Health insurance literacy

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Chapter 8

Understanding Health Insurance

Chapter Overview

• Reviews the basic elements of health insurance • Focuses on:

– How health insurance operates • Why people buy insurance • Basic terminology/features

– Managed care • Cost and utilization control tools • Common structures

Insurance Coverage Overview

• The United States does not have a single national health insurance program that covers the entire population.

• In 2016, 8.8% of the U.S. population was uninsured. • Of those with insurance, most obtain coverage

through their employer. • Medicaid and Medicare are government health

insurance programs that cover millions of people in the United States.

A Brief History of the Rise of Health Insurance in the United States

• Late 1800s–early 1900s—European social insurance movement resulted in the creation of “sickness” insurance throughout many countries.

• 1929—Blue Cross established its first hospital insurance plan at Baylor University.

• 1939—Blue Shield began. • 1954—Internal Revenue Service declared that employers

could pay health insurance premiums for their employees with pre-tax dollars.

• 1965—Medicaid and Medicare were created.

Basic Terminology • Beneficiary—Consumer; the individual who is

covered by the plan • Premium—Annual fee paid by the beneficiary to the

health plan, usually in monthly installments, to secure health insurance coverage

• Deductible—Amount of money a beneficiary must pay out-of-pocket before the insurance company assists with paying for services

• Cost-sharing—Co-payment or co-insurance, an amount the beneficiary pays per service after the deductible is met

Uncertainty and Risk (1 of 2)

• People choose to be insured because of uncertainty and risk. – There is uncertainty whether an expensive and

unforeseen event that impacts their health status will occur.

– There is risk of financial exposure due to the unexpected event.

Uncertainty and Risk (2 of 2)

• Insurance companies are concerned about uncertainty and risk because they are businesses that need to cover the cost of their expenditures.

• Uncertainty and risk may lead to adverse selection. – Unhealthy people over-select a particular plan,

making the plan more expensive.

Setting Premiums

• Insurance companies set premiums to cover most of their expenses.

• Experience rating – Based on health status and claims in prior year(s) – Also referred to as medical underwriting

• Community rating – Based on factors unrelated to previous use of medical care,

such as geography or age – All persons in the community rating system pay the same

amount

Legal Issues

• Health Insurance Portability and Accountability Act of 1996 (HIPAA) – HIPAA-covered group plans may not exclude or

limit otherwise qualified individuals due to pre- existing conditions.

– HIPAA-covered group plans may not charge different premiums based on identified health factors to similarly situated individuals.

• State laws on medical underwriting vary.

Managed Care

• Managed care integrates the provision and payment of healthcare services.

• Ideally, managed care contains costs while providing necessary and high-quality health care services. – Some fear that managed care companies provide

fewer services than necessary or lower quality services to save money.

Managed Care— Cost Containment Tools

• Performance-based salary – Provider receives a salary as a managed care organization

employee. – Salary is subject to bonuses or withholds.

• Discounted fee schedule – Provider accepts less than fee-for-service rates to

participate in managed care network. • Capitated payment

– Provider receives a per member/per month payment for all services rendered within scope of practice.

Managed Care— Utilization Control Tools

• Gatekeeper – Managed care organization uses a primary care provider to

make sure only necessary and appropriate care is provided. • Utilization review

– Managed care organization reviews and approves or denies services requested by provider.

• Case management – Managed care organization manages and coordinates

patient care.

Managed Care—Common Structures • Health Maintenance Organization (HMO)

– Pays providers a salary or capitation – Beneficiaries may only use in-network providers – HMO coordinates and controls receipt of services

• Preferred Provider Organization (PPO) – Pays provider on a discounted fee schedule – Beneficiary may use in- or out-of-network providers

• Point of Service Plans (POS) – Combines features of HMO and PPO – Pays providers with capitation or other risk-sharing arrangement – Has a provider network; beneficiaries may use out-of-network provider

for designated services – Has a gatekeeper to control and coordinate care

Slide Number 1
Chapter Overview
Insurance Coverage Overview
A Brief History of the Rise of Health Insurance in the United States
Basic Terminology
Uncertainty and Risk�(1 of 2)
Uncertainty and Risk�(2 of 2)
Setting Premiums
Legal Issues
Managed Care
Managed Care—�Cost Containment Tools
Managed Care—�Utilization Control Tools
Managed Care—Common Structures