Health Insurance Fundamentals, Policy Design, and Regulation
Core risk concepts
Every health policy is a risk-transfer device built on pooling: many insureds contribute premium so the few who incur large claims are made whole. Understand law of large numbers, adverse selection (sicker-than-average buyers concentrating in a plan), moral hazard (benefit design changing utilization), and morbidity vs. mortality as the actuarial base for health versus life products. Rating approaches run from individual underwriting through experience rating to community rating.
Cost-sharing design
Know the four levers: deductible (member pays first), coinsurance (percentage split after deductible), copay (flat dollar amount), and out-of-pocket maximum (member's annual ceiling on in-network cost-sharing; premiums never count, and balance billing from non-contracted providers generally does not). Also know benefit maximums, waiting periods, and preexisting-condition rules, which the ACA largely replaced with guaranteed issue and guaranteed renewability in the individual and small-group markets.
Regulation
States regulate insurance under the McCarran-Ferguson Act through licensing, rate/form filing, mandated benefits, and market conduct exams; NAIC model laws supply the drafting template. ERISA preempts state law for self-funded employer plans, which is why self-funding is attractive to large employers. Federal overlays include HIPAA portability and privacy, ACA market reforms and the medical loss ratio, and COBRA.
Traps
Questions confuse coinsurance with copay, treat the out-of-pocket maximum as including premiums, or assume a policy's incontestability clause (typically two years) bars all later rescissions for fraud.
Rule of thumb
Member cost = deductible paid + coinsurance share of the remainder, capped at the out-of-pocket maximum. On a $6,000 bill with a $1,000 deductible, 20% coinsurance, and a $4,000 OOP max: $1,000 + 20% x $5,000 = $2,000 out of pocket.