Health Insurance Basics
Risk and rating
Health insurance prices morbidity (expected claims), not mortality. Adverse selection - sick people buying coverage - drives underwriting, exclusions, and renewal rules. Know the renewability spectrum: cancellable (insurer may cancel any time), optionally renewable, conditionally renewable, guaranteed renewable (insurer cannot cancel but may raise premiums by class), and noncancellable (cannot cancel and cannot raise premiums; the strongest guarantee for the insured).
Delivery models
Indemnity plans reimburse usual, customary, and reasonable charges. HMOs use a network, a primary care gatekeeper, capitation, and minimal copays; PPOs offer in-network discounts without a gatekeeper; POS plans blend the two; EPOs cover only the network. Managed care tools include preauthorization, utilization review, and case management.
Cost sharing
Deductible, copayment, coinsurance, and out-of-pocket maximum. Coordination of benefits prevents double payment; the birthday rule determines primary coverage for dependent children of two insured parents.
Funding
Individual policies are personally paid. Group coverage may be fully insured or self-funded (ERISA). Employer-paid premiums are deductible to the employer and excluded from the employee's income; HSA contributions are triple tax-advantaged (deductible, tax-deferred growth, tax-free qualified withdrawals).
Traps
Noncancellable and guaranteed renewable are the same (false - only noncancellable locks the premium), and copay, coinsurance, and out-of-pocket maximum are frequently switched in answer choices.
Rule of thumb
Stronger guarantee to the insured = higher premium: noncancellable > guaranteed renewable > conditionally renewable > cancellable.
Worked example
A client wants coverage that cannot be cancelled and whose premium cannot be increased - the answer is noncancellable, not guaranteed renewable.