Health Insurance Basics
Morbidity and underwriting
Health insurance prices morbidity (frequency and severity of illness) rather than mortality. Adverse selection is controlled by underwriting, waiting periods, and preexisting-condition rules. The renewability clause is central: noncancellable (insurer cannot cancel or raise rates), guaranteed renewable (cannot cancel, but rates may rise by class), conditionally renewable, and optionally renewable.
Cost-sharing vocabulary
Deductible (insured pays first), coinsurance (a percentage split after the deductible, e.g., 80/20), copayment (flat dollar amount), out-of-pocket maximum (cap on covered cost-sharing), and calendar-year versus policy-year accumulation. Trap: a copay plan may still have a separate deductible for hospital services.
Delivery systems
Indemnity (fee-for-service) pays a percentage of usual, customary, and reasonable charges with no network. HMO uses a gatekeeper PCP, a defined network, and typically no out-of-network coverage except emergencies. PPO allows out-of-network care at higher cost sharing. POS blends HMO and PPO features. HDHPs pair with HSAs.
Coverage frameworks
HIPAA set portability and privacy rules; the ACA created marketplaces, essential health benefits, guaranteed issue, and no lifetime limits; Medicare (Part A hospital, Part B medical, Part C Medicare Advantage, Part D drugs) and Medicaid/CHIP cover eligible populations. COBRA and conversion privileges preserve coverage after group termination.
Rule of thumb: a 20% coinsurance on a $10,000 bill after a $1,000 deductible leaves the insured paying $1,000 + $1,800 = $2,800, subject to the out-of-pocket maximum.