Senate Insurance Committee Informational Hearing

Group versus Individual Policies

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Group versus Individual Policies

Group insurance is typically offered through employers, although unions, professional associations, and other organizations also offer it. As an employee benefit, group health insurance has many advantages. Much of the cost may be borne by the employer. Premium costs are frequently lower because economies of scale in large groups make administration less expensive. With group insurance, if an employee enrolls when first becoming eligible for coverage, the employee generally will not be asked for evidence that he or she is insurable. Enrollment usually occurs when the employee is hired and during a specified period each year called open enrollment. Some employers offer employees a choice of fee-for-service and managed care plans. In addition, some group plans offer dental insurance as well as medical.

Individual insurance is an option if the employee works for a small company that does not offer health insurance or if the patient is self-employed. Buying individual insurance allows the consumer to tailor a plan to fit individual needs from the insurance company. It requires careful shopping, because coverage and costs vary from company to company. In evaluating policies, consider what medical services are covered, what benefits are paid, and how much must be paid in deductibles and coinsurance. Premiums may be kept down by accepting a higher deductible.
Managed Health Care in California:
In 1973, the federal government passed the federal Health Maintenance Organization Act which gave legitimacy to HMOs and pre-empted state laws that obstructed the creation of HMOs. In 1975, California passed the Knox-Keene Health Care Service Plan Act to protect its citizens from unsavory and financially unstable HMOs. Knox-Keene placed the oversight of HMOs in the Department of Corporations and defined HMO financial solvency standards, benefit packages, quality assurance programs and appeals processes. Knox-Keene also allowed HMOs (including Blue Cross, PacifiCare and Health Net) to convert from not-for-profit to for-profit status and thus become publicly traded companies.
In the late 1980’s, the sky-rocketing premiums of traditional health insurance allowed employers the opportunity to provide less expensive health insurance by moving their employees into the lower cost HMOs. Growth was furthered when the federal government also began to offer HMOs to Medicare patients with the HMO promise of no paperwork and prescription coverage.
During the 1980’s, HMOs contracted with both individual doctors and with groups of doctors to provide care for their enrollees. But as negotiations with the HMOs became more difficult, individual doctors joined together in individual practice associations (IPAs) for the express purpose of negotiating contracts. IPAs are very decentralized organizations and allow doctors to stay in their own private office. Other doctors began forming medical groups where doctors are either employees or partners. Medical groups are highly integrated organizations.

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