Introduction
Health insurance
is a type of insurance whereby the insurer pays the medical costs of the
insured if the insured becomes sick due to covered causes, or due to accidents.
The insurer may be a private organization or a government agency. Market-based
health care systems such as that in the United States rely primarily on
private health insurance.
History and evolution
The concept of
health insurance was proposed in 1694 by Hugh the Elder Chamberlen from the
Peter Chamberlen family. In the late 19th century, early health insurance was
actually disability insurance, in the sense that it covered only the cost of
emergency care for injuries that could lead to a disability citation needed.
This payment model continued until the start of the 20th century in some
jurisdictions (like California),
where all laws regulating health insurance actually referred to disability
insurance. Patients were expected to pay all other health care costs out of
their own pockets, under what is known as the fee-for-service business model.
During the middle to late 20th century, traditional disability insurance
evolved into modern health insurance programs. Today, most comprehensive
private health insurance programs cover the cost of routine, preventive, and
emergency health care procedures, and also most prescription drugs, but this
was not always the case.
Private health insurance
A health
insurance policy is a legal, binding contract between the insurance company and
the customer. The largest difference between private sector health insurance
and life insurance is that for life insurance, a person may purchase guaranteed
renewable insurance for the whole of the insured's life at a constant premium
rate, while health insurance is generally purchased year by year with generally
no assurance of renewability and if renewable no guarantee that premium rates
will not increase.
Inherent problems with private insurance
Any private
insurance system will face two inherent challenges: adverse selection and
Ex-post moral hazard.
Adverse Selection
Insurance
companies use the term "adverse selection" to describe the tendency
for only those who will benefit from insurance to buy it. Specifically when
talking about health insurance, unhealthy people are more likely to purchase
health insurance because they anticipate large medical bills. On the other side, people who consider
themselves to be reasonably healthy may decide that medical insurance is an
unnecessary expense; if they see the doctor once a year and it costs Rs.250,
that's much better than making monthly insurance payments of Rs.400 (example
figures).
Because of
adverse selection, insurance companies use a patient's medical history to
screen out persons with pre-existing medical conditions. Before buying health
insurance, a person typically fills out a comprehensive medical history form
that asks whether the person smokes, how much the person weighs, whether or not
the person has been treated for any of a long list of diseases and so on. In
general, those who look like they will be large financial burdens are denied
coverage or charged high premiums to compensate. On the other side, applicants
can actually get discounts if they do not smoke and are healthy.
Moral Hazard
Moral hazard describes the state of mind and
change in behavior that results from one's knowledge that if something bad were
to happen, the out-of-pocket cost would be mitigated by an insurance policy--in
this case, one which provides reduced prices for medical care. In the same
way that people treat water with little care when it is very inexpensive,
people will also tend to overuse medical care when the out-of-pocket costs are
small.
However, the
reverse problem also occurs. People who have no health insurance, or who are
severely under-insured, may wait too long, or not seek medical care at all for
conditions that could be immediately life threatening out of fear of being
financially ruined by enormous medical bills.
Other factors affecting insurance price
Because of
advances in medicine and medical technology, medical treatment is more
expensive, and people in developed countries are living longer. The population
of those countries is aging, and a larger group of senior citizens requires
more medical care than a young healthier population. (A similar rise in costs is
evident in Social Security in the United States.) These factors cause
an increase in the price of health insurance.
Some other
factors that cause an increase in health insurance prices are health related:
insufficient exercise; unhealthy food choices; a shortage of doctors in
impoverished or rural areas; excessive alcohol use, smoking, street drugs,
obesity, among some parts of the population; and the modern sedentary lifestyle
of the middle classes.
In theory,
people could lower health insurance prices by doing the opposite of the above;
that is, by exercising, eating healthy food, avoiding addictive substances,
etc. Healthier lifestyles protect the body from some, although not all,
diseases, and with fewer diseases, the expenses borne by insurance companies
would likely drop. A program for addressing increasing premiums, dubbed
"consumer driven health care," encourages Americans to buy
high-deductible, lower-premium insurance plans in exchange for tax benefits.
Publicly funded health insurance
With publicly
funded health insurance the good and the bad risks all receive coverage without
regard to their health status, which eliminates the problem of adverse
selection.
National Health Service
The National
Health Service (NHS) is the "public face" of the four publicly funded
health care systems of the United
Kingdom. The organisations provide the
majority of healthcare in the UK,
from general practitioners to Accident and Emergency Departments, long-term
healthcare and dentistry. They were founded in 1948 and have become an integral
part of British society, culture and everyday life: the NHS was once described
by Nigel Lawson, former Chancellor of the Exchequer, as 'the national
religion'. Private health care has continued parallel to the NHS, paid for
largely by private insurance, but it is used only by a small percentage of the
population, and generally as a top-up to NHS services.
Health insurance in the United States
According to the
latest United States Census Bureau figures, approximately 85% of Americans have
health insurance. Approximately 60% obtain health insurance through their place
of employment or as individuals, and various government agencies provide health
insurance to over 29% of Americans. In 2005, 46.6 million (15.9%) Americans were
without health insurance. People living in the western and southern United States
are more likely to be uninsured.
Medicare
In the United States,
government-funded Medicare programs help to insure the elderly and end stage
renal disease patients. Some health care economists (Ewe Reinhardt of Princeton
and Stuart Butler among others) assert that (the third party payment feature)
these programs have had the unintended consequence of distorting the price of
medical procedures. As a result, the Health Care Financing Administration has
set up a list of procedures and corresponding prices under the Resource-Based
Relative Value Scale.
Starting in
2006, Medicare Part D provides a program for the elderly to buy insurance for
the purchase of prescription drugs.
Medicare Advantage
Medicare
Advantage expands the health care options for Medicare beneficiaries. Medicare
Advantange was born from the Balanced Budget Act of 1997 in order to better
control the rapid growth in Medicare spending, as well as to provide Medicare
beneficiaries more choices.
Medicaid
While Medicaid
was instituted for the very poor, beginning in 1972, the number of individuals
in the United States who lacked any form of health insurance for any period
during the year increased each year, every year with the exceptions of the
years 1999 and 2000.[citation needed] It has been reported that the number of
physicians accepting Medicaid has decreased in recent years due to relatively
high administrative costs and low reimbursements.
The shift to
managed care in the U.S.
Through the
1990s, managed care grew from about 25% of U.S. employees to the vast
majority.
Through the 1990s, managed care grew from about 25% of U.S. employees to the vast majority.
|
Rise of managed
care in the U.S.
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|||||
|
conventional
plans
|
POS plans
|
||||
|
73%
|
16%
|
11%
|
NA
|
|
|
|
46%
|
21%
|
26%
|
7%
|
|
|
|
27%
|
31%
|
28%
|
14%
|
|
|
|
14%
|
27%
|
35%
|
24%
|
|
|
|
9%
|
28%
|
38%
|
25%
|
|
|
|
8%
|
29%
|
41%
|
22%
|
|
|
|
7%
|
23%
|
48%
|
22%
|
|
|
According the
Centers for Medicare and Medicaid Services, nearly 100% of large firms offer
health insurance to their employees.Although much more likely to offer retiree
health benefits than small firms, the percentage of large firms offering these
benefits fell from 66% in 1988 to 34% in 2002.
2.
All we Need to Know About Health Insurance
Let's face
it--in today's world, health insurance is a necessity. With medical expenses
soaring higher than a hang glider, paying for them could have you digging deep
into the pockets of your jeans.
What types of health insurance are
available?
Health insurance
plans generally fall into one of two categories: indemnity plans (also known as
reimbursement plans) and managed care plans such as health maintenance
organizations (HMOs), preferred provider organizations (PPOs), and point of
service (POS) plans.
An indemnity
plan allows you to choose your own doctors and pays for your medical
expenses--totally, in part, or up to a specified amount per day for a specified
number of days.
Managed care
plans generally provide broader coverage, but they all involve an arrangement
between the insurer and a selected network of health-care providers (doctors,
hospitals, etc.). For example, an HMO will require that a primary care
physician in the network coordinate all of your care and refer you to
specialists in the network.
No matter which
type of health insurance you buy, you'll need to make sure it offers the right
kinds of coverage.
What should be covered?
A good health
insurance policy contains several types of coverage.
Hospital expense
insurance pays your room, board, and incidental services costs if you're
hospitalized.
Surgical expense
insurance covers surgeons' fees and related costs associated with surgery.
Physicians'
expense insurance pays for visits to a doctor's office or for a doctor's
hospital visits.
Major medical
insurance offers extremely broad coverage with a very high maximum benefit
that's designed to protect you against losses from catastrophic illness or
injury.
What might be covered?
When comparing
health insurance plans, check to see if they provide additional benefits that
you may need, including:
- Prescription drugs
- Preventive care
- Mental health benefits
- Maternity care
- Vision care
What will it cost?
In addition to
the monthly premium expense, you may have other out-of-pocket costs. These costs
can really add up, especially if you have children or other family members who
visit the doctor frequently. Check to see if the health insurance plan you're
considering requires you to pay any or all of the following:
Co-payment: The
amount you'll have to pay each time you visit a health insurance provider
(generally required by HMOs).
Deductible: The
amount you'll have to pay toward your medical expenses (usually annually)
before the insurance company begins to pay claims (generally required by indemnity
plans).
Coinsurance: The
percentage of your medical costs you'll have to pay after you reach any
deductibles that apply.
Where can I get
health insurance?
You may get
health insurance through a group plan at work or through another group
affiliation (a school, a club, etc.) or by purchasing an individual plan on
your own. By purchasing an individual plan on your own, you may even be able to
customize the health plan. Shop online to compare rates from several companies
to find the best plan and rate to meet your needs.
How do I decide which plan is best?
The best health
insurance plan for you is the one that gives you the greatest flexibility and
the most benefits for the lowest cost. Unfortunately, there's no such thing as
a standard health insurance plan. As you would when making any major purchase,
you'll need to shop around and get several quotes before choosing a plan. Here
are a few points to consider:
¨
What co-pays, deductibles, and coinsurance
requirements apply?
¨
How much freedom do you have to choose your own
health-care providers?
¨
Does the plan cover the health services that you
need?
¨
Does the plan cover the health-care providers
you're currently using?
¨
Does the plan offer family, as well as
individual, coverage?
¨
Does the plan cover pre-existing conditions? If
so, is there a waiting period? (The average waiting period is three months to
one year.)
¨
Does the insurance company have a good
reputation in the industry and a positive rating from a major ratings
organization? (Contact your state's department of insurance for more
information.)
3. Health Plans for College Students
By the time your
children toss their high school graduation caps into the air, they'll probably
have applied to college, picked a dorm, and mapped out their freshman courses.
But is their health insurance securely in place?
Often, the
medical plan a parent has through work will cover children up until they're
between 20 and 24 years old, whether they live at home or away at school.
However, because college health plans at some schools are subsidized by tuition
(though not necessarily subsidized for the student's spouse or dependents),
college plans might save parents money. If you don't have any health insurance
for the student, college health plans could be a good solution.
College plans
are not free and the benefits vary from college to college. Committees from
each college meet with insurance companies and design plans specific to their
schools.
College plans
sometimes limit preventive care, but students often can go to the college
health center for free services. Many times there's no charge for office visits
to the health center, although students may be charged for lab work, physical
therapy, X-rays, prescriptions, and procedures such as treatment for a wound.
Other covered services may include mental health, well-child care, newborn and
infant care, routine pap and pelvic exams, cholesterol screening, and routine
STD/AIDS testing. Mammograms are usually covered when prescribed by a doctor.
Typically,
benefits will pay 100 percent for covered services at the college health
center. For coverage outside the health center, including out-of-state
providers, a student's coverage may drop to 70 percent and impose a deductible.
In addition,
state laws play a significant role in the policies offered to students, as well
as market factors. As a result, there's a wide range of premiums and benefits
that vary from college to college.
Pre-existing conditions can create problems
Your state may
allow "blanket disability" products to bar pre-existing conditions
even if the state won't allow the exclusion on "group disability"
products. This means insurance companies can exclude pre-existing conditions
from treatment. So before you sign up for a college health plan, make sure you
know whether the plan is a blanket disability product that won't cover
treatment for your asthma or any other pre-existing condition.
People often buy
a college's health insurance, even when the student is covered under another
plan, because of the problem of obtaining referrals across states. (Many HMOs
require referrals for visits to out-of-network providers.) Parents who want
their children to get prompt care without calling home for a physician's
referral might want to consider college health plans.
Cost and the
problem of referrals shouldn't prevent the student from having health
insurance, whether it's their parent's plan or the school's plan. A serious
illness or injury could have long-lasting negative financial consequences for
the student, the parent, or both.
Put a college
health policy to the test
Several
factors can make a crucial difference in timely care. Be sure to find out:
¨
Is the plan an HMO, or can the student use any
provider?
¨
Does the plan cover emergency room visits without
prior approval?
¨
What steps must be taken to ensure coverage if
there's an emergency?
¨
What about coverage on the student's vacation?
¨
Can the student get coverage during the summer
break even if they're not taking classes?
¨
Does the plan make the most efficient treatment
facilities in the college community accessible?
¨
What services are offered free or at low cost in
a campus health clinic?
¨
What pre-existing conditions are excluded?
4. Health Insurance for Unmarried Partners
Generally, and
unfortunately, if an employer offers health insurance coverage to the spouses
of employees, they usually don’t extend the coverage to unmarried partners too.
Under the Employee Retirement Income Security Act (ERISA), employers are not
required to offer health insurance to any employees, spouses, or "domestic
partners" (this term is often used to include same-sex couples and
unmarried opposite-sex couples, as well as common law marriages). ERISA also
does not compel employers that provide health insurance for employees and legal
dependents to extend coverage to domestic partners.
Nevertheless,
thousands of employers across the country have begun offering domestic partner
benefits in the last several years, and the number continues to grow.
Employment experts predict that this trend will continue, as small companies
start to follow the lead of large employers that have introduced domestic
partner benefit plans in recent months.
In addition,
some state and local laws have recently been passed in favor of domestic
partner rights. San Francisco, Los
Angeles, and Seattle
have ordinances requiring all businesses with municipal contracts to offer
same-sex benefits if they offer benefits for married couples. Vermont recently enacted the country's first
"civil union" law, which grants same-sex couples nearly all of the
benefits to which the state's married couples are entitled. Provisions
regarding health insurance are still being written, and it is not yet known
what they will entail.
When benefits
are offered to domestic partners, the level of coverage varies depending on the
employer. Domestic partner benefits may include long-term care, group life
insurance, family and bereavement leave, and most commonly, health, dental, and
vision insurance. The definition of domestic partner may also vary from
employer to employer. Some companies include same-sex couples, unmarried
opposite-sex couples, and common law marriages. Others cover only same-sex
partners on the grounds that opposite-sex couples can receive spousal benefits
by getting married, while same-sex couples do not have this option. Regardless
of how the term is defined, employers typically require domestic partners to
sign an affidavit stating that they are in a lasting, committed relationship.
They may also require that a couple live together for a specified period of
time before they become eligible for domestic partner benefits.
5. Need of Disability Insurance
Typically,
people buy property and casualty insurance to protect their possessions
(houses, cars, and furniture) and life insurance to provide income for their
survivors. However, many people don't think about protecting their income with
disability insurance. But how well could you live if you weren't able to work?
Disability is an unpredictable event, and if you become disabled, your ability
to make a living could be restricted. Although you may have enough money in the
bank to meet your short-term needs, what would happen if you were unable to
work for months, or even years? The real value of disability insurance lies in
its ability to protect you over the long haul.
A look at the
odds
Statistically,
the risk of being disabled is great. In a given year, the following events
occur with the following frequency:
Event
Frequency
¨
Home fire 1 out of every 88 homes
¨
Serious auto accident 1 out of every 70 autos
¨
Death 1 out of every 106 people
¨
Disability 1 out of every 8 people
A
further look at disability statistics reveals the following:
¨
A 30-year-old man has a one in five chance of
suffering a long-term disability before his planned retirement.
¨
A 30-year-old woman has a one in three chance of
suffering a long-term disability before her planned retirement.
¨
Roughly 50 percent of people who suffer
disabilities lasting longer than six months remain disabled after five years.
¨
Heart disease and back problems are the two most
common causes of disability.
¨
More people lose their homes through disability
than through fire or death.
¨
One in seven employees will be disabled for five
years or more before retirement
As these
statistics show, your chances of being disabled for longer than three months
are much greater than your chances of dying prematurely. One reason for this is
that medicine has found ways of treating many illnesses and injuries that
previously would have been fatal. Although this is good news, it increases your
need to protect your income with disability insurance.
Of course,
statistics can be misleading. You might never become disabled, especially if
you're healthy and work in a low-risk occupation. But then again, how many
people do you know who have had cancer or have suffered a heart attack? How
many of your friends and family members have been in car accidents or have had
back problems? Illness, as well as injury, is disabling. If you were hurt or
got sick, how would you support yourself or your family?
What would happen if you became disabled?
What would
happen if you suffered an injury or illness and couldn't work for days, months,
or even years? If you're single, you may have no other means of support. If
you're married, you may be able to rely on your spouse for income, but you
probably also have many financial obligations, such as supporting your children
and paying your mortgage. Could your spouse really support you and your family?
In addition, remember that you don't have to be working in a hazardous
occupation to need disability insurance; accidents happen not only on the job
but also at home, and illness can strike anyone. For these reasons, everyone
who works and earns a living should consider purchasing disability insurance.
But isn't disability coverage through an
employer or the government enough?
You might think
that you are adequately insured against disability because you have coverage
through your employer or through government programs such as Social Security
and workers' compensation. However, only 50 percent of employers cover
short-term disability, and only 40 percent cover long-term disability.
Government programs may pay you benefits, but only if you meet a strict definition
of disability. Here's an idea of the benefits you may already have, as well as
their limitations:
Social Security
Although you
shouldn't overlook the disability benefits you may be eligible to receive from
Social Security, you shouldn't rely on them either. Social Security denies more
than 50 percent of the claims submitted, in part due to its strict definition
of disability. Even if you are deemed eligible for benefits, you still won't
begin receiving them until at least six months after you become disabled
because Social Security imposes a waiting period. In addition, your benefit may
replace only a fraction of your pre-disability income.
Workers' compensation
If you're
injured at work or get sick from job-related causes, you may receive some disability
benefits from workers' compensation insurance. How much you receive depends on
the state you live in. However, when you review your disability insurance
needs, remember that workers' compensation only pays benefits if your
disability is work-related, so it offers only limited disability protection.
Some states also cover only the diseases or disabilities outlined in that
state's workers' compensation laws.
Pension plans
Some government
and private pension plans pay disability benefits. Often these plans pay
benefits based on total, permanent disability, or reduce your retirement
benefit in proportion to what you have already received for a disability. In
addition, remember that these benefits are usually integrated with Social
Security or workers' compensation, so your benefit may be less than you expect
if you also receive disability income from these government sources.
Post Retirement
If you’re
looking to retire soon, it's good to look ahead and try to determine if your
medical expenses will be adequately covered in retirement. Many Americans don't
discover the gaps in their Medicare coverage until it's too late, and they are
forced to pay out of their own pockets for medical expenses they assumed would
be covered.
Medicare
coverage requires that you meet certain deductibles before coverage begins, and
you must pay significant co-payments for many types of medical treatment. In
addition, traditional Medicare does not offer a prescription drug benefit.
Because of these
deficiencies in Medicare coverage, you may wish to consider purchasing a
supplemental medical insurance policy called Medigap. Medigap is specifically
designed to fill the gaps in your Medicare coverage. Although Medigap policies
are sold through private insurance companies, they are standardized and
regulated by state and federal law.
6. Top 10 Ways to Cut Your Medical Bills
With health-care
costs on the rise, you may be looking for ways to lower your medical expenses.
Here are 10 ideas:
1. Practice
prevention
2. Shop around
for health insurance
3. Cut the cost
of prescription drugs
4. Check your
medical bills
5. Join your
spouse's health plan
6. Keep track of
your medical expenses
7. Negotiate a
discount with your health-care provider
8. Contribute to
a flexible spending account
9. Take
advantage of free health screenings
10. Get to know
your health insurance
Practice prevention
As basic as it
sounds, one of the most effective ways to lower your medical expenses over time
is to maintain a healthy lifestyle. For example, you can:
¨
Take advantage of wellness programs
¨
Maintain a healthy weight
¨
Exercise regularly
¨
Kick unhealthy habits (e.g. smoking)
¨
Have regular checkups
¨
Shop around for health insurance
If you don't
have employer-sponsored health insurance, you may be looking to obtain coverage
on your own. To get good coverage at an affordable price, shop around. Because
premiums vary widely, you'll probably save money if you get quotes from several
companies. Evaluate each plan's coverage and features, taking into account exclusions,
limitations, and the freedom to choose health-care providers, among other
things. Also find out how much you'll end up paying out of pocket in the form
of co-payments, coinsurance, and deductibles, because even relatively small
amounts of money can really add up if you make frequent visits to your doctor.
Cut the cost of prescription drugs
Prescription
costs can eat up a large portion of your budget if you take prescription drugs
regularly. Fortunately, it's not hard to find ways to save money. For example,
try ordering your prescriptions through the mail, using a traditional or online
pharmacy. If you belong to a prescription drug plan (e.g. through your health
insurance), you may be able to get a three-month supply of your prescription
drug through the mail for the same price you would pay for a one-month supply
at your neighborhood pharmacy. You can also ask your pharmacist or doctor to
recommend a less-expensive generic drug whenever possible.
Check your medical bills
Medical bills
are often confusing to read. However, taking a few minutes to go over the
charges may save you money in the long run. Check to make sure that the bill
accurately reflects the procedures you have undergone and takes into account
any applicable insurance coverage you may have. Some errors, such as wrong
computer codes, are common, and you may be billed for health care you never
received. Contact the appropriate billing office if you think you've found a
mistake. If you've received an explanation of benefits from your insurance
company that you believe is wrong, ask the company to review your claim.
Join your spouse's health plan
Many married
couples maintain separate health insurance coverage even though it may not be
cost effective to do so. Examine both your coverage and your spouse's coverage
to see if it makes sense for either of you to join the other's plan. Most plans
allow you to add a spouse to your plan within a certain time period after you
get married (e.g. 30 days). Otherwise, you may have to wait for the plans'
annual open enrollment period.
Keep track of your medical expenses
Come tax time,
you may be able to deduct certain medical expenses if you itemize, and your
total medical expenses exceed 7.5 percent of your adjusted gross income.
Allowable medical expenses include everything from health-care services to
medical aids (e.g. eyeglasses, hearing aids). Keep track of these expenses if
there's a chance you'll be able to deduct them on your income tax return.
Negotiate a discount with your health-care
provider
Many people
don't realize that you can sometimes negotiate to lower your medical bills.
While it may not always work, it doesn't hurt to ask your doctor, hospital, or
pharmacy if they're willing to come down in price. Before you begin to
negotiate, do a little research to find out what other health-care providers in
your area are charging. You can also ask your health-care provider if they'll
lower their price if you pay in cash up front.
Contribute to a flexible spending account
Your employer
may offer a flexible spending plan that allows you to put pretax dollars in an
account. You are then reimbursed for your out-of-pocket medical expenses, such
as prescription drugs, dental care, and co-payments. Because flexible spending
contributions are taken out of your pay before federal and state taxes are
calculated, you get to use pretax dollars to pay your medical bills.
Take advantage of free health screenings
If your health
insurance doesn't provide adequate coverage in some areas, or if you don't have
any health insurance coverage at all, you may want to look into free health
screenings. Local clinics and hospitals often provide a variety of screenings,
such as blood pressure, cholesterol, and mammograms.
Get to know your health insurance
Your health
insurance may cover more than you think. Nowadays, insurance companies often
provide benefits designed to help you stay safe and healthy. For example, you
may receive discounts on vitamins, alternative medicines, health club
memberships, or bike helmets. You may also be surprised at the range of
coverage your health plan offers. For instance, it may cover dental care for
young children, chiropractic care, and acupuncture. Read your plan membership
materials to find out what products and services are available through your
health plan before you pay for them on your own.
References
- Health Insurance to unmarried partners and students, www.insurance.com/healthinsurance
- a b c "Income, Poverty, and Health Insurance Coverage in the United States: 2005." U.S. Census Bureau. Issued August 2006.
- Cunningham P, May J. "Medicaid patients increasingly concentrated among physicians." Track Rep. 2006 Aug;(16):1-5. PMID 16918046.
- http://www.cms.hhs.gov/TheChartSeries/downloads/private_ins_chap4_p.pdf
- http://www.cms.hhs.gov/TheChartSeries/downloads/private_ins_chap4_p.pdf
- www.icici.com/insurance.html
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