Insurance Basics

Health insurance covers the costs of medical care, after the patient pays their share through copays, deductibles, and/or coinsurance. Insurance in Connecticut is expensive, driven up by high prices for drugs and care from huge health systems. Federal and state laws require insurance plans to cover essential medical care, and the state regulates monthly premium increases for some insurance plans.

Insurance Deeper Dive

What is the purpose of health insurance?

Health insurance covers medical bills, but not all the costs and not necessarily for all medical services.

For about one in three Connecticut residents with private insurance, individuals and possibly their employer, pay an insurance company a monthly premium. In return, they cover medical costs after patients pay their share. This is called “fully insured” coverage because the insurer is at risk for high medical costs. For about two thirds of Connecticut residents with private insurance, their employer directly pays medical bills after the patient pays their share.  In these “self-insured” plans, the insurer on the card just manages the benefits. Usually, members don’t know if they are in a fully insured or self-insured plan.

In either type of plan, members’ costs can include deductibles, copays, or co-insurance in addition to monthly premiums. People without insurance are responsible for paying all their medical bills themselves if something happens.

What does health insurance cover?

Under the federal Affordable Care Act, health insurance must cover essential services.

Under the law, these include:

• Hospitalizations
• Outpatient care such as office visits
• Prescription drugs
• Emergency care
• Pregnancy, maternity, and newborn care
• Lab tests and services
• Preventive care to keep patients well
• Care to manage chronic conditions and maintain health 
• Rehabilitative services
• Dental and vision care for children

The state of Connecticut also requires some insurance plans to cover:

• 3D mammography
• Prosthetic devices
• Coverage for newborns
• Services provided by chiropractors, physician assistants, nurse practitioners, and some nurses
• Autism spectrum disorder services
• Lyme disease treatment
• Infertility treatment

Other services that aren’t required but may be covered:

• Adult vision, hearing, and dental care
• Alternative medicine such as acupuncture, massage, or herbal healing
• Cosmetic and other elective surgeries

If I’m healthy, why should I have health insurance?

Most people in Connecticut get coverage. Nineteen in twenty Connecticut residents have health coverage – most of them are healthy. Over half are covered through private insurance.

Health insurance protects both your health and your finances. Having coverage makes it easier to get appointments for care – both when people are ill and for preventive care. Uninsured Americans, without private insurance or other coverage, are five times more likely to delay seeking care for a problem due to cost. Unfortunately, when they are diagnosed, the problem is likely more difficult and more costly to treat. Preventive care is free under the Affordable Care Act, but only with insurance.

In 2019, sixteen million American adults had medical debt over $1,000 and three million owed over $10,000. Unexpected medical bills for even small emergencies can be thousands of dollars. Emergency Room visits in Connecticut can cost as much as $11,014. An average three-day hospital stay costs $30,000. Creditors can attach your wages and savings and place a lien on your car or home to cover medical bills. Savings for education, retirement, or buying a home as well as your credit history could be at risk.

The state’s Covered Connecticut program offers no-cost insurance coverage options for people with qualifying incomes. Even if your income is higher, you may qualify for significant discounts on health insurance, under the Affordable Care Act. Go to Access Health CT to find out more.

What is cost sharing?

Cost sharing is the part of direct medical bills that patients are responsible for. They can include deductibles, copays, and coinsurance, although few plans include all these types of cost sharing. Cost sharing does not include premiums or the costs of care that isn’t covered by the insurer. This can be very confusing, but a good explainer video is here.

It’s very important to note that, under the Affordable Care Act, preventive care must be covered by insurance with no cost sharing, meaning at no cost to you. Also under the Affordable Care Act, your total cost sharing in most plans is limited each year; the limits for 2024 are $9,450 for individual plans and $18,900 for family plans.

Copays or copayments – This is a set fee patients pay directly to their provider whenever they get care. Insurer directly pay the provider the remainder of the bill. In 2020, 54% of insured Connecticut residents with employer-sponsored insurance coverage had a copay requirement that averaged $28.77 for an office visit. For drug costs, 74% of employer-insured state residents had a copay requirement for prescription drugs that averaged between $10 for generics and up to $70 for costly, specialty drugs.

Deductible– This is the amount patients must pay toward medical bills before their insurer starts making payments. Deductibles generally start at the beginning of the plan year, often January 1, and reset back again the next year. For example, if a deductible is $1,976, the average in Connecticut for single coverage, the member must pay the full cost of medical care starting in January until the total reaches $1,976. After that point, the insurer will begin covering medical bills above the cost sharing responsibilities. In 2020, almost all (93.5%) Connecticut residents with employer-sponsored insurance had a deductible in their plan that averaged $1,976 for individual plans and $3,520 for family plans.

Coinsurance– A percentage of medical bill costs that patients are responsible for, after paying their full deductible. In 2020, most (75%) of employer-insured Connecticut residents had co-insurance responsibilities for hospital admissions, that averaged 18% of the total bill.

Deductibles in Connecticut have grown five times faster than wages. Nationally, deductibles have grown much faster than premiums.

Insurance plans tradeoff patient cost direct sharing with premiums. Plans with higher deductibles have lower monthly premiums and vice versa. Between 2008 and 2019, deductibles grew much faster than insurance premiums, shifting more costs onto consumers and away from employers and insurers.

Who has private insurance?

Most Connecticut residents have private insurance coverage. Half of us have coverage through our or a family members’ employment and another 5% purchase coverage themselves.

There were concerns when the ACA passed that expanded public options for coverage, including Medicaid and subsidized health insurance for lower income households, that employers would stop offering coverage to employees. However, employer-sponsored coverage for Connecticut residents had been declining before the ACA expansions were implemented in 2014. The ACA had little impact on employer-sponsored coverage for Connecticut residents.

Most people in Connecticut with private insurance coverage are insured through Anthem. Other plans include Cigna, Aetna, ConnectiCare, and United Healthcare.

How much does private insurance cost in CT?

Health insurance premiums are expensive in Connecticut. Our employer-based premiums for individual and family coverage are the ninth and eighth highest among states, respectively.

Insurance premiums for employer-based coverage have grown far faster than inflation, both in Connecticut and the nation.

Health insurance deductibles in Connecticut have grown five times faster than wages. Between 2008 and 2019, deductibles also grew much faster than insurance premiums, shifting more costs onto consumers and away from employers and insurers.

Low income Connecticut residents pay more for health insurance but get less

Connecticut workers with the least resources are charged more for less, when they are offered health benefits, according to an analysis of 2021 federal Medical Expenditure Panel data. The lowest wage workers in Connecticut are less likely to be offered health benefits, are offered less generous plans, and pay more for coverage than higher income workers.

Despite getting less generous coverage, Connecticut’s lowest wage workers pay $1,222 more for single coverage and $4,064 for family coverage, because they pay a higher share of insurance costs.

Connecticut workers in the lowest wage quartile are about a third less likely to work for a company that offers health benefits, about a third less likely to be eligible for the benefit, and another third less likely to take up the offer than the highest wage workers.

Source: Low wage Connecticut workers pay more but get less health benefits, CT Health Policy Project, March 2023

Low wage Connecticut workers’ health plans are less generous than high wage workers, averaging $1,775 less for single coverage and $3,835 less for family plans. However, because low wage workers pay over twice the share of those plans as high income workers, they spend $1,222 more for single coverage and $4,064 for family plans.

Source: Low wage Connecticut workers pay more but get less health benefits, CT Health Policy Project, March 2023

It’s important to note that many low-income Connecticut residents qualify for free or substantial subsidies for health insurance. Consumers can only get insurance subsidies and cost sharing protections if they purchase coverage through the exchange. Go to AccessHealthCT to learn more.

Why is insurance so expensive?

There are a few reasons that health insurance is expensive; most involve input costs. Insurance rates reflect the cost of medical care – hospital, physician services and drug costs – which have been rising much faster than inflation.

The most important driver of high premiums are steep rises in prices for healthcare services. Utilization of services in Connecticut and nationally is not up; in fact, utilization is down slightly. While our aging population is a contributor, it doesn’t explain the increase in costs. Chronic conditions like asthma and diabetes are up as well, but they also don’t explain the rise in costs. COVID had a big impact, but only for a few years. High prices explain most of the rise in healthcare costs, especially in private health plans.

The loss of competition in healthcare markets is driving up prices. Healthcare prices for the same services vary significantly between providers and between payers, with no connection to the quality of care. As hospitals, physician practices, and other providers consolidate into large health systems, they come to dominate local healthcare markets, creating monopolies. Unlike Medicare and Medicaid that have the authority under law to set prices for providers, insurers must negotiate prices with health systems. Large, monopoly health systems can demand higher prices, which are passed on to consumers in higher premiums and cost sharing. Two lawsuits have been filed against Hartford Healthcare for anti-competitive behavior that is increasing premiums and health costs for all Connecticut residents. Other developed countries, where prices are regulated, spend far less on healthcare than Americans. 

Prescription drug prices are also driving up healthcare costs, nationally and in Connecticut. Americans spend more per capita on prescription drugs than all other developed countries. On average, US prices for prescription drugs are almost twice the prices paid in other countries, after accounting for rebates and other discounts.

Healthcare administration costs are up, but it’s not a major driver of healthcare costs. Insurers’ spending on administration, including profits, is limited by the Affordable Care Act.

Expansions of benefits and legislative mandates to cover essential services have added very little to the cost of insurance. Most mandated services, especially the costly ones, have always been included in most insurance plans.

How can people get subsidies to make insurance affordable?

Federal subsidies to make health insurance more affordable passed in the Affordable Care Act, were expanded during COVID and have been extended through 2025.

The state added to the federal subsidies creating the Covered Connecticut program. As of July 1, 2022, the program offers zero-cost insurance for state residents with qualifying incomes. Even higher income Connecticut residents, you may qualify for significant discounts on health insurance, under the Affordable Care Act. Consumers can only get insurance subsidies and cost sharing protections if they purchase coverage through the exchange. Go to Access Health CT to find out more.

AccessHealthCT is a very helpful portal into all health insurance subsidy programs. They can also assess eligibility for Medicaid. Over 100,000 state residents have insurance coverage through AccessHealthCT.

How does private insurance work?

Health insurance is different than other kinds of insurance such as home or life. Home insurance costs vary depending on the home’s value and life insurance varies by the insured’s age. But under the Affordable Care Act, health insurance must cover preventive care with no cost to patients and cannot charge more based on your health risks such as pre-existing conditions or gender. Health insurers are also not allowed to refuse you coverage or refuse to renew your coverage, as home and life insurers can.

Health insurance works by pooling monthly premiums paid by a large number of insured people and using that pool to pay medical bills for the few people in the pool who experience high health costs. Those costs can arise from an unforeseen illness or injury, or for ongoing chronic conditions. Health insurers profit by keeping us healthy, so preventive and maintenance care, such as vaccinations and checkups, are also covered. In addition to monthly premiums, insured patients are expected to share the costs of care with copayments, deductibles, and/or coinsurance.

However, pools need a fair balance of mostly healthy people paying in to cover the costs of the few who need more resources. Health plans have an incentive to attract healthier, lower cost people into their pool, and exclude less healthy, higher cost members, called adverse selection, to make more profit. Adverse selection also happens when consumers wait to sign up for insurance until they know they are ill or at risk of health problems.

When pools tip out of balance, they can enter a death spiral. This happens when there are too many people with high healthcare costs and too few healthy members to pay the bills. Because premiums are set based on medical costs, as those costs rise, premiums go up. Higher premiums encourage more healthy members to drop out of the pool and the cycle continues until the pool is no longer sustainable.

Connecticut experienced a death spiral with the Charter Oak Plan. Governor Rell created the Charter Oak Health Plan in July 2008 to leverage the state’s Medicaid program to provide Connecticut’s uninsured with affordable coverage. Monthly premiums started at $257 per member per month, with subsidies for lower income applicants. Unlike Medicaid, Charter Oak included copays, deductibles, and co-insurance costs for consumers in addition to monthly premiums but was available regardless of pre-existing conditions. Because of those consumer costs and limited provider panels, by March 2013 Charter Oak attracted higher cost members, healthier members dropped coverage, enrollment had declined by 61% from its highest point, and premiums more than doubled. Eventually enrollment in Charter Oak dropped and the program ended January 1, 2014.

What are consumer-directed health plans? Can they lower costs?

Created in 2003, consumer directed health plans combine high deductibles with special savings accounts to offer lower cost plans. The idea is to allow people with higher incomes a more affordable insurance option with lower monthly premiums. The associated savings accounts allow employees and employers to add money to a bank account, shielded from income taxes, that the member can use to pay for some of their cost-sharing for medical care. The hope was that when consumers are paying for care directly with their own money, they would shop around for better prices and would be less likely to access care they don’t need.

In practice, consumer directed health plans largely appealed to higher income members, who could afford to put money in a savings account, and healthier members, with lower overall health costs. People at lower incomes or people with higher medical bills did not save money in consumer-directed health plans, continued to rely on traditional insurance plans, and consequently, premiums rose in those insurance plans. Researchers found that people in consumer-directed health plans were not able to shop around for prices, but just reduced their use of both necessary and unnecessary care. In 2020, the high deductible plan savings accounts cost the US government $12 billion in lost taxes. In 2020, over half (54.3%) of Connecticut residents with private insurance were in a high-deductible health plan.

How is insurance regulated?

The Affordable Care Act made important changes to regulations governing insurers including:

• Insurers may not base premiums on pre-existing medical conditions — such as heart disease, diabetes, or a history of cancer
• Insurers can only base premiums on age (within limits) and geography
• Sets a minimum medical loss ratio – Insurer spending on administration, profits, and quality is limited to 20% of total premiums collected for individual and small group plans (50 or less members) and 15% for larger groups
• Children can stay on their parents’ plans until age 26
• Insurers must offer health insurance to anyone who applies, and must renew coverage
• Insurers cannot set annual or lifetime dollar limits on healthcare bills
• Sets limits on deductibles and maximum out-of-pocket costs for consumers, updated each year
• The waiting period for health benefits to start after employment must be 90 days or less
• Sets ten essential benefits that must be covered under any plan
• Insurance documents must be available to members in plain language
• Employers with over 50 full-time workers must offer health benefits or pay a fine
• Created consumer assistance programs in every state – Anyone in Connecticut experiencing problems with insurance can contact our state Office of Healthcare Advocate.

There are two types of private insurance – fully-insured and self-funded plans. In self-funded plans, employers pay all the medical bills for employees, minus the workers’ contributions. The employer is at financial risk if workers healthcare costs are high. Self- funded plans are regulated at the federal level by the US Department of Labor; they are not subject to state laws. Recently, federal regulators have strengthened self-funded plan responsibility to their employee plan members and covered dependents to act solely in their best interests. The new emphasis is strengthening employers’ responsibility to get the best care at the best price.

In 2020, 64% of Connecticut residents with private insurance coverage were in a self-funded plan, higher than the US average of 58%. Connecticut workers in companies with over fifty employees were three times more likely to be in a self-funded plan than workers from companies with under fifty employees.

Fully-insured plans are regulated by the Connecticut Insurance Department (CID). The department has responsibility, among other things, for approving the premiums that fully insured plans can charge. Each year, insurers must submit their proposed rates or premium amounts they intend to charge consumers, for the next year. CID reviews the proposals to determine if the rates are “excessive”, “inadequate”, or “unfairly discriminatory” and approves or disapproves them. They may call for a public hearing to gather input to help them in their decisions. It is important to note that the law does not allow CID to consider affordability for consumers or employers in their decisions. 

CID also ensures that health plans have enough funds in reserve to cover unexpected costs, for instance from a pandemic. CID also licenses plans, investigates insurance scams, and enforces the state laws that protect consumers. CID also publishes a very helpful annual report card on health insurers’ quality performance, the number of providers in their plan, and how to contact the companies.

In contrast, self-funded plans are regulated less closely by the federal Department of Labor, under a very confusing federal law, ERISA, which passed in 1974 mainly to protect retirement benefits.

In either self-funded or fully-insured plans, a health insurance company may manage the bills, pay providers, and enroll employees, but in self-funded plans they are acting on behalf of the employer who is at financial risk. Employees may not know if they are in a self-funded or fully-insured plan. This matters because they have different rights and protections under law and need to contact different agencies with complaints. Anyone experiencing problems with insurance can contact the state Office of Healthcare Advocate.

How do insurers pay providers?

Unlike Medicare and Medicaid, private insurers negotiate payment rates with providers. As healthcare markets consolidate into monopolies, insurers have less leverage to keep prices down. in contrast, physician payments in Medicare are based on the costs of providing each service to patients, adjusted for some provider expenses. Nationally, private insurers pay hospitals twice Medicare’s rates on average and 43% more for physician services. Private insurance price negotiations with health systems and other providers are not public.

To lower insurance premiums, there are efforts to link private insurers’ rates to Medicare’s payment levels, called “reference pricing”. It’s estimated that private insurance costs would have been $352 billion lower in 2021 using Medicare payment rates. There are concerns that lowering insurers’ payment rates will reduce access to care, but the large majority of physicians accept the lower Medicare rates for Medicare patients. While lower than the US average, 84% of Connecticut physicians take new Medicare patients, compared to 91% for privately insured patients.

In 2016, Montana’s state employee plan switched from negotiating hospital payment rates to reference pricing using Medicare rates as a benchmark. While there was serious resistance from a few hospitals, all eventually signed onto the new program, and none are out of business. Before the switch Montana was paying up to 322% of Medicare rates for some services. Between 2017 and 2019, the state saved $47.8 million.

Is insurance a big part of Connecticut’s economy?

Connecticut is important to the US insurance industry. Several large insurers have headquarters in our state. Connecticut leads the nation in insurance employment and payroll and is first in the percent of our state’s economy devoted to insurance. We are third in the nation in total direct premiums.

However, insurance employs a small minority of workers in Connecticut. In May 2022, insurance companies and related activities employed 56,200 Connecticut workers, according to Connecticut’s Department of Labor. That is one in thirty workers in the state. In comparison, healthcare employed 202,600 state residents that month, or one in eight state workers.

How did COVID affect insurers?

At the beginning of the pandemic, there were concerns that healthcare costs would skyrocket (which they did), and insurers would not be able to cover the costs (which didn’t happen), and would have to jack up premiums in future years, which they have done.

In fact, insurers did very well during the pandemic. They were so profitable that they were required, under the ACA, to return money to consumers and employers. Because of the lockdown, many Americans went without or delayed non-emergency medical care, which lowered insurer’s costs. The federal government also poured money into the healthcare system which indirectly lowered insurers’ costs. In 2021, Connecticut individual insurance was the 15th most profitable among states, well above the US average. And their profits grew again in 2022.

US health insurers made $31 billion in profits in 2020 and another $19 billion in 2021. Despite that, insurers in Connecticut’s individual and small group markets asked for premium increases averaging 20.4% for 2023.

Is Connecticut working on a public option?

Creating a public health insurance option in Connecticut has been proposed several times to bring down premiums. A public option is a health insurance option sponsored and run by government. A national public option was removed from the Affordable Care Act negotiations to address concerns from the insurance industry of unfair competition. Other states are in the process of implementing public options based on private health insurance.

Connecticut has implemented several public option-related initiatives:

• MEHIP built on the state employee plan – started in 1996, was offered to municipal and nonprofit employee groups. It ended when premiums rose too high and enrollment dropped.
• Connecticut Partnership Plan, successor to MEHIP, also built on the state employee plan, has not expanded beyond municipal employees. Coverage is expensive and concentrated in Fairfield County. Concerns have been raised about the program’s finances, the state’s liability, and a lack of transparency.
• Charter Oak Plan —  Built on the Medicaid managed care program, Charter Oak ended in a death spiral when premiums grew too high and enrollment dropped.

Most recently, in 2022 Connecticut legislators proposed to open the Partnership plan to small businesses. The bill was very controversial  and died when Governor Lamont threatened to veto the bill if it came to him.

Updated November 7, 2023