Different Types of Health Insurance Explained

Health is the biggest and most crucial asset of every living being. An unhealthy animal and individual can never truly experience any joy. It is the wealth of health that provides the requisite potential to topple over all odds and to move ahead with life. So such an essential part of a person’s life demands extra care and concern. An ideal way to secure an individual’s prized possession for him and for those who love him is a health insurance policy.

A health insurance policy is meant to financially assist a person in case there occurs a setback to his health. For instance he is afflicted by some grave disease, meets an accident, becomes handicapped etc. In order to provide complete service and for the all round development of the individual the health care system of America offers ample of options or different types of health insurance for its citizens. Some of these are explained below:

o Preferred Provider Organization or PPO is a discount form of health insurance policy. PPO has a complete network of health care providers from hospitals to doctors. If an individual has taken PPO policy and takes treatment from any of these assigned providers, the PPO covers his complete medical treatment. While if the person takes recourse to some other doctor or institution, he gets served at a reduced rate. PPO’s thus facilitate medical services at abridged rates.

o One immensely cheap form of health insurance is the catastrophic health insurance. This sort of policy is basically meant for the people who have the financial means to manage regular illnesses and hospitalizations. The deductibles i.e. the sum of money an individual for these policies are quite large for this policy. At times there are caps on the amount the policy will pay in case of illness.

o A Short term health insurance policy is akin to a life insurance policy in the sense that both can be adopted for a specific tenure. This policy covers catastrophic to comprehensive cases and excludes the situation of pregnancy and childbirth. Quite often it is hard to qualify for these policies as there are strict conditions or qualifying procedures. Moreover these policies may not cover any pre-existing medical conditions.

o HMOs or the Health Maintenance Organizations also offer health insurane t significantly lower premiums. But the disadvantage is that they confine the sources a person may seek in non-exigency situations. HMOs do not cover the precautionary measures such as immunization, mammograms and physicals. There are quite a few issues associated with the HMOs. For instance it is believed that doctors receive financial perks for deducting the cost of medical services to patients. One way to do this is to pay monthly fee to the doctor for each patient despite of delving in to the issues of what treatment the latter one needs.

o There are also full-service health insurances. The lucrative feature of these policies is that they cover all sort of illnesses, cover any medical treatment the patient takes regardless of the institution or doctor and the deductibles are at the discretion of the policyholder. He may pay a high or a low one.

o Medicare or Medicaid insurances are meant for the retired or the low-income individuals.

Here Is Why Everyone Needs Health Insurance

Today, healthcare insurance is one of the hottest political topics. Everyone is asking who should be able to have health insurance, what will be the costs of it, can you survive without insurance and what will be the penalty? In this article, we are going to help you know the reasons why everyone needs health insurance.

Life is Unpredictable

While the spontaneity of life is pleasant, know that your health and budget may be hit hard due to unpredictable circumstances. Major health illnesses like diabetes, cancer or HIV have high medical costs. If you don’t have health insurance, the cost of these medical treatments may ruin your credit rating. As a matter of fact, medical bills is one of the reasons why many people go bankrupt.

Regardless of your circumstances, it’s important that you have insurance. You have no idea what is going to happen in your life down the road. We hope that nothing bad is going to happen in your life but it’s great to have peace of mind by signing up for an insurance policy. This will give you the peace of mind that your medical bills will be covered, and that you won’t go bankrupt.

Maintain Your Health

In your life, your most valuable asset is your health. Most of us take insurance as a type of financial support we get in the event of an accident or illness. However, it’s important to keep in mind that it’s equally important to maintain good health. If you eat well, you can stay in good shape.

If you don’t have insurance, you won’t need to go to a doctor for medical checkups. Actually, a health insurance policy enables you to benefit from the “preventive care”, which is part of most plans. What you can do is see your qualified doctor for checkups and take part in other benefits like health screenings. This can help you maintain your health. Also, the insurance policy plan you have chosen can help you find out what is included.

Reduce Your Costs

It’s important to keep in mind that insurance providers offer special rates for doctors who are part of their network. So, if you have health insurance, you can reduce your medical costs significantly.

Avoid a Penalty

Aside from saving on your health care costs, an insurance plan can help you avoid a penalty as well. Today’s health insurance laws have a requirement that you should have a health insurance plan or you may have to pay a penalty for the month for which you or your partner or your tax dependants don’t show that they have the minimum coverage. And typically, this fee is based on a person or household income whichever is higher. This penalty can be avoided if you have health insurance.

It’s important for everyone to have health insurance. After all, you have no idea what is going to happen in the future. You can enjoy the best health care provided you get the right insurance policy.

Why is Health Insurance So Expensive?

The pricing of health insurance or insurance in general is better understood if broken down into several components of an insurers business model, how the carriers look at us in terms of profit or loss. This article is mainly for educational purposes but it can be served also as a way for us as consumers to predict pricing accurately.

Factors Affecting the Premium

The premium rates for a particular benefit depend on

(1) morbidity,

(2) provider payment arrangements,

(3) expenses,

(4) persistence,

(5) interest, and

(6) profit and contingency margins.

Morbidity: In dealing with mortality rates for life insurance the only element considered is the number of expected deaths during a year compared with the total number of persons exposed in the class. In contrast, in the measurement of morbidity, the annual claim cost for a given age-sex-occupational class is the product of (a) the annual frequency of a particular event (b) the average claim when such an event occurs. For example, the annual frequency of hospitalization for a given age and sex might be 10 percent, the average duration of hospital stay might be four to five days, and therefore, the annual claim cost for a $500 daily hospital benefit would be $250 (0.1 x 5 x $500).

In health insurance, although mortality is a consideration, the primary consideration is the morbidity cost. Annual claim cost may vary, depending upon the kind and amount of benefits, according to such factors as age, sex, occupational class, and geographical area. Inasmuch as most policies contain more than one benefit, it is necessary to obtain separate annual claim cost for each type of benefit. Most morbidity tables used to calculate net annual claim cost of disability income benefits exclude the experience during the calendar year that a policy is issued. Attempts to identify the influence of underwriting on experience by policy year have not been very successful in contrast to the success of the practice for life insurance. The pattern of select experience under disability insurance is quite different fro that for mortality under individual life policies.

It is even more important to note that there is apparently substantial adverse selection by those applying for disability income policies who’s elimination periods are short and maximum durations are long. Studies show that at ages 50 to 65 there is a substantial increase in morbidity by policy duration that continues until the coverage terminates. Applicants who become insured in their twenties and thirties develop a higher level of morbidity after age 50 than those applicants who become insured after age 50. Furthermore, the experience is varies considerably, depending on the type of benefit under consideration. The experience is further complicated in the case of medical expense insurance by the continuing inflation in the cost of medical services, and in the case of disability insurance, by levels of employment and personal income. Obviously, consideration should be given to the relationship of select to ultimate experience in establishing gross premiums, so that the premiums for insurance issued at advanced ages properly reflect the savings from selection,

Provider Payment Arrangements: Premium rates for HMOs and other medical care organizations are affected by the degree to which providers participate in the cost. Having providers participate in benefit plan cost is intended both to reduce the cost of plan benefits through rate concessions and to provide incentives for the providers to control utilization, particularly in the areas of referrals to expensive specialist and in hospital admissions. Under traditional indemnity insurance products, providers are paid on a fee-for-service (FFS) basis. Managed care plans have typically negotiated fee arrangements with hospitals, physicians, pharmacies, and other providers.

Provider cost sharing can take on many forms, each of which have their own subtle impacts on underlying cost and behavioral incentives. An example of such an arrangement is capitation. A capitation payment is one in which the insurer subcontracts with a provider to perform a defined range of services in return for a set amount per month per plan enrollee. This arrangement represents the very end of the spectrum in risk sharing in that virtually all risk is passed along to the provider. The only risk remaining with the insurer is the solvency of the providers and their ability to deliver services. The fundamental purpose of these arrangements is to increase the provider’s awareness of cost and utilization. Such mechanisms must be constructed to be beneficial for both the providers and the insurer. Otherwise, the contractual arrangement will eventually dismantle the entire program.

Expenses: to obtain suitable expense rates for determination of premium rates, it is necessary to make detailed cost studies in which the various expense items may be expressed as (a) a percentage of the premium including premium taxes and agents commissions (b) an amount per policy including cost of underwriting and issuing a policy, and (c) an amount per paid claim such as the cost of investigating and verifying a claim. Because of the nonlevel commission rates, the per-premium types of expenses usually are larger in the first policy year, decrease during the next few policy years, and then are level for the remaining policy duration. The per policy types of expenses are much larger in the first policy year, reflecting the cost of underwriting and issuing the policy. The per-policy type of expense after the first policy year is relatively constant, except for the impact resulting from inflation.

Persistency: The persistency rate for a group of policies is defined as the ratio of the number of policies that continue coverage on a premium-due date to the number of policies that were in force as of the preceding due-date. Thus, if out of 100 policies, 75 policies are in force on the fist policy anniversary, the first-year annual persistency rate is 75 percent. The persistency rate usually improves with policy duration, and for some types of coverage the annual persistency rate will be 95 percent or higher after the fifth policy year. Naturally, other factors affect persistency rates. In general, persistency rates usually are higher at the older issue ages and better for the less hazardous occupations. Persistency usually is better in connection with major medical expense and disability income coverage than on basic hospital expense coverage. Persistency is important in health insurance rating for two reasons. First, expenses are higher during the first year than in subsequent years because of the typically higher first year commission rate. Also, claim rates under health insurance tend to increase as the age of the insured increases. In view of these factors, which vary by age at issue and policy duration, the premium-rate level will depend on the rate of lapse.

Interest: When a level premium is used, the insurer will have, after the first few policy years, an accumulation of funds arising from the excess of premium income over the amounts paid for claims and expenses. As in level premium life insurance, the funds accumulated during the early policy years will be needed in the later policy years, when the premium income is not sufficient to pay claims and expenses. In computing premium rates, therefore it is necessary to assume a suitable interest rate to reflect the investment earnings on these accumulations. Interest rates are of less significance in the calculation of medical expense premiums than in calculating life insurance premiums. The ratio of claims to premiums under health insurance during the early policy years is substantially greater than under level premium life insurance. Accordingly, more of the premium is used for claim payments soon after it is received by the insurance company, and it is, therefore not available for investment, as is the case of level premium life insurance. It is important to consider interest in measuring the average claim cost under long term disability income and long term care coverage. The value of the disability annuity can be significantly reduced because of the interest discount.

Profit and Contingency Margins: As with life insurance premium rates, it is necessary to introduce a margin for contingencies and profit into the premium-rate calculation. One method of doing so is to calculate a premium on the basis of most probable assumptions and then increase the premium by a percentage to provide some margin for contingencies and profit. Another method is to introduce conservative morbidity, expense, persistency, and interest assumptions and determine a premium on that basis. Still another would be to develop a gross premium that is consistent with a specific minimum required internal rate of return.

If you would like more details of the process involved in pricing premiums or would like to receive a no hassle quote, please feel free to visit our website at http://www.health-insurance-buyer.com for more information.