Health Insurance - What health insurance is and does
“Health insurance” means a number of things. It may be called “accident and health insurance” or “disability insurance. “ Various types of policies have other names. The different descriptions indicate that the policies vary as regards the types of expenses covered. While some policies cover hospital expenses only, others may cover virtually all kinds of medical expenses.
Two Types of Coverage
In general, private health insurance coverage is one of two kinds: group and individual . Employers, unions, and other kinds of organizations typically provide group insurance as an employee or membership benefit. An individual can buy individual insurance whether or not he or she is covered under a group policy. But a good group policy usually covers all the major health problems or contingencies that a person could face under normal circumstances.
Group insurance has a number of specific advantages over individual coverage, among them the following:
- • Because a number of people can be included under a single contract, with consequent savings to the insurer in sales, administrative, and claims costs, the insurer can charge less per individual covered.
- • In most cases the company, union, or organization holding the group contract pays part or all of the individual premiums.
- • With group insurance the health of the individual insured person is usually not a major factor in determining eligibility. The insurance company is more interested in the average age and overall health status of the group. The health of individuals may become a selection factor, however, where small groups, 10 or fewer persons, are involved.
- • Unless an individual leaves a job or gives up a membership, his or her group coverage cannot be canceled. Termination of the group plan itself would, of course, terminate coverage.
Despite such advantages, individual and family policies fulfill at least two fundamental needs. First, they provide coverage for persons who are not members of an insured group. Such policies may also cover those who cannot, for whatever reason, obtain group coverage. Second, the individual or family policy can provide supplementary coverage where a group plan does not meet all basic health insurance needs.
Group and individual plans differ in basic ways. Where a group policy establishes the level of benefits for all group members, the individual policy can more easily be tailored to specific requirements. With the individual policy, too, each person or family is enrolled separately. The cost of individual insurance is usually substantially higher because the insurer considers the age, health status of the insured, and other factors when setting premium rates.
Principles of Health Insurance
Private or commercial health insurance programs function according to some key principles. Primarily, these programs are based on the theory that a relatively small, regular payment, the premium, can protect the insured against what might be a sizable loss.
A companion principle holds that the insured must pay the expenses of operating an insurance system. These expenses include the costs of maintaining offices, investigating claims, and otherwise administering the system as well as paying benefits.
Two other principles underlie the operation of most health insurance programs:
- • The large-loss principle , which holds that the insured should try to obtain protection only against those costs or losses that he or she could not bear financially. Under this principle the contract may exclude from reimbursement some specific kinds of costs. Most such policies contain a “deductible” clause specifying that the insured must pay a certain amount of initial costs.
- Major medical insurance plans probably exemplify best the large-loss, or large-risk, principle. These policies nearly always provide for a deductible. The higher the deductible, as a rule, the lower the premium.
- • The first-dollar principle , under which the policy pays the full cost of all covered hospital and medical expenses. Policies of this kind have no deductible clauses.
Advocates of first-dollar policies stress the need for preventive health care. The policy in theory encourages the insured to see a physician and obtain treatment before a health problem becomes worse or even unmanageable.