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As an informed consumer, understanding the building blocks of health insurance can help you avoid confusing, even misleading, lingo, which will ultimately end up saving you money. Regardless of the particulars of any plan, some concepts are applicable to all of them.
Currently, insurance plans fall into two categories: group coverage and individual coverage. Group plans are provided by an employer, government agency or worker’s union while individual plans are negotiated between an individual policyholder and their insurer. Generally, group coverage is less expensive because the provider pays most of the premium for the user.
If a group insurance plan is available to you, it will probably provide more comprehensive coverage than an individual plan. This is because group plans pool policies within an organization and ultimately reduce costs for insurers. Under these plans, you’re more likely to be covered for maternity care, well-baby services, preventive care, vision and dental care.
Keep in mind that the way your group plan is set up can make a difference. Group plans are either self-funded or fully insured. What this boils down to is who makes decisions regarding your coverage.
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Self-Funded vs. Fully Insured Group Plans
In a self-funded plan, your employer pays all medical costs and assumes all risk for its employees. Instead of paying a fat premium to a partner insurance company, self-funded plans are allowed to calculate a maximum annual risk and then keep that amount in reserve until it might be needed. For instance, if it’s anticipated that a company’s maximum risk is $1.5 million per year, the company is allowed to keep that money and even invest it. At the end of the year, anything that wasn’t spent out of these funds goes back into the company coffers.
In what’s called a fully insured plan, an employer partners with an insurance company and pays it a premium to manage its employees’ health care claims. The premium amount is based on the company’s maximum annual risk, and the insurer assumes all administrative and legal responsibilities related to claims management. If we use the same example as above, the $1.5 million potential risk is paid directly to the insurer, where it remains regardless of what is spent.
Individual plans are sometimes referred to as single-payer plans. You purchase an insurance plan independently from the open market and your employer is not involved. Single-payer plans are generally much more expensive than group coverage and provide limited coverage.
But if you haven’t qualified for these programs in the past, you may soon–one of the major features of Obamacare is the expansion of public insurance eligibility. By the start of 2014, for example, new provisions from the Affordable Care Act will come into effect and an additional fifteen million low-income Americans will qualify for Medicaid.