Traditional Health Insurance
In one of them, a health insurance company locates a number of independently owned and operated private health care providers and enters into a contract with them to provide various services to its insureds at a negotiated contract rate rather than the higher or different rate applicable to uninsured or government insured patients.
Sometimes, the providers that negotiate a contract with the insurance company to be in its network are a small as a single doctor's office. Sometimes, the providers are as large as a major pharmacy chain or a large consolidated group of hospitals, clinics, laboratories, pharmacies and doctor's office that are operated as a single entity for insurance network purposes. In reality, even though they are treated as a single entity for insurance coverage purposes, the providers in a large consolidated group may be independently owned and operated themselves and form the provider's group solely for the purposes of negotiating with insurance companies on contract rates and sharing medical records within the group.
The health insurance company then enters into contracts with its insureds. In these contracts, the insured pays a fixed monthly insurance premium to cover the primary insured, the primary insured's spouse or domestic partner, and one or more children of either of them aged 26 or younger.
In exchange, the health insurance company pays part of the amounts owed by the insureds for medical goods and services, and the insureds pay some combination of co-pays (a modest, fixed in advance dollar amount for a particular type of service in lieu of a deductible, and $0 for a few preventative care services), or the entire uninsured part of the bill for that medical goods and services which is called a deductible.
When there is a co-pay, the insurance company typically pays all of the charges not covered by the co-payment amount. Deductibles come in three main categories: (1) a dollar amount that must be paid per insured or per insured family (whichever is exhausted first) before the insurance company will pay for any non-copay medical goods or services, (2) a percentage of the provider's bill for medical goods and services in excess of the initial dollar amount, or (3) the entire provider's bill for medical goods and services that are not covered by the insurance plan. In addition, there is typically an annual limit on how much the insured must pay out of pocket for covered medical goods and services, after which the insurance company pays all further provider charges.
The obligation of the insurance company to pay depends upon whether or not the provider is in the insurance company's network or not. There are also some kinds of medical goods or services that are only covered if obtained from a provider in the insurance company's network.
If the provider is in the insurance company's network a more generous to the insureds set of co-pays, initial out of pocket dollar amounts, and percentage of remaining bills that the insurance company pays applies.
If the provider is outside the insurance company's network, a less generous to the insureds set of co-pays (typically only for emergency or urgent care services and prescription drugs, if there are any co-pays at all), initial out of pocket dollar amounts, and percentage of remaining bills that the insurance company pays applies.
Typically, an insurance program will offer a variety of plans with higher premium plans offering progressively lower initial dollar amounts that must be paid, higher insurance company percentages of bills, and lower co-pays which are available in lieu of a percentage of the bill coverage.
At one extreme, called a catastrophic plan, the insurance policy has a high initial dollar amount that must be paid by the insured and only kicks in when the insured has a major illness or injury.
Kaiser Permanente is the dominant and almost singular exception the traditional health insurance model. It is vertically integrated and is organized on a non-profit basis.
With a narrow exception of emergency out of network care, Kaiser requires all of its insureds to receive their care from within their network, in which all providers except a few hospitals, alternative medicine providers and scarce specialists are owned and operated by Kaiser itself in which everyone who works in the network is an employee of Kaiser, typically at compensation significantly less than what the owners of an independently owned and operated provider would charge.
In addition to paying people who would otherwise own independent health care providers less in exchange for freeing them from the risks and hassles of being a business owner as well as a health care provider, this model affords Kaiser a variety of other advantages.
* Kaiser can unilaterally set the amount that it charges for medical goods and services, subject to its need to cover its wholesale costs for providing those medical goods and services, so it has much less uncertainty regarding how much it will receive from insureds for particular medical services and how much it will pay for those goods and services (which are mostly part of a monthly payroll and overhead expense that isn't directly tied to how much care its insureds need). This also makes it easier for Kaiser to provide more services on a co-pay basis than other providers without facing the risk that provider costs will grow uncontrollably.
* Kaiser insureds receive medical goods and services at a much smaller number of locations than providers in a traditional health insurance plan, allowing it to secure economies of scale and to have much more direct, hands on management of their providers by senior health care administrators.
* Kaiser providers share a single medical records database that facilitates better coordination of providers and allows it to automate tools to monitor the heath care that patients are receiving.
* Kaiser eliminates a lot of the paperwork associated with traditional health insurance and associated billing difficulties by eliminating the need for providers to request insurance payments for the services that they have provided.
Kaiser's radically different business model allows it to provide comparable health care at a lower price than many its competitors which has won it a disproportionate share of the Obamacare insurance exchange markets for people who don't have employer provided group health insurance plans, despite the reduced choice of doctors that it affords its insureds.
But, Kaiser has a quite limited geographic scope. It does business in only eight states and the District of Columbia: four Pacific states (California, Oregon, Washington State and Hawaii), Colorado, Georgia, Maryland, Virginia and the District of Columbia. In Virginia, moreover, it only operates in the Northern Virginia area which is a suburb of D.C., while in Maryland it only serves the D.C. and Baltimore metropolitan areas. Similarly, in Georgia, it provides services only in the greater Atlanta and Athens areas.
There is only one Red State (Georgia) and one Purple State (Virginia) in Kaiser's entire portfolio (at this point I count Colorado is "Blue" and not "Purple") and in both cases Kaiser's operations are limited to some of the bluest parts of those states.
Kaiser has no operations in the other 42 U.S. states, both limiting its political clout and denying residents of these states an alternative business model for health care. This also makes Kaiser not a viable option for employers or insureds who routinely find themselves away from home. And, even in the areas that it does serve, it has few providers in rural areas away from major metropolitan areas.
The lack of alternatives to traditional health insurance in most of the United States and essentially all of rural America is one of the reasons that people in different states perceive health care issues differently.