Saturday, July 13, 2013

Understanding Health Insurance

What is Health Insurance?
Health insurance is typically one form of personal insurance providing compensation for a wide range of illnesses by way of an extensive credit facility or on a pay and claim back basis. The arrangement usually covers the principal insured referred to as the subscriber together with his or her dependents, which can only be a spouse and children. The vast majority of health insurance coverage is issued under employee group policies and is often extended to association groups. Additionally, individuals can make their own purchase usually at a higher rate of premium when compared with that of a group and with more stringent underwriting considerations.

Health Insurance

How it works
The nature of this insurance requires the cooperation of some key participants to ensure that quality care is given to the subscriber and his or her dependents in the most convenient way and at a competitive price. Chief among these is a network of doctors, pharmacies, laboratories, diagnostic centers, and hospitals. These providers as they are usually referred to, offer a wide range of medical services and they can choose to participate in an agreement with insurance companies.

Employers are also important participants as they often provide the financial assistance in whole or in part for the payment of premiums under contracts of indemnity. This type of contract allows for the transfer of the risk from the employer to the insurer who accepts the loss or gain in any one contractual year. Employees under such policies have to meet certain eligibility requirements before coverage is granted. The employer usually shares in the premium. Where the employer pays the entire premium, the plan is said to be non-contributory and all employees are required to participate in the coverage provided they meet certain eligibility requirements such as being actively at work on a full-time basis when the plan is being installed. In cases where the employees share in the premium, the participation requirement is usually 75% and all this is to ensure a spread of the risk. Employers may choose to assume the entire risk of the plan by opting to be engaged in an ‘Administrative Services Only’ plan in which the cost of all claims is paid together with a fee to the insurer to provide administrative services.

The Provisions
Provision of health insurance requires an elaborate and efficient computerized system to ensure smooth administrative functioning that will provide the various on-line linkages between providers and insurer. Ideally, a subscriber should be able to access health insurance credit given by a provider on an online real-time basis or to pay and receive reimbursement in the shortest possible time without undue financial burden. An efficient system will also ensure the delivery of service at the most competitive cost. Some benefits under health insurance are claimed for by an instant online adjudication system while others will require the provider to complete a claim form for the process of adjudication to take place at a later date. Whichever one is employed, there is the need to have a system to ensure that whatever is promised by the insurer, is delivered to the client.

Benefits of Health Insurance
The benefits of health insurance are wide and varied and can be offered under a basic plan of insurance. A basic plan, however, will very often not be able to provide for extreme medical cost and conditions and so there is the provision of a major medical facility attached to basic plans and this can be accessed by first satisfying a stipulated deductible. There is also a third level of coverage, so to speak, which can be offered in a package of comprehensive major medical providing for the extensive medical care and unlimited benefits. Benefits in health insurance are not usually given at 100% of the cost. The subscriber is required to share in the cost by way of a co-insurance factor, which is an out of pocket expense. Some benefits offered under health insurance are as follows:

  • The need for health insurance is beyond question. Good health requires that we not only treat a physical condition that can arise but also preventative care in order to avoid major illness in later years. A family coverage can include coverage on a newborn baby of two weeks and will continue up to age eighteen in the first instance and to age twenty-two provided the child is attending school. Any number of children can be covered under the plan together with the spouse of the subscriber. Persons who opt for self-insurance will find that this is not a suitable approach to deal with unexpected illnesses that require huge financial expenditure. Instead, a small outlay of premium will ensure that medical treatment is available when it becomes necessary.

  • The cost of providing health insurance increases each year due in part to medical inflation and the extent to which the benefits are utilized. Increased administrative cost is also another factor and they all combine to determine the additional premium that employers very often have to pay for employees. There is, however, the chance that premiums, will not have to be increased and this happens when there is a favorable loss ratio that is sufficient to balance other increases. This, therefore, brings into focus the need for subscribers and dependents to properly manage their access to medical expense credit and to ensure that only those persons covered under the plan gain access to services. The largest share of health insurance premiums goes to pay claim hence there is always a need for utilization management to reduce overall cost.

Conclusion
There is still a need for more Jamaicans to be part of a formal health scheme as only approximately 20% of the population is insured. More individuals and self-employed persons should seek ways to obtain health insurance as very often they fall outside of the formal employer-employee relationship in which most persons are insured.

Author: Carlton Raymond CLU, FLMI, ACS
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