10/7 - Introduction to Health Insurance

Most early health insurance

• disability insurance

• protected individuals from loss of income due to illness

• only covered a small number of diseases

1929 hospital insurance

Baylor university hospital offered Dallas teachers to prepay premiums, other hospitals

American Hospital Association role in health insurance

created statewide Blue Cross hospital insurance plans

1939 medical insurance

California medical association creates first blue shield plan, organizing physicians into a large group practice

1940s insurance as a benefit

rapid expansion of insurance; government wage and price controls prohibited wage increases during WWII so companies offered health insurance rather than wage increase

1950s major medical insurance

blue cross and blue shield merged, many other companies were formed

Purpose of insurance

helps individuals and businesses manage certain types of unanticipated risk

Speculative risk

possibility of loss and gain

Pure risk

possibility of loss but no gain

Insurable risk requirements

1. the probability of peril occurring in a population can be determined

2. the peril is irregular event on an individual basis

3. loss is accidental

4. event must result in substantial loss

5. loss is measurable

6. individual must have an insurable interest

Insurance purchasing function

trade a certain loss (monthly premium) for coverage in the event of a large unpredictable loss (hospitalization)

The law of large numbers

the larger the number of insured persons, the more accurate the loss predictions

Risk spreading

pulls many people together to spread/share the cost generated by a small number of people

Challenges to risk spreading

• catastrophic hazard, events that would exceed the company’s ability to pay and bankrupt the company

• patients purchase or drop insurance only when they know they’ll need it

• insurers refuse to cover individuals more likely to incur high cost

• over consumption of health services, so make more risky decisions

Pluralism

not all health insurance is the same

Employer-sponsored coverage

variation in benefits covered as well as premium and deductible costs

Individually-purchase policies

less coverage of maternity, mental health, and prescription drugs than employer-sponsored coverage

Dynamics of health coverage

dynamic in numbers of uninsured individuals, geographic locations, or demographic characteristics

Premium

a fixed amount to be paid monthly or taken out of paycheck for insurance coverage

Deductible

a specific amount the patient must pay annually before their health insurance benefit will kick in and begin sharing costs

Copay

a fixed amount to be paid when a patient receives a service from a provider

Coinsurance

a specific percentage of the cost of the service that the patient is required to pay after the deductible is met

Out-of-pocket max

total amount of all expenses a beneficiary must pay before insurance will begin to pay 100% of all covered services

In-network

physicians and medical establishments that deliver patient services covered under the insurance plan

Out-of-network

physicians and medical establishments not covered under the insurance plan

Open enrollment period

the annual window of time during which you can apply for health insurance, typically 11/15-12/31 every year

Special enrollment periods

60 days before or after qualifying life event