Like we discussed earlier, insurance is an effective way to guard against financial loss. It is a method of risk management that is primarily employed to protect against the risk of a potential loss.
An organization that offers insurance is referred to as an underwriter, insurer, insurance business, or insurance carrier. A person or company that purchases insurance is referred to as a policyholder, while someone or anything that is protected by the policy is referred to as an insured.
Although the terms policyholder and insured are frequently used interchangeably, they are not always synonymous because additional insureds who did not purchase the insurance may occasionally be covered.
In exchange for the insurer’s pledge to reimburse the insured in the case of a covered loss, the policyholder accepts a predictable, limited, and guaranteed loss in the form of a premium payment to the insurer.
The loss may or may not be quantifiable in dollars, but it must be. Additionally, it typically pertains to something that the insured has an insurable interest in due to ownership, possession, or a previous connection.
The insurance policy that the insured gets outlines the terms and circumstances under which the insurer will make payments to them, their chosen beneficiary, or assignee.
Some Terms in Insurance
The premium is the sum of money the insurer charges the policyholder in exchange for the protection outlined in the insurance policy. The insured makes a claim to the insurer for processing by a claims adjuster if they sustain a loss that may be covered by the insurance policy.
A deductible is an obligatory upfront cost imposed by an insurance policy prior to the insurer paying a claim (or if required by a health insurance policy, a copayment).
Reinsurance allows the insurer to spread out its risk by having another insurance firm take on some of the liabilities. This is especially useful when the original insurer perceives the risk to be too high for it to bear.
There are various types of insurance
- Vehicle insurance
- Gap insurance
- Income protection insurance
- Casualty insurance
- Health insurance, e.t.c
However, what we will be discussing in this article is health insurance.
What is Health Insurance?
The Health Insurance Association of America defines health insurance as “insurance coverage that enables the payment of benefits due to illness or injury. It covers losses from accidents, medical expenses, disabilities, or unintentional death and limb loss.”
The expense of medical care is covered by health insurance policies. Most industrialized nations provide some form of government-funded health insurance to all of their inhabitants.
In most nations, health insurance is frequently included in the perks offered by an employer.
A central organization, such as a government agency, for-profit corporation, or private company, is in charge of administering the benefit.
Important information about health insurance policies
(1) A health insurance policy is a contract between a provider of insurance (such as an insurance company or the government) and a person or that person’s sponsor (that is, an employer or a community organization).
In the case of private insurance, the contract may be renewable on an annual, monthly, or lifetime basis. In the case of national plans, it may also be required of all citizens.
A member contract or “Evidence of Coverage” booklet for private insurance or a national [health policy] for public insurance will detail the categories and dollar amounts of medical expenses that the health insurance provider will cover.
(2) Taxpayer-funded and privately-funded health insurance are the two types of health insurance policies in the United States. An employer-sponsored self-funded ERISA plan is an illustration of a private insurance plan.
The business frequently touts the fact that it works with a major insurance provider.
However, in an ERISA case, the insurance company only administers it and “does not engage in the act of insuring.” As a result, state laws do not apply to ERISA plans.
Federal legislation, which comes under the purview of the US Department of Labor, governs ERISA plans (USDOL). The Summary Plan Description (SPD) contains the precise benefits or coverage information.
A request for review must go through the insurance provider before reaching the Employer’s Plan Fiduciary. In the event that it is still necessary, the Fiduciary’s decision may be submitted to the USDOL for review of ERISA compliance before being challenged in federal court.
Now, let’s take a deep look at health insurance policies in the United States.
Health Insurance Policy in the United States
Private health insurance serves as the majority of Americans’ main source of coverage. It is heavily utilized by the American healthcare system.
According to the Centers for Disease Control and Prevention, 68.9% of American adults had private health insurance as of 2018.
Private insurance was charged for 12.2 million inpatient hospital stays in the United States in 2011, resulting in approximately $112.5 billion in total inpatient hospital expenditures (29 percent of the total national aggregate costs), according to the Agency for Healthcare Research and Quality (AHRQ).
Most older individuals and low-income children and families that meet certain qualifying requirements receive their primary coverage through public programs.
Medicare, a federal social insurance program for the elderly and some disabled people, and Medicaid, a program for some very low-income children and their families that is jointly funded by the federal government and states but is managed at the state level, are the two main public programs.
In 2011, Medicare and Medicaid paid for almost 63 percent of all inpatient hospital charges nationwide.
A federal-state cooperation known as SCHIP provides assistance to some families and children who are unable to pay for private insurance but do not meet the requirements for Medicaid.
Health Insurance Benefits
The following are some of the benefits of having a health insurance policy:
- Health insurance provides protection or coverage against medical costs.
- It also provides coverage against acute conditions.
- There is a cashless claim benefit in the sense that many insurance companies offer a cashless facility. The benefit of this is that, in such an arrangement, you need not pay any out-of-pocket payments.
- Health insurance policies offer tax benefits. That is, payments made towards your health care policy are eligible for tax deductions.