Health Insurance Basics
Morbidity, not mortality
Health underwriting uses morbidity (rates of sickness and injury) rather than mortality. Insurers manage adverse selection through eligibility rules, waiting periods, and underwriting. Health coverage pays either indemnity (a stated amount or percentage of expense) or service benefits (providers are paid, the insured receives care).
Cost-sharing vocabulary
A deductible is the amount paid before benefits begin. Coinsurance is the percentage split after the deductible (for example, 80/20). A copayment is a flat fee per service. The out-of-pocket maximum caps covered in-network cost sharing for the year. Inside limits cap specific services. A waiting period delays eligibility.
Renewal provisions
Noncancellable means the insurer cannot cancel or raise premiums (as long as premiums are paid). Guaranteed renewable means the insurer cannot cancel but may raise rates for an entire class. Conditionally renewable allows the insurer to decline renewal only under stated conditions. Optionally renewable allows nonrenewal at each anniversary.
Types and networks
Indemnity/fee-for-service plans allow any provider. HMOs require in-network care coordinated by a primary care physician. PPOs pay more for in-network care but allow out-of-network use. POS plans blend HMO and PPO features. Coordination of benefits prevents duplicate payment when two plans cover the same loss, using the primary/secondary rules.
Worked example: a plan with a $1,000 deductible and 80/20 coinsurance on a $6,000 claim pays $4,000 and the insured pays $2,000 (deductible plus 20% of the remaining $5,000). Trap: confusing noncancellable (no rate increase) with guaranteed renewable (rate increases allowed by class).