Managing Your Health Care

Private Health Care Coverage

Relationships Between Patients, Doctors, and Health Plans

Different types of private health care coverage are available in today’s marketplace. You have somewhat different rights depending on the structure of your plan. For example, you may have private health care coverage through an individual policy or a group policy. These differ a little bit. You purchase an individual policy directly from a health carrier. Under a group policy, a group, typically an employer, either purchases a fully-insured policy from a health carrier or is self-insured. You, as an employee, then have coverage through the group plan. Let’s look at these types of health insurance one at a time.

Individual Coverage

You may purchase an individual policy from a health maintenance organization (HMO), insurance company, or nonprofit health services corporation (such as Blue Cross Blue Shield of Minnesota). The health carrier decides whether to sell you a policy based upon an underwriting process. In this process the health carrier will review your medical history and that of any dependents. In exchange for the premium you pay, the health carrier agrees to cover you and your dependents if you become sick or injured.

Remember that there are three separate relationships.

First, you have a policy issued to you by a health carrier. This legally binding contract will have different names, depending on the type of health carrier that issues it. For example, if you are covered by an HMO, the contract you have typically will be called a membership contract, and you are considered a member. "If you are covered by an insurance company, the contract is an insurance policy, and you are the policyholder. If you are covered by a nonprofit health services corporation, the contract is a subscriber agreement, and you are the subscriber.

Second, you have a doctor-patient relationship with your medical providers.

Third, your medical providers have contracts with the health carrier, typically called participation agreements. Health carriers pay their providers in various ways for the care you receive. Payments may be the more traditional fee-for-service, or the newer risk-sharing agreement. In a risk-sharing payment structure, the physician and clinic bear some of the financial risk for your care if you become sick. The relationship between you, the health carrier, and the medical provider is diagrammed in Table One.

Table One: Fully-Insured Health Plan, Individual Coverage

Group Coverage

You may be covered under a group policy. The most common group coverage is provided by employers to employees. Group coverage may be one of two types: fully-insured or self-insured. Federal law says your coverage document must tell you if your plan is self-insured.

Fully-Insured Group Coverage

Fully-insured group coverage is different from individual coverage because the employer is also part of the relationship. A diagram of this type of coverage is found in Table Two.

Table Two: Fully-Insured Health Plan, Group Coverage

An employer purchases a fully-insured group policy from a health carrier to cover employees of the organization. The employer may pay all or part of an employee’s premium. The policy is called fully-insured because the health carrier assumes the risk of providing coverage to the employees (in a self-insured group plan the employer assumes the risk and financial obligation to provide coverage to employees).

In a fully-insured group plan, the health carrier issues a contract (typically called a master contract or policy) to the employer. In it, the health carrier agrees to provide coverage to the employees subject to various conditions. In turn, the employees and their dependents are covered under what are typically called “certificates of coverage.”

Fully-insured group plans must comply with certain state laws regarding the types of benefits offered, such as covering newborn care.

Self-Insured Group Coverage

Some employers provide coverage to their employees through a self-insured health care plan. This means the employer pays for its employees’ health care with its own money. Many large corporations are self-insured.

A self-insured employer must file a master plan with the United States Department of Labor. The Department assigns the plan an identifying number. The employer then prepares a Summary Plan Description (SPD) for employees that details the terms of coverage. Self-insured health plans are subject to a federal law known as the Employee Retirement Income Security Act of 1974, or “ERISA.” Self-insured health plans are regulated exclusively by the federal government.

Most self-insured employers do not process claims internally. Rather, they usually have agreements with an outside vendor who processes claims for them. These vendors are called third-party administrators (TPAs). The third-party administrator may be an HMO, insurance company, or nonprofit health services corporation. (Many of these entities also act as fully-insured health carriers.) The third-party administrator may also be a company licensed simply to process claims. Some self-insured plans also enter into contracts with separate utilization review (UR) organizations to review the medical necessity of requested treatment. Some also enter into contracts with preferred provider organizations (PPOs) to provide the self-insured plan with access to a panel of physicians to treat the employees and their dependents.

Some self-insured plans are offered through a multi-employer plan, which may be collectively bargained. Those plans, sometimes called Taft-Hartley plans, are also regulated by the federal government under ERISA. Many people consider the plan’s third-party administrator or trustee to be their “insurance company.” This is because explanation of benefits forms (EOB) and summary plan descriptions frequently list the name of the third-party administrator. Because the third-party administrator is not assuming risk, however, it is not really an “insurance company.” Rather, an employer or a multi-employer plan self-insures by agreeing to assume the risk and pay for its employees’ health care.

Self-insured employers typically purchase stop-loss insurance coverage to reimburse the employer when treatment for employees exceeds a certain dollar limit. In some cases a self-insured employer may wish to pay an employee’s claim but is told by the stop-loss insurer that it will not receive reimbursement for the claim. It is important to understand that, although you won’t typically have direct dealings with the stop-loss insurer, its position may affect whether an employer will pay a particular claim. A typical self-insured relationship is diagrammed in Table Three.

Table Three: Self-Insured Plan

A Word about Short-Term Policies

Consumers should use caution before purchasing short-term health insurance policies that are sometimes used by individuals and families in between jobs, after college, or for other short-term health insurance needs. Minnesota law states that short-term coverage may exclude any injury, illness, or condition for which the covered person had medical treatment, symptoms, or manifestations before the effective date of coverage.

Read and understand the terms and conditions of short-term health insurance policies before purchasing them. Make sure to ask questions about coverage issues, including what qualifies as a pre-existing condition. Ask your insurance agent about other policies that do not include such exclusions.