What Is the Purpose of Health Care Insurance?

The original purpose of insurance was to put aside funds to help people devastated by catastrophic emergencies with no means to help themselves. Over time, insurance has evolved into a fund from which you can receive money to pay for particular events, as specified in the insurance policy.

Kinds of Health Care Insurance

• Today, health care insurance is designed to meet different categories of medical care, such as outpatient, inpatient, rehabilitation, hospice or mental health care needs.

Evolution of Coverage

• Until the middle of the 20th century, health insurance was private. Individuals bought insurance policies from an insurance agent or broker. The individual paid a premium to cover a period of time, usually one year. One insurance policy covered that individual’s medical needs.

  By the end of the 20th century, insurance was purchased by corporations, individuals or groups. In addition to insurance for veterans and Native Americans, the government supplied public insurance, Medicare and Medicaid.

  Instead of seamless coverage from one private policy, many people now buy multiple policies. Some have both public and private insurance.

Medical Care Changed Over Time

• New technology changed the faces of both the health care and health insurance industries. People used to spend a week or more in a hospital after routine surgeries. Today, patients go to outpatient surgi-centers and return home in a few hours. Some even return to work the same day.

  What used to be experimental treatments, not covered by insurance, are now everyday care.

  New technologies and new drugs drastically drove up the costs of care. The introduction of public insurance increased the cost of private insurance. The government does not pay the full cost of public patients’ care. Private insurance subsidizes public patients’ care.

Bargaining Power

• Toward the middle of the 20th century—after labor strikes became legal—workers forced employers to make health insurance a workplace benefit. Medical care and health insurance were forever changed.

  Just as workers united to force management to yield to workers’ demands, corporations wielded their money and bargaining power against insurance companies. Corporations negotiated the terms and cost of workers’ health insurance.

  Health insurance was no longer a private, individual matter. Health care and health care insurance are “big business.”

Health Insurance Evolved into a Means to Pay for Routine Medical Care

• Instead of the one-size-fits-all, old-fashioned, health care insurance policy, 21st-century health insurance comes in all kinds of alphabetic arrays, such as HMO (health maintenance), MCO (managed care), PPO (preferred provider), and FFS (fee for service).

  Today's health insurance is for routine, not catastrophic, care. The cost of medical care is a shared financial risk, dependent on the type of insurance.

  Patients' monthly premiums and out-of-pocket costs can vary from small amounts (HMO, MCO) to hundreds (some PPOs) or to thousands of dollars (FFS, Medicare).

  For HMO, MCO, and PPO types, insurance companies pay providers, depending on their negotiated contracts—FFS (per treatment) or capitated (per patient) rates. For providers paid by capitation, costs of care in excess of the flat fee paid per patient must be absorbed by the provider.

The Purpose of Health Insurance is No Longer for Catastrophic Need

• If you have a chronic, expensive illness or suffer a catastrophic medical event, you will at some point find yourself with insufficient coverage. You may likely find yourself in dire need of medical care and without insurance. Having no insurance causes denial of medical treatment.