Early hospital and medical plans offered by insurance companies paid either a fixed amount for specific diseases or medical procedures (schedule benefits) or a percentage of the provider's fee. The relationship between the patient and the medical provider was not changed. The patient received medical care and was responsible for paying the provider.
If the service was covered by the policy, the insurance company was responsible for reimbursing or indemnifying the patient based on the provisions of the insurance contract ("reimbursement benefits"). Health insurance plans that are not based on a network of contracted providers, or that base payments on a percentage of provider charges, are still described as indemnity or fee-for-service plans.[18]

The Blue Cross and Blue Shield Association (BCBSA) is a federation of 38 separate health insurance organizations and companies in the United States. Combined, they directly or indirectly provide health insurance to over 100 million Americans.[85] BCBSA insurance companies are franchisees, independent of the association (and traditionally each other), offering insurance plans within defined regions under one or both of the association's brands. Blue Cross Blue Shield insurers offer some form of health insurance coverage in every U.S. state. They also act as administrators of Medicare in many states or regions of the U.S., and provide coverage to state government employees as well as to the federal government employees under a nationwide option of the Federal Employees Health Benefit Plan.[86]

A health maintenance organization (HMO) is a type of managed care organization (MCO) that provides a form of health care coverage that is fulfilled through hospitals, doctors, and other providers with which the HMO has a contract. The Health Maintenance Organization Act of 1973 required employers with 25 or more employees to offer federally certified HMO options.[87] Unlike traditional indemnity insurance, an HMO covers only care rendered by those doctors and other professionals who have agreed to treat patients in accordance with the HMO's guidelines and restrictions in exchange for a steady stream of customers. Benefits are provided through a network of providers. Providers may be employees of the HMO ("staff model"), employees of a provider group that has contracted with the HMO ("group model"), or members of an independent practice association ("IPA model"). HMOs may also use a combination of these approaches ("network model").[18][88]

The term managed care is used to describe a variety of techniques intended to reduce the cost of health benefits and improve the quality of care. It is also used to describe organizations that use these techniques ("managed care organization").[89] Many of these techniques were pioneered by HMOs, but they are now used in a wide variety of private health insurance programs. Through the 1990s, managed care grew from about 25% US employees with employer-sponsored coverage to the vast majority.[90]

Rise of managed care in the US Year Conventional plans 
HMOs PPOs   POS plans HDHP/SOs
1998   14%    27%    35%    24%    ~
1999   10%    28%    39%    24%    ~
2000   8%      29%    42%    21%    ~
2001   7%      24%    46%    23%    ~
2002   4%      27%    52%    18%    ~
2003   5%      24%    54%    17%    ~
2004   5%      25%    55%    15%    ~
2005   3%      21%    61%    15%    ~
2006   3%      20%    60%    13%    4%
2007   3%      21%    57%    15%    5%
2008   2%      20%    58%    12%    8%

Many managed care programs are based on a panel or network of contracted health care providers. Such programs typically include:

    A set of selected providers that furnish a comprehensive array of health care services to enrollees;
    Explicit standards for selecting providers;
    Formal utilization review and quality improvement programs;
    An emphasis on preventive care; and
    Financial incentives to encourage enrollees to use care efficiently.

Provider networks can be used to reduce costs by negotiating favorable fees from providers, selecting cost effective providers, and creating financial incentives for providers to practice more efficiently.[21] A survey issued in 2009 by America's Health Insurance Plans found that patients going to out-of-network providers are sometimes charged extremely high fees.[91][92]

Network-based plans may be either closed or open. With a closed network, enrollees' expenses are generally only covered when they go to network providers. Only limited services are covered outside the network—typically only emergency and out-of-area care. Most traditional HMOs were closed network plans. Open network plans provide some coverage when an enrollee uses non-network provider, generally at a lower benefit level to encourage the use of network providers. Most preferred provider organization plans are open-network (those that are not are often described as exclusive provider organizations, or EPOs), as are point of service (POS) plans.

The terms "open panel" and "closed panel" are sometimes used to describe which health care providers in a community have the opportunity to participate in a plan. In a "closed panel" HMO, the network providers are either HMO employees (staff model) or members of large group practices with which the HMO has a contract. In an "open panel" plan the HMO or PPO contracts with independent practitioners, opening participation in the network to any provider in the community that meets the plan's credential requirements and is willing to accept the terms of the plan's contract.
Other managed care techniques

Other managed care techniques include such elements as disease management, case management, wellness incentives, patient education, utilization management and utilization review. These techniques can be applied to both network-based benefit programs and benefit programs that are not based on a provider network. The use of managed care techniques without a provider network is sometimes described as "managed indemnity."
Blurring lines

Over time, the operations of many Blue Cross and Blue Shield operations have become more similar to those of commercial health insurance companies.[93] However, some Blue Cross and Blue Shield plans continue to serve as insurers of last resort.[94] Similarly, the benefits offered by Blues plans, commercial insurers, and HMOs are converging in many respects due to market pressures. One example is the convergence of preferred provider organization (PPO) plans offered by Blues and commercial insurers and the point of service plans offered by HMOs. Historically, commercial insurers, Blue Cross and Blue Shield plans, and HMOs might be subject to different regulatory oversight in a state (e.g., the Department of Insurance for insurance companies, versus the Department of Health for HMOs). Today, it is common for commercial insurance companies to have HMOs as subsidiaries, and for HMOs to have insurers as subsidiaries (the state license for an HMO is typically different from that for an insurance company).[18][88][95] At one time the distinctions between traditional indemnity insurance, HMOs and PPOs were very clear; today, it can be difficult to distinguish between the products offered by the various types of organization operating in the market.[96]

The blurring of distinctions between the different types of health care coverage can be seen in the history of the industry's trade associations. The two primary HMO trade associations were the Group Health Association of America and the American Managed Care and Review Association. After merging, they were known as American Association of Health Plans (AAHP). The primary trade association for commercial health insurers was the Health Insurance Association of America (HIAA). These two have now merged, and are known as America’s Health Insurance Plans (AHIP).
New types of medical plans

In recent years, various new types of medical plans have been introduced.

Plans with much higher deductibles than traditional health plans – primarily providing coverage for catastrophic illness – have been introduced.[97] Because of the high deductible, these provide little coverage for everyday expenses – and thus have potentially high out-of-pocket expenses – but do cover major expenses. Couple with these are various forms of savings plans.

Disability income (DI) insurance pays benefits to individuals who lose their ability to work due to injury or illness. DI insurance replaces income lost while the policyholder is unable to work during a period of disability (in contrast to medical expense insurance, which pays for the cost of medical care).[113] For most working age adults, the risk of disability is greater than the risk of premature death, and the resulting reduction in lifetime earnings can be significant. Private disability insurance is sold on both a group and an individual basis. Policies may be designed to cover long-term disabilities (LTD coverage) or short-term disabilities (STD coverage).[114] Business owners can also purchase disability overhead insurance to cover the overhead expenses of their business while they are unable to work.[115]

A basic level of disability income protection is provided through the Social Security Disability Insurance (SSDI) program for qualified workers who are totally and permanently disabled (the worker is incapable of engaging in any "substantial gainful work" and the disability is expected to last at least 12 months or result in death).
Long-term care insurance
Main article: Long term care insurance

Long-term care (LTC) insurance reimburses the policyholder for the cost of long-term or custodial care services designed to minimize or compensate for the loss of functioning due to age, disability or chronic illness.[116] LTC has many surface similarities to long-term disability insurance. There are at least two fundamental differences, however. LTC policies cover the cost of certain types of chronic care, while long-term-disability policies replace income lost while the policyholder is unable to work. For LTC, the event triggering benefits is the need for chronic care, while the triggering event for disability insurance is the inability to work.[113]

Private LTC insurance is growing in popularity in the US. Premiums have remained relatively stable in recent years. However, the coverage is quite expensive, especially when consumers wait until retirement age to purchase it. The average age of new purchasers was 61 in 2005, and has been dropping.[117]
Supplemental coverage

Private insurers offer a variety of supplemental coverages in both the group and individual markets. These are not designed to provide the primary source of medical or disability protection for an individual, but can assist with unexpected expenses and provide additional peace of mind for insureds. Supplemental coverages include Medicare supplement insurance, hospital indemnity insurance, dental insurance, vision insurance, accidental death and dismemberment insurance and specified disease insurance.[18]

Supplemental coverages are intended to:

    Supplement a primary medical expense plan by paying for expenses that are excluded or subject to the primary plan's cost-sharing requirements (e.g., co-payments, deductibles, etc.);
    Cover related expenses such as dental or vision care;
    Assist with additional expenses that may be associated with a serious illness or injury.[18]

Medicare Supplement policies are designed to cover expenses not covered (or only partially covered) by the "original Medicare" (Parts A & B) fee-for-service benefits. They are only available to individuals enrolled in Medicare Parts A & B. Medigap plans may be purchased on a guaranteed issue basis (no health questions asked) during a six-month open enrollment period when an individual first becomes eligible for Medicare. The benefits offered by Medigap plans are standardized.
Hospital indemnity insurance

Hospital indemnity insurance provides a fixed daily, weekly or monthly benefit while the insured is confined in a hospital. The payment is not dependent on actual hospital charges, and is most commonly expressed as a flat dollar amount. Hospital indemnity benefits are paid in addition to any other benefits that may be available, and are typically used to pay out-of-pocket and non-covered expenses associated with the primary medical plan, and to help with additional expenses (e.g., child care) incurred while in the hospital.[18][88]

Scheduled health insurance plans are an expanded form of Hospital Indemnity plans. In recent years, these plans have taken the name mini-med plans or association plans. These plans may provide benefits for hospitalization, surgical, and physician services. However, they are not meant to replace a traditional comprehensive health insurance plan. Scheduled health insurance plans are more of a basic policy providing access to day-to-day health care such as going to the doctor or getting a prescription drug, but these benefits will be limited and are not meant to be effective for catastrophic events. Payments are based upon the plan's "schedule of benefits" and are usually paid directly to the service provider. These plans cost much less than comprehensive health insurance. Annual benefit maximums for a typical scheduled health insurance plan may range from $1,000 to $25,000.[118]


Dental insurance helps pay for the cost of necessary dental care. Few medical expense plans include coverage for dental expenses. About 97% of dental benefits in the United States is provided through separate policies from carriers—both stand-alone and medical affiliates—that specialize in this coverage. Typically, these dental plans offer comprehensive preventive benefits. However, major dental expenses, such as crowns and root canals, are just partially covered. Also, most carriers offer a lower rate if you select a plan that utilizes their Network providers. Discount dental programs are also available. These do not constitute insurance, but provide participants with access to discounted fees for dental work.

Vision care insurance provides coverage for routine eye care and is typically written to complement other medical benefits. Vision benefits are designed to encourage routine eye examinations and ensure that appropriate treatment is provided.[18]
Specified disease
Main article: Critical illness insurance

Specified disease provides benefits for one or more specifically identified conditions. Benefits can be used to fill gaps in a primary medical plan, such as co-payments and deductibles, or to assist with additional expenses such as transportation and child care costs.[18]
Accidental death and dismemberment insurance
Main article: Accidental death and dismemberment insurance

AD&D insurance is offered by group insurers and provides benefits in the event of accidental death. It also provides benefits for certain specified types of bodily injuries (e.g., loss of a limb or loss of sight) when they are the direct result of an accident.[18]

    Insurance companies have high administrative costs.[119] Private health insurers are a significant portion of the U.S. economy directly employing (in 2004) almost 470,000 people at an average salary of $61,409.[120]

    Health insurance companies are not actually providing traditional insurance, which involves the pooling of risk, because the vast majority of purchasers actually do face the harms that they are "insuring" against. Instead, as Edward Beiser and Jacob Appel have separately argued, health insurers are better thought of as low-risk money managers who pocket the interest on what are really long-term healthcare savings accounts.[121][122]

    According to a study by a pro-health reform group published February 11, the nation's largest five health insurance companies posted a 56 percent gain in 2009 profits over 2008. The insurers (Wellpoint, UnitedHealth, Cigna, Aetna and Humana) cover the majority of Americans with health insurance.[123]
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