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Introduction
Vanderbilt University requires its students to maintain health insurance coverage throughout their education. Students can enroll in Vanderbilt’s Student Health Insurance Plan (SHIP) if they do not have personal health insurance or if they prefer the SHIP to their current insurance. The healthcare industry is notoriously complicated, containing a web of insurers, providers, hospital networks, drug manufacturers, and pharmacies to administer all aspects of patient care. Using Vanderbilt’s SHIP as an example, this article will guide students through the structure of health insurance and the entities influencing it.
Fees and Benefits
To maintain health insurance, policyholders pay a variety of consistent and variable costs. The standard required payment to the health insurer is called the policyholder’s premium. This fee is paid regardless of the benefits used by the policyholder. If a student uses Vanderbilt’s SHIP, the student premium is included in tuition payments. For domestic undergraduate students using insurance for the 2024-2025 academic year, the semi-annual premium is $1,257.50.
Another typical cost of health insurance is a deductible. According to the Centers for Medicare and Medicaid Services, a deductible is a fee the policyholder must pay for “covered health care services received before their plan begins to pay.” This fee varies based on the providers used by the policyholder. For example, there is no Vanderbilt SHIP deductible for care at the Student Health Center but the deductible for in-network “Preferred Providers” is $500 per year. Therefore, for an insurer to pay for covered health benefits from one of these providers, the student must first contribute $500 towards their costs per year. After the deductible has been paid, the insurer usually covers a predetermined percentage of medical expenses, and the policyholder pays the remaining percentage (also known as coinsurance).
The final typical cost for utilizing health insurance is a copayment. A copayment is a constant cost that a policyholder must pay for specific benefits to be covered. Copayments may be required for benefits like appointments, prescription drug coverage, or medical emergency expenses. For example, Vanderbilt’s SHIP will pay 80% of a policyholder’s medical expenses in medical emergencies, but the policyholder must first pay a $250 copayment to access this coverage.
Many health insurance plans, including the SHIP, include a cap on the medical costs paid directly by the policyholder. This value is the Out-of-Pocket Maximum. Once the policyholder has paid this maximum expense for care, the insurance plan pays all covered medical expenses for the rest of the policy year, including copayments and deductibles. For students, the SHIP Out-of-Pocket Maximum for an individual using a Preferred Provider is $5,000 per year.
Provider Networks
Costs paid by policyholders can vary depending on the provider visited by a policyholder. Different health insurance plans utilize different provider networks. According to the Centers for Medicare and Medicaid Services, a provider network is “a list of doctors, other health care providers, and hospitals that a plan contracts to provide medical care to its members.” For each health insurer, providers are classified as “in-network” or “out-of-network.” These networks are determined through negotiations between providers and the health insurer. The insurer and in-network providers agree to specific prices for care benefits, so the costs to the policyholder are lower at in-network providers. For example, Vanderbilt University Medical Center providers are in the provider network for Vanderbilt’s SHIP. For Vanderbilt’s SHIP, the deductible for care at an in-network “Preferred Provider” is $500, but the deductible for care at an out-of-network provider is $1,000. Similarly, the SHIP will only cover 50% of surgical expenses for policyholders at out-of-network providers, but it will cover 80% of surgical expenses at in-network providers. One aspect of integration between different facets of the healthcare industry is provider network negotiation between providers and insurers.
Health insurance plans differ in the accessibility of out-of-network care. Vanderbilt’s SHIP is a Preferred Provider Organization (PPO) plan. In these plans, the cost of care at in-network providers is lower than at out-of-network providers, but policyholders can use their plan at out-of-network providers without a referral from a physician. Another plan type is a Health Maintenance Organization, which usually only covers care at out-of-network providers in emergencies.
Healthcare companies such as UnitedHealth Group, whose insurance subsidiary manages the SHIP, have consolidated insurers and providers to integrate multiple aspects of the healthcare industry. UnitedHealth Group, for example, owns the insurer UnitedHealthcare and provider organizations including Surgical Care Affiliates, LHC Group, and DaVita Medical Group.
Pharmacy Benefits
The relationship between drug manufacturers, pharmacies, insurers, and policyholders is similarly interwoven. Many health insurance plans like the SHIP offer coverage for prescription drugs, but plans vary in their formularies and available pharmacies. According to HealthCare.gov, a formulary is the “list of prescription drugs covered by a prescription drug plan or another insurance plan offering prescription drug benefits.” The formulary offered by Vanderbilt’s SHIP through UnitedHealthcare lists all medications by the conditions they treat and classifies medications by their cost and requirements for coverage.
Similar to the negotiations between providers and insurers, drug prices are negotiated between insurers, pharmacies, and drug manufacturers. Pharmacy Benefit Managers (PBMs) determine the medicines available on insurance plan formularies. PBMs negotiate with drug manufacturers and pharmacies to establish drug prices. Drug manufacturers are incentivized to negotiate because the placement of a drug on the insurance formulary enables more policyholders to purchase it. For pharmacies, inclusion in the insurance plan as an in-network pharmacy draws customers because health insurance plans often incentivize policyholders to receive prescriptions at affiliated pharmacies. Through the SHIP prescription benefit, for example, students only receive prescription coverage if they acquire their medications through “pharmacies contracting with UnitedHealthcare Pharmacy.”
These players in the pharmaceutical industry are significantly integrated. Some healthcare companies own insurers, PBMs, and pharmacies. UnitedHealth Group includes the PBM Optum Rx and the insurer UnitedHealthcare. Optum also operates an online pharmacy. CVS Health owns the PBM CVS Caremark, the health insurer Aetna, and CVS Pharmacy, a chain of 9,000 pharmacies. This conglomeration has drawn criticism and investigations from lawmakers over possible manipulations of drug prices and conflicts of interest between the negotiating parties.
Conclusion
Vanderbilt’s Student Health Insurance Plan is a window into the complex structure of health insurance companies, which contain numerous fee types, provider networks, medical benefits, and prescription drug formularies. Providers, pharmacies, PBMs, insurers, and drug manufacturers negotiate drug and medical expenses to create formularies and offer medical care to patients. Understanding the intricacies of the complicated American healthcare system is critical for selecting and utilizing adequate health coverage.
