What is involved in obtaining health insurance?

The basics are as follows, but a little background is necessary to fully understand. The steps to obtain a policy are similar whether you apply for an indemnity policy or some sort of managed care arrangement.

An indemnity policy is the customary kind of health insurance whereby you see a Doctor Who has contracted with the insurer to provide services, the doctor submits a bill and the insurance company pays it (subject to a deductible and a co-payment).

A deductible is the amount that you are responsible for before the responsibility of the insurer for payment is triggered. For example, there may be a deductible of $1000 per hospital admission. The net effect of this is that the insured is responsible for the payment of the first $1000 in charges before the insurer has to pay anything. Generally, the higher the deductible chosen, the lower the premium.

A co-payment is usually expressed as a percentage of the medical charge for which the insured is responsible. It represents that part of the medical charge that the insured is to pay, and my extension, the amount that the insure pays. An example is an "80/20" policy. In this case, the insurer pays 80% of the covered charge, and the insured is responsible for 20%.

A managed care arrangement is one where the entity responsible for paying claims directs and manages care. There is often less of a choice of physicians and greater structure in this sort of arrangement. It is fair to say that one of the primary goals of managed care is to try to keep people healthy. To that extent, there may be benefits for frequent wellness check-ups. The choice issues come into play because the member (the term used to describe the plan participant) must often get permission or a referral from his/her primary care physician to see a specialist.

1. The individual seeking insurance goes to an insurance agent who is licensed by the state to transact health insurance business. The agent has contracts with various insurers or managed care entities to submit applications to them on behalf of prospective customers.

2. The agent will discuss the options (for example, an indemnity policy vs. a managed care arrangement) with the client, taking into consideration the client's goals and ability to pay. Also important is prior medical history, as that may have an affect on premiums.

3. The agent will compete an application for insurance, which is essentially an offer to buy a policy offered by the insurer. The application will have to be signed by the prospective insured attesting that all of the information contained is accurate. Some of the answers on the application will pertain to health history and other factors that are relevant to the risk that the insurer is being asked to assume if it issues a policy.

4. The agent sends the application to the insurer for "underwriting". This is a process by which the insurer determines whether it is willing to take on the risk as represented in the application. Every insurer has "underwriting guidelines" which are those risk parameters that define the risk that the insurer is willing to assume.

5. If the proposed insured fits within those parameters, the insurer determines the premium to charge. A premium is the amount of money that is paid by the insured to the insurer in exchange for assuming the risk of having to make the benefit payments under the insurance policy. If he/she does not fir into those parameters, the insurer has the right to decline to issue a policy.

6. If a policy is issued, it may get mailed to the agent or it may get mailed to the insured. If one is not issued, the agent and insured are notified of that fact.