Frequently-Asked Questions on Health Insurance

Overview of health insurance
• What is the major difference between group and individual insurance?
The major difference between group and individual health insurance involves evidence of insurability. To purchase individual insurance, a person must generally answer a health questionnaire and provide evidence of insurability to the insurance company. An insurer may decline coverage on the basis of the applicant's personal habits, health, medical history, age, income or any other factors that bear on risk acceptance. Or the insurer may issue a policy with limitations on coverage. Most group insurance, however, is issued without medical examination or other evidence of individual insurability because the insurer knows that it can cover enough individuals to balance those in poor health against those in good health. The risk of an insurer failing to achieve this balance is diminished as the size of the group increases, or as the insurer underwrites additional group policies and increases the total number of individuals covered. This is known as the "law of large numbers."
• What types of group protection do most employers provide?
Although there are many variations of each, the four major types of insurance coverage provided by employers to their employees are life, accidental death and dismemberment (A D & D), disability and health or medical. Some employers also provide additional coverages, including group legal, travel accident and vision and dental care.
The health insurance marketplace
• What is an HMO?
A health maintenance organization (HMO) is an organization that provides comprehensive health care to a voluntarily enrolled population at a predetermined price. Members pay fixed, periodic fees directly to the HMO and in return receive health care services as often as needed.
• What is a PPO?
A preferred provider organization (PPO) is an association that contracts with a group of doctors, dentists, hospitals or other health care service providers to provide care at prearranged rates or discounts.
• Can an employer work directly with an insurance company?
It is possible for an employer to deal directly with an insurer through a group sales representative to purchase group insurance. Premium rates and underwriting practices vary considerably from one insurer to another, however. In addition, the coverages provided are rarely identical. This means that comparison shopping is often beyond the capability of all but the most sophisticated purchases, for example, the very large company that has sufficient internal employee benefits expertise to do so. For this reason, many group insurance purchasers do not deal directly with insurance company underwriters or group insurance representatives, preferring instead to deal with an intermediary. Smaller employers need a qualified professional to act as intermediary because they lack the resources and expertise to handle their group insurance needs. An intermediary can help them define their needs and objectives, design a plan to meet those criteria, select the proper purchasing and funding vehicle, obtain competitive quotes from insurers and service the plan.
• What is a risk?
The risk an insurance company assumes when it agrees to cover a particular group is the possibility that claims will exceed the expected level. It is the chance of financial loss inherent in the group. Insurance companies use it to determine whether they will underwrite an insurance policy on a particular group. The spread of risk is necessary not only because of the expected variations in a population's health but also because some policyholders -- particulary very small groups -- purchase group insurance to cover certain individuals with known health problems. This is a more costly way to obtain coverage for those high-risk individuals, but often the only way possible, given the evidence-of-insurability requirement for individual policies.
Factors influencing plan design
• Who is an eligible employee?
An eligible employee is any employee who meets the definition in the plan for participation. Definitions of eligible employee vary widely from employer to employer, though they may be influenced by legal considerations and company structure.
• Will an insurance carrier deny certain employees coverage under a group health insurance plan?
Generally, insurers will not deny coverage to any full-time employee. Inherent in the principle of group insurance is the understanding that all employees can be covered. Most carriers, however, require an employee to be actively at work on the day the employer-provider coverage becomes effective, and to have enrolled in a contributory plan within the time required.
Legal factors affecting design
• Are employers required by federal law to purchase group insurance for their employees?
Presently, no federal law requires employers to provide their employee with group insurance. There have been initiatives in Congress, however, that would require employers to provide specified minimum levels of health benefits, and there is every likelihood that some form of national standard will be legislated in the next few years.
• What is a mandate benefit?
A mandate benefit is a specific coverage that an insurer is required to include in its contract under state law. For example, most states require that coverage for substance-abuse treatment be provided. Other kinds of coverage that are mandated in some states include coverage for newborn children, mental and nervous disorders and hospice care.
• What are the minimum and maximum number of employees allowed by state law to participate in a group health insurance plan?
Most states require that an employer enroll a minimum number of employees (generally ten, though fewer in some states) for coverage in order to purchase and maintain a group health insurance plan. This minimum size requirement reduces the potential for adverse selection. There is no legal limit to the number of employees that may be covered under a group health insurance plan.
Types of Health Insurance Plans and Related Benefits
• What is a base plus plan?
A base plus plan is a two-part health insurance plan. Basic medical coverage -- for such expenses as hospitalization, surgery, physician's visits, diagnostic laboratory tests and x-rays -- is provided under the first part. There may be limits on these expenses, such as a limited number of hospital days and a surgical schedule, but no deductible or coinsurance applies to the covered expenses. The employee is reimbursed starting with the first dollar of expenses. The second, or major medical, part of the plan covers other health expenses. The coverage is broad, with fewer limits; however, a deductible is required before the employee is reimbursed for expenses.
• What are the advantages to a base plus plan?
From the employee's point of view, base plus plans appear to provide more generous benefits because of the lack of deductibles and coinsurance in the basic medical part.
• What is a comprehensive plan and it's advantages?
A comprehensive plan provides coverage for most medical services using one reimbursement formula. In a pure comprehensive plan, a deductible must be met before reimbursement for any covered expenses begins, and coinsurance applies to all covered expenses until the maximum employee out-of-pocket expense limit is reached. Additional covered expenses are paid in full. Because employees share from the beginning in the cost of their medical expenses when they are incurred, a comprehensive plan encourages them to use more cost-effective health care. The patient is more likely to be cost-conscious and to seek out more cost-effective health care services and providers.
• What kinds of hospital outpatient expenses are covered?
Three kinds of care are covered: emergency treatment, surgery and services rendered in the outpatient lab or x-ray department.
• What types of services are generally covered by a group health insurance plan?
Base plus and comprehensive plans vary by insurer, but generally cover the same kinds of services. These include:
Professional services of doctors of medicine and osteopathy and other recognized medical practitioners
Hospital charges for semiprivate room and board and other necessary services and supplies
Surgical charges
Services of registered nurses and, in some cases, licensed practical nurses
Home health care
Physiotherapy
Anesthetics and their administration
X-rays and other diagnostic laboratory procedures
X-ray or radium treatment
Oxygen and other gases and their administration
Blood transfusions, including the cost of bloom when charged
Drugs and medicines requiring a prescription
Specified ambulance services
Rental of durable mechanical equipment required for therapeutic use
Artificial limbs and other prosthetic appliances, except replacement of such appliances
Casts, splints, trusses, braces and crutches
Rental of a wheelchair or hospital-type bed
Deductibles, Copayments and Reimbursements
• What is a deductible?
It is a specific dollar amount that an individual must pay (or "satisfy") before reimbursement for expenses begins. The higher the deductible, the lower the cost of the health insurance plan.
• For insured employees with dependent coverage, does the deductible for each person have to be satisfied before reimbursement begins?
Each person covered under a group health insurance plan must meet a deductible before expenses will be covered. However, plans usually include some type of family deductible in order to limit a family's exposure for health care expenses. The family deductible is usually some multiple of the individual deductible, generally two or three. For the family deductible to be satisfied, the combined expenses of covered family members are accumulated. Some plans require, however, that at least one family member satisfy the full individual deductible before the family deductible can be met.
• What is coinsurance?
Coinsurance is a feature found in most group health insurance plans. It sets forth the percentage of covered expenses that the employees and the health insurance plan will pay. The most common coinsurance level is one in which the employee pays 20 percent of the expenses and the insurer pays 80 percent. This is called 80 percent coinsurance.
• What is a covered expense and are there limits?
A covered expense is an eligible expense under a group health insurance plan. A covered expense is an expense incurred by a covered individual that will be reimbursed in whole or in part under the group health insurance plan. For example, under most health insurance plans, doctors' visits are a covered expense. That is, a doctor's fee up to the amount provided by the plan will be reimbursed by the insurer Just because an expense is covered does not mean that the coverage is unlimited. Both base plus and comprehensive plans have limits on the expenses for which they will reimburse. In addition, some form of deductible and coinsurance is often applicable. Insurers limit covered expenses in a variety of ways. One way is to cap allowable payments for a certain procedure or service. A common example of this type of limit would be a surgical schedule. Insurers also restrict covered expenses by limiting the number of visits or days for home health care or skilled nursing care, or by establishing a reasonable and customary charge. return to top of page
Dental, vision and prescription drug plans
• Do health insurance plans cover dental care?
Proper dental care has been considered a budgetable expense, so traditionally, it has not been included in group health insurance plans. In the 1970s, as its cost increased, dental care was added to employee benefits plans. Some plans include dental coverage as part of the medical plan; others include dental coverage as a separate plan. However, many health insurance plans do provide coverage for noncosmetic dental work necessary as the result of an accident. Some plans include limited coverage for hospital room and board expenses related to dental procedures, such as removal of impacted wisdom teeth, performed in a hospital.
• What is direct reimbursement for dental care?
Direct reimbursement is a noninsured dental program in which an employer agrees to pay for a specified percentage or amount of receipted dental expenses. It has been used by smaller employers as a way of avoiding both the costs associated with an insured plan and the administrative complexity that often accompanies insurance company programs. And, since dental expenses are more predictable than medical expenses -- seldom involving emergencies or catastrophic expenses -- the risk to employers is considerably smaller.
• Are all types of dental services covered by insurance?
Usually not. Dental services are often divided into different coverage levels. Level I services include semiannual examinations, semiannual cleaning, x-rays and diagnosis. Most plans cover at least preventive and diagnostic care. Level II (basic services) includes simple restoration (fillings), crowns and jackets, repair of crowns, extractions and endodontics (root canals and internal pulp treatment). Level III (major services) includes dentures, bridges and replacement of bridges and dentures. In order to emphasize prevention, many plans cover the Level I services at higher reimbursement levels than Level II or III services.
• How is vision care covered?
Most health insurance plans provide coverage for medical care related to eye injury or disease, but do not cover the costs of periodic eye examinations or corrective lenses. Like dental care, vision care is a relatively new employee benefit, offered by employers that can afford to expand their employee benefits plans to include additional fringe benefits previously considered budgetable. Vision care is most often covered on a scheduled basis that pays a fixed dollar amount for examinations, lenses and frames. Vision care is almost universally noncontributory due to the potential for biased selection.
• Are all prescription drugs covered under health care plans?
Generally, only prescription drugs that are for treatment of an illness or injury are covered, subject to applicable deductibles and coinsurance. Many plans do not cover contraceptive prescription drugs, for example, or nicotine chewing gum prescribed for smokers who are trying to quit.
• Are there different types of drug plans?
There are a number of variations, but the principal types of prescription medication plans are open panel, closed panel, mail order and prescription drug card plans.

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Where The Money Goes

By: Peter Joseph

As a business owner, you've come to expect big increases in your employee health insurance premiums of late. Employer-sponsored health insurance premiums increased an average of 11.2 percent in 2004, and this was the fourth consecutive year of double-digit growth, according to the recent Annual Employer Health Benefits Survey released by the Kaiser Family Foundation.

That's about five times the rate of inflation nationally, and probably significantly higher than the price increases your company has imposed on its products and services in the same time frame.

The reasons for these increases are not mysterious. The largest share of the ongoing increases track to increased utilization of advanced medical technologies - new diagnostic and preventive screenings, and other high-tech therapies and medical hardware - the majority of which are delivered at hospital on an inpatient or outpatient basis.

Prescription drugs also continue to play a major role in the rising cost of health care, owing to the higher prices of new formulations, the wider application of combination therapies and greater consumer demand for, and need of, medications in all areas of prevention and treatment. About the only area that has seen relative stability is physician costs.

Such increases, when they are part of the costs of running your business, are naturally cause for concern. It only makes sense that employers who want to continue offering their employees access to quality health care become more knowledgeable about how well their money is being spent by the health care carrier they choose.

For example, did you know that virtually all carriers in Florida spend roughly the same percentage of your premium dollars on medical claims - which works out to a medical loss ratio of 76 percent to 80 percent? They also spend about the same percentage, 10 percent to 12 percent, on administering your plan (processing claims, providing customer service functions, covering fixed costs).

And most of the carriers factor in a 2 percent profit margin. The balance of your premium dollars go to the commissions, which carriers pay to the independent health insurance brokers who act as consultants. Brokers are, of course, a critical element in matching clients with carriers. Most small business employers don't have the time or staff to determine the best package of benefits for their group, shop the market for bids and compare product offerings carefully.

They depend on their broker to explore the different options, give them objective recommendations on the best choices and complete their applications. And brokers' services may often continue after enrollment. It's extremely valuable for employers to better understand where their premium dollars go. Don't hesitate to ask questions to fully recognize why one health plan may be preferred over another.

Employers can exercise some control over their costs by finding a health benefits company that provides the best value for their company's premium dollars. The way in which you shop a health plan can impact the price.

It's the same as if your travel agent had a great deal for you - air, car, hotel and meals included. You tell your agent to book it. Coincidently, your neighbors just booked that same trip for $1,000 less through their travel agent.

One agent shopped for the best price, the other agent arranged the trip through his or her vendor of choice. Whether it's a family vacation, buying a car or choosing a health benefits plan, how you shop can impact your cost.

So why are health care premiums different? Take a closer look.

Author Bio
PETER JOSEPH is senior vice president for commercial sales for VISTA, a health benefits company headquartered in South Florida with more than 330,000 members. VISTA, through its affiliated companies, Vista Healthplan Inc., Vista Healthplan of South Florida Inc. and Vista Insurance Plan Inc., offers a choice of health benefit plans, including health maintenance organization (HMO), preferred provider organization (PPO) and pointof-service (POS). Reach Joseph at (954) 858-3000

Taming the Cost of Health Care

Taming the Cost of Health Care - How the Health Insurance Industry Fights High Costs
By Deb Powers

For many families, finding affordable health insurance is a task akin to the search for the Holy Grail. Depending on where in the country you live, a family health insurance plan can cost as much as $800-$1000 per month. Even when you split that cost between employee and employer, that's a major chunk of nearly anyone's monthly budget. And while it's popular to swear under your breath at the greed of the health insurance industry, a look at the cost of medical care is an eye-opening shock for many people. The expenses associated with a broken arm, for instance, can easily mount into several thousands of dollars.

The Health Industry has a stake in keeping people healthy.

The high cost of health insurance is the direct result of the high cost of medical care. It's a simple matter of economics. The more it costs to take care of each subscriber, the more the insurance companies have to charge all their subscribers. This cost/expense ratio is what has made most insurance companies embrace the idea of providing preventive care to their subscribers. It's a simple matter of business sense - healthy people don't cost the insurance companies a lot of money.

Accidents may be the first type of medical need that springs to mind when people consider buying health insurance, the major insurance companies all agree that accidents aren't the major cost drain on medical resources. That place is reserved for chronic illnesses like diabetes, heart disease, cancer and high blood pressure. Because of this, it makes good business sense for major players in the insurance industry to encourage their subscribers to adopt preventive health strategies. That pays off in special benefits for health conscious consumers.

Preventive Health Benefits Help Keep Costs Low

Among the benefits that have become commonplace for major health insurance providers are routine physicals, medical screenings for all subscribers, discounts on health club and gym memberships, payment of dues for weight loss groups and lowered subscription fees for non-smokers.

Some health insurance companies and HMO's go even further in their preventive efforts. Because of the high risk of serious injury or fatality for infants in automobile accidents, Fallon Community Health Plan of Massachusetts has for years teamed with local organizations to provide free infant car seats to families with newborns. In the same spirit of prevention, many HMOs offer free stress management and stress reduction workshops to all subscribers because stress has been identified as a leading risk factor in nearly every major illness.

Seeking a Cure

The quest for affordable health care has also prompted health insurers and HMOs to help fun research and health initiatives all over the country. The industry underwrites millions of dollars of medical research annually in an effort to lower the costs of health care. Their dollars fund grants to enroll low income and other hard to insure populations, and to offer eye, dental and health care to inner city and poor rural populations. They estimate that routine preventive eye and dental care, as well as routine medical screenings and physicals can identify illnesses at early stages and prevent conditions and costs from escalating out of reach.

Get the Most from Your Health Insurance

You pay for it - you should certainly get the most possible benefit from your health plan. Here are some suggestions for ways that you can make your insurance plan work for you:

* Join a gym. Check the benefits that your HMO or health insurer offers. Chances are good that one of them is a discount good on membership at a local gym or health club. Get fit - it saves THEM money... but it saves YOUR life.
* Lose weight. Take advantage of nutritional counseling and memberships in weight loss support groups to get down to your ideal weight. Added bonus? Many insurance plans offer a lower tier cost for subscribers who are at healthy weights.
* Quit smoking. Non-smokers are another group that often enjoy lower insurance premiums. Many HMOs and health providers offer free smoking cessation programs to help you get smoke free and healthy.
* Attend medical screenings and health fairs. Many insurance providers sponsor 'wellness fairs' where you can have your blood pressure tested, get free medical screenings and learn about alternative medical techniques like massage therapy, acupuncture and yoga. Take advantage of special events to learn more and get healthy.

It may be popular to demonize the insurance industry, but today more than ever, these companies have a stake in keeping you healthy. Find out what your inusrance company has to offer you by visiting their web site, or calling customer service.

Help Your Family Save On Health Care Call: 1-888-842-9430


Deb Powers is a freelance writer and researcher who writes frequently about renewable energy and global warming. She has been an environmental activist since the 1970s, and continues to work toward a greener planet by highlighting advances in alternative energy sources, promoting Fair Trade causes and participating in local environmental activism.