Accident & Health Insurance Fundamentals
Accident and health (A&H) insurance reimburses or pays for medical care, disability income, and related losses arising from sickness or injury. In California, the product is shaped by overlapping state rules under the Insurance Code and Knox-Keene Act and federal frameworks such as the Affordable Care Act, COBRA, HIPAA, and the Internal Revenue Code. This chapter walks through plan types, regulatory split between CDI and DMHC, cost-sharing vocabulary, federal protections, and the tax-advantaged accounts producers must explain to clients.
1. Types of medical plans (HMO, PPO, EPO, POS, indemnity)
Health benefit plans differ chiefly by how the insured accesses providers and how claims are paid. A Health Maintenance Organization (HMO) prepays a contracted network for care, requires a primary care physician (PCP), and generally needs referrals to specialists; out-of-network care is not covered except for emergencies. A Preferred Provider Organization (PPO) lets the insured visit any provider but pays a higher percentage when the provider is in network. An Exclusive Provider Organization (EPO) resembles a PPO but pays nothing for out-of-network care outside of emergencies. A Point-of-Service (POS) plan blends HMO and PPO features, using a gatekeeper PCP but allowing out-of-network care at reduced benefits. A traditional indemnity (fee-for-service) plan reimburses the insured for usual, customary, and reasonable charges from any licensed provider with no network restriction.
2. Knox-Keene Act — DMHC regulates HMOs; CDI regulates PPOs and traditional health
California uniquely splits regulation of health products between two agencies. The Knox-Keene Health Care Service Plan Act of 1975, codified at Health & Safety Code section 1340 and following, places HMOs and most managed-care service plans under the Department of Managed Health Care (DMHC). Disability insurance products that reimburse the insured for medical expenses — including PPO contracts and traditional indemnity coverage — are governed by the Insurance Code and supervised by the California Department of Insurance (CDI). A producer must know which regulator applies because filing complaints, network adequacy standards, and grievance timelines differ between the two systems.
3. Major medical & cost-sharing vocabulary
Major medical plans bundle hospital, surgical, physician, and ancillary benefits behind a layered cost-sharing structure. The deductible is the dollar amount the insured pays before the plan begins reimbursing. Coinsurance is the percentage split (often 80/20) the insurer and insured share for covered services after the deductible. A copayment is a flat dollar amount paid at the point of service, typical for office visits or prescriptions. The out-of-pocket maximum (OOP max) caps the insured's total cost-sharing for the policy year; once reached, the plan pays 100 percent of allowed in-network charges for essential health benefits. Premium is the periodic cost of maintaining the contract and is not counted toward the OOP max.
4. ACA essentials (10 essential health benefits, no pre-existing exclusions, dependents to 26)
The Patient Protection and Affordable Care Act of 2010 reshaped individual and small group coverage. Non-grandfathered plans must cover ten Essential Health Benefits (EHBs): ambulatory care; emergency services; hospitalization; maternity and newborn care; mental health and substance-use treatment; prescription drugs; rehabilitative and habilitative services and devices; laboratory services; preventive and wellness services with chronic disease management; and pediatric care including oral and vision. Carriers may not deny, rate up, or exclude coverage based on pre-existing conditions, and lifetime and annual dollar limits on EHBs are prohibited. Adult dependents must be allowed to remain on a parent's plan until age 26 regardless of marital, student, or financial status.
5. Metal tiers and Covered California
Individual and small group plans sold both on and off the exchange are categorized by actuarial value (AV), the share of total covered costs the plan pays on average. Bronze plans target a 60 percent AV, Silver 70 percent, Gold 80 percent, and Platinum 90 percent; a catastrophic tier is available to enrollees under 30 or those with a hardship exemption. Covered California is the state-operated marketplace where residents shop standardized plans, qualify for federal premium tax credits and cost-sharing reductions on Silver plans, and enroll during the annual open enrollment window or after a qualifying life event triggers a special enrollment period.
6. Federal vs California individual mandate
The original federal individual shared responsibility payment under the ACA was zeroed out by the Tax Cuts and Jobs Act effective in 2019, so failing to maintain minimum essential coverage no longer carries a federal tax penalty. California enacted its own state-level mandate effective January 1, 2020, requiring residents to maintain qualifying coverage or pay an individual shared responsibility penalty reported on Form FTB 3853 with the state income tax return. Exemptions exist for short coverage gaps, certain low-income filers, religious conscience, and incarceration. Producers should remind clients that California's mandate is distinct from any future federal action and is enforced by the Franchise Tax Board.
7. COBRA (federal) vs Cal-COBRA
When group health coverage ends because of a qualifying event, federal COBRA lets employees of employers with twenty or more employees elect continuation for up to eighteen months (twenty-nine if disabled) or up to thirty-six months for dependents on certain events such as divorce or death of the employee. The former enrollee pays up to 102 percent of the group premium. California fills the small-employer gap with Cal-COBRA, which applies to fully insured plans of employers with two to nineteen employees and offers up to thirty-six months of continuation. An employee who exhausts eighteen months of federal COBRA may also use Cal-COBRA to extend coverage to a combined maximum of thirty-six months. Elections must be made within sixty days of the qualifying event or loss of coverage notice.
8. HIPAA portability
The Health Insurance Portability and Accountability Act of 1996 protects employees who move between group health plans. HIPAA prohibits group health plans from using health status, claims experience, or genetic information to discriminate in eligibility or premiums for similarly situated individuals. It guarantees special enrollment rights when an employee loses other coverage, marries, has a child, or becomes eligible for premium assistance, and it guarantees renewability of group coverage. The Privacy and Security Rules separately set national standards for the use and disclosure of protected health information (PHI) by covered entities and business associates.
9. HSA, FSA, and HRA tax-advantaged accounts
Three account types let employees and individuals pay qualified medical expenses with pre-tax dollars. A Health Savings Account (HSA) must be paired with a qualified High-Deductible Health Plan (HDHP); contributions are tax-deductible, growth is tax-deferred, and qualified withdrawals are tax-free, with funds owned by the individual and portable between employers. A Flexible Spending Arrangement (FSA) is employer-sponsored, funded by salary reduction, and generally subject to a use-it-or-lose-it rule with limited carryover or grace period options. A Health Reimbursement Arrangement (HRA) is funded solely by the employer and reimburses substantiated medical expenses; unused balances may roll over at the employer's discretion. None of these arrangements may reimburse premiums except under specific HRA designs such as the Qualified Small Employer HRA and Individual Coverage HRA.
10. Network types and self-funded stop-loss
Provider networks determine how much an insured pays for care. In-network providers have contracted with the carrier to accept negotiated rates; out-of-network providers have not, exposing the insured to higher coinsurance and, in some cases, balance billing for the difference between billed charges and the allowed amount. California's AB 72 and the federal No Surprises Act limit balance billing for emergency services and many out-of-network services delivered at in-network facilities. Narrow-network plans contract with a smaller subset of providers in exchange for lower premiums. Self-funded employer plans pay claims from general assets rather than through a fully insured carrier and typically buy stop-loss insurance — specific stop-loss caps cost per individual claimant and aggregate stop-loss caps total annual plan losses.
Last updated: May 2026