Health insurance (thing)

At the beginning of the 20th century, Americans were served mostly by “country” doctors. The doctors accepted cash and barter for their services, but except for very large towns and cities, they traveled. Sick people might have to wait months or travel very long distances to see a doctor. The average life expectancy in 1920 was 59.

In 1929 at Baylor Hospital, a list of unpaid accounts was sent to the new administrator – who happened to be the former local school superintendent. He recognized the names of many teachers on the list, and knowing they would never be able to pay with the meager teacher’s salary, developed the “Baylor Plan”. Teachers paid 50 cents a month and were guaranteed 21 days of medical care at Baylor Hospital. Hospitals around the country scrambled to develop plans of their own. This was the start of what became known as the Blue Cross plans. The first Blue Shield plan, offering pre-paid physician coverage, was established in California in 1939.

In the early 1940s, group health insurance coverage became popular. It was attractive to employers because it was a fringe benefit, exempt from wage controls. When the federal government ruled that revenues used to pay a worker’s health insurance premium were not subject to income taxes, a huge explosion of commercial health insurance companies happened.

Now we jump ahead to the 1970s, because this is where problems and abuse of the system began. The HMO (see below for a definition) had been around since Kaiser began in 1947. HMOs were growing in popularity because they kept costs down by combining the insurance company with the hospital/physician service. Before 1973 most states kept tight controls on these networks, but then the 1973 Health Maintenance Organization Act was passed. The act had some great ideas in it (provided grants for HMOs on Indian Reservations and required employers to offer HMOs to all employees) but it also contained some nasty riders. No more restrictions on pricing for medical goods (think $20 Tylenol), services, and profits. This created an immediate conflict of interest on the HMO’s part (Do we give the patient an MRI or do cheaper but more dangerous exploratory surgery and pay ourselves the difference?).

But the Nixon Administration wasn’t finished with their Health Insurance revamp yet – in 1974 the Employment Retirement Income Security Act (ERISA) was passed. This law specified that a published summary plan must be distributed to participants within 120 days after adoption of the plan and within 90 days after an employee becomes a participant. Sounds peachy – but this law carried the most damaging bit of legislation in US healthcare:

(b) The provisions of this subchapter shall not apply to any employee benefit plan if-- (1) such plan is a governmental plan (2) such plan is a church plan (3) such plan is maintained solely for the purpose of complying with applicable workmen's compensation laws or unemployment compensation or disability insurance laws The provisions of part 7 of subtitle B shall not apply to a health insurance issuer solely by reason of health insurance coverage provided by such issuer in connection with a group health plan if the provisions of this subchapter do not apply to such group health plan.

To translate: if you try to sue your insurance company for medical malpractice, wrongful death, fraud, etc. your case will be dismissed unless you work for the government, work for a church, or are an employer following the law that you must carry coverage.

You may sue for a denied benefit, but you must show that the plan administrator’s decision Arbitrary and Capricious, a very difficult standard to meet. Even if you win, ERISA limits damages to delivery of the benefit, but remember, you have been in court battling a corporation – it will be months later. If you die or experience further injury because of the denial of care, neither you nor your survivors will be compensated, nor will the HMO be punished in any way.

As if this weren’t bad enough, the 1980s brought arbitration into the picture. Suddenly, enrollment packages included an agreement to arbitrate any disagreements between you and the insurance company instead of going to court. When you sign an arbitration agreement you are signing away your 7th Amendment right to a civil suit in front of a jury to settle disputes. You do not have to sign this form and most attorneys recommend you do not. So far the only Insurance Company to deny coverage for not signing an arbitration agreement is Cigna and there is a case currently pending in California to decide the legality of this.

At the dawn of our new century, there are calls from all over for Insurance Reform. To some, this is a call for National Healthcare. For others, it is the lifting of Federal restrictions on State’s rights to regulate standards and administrative protocols.

This small glossary listing is from The Cystic Fibrosis Foundation at http://www.cff.org/default.htm.

Kinds of Insurance

Individual Insurance: Policies that provide protection to the policyholder and/or his or her family. Individual and family policies are available through: an insurance agent or broker, the conversion of a group policy, or an open enrollment period at some Blue Cross/Blue Shield companies.

Group Contract: Health insurance provided through an employer or other entity that covers a group of persons as a single unit. Group policies are often available through large organizations such as employers, fraternal or trade organizations.
Some group policies can be extended for a short term when the individual leaves the group through the Consolidated Omnibus Budget Reconciliation Act (COBRA), and may later be converted to an individual policy.

Blanket Contract: Health insurance that covers a class of persons not individually identified. It is used for groups such as athletic teams and for employee travel policies. This type of insurance usually only covers dismemberment and accidental death.

Different Types of Coverage

Indemnity Insurance: Insurance policies through which benefits are paid in a predetermined amount for a covered loss. Usually, the insured person receives services and submits a claim to the insurer, and providers are paid fees for the services rendered.

Major Medical Expense Insurance: A form of health insurance that provides benefits for most types of medical expenses (surgical, hospital) up to a high maximum benefit. Such contracts may contain internal limits and usually are subject to deductibles and co-insurance costs.

Specific Disease Insurance: Insurance providing a benefit, subject to maximum amount, for expenses incurred in connection with the treatment of specified diseases, such as cancer. These policies are designed to supplement major medical policies.

Prepaid Group Practice Plan: A plan under which specific health services are provided by participating physicians to an enrolled group of persons, with a fixed periodic payment made in advance by or on behalf of each person or family.

Health Maintenance Organization (HMO): A plan that offers a variety of services including physical exams. education, and preventive medicine programs, in exchange for a fixed-monthly premium. An HMO may be an independent company, or it may be sponsored by an employer, insurance company, hospital, union or government agency. Members either select or are assigned a primary care physician who is responsible for all referrals regarding this case.

Independent Practice Association (IPA): Plans that contract with individual practitioners who work at their own offices. Unlike salaried HMO staff, IPA physicians are allowed to treat patients from other health care plans, along with their own fee-for-service patients.

Preferred Provider Organization (PPO): A network of physicians and hospitals that provides an insurance company or employer with discounts for its services. Consumers covered by a PPO are allowed to use providers outside the PPO network, including specialists whenever they choose, for an additional expense.