Understanding health insurance

Milliman principal Tim Lee is presenting today with veteran health reporter Trudy Lieberman at the Association of Health Care Journalists. The presentation, “Understanding Health Insurance,” offers healthcare journalists a basis for reporting on health insurance and understanding healthcare reform. Here is the Tip Sheet of key concepts, sources, and story ideas distributed to reporters.

Tip Sheet:
Understanding Health Insurance

Health reform is all about insurance. The new law further complicates an already complex marketplace. Consumers will need all the help they can get to navigate through it. This tip sheet offers a brief guide for reporters wanting to cover this enormously important subject.

The Basics

Premium: What people pay for insurance coverage.

Coinsurance: Usually a percentage of the bill someone must pay.

Copayment: A flat dollar amount that a person must pay for a service.

Out of pocket maximum: The maximum amount a person will pay out of pocket.

Deductible: The amount a person pays before insurance kicks in.

Cost sharing: The amount of the medical bill a person will pay out of pocket; can also encompass payroll deductions as well as out-of-pocket.

Pre-existing conditions: Health condition that you have at the time a policy is issued.

Underwriting: The process of determining a person’s insurability and assigning him/her to classes of people who have similar risk characteristics.

Risk classification: Matching an applicant to the right premium rate based on his/her risk characteristics and expected cost.

Rate setting: The process used to determine the premium based on a variety of factors (see paper, “The difficulty of legislating premium rate increases,” in this handout).

Medical loss ratio: The proportion of the premium that an insurance company pays in medical claims (usually calculated on a large group of policies, or a product line, rather than for individual policies).

Self-insured plan: Large employers sometimes operate their own health insurance plan. They do not have to pay the insurers profit margin, but do assume the risk. A self-insured plan is as opposed to a fully-insured plan.

Fully-insured plan: When an employee pays a premium to an insurance company and the insurance company pays out benefits to employees.

Administrative services only: A type of self-insurance where an employer turns over administrative duties to an insurance company without passing on risk.

High-deductible plan: Plan that offsets a lower premium with a higher deductible. Often accompanied with a health-savings account, a tax-advantaged way to save money for medical costs.   

Rescission: The ability of an insurance company to cancel a policy if it detects fraud or misrepresentation on the part of the insured.

Underwriting restrictions: Insurers can no longer underwrite for pre-existing conditions but can for age or geography.

State insurance exchange: A state-run marketplace where insurers can offer policies for sale that satisfy a minimum benefit standard; effective in 2014.

Grandfathered plans: Insurance policies that existed before the law was passed that will not be subject to the new rules.



  • State departments of insurance
  • National Association of Insurance Regulators (NAIC, www.naic.org): A group composed of the state insurance commissioners who will write model legislation and regulation for states to adopt. Offices in Washington, DC, Kansas City, and New York.
  • NAIC/Consumer Liaison Committee: www.naic.org/committees_conliaison.htm

New Federal Insurance apparatus

  • Health and Human Services Office of Consumer Information and Insurance Oversight
    • Office of the Director
    • Office of Oversight
    • Office of Insurance Programs
    • Office of Consumer Support
    • Office of Health Insurance Exchanges

Rating agencies

  • AM Best’s
  • Standard and Poors
  • Fitch
  • Moody’s

Other organizations

  • Employee Benefit Research Institute (Paul Fronstin, Dallas Salisbury): www.ebri.org
  • National Business Group on Health (Helen Darling): www.businessgrouphealth.org/
  • American Academy of Actuaries: www.actuary.org  
  • Society of Actuaries: www.soa.org  
  • Internal Revenue Services (for information concerning tax credits for the insured)
  • Labor Department (for ERISA questions)


  • Blue book filing
  • Rate filings
  • Annual insurance company reports
  • 10K filings
  • Analyst calls (found on insurance company websites under “investor relations”)
  • Trade publications
    • National Underwriter:
      Life and Health Edition
    • Best’s Review
    • Best’s “Guide to Understanding the Insurance Industry” (available on www.amazon.com)

Medicare Sources

  • Centers for Medicare and Medicaid Services (CMS)
    • Peter Ashkenaz, CMS spokesperson
    • Rick Foster, Medicare Chief Actuary
  • Medicare Rights Center
  • Center for Medicare Advocacy
  • California Health Advocates

Big stories for 2010-2014

  • How are minimum loss ratios affecting the market?
    • How are insurance companies reducing administrative expenses?
    • Are brokers/agents being affected?
    • Are companies exiting the market?
    • Is there consolidation going on in the industry?
  • What is happening to premium rates?
    • Up faster than expected? Not as fast?
    • How does it vary by state? Heavily rate-regulated states vs. lightly rate-regulated states
    • How does it vary by market (individual, small group, large group, PPO, HMO)?
  • How are providers being affected?
    • Do they have less or more market power against insurance companies?
    • Are insurers transferring claims risk (through global fees or capitation) to providers?
    • Are providers developing accountable care organizations to improve quality and efficiency?
  • Now that there is guaranteed issue, are employers getting out of the insurance business?
    • What do human resources people want to do?
    • What do CFOs want to do?
    • If so, which industries will go first?  Which companies?

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