Health insurance helps protect your finances in the following ways:
Insurance companies negotiate rates with health care providers. Without that feature, even the cost of a regular checkup or office visit can be twice as high.
Bankruptcy, due to hospitalization over an unforeseen injury, happens more often than you’d think.
If you don’t have your health, it isn’t possible to work.
With a group health insurance plan, you gain access to a broader network of health care providers than you would have, otherwise.
With regular checkups and preventive care that won’t cost you too much and are likely included in your policy.
Unexpected personal medical expenses can impact your personal liability for medical costs. Health insurance can help you keep your business protected.
Employer-sponsored group health insurance coverage is a valuable inducement to top talent, as well as an important consideration in complete compensation packages.
The top five largest insurance companies represented around 46 percent of the total U.S. market share in the health insurance industry.
Healthcare reform has motivated many health insurance companies to consolidate to reduce costs and maintain profitability.
During the current period, many large industry companies have pursued mergers and acquisitions. For example, in 2018, CVS Health Corporation acquired Aetna, making it one of the largest companies in the industry. At the same time, Cigna Corporation (Cigna) completed a merger with Express Scripts, giving Cigna a foothold in the Pharmacy Benefit Management industry. Nonetheless, entrance to the industry by start-ups has driven up the number of industry enterprises at an annualized rate of 1.2% to 948 companies over the past five years. Despite consolidation, the industry is still expanding.
An extensive network that covers hospitals, physicians and dentists is important for maintaining customer satisfaction and managing medical benefit costs.
A good reputation and image within the market is important to increase health membership levels.
Customer contracts are generally established in advance of the policy period. When determining the premium rates to be charged, the plan provider must effectively underwrite risks related to future medical costs.
Health and medical insurers must comply with significant legislation on federal and state levels.
Keeping health costs in check is important for maintaining acceptable medical loss ratios and profit.
Many of the larger industry participants generate income from administrative fees related to managed-care services. Some companies also generate fee revenue for medical data management and IT solutions.
The Health and Medical Insurance industry is highly competitive.
Carriers compete with start-ups, highly sophisticated Fortune 50 companies, for-profit and nonprofit organizations, and private and government-sponsored entities. However, competition varies on a state-by-state basis because some states have more health insurance providers than others due to the industry's highly regulated nature. Overall, competition is largely associated with policy pricing, which is often influenced by age, deductible levels, copayment costs and plan structure. Profit is generally low, so industry participants must be able to negotiate favorable rates with plan providers.
In most instances, the controlling factor in obtaining and retaining employer groups is the cost of providing benefits (including premium and member out-of-pocket costs). The level and quality of service is also extremely important, as health needs vary among demographic groups. Quality is a key determinant in choosing a provider for those that require an increased level of care and are more susceptible to sickness due to their age. Similarly, reputation and image are important in generating premiums because perceptions concerning a provider's level of care often influence demand. Other significant nonprice factors that distinguish competing health plans are comprehensiveness of coverage, product design and the financial stability of the provider. Operators must also develop highly sophisticated internal risk management procedures to plan and manage costs and pricing; failure to do so can leave operators vulnerable to negative profitability and a loss of market share due to clients' perceptions of insolvency.
Various plans only offer services at selected hospitals in certain geographic areas. Plan providers will usually target a particular state or region, which may limit the scope of their coverage. Larger providers are able to offer more extensive network coverage through contractual arrangements with hospitals, physicians and other health providers, making them comparatively more competitive in the industry. Moreover, large insurers are more easily able to access government-sponsored programs, namely Medicare and Medicaid, which provide a very substantial portion of industry revenue.
Demand for health insurance is largely influenced by coverage costs and macroeconomic factors, such as employment and disposable income.
Individuals and employers are susceptible to medical cost inflation because these costs generally drive premium increases as insurers pass on health benefit expenses to their customers. Additionally, employment is an important indicator for Health and Medical Insurance industry demand because the majority of health insurance coverage is related to group or employer-sponsored plans. Employment also influences disposable income, which largely determines demand for individual or direct insurance plans.
Healthcare expenditures have increased to 18.0% of United States GDP in 2020 (latest available data); consequently, personal healthcare costs have increased as a proportion of disposable income. As healthcare costs have increased, individuals have strived to reduce their expenditure on healthcare services.
PPOs have a limited number of doctors and hospitals to choose from. The plan participant nominates a primary doctor who monitors the plan participant's health. When these preferred providers are used, most medical bills are covered. The rise in PPOs has been driven by the desire of businesses to cut employee benefit costs or healthcare premiums.
Employers can make an HSA available for their employees, or individuals can purchase them through most financial institutions. Employer contributions to HSAs are excluded from an employee's gross income and account earnings are also tax-exempt. An HRA is an employer-established benefit plan that is funded entirely by employer contributions. These contributions are also excluded from employees' gross income and there are no limits on the amount that an employer can contribute.
A HDHP with an HSA or HRA provides traditional medical coverage and is a tax-free way for individuals to build savings for future medical expenses. It also gives individuals greater flexibility and discretion over how they use their healthcare benefits.
HMO members pay monthly premiums in exchange for comprehensive care for members and families. This care includes doctor visits, hospital stays, emergency care, surgery, lab tests, X-rays and therapy. The HMO arranges healthcare services either directly in its own group practice or through doctors and other healthcare professionals under contract. Usually, the choice of doctors and hospitals are limited to those that have agreements with the HMO to provide care; however, exceptions are made in emergencies or when medically necessary. There may be a small copayment for each office visit, such as $20.00 for a doctor's visit or $50.00 for hospital emergency room treatment.
Pharmacy benefit managers (PBMs) cover all aspects of a prescription drug benefit plan, including creating formularies of preferred medicines, negotiating with drug manufacturers for discounts and rebates, negotiating with pharmacies to establish retail networks for dispensing drugs and establishing automated processes for determining coverage eligibility at the point of sale.
The primary-care doctors in a POS plan usually make referrals to other providers in the plan. In a POS plan, however, members can refer themselves outside the plan and still get some coverage. If the doctor makes a referral out of the network, the plan pays all or most of the bill, although the policy holder will likely have to make a small copayment.
Under this system, payment is made for specific services that are rendered to the patient. This system is in contrast to other health plans, such as salary, retainer or other contract arrangements, where the payment to the physician is not related to the number of services actually used. An insurance company, the patient or a government program, such as Medicare or Medicaid, will make the payment. Under a traditional insurance plan, the insurer pays the majority of medical expenses with collected premiums. The plan participant will usually pay the remaining costs. These costs are generally a small portion of the overall cost of coverage, and they are usually in the form of a deductible or copayment.