Q: A Simple Explanation of Health Insurance

Health insurance is a vehicle that allows your employees to share their medical, surgical, and prescription drug costs with an insurance company in exchange for a monthly or annual premium. The insurer may reimburse the insured employee for expenses or pay the provider directly.

Health insurance can play a vital role in supporting your employees’ health and productivity. It also can help protect them from devastating medical debt and even bankruptcy in the event of injury or illness. 

Many employers offer health insurance as part of their employee benefits package, but your employees also have other options for obtaining coverage.

What are the different types of health insurance?

Most employees are insured through individual, group, or public health insurance policies. We’ll explain each of them in this section.

Individual

Individuals can purchase individual health insurance policies to cover themselves and their families. If their employer or other organization they are part of (for example, an alumni association) offers group coverage, employees should review those plans before getting an individual policy–see more on this below. Note that an employer’s group medical plan can affect an individual’s ability to receive premium tax credits/subsidies for an individual plan..Since the passage of the Affordable Care Act (ACA), individuals typically shop for individual plans on health insurance marketplaces, also known as exchanges, run by the federal or state governments. These one-stop shops allow consumers to compare policies based on benefits, provider networks, copays, coinsurance, deductibles, and premiums. All policies offered on the Marketplace should offer the ten essential health benefits, noted below.

Short-term, limited duration (STLD) policies are another option for individual coverage. One important caveat: they aren’t available through government marketplaces because they don’t satisfy ACA standards. For example, they can deny coverage based on or refuse to cover pre-existing conditions, rarely cover all of the essential health benefits, and may have very high deductibles. STLD policies also generally don’t count as minimum essential coverage under the ACA. Because some states have their own individual mandates outside of the ACA, it is important to keep in mind that these policies may not qualify as required coverage and individuals could face state-level penalties also. 

STLD policies generally provide coverage for a period of fewer than 12 months, with some offering coverage for only three to six months. After the initial term, the coverage is continued only if the insurer agrees—which is unlikely if the insured individual has made claims. These policies generally are best reserved for temporary coverage gaps, such as when an employer-provided policy has a waiting period for new employees.

Group

Employer-provided health insurance is a type of private group insurance. Employers choose the plan(s) to offer and pay all or a portion of eligible employees’ premiums for their selected policies. The premiums and deductibles are usually lower than those for individual plans because group insurance covers a larger pool of insureds, and potentially include part-time employees.

Group health insurance varies depending on whether you’re a small employer or large employer. The ACA and states establish rules regarding small group insurance. Rates for small group health insurance are filed with the state, and small group employers should see the same pricing for their company regardless of who is brokering their benefits.

Prices for large group insurance can reflect more factors than insurers are permitted to consider for small group insurance, so prices can vary by employer. It’s usually wise to work with a broker who can negotiate prices for you if you’re a large employer. An employer with 50 or more full-time (or full-time equivalents) are required to offer specific group medical policies that meet affordability under the ACA.

Certain large and small employers may consider  different types of funding outside of a traditional “fully-insured” plan. This includes level- or self-funded policies, wherein the employer takes on some of the risk associated with offering benefits, such as covering a portion of claims, instead of the insurance company paying for all claims).

Public

Health insurance also may be available through several government programs.

Medicare

Medicare is the federal health insurance program for those age 65 or older, certain younger people with disabilities, and people with end-stage renal disease. It has four parts:

  • Part A (hospital insurance) covers inpatient hospital stays, care in a skilled nursing facility, hospice care, and some home health care.
  • Part B (medical insurance) covers certain doctors’ services, outpatient care, medical supplies, and preventive services.
  • Medicare Part C (Medicare Advantage) allows insureds to buy into a private health insurance plan that will provide all of their Part A and Part B coverage and usually Part D coverage, too. Medicare Advantage plans generally include coverage for services original Medicare doesn’t cover, including some vision, hearing, dental, and fitness programs.
  • Medicare Part D (prescription drug coverage) helps cover the cost of prescription drugs.

Most Medicare enrollees don’t pay a premium for Part A, but all enrollees pay a premium for Part B. The standard Part B premium amount in 2021 is $148.50.

Medicaid

Medicaid provides coverage in every state for low-income individuals, families and children, pregnant women, the elderly, and people with disabilities. Under the ACA, Medicaid has been expanded in some states to cover all adults below a certain income level. States operate their own programs within federal guidelines, so benefits can vary by state.

CHIP

The Children’s Health Insurance Program (CHIP) provides low-cost health coverage for children under age 18 in families that earn too much money to qualify for Medicaid. CHIP also covers pregnant women in some states. Each state has its own eligibility rules.

What does health insurance cover?

Individual and small group health insurance plans generally cover 10 essential health benefits (the specific services covered in each broad benefit category can vary based on your state’s requirements):

  • Outpatient care (also known as ambulatory patient services)
  • Emergency services
  • Hospitalization
  • Pregnancy, maternity, and newborn care
  • Mental health and substance use disorder services
  • Prescription drugs
  • Rehabilitative and habilitative services and devices
  • Laboratory services
  • Preventive and wellness services and chronic disease management
  • Pediatric services, including oral and vision care

Plans usually include coverage for birth control and breastfeeding.

Overall, almost all plans are prohibited from imposing annual or lifetime limits on those benefits.

Certain individuals (generally, those under age 30) can purchase “catastrophic” plans through or outside the marketplace. These plans cover the essential health benefits but require the greatest allowable cost-sharing. For 2021, the annual deductible for catastrophic plans is $8,550 for an individual and $17,100 for a family.

Once an insured meets the deductible on a catastrophic plan, the plan pays for 100 percent of covered essential health benefit services received from in-network providers for the remainder of the policy year. Catastrophic health plans don’t qualify for the premium tax credits or cost-sharing reductions that can reduce an insured’s premiums or out-of-pocket (OOP) costs.

How does cost-sharing work?

Cost-sharing is perhaps the central feature of health insurance. Virtually every policy requires insureds to pay some of their expenses out-of-pocket (OOP), up to the annual OOP maximum.Once you spend this amount on deductibles, copayments, and coinsurance for in-network care and services, your health plan pays all of the costs of covered benefits for the rest of the plan year. Individuals should review care and services to see if they are in-network under their policy, otherwise additional payments may apply.

Deductibles

The deductible is the amount the insured must pay for health services.. After you meet your deductible, you generally are required to pay only for copays or coinsurance for covered services, up to the OOP maximum.It’s important to understand that health insurance can still save insureds money before they meet their deductibles. That’s because insurance companies negotiate discounts for their customers with health care providers—savings that are passed on before and after the deductible is satisfied. Uninsured people typically pay significantly higher rates for their medical care.

Copays

Copayments are fixed dollar amounts (for example, $25) an insured pays for health care or a prescription. You must pay copays both before and after meeting your deductible, up until you reach your OOP maximum. For example, your health plan might have a $25 copay for primary care visits, a $50 copay for a specialist visit, and a $500 copay for an emergency room visit.  

Coinsurance

Coinsurance represents the percentage of the costs you must pay OOP for office visits, procedures, and medications usually after meeting the deductible. If an insured has 20 percent coinsurance for a service, for example, they must pay 20 percent of the costs until the OOP maximum payment is met.

What are the different types of plans available?

Health insurance comes in several different types of plans, including health maintenance organization (HMO), preferred provider organization (PPO), exclusive provider organization (EPO), and point of service (POS). The plans vary in terms of network size, the need for referrals to see specialists, coverage of out-of-network providers, and premium prices.

Am I required to offer health insurance to my employees?

Regardless of business size, you are not required to provide health insurance to your employees. Under the ACA, though, “applicable large employers” (ALEs) may incur penalties if they don’t make affordable health coverage available to their employees. This is sometimes referred to as the “employer mandate.”

Read more: Many employers wonder if they are required to offer health insurance. The answer is, it depends. 

Are my employees required to have health insurance?

The ACA created the so-called “individual mandate,” the penalty that individuals were required to pay if they could afford health insurance but chose not to buy it. After 2018, though, the penalty was eliminated at the federal level by the Tax Cuts & Jobs Act.

But the following states still have some version of the individual mandate:

  • California
  • District of Columbia
  • Massachusetts
  • New Jersey
  • Rhode Island
  • Vermont

Make sure your employees understand the implications of declining health coverage.

How can I get group insurance for my employees?

Business owners have several options for purchasing group health insurance for their employees. Be sure to understand the differences between group and individual health insurance before you decide. 

Companies with 50 full-time equivalent employees or fewer can apply through the Small Business Health Options Program (SHOP). SHOP plans provide essential health benefits and can’t exclude coverage for treatments for pre-existing conditions. You generally can enroll any time of the year.

Remember: The price for a particular group health plan is the same for every small employer (i.e., fewer than 50 employees), regardless of whether you use an agent or broker. It won’t cost you any more to work with a broker than to go it alone, so you may want to consider getting that extra dose of professional help.

Read more: There are great reasons for offering group health insurance, and there are key things to look for when you are choosing a group health insurance plan.

When can someone buy individual health insurance?

Open enrollment through the federal marketplace exchange at HealthCare.gov has run from November 1 – December 15, for coverage starting January 1 of the following year, for the past several years.

States that use the federal platform for their marketplace can’t change those dates. States with their own platforms have some flexibility, so your employees should check for the applicable dates in their own state every year. Three state exchanges have permanently extended their open enrollment plans:

  • California (ending January 31)
  • Colorado (ending January 15)
  • District of Columbia (ending January 31)

In mid-February 2021, the Biden Administration re-opened the open enrollment period in response to COVID-19. The new open enrollment period will end on May 15, 2021 for the federal marketplace. Several other states also extended or re-opened the open enrollment period for 2021, including:

  • California: Through May 15, 2021
  • Colorado: Through May 15, 2021
  • District of Columbia (DC): Through May 15, 2021
  • Maryland: Through March 15, 2021
  • Massachusetts: Through March 23, 2021
  • Minnesota: Through May 17, 2021
  • Nevada: Through May 15, 2021
  • New Jersey: Through May 15, 2021
  • New York: Through March 31, 2021
  • Pennsylvania: Through May 15, 2021
  • Rhode Island: Through May 15, 2021
  • Washington: Through May 15, 2021

Your employees can check the appropriate state exchange websites for more information.

Your employees aren’t necessarily out of luck if they miss the applicable open enrollment period. Certain qualifying life events trigger special enrollment periods that allow your employees to purchase insurance on a government exchange outside of the standard  open enrollment period.

Some examples include:

  • Changes in household size (for example, through marriage, divorce, or birth/adoption), residence, or income
  • Non-voluntary loss of health insurance (for example, losing Medicare, Medicaid, or CHIP eligibility or insurance through a family member)

HealthCare.gov has a more comprehensive list of special enrollment periods and qualifying life events. 

Depending on the event, an individual may have 60 days before or 60 days following to enroll in a plan. If your employees miss their window, they may have to wait until the next open enrollment period to apply.

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