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8.3 Classes of Health Policies

Individual vs. Group Health Insurance​

Individual health insurance is coverage purchased directly by an individual rather than through an employer. The policyholder may obtain coverage for themselves or for eligible family members under the same policy.

In many cases, insurers may require proof of insurability, meaning the applicant must provide health information that allows the insurer to evaluate risk before issuing coverage. Premium rates are typically determined based on underwriting factors established by the insurance company.

Compared to group plans, individual health insurance policies often have higher premiums, deductibles, and out-of-pocket costs, because the risk is not spread across a large group of insured individuals.

Group health insurance is typically employer-sponsored coverage offered to employees and their eligible dependents. Instead of evaluating each individual applicant separately, insurers determine premiums using group underwriting factors, which assess the overall risk characteristics of the entire group.

Under a group plan, the employer selects the coverage options and plan design, although certain benefits may be required by law. In most cases, employees are not required to provide proof of insurability to obtain coverage when they enroll during the initial eligibility period.

ERISA-Covered Group Health Plans are employer-sponsored group health plans that are regulated under the Employee Retirement Income Security Act (ERISA). An ERISA-covered group health plan is an employment-based benefit plan that provides coverage for medical care, which may include hospitalization, treatment for illness, prescription drugs, vision services, and dental care.

These plans may provide benefits through several funding arrangements, including:

  • A plan trust fund, where assets are held to pay benefits
  • The purchase of an insurance policy from an insurer
  • Self-funding, where the employer pays claims directly from its general assets

ERISA establishes federal standards governing plan administration, reporting, disclosure, and fiduciary responsibilities for these employment-based benefit plans.

Private vs. Government​

Most insurance coverage is issued by private insurers, which are commercial organizations that sell insurance policies to the public. These companies include stock insurance companies, owned by shareholders, and mutual insurance companies, owned by policyholders. Private insurers offer a wide range of insurance products and operate within the regulatory framework established by state insurance departments.

In addition to private insurers, government programs also provide certain types of insurance coverage. Government-sponsored health insurance programs include Social Security Disability Insurance (SSDI), Medicare, Medicaid, and TRICARE, which provides health coverage for eligible military personnel, retirees, and their dependents. These programs are designed to ensure access to healthcare and income protection for specific populations.

Limited vs. Comprehensive​

Some health insurance plans are designed to provide limited benefits, covering only specific types of losses identified in the policy or paying benefits up to a relatively small, predetermined dollar amount. These plans typically address particular risks or expenses rather than offering broad protection.

In contrast, comprehensive health plans provide coverage for a wider range of medical expenses and health-related losses. These policies generally include higher coverage limits and broader protection for services such as hospitalization, physician care, and other medically necessary treatments.

Quiz​

1. Which statement best describes individual health insurance?

A. Coverage provided only through an employer

B. Coverage purchased directly by an individual for themselves or their family

C. Coverage funded exclusively by government programs

D. Coverage that requires no underwriting or risk evaluation

Correct Answer: B

Rationale: Individual health insurance is obtained directly by a person rather than through an employer. The policyholder may include eligible family members under the policy, and insurers may require proof of insurability when evaluating the applicant’s risk.

2. What is a key characteristic of group health insurance?

A. Each employee must be individually underwritten

B. Coverage is purchased directly from a government agency

C. Premiums are based on the risk characteristics of the group as a whole

D. Only employees, not dependents, may be covered

Correct Answer: C

Rationale: Group health insurance typically uses group underwriting, which evaluates the overall risk of the entire group rather than underwriting each individual employee separately. This risk-sharing often results in lower premiums compared to individual policies.

3. Which federal law establishes standards for many employer-sponsored health plans?

A. HIPAA

B. ERISA

C. COBRA

D. FMLA

Correct Answer: B

Rationale: The Employee Retirement Income Security Act (ERISA) establishes federal standards governing employer-sponsored benefit plans, including group health plans. ERISA regulates plan administration, reporting, disclosure, and fiduciary responsibilities.

4. Which of the following is an example of a government-sponsored health insurance program?

A. Blue Cross Blue Shield

B. Medicare

C. A mutual insurance company policy

D. A group employer health plan funded by a private insurer

Correct Answer: B

Rationale: Government-sponsored programs provide coverage for specific populations. Examples include Social Security Disability Insurance (SSDI), Medicare, Medicaid, and TRICARE, which serve groups such as retirees, individuals with disabilities, low-income populations, and military personnel.

5. What distinguishes a comprehensive health insurance plan from a limited-benefit plan?

A. Comprehensive plans only cover dental services

B. Comprehensive plans provide broader coverage and higher policy limits

C. Limited-benefit plans cover all medical expenses without limits

D. Limited-benefit plans always require employer sponsorship

Correct Answer: B

Rationale: Limited-benefit plans typically cover specific types of losses or provide benefits up to a relatively small dollar amount. In contrast, comprehensive plans cover a wider range of medical services, such as hospitalization, physician care, and other medically necessary treatments, and generally offer higher coverage limits.