How Private Health Coverage Works: A Primer, 2008 Update (KAISER)

Flashcards derived from the Kaiser Family Foundation primer on private health coverage (2008 Update). They cover definitions, regulatory framework, types of plans, risk management concepts, and key federal/state interactions.

What is private health coverage?

A mechanism to protect individuals from potentially extreme medical costs and to ensure access to care by pooling risk across many people, usually funded by premiums paid by individuals or employers.

What are the two main sources of private health coverage in the U.S. according to the primer?

Employer-sponsored insurance (major source) and the individual health insurance market; the primer does not address public programs like Medicare or Medicaid.

What are the two primary types of entities that deliver private health coverage?

State-licensed health insuring organizations and self-funded employee health benefit plans.

Name the three primary types of state-licensed health insuring organizations.

Commercial health insurers; Blue Cross and Blue Shield plans; Health Maintenance Organizations (HMOs).

What is a Commercial health insurer (indemnity insurer) typically?

A stock or mutual company that provides insurance, often operating as indemnity coverage; examples include companies like Aetna.

What is an HMO (Health Maintenance Organization)?

An insurer that tightly integrates health insurance with provision of care; may act as insurer and provider, with regulatory oversight often shared between insurance and health care provider regulators.

What is a self-funded (self-funded) employee health benefit plan?

A plan where the employer/sponsor bears the risk and pays directly for care; often contracts with third-party administrators or health insurers for administration.

What are the main types of private health plans discussed in the primer?

HMOs, Preferred Provider Organizations (PPOs), Point-of-Service plans (POS), High Deductible Health Plans with HSAs/HRAs (HDHP/HSA or HRA), and conventional plans.

What is a PPO?

A network of providers who agree to discounted rates and/or utilization protocols; enrollees may receive lower copayments and often have some network-based cost incentives, but PPOs are networks, not the insurers themselves.

What is a POS (Point-of-Service) plan?

A plan that allows care inside or outside a network, usually with different cost sharing; blends features of HMOs and PPOs.

What are Health Savings Accounts (HSAs) and Health Reimbursement Accounts (HRAs)?

Tax-exempt accounts used to pay for qualified medical expenses; HSAs are owned by individuals and may be funded by both employer and employee with HDHPs; HRAs are employer-funded with no statutory annual limit and often paired with HDHPs.

What is a Health Savings Account (HSA) eligibility requirement?

You must have a health plan that qualifies as an HDHP (high-deductible health plan) to open and contribute to an HSA.

What is an Health Reimbursement Account (HRA)?

An employer-established benefit funded by the employer (not limited by a set annual contribution) that reimburses employees for qualified medical expenses; often paired with HDHPs.

What is risk pooling in private health coverage?

Grouping individuals to share the cost of health care so that individual premiums are predictable and manageable; aims to keep overall costs stable within a pool.

What is adverse selection in health insurance?

A situation where higher-risk individuals are more likely to enroll in a pool, which raises the average costs and can lead to a ‘death spiral’ if healthier individuals withdraw.

What is preexisting condition exclusion?

Excluding benefits for treatment of conditions diagnosed or treated before enrollment; HIPAA/ERISA place limits on these exclusions (e.g., 12 months generally, 18 months for late enrollees).

What is underwriting in health insurance?

The process of determining whether to offer coverage and on what terms; in individual markets it evaluates health status/claims history and may set premiums or exclusions; group underwriting focuses on the group rather than individuals.

What are rate bands and community rating?

Rate bands limit how much premiums can vary for the same coverage (e.g., not more than a set multiple of the lowest rate). Community rating charges everyone the same premium for the same coverage; modified community rating allows some demographic-based variation but not health status variation.

What is the loss ratio?

The ratio of benefits paid to premiums; used to assess the relative adequacy of premiums and coverage provisions.

What does guaranteed issue/availability mean in health insurance regulation?

Insurers must accept specified applicants for coverage, generally regardless of health status or prior claims; commonly applied to small employers and certain market segments.

What is renewability in private health coverage?

The right to renew a policy for another year; term limits and open enrollment periods can affect renewal; COBRA-like continuation exists for employer-based coverage in some cases.

What is COBRA and how is it related to ERISA?

The Consolidated Omnibus Budget Reconciliation Act requires continuation of coverage for qualified beneficiaries from employer plans with 20+ employees after certain qualifying events; it interacts with ERISA through plan administration rules.

What is ERISA and why is it important for private health coverage?

Employee Retirement Income Security Act of 1974; governs most private employee benefit plans that provide medical benefits; requires written plan documents, SPDs, fiduciary duties, claims procedures, remedies, and enforcement; it preempts most state laws affecting plans, with an important insurance-saving clause.

What is the ERISA saving clause?

An exception in ERISA that preserves state insurance laws for insurers that sell coverage to ERISA plans, thereby allowing states to regulate the insurance products (not the self-funded plans themselves).

How does ERISA preemption interact with state law?

ERISA generally preempts state laws that regulate the operation of employee benefit plans, but does not preempt state insurance laws; laws that regulate insurance remain valid when they apply to insurers providing coverage to ERISA plans.

What is HIPAA and what areas does it address?

Health Insurance Portability and Accountability Act; addresses portability, access to coverage, renewability, nondiscrimination, and mandated benefits; has separate enforcement and standards for state-licensed insurers and ERISA plans.

Who enforces HIPAA standards and how are they allocated between agencies?

HIPAA enforcement is coordinated by the Departments of Labor, Health and Human Services, and Treasury; generally, standards applicable to ERISA plans are enforced under DOL/Treasury, while standards for state-licensed insurers are enforced under DHHS, with state laws sometimes serving as a backstop if they are at least as stringent.

What are some federal laws that require benefit coverage beyond HIPAA and how do they affect private health coverage?

The Women’s Health and Cancer Rights Act (breast reconstruction), the Newborns’ and Mothers’ Health Protection Act (minimum hospital stays after childbirth), the Mental Health Parity Act (limits on annual/lifetime mental health benefits), the Pregnancy Discrimination Act, and the Americans with Disabilities Act can affect coverage and nondiscrimination practices.

What is ‘mandated benefits’ in state and federal contexts?

Benefits that a health plan must offer or include, as required by state laws (and sometimes federal laws), such as mental health services, substance abuse treatment, or breast reconstruction.

What is the purpose of the guaranty fund in state regulation?

A state fund used to pay the claims of insurers that become insolvent, typically financed by assessments on other insurers.