State of Minnesota
More about
Attorney General
Lori Swanson

Minnesota Attorney General's Office

1400 Bremer Tower
445 Minnesota Street
St. Paul, MN 55101

(651) 296-3353
(800) 657-3787

M - F 8 am - 5 pm

TTY:(651) 297-7206
TTY:(800) 366-4812

I .   Private Health Coverage

Different types of private health care coverage are available in today's marketplace. You have somewhat different rights depending on the structure of your plan. For example, you may have private health care coverage through an individual policy or a group policy. These differ a little bit. You purchase an individual policy directly from a health carrier. Under a group policy, a "group," most typically an employer, either purchases a "fully-insured" policy from a health carrier or becomes "self insured." You, as an employee, then have coverage through the group plan. Let’s look at these types of health insurance one at a time.



You may purchase an individual policy from a health maintenance organization (HMO), insurance company or nonprofit health services corporation (such as Blue Cross Blue Shield of Minnesota). The health carrier decides whether to sell you a policy based upon an underwriting process. In this process the health carrier will review your medical history and that of any dependents. In exchange for the premium you pay, the health carrier agrees to cover you and your dependents if you become sick or injured. The health carrier can reject an application for an individual policy based on pre-existing conditions, or place limits on your coverage. (See Chapter X for information on what to do in this situation.)

Remember that there are three separate relationships. First, you have a policy issued to you by a health carrier. This legally binding contract will have different names, depending on the type of health carrier that issues it. For example, if you are covered by an HMO, the contract you have typically will be called a “membership contract,” and you are considered a “member.” If you are covered by an insurance company, the contract is an “insurance policy,” and you are the “policyholder.” If you are covered by a nonprofit health services corporation, the contract is a “subscriber agreement,” and you are the “subscriber.”

Second, you have a "doctor-patient"  relationship with your medical providers. Third, your medical providers have contracts with the health carrier, typically called participation agreements . Health carriers pay their providers in various ways for the care you receive. Payments may be the more traditional fee-for-service, or the newer “risk sharing” agreement. In a “risk sharing” payment structure, the physician and clinic bear some of the financial risk for your care if you become sick.. The relationship between you, the health carrier, and the medical provider in a "fully-insured" individual coverage plan are shown in the diagram below.

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You may be covered under a group policy. The most common group coverage is provided by employers to employees. Group coverage may be one of two types: fully insured or self insured . Federal law says your coverage document must tell you if your plan is self insured.



Fully-insured group coverage is different from individual coverage because the employer is also part of the relationship.  A "fully-insured" group plan is diagrammed below.

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An employer purchases a "fully-insured" group policy from a health carrier to cover employees of the organization. The employer may pay all or part of an employee's premium.  The policy is called "fully insured" because the health carrier assumes the risk of providing coverage to the employees. (In a self- insured group plan the employer assumes the risk and financial obligation to provide coverage to employees.)

In a fully-insured group plan, the health carrier issues a contract (typically called a master contract or policy) to the employer. In it, the health carrier agrees to provide coverage to the employees subject to various conditions. In turn, the employees and their dependents are covered under what are typically called certificates of coverage .



Some employers provide coverage to their employees through a self-insured health care plan. This means the employer pays for its employees' health care with its own money.

A self-insured employer must file a master plan with the United States Department of Labor. The department assigns the plan an identifying number. Next, the employer prepares a Summary Plan Description (or "SPD") for employees that details the terms of coverage. Self-insured health plans are subject to a federal law known as the Employee Retirement Income Security Act of 1974 , or "ERISA. Self-insured health plans are regulated exclusively by the federal government.

Most self-insured employers do not process claims internally. Rather, they typically have agreements with an outside vendor who processes claims for them. These vendors are called third party administrators (or TPAs). The third party administrator may be an HMO, insurance company or nonprofit health services cor poration. (Many of these entities also act as "fully-insured" health carriers.) The third party administrator may also be a company licensed simply to process claims. Some self-insured plans enter into contracts with separate utilization review ("UR") organizations to review the medical necessity of requested treatment. Some also enter into contracts with preferred provider organizations (or PPOs) to provide the self-insured plan with access to a panel of physicians to treat the employees and their dependents.

Many people consider the plan's third party administrator or trustee to be their "insurance company." This is because explanation of benefits forms (EOB) and summary plan descriptions frequently list the name of the third party administrator. Because the third party administrator is not assuming risk, however, it is not really an "insurance company." Rather, an employer or a multiemployer plan, self-insures by agreeing to assume the risk and pay for its employees’ health care.

Employers typically purchase "stop loss insurance" coverage to reimburse the employer when treatment for employees exceeds a certain dollar limit. In some cases a self-insured employer may wish to pay an employee's claim but is told by the stop loss insurer that it will not receive reimbursement for the claim. It is good to understand that, although you won't typically have direct dealings with the stop loss insurer, its position may affect whether an employer will pay a particular claim. A typical self-insured relationship is diagramed below.

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The Attorney General’s Office urges consumers to use caution before purchasing short-term health insurance policies that are sometimes used by individuals and families in between jobs, after college, or for other short-term health insurance needs.

Minnesota law states that short-term coverage may exclude any injury, illness, or condition for which the covered person had medical treatment, symptoms, or manifestations before the effective date of coverage. Because of this, some short-term policies broadly define pre-existing conditions, sometimes including any manifestation or symptom experienced at any point prior to the coverage. In other words, an individual may not need to be treated for a condition for it to be considered a pre-existing condition.

For instance, one consumer was denied payment of benefits for tonsillitis because the insurance company deemed the condition a manifestation of previous sore throats. In another case, a senior citizen purchased a short-term policy to fill a coverage gap between her retirement date and start of Medicare coverage. She was denied payment of benefits for heart problems that developed during the coverage because she had a cough and minor chest pains prior to her coverage effective date. A family that purchased a month’s coverage between jobs paid medical bills totaling $5,000 because their child was hospitalized for a severe asthma attack triggered by a contracted virus.

Read and understand the terms and conditions of short-term health insurance before purchasing them. Make sure and ask questions about coverage issues, including what qualifies as a pre-existing condition. Ask your insurance agent about other policies that do not include such exclusions.


Next page- II. Understanding Your Policy