Health Insurance

Health insurance pays all or part of the cost of hospitalization, surgery, laboratory tests, medicines, and other medical care. The high cost of medical care makes it important for people to have adequate health insurance. People without such coverage could suffer a major financial hardship in case of a serious illness or accident.

A large majority of people in the United States have some form of private or public health insurance, though many have limited coverage. Many millions of Americans are uninsured.

In numerous countries, the government provides health care for the nation's people. These countries include Australia, Canada, Ireland, New Zealand, and the United Kingdom. In Canada, nearly all people are covered by provincial government health insurance. In the United Kingdom, the National Health Service provides government-funded medical services to all residents. In Canada, the United Kingdom, and other countries with government health care programs, private insurance companies offer additional coverage to people who wish to purchase it. For information on public health insurance, see the section Social insurance in this article.

Private health insurers sell individual and group policies. However, most people with private health insurance are covered under a group plan where they work. Group plans typically cover not only the insured person but also that person's dependents. Group health insurance generally costs less than individual coverage because administrative costs and other expenses are lower. Some employers pay all or part of the premiums of their employees. In addition, many employers have plans that allow employees to pay for premiums using pretax funds-that is, funds that are not counted as taxable income.

Private health insurance in the United States is offered mainly by (1) insurance companies, (2) medical service plans, (3) managed care plans, and (4) self-insured employers.

1.Insurance Companies
Many companies that sell health insurance policies provide cash benefits, also called indemnity benefits, to the insured person. A cash benefit is a fixed dollar amount for each medical expense or day of hospitalization. If the cash benefits do not cover the entire cost of medical care, the policyholder must pay the balance.

2.Medical Service Plans
Medical service plans pay service benefits. A service benefit is a direct payment to the hospital or physician that provided the medical service. Payments are limited to reasonable and customary charges. Such a charge is the average cost of a particular medical service in the area in which the insured person lives.

In most cases, health insurance policies with service benefits offer fuller coverage but cost more than policies with cash benefits. Unlike insurance companies, medical service plans operate on a nonprofit basis. Blue Cross and Blue Shield plans are the largest medical service plans in the United States.

3.Managed Care Plans
Managed care plans have grown tremendously since the 1980's. They help limit the cost of health care by managing the provision and financing of care. The most widely used types of managed care plans are health maintenance organizations (HMO's) and preferred provider organizations (PPO's). In the United States, a large majority of workers in group plans sponsored by their employers are covered by managed care plans.

HMO's provide nearly complete health care services for a prepaid monthly or yearly fee. Such services range from hospitalization and surgery to medication and visits to a physician's office. HMO's are sponsored by various foundations, communities, medical groups, insurance companies, and medical service plans.

PPO's give employers discounts if they send their employees to health care providers that belong to the PPO. Employees tend to use the PPO's health care providers because they must pay more for their health care if they receive it from someone else. Like HMO's, PPO's provide nearly complete health care for a monthly or yearly fee. In both PPO's and HMO's, patients may be required to pay a small additional fee, called a copayment, for the medical services and medications they receive.

4.Self Insured Employers
Self-insured employers pay the health care costs of their employees instead of buying insurance. In this way, companies can design benefit plans to suit their circumstances, and they may profit by investing the money that would be spent on insurance. Many larger companies make such arrangements.

Basic Types of Health Insurance

Private health insurers offer four main types of health insurance benefits. They are (1) hospital expense, (2) physician expense, (3) outpatient expense, and (4) major medical expense benefits. Most experts recommend that a person select a policy that offers all four types of benefits.

1. Hospital Expense
Hospital expense benefits are the most common type of medical insurance benefits. They cover the cost of hospital room and board, laboratory tests, X rays, medication, nursing services, and the use of an operating room. The benefits may take the form of cash or services. Some policies limit cash benefits to fixed daily payments for a stated number of days each year.

2. Physician Expense
Physician expense benefits cover such services as a surgeon's operating fees. Many policies pay the total cost of such fees to a reasonable and customary limit. But under some policies, if the surgeon charges a higher fee, the insured person must pay the additional cost.

3. Outpatient Expense
Outpatient expense benefits cover fees charged by physicians for nonsurgical care in their office, in a hospital, or in the patient's home. These benefits also cover the cost of X rays and laboratory and diagnostic tests for a policyholder who is not hospitalized. Most health insurance policies sold by insurance companies and medical service plans provide limited outpatient insurance. HMO's and PPO's, on the other hand, offer full outpatient benefits.

4. Major Medical Expense
Major medical expense benefits cover the enormous costs resulting from a serious illness or accident. Maximum benefits typically range from $100,000 to $1,000,000, though some policies have no limit. However, many policies that are not part of a managed care plan pay only 90 percent of the expenses covered by the policy.

The policyholder has to pay the balance. In addition, almost all major medical policies that are not part of a managed care plan have a deductible-that is, an initial sum of money for which the policyholder is liable. The insurer pays any excess costs up to the amount specified by the policy.

Other Types of Health Insurance

Other types of health insurance include disability income insurance, dental insurance, and long-term care insurance. Disability income insurance provides funds that partly replace income lost when the insured person cannot work because of an accident or illness. Dental insurance helps pay for a wide variety of services. Such preventive services as cleaning and X rays are often fully covered. Most policies provide limited coverage for other dental services by paying a maximum dollar amount or percentage of the cost of those services. Long-term care (LTC) insurance provides coverage for nursing home care and related expenses.

Some employers offer plans called medical savings accounts (MSA's), which allow people to set aside money for medical costs that are not covered by insurance. The money is deducted from workers' paychecks and is not taxed. Similar plans known as flexible spending accounts (FSA's) allow people to spend the funds on children's day care and summer camp expenses, in addition to normal medical costs.

Blue Cross and Blue Shield

Blue Cross and Blue Shield are the names and symbols used by a number of local, nonprofit organizations in the United States that finance health care insurance coverage. These organizations are called Blue Cross and Blue Shield plans. People who subscribe to a Blue Cross and Blue Shield plan make regular payments to the plan. In turn, the plan pays part or all of the subscriber's hospital and doctor bills. The Blue Cross and Blue Shield plan also may cover certain other medical expenses, such as charges for dental and vision care, or for health care at home.

Most Blue Cross and Blue Shield subscribers are covered under a group plan where they work, but others subscribe individually. The activities of the local plans are coordinated and assisted by the Blue Cross and Blue Shield Association. The association has headquarters in Chicago.

Critically reviewed by the Blue Cross and Blue Shield Association