Who pays for your health care?

In light of the unprecedented rate increases and disruption we are experiencing in the under 65 age market segment during this ACA open enrollment period, I feel that this is a good time to drill down on the confusing subject of insurance and shed some light on the subject of how to access health coverage and who pays for it.

We shall divide our efforts on this topic into multiple parts. Who pays? What's next? What's right? Just as well we shall resist, at all costs, the temptation of hyperbole and finger pointing and present as fair an exposition of facts as is possible.

So, let's go past the easy and obvious answer, "of course, you are the one that pays," and examine what insurance companies are and do. After all, they are the ones getting our premium money payments, so what's their role in the greater scheme of things. Also, let's examine the role government plays in this mix.

When I first started in this business eons ago, there were two concepts regarding insurance companies that kept popping up, "transfer mechanism" and "pass-through entity," and both described how insurance companies work both financially and economically. Insurance is a system for pooling and redistributing risk and money.

Your health insurance policy transfers financial risk from the individual policyholder to a collective pool managed by the insurance company.

You pay the premium to the insurance company, it also collects premiums from other members and that pooled money pays to the healthcare providers for the losses and expenses of the few who had claims. So, instead of one person bearing a large, unpredictable expense (say, a $250,000 hospital bill), that cost is spread across thousands of premium payers.

An insurance company doesn't create money or value like a manufacturer or investment firm might. Instead, it mostly passes money through from one set of parties to another, minus administrative costs and profit. The insurer does not own the care or directly provide it — it's the go-between managing the flow of funds between payers and providers. Hence, the term "pass-through entity."

Why this matters is because understanding that insurance companies are basically financial conduits — payment and provider network administrators — clarifies the concept that they are more risk managers and claims processors than a traditional business selling a product or service. Thus, think of an insurance company as a highly-regulated financial middleman that collects many small predictable payments to cover a few large unpredictable losses.

Where and how we get our insurance coverage matters and will determine how much out of our pocket we must pay.

There are two basic market segments or markets where you can go and get your insurance coverage: individual and employer-sponsored markets.

Since the end of World War II, the national trend has been shifting the cost of health coverage to private employers via the purchase of group health plans with their related workplace supplement benefit offerings. These types of group coverages fall under the heading of employee benefits and usually are categorized under the following groupings: (PPOs) Preferred Provider Organizations, (HMOs) Health Maintenance Organizations, (POS) Point of Service or (EPOs) Exclusive Provider Organizations.

Each grouping occupies a niche within a managed care benefit model continuum with HMOs being the most "managed," meaning you must receive services within a network of providers or, except in emergency life-or-death circumstances while traveling out of the service area of the plan, must cover the entire cost of services rendered out of network. At the other end resides the PPOs, which mostly do allow you, at a price, to receive services out of network.

All these alphabet soup of benefit designs and plans are either fully insured — you pay an insurance premium and you are done — or level-funded arrangements, where an insurance company unbundles the policy parts, assesses the health of the group through underwriting and administers the plan on the employer's behalf after selling the decisionmaker a "stop loss" component. It basically mimics the insured approach but allows you to share in underwriting gains while limiting your loss. The actual workings of both approaches is so similar that you, as a participant, will not know the difference between them.

Larger employers tend to favor the level-funded approach, although recently there has been a surge of interest for the small- and medium-sized group segments for those plans as prices have continued to rise, albeit less so than in the individual market segment. Generally, the employer-sponsored group side of the insurance industry has been more stable and less conflicted than the individual.

So, in summary, in the employer-sponsored group market private sector, who pays? Employers pay a share of the employees' premium directly to the insurance company and employees pay any remainder — often on a pretax basis through payroll deduction. This pooled premium payment amount is paid to the insurance carrier who then pays the clinic, hospital or doctor when the employee receives care for covered services minus the cost shares of the plan originally chosen by the group, meaning applicable deductibles, the patient's copay or coinsurance. The provider, if in network, then accepts the payment received by the insurance company as payment in full, subject to the plan's terms and conditions

In the individual market, as compared to the group, health policies are bought either on the marketplace if you are seeking eligibility for a subsidy (Advanced Premium Tax Credit) or directly from an insurance company, both through the services of a licensed agent.

This market segment has gone through much greater turbulence than the employer group side, and this renewal year has seen unprecedented rate increases for a variety of reasons: rising healthcare costs, stricter regulations and Congress so far not renewing the American Rescue Plan Act, with its expanded and enhanced eligibility income thresholds, which not only increased the original subsidy calculations resulting in greater subsidies but also allowed more people to be eligible for assistance.

All these factors have contributed to the turmoil of this year's open enrollment period season, and as of the date of the publishing of this article, there is no confidence among commentators that any proposal in sight is doable before Dec. 31. I am hoping they are wrong so many Americans will not end up losing their needed health coverage.

In the individual marketplace segment, specifically in the ACA Exchange Marketplace, you pay your member's responsibility premium amount from the plan you selected to the insurer and the federal government, if you are eligible based on your household income, pays the rest of the premium to the insurance company. Premiums go to Florida Blue in Monroe County and ultimately benefit payments for services go to local hospitals, clinics and providers.

So, you pay your share of the monthly premium, the federal treasury pays the subsidy portion of the premium directly to the insurance company and, finally, when healthcare services are rendered, the insurer pays the providers minus your deductible, coinsurance and copays (cost-sharing factors).

What happens to those that fall through financial cracks and cannot afford any healthcare options, in other words, our low-income Monroe County residents who fall below the 100% of the federal poverty line, making them ineligible for financial assistance in the ACA marketplace?

Where can these neighbors get help? Answer: Medicaid. A program jointly funded by the federal government and the state of Florida, roughly on a 60/40% cost share with the state shouldering the lower percentage. In this arrangement, payments go to Medicaid Managed Organizations (MCOs) such as Sunshine Health, Simply Healthcare or Humana Healthy Horizons. The state contracts with the MCOs and pays them a per-member monthly amount and the patient usually pays nothing or a very small copay.

There are some county residents who are not only ineligible for ACA financial subsidies, but for reasons besides household income find themselves in the uninsured ranks. Is there a safety net for them? Yes, there is.

For those uninsured or self-pay care cases where the patient pays directly to the provider for emergency or charity cases, Monroe County government, federal community health grants or hospital charity programs may subsidize care. Payment goes directly to the local hospitals, clinics or physicians. Patients are billed directly, and if unpaid, costs are often absorbed by the hospital or offset through local public health funding or higher commercial insurance rates.

In this later regard, a community institution such as the Good Health Clinic in Tavernier fills a critical need. It offers free primary medical care to uninsured Monroe County residents who otherwise would need to receive these services in a hospital's emergency room. This unfortunate path to care drives up the cost of medical care for all of us in the county and results in these patients receiving primary care in a setting designed to deliver critical emergency care.

There are other special federal and county safety-net programs in Monroe County. The federally qualified health centers (FQHCs) like Community Health of South Florida (CHI) and Rural Health Network of Monroe County receive federal grants to treat patients regardless of ability to pay.

Who you buy your coverage from can also depend on your age. If you are not disabled and have resided continuously for five years or more in the United States as a permanent resident and worked for more than 10 quarters and paid taxes, you are eligible for government insurance called Medicare and will have prepaid your Part A of Original Medicare, which is made up of two parts: Part A (hospital and related services) and Part B (doctor's office visits and such). The Part B premium will depend on your income and will be adjusted accordingly.

Original Medicare, as good as it really is, does have coverage gaps that can be substantial. So, in order to cover these gaps, you can supplement the gaps and pair that plan (MEDIGAP) with a prescription drug plan from an insurance company, or substitute Original Medicare with an all-inclusive plan called Medicare Advantage (Part C), which you buy from an insurance company as well, either an HMO or PPO, with whatever benefits or benefit model designs are available for your zip code.

Health coverage for those over age 65 will be influenced by working status and/or how close you are to retirement. If the employer plan is as good as the Original Medicare parts and the group has 20 or more participants, then Medicare is the primary payer and you can delay the purchase of Part B and D (if the Part D is "creditable" coverage) until you retire. If your employer's plan is less than 20 participants, then Medicare is the secondary payer and the insurance company coordinates coverage with Medicare.

Another category of coverage are limited benefit plans and temporary insurance.

Limited benefit plans are usually medically underwritten and are not actually insurance. They have limitations that you must be very cognizant of.

Temporary insurance is medically underwritten, has a health plan benefit design, does not cover pre-existing conditions and mostly resets every time you renew. They are often used by students, people waiting to join an employer group or for those out of the annual open enrollment period without a special enrollment situation (SEP).

Our next article will deal with what is in the pipeline as next steps in our healthcare universe, and what is likely to happen with the enhanced premium subsidies authorized under the American Rescue Plan Act (ARPA) of 2021 and extended by the Inflation Reduction Act (IRA). These are due to expire on Dec. 31 unless their extension is approved by Congress.

Effective Jan. 1, 2026, the current expanded eligibility — income over 400% of the federal poverty line which provided increased eligibility and more generous subsidy amounts — will revert to pre-ARPA/IRA levels. Many Americans will then find themselves ineligible for an enhanced subsidy resulting in a higher premium for their insurance or, in worst case scenarios, losing their subsidy altogether and having their premiums become totally unaffordable.