Medicare and Medicaid — Health Insurance License Exam Questions

Cost-sharing in health insurance has three main components, often confused. Deductible: the amount the insured pays out of pocket before the plan begins to share costs (e.g., $1,500). Co-payment (copay): a fixed dollar amount paid per service (e.g., $30 for an office visit, $150 for an emergency room visit). Co-insurance: a percentage of the cost the insured pays after the deductible is met (e.g., 20% of the bill, with insurance paying 80%). Out-of-pocket maximum: the most the insured can pay in a year; once reached, the plan pays 100%. Understanding these mechanisms helps the insured estimate their actual cost for care and compare plans. Plans with lower premiums often have higher deductibles, copays, and co-insurance.

A pre-existing condition is a medical condition (diagnosed or known) that existed before health coverage took effect. Historically, individual health policies excluded pre-existing conditions from coverage, charged higher premiums for them, or denied coverage entirely. The Affordable Care Act (ACA) of 2010 prohibited pre-existing condition exclusions and discrimination in individual and small group health insurance starting in 2014 — insurers cannot deny coverage, charge higher premiums, or exclude benefits based on health history. Other policy types may still address pre-existing conditions: short-term health policies, some employer-based plans pre-ACA grandfathered exemptions, and Medicare Supplement plans in certain circumstances. Long-term care and disability income insurance can still consider pre-existing conditions during underwriting.

Group health insurance pools risk across all members of a group (typically employees of a company) and historically has used minimal individual medical underwriting — anyone in the group qualifies based on employment. Premiums are based on the group's overall demographics and claims experience. Individual health insurance under ACA rules is community-rated (premiums based only on age, geographic area, family size, and tobacco use — not health status) and 'guaranteed issue' (no one can be denied for health reasons). Before the ACA, individual policies used full medical underwriting and could exclude or rate up for health conditions. Group policies typically offer more comprehensive coverage at lower per-person cost due to risk pooling and employer contribution.

An HMO (Health Maintenance Organization) is a managed care health plan structured around a network of contracted providers. Characteristics: members must select a primary care physician (PCP) who coordinates their care; specialist visits require a PCP referral; care outside the network is generally not covered except in emergencies; lower premiums and out-of-pocket costs compared to less managed plans; emphasis on preventive care. HMOs typically pay providers on a capitated basis (a fixed monthly fee per enrolled member, regardless of services used), creating an incentive for efficient care. The trade-off is reduced flexibility — members cannot self-refer to specialists or use out-of-network providers without paying full cost. Modern HMOs sometimes offer point-of-service variations with limited out-of-network access at higher cost.

A PPO (Preferred Provider Organization) is a managed care plan with more flexibility than an HMO. Characteristics: a network of 'preferred' providers who have agreed to discounted rates with the insurer; members get lower cost-sharing when using in-network providers; out-of-network providers can be used at higher cost (typically higher deductible and co-insurance); no primary care physician required and no referrals needed for specialists. PPOs typically have higher premiums than HMOs because members have more freedom of choice. They appeal to people who value provider choice over lower costs. Out-of-network providers may also balance-bill (charge the difference between their fee and what the insurer reimburses), which the PPO does not cover.

An EPO (Exclusive Provider Organization) is a hybrid between HMO and PPO. Like an HMO, it requires using in-network providers and does not cover out-of-network care (except emergencies). Like a PPO, it typically does not require a primary care physician or referrals for specialists. EPOs tend to have lower premiums than PPOs (because the insurer does not pay for out-of-network care) but higher than HMOs (because of less aggressive management). They appeal to people willing to stay in-network but who want to skip the referral requirements. Knowing whether a plan is HMO, PPO, or EPO is important when comparing coverage; out-of-network exposure differs significantly. POS (Point of Service) plans are another hybrid combining HMO and PPO features.

Medicare is the federal health insurance program for Americans aged 65 and older who have paid Medicare taxes (or whose spouse has paid Medicare taxes) for at least 10 years (40 quarters). People under 65 may also qualify if they have received Social Security Disability Insurance (SSDI) benefits for 24 months, have End-Stage Renal Disease (ESRD), or have Amyotrophic Lateral Sclerosis (ALS). Medicare is distinct from Medicaid (which is income-based and jointly state-federal). Medicare has four parts: Part A (hospital insurance, usually premium-free for those who paid in), Part B (medical insurance, monthly premium), Part C (Medicare Advantage, private plans replacing A and B), Part D (prescription drug coverage). Most beneficiaries also use Medigap supplemental policies to cover gaps in original Medicare.

Medicare Part A is hospital insurance, covering: (1) Inpatient hospital stays — semi-private room, meals, general nursing, drugs received in hospital; (2) Skilled nursing facility care (limited, after a qualifying hospital stay); (3) Hospice care for terminally ill patients; (4) Some home health services (intermittent skilled care, not custodial). Part A is usually premium-free for beneficiaries (or their spouse) who paid into Medicare for 40+ quarters during their working years. It has a deductible per benefit period and co-insurance for longer stays. Part B covers outpatient care, doctor visits, preventive services, durable medical equipment, and other medically necessary services that are not hospital stays. Part D covers prescription drugs.

The Affordable Care Act (ACA, also called Obamacare) is a federal law passed in 2010 that significantly reformed US health insurance. Key provisions: (1) Pre-existing condition protections — insurers in individual and small group markets cannot deny coverage or charge more based on health history; (2) Essential Health Benefits — ACA-compliant plans must cover 10 categories of essential benefits (ambulatory care, emergency services, hospitalization, maternity, mental health, prescription drugs, rehab, lab, preventive, pediatric); (3) Health Insurance Marketplaces (Exchanges) — state and federal websites where individuals can compare and buy plans; (4) Premium Tax Credits — subsidies for households earning 100-400%+ of federal poverty level; (5) Medicaid expansion (state-optional); (6) Individual mandate (federal penalty reduced to $0 in 2019 but still applies in some states); (7) Employer mandate for large employers.

ACA marketplace plans are organized into four metal tiers based on actuarial value (AV) — the percentage of total healthcare costs the plan covers on average for a typical population. Bronze: ~60% AV (insurer pays 60%, members pay 40% through deductibles, copays, co-insurance); Silver: ~70% AV; Gold: ~80% AV; Platinum: ~90% AV. Higher metal tiers have higher premiums but lower cost-sharing. Catastrophic plans exist for those under 30 or with hardship exemptions, with very high deductibles. Silver plans qualify for cost-sharing reductions for households earning 100-250% of federal poverty level, which can effectively boost Silver to Gold or Platinum levels of coverage at Silver premium prices. The tier system helps consumers compare plans without needing actuarial expertise.