Health Insurance Basics
Risk and underwriting
Health insurance addresses morbidity (the incidence and duration of illness or injury), just as life insurance addresses mortality. Individual coverage is medically underwritten; group coverage is underwritten as a group, without individual evidence of insurability, and typically requires minimum participation and employer contribution.
Plan structures
- HMO - closed network, primary care gatekeeper, referrals required, preventive emphasis, capitation payments to providers.
- PPO - network with no gatekeeper; out-of-network care allowed at higher cost.
- POS - hybrid: gatekeeper in network, out-of-network option with a referral.
- EPO - network only, no out-of-network benefits.
Cost sharing
A deductible is paid first by the insured; coinsurance is a percentage split (e.g., 80/20) after the deductible; a copay is a flat fee; the out-of-pocket maximum caps the insured's exposure. Coordination of benefits prevents double payment - the primary plan pays first, and the birthday rule usually governs dependent children.
Disability income
Key terms: own occupation vs any occupation (own-occ is broader, costlier, and usually time-limited), elimination period (the waiting period before benefits), benefit period, and benefit amount (commonly 60–70% of income, limited by a maximum). Residual disability pays a proportionate benefit after partial recovery.
Others
Accidental death and dismemberment (principal sum for death, capital sum for dismemberment), long-term care (ADL triggers, elimination period, reimbursement vs indemnity), critical illness, dental, and vision.
Traps
Coinsurance is the share the insured pays. Own-occupation coverage is the richer benefit, not the cheaper one.
Worked example
$2,000 deductible, 80/20 coinsurance, $5,000 claim: insured pays the $2,000 deductible plus 20% of $3,000 ($600) = $2,600; the insurer pays $2,400.