Frequently Asked Questions About
Major Medical Insurance

Overview of health insurance

• What is the major difference between group and individual insurance?

  The major difference between group and individual health insurance involves evidence of insurability. To purchase individual insurance, a person must generally answer a health questionnaire and undergo a medical examination to provide evidence of insurability to the insurance company. An insurer may decline coverage on the basis of the applicant's personal habits, health, medical history, age, income or any other factors that bear on risk acceptance. Or the insurer may issue a policy with limitations on coverage. Most group insurance, however, is issued without medical examination or other evidence of individual insurability because the insurer knows that it can cover enough individuals to balance those in poor health against those in good health. The risk of an insurer failing to achieve this balance is diminished as the size of the group increases, or as the insurer underwrites additional group policies and increases the total number of individuals covered. This is known as the "law of large numbers."

• What are the various ways that individuals receive health insurance protection?

  Besides participating in group insurance plans, individuals may also be covered under federal and state government-sponsored programs such as Medicare and Medicaid, service-type plans such as Blue Cross/Blue Shield or so-called alternative health care systems such as health maintenance organizations (HMOs) and preferred provider organizations (PPOs). Insurance may also be purchased privately on an individual basis, or through mass purchasing groups such as credit unions and professional or trade associations.

• What are the advantages of group insurance over individual insurance?

  For an employer that intends to provide insurance protection to its employees, the group approach ensures that all employees, regardless of health, can be covered. Those with known health problems, who might otherwise be unable to obtain individual insurance, can be covered automatically upon employment without evidence of insurability. Although some limits may be imposed on new hires for certain conditions that predate their enrollment in the plan, most employees can receive coverage as soon as they are eligible. Group insurance offers a lower cost per unit of protection than individual health insurance, because the economies of scale resulting from selling, installing and servicing one plan covering many individuals. In addition, group plans are typically more flexible and tend to provide more liberal benefits than individual coverage

• What types of group protection do most employers provide?

  Although there are many variations of each, the four major types of insurance coverage provided by employers to their employees are life, accidental death and dismemberment (A D & D), disability and health or medical. Some employers also provide additional coverages, including group legal, travel accident and vision and dental care.

• How can a labor union provide group insurance?

  A labor union can provide group insurance for its members under a policy issued to the union. The union is the policyholder, just as the trust is the policyholder under a MET. A union may purchase a group policy for a large number of members who are employed by the same company, or for union members working for different companies. Group insurance purchased through a union is particularly advantageous in industries such as construction, where union members may work for many employers during a year. Despite the opportunity for labor unions to purchase group insurance, few group contracts are issued to unions today. Organized labor more often obtains insurance benefits for its members through collective bargaining with employers. As a result, union members are usually covered under group insurance plans sponsored by one or more employers.

The health insurance marketplace

• What is an HMO?

  A health maintenance organization (HMO) is an organization that provides comprehensive health care to a voluntarily enrolled population at a predetermined price. Members pay fixed, periodic fees directly to the HMO and in return receive health care services as often as needed.

• What is a PPO?

  A preferred provider organization (PPO) is an association that contracts with a group of doctors, dentists, hospitals or other health care service providers to provide care at prearranged rates or discounts.

• Can an employer work directly with an insurance company?

  It is possible for an employer to deal directly with an insurer through a group sales representative to purchase group insurance. Premium rates and underwriting practices vary considerably from one insurer to another, however. In addition, the coverages provided are rarely identical. This means that comparison shopping is often beyond the capability of all but the most sophisticated purchases, for example, the very large company that has sufficient internal employee benefits expertise to do so. For this reason, many group insurance purchasers do not deal directly with insurance company underwriters or group insurance representatives, preferring instead to deal with an intermediary. Smaller employers need a qualified professional to act as intermediary because they lack the resources and expertise to handle their group insurance needs. An intermediary can help them define their needs and objectives, design a plan to meet those criteria, select the proper purchasing and funding vehicle, obtain competitive quotes from insurers and service the plan.

• What is a risk?

  The risk an insurance company assumes when it agrees to cover a particular group is the possibility that claims will exceed the expected level. It is the chance of financial loss inherent in the group. Insurance companies use it to determine whether they will underwrite an insurance policy on a particular group. The spread of risk is necessary not only because of the expected variations in a population's health but also because some policyholders -- particulary very small groups -- purchase group insurance to cover certain individuals with known health problems. This is a more costly way to obtain coverage for those high-risk individuals, but often the only way possible, given the evidence-of-insurability requirement for individual policies.

Factors influencing plan design

• Who is an eligible employee?

  An eligible employee is any employee who meets the definition in the plan for participation. Definitions of eligible employee vary widely from employer to employer, though they may be influenced by legal considerations and company structure.

• Will an insurance carrier deny certain employees coverage under a group health insurance plan?

  Generally, insurers will not deny coverage to any full-time employee. Inherent in the principle of group insurance is the understanding that all employees can be covered. Most carriers, however, require an employee to be actively at work on the day the employer-provider coverage becomes effective, and to have enrolled in a contributory plan within the time required.

Legal factors affecting design

• Are employers required by federal law to purchase group insurance for their employees?

  Presently, no federal law requires employers to provide their employee with group insurance. There have been initiatives in Congress, however, that would require employers to provide specified minimum levels of health benefits, and there is every likelihood that some form of national standard will be legislated in the next few years.

• What is a mandate benefit?

  A mandate benefit is a specific coverage that an insurer is required to include in its contract under state law. For example, most states require that coverage for substance-abuse treatment be provided. Other kinds of coverage that are mandated in some states include coverage for newborn children, mental and nervous disorders and hospice care.

• What are the minimum and maximum number of employees allowed by state law to participate in a group health insurance plan?

  Most states require that an employer enroll a minimum number of employees (generally ten, though fewer in some states) for coverage in order to purchase and maintain a group health insurance plan. This minimum size requirement reduces the potential for adverse selection. There is no legal limit to the number of employees that may be covered under a group health insurance plan.

Types of Health Insurance Plans and Related Benefits

• What is a base plus plan?

  A base plus plan is a two-part health insurance plan. Basic medical coverage -- for such expenses as hospitalization, surgery, physician's visits, diagnostic laboratory tests and x-rays -- is provided under the first part. There may be limits on these expenses, such as a limited number of hospital days and a surgical schedule, but no deductible or coinsurance applies to the covered expenses. The employee is reimbursed starting with the first dollar of expenses. The second, or major medical, part of the plan covers other health expenses. The coverage is broad, with fewer limits; however, a deductible is required before the employee is reimbursed for expenses.

• What are the advantages to a base plus plan?

  From the employee's point of view, base plus plans appear to provide more generous benefits because of the lack of deductibles and coinsurance in the basic medical part.

• What is a comprehensive plan and it's advantages?

  A comprehensive plan provides coverage for most medical services using one reimbursement formula. In a pure comprehensive plan, a deductible must be met before reimbursement for any covered expenses begins, and coinsurance applies to all covered expenses until the maximum employee out-of-pocket expense limit is reached. Additional covered expenses are paid in full. Because employees share from the beginning in the cost of their medical expenses when they are incurred, a comprehensive plan encourages them to use more cost-effective health care. The patient is more likely to be cost-conscious and to seek out more cost-effective health care services and providers.

• What kinds of hospital outpatient expenses are covered?

  Three kinds of care are covered: emergency treatment, surgery and services rendered in the outpatient lab or x-ray department.

• What types of services are generally covered by a group health insurance plan?

  Base plus and comprehensive plans vary by insurer, but generally cover the same kinds of services. These include:
  Professional services of doctors of medicine and osteopathy and other recognized medical practitioners
  Hospital charges for semiprivate room and board and other necessary services and supplies
  Surgical charges
  Services of registered nurses and, in some cases, licensed practical nurses
  Home health care
  Physiotherapy
  Anesthetics and their administration
  X-rays and other diagnostic laboratory procedures
  X-ray or radium treatment
  Oxygen and other gases and their administration
  Blood transfusions, including the cost of bloom when charged
  Drugs and medicines requiring a prescription
  Specified ambulance services
  Rental of durable mechanical equipment required for therapeutic use
  Artificial limbs and other prosthetic appliances, except replacement of such appliances
  Casts, splints, trusses, braces and crutches
  Rental of a wheelchair or hospital-type bed
  

Deductibles, Copayments and Reimbursements

• What is a deductible?

  It is a specific dollar amount that an individual must pay (or "satisfy") before reimbursement for expenses begins. The higher the deductible, the lower the cost of the health insurance plan.

• For insured employees with dependent coverage, does the deductible for each person have to be satisfied before reimbursement begins?

  Each person covered under a group health insurance plan must meet a deductible before expenses will be covered. However, plans usually include some type of family deductible in order to limit a family's exposure for health care expenses. The family deductible is usually some multiple of the individual deductible, generally two or three. For the family deductible to be satisfied, the combined expenses of covered family members are accumulated. Some plans require, however, that at least one family member satisfy the full individual deductible before the family deductible can be met.

• What is coinsurance?

  Coinsurance is a feature found in most group health insurance plans. It sets forth the percentage of covered expenses that the employees and the health insurance plan will pay. The most common coinsurance level is one in which the employee pays 20 percent of the expenses and the insurer pays 80 percent. This is called 80 percent coinsurance.

• What is a covered expense and are there limits?

  A covered expense is an eligible expense under a group health insurance plan. A covered expense is an expense incurred by a covered individual that will be reimbursed in whole or in part under the group health insurance plan. For example, under most health insurance plans, doctors' visits are a covered expense. That is, a doctor's fee up to the amount provided by the plan will be reimbursed by the insurer Just because an expense is covered does not mean that the coverage is unlimited. Both base plus and comprehensive plans have limits on the expenses for which they will reimburse. In addition, some form of deductible and coinsurance is often applicable. Insurers limit covered expenses in a variety of ways. One way is to cap allowable payments for a certain procedure or service. A common example of this type of limit would be a surgical schedule. Insurers also restrict covered expenses by limiting the number of visits or days for home health care or skilled nursing care, or by establishing a reasonable and customary charge. return to top of page

Dental, vision and prescription drug plans

• Do health insurance plans cover dental care?

  Proper dental care has been considered a budgetable expense, so traditionally, it has not been included in group health insurance plans. In the 1970s, as its cost increased, dental care was added to employee benefits plans. Some plans include dental coverage as part of the medical plan; others include dental coverage as a separate plan. However, many health insurance plans do provide coverage for noncosmetic dental work necessary as the result of an accident. Some plans include limited coverage for hospital room and board expenses related to dental procedures, such as removal of impacted wisdom teeth, performed in a hospital.

• What is direct reimbursement for dental care?

  Direct reimbursement is a noninsured dental program in which an employer agrees to pay for a specified percentage or amount of receipted dental expenses. It has been used by smaller employers as a way of avoiding both the costs associated with an insured plan and the administrative complexity that often accompanies insurance company programs. And, since dental expenses are more predictable than medical expenses -- seldom involving emergencies or catastrophic expenses -- the risk to employers is considerably smaller.

• Are all types of dental services covered by insurance?

  Usually not. Dental services are often divided into different coverage levels. Level I services include semiannual examinations, semiannual cleaning, x-rays and diagnosis. Most plans cover at least preventive and diagnostic care. Level II (basic services) includes simple restoration (fillings), crowns and jackets, repair of crowns, extractions and endodontics (root canals and internal pulp treatment). Level III (major services) includes dentures, bridges and replacement of bridges and dentures. In order to emphasize prevention, many plans cover the Level I services at higher reimbursement levels than Level II or III services.

• How is vision care covered?

  Most health insurance plans provide coverage for medical care related to eye injury or disease, but do not cover the costs of periodic eye examinations or corrective lenses. Like dental care, vision care is a relatively new employee benefit, offered by employers that can afford to expand their employee benefits plans to include additional fringe benefits previously considered budgetable. Vision care is most often covered on a scheduled basis that pays a fixed dollar amount for examinations, lenses and frames. Vision care is almost universally noncontributory due to the potential for biased selection.

• Are all prescription drugs covered under health care plans?

  Generally, only prescription drugs that are for treatment of an illness or injury are covered, subject to applicable deductibles and coinsurance. Many plans do not cover contraceptive prescription drugs, for example, or nicotine chewing gum prescribed for smokers who are trying to quit.

• Are there different types of drug plans?

  There are a number of variations, but the principal types of prescription medication plans are open panel, closed panel, mail order and prescription drug card plans.