Health Insurance Basics
Risk and underwriting
Health underwriting deals with morbidity (illness and injury rates) rather than mortality. Adverse selection drives waiting periods, preexisting-condition rules where permitted, and open-enrollment rules. Insurers use deductibles, coinsurance, copays, and out-of-pocket maximums to share cost and discourage overuse. A deductible is the amount paid before benefits; coinsurance is the insured's percentage after the deductible; a copay is a flat fee; the out-of-pocket maximum caps the insured's exposure.
Group versus individual
Group coverage is issued to an employer or association under a master contract; employees receive certificates. Because the group is underwritten as a whole, individual evidence of insurability is usually unnecessary during open enrollment. Eligibility rules commonly require active employment, a waiting period, and a minimum work week. Special enrollment rights apply after losing other coverage or a qualifying life event such as marriage or a birth. COBRA requires group plans of 20+ employees to offer continuation, with the participant paying up to 102% of premium.
Renewability
Noncancellable policies guarantee both renewal and premium; guaranteed renewable guarantees renewal but allows premium increases by class; conditionally renewable allows the insurer to decline renewal only for stated reasons; optionally renewable and cancelable give the insurer the most flexibility.
Delivery systems
Indemnity fee-for-service pays a share of covered charges. Managed care: HMOs use closed panels, a primary care gatekeeper, and often capitation; PPOs use networks with higher costs outside; POS plans combine features. Utilization review, case management, and second opinions control cost.
Rule of thumb
Deductible example: $1,000 deductible, 80/20 coinsurance, $20,000 covered charge. Insured pays $1,000 plus 20% of $19,000 = $4,800.