8.3 Commercial Health Insurance

Most patients have commercial insurance—or nongovernmental, private insurance—that they pay for on their own or that is subsidized by their employers as a benefit to employees and retirees. The employer contracts with the insurance company or companies to offer certain plans. While the workers are employed, the employer pays a portion of the monthly premium, and the remaining cost is deducted from the wage earners’ pay prior to taxes; during retirement years, the retirees usually must pay the full portion and a higher premium depending on their age and health status. Common private insurers include Blue Cross/Blue Shield, Aetna, United Health, Humana, and others.

The Affordable Care Act (ACA) of 2010 sought to extend coverage to more Americans who were uninsured (without any insurance) or underinsured (insufficiently covered). Healthcare costs rise through higher hospital costs or taxes when individuals who cannot afford ongoing or preventive care are forced to go to emergency rooms, fall into poverty because of medical costs and loss of work, or have a parent die from illness. The ACA mandated that all businesses with more than 50 full-time employees offer a health insurance option. Private insurance comes in three types: health maintenance organizations (HMOs), which have their own staff of providers or a network of preferred providers; preferred provider organizations (PPOs), that encourage patients to use contracted providers; and traditional healthcare insurers, which allow patients to seek out their own providers.

Managed Care Organizations and Network Providers

Many insurance and healthcare companies are seeking ways to cut costs by limiting patient health choices to those considered or contracted to be the most cost-efficient and effective for the most people. These managed care organizations (MCOs) utilize preferred drug formularies and providers. Managed care insurance plans come generally in two types: HMO or PPO.

Health Maintenance Organizations

Health maintenance organizations (HMOs) require members to get services and products only through their staff or contracted providers and facilities. As described in Chapter 1, HMOs put an emphasis on preventive care and have their own employed or contracted providers, clinics, hospitals, and in-house pharmacies. Patients select or are designated a primary physician within the system who acts as a gatekeeper for the rest of the services provided within the HMO provider network. The system offers incentives and coaching to encourage patients to eat well, exercise, and take time for annual exams, immunizations, and certain screenings to prevent problems, which the system offers at no extra charge.

For specialized services that the system and primary care physician cannot provide, patients need a referral, or an official approved consent from the primary physician for additional services. If a patient has a severe accident or develops a complex medical condition, a case manager is often assigned to help coordinate the many different kinds of services needed.

Patients in an HMO system generally have no copayments, coinsurances, or deductibles along with lower monthly premiums as compared to most traditional health insurance plans. In return for these cost benefits, there is little to no choice in their doctors, hospitals, pharmacies, and other providers. HMOs have a restricted drug formulary with a strong emphasis on lower-cost generic drugs.

Preferred Provider Organizations

Preferred provider organizations (PPOs) have some elements of the HMO model but with more choice. PPOs have tiered copay rates or coinsurance percentages that favor preferred in-network providers (those with whom the insurance company has a working contract) over out-of-network providers (those who have no contract with the insurance company). The insurance companies charge patients less for the services or products from a PPO member provider because the insurance company has already negotiated a group discount rate. These discounted rates do not apply to out-of-network providers.

Health Insurance Companies

Traditionally, private health insurance coverage was primarily limited to hospitalizations and emergency room (ER) visits with a 20% deductible. That is, the insurance would cover 80% of the hospital or ER costs, and the patient would be responsible for the remaining 20%. A patient had to pay cash for each physician visit and for each prescription. These insurance companies generally had no free preventive services, such as annual exams, but there was free choice of provider, clinic, hospital, and pharmacy because there were no in-network or out-of-network providers or restricted drug formularies.

Many health insurance companies have integrated preventive medicine managed care strategies, such as paying for well-baby checks and annual physicals, and have preferred drug formularies.

Many traditional insurance companies, however, have now taken on some of the managed care cost containment and preventive medicine strategies of HMOs and PPOs. Many commercial plans (except catastrophic plans) in the marketplace now cover the preventive care of annual exams, immunizations, and certain screenings, and favor specific drug formularies and negotiated contract preferred providers.

Supplemental Health Insurance

Some patients have supplemental, secondary insurance in addition to their primary insurance coverage to address uncovered services. Individuals with personal or parental histories of debilitating diseases or cancers may choose to get this additional coverage in anticipation of future health problems. For example, patients with chronic health issues and high annual medical and prescription drug costs who have primary coverage through a government insurance program such as Medicare may also have insurance provided through their employer as a supplemental insurance to lower their out-of-pocket costs.

Other Forms of Insurance

Another form of health insurance comes through the employer that is separate from general healthcare insurance. This is workers’ compensation insurance (commonly referred to as “workers’ comp”) to cover illness or injuries caused by or related to one’s job, and it varies in its structure per each state’s laws. Employers purchase a private disability insurance plan for their employees through a state-sponsored insurance plan with a deductible, or they insure their employees themselves. Employers generally pay a commercial insurance carrier or PBM specializing in workers’ comp claims to administer the program. (The states determine whether or not the coverage is from a state-established provider or a private insurance company.)

This form of insurance offers ill or injured employees some medical and prescription drug benefits and some wage replacement in exchange for a waiver of the employee’s right to sue the employer for the work-related health problem. Employees do not receive a workers’ comp insurance card but commonly have an 800 number to call. The pharmacy technician receives the billing information from the assigned caseworker and the PBM or commercial insurance carrier. The pharmacy is then reimbursed directly through it.

The workers’ comp coverage for a specific injury generally has an expiration date determined by the type and extent of the injury. If the employee is killed through the injury, dependents receive death benefits.

For those with a business-sponsored insurance who have lost or left their jobs, employers are required to allow former employees to stay on the employee insurance plans at full premium cost for 18 to 36 months. This is called COBRA insurance—named after the Consolidated Omnibus Budget Reconciliation Act (COBRA) that mandated that an employer must retain its former employees in its coverage plans to allow transition to their next jobs without loss of health insurance.