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| What is Health Insurance and How Does It Work? |
People can use health insurance to:
- Protect themselves against the high expenses of medical treatment if they get very ill.
- Ascertain that they have access to medical treatment when they require it.
- There are two types of health insurance: primary and secondary.
- Medicare, Medicaid, and the Children's Health Insurance Program are examples of taxpayer-funded programs (CHIP)
Employer-sponsored plans, such as Blue Cross and Blue Shield, non-Blue commercial plans, HMOs, and self-funded employer plans, are examples of private-funded plans.
State and federal taxes are used to finance health insurers that are funded by taxpayers. Some examples are:
Medicare
Medicaid
CHIP
Federal/state employee health plans
Veterans Health Administration (VHA)
Private health insurance is primarily funded through benefits plans provided by employers.
A total of 160 million people are covered by employer-sponsored health insurance.
About 15 million people acquire their own health insurance.
Examples include:
Blue Cross and Blue Shield health insurance companies
Non-Blue commercial health insurance companies
Health Maintenance Organizations (HMOs)
Self-funded employer-sponsored benefit plans
Employees opt to engage in their employer-sponsored health insurance plan in order to get coverage. They pay a higher price. In exchange, customers obtain an insurance card that grants them access to the insurance plan's doctors, hospitals, and other health-care providers.
Health Insurance Regulations
States regulate health insurance largely by establishing requirements for when and under what conditions a state-licensed health insurer must accept an applicant.
Health insurance is also governed by federal legislation such as ERISA and HIPAA.
ERISA creates nationwide regulations for health plans backed by employers and unions.
States are prohibited from regulating self-funded employer and union-sponsored health plans under the Employee Retirement Income Security Act of 1974 (ERISA).
HIPAA mandates that private insurers accept some persons who are leaving group coverage into the individual market, regardless of their health status or pre-existing diseases. In most jurisdictions, however, if eligible persons are promised coverage in the state's high-risk pool, They are not compelled to get insurance from private insurers.
Health insurance lowers the cost of medical care.
Health insurance helps consumers pay for medical treatment by spreading the risk of excessive health-care expenses over a large group of people and allowing them (or their employers) to pay a premium based on the group's average medical-care expenditures.
As a result, health insurance makes health care more inexpensive for the majority of individuals.
Health insurance provides security.
When an individual has an insurance card, it provides easier access to medical care by showing health care providers that most of the individual’s covered treatment costs will be paid.
Employer-sponsored Health Insurance
Most private health insurance is provided through employer-sponsored benefits plans.
Employers decide…
Whether to offer health benefits
Level of benefits and the amount of coverage
Whether to assume the risk and payment for its employees' health care or have the insurance company assume the risk and payment
Employees do this…
Employees opt to engage in their employer-sponsored health insurance plan in order to get coverage.
They pay a premium that changes according on the elements that influence the employee group's health care requirements.
In exchange, customers obtain an insurance card that grants them access to the insurance plan's doctors, hospitals, and other health-care providers.
How Health Insurance is Regulated
States generally regulate the business of health insurance. At the same time, a number of federal laws also govern health insurance. We will review two specific federal laws: ERISA and HIPAA.
State Laws:
States establish requirements for when and how a state-licensed health insurance must accept an applicant. Most states, for example, require small businesses to provide coverage if they want it. The amount to which insurers can alter rates depending on health condition, claims experience, and other criteria is governed by state law.
States, on the other hand, cannot compel self-funded employer plans to provide benefits (these plans are governed under ERISA).
States have lists of mandated benefits. Some examples are:
Fertilization treatments
Substance abuse treatments
Breast reconstruction surgery after a mastectomy
Federal Laws:
Employee Retirement Income Security Act of 1974 (ERISA)
Protects workers from the loss of benefits provided through the workplace
Establishes national standards for employee benefits maintained by an employer or an employee organization (union)
Does not regulate insurance provided directly by a private health insurer
Does not allow states to regulate the content or activities of self-funded employee benefit plans
Does not allow states to regulate how third parties, including state-licensed health insuring organizations, provide administrative services to self-funded employee benefit plans
Health Insurance Portability and Accountability Act (HIPAA)
HIPAA addresses the concern that:
When people shift employment or leave their jobs, they may have coverage gaps.
For new members, health coverage providers frequently exclude benefits for prior health issues.
HIPAA compels state-licensed private insurers to welcome persons who are leaving group health coverage into the individual market regardless of their health status or any pre-existing medical problems exclusion period. In most jurisdictions, however, private insurers are not obligated to offer coverage to qualified persons who are assured access to coverage in the state's high-risk pool.
HIPAA also prohibits state-licensed private insurers from considering the health status of a member when determining the member’s eligibility for group coverage.
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