11.1 Basic Forms of Coverage
Health care costs continue to be one of the most difficult problems that our health care system faces. In 2006, Americans spent $2.1 trillion for health care. Spending per person rose from an average of $6,700 in 2005 to an average of $7,026 in 2006.
Health insurance is designed to protect insureds who incur medical expenses because of illness or disability. It is funded in a similar format to that of life insurance, from risk pooling and the law of large numbers. However, health insurance does not operate on the same terms where the insured stops making premium payments after a certain period like life insurance typically does. Premiums must be paid every period - monthly, quarterly, semi-annually, or annually, whichever the case may be. Generally, employers take the premium payments directly out of the employee's paycheck before the employee receives it.
Though there are many types of plans, there are a few that are considered basic forms of health insurance coverage.
- Medical expense insurance
- Disability income insurance
- Accidental death and dismemberment insurance
Health insurance policies can be written on a participating or a nonparticipating basis. Most individual policies are written on a nonparticipating basis - group insurance, however, is typically written on a participating basis.
Health insurance is available on an individual basis through a group plan or through federal government plans such as Medicare, Medicaid, and the Social Security system.
