the employee to make pre-tax contributions to a healthcare (or childcare) spending account. While an HSA is only available with a HDHP, the FSA is available along with any healthcare plan. An employer must sponsor the FSA for its employees.
⁃ Discussion: Why do you think the government has an interest in citizens obtaining health insurance? Why do you think health insurance plans are linked to employers? Why do insurance companies seek to exclude preexisting conditions of a covered insured? Why do you think insurers divide disability coverage into long-term and short-term? What types of professions are most likely to need disability insurance?
⁃ Practice Question: Doug is an employee of a small business that does not sponsor a health insurance plan. Doug is seeking to purchase an individual plan. What are his options for purchasing insurance? What are some of his options for types of plan to purchase?