Health insurance

The concept of health insurance was proposed in 1694 by Hugh the Elder Chamberlen from the Peter Chamberlen family. In the late 19th century, early health insurance was actually disability insurance, in the sense that it covered only the cost of emergency care for injuries that could lead to a disability[citation needed]. This payment model continued until the start of the 20th century in some jurisdictions (like California), where all laws regulating health insurance actually referred to disability insurance.[1] Patients were expected to pay all other health care costs out of their own pockets, under what is known as the fee-for-service business model. During the middle to late 20th century, traditional disability insurance evolved into modern health insurance programs. Today, most comprehensive private health insurance programs cover the cost of routine, preventive, and emergency health care procedures, and also most prescription drugs, but this was not always the case

A Health insurance policy is an annually or monthly renewable contract between an insurance company and an individual. With health insurance claims, the individual policy-holder pays a deductible plus copayment (for instance, a hospital stay might require the first $1000 of fees to be paid by the policy-holder plus $100 per night stayed in hospital). Usually there is a maximum out-of-pocket payment for any single year, and there can be a lifetime maximum, or the upper limit of what the insurance company will pay over the covered individual's lifetime.

Prescription drug plans are a form of insurance offered through many employer benefit plans in the U.S., where the patient pays a copayment and the prescription drug insurance pays the rest.

Some health care providers will agree to bill the insurance company if patients are willing to sign an agreement that they will be responsible for the amount that the insurance company doesn't pay, as the insurance company pays according to "reasonable" or "customary" charges, which may be less than the provider's usual fee. The "reasonable" and "customary" charges can.

Health insurance companies also often have a network of providers who agree to accept the reasonable and customary fee and waive the remainder. It will generally cost the patient less to use an in-network provider.

Health Insurance companies are now offering Health Incentive accounts (HIA)[2], to reward users for living health and making healthy choices, like stop smoking and/or losing weight, may get you funds added into your Health Incentive Account, which may lower your out of pocket costs. The health incentive accounts also carry over from year to year but once you leave the program you lose those benefits in the HIA.

[edit] Inherent problems with private insurance

Any private insurance system will face two inherent challenges: adverse selection and ex-post moral hazard.

[edit] Adverse selection

Insurance companies use the term "adverse selection" to describe the tendency for only those who will benefit from insurance to buy it. Specifically when talking about health insurance, unhealthy people are more likely to purchase health insurance because they anticipate large medical bills. On the other side, people who consider themselves to be reasonably healthy may decide that medical insurance is an unnecessary expense; if they see the doctor once a year and it costs $250, that's much better than making monthly insurance payments of $400 (example figures).

The fundamental concept of insurance is that it balances costs across a large, random sample of individuals (see risk pool). For instance, an insurance company has a pool of 1000 randomly selected subscribers, each paying $100 per month. One person becomes very ill while the others stay healthy, allowing the insurance company to use the money paid by the healthy people to pay for the treatment costs of the sick person. Adverse selection upsets this balance between healthy and sick subscribers by leaving an insurance company with primarily sick subscribers and no way to balance out the cost of their medical expenses with a large number of healthy subscribers.

Because of adverse selection, insurance companies use a patient's medical history to screen out persons with pre-existing medical conditions. Before buying health insurance, a person typically fills out a comprehensive medical history form that asks whether the person smokes, how much the person weighs, whether the person has been treated for any of a long list of diseases and so on. In general, those who look like they will be large financial burdens are denied coverage or charged high premiums to compensate. On the other side, applicants can actually get discounts if they do not smoke and are healthy.

Starting in 1976, some states started providing guaranteed-issuance risk pools, which allow individuals who are medically-uninsurable through private health insurance to be able to purchase a state-sponsored health insurance plan, usually at higher cost. Minnesota was the first to offer such a plan, and there are now 34 states which do. Plans vary greatly from state to state, both in their costs and benefits to consumers and to their methods of funding and operating. They serve a very small portion of the uninsurable market -- about 183,000 people in the USA [citation needed]-- but in best cases do allow people with pre-existing conditions such as cancer, diabetes, heart disease or other chronic illnesses to be able to switch jobs or seek self-employment without fear of being without health care benefits. Efforts to pass a national pool have as yet been unsuccessful, but some federal tax money has been awarded to states to innovate and improve their plans.