Health Insurance: A New Language

Ian McCarthy | Emory University

Table of contents

1. Motivation
   
2. How insurers shape coverage
   
3. How patients pay for coverage
   
4. Real-life example

Motivation

What is health insurance?

Why do people buy health insurance? What are they insuring?

What is health insurance?

Health insurance can still improve health by:

• improving affordability of care (by paying for some part of care when needed)
  
• facilitating availability of care (providers receive lower payments for “cash” patients)

Made more important due to extremely high healthcare prices

How does health insurance work?

• Enrollees pay the insurer
  • Fixed amount per month (premium)
    
  • Some amount for care provided (cost-sharing)
    
• Insurer pays provider
  • Negotiated prices
    
  • Pays share of bill depending on cost-sharing terms

How does health insurance work?

• Modern health insurance is very complicated!
  
• Need to work through some basic terminology before we go much further

How insurers shape coverage

Managed care

• Health insurance product that encompasses some attempt to manage utilization of care
  
• Insurers “manage” care through the use of networks of providers

Insurance networks

Set of providers with whom the insurer has agreed to terms of payment

• PPOs: tiered network structure → patients pay less at higher-tier providers
  
• HMOs: discrete structure → some providers in-network, others entirely out-of-network

Benefit design

Insurers also decide:

• What services are covered
  • hospital visits, prescription drugs, mental health services, etc.
    
• What patients pay
  • premium, deductible, co-payment, co-insurance

This “benefit design” sets the rules for patient payments.

How patients pay for coverage

Premiums

Fixed monthly amount paid for coverage, regardless of whether care is used

Cost-sharing

Patient payments when care is used

• Deductible
  
• Co-insurance
  
• Co-payment

Deductible

The amount the patient must pay out-of-pocket before insurance pays anything

Copayment

A fixed dollar amount for a service (after deductible is met)

• Common for low-cost, predictable care (e.g., office visits, prescriptions)
  
• Example: $20 co-pay for an office visit

Coinsurance

A percentage of costs (after deductible is met)

• Example: 20% coinsurance rate on a $5,000 hospital bill
  • Patient pays $1,000
    
  • Insurer pays $4,000
    
• Common for larger, less predictable services (hospital stays, ER visits)

Cost-sharing over time

Summary

How insurers shape coverage

• Managed care (steerage via networks)
  • PPO: tiered coverage; out-of-network covered but less generous
  • HMO: coverage limited to in-network providers
• Benefit design
  • Covered services (e.g., hospital, prescriptions, mental health)
  • Premiums and cost-sharing rules (deductible, co-payment, co-insurance)

How patients pay for coverage

• Premiums: fixed monthly payment for coverage
• When care is used
  • Deductible: amount paid before insurer pays anything
  • Co-payment: fixed $ per service
  • Co-insurance: % of allowed amount
• Network choice matters
  • In-network: negotiated allowed amounts
  • Out-of-network: provider charges (often much higher)

Real-life example

• Let’s look at some real-life health insurance options and descriptions
  
• Emory’s health insurance plans for its employees