What Is Health Insurance?
Health insurance is a type of insurance coverage that typically pays for medical, surgical, prescription drug and sometimes dental expenses incurred by the insured. Health insurance can reimburse the insured for expenses incurred from illness or injury, or pay the care provider directly. It is often included in employer benefit packages as a means of enticing quality employees, with premiums partially covered by the employer but often also deducted from employee paychecks. The cost of health insurance premiums is deductible to the payer, and the benefits received are tax-free, with certain exceptions for S Corporation Employees.
Current Legal Status
The United States is the only country in the world that allows the buying and selling of health insurance across state lines.
Exchanges and Individual Health Insurance
Health insurance exchanges are websites where individuals can shop for health insurance policies. The Obama administration has determined that all health insurance plans must meet the Affordable Care Act (ACA) standards in order to be sold to individuals on these exchanges. These policies can only be sold to individuals who are not eligible for Medicaid, cannot refuse to cover pre-existing conditions, and cannot charge older individuals more than three times the amount charged to younger individuals. There are 26 health insurance exchanges operating in all states as of January 2016, and as of August 2015, nearly 13.4 million individuals had signed up for insurance on these exchanges.
Self-Insurance and Employees’ Group Health Insurance
Self-insurance is a popular way for employers to pay for employee health care expenses out of their own pockets. Employers typically choose to insure themselves through their Employee Stock Ownership Plan (ESOP). An ESOP is a privately-held, employee-owned business or corporation where the owners (typically the employees) are the shareholders. When an employee becomes ill or injured and is unable to work, the funds in the ESOP account are placed in a trust, and the person is hired back to perform their old job for a salary commensurate with their old salary. Because the expenses for the employee and their family are paid by the funds in the ESOP, the funds do not have to be deposited in a health savings account or other investment vehicle.
There are other programs in place to provide health insurance to employees in the private sector. A 2007 study found that the majority of self-insured employers use a third-party administrator (TPA) to administer their benefits. These programs come with several cost advantages, including lower administration fees, negotiated prescription drug prices, and lower cost of hospital admissions. In addition, a study of 9,000 TPA programs showed that the annual out-of-pocket spending on health insurance declined from 2.8% to 1.5% among employees who were part of such a program. In addition, workers in such a program benefit from improved health outcomes and decreased hospital readmissions.