In the previous blog posts, we looked at Private Exchanges and how they function. We’ve seen the functioning of Public Exchanges. We evaluated the pros and cons and we tried to put the two in perspective.
Finally, in this edition, we give you a low-down on the complicated lingo that is thrown around with the reforms and in the insurance industry in general.
Let’s dive right in.
The new Health Care Reform propose 4 levels of coverage – bronze, silver, gold and platinum. The coverage levels are based on the ‘actuarial value’, which is a measure of the level of protection that a policy offers and it indicates the percentage of health costs that would be covered by the health plan for an average population. Based on the actuarial value, the 4 levels and their coverage options have been defined as follows:
Bronze – 60%
Silver – 70%
Gold – 80%
Platinum – 90%
In addition, the reforms propose an additional plan level – catastrophic plans. These plans are aimed at individuals less than 30 years of age and will cover only essential benefits but have high deductibles. Generally speaking, only individuals exempted for the individual mandate will be able to purchase catastrophic plans.
Typically, doctors and hospitals i.e. providers are paid a fixed amount for a defined ‘episode of care’, as opposed to charging patients or insurance companies on a case-by-case basis. Experts suggest that bundling could lower the overall health spending and certain provisions in the reforms promote bundling.
Cadillac Health Plans
In simple terms, these plans are very expensive, very generous and require little or no out-of-pocket expenses for those who have these plans. Historically, public employers and union employees have had Cadillac Plans. However, experts believe that such plans promote unnecessary spending on health care as the people with these plans have no inclination to find cheaper or cost-effective health care. The new reforms propose taxing these plans to discourage people from buying them.
Capitation is a flat fee that insurers pay to a provider for a patient’s medical needs instead of reimbursement for specific services provided. People have mixed opinions about capitation. On one hand, capitation provides incentives to offer cost-effective care, while still keeping patients healthy. On the other hand, it makes providers vulnerable to losses if there is a large group of capitated patients that require significant medical care.
With “Community Rating,” everyone pays the same premium. An insurer using community rating to set insurance premiums ignores any differences in expected costs among insured groups or people. This is the opposite of ‘Experience Rating’, where people pay different premiums based on various criteria like age, health history, medical status etc.
The doughnut hole stems from Medicare Part D and is one of the most glaring issues that the new reforms try to address. In simple terms, if you’re on a Medicare prescription drug plan, you pay a deductible of $310. In addition, you also pay a copayment or coinsurance. After you reach a combined total (deductible + copayment/coinsurance) of $2,840, you are in the doughnut hole. This is when you start to pay a 100% of your prescription drug costs until you reach $4,450 out-of-pocket.
With the health reform law, there are a number of changes to relieve this burden. Individuals who are part of the Part D doughnut hole, you are eligible for a one-time $250 rebate check. In addition, you receive a 50% discount on brand name drugs and pay less for your generic Part D drugs. Here is a more detailed explanation of the doughnut hole and the benefits in the new Health Care Reform.
This is an important term with the new health reforms. It simply means grouping a large number of people in pools to spread out the risk on insuring the group. All things being equal, the larger and more diverse the group of people, the cheaper the premium. The health reforms propose that individuals and small groups or small businesses be allowed to purchase insurance from a public health exchange thereby creating a large pool of diverse people.
This is a basic overview of some of the complex jargon that is being thrown around today and is by no means exhaustive.