Health Insurance Legal Practice and Multidimensional Classification: From the Principle of Compensation to Guaranteed Renewal and Waiting Period Clauses

Because different types of insurance follow different principles in fulfilling their payment obligations, health insurance is often referred to as "personal insurance that combines indemnity and benefit." Furthermore, with health insurance, the insured can make multiple claims, while with life insurance, a claim can only be made upon the insured's death or survival to maturity. In addition, regarding medical expense insurance, to avoid the situation where the paid-out amount exceeds the actual expenses incurred, the "principle of indemnity" and the "principle of cost sharing" have emerged. First, the insurance contract generally stipulates a maximum insured amount; the insurer pays the insured's expenses within this limit, and the excess is borne by the insured. The insured cannot receive compensation exceeding the actual expenses incurred. Second, individuals should share a portion of the costs; it is believed that a certain percentage of out-of-pocket expenses can incentivize the insured to focus on recovery, preventing patients from recklessly using unnecessary services and medical equipment, thus preventing moral hazard and controlling the insurance company's expenditures. Deductible clauses and proportional reimbursement clauses are usually adopted based on this principle.

(III) The Special Characteristics of Health Insurance Contracts 1. The Special Nature of Health Insurance as Compensation As mentioned above, unlike the payment nature of life insurance benefits, health insurance benefits are compensatory in nature. Benefits paid for illness and childbirth are not compensation for injury to the insured's life or body, but rather compensation for medical expenses incurred by the insured in hospital treatment due to illness or childbirth, and other related losses. Only when disability or death results from illness or childbirth, requiring the insurer to assume liability, is the payment of benefits a payment in nature. Because health insurance is indemnifying in nature, it shares many similarities with property insurance in its accounting. For example, premium calculations are based on loss rates, and year-end unearned premium reserves are generally set aside as a percentage of the year's premium income. The amount of insurance payout depends on the actual expenses or losses incurred. There is a risk of double insurance; for instance, if an insured person simultaneously purchases medical insurance from two insurance companies with the same sum insured of 30,000 yuan, and incurs 10,000 yuan in medical expenses due to illness, unless otherwise agreed upon, this person can only receive a maximum of 10,000 yuan in medical expense reimbursement. 2. Health insurance generally does not designate a beneficiary. The beneficiary is the person entitled to claim insurance benefits. Unless otherwise stipulated in the contract, the beneficiary is the insured. As long as the insured is alive, they have the right to claim insurance benefits; only upon the insured's death does the beneficiary enjoy the right to receive benefits. The purpose of health insurance is to provide medical expenses or enable the insured to receive treatment, providing a certain level of security in their lives. Therefore, the insurance benefits received by the insured are essentially conditional upon the existence of the insured, and there is no need to designate a beneficiary. Only health insurance policies with death benefits require the designation of a beneficiary. 3. Health insurance contracts are mostly short-term. Except for a few health insurance policies covering specific risks (such as critical illness insurance, special disease insurance, such as cancer insurance, long-term care insurance, etc.), the insurance period for health insurance is mostly one year. Therefore, the policy terms will specify under what conditions the policy lapses and under what conditions it can be automatically renewed. This is mainly because life insurance policy calculations have scientific methods that can accurately predict the probability of the insured's life or death over many years or even a lifetime, thus allowing for long-term coverage. Health insurance policy calculations, however, are based on morbidity, disability, and replacement mortality rates. First, there are no life tables like "morbidity tables" or "disability tables" to estimate the probability of illness and death due to disease or childbirth; second, morbidity and disability rates are greatly affected by factors such as occupational environment and are even more unstable in the long term. Therefore, general health insurance policies such as medical expense insurance and income protection insurance are usually short-term or one-year policies.

III. Classification of Health Insurance (I) Classification by Coverage According to the different coverage, health insurance can be divided into disease insurance, medical insurance, disability income loss insurance and long-term care insurance. (1) Disease insurance refers to insurance that pays out insurance benefits based on the disease specified in the contract, such as critical illness insurance and special disease insurance. It refers to insurance that pays out a fixed amount of insurance benefits based on the insured amount when the insured suffers from a disease specified in the contract to compensate the insured for the losses caused by this. (2) Medical insurance, also known as medical expense insurance, refers to insurance that pays out insurance benefits based on the occurrence of medical behavior specified in the insurance contract, and provides protection for the medical expenses incurred by the insured during the treatment period. It protects the medical expenses incurred by the insured when they need treatment due to illness or childbirth. Among them, expenses include doctors' medical fees and surgery fees, drug fees, hospitalization fees, nursing fees, examination fees and medical facility usage fees, etc. Common medical insurance includes general medical insurance, hospitalization insurance, surgery insurance, comprehensive medical insurance, high-cost medical expense insurance, etc. (3) Disability income loss insurance refers to insurance that provides protection for the insured's income reduction or interruption within a certain period, based on the condition that the loss of working ability is caused by illness or accidental injury as stipulated in the insurance contract. It is a compensation insurance for the insured who loses their original wage income or has reduced income due to disability or disability caused by illness or accident. (4) Long-term care insurance refers to insurance that provides protection for the insured's care expenses based on the condition that care needs are caused by daily living ability impairment as stipulated in the insurance contract. (II) Classification by insurance period According to the insurance period, health insurance is divided into long-term health insurance and short-term health insurance. (1) Long-term health insurance refers to health insurance with an insurance period of more than one year or health insurance with a guaranteed renewal clause even if the insurance period is less than one year. (2) Short-term health insurance refers to health insurance with an insurance period of one year or less and without a guaranteed renewal clause. A guaranteed renewal clause is a contractual agreement that, after the expiration of the previous insurance period, if the policyholder submits a renewal application, the insurance company must continue to underwrite according to the agreed premium rate and the original terms. (III) Classification by the nature of insurance benefit payment: Insurance benefits are classified into expense reimbursement medical insurance and fixed-benefit medical insurance. (1) Expense reimbursement medical insurance refers to medical insurance where the amount of insurance benefit is determined according to the actual medical expenses incurred by the insured and in accordance with the agreed standard. (2) Fixed-benefit medical insurance refers to medical insurance where insurance benefits are paid in accordance with the agreed amount.

IV. Special Clauses in Health Insurance Contracts In addition to the grace period clauses, reinstatement clauses, and incontestability clauses common to general life insurance, health insurance contracts also include special clauses unique to health insurance due to the volatile and unpredictable nature of health insurance risks and the high risk of claims. (I) General Special Clauses General special clauses refer to special provisions commonly used in individual and group health insurance. 1. Age Generally, the insured age for health insurance is mostly between 3 and 60 years old, with exceptions for ages 0-70. Furthermore, gender plays a significant role. Typically, women have a longer life expectancy and better health than men, resulting in higher premiums for men compared to women of the same age. 2. Medical Examination Clause This clause allows the insurer to appoint a doctor to conduct a physical examination of the insured making a claim, enabling the insurer to assess the validity of the claim. Medical examination clauses apply to illness insurance, income protection insurance, etc. 3. Observation Period Clause: To prevent individuals with pre-existing conditions from obtaining insurance and to protect the insurer's interests, a observation period (usually six months) is stipulated in the policy. During this period, the insurer is not liable for medical expenses or income loss incurred by the insured due to illness. The policy only officially takes effect after the observation period. In other words, any illness that develops during the observation period is considered to have existed before the insurance was purchased, and the insurer can refuse to assume liability based on the principle of utmost good faith. 4. Waiting Period Clause: The waiting period, also known as the deductible period, refers to the time from the occurrence of illness, childbirth, or related illnesses, disabilities, or deaths in health insurance until the payment of the insurance benefit. The waiting period serves two purposes: first, it prevents the insured from using minor illnesses or small medical expenses to receive benefits without paying out, and also prevents moral hazard leading to serious self-harm. Second, it allows the insurer to fully utilize this time for investigation and verification, preventing any adverse phenomena and ensuring operational needs. Furthermore, health insurance policies generally stipulate that if the policyholder requests an increase in the sum insured, a new observation period (e.g., 90 days) will be arranged. During the observation period following the increase in coverage, if an insured event occurs within the scope of liability, the insurance company will not be obligated to pay the increased portion of the insurance benefit. 5. Deductible Clause: Health insurance contracts generally stipulate deductibles for medical expenses. Deductibles have two meanings: one refers to a fixed amount, also called a relative deductible; the other is called an "absolute deductible," meaning that regardless of the insured's actual loss, the insurer will only pay the insurance benefit after deducting the deductible. This absolute deductible method is commonly used in health insurance.