1. Health Insurance
Personal Finance

2. Concepts
Originally designed to insure only against major catastrophic losses
Has evolved to the expectation of paying for every health-related issue
Actuaries use the past history of large populations to forecast the percentage of people who will become ill or injured and what the cost will be
Premiums are based on those numbers
This data only works if the group being insured behaves like the large population

3. Potential Problems
Adverse Selection – only people who are more likely to need insurance will obtain it
Moral Hazard – once insured, people will be less careful
With either of these problems, your group will not behave like the large population and the premiums being charged won’t be adequate to meet the claims

4. Additional Problem
If you wreck your car without car insurance the body shop is not expected to fix the car without getting paid.
If your house burns down, without homeowner’s insurance, the builders are not expected to rebuild your home without getting paid
But – if you go to the hospital without health insurance, the hospital is expected to admit you and the doctors are expected to treat you even if they know they will never get paid. Obviously, this creates pricing problems

5. Group Insurance
Group insurance typically overcomes the adverse selection problem.
If your group is big enough, it should behave like the general population
Insurance works when the number of claims and the amount of the claims are predictable in advance

6. Types of Medical Coverage
Hospital Expense Insurance
Surgical Expense Insurance
Physician Expense Insurance

7. Major Medical Expense Insurance
Picks up where any of the above leave off
Deductible
Per family member
Per year
Per family
Coinsurance
Policyholder typically pays 20% after the deductible has been met
Out of Pocket Maximum
Insurance company pays 100% once you have paid this amount during the year
Typically something like $2,000/person and $6,000/family

8. Other Types of Health Insurance
Hospital Indemnity Policy
Pays you directly
Supplement to basic or major medical coverage
Can supplement lost income and other associated costs
Dental Insurance
Vision Insurance
Cancer (and other specific disease) Insurance
Accident Insurance
Long-term Care Insurance
Nursing home or private duty home care

9. Other Terms
Copay – how much you must pay each time you see the doctor, have a prescription filled, or go to an emergency room
An attempt to avoid the moral hazard problem
Coordination of Benefits – keeps you from collecting from two policies for the same accident or illness
Exclusions and Limitations – the policy does not cover you for these things. Sometimes pre-existing conditions are not covered
Reasonable and Customary Charges – average charges for hospital stay and certain procedures in your geographic area

10. Blue Cross and Blue Shield
Private health insurance plans
Separate for each state
Blue Cross is hospital care benefits
Blue Shield is surgical and medical expenses

11. Managed Care
HMO – Health Maintenance Organization – the HMO directly employs or contracts with the doctors to provide health care services in exchange for a fixed, prepaid monthly premium. So the doctors are on a salary and are not paid per procedure or visit.
Emphasis is on preventative medicine and wellness checks so that there will be fewer illnesses
You can’t see anyone other that one of your HMO doctors unless it is an emergency

12. Managed Care
PPO – Preferred Provider Organization – a group of doctors and hospitals that agree to provide health care at rates approved by the insurer
Premiums for PPOs are usually a bit higher than for HMOs
You can see a non-PPO doctor, but at a higher deductible and coinsurance because those doctors have not agreed to the PPO’s rates
Medicare – a federal health insurance program for people 65 and older
Medicaid – a federal health insurance program for certain low-income individuals and families
Administered by each state but within federal guidelines