Explanation of each party involved in the US medical insurance system and how they interact or influence each other

[u/CrumbCakesAndCola]

Please give corrections or ask follow-up questions as needed.

Employers set up insurance packages for employees. The employers typically use other companies called Brokers to negotiate rates with insurance. Brokers may have other services like meeting with employees to advise them on which types if insurance to take. The broker typically gets commission from the insurance company for each policy sold.

Carriers are the actual insurance companies. The broker may advise an employer to use different carriers for each benefit (each type of insurance). So medical could be BlueCross while pharmacy is CVS. Different companies for different insurance types. Brokers also advise employers when to change carriers, so your insurance carriers could change every year.

Providers are anyone who gives healthcare related service, which could be an individual doctor/therapist/etc or it could be a larger entity like a laboratory, pharmacy, and so on.

Provider Networks are the set of all providers who signed contracts with the carrier to follow that insurance companies' rules. Technically the carrier doesn't control clinical decisions, but in reality it creates financial incentive for providers to discourage services, since patients often can't afford uncovered services (i.e. the provider risks not getting paid). This is where things like "prior authorization" come from for example.

Claims are notification to the carrier that they need to pay for a patient's procedure/drug/etc. The amount paid varies based on the contract between carrier and provider as well as the contract between patient and carrier (aka the benefit).

Clearinghouses are data hubs. Providers send claims here to get routed to the next appropriate entity. They generally charge per transaction, say $0.15 per claim. But they make money by having millions of claims flow through.

Pharmacy Benefit Managers (PBM) are companies that act as administrative assistants to pharmacies. They handle numbers and paperwork while the actual pharmacy focus on dispensing.

Third Party Administrators (TPA) also act as administrative assistants but with broader purpose than a PBM. The TPA works with every other player, the employer, the broker, the carrier, the PBMs, other TPAs... They do things like track which employees are eligible for which benefit, send out insurance cards, track claims and how much is spent, etc.

Vertical Integration is when a parent company owns more than one of the above entity types. For example, CVS Health owns the CVS pharmacies, the CaremarkRx PBM, and Aetna health insurance.

[u/Old_Glove9292]

I've added this to the community highlights (i.e. pinned it) Thanks for sharing!

[u/CrumbCakesAndCola → u/Old_Glove9292]

Thank you!