The Analysis of the Health Insurance Contract

Definition

Health insurance, like other forms of insurance, is a form of collectivism by means of which people collectively pool their risk, in this case the risk of incurring medical expenses. The collective is usually publicly owned or else is organized on a non-profit basis for the members of the pool, though in some countries health insurance pools may also be managed by for-profit companies.

History

The concept of health insurance was proposed in 1694 by Hugh the Elder Chamberlen from the Peter Chamberlen family. In the late 19th century, "accident insurance" began to be available, which operated much like modern disability insurance. 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.

Hospital and medical expense policies were introduced during the first half of the 20th century. During the 1920s, individual hospitals began offering services to individuals on a pre-paid basis, eventually leading to the development of Blue Cross organizations. The predecessors of today's Health Maintenance Organizations (HMOs) originated beginning in 1929, through the 1930s and on during World War II.

Introduction

The topics of health insurance and life insurance often appear alongside each other in literature on risk management and insurance, although the two types of coverage share little in common. The problems of health care and its management are almost inseparable from the analysis of health care coverage, while comparable issues hardly ever arise in the analysis of life insurance. Perhaps in one respect, the two types of coverage are similar: most demands for life and health insurance spring from individuals as isolated units, not collectively as a result of their being members of organizations. In other respects, the two types of coverage bear little resemblance to each other.

During the second half of the twentieth century, the burden of providing health care and the coverage to assure access to health care has shifted from individuals and family units to employers and governments. The dramatic rise in the cost of providing health care that accompanied the shifting burden has placed the issues of health care and health insurance coverage at the forefront of organizations’ concerns. Further, increasing costs of health care services have been accompanied with a growing belief that entitlement to health care is a basic right of citizens. Such entitlement is envisioned under federally-mandated universal health care plans (or national health care programs) currently under consideration.

Growing concerns with access to health care and its cost have created political pressure for shifting the control of health care toward larger and larger organizations and ultimately to governments. The consolidation of health care financing across entities of increasing size has shifted concerns to higher levels of management and government regulation. Along with these trends, the typical coverage for health care services has evolved to the point at which it has become a complex set of financial incentives and administrative restrictions on the delivery and consumption of health care services. Many of these design features were incorporated to make coverage for health care one of the tools for controlling the health care problem.

How it works?

A health insurance policy is a contract between an insurance company and an individual or his sponsor (e.g. an employer). The contract can be renewable annually or monthly. The type and amount of health care costs that will be covered by the health insurance company are specified in advance, in the member contract or "Evidence of Coverage" booklet. The individual insured person's obligations may take several forms:

-Premium: The amount the policy-holder or his sponsor (e.g. an employer) pays to the health plan each month to purchase health coverage.

-Deductible: The amount that the insured must pay out-of-pocket before the health insurer pays its share. For example, a policy-holder might have to pay a $500 deductible per year, before any of their health care is covered by the health insurer. It may take several doctor's visits or prescription refills before the insured person reaches the deductible and the insurance company starts to pay for care.

-Co-payment: The amount that the insured person must pay out of pocket before the health insurer pays for a particular visit or service. For example, an insured person might pay a $45 co-payment for a doctor's visit, or to obtain a prescription. A co-payment must be paid each time a particular service is obtained.

-Coinsurance: Instead of, or in addition to, paying a fixed amount up front (a co-payment), the co-insurance is a percentage of the total cost that insured person may also pay. For example, the member might have to pay 20% of the cost of a surgery over and above a co-payment, while the insurance company pays the other 80%. If there is an upper limit on coinsurance, the policy-holder could end up owing very little, or a great deal, depending on the actual costs of the services they obtain.

-Exclusions: Not all services are covered. The insured person is generally expected to pay the full cost of non-covered services out of their own pocket.

-Coverage limits: Some health insurance policies only pay for health care up to a certain dollar amount. The insured person may be expected to pay any charges in excess of the health plan's maximum payment for a specific service. In addition, some insurance company schemes have annual or lifetime coverage maximums. In these cases, the health plan will stop payment when they reach the benefit maximum, and the policy-holder must pay all remaining costs.

-Out-of-pocket maximums: Similar to coverage limits, except that in this case, the insured person's payment obligation ends when they reach the out-of-pocket maximum, and the health company pays all further covered costs. Out-of-pocket maximums can be limited to a specific benefit category (such as prescription drugs) or can apply to all coverage provided during a specific benefit year.