How Do Health Insurance Companies Determine What to Cover?

Cost influences many decisions about what services and drugs are covered by health plans.
Cost influences many decisions about what services and drugs are covered by health plans. (Image: Jupiterimages/ Images)

Different health insurance plans cover different services. Individuals, employers, union trusts and welfare funds may decide what benefits they want to cover. States also impose provisions that require health insurers to cover certain benefits and to what level. State mandates always supersede the decisions of health insurance companies, employers, individuals and union trust and funds regarding coverage.

Industry Standards

Health insurance companies typically offer a standard set of benefits for each plan they offer groups and individuals, depending on the type of health insurance. Most insurers follow industry standards for the services they cover. Comprehensive health insurance plans cover care related to accidents, emergencies and illness. Limited types of policies may cover only accidents, hospitalization or a specific disease. Industry standard exclusions from coverage have traditionally included pre-existing conditions and cosmetic surgery. Other typically excluded services may be covered; however, the insured will likely pay a higher premium.

State-Mandated Benefits

Each state has certain state-mandated benefits that health insurers must cover. The state coverage depends on where the individual lives for individual policies or where a company is headquartered for group policies. Some states are more regulated than others. For instance, in Pennsylvania, individual and group health insurance must cover an annual gynecological exam, childhood immunizations and cancer therapy. Maryland requires that health insurers cover infertility treatments.

Group Discretion

Employers offering group health insurance can make decisions about what benefits they want to cover. Though they offer the core plan services such as routine care and illness coverage, depending on the benefit and state mandate, groups can decide to include, limit or exclude specific benefits and services. These decisions will impact their group premium. For instance, if not a state mandate, a group may decide to cover or exclude in vitro fertilization. In addition, groups can impose limitations on services; for example, they can decide the number of inpatient mental health benefits.

Union Plans

Like employers, health insurance companies work with union trusts and welfare funds to design health plans. These plans cover union members and their families and often offer a rich coverage of services. Employers with union employees have little room to decide benefit coverage. They must work with the union trusts and funds to negotiate any changes to the employees’ union benefit plans. The health insurance company has less input then it might with group or individual plans. However, like group plans, the richer the benefits covered, the higher the premiums.

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