Health Insurance is a type of insurance whereby the insurer pays the medical costs of the insured if the insured becomes sick due to covered causes, or due to accidents. The insurer may be a private organization or a government agency. Market based health care systems such as that used in the United States rely on private medical insurance.

Individual and family health insurance plans are usually described as either "indemnity" or "managed-care" plans. Put broadly, the major differences concern choice of healthcare providers, out-of-pocket costs and how bills are paid. Typically, indemnity plans offer a broader selection of healthcare providers than managed care plans. Indemnity plans pay their share of the costs for covered services only after they receive a bill (which means that you may have to pay up front and then obtain reimbursement from your health insurance company).

There are several different types of managed-care health insurance plans. These include HMO, PPO, and POS plans. Managed-care plans typically make use of healthcare provider networks. Healthcare providers within a network agree to perform services for managed-care plan patients at pre-negotiated rates and will usually submit the claim to the insurance company for you. In general, you'll have less paperwork and lower out-of-pocket costs with a managed care health insurance plan and a broader choice of healthcare providers with an indemnity plan.

Private health insurance

Health insurance is one of the most controversial forms of insurance because of the conflict between the need for the insurance company to remain solvent versus the need of its customers to remain healthy, which many view as a basic human right. This conflict exists in a liberal healthcare system because of the unpredictability of how patients respond to medical treatment. Suppose a large number of customers of a particular insurance company were to contract a rare disease costing 10 million dollars to fight for each patient. The insurance company would be faced with the choice of either charging all its future customers astronomical contributions (thus losing customers and going out of business), paying all claims without complaint (thus going out of business) or fighting the customers in an attempt to deny the costly treatment (thus outraging patients and their families, and becoming a target for lawsuits and legislation).

There are further economic problems with private health insurance. Asymmetry of information about a persons health and behavior is likely to lead to adverse selection and moral hazard. In essence, those seeking health insurance are likely to be those with existing medical problems or high likelihood of future medical problems and those who take out insurance may engage in risky behavior, such as smoking and excessive alcohol consumption, which they otherwise would not. These problems may lead to 'good' insurance risks being priced out of the market or even insurance being uneconomical to provide. With publicly funded health insurance the good and the bad risks are all included in the coverage and the same moral hazard applies. Further, every risk must subsidize the unhealthy, and those that take care of their health have no opportunity to avoid this subsidization. More on private health insurance... Click Here

Health Maintenance Organization (HMO)

A health maintenance organization (HMO) is a prepaid health plan. As an HMO member, you pay a monthly premium. In exchange, the HMO provides maintenance care for you and your family, including doctors' visits, hospital stays, emergency care, surgery, lab tests, x-rays, and therapy.

A health maintenance organization arranges for this care either directly in its own group practice and/or through doctors and other health care professionals under contract. Usually, your choices of therapy, diagnosis, doctors and hospitals are limited to those that have agreements with the HMO to provide care. However, exceptions are made in emergencies or when obviously medically necessary.

Because HMOs receive a fixed fee for your covered medical care, it is theoretically in their interest to make sure you get basic health care for simple problems before they become serious. Often, the HMO shifts the financial risk for your care to the doctors they contract with by paying a fixed monthly payment for each patient under the doctors care. This is called "capitation". Any treatment a patient receives under this system decreases the HMO's or the doctor's income. This replaces a possible incentive under a fee-for-service system to provide unnecessary care, with an incentive to do too little. HMO coverage typically includes preventive and early detection care, such as office visits, immunizations, well-baby checkups, mammograms, and physicals. The range of services covered vary in HMOs. Some services, such as outpatient mental health care, often are provided only on a limited basis, and more costly forms of care, diagnosis, or treatment may not be not covered.

In some HMOs, doctors are salaried and they all have offices in an HMO building at one or more locations in your community as part of a prepaid group practice. In others, independent groups of doctors contract with the HMO to take care of patients. These are called individual practice associations (IPAs) and they are made up of private physicians in private offices who agree to care for HMO members. You select a doctor from a list of participating physicians that make up the IPA network. These organizations are typically also capitated. (See above) If you are thinking of switching into an IPA-type of HMO, ask your primary doctor if he or she participates in the plan.

In almost all HMOs, you either are assigned or you choose one doctor to serve as your primary care doctor. This doctor monitors your health and provides most of your medical care, referring you to specialists and other health care professionals as needed. In HMO terminology, you are known as a "member" and a group of members under a physician's care is known as a "panel". Members usually cannot see a specialist without a referral from their primary care doctor who is expected to manage the care the panel receives.

Medicare/Medicaid