CRS – An Introduction to Health Insurance: What Should a Consumer Know? Carol Rapaport, Analyst in Health Care Financing. April 30, 2015.

“Congress has seen a renewed interest in the market for private health insurance since the passage of the Patient Protection and Affordable Care Act (ACA; P.L. 111-148, as amended). This report provides an overview of private-sector (as opposed to government-provided) health insurance. It serves as an introduction to health insurance from the point of view of many consumers under the age of 65. No background in health insurance is assumed, and all terms are defined in the body of the report. A consumer may find the purchase of health care inherently different from some other purchases. Health care can be expensive, and many relevant details concerning future health care may not be known when the consumer is choosing an insurance plan, including when over the course of a year (if at all) health care will be purchased, which services will be needed, and the costs of those services. These characteristics of purchasing health care decrease the consumer’s ability to plan financially and increase the consumer’s exposure to financial risk. The purchase of health insurance reduces the risks and unpredictability inherent in paying for health services. An employed consumer may obtain health insurance from his or her employer if health insurance is offered by the employer (known as employer-sponsored insurance, or ESI) as a fringe benefit. All consumers may purchase health insurance directly (perhaps through an insurance agent or broker) from private insurance firms. In addition, all consumers may obtain health insurance through insurance exchanges, or marketplaces. Exchanges facilitate transactions between buyers and sellers of insurance but are not insurers. Health insurance plans can differ across many dimensions, including coverage, costs, flexibility in choosing providers, special features, and generosity. Two specific health insurance plan types that may be of interest to Congress are consumer-directed health care (CDHC) and value-based insurance design (VBID). Both these plan types have the potential to lower aggregate health care (however measured) by providing incentives for consumers to seek less care, or less expensive care. Which particular health insurance plan a consumer chooses depends on a number of factors, including the expected health of those covered by the plan, the price of the plan and of the medical services it provides, the consumer’s income, and the prices of the other goods and services the consumer wishes to purchase. In addition, because some health insurance plans are tied to employment, the consumer’s status as an employee also influences (and is influenced by) his or her choice of health insurance.”