- Health insurance in the United States
The term health insurance is commonly used in the United States to describe any program that helps pay for medical expenses, whether through privately purchased
insurance, social insuranceor a non-insurance social welfare program funded by the government. [See, for example, US Census Bureau, [http://www.census.gov/hhes/www/hlthins/hlthinstypes.html "CPS Health Insurance Definitions"] ] Synonyms for this usage include "health coverage," "health care coverage" and "health benefits."In a more technical sense, the term is used to describe any form of insurance that provides protection against injury or illness. This usage includes private insurance and social insurance programs such as Medicare, but excludes social welfare programs such as Medicaid. In addition to medical expense insurance, it also includes insurance covering disability or long-term nursing or custodial care needs.
market-basedhealth care system relies heavily on private and not-for-profit health insurance, which is the primary source of coverage for most Americans. According to the United States Census Bureau, approximately 85% of Americans have health insurance; nearly 60% obtain it through an employer, while about 9% purchase it directly. Various government agencies provide coverage to about 28% of Americans (there is some overlap in these figures). [http://www.census.gov/prod/2008pubs/p60-235.pdf "Income, Poverty, and Health Insurance Coverage in the United States: 2007."] U.S. Census Bureau. Issued August 2008.]
In 2007, there were nearly 46 million people in the US (over 15% of the population) who were without health insurance for at least part of that year. The percentage of the non-elderly population who are uninsured has been generally increasing since the year 2000.cite web |url=http://covertheuninsured.org/factsheets/display.php?FactSheetID=101 |title=Percentage of Nonelderly Americans Without Health Insurance Coverage, 1987-2006 |accessdate=2008-01-21 |format= |work=CovertheUninsured.org, a project of the Robert Wood Johnson Foundation ] There is considerable debate in the US on the causes of and possible remedies for this level of uninsurance as well as the impact it has on the overall US health care system.
Accident insurance was first offered in the United States by the Franklin Health Assurance Company of Massachusetts. This firm, founded in 1850, offered insurance against injuries arising from railroad and steamboat accidents. Sixty organizations were offering accident insurance in the US by 1866, but the industry consolidated rapidly soon thereafter. While there were earlier experiments, the origins of sickness coverage in the US effectively date from 1890. The first employer-sponsored group disability policy was issued in 1911.
Before the development of medical expense insurance, patients were expected to pay all other health care costs out of their own pockets, under what is known as the
fee-for-servicebusiness model. During the middle to late 20th century, traditional disability insurance evolved into modern health insurance programs. Today, most comprehensive private health insurance programs cover the cost of routine, preventive, and emergency health care procedures, and also most prescription drugs, but this was not always the case.
Hospital and medical expense policies were introduced during the first half of the 20th century. During the 1920s, individual hospitals began offering services to individuals on a pre-paid basis, eventually leading to the development of Blue Cross organizations. The predecessors of today's
health maintenance organizations (HMOs) originated in 1929, through the 1930s and on during World War II.Thomas P. O'Hare, "Individual Medical Expense Insurance," The American College, 2000, p. 7 ISBN 1-57996-025-1] Managed Care: Integrating the Delivery and Financing of Health Care - Part A, Health Insurance Association of America, 1995, p. 9 ISBN 1-879143-26-1]
Public health care coverage
Public programs provide the primary source of coverage for most seniors and for low-income children and families who meet certain eligibility requirements. The primary public programs are Medicare, a federal social insurance program for seniors and certain disabled individuals; Medicaid, funded jointly by the federal government and states but administered at the state level, which covers certain very low income children and their families; and
SCHIP, also a federal-state partnership that serves certain children and families who do not qualify for Medicaid but who cannot afford private coverage. Other public programs include military health benefits provided through TRICAREand the Veterans Health Administrationand benefits provided through the Indian Health Service. Some states have additional programs for low-income individuals.U.S. Census Bureau, [http://www.census.gov/hhes/www/hlthins/hlthinstypes.html "CPS Health Insurance Definitions"] ]
In the United States, Medicare is a federal social insurance program that provides health insurance to elderly workers and their dependents, individuals who become totally and permanently disabled, and end stage
renal disease(ESRD) patients. Some health care economists (Uwe Reinhardt of Princeton and Stuart Butler among others) assert that the third-party payment feature of this program has had the unintended consequenceof distorting the price of medical procedures. As a result, the Health Care Financing Administration has set up a list of procedures and corresponding prices under the Resource-Based Relative Value Scale. Recent research has found that the health trends of previously uninsured adults, especially those with chronic health problems, improves once they enter the Medicare program. [ [http://www.commonwealthfund.org/usr_doc/McWilliams_hltprevuninsuredadultsMcare_1086.pdf?section=4039 "In the Literature: Health of Previously Uninsured Adults After Acquiring Medicare Coverage,"] The Commonwealth Fund, December 2007]
expand the health care options for Medicare beneficiaries. The option for Medicare Advantage plans is a result of the
Balanced Budget Act of 1997, with the intent to better control the rapid growth in Medicare spending, as well as to provide Medicare beneficiaries more choices.
Medicare Part D (Prescription Drugs)
Medicare Part Dprovides a private insurance option to allow Medicare beneficiaries to purchase subsidized coverage for the costs of prescription drugs. It was enacted as part of the Medicare Prescription Drug, Improvement, and Modernization Actof 2003 (MMA) and went into effect on January 1, 2006. [ [http://www.cms.hhs.gov/PrescriptionDrugCovGenIn/ Overview ] ]
Medicaid was instituted for the very poor in 1965. Despite its establishment, the percentage of US residents who lack any form of health insurance has increased since 1994. [Fronstin, P. " [http://www.ebri.org/publications/ib/index.cfm?fa=ibDisp&content_id=3850 Sources of Health Insurance and Characteristics of the Uninsured: Analysis of the March 2007 Current Population Survey] ." "Employee Benefit Research Institute Issue Briefs." 2007 Oct;(310):1-36] It has been reported that the number of physicians accepting Medicaid has decreased in recent years due to relatively high administrative costs and low reimbursements. [Cunningham P, May J. "Medicaid patients increasingly concentrated among physicians." "Track Rep." 2006 Aug;(16):1-5. PMID 16918046.] Medicaid is a social welfare or social protection program rather than a social insurance program.
State Children's Health Insurance Program (SCHIP)
The State Children’s Health Insurance Program (SCHIP) is a joint state/federal program to provide health insurance to children in families who earn too much money to qualify for Medicaid, yet cannot afford to buy private insurance. The statutory authority for SCHIP is under title XXI of the
Social Security Act. SCHIP programs are run by the individual states according to requirements set by the federal Centers for Medicare and Medicaid Services, and may be structured as independent programs separate from Medicaid (separate child health programs), as expansions of their Medicaid programs (SCHIP Medicaid expansion programs), or combine these approaches (SCHIP combination programs). States receive enhanced federal funds for their SCHIP programs at a rate above the regular Medicaid match.
Military health benefits
Health benefits are provided to active duty service members, retired service members and their dependents by the Department of Defense Military Health System (MHS). The MHS consists of a direct care network of Military Treatment Facilities and a purchased care network known as
TRICARE. Additionally, veterans may also be eligible for benefits through the Veterans Health Administration.
Indian health service
State risk pools
In 1976, some states began providing guaranteed-issuance risk pools, which enable individuals who are medically uninsurable through private health insurance to purchase a state-sponsored health insurance plan, usually at higher cost. Minnesota was the first to offer such a plan; 34 states now offer them. Plans vary greatly from state to state, both in their costs and benefits to consumers and in their methods of funding and operations. They serve a very small portion of the uninsurable market—about 182,000 people in the US as of 2004. [ [http://www.statehealthfacts.org/comparetable.jsp?ind=360&cat=7 State High-Risk Health Insurance Pool Participation, December 31, 2004] , StateHealthFacts.org, 2004, accessed 2007-10-09] In best cases, they allow people with pre-existing conditions such as cancer, diabetes, heart disease or other chronic illnesses to be able to switch jobs or seek self-employment without fear of being without health care benefits. [ [http://www.naschip.org/ Website of the National Association of State Comprehensive Health Insurance Plans (NASCHIP)] ] However, the plans are expensive, with premiums that can be double the average policy, and the pools currently cover only 1 in 25 of the so-called "uninsurable" population.cite news |first=Aliza |last=Marcus |title=Baby Kendra's $300,000 Bill Pains Insurers, Inspires Candidates |url=http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a4BEIIi_OauQ |work= |publisher=Bloomberg News |date=2008-05-07 |accessdate=2008-05-10 ] Efforts to pass a national pool have as yet been unsuccessful, but some federal tax money has been awarded to states to innovate and improve their plans.
Private health care coverage
Private health insurance may be purchased on a group basis (e.g., by a firm to cover its employees) or purchased by individual consumers. Most Americans with private health insurance receive it through an employer-sponsored program. According to the
United States Census Bureau, some 60% of Americans are covered through an employer, while about 9% purchase health insurance directly. Private health insurers have a significant economic impact in the US as employers—in 2004 they directly employed almost 470,000 people at an average salary of $61,409. [ [http://www.ahipresearch.org/PDFs/StateData/StateDataFullReport.pdf "Health Insurance: Overview and Economic Impact in the States,"] America’s Health Insurance Plans, November 2007]
The US has a joint federal/state system for regulating insurance, with the federal government ceding primary responsibility to the states under the
McCarran-Ferguson Act. States regulate the content of health insurance policies and often require coverage of specific types of medical services or health care providers. [Victoria Craig Bunce and JP Wieske, [http://www.cahi.org/cahi_contents/resources/pdf/HealthInsuranceMandates2008.pdf "Health Insurance Mandates in the States 2008"] , The Council for Affordable Health Insurance, 2008] [Michael J. New, [http://www.heritage.org/Research/HealthCare/upload/84532_1.pdf "The Effect of State Regulations on Health Insurance Premiums: A Preliminary Analysis,"] The Heritage Center for Data Analysis, October 27, 2005] State mandates generally do not apply to the health plans offered by large employers, due to the preemption clause of the Employee Retirement Income Security Act.
Employer-sponsored health insurance is paid for by businesses on behalf of their employees as part of an
employee benefitpackage. Most private health coverage in the US is employment based. According to the Centers for Medicare and Medicaid Services, nearly 100% of large firms offer health insurance to their employees. [ [http://www.cms.hhs.gov/TheChartSeries/downloads/private_ins_chap4_p.pdf] ] The employer typically makes a substantial contribution towards the cost of coverage. [ [http://www.kff.org/insurance/employer.cfm Kaiser Family Foundation website - section on employer-sponsored coverage] ] In 2008 the average employee contribution was 16% of the cost of single coverage and 27% of the cost of family coverage. These percentages have been stable since 1999.Gary Claxton, Jon R. Gabel, Bianca DiJulio, Jeremy Pickreign, HeidiWhitmore, Benjamin Finder, Marian Jarlenski, and Samantha Hawkins, [http://ehbs.kff.org/pdf/7790.pdf "Employer Health Benefits: 2008,"] the Kaiser Family Foundation, September 2008, Exhibit 6.1, page 74] Health benefits provided by employers are also tax favored. Employee contributions can be made on a pre-tax basis if the employer offers the benefits through a section 125 cafeteria plan. Costs for employer-paid health insurance are rising rapidly: since 2001, premiums for family coverage have increased 78%, while wages have risen 19% and inflation has risen 17%, according to a 2007 study by the Kaiser Family Foundation.cite press release |title=Health Insurance Premiums Rise 6.1 Percent In 2007, Less Rapidly Than In Recent Years But Still Faster Than Wages And Inflation |publisher=Kaiser Family Foundation |date=2007-09-11 |url=http://www.kff.org/insurance/ehbs091107nr.cfm |accessdate=2007-09-13] Employer costs have risen significantly per hour worked, and vary significantly. In particular, average employer costs for health benefits vary by firm size and occupation. The cost per hour of health benefits is generally higher for workers in higher-wage occupations, but represent a smaller percentage of payroll. [Paul Jacobs and Gary Claxton, [http://www.kff.org/insurance/snapshot/chcm030808oth.cfm "Employer Health Insurance Costs and Worker Compensation,"] Kaiser Family Foundation, March 2008] The percentage of total compensation devoted to health benefits has been rising since the 1960s. [Paul Jacobs, [http://www.kff.org/insurance/snapshot/chcm012808oth.cfm "Wages and Benefits: A Long-Term View,"] Kaiser Family Foundation, February 2008] Average premiums, including both the employer and employee portions, were $4,704 for single coverage and $12,680 for family coverage in 2008. [Gary Claxton, Jon R. Gabel, Bianca DiJulio, Jeremy Pickreign, HeidiWhitmore, Benjamin Finder, Marian Jarlenski, and Samantha Hawkins, [http://content.healthaffairs.org/cgi/reprint/hlthaff.27.6.w492v1 "Health Benefits In 2008: Premiums Moderately Higher, While Enrollment In Consumer-Directed Plans Rises In Small Firms,"] " Health Affairs", September 24, 2008]
However, in a 2007 analysis, the Employee Benefit Research Institute concluded that the availability of employment-based health benefits for active workers in the US is stable. The "take-up rate," or percentage of eligible workers participating in employer-sponsored plans, is falling. The percentage of workers actually covered has fallen somewhat, but not sharply. EBRI interviewed employers for the study, and found that others might follow if a major employer discontinued health benefits. Public policy changes could also result in a reduction in employer support for employment-based health benefits. [Paul Fronstin, [http://www.ebri.org/pdf/briefspdf/EBRI_IB_12-20073.pdf "The Future of Employment-Based Health Benefits: Have Employers Reached a Tipping Point?,"] The Employee Benefit Research Institute, EBRI Issue Brief No. 312, December 2007, www.ebri.org]
Although much more likely to offer retiree health benefits than small firms, the percentage of large firms offering these benefits fell from 66% in 1988 to 34% in 2002. [http://www.cms.hhs.gov/TheChartSeries/downloads/private_ins_chap4_p.pdf]
Small employer group coverage
According to a 2007 study, about 59% of employers at small firms (3-199 workers) in the US provide employee health insurance. The percentage of small firms offering coverage has been dropping steadily since 1999. The study notes that cost remains the main reason cited by small firms who do not offer health benefits. [ [http://www.kff.org/insurance/7672/index.cfm "Employer Health Benefits 2007 Annual Survey"] , Kaiser Family Foundation, National Opinion Research Center at University of Chicago, and Health Research and Educational Trust, accessed November 2007] Small firms that are new are less likely to offer coverage than ones that have been in existence for a number of years. For example, using 2005 data for firms with fewer than 10 employees, 43% of those that had been in existence at least 20 years offered coverage, but only 24% of those that had been in existence less than 5 years did. The volatility of offer rates from year to year also appears to be higher for newer small businesses. [Paul Jacobs and Gary Claxton, [http://www.kff.org/insurance/snapshot/chcm050608oth.cfm "Offer Rates for Smaller Establishments by Business Age,"]
Kaiser Family Foundation, May 2008]
The types of coverage available to small employers are similar to those offered by large firms, but small businesses do not have the same options for financing their benefit plans. In particular, self-insuring the benefits (see
Self-funded health care) is not a practical option for most small employers. [Hannah Yoo, Karen Heath and Tom Wildsmith, [http://www.ahipresearch.org/pdfs/FINALSmallGroupPaper.pdf "Small Group Health Insurance in 2006"] , America’s Health Insurance Plans, September 2006 ] A RANDCorporation study published in April 2008 found that the cost of health care coverage places a greater burden on small firms, as a percentage of payroll, than on larger firms. [Christine Eibner, [http://rand.org/pubs/technical_reports/2008/RAND_TR559.pdf The Economic Burden of Providing Health Insurance: How Much Worse Off Are Small Firms?] [http://rand.org/icj/centers/small_business/ Kauffman-RAND Institute for Entrepreneurship Public Policy] , 2008 ISBN 978-0-8330-4411-2] A study published by the American Enterprise Institutein August of 2008 examined the effect of state benefit mandates on self-employed individuals, and found that "the larger the number of mandates in a state, the lower the probability that a self-employed person will be a significant employment generator." [Aparna Mathur, [ "Health Insurance and Job Creation by the Self-Employed,"] American Enterprise Institute, August 22, 2008]
States regulate small group premium rates, typically by placing limits on the premium variation allowable between groups (rate bands). Insurers price to recover their costs over their entire book of small group business while abiding by state rating rules. [William R. Lane, [http://www.soa.org/library/newsletters/health-section-news/2000/arch-3/hsn0012.pdf "The Art & Science of Pricing Small Group Medical Coverage: Initial Pricing Schemes"] , Health Section News,
Society of Actuaries, December 2000] . Over time, the effect of initial underwriting "wears off" as the cost of a group regresses towards the mean. Recent claim experience - whether better or worse than average - is a strong predictor of future costs in the near term. But the average health status of a particular small employer group tends to regress over time towards that of an average group. [William R. Lane, [http://www.soa.org/library/newsletters/health-section-news/2001/april/hsn0104.pdf "The Art & Science of Pricing Small Group Medical Coverage: Renewal Pricing"] , Health Section News, Society of Actuaries, April 2001] The process used to price small group coverage changes when a state enacts small group reform laws. [Bill Lane, [http://www.soa.org/library/newsletters/health-section-news/2003/april/hsn0304.pdf "The Art & Science of Pricing Small Group Medical Coverage: From Debits to Risk Factors,"] Health Section News, Society of Actuaries, April 2003] Insurance brokers play a significant role in helping small employers find health insurance, particularly in more competitive markets. Average small group commissions range from 2 percent to 8 percent of premiums. Brokers provide services beyond insurance sales, such as assisting with employee enrollment and helping to resolve benefits issues. [Leslie Jackson Conwell, [http://www.hschange.com/CONTENT/480/ "The Role of Health Insurance Brokers: Providing Small Employers with a Helping Hand,"] Center for Studying Health System Change, Issue Brief No. 57, October 2002]
Federal employees health benefit plan (FEHBP)
In addition to such public plans as Medicare and Medicaid, the federal government also sponsors a health benefit plan for federal employees—the
Federal Employees Health Benefits Program(FEHBP). FEHBP provides health benefits to full-time civilian employees. Active-duty service members, retired service members and their dependents are covered through the Department of Defense Military Health System (MHS). FEHBP is managed by the federal Office of Personnel Management.
"Portability" of group coverage
Two federal laws address the ability of individuals with employment-based health insurance coverage to maintain coverage.
Consolidated Omnibus Budget Reconciliation Act of 1985(COBRA) enables certain individuals with employer-sponsored coverage to extend their coverage if certain "qualifying events" would otherwise cause them to lose it. Employers may require COBRA-qualified individuals to pay the full cost of coverage, and coverage cannot be extended indefinitely. COBRA only applies to firms with 20 or more employees, although some states also have "mini-COBRA" laws that apply to small employers.
Health Insurance Portability and Accountability Actof 1996 (HIPAA) provides for forms of both "group-to-group" and "group-to-individual" portability. When an individual moves from one employer's benefit plan to another's, the new plan must count coverage under the old plan against any waiting period for pre-existing conditions, as long as there is not a break in coverage of more than 63 days between the two plans. When certain qualified individuals lose group coverage altogether, they must be guaranteed access to some form of individual coverage. To qualify, they must have at least 18 months of prior continuous coverage. The details of access and the price of coverage are determined on a state-by-state basis.
Policies of health insurance obtained by individuals not otherwise covered under policies or programs elsewhere classified. Generally major medical, short-term medical, and student policies. According to the US Census Bureau, about 9% of Americans are covered under health insurance purchased directly. The range of products available is similar to those provided through employers. However, average out-of-pocket spending is higher in the individual market, with higher deductibles, co-payments and other cost-sharing provisions.Teresa Chovan, Hannah Yoo and Tom Wildsmith, [http://www.ahipresearch.org/pdfs/Individual_Insurance_Survey_Report8-26-2005.pdf "Individual Health Insurance: A Comprehensive Survey of Affordability, Access, and Benefits"] ,
America’s Health Insurance Plans, August 2005] Major medical is the most commonly purchased form of individual health insurance. [ [http://www.ahiphiwire.org/LearningCenter/Feature.aspx?doc_id=188552 "Individual Health Insurance: An Overview of Products,"] America’s Health Insurance Plans(accessed July 28, 2008)]
In the individual market, the consumer pays the entire premium without benefit of an employer contribution.Didem Bernard and Jessica Banthin, [http://www.meps.ahrq.gov/mepsweb/data_files/publications/st202/stat202.pdf "Premiums in the Individual Health Insurance Market for Policyholders under Age 65: 2002 and 2005,"] Statistical Brief #202,
Agency for Healthcare Research and Quality, April 2008] While self-employed individuals receive a tax deduction for their health insurance and can buy health insurance with additional tax benefits, most consumers in the individual market do not receive any tax benefit.
Premiums vary significantly by age. [ [http://gateway.nlm.nih.gov/MeetingAbstracts/ma?f=103623362.html Risk Segmentation in the Individual Health Insurance Market.]
National Institutes of Health] [Elizabeth M. Tucker & Lindsey Hogan, [http://www.ehealthinsurance.com/content/expertcenterNew/CostBenefitsReportSeptember2007.pdf "The Cost And Benefits Of Individual Health Insurance Plans: 2007,"] Forrester Researchand EHealthInsurance, 2007] In states that allow individual medical plan underwriting, premiums also vary by health status. For individuals who pass individual medical plan underwriting where it is used, the average premiums they pay are lower than the average paid for employer-sponsored coverage (this comparison is based on the entire premium for employer-sponsored coverage, including both the employee and employer contributions). [http://www.kff.org/insurance/upload/Update-on-Individual-Health-Insurance.pdf "Update on Individual Health Insurance,"] Kaiser Family Foundation, August 2004, revised, page 5] [http://www.kff.org/insurance/snapshot/chcm111006oth.cfm "Comparison of Expenditures in Nongroup and Employer-Sponsored Insurance,"] the Kaiser Family Foundation, November 2006, Revised: February 2007] Factors that may be contributing to this include: differences in age; less generous coverage in the individual market (higher beneficiary cost sharing); and a tendency for individual consumers to only buy benefits that they expect to need and use while group coverage may provide some benefits that most beneficiaries do not use. Individual policyholders are also more likely to report being in excellent health than are people covered by employer-sponsored health insurance, which may be a contributing factor. Premiums in the individual market rose less rapidly over the period 2002 through 2005 than did out-of-pocket premiums in the employer-sponsored market (17.8% versus 34.4%). The increase was larger for family policies than for single policies (25.3% for family policies; the increase for single policies was not statistically significant). Note that these comparisons did not adjust for changes in benefit levels.
Research confirms that consumers in the individual health insurance market are sensitive to price. [ [http://www.cbo.gov/ftpdocs/66xx/doc6620/08-24-HealthInsurance.pdf "The Price Sensitivity of Demand for Nongroup Health Insurance,"]
Congressional Budget Office, 2005 ] Estimates of the demand elasticity in this market vary, but generally fall in the range of -0.3 to -0.1. It appears that price sensitivity varies among population subgroups and is generally higher for younger individuals and lower income individuals. [M. Susan Marquis, Melinda Beeuwkes Buntin, Jose J. Escarce, Kanika Kapur, and Jill M. Yegian, [http://findarticles.com/p/articles/mi_m4149/is_5_39/ai_n6228864/print "Subsidies and the Demand for Individual Health Insurance in California,"] Health Services Research 39:5 (October 2004)] One study found that among individuals who lack other sources of health coverage, the percentage purchasing individual insurance increases steadily with income. However, even among those with incomes four times the federal poverty level, only about a fourth buy individual coverage. The self-employed, who can tax-deduct their premiums, are more likely to purchase than other individuals. The researchers concluded that affordability appears to be a key barrier to coverage in this market, and that any premium subsidies would likely have to be substantial to be effective. The researchers note that other factors such as health status and the complexity of the market can also affect the purchase of individual health insurance, but conclude that they are unlikely to be the primary drivers of low coverage rates. [Paul Jacobs and Gary Claxton, [http://www.kff.org/insurance/upload/7737.pdf "How Non-Group Health Coverage Varies with Income,"] the Kaiser Family Foundation, February 2008]
Many states allow
medical underwritingof applicants for individually purchased health insurance. An estimated 5 million of those without health insurance are considered "uninsurable" because of pre-existing conditions. A number of proposals have been advanced to limit the effect of underwriting on consumers and improve access to coverage. Each has its own advantages and limitations. [Mark Merlis, [http://www.nhpf.org/pdfs_bp/BP_Underwriting_04-13-05.pdf "Fundamentals of Underwriting in the Nongroup Health Insurance Market: Access to Coverage and Options for Reform,"] NHPF Background Paper, National Health Policy Forum, April 13, 2005 ] One study published in 2008 found that people of average health are least likely to become uninsured if they have large group health coverage, more likely to become uninsured if they have small group coverage, and most likely to become uninsured if they have individual health insurance. But, "for people in poor or fair health, the chances of losing coverage are much greater for people who had small-group insurance than for those who had individual insurance." The authors attribute these results to the combination in the individual market of high costs and guaranteed renewability of coverage. Individual coverage costs more if it is purchased after a person becomes unhealthy, but "provides better protection (compared to group insurance) against high premiums for already individually insured people who become high risk." Healthy individuals are more likely to drop individual coverage than less-expensive, subsidized employment-based coverage, but group coverage leaves them "more vulnerable to dropping or losing any and all coverage than does individual insurance" if they become seriously ill. [Mark V. Pauly and Robert D. Lieberthal, [http://content.healthaffairs.org/cgi/reprint/hlthaff.27.3.w242v1 "How Risky Is Individual Health Insurance?,"] Health Affairs web exclusive, May 6, 2008]
In August 2008
the Hartford Courantreported that competition was increasing in the individual health insurance market, with more insurers entering the market, an increased variety of products, and a broader spread of prices. [Diane Levick, [http://www.courant.com/business/hc-individualpolicy.artaug18,0,881151.story "More Health Insurers Competing In Individual Coverage Market,"] The Hartford Courant, August 18, 2008]
Individual health insurance is primarily regulated at the state level, consistent with the
McCarran-Ferguson Act. Model acts and regulations promulgated by the National Association of Insurance Commissioners(NAIC) provide some degree of uniformity state to state. These models do not have the force of law and have no effect unless they are adopted by a state. They are, however, used as guides by most states, and some states adopt them with little or no change. The primary NAIC models affecting the individual health insurance market are:
* The Uniform Individual Accident and Sickness Policy Provision Law (UPPL);
* The Accident and Sickness Insurance Minimum Standards Model Act;
* The Advertisements of Accident and Sickness Insurance Model Regulation; and
* The Unfair Trade Practices Act.
All of these models have been implemented in one form or another by most states.
Federal laws affecting individual health insurance include:
Health Insurance Portability and Accountability Act(HIPAA);
Newborns' and Mothers' Health Protection Act;
Women's Health and Cancer Rights Act;
Fair Credit Reporting Act; and
* Federal rules governing Medicare supplement policies. [Thomas P. O'Hare, "Individual Medical Expense Insurance," The American College, 2000, Chapter 2 - "Regulation," ISBN 1-57996-025-1]
Types of medical insurance
Traditional indemnity or fee-for-service
Commercial insurance companies began offering accident and sickness insurance (disability insurance) as early as the mid-1800s. [Davis W. Gregg & Vane B. Lucas, editors, "Life and Health Insurance Handbook," Third Edition, Richard W. Irwin, Inc., 1973, ISBN 0-256-00169-3, p. 276 ] Fundamentals of Health Insurance: Part A, Health Insurance Association of America, 1997, ISBN 1-879143-36-4] Hospital and medical expense policies were introduced during the first half of the 20th century. The first group medical plan was purchased from The Equitable Life Assurance Society of the United States by the General Tire & Rubber Company in 1934.
Early hospital and medical plans offered by insurance companies paid either a fixed amount for specific diseases or medical procedures (schedule benefits) or a percentage of the provider's fee. The relationship between the patient and the medical provider was not changed. The patient received medical care and was responsible for paying the provider. If the service was covered by the policy, the insurance company was responsible for reimbursing or indemnifying the patient based on the provisions of the insurance contract ("reimbursement benefits"). Health insurance plans that are not based on a network of contracted providers, or that base payments on a percentage of provider charges, are still described as
Blue Cross & Blue Shield plans
During the 1920s, individual hospitals began offering services to individuals on a pre-paid basis. The first group pre-payment plan was created at the
Baylor UniversityHospital in Dallas, Texas. [Davis W. Gregg & Vane B. Lucas, editors, "Life and Health Insurance Handbook," Third Edition, Richard W. Irwin, Inc., 1973, ISBN 0-256-00169-3, p. 413 ] This concept became popular among hospitals during the Depression, when they were facing declining revenues. The Baylor plan was a forerunner of later Blue Cross plans. Physician associations began offering pre-paid surgical/medical benefits in the late 1930s Blue Shield plans. Blue Cross and Blue Shield plans were non-profit organizations sponsored by local hospitals (Blue Cross) or physician groups (Blue Shield). As originally structured, Blue Cross and Blue Shield plans provided benefits in the form of services rendered by participating hospitals and physicians ("service benefits") rather than reimbursements or payments to the policyholder.Margaret E. Lynch, Editor, "Health Insurance Terminology," Health Insurance Association of America, 1992, ISBN 1-879143-13-5]
Health Maintenance Organizations
The Ross-Loos Clinic, founded in Los Angeles in 1929, is generally considered to have been the first health maintenance organization (HMO).
Henry J. Kaiserorganized hospitals and clinics to provide pre-paid health benefits to his shipyard workers during World War II. This became the basis for Kaiser PermanenteHMO. Most early HMOs were non-profit organizations. The development of HMOs was encouraged by the passage of the Health Maintenance Organization Act of 1973. Benefits are provided through a network of providers. Providers may be employees of the HMO ("staff model"), employees of a provider group that has contracted with the HMO ("group model"), or members of an independent practice association("IPA model"). HMOs may also use a combination of these approaches ("network model").
The term managed care is used to describe a variety of techniques intended to reduce the cost of health benefits and improve the quality of care. It is also used to describe organizations that use these techniques ("managed care organization"). [Peter R. Koongstvedt, "The Managed Health Care Handbook," Fourth Edition, Aspen Publishers, Inc., 2001, p. 3 ISBN 0-8342-1726-0] Many of these techniques were pioneered by HMOs, but they are now used in a wide variety of private health insurance programs. Through the 1990s, managed care grew from about 25% US employees with employer-sponsored coverage to the vast majority. [ [http://kff.org/insurance/7672/index.cfm "Employer Health Insurance: 2007,"]
Kaiser Family Foundation, September 2007]
Network-based managed care
Many managed care programs are based on a panel or network of contracted health care providers. Such programs typically include:
* A set of selected providers that furnish a comprehensive array of health care services to enrollees;
* Explicit standards for selecting providers;
* Formal utilization review and quality improvement programs;
* An emphasis on preventive care; and
* Financial incentives to encourage enrollees to use care efficiently.
Provider networks can be used to reduce costs by negotiating favorable fees from providers, selecting cost effective providers, and creating financial incentives for providers to practice more efficiently.
Network-based plans may be either closed or open. With a closed network, enrollees' expenses are generally only covered when they go to network providers. Only limited services are covered outside the network—typically only emergency and out-of-area care. Most traditional HMOs were closed network plans. Open network plans provide some coverage when an enrollee uses non-network provider, generally at a lower benefit level to encourage the use of network providers. Most
preferred provider organizationplans are open-network (those that are not are often described as exclusive provider organizations, or EPOs), as are point of service (POS) plans.
The terms "open panel" and "closed panel" are sometimes used to describe which health care providers in a community have the opportunity to participate in a plan. In a "closed panel" HMO, the network providers are either HMO employees (staff model) or members of large group practices with which the HMO has a contract. In an "open panel" plan the HMO or PPO contracts with independent practitioners, opening participation in the network to any provider in the community that meets the plan's credential requirements and is willing to accept the terms of the plan's contract.
Other managed care techniques
Other managed care techniques include such elements as disease management,
case management, wellness incentives, patient education, utilization managementand utilization review. These techniques can be applied to both network-based benefit programs and benefit programs that are not based on a provider network. The use of managed care techniques without a provider network is sometimes described as "managed indemnity."
Over time, the operations of many Blue Cross and Blue Shield operations have become more similar to those of commercial health insurance companies. [Thomas P. O'Hare, "Individual Medical Expense Insurance," The American College, 2000, p. 14 ISBN 1-57996-025-1] However, some Blue Cross and Blue Shield plans continue to serve as insurers of last resort. [Blues plans provide open enrollment periods in MI, NC, PA and VA. [http://www.healthinsuranceinfo.net/newsyoucanuse/discrimination_limits.pdf "Summary of Key Consumer Protections in Individual Health Insurance Markets"] , Georgetown University Health Policy Institute, 2004] Similarly, the benefits offered by Blues plans, commercial insurers, and HMOs are converging in many respects due to market pressures. One example is the convergence of preferred provider organization (PPO) plans offered by Blues and commercial insurers and the point of service plans offered by HMOs. Historically, commercial insurers, Blue Cross and Blue Shield plans, and HMOs might be subject to different regulatory oversight in a state (e.g., the Department of Insurance for insurance companies, versus the Department of Health for HMOs). Today, it is common for commercial insurance companies to have HMOs as subsidiaries, and for HMOs to have insurers as subsidiaries (the state license for an HMO is typically different from that for an insurance company). [Managed Care: Integrating the Delivery and Financing of Health Care - Part B, Health Insurance Association of America, 1996, ISBN 1-879143-29-1] At one time the distinctions between traditional indemnity insurance, HMOs and PPOs were very clear; today, it can be difficult to distinguish between the products offered by the various types of organization operating in the market. [Peter R. Koongstvedt, "The Managed Health Care Handbook," Fourth Edition, Aspen Publishers, Inc., 2001, p. 28 ISBN 0-8342-1726-0]
The blurring of distinctions between the different types of health care coverage can be seen in the history of the industry's trade associations. The two primary HMO trade associations were the Group Health Association of America and the American Managed Care and Review Association. After merging, they were known as American Association of Health Plans (AAHP). The primary trade association for commercial health insurers was the Health Insurance Association of America (HIAA). These two have now merged, and are known as
America’s Health Insurance Plans(AHIP).
New types of medical plans
One approach to addressing increasing premiums, dubbed "
consumer driven health care," received a boost in 2003, when President George W. Bush signed into law the Medicare Prescription Drug, Improvement, and Modernization Act. The law created tax-deductible Health Savings Accounts(HSAs). An HSA is an untaxed private bank account; withdrawals are only penalized if the money is spent on non-medical items or services. Consumers wishing to deposit pre-tax funds in an HSA must be enrolled in a high-deductible insurance plan with a number of restrictions on benefit design; in 2007, qualifying plans must have a minimum deductible of US$1,050. HSAs enable healthier individuals to pay less for insurance and bank money for their own future health care expenses. [ [http://www.ahipresearch.org/pdfs/HC_Spending_Accounts_Jul2005.pdf Health Care Spending Accounts: What You Need to Know About HSAs, HRAs, FSAs, and MSAs] , America's Health Insurance Plans, July 2005, accessed 2007-10-09] HSAs are one form of tax-preferenced health care spending account. Others include Archer Medical Savings Accounts (MSAs), which have been superseded by the new HSAs (although existing MSAs are grandfathered), Flexible Spending Arrangements (FSAs) and Health Reimbursement Accounts (HRAs). HSAs, FSAs and HRAs are most commonly used as part of an employee health benefit package. ["Comparison of Tax-Advantaged Health Care Spending Accounts," America’s Health Insurance Plans, January 2005, http://www.ahipresearch.org/pdfs/ChartMSAFSAHRAHSAJan05.pdf]
Limited Medical Benefit Plans pay for routine care and do not pay for catastrophic care. As such, they do not provide equivalent financial security to a major medical plan. Annual benefit limits can be as low as $2,000. Lifetime maximums can be very low as well.
One option that is becoming more popular is the discount medical card. These cards are not insurance policies, but provide access to discounts from participating health care providers. While some offer a degree of value, there are serious potential drawbacks for the consumer. [Mila Kofman, Jennifer Libster, and Eliza Bangit, [http://www.commonwealthfund.org/usr_doc/808_kofman_discountmedicalcards_ib.pdf?section=4039, "Discount Medical Cards: Innovation or Illusion?,"]
Commonwealth Fund, March 2005]
Other types of health insurance (non-medical)
While the term "health insurance" is most commonly used by the public to describe coverage for medical expenses, the insurance industry uses the term more broadly to include other related forms of coverage, such as disability income and long-term care insurance.
Disability income insurance
Disability income (DI) insurance pays benefits to individuals who lose their ability to work due to injury or illness. DI insurance replaces income lost while the policyholder is unable to work during a period of disability (in contrast to medical expense insurance, which pays for the cost of medical care)."Disability Income Insurance: A Primer," The Health Insurance Association of America, 2002, ISBN 1-879143-66-6] For most working age adults, the risk of disability is greater than the risk of premature death, and the resulting reduction in lifetime earnings can be significant. Private disability insurance is sold on both a group and an individual basis. Policies may be designed to cover long-term disabilities (LTD coverage) or short-term disabilities (STD coverage). [ [http://www.actuarialfoundation.org/consumer/disability_chartbook.pdf "Disability Insurance: A Missing Piece in the Financial Security Puzzle,"] a chart book prepared by
America’s Health Insurance Plansand the Society of Actuaries' Disability Chart Book Task Force and funded by the Actuarial Foundation, October 2004] Business owners can also purchase disability overhead insurance to cover the overhead expenses of their business while they are unable to work. [Gary V. Powell, "Disability Income Insurance: Advanced Issues," The Health Insurance Association of America, 2003 ISBN 1-879143-73-9]
A basic level of disability income protection is provided through the
Social Security Disability Insurance(SSDI) program for qualified workers who are totally and permanently disabled (the worker is incapable of engaging in any "substantial gainful work" and the disability is expected to last at least 12 months or result in death).
Long-term care insurance
Long-term care (LTC) insurance reimburses the policyholder for the cost of long-term or custodial care services designed to minimize or compensate for the loss of functioning due to age, disability or chronic illness. ["Long-Term Care: Understanding Needs and Options," The Health Insurance Association of America, 2001, ISBN 1-879143-55-0] LTC has many surface similarities to long-term disability insurance. There are at least two fundamental differences, however. LTC policies cover the cost of certain types of chronic care, while long-term-disability policies replace income lost while the policyholder is unable to work. For LTC, the event triggering benefits is the need for chronic care, while the triggering event for disability insurance is the inability to work.
Private LTC insurance is growing in popularity in the US. Premiums have remained relatively stable in recent years. However, the coverage is quite expensive, especially when consumers wait until retirement age to purchase it. The average age of new purchasers was 61 in 2005, and has been dropping. [ [http://www.ahipresearch.org/PDFs/LTC_Buyers_Guide.pdf "Who Buys Long‑Term Care Insurance? A 15‑Year Study of Buyers and Non‑Buyers, 1990‑2005,"]
America’s Health Insurance Plans, April 2007]
Private insurers offer a variety of supplemental coverages in both the group and individual markets. These are not designed to provide the primary source of medical or disability protection for an individual, but can assist with unexpected expenses and provide additional peace of mind for insureds. Supplemental coverages include Medicare supplement insurance, hospital indemnity insurance, dental insurance, vision insurance, accidental death and dismemberment insurance and specified disease insurance.
Supplemental coverages are intended to:
* Supplement a primary medical expense plan by paying for expenses that are excluded or subject to the primary plan's cost-sharing requirements (e.g., co-payments, deductibles, etc.);
* Cover related expenses such as dental or vision care;
* Assist with additional expenses that may be associated with a serious illness or injury.
Medicare Supplement Coverage (Medigap)
Medicare Supplement policies are designed to cover expenses not covered (or only partially covered) by the "original Medicare" (Parts A & B) fee-for-service benefits. They are only available to individuals enrolled in Medicare Parts A & B. Medigap plans may be purchased on a guaranteed issue basis (no health questions asked) during a six-month open enrollment period when an individual first becomes eligible for Medicare. The benefits offered by Medigap plans are standardized.
Hospital indemnity insurance
Hospital indemnity insurance provides a fixed daily, weekly or monthly benefit while the insured is confined in a hospital. The payment is not dependent on actual hospital charges, and is most commonly expressed as a flat dollar amount. Hospital indemnity benefits are paid in addition to any other benefits that may be available, and are typically used to pay out-of-pocket and non-covered expenses associated with the primary medical plan, and to help with additional expenses (e.g., child care) incurred while in the hospital.
cheduled health insurance plans
Scheduled health insurance plans are an expanded form of Hospital Indemnity plans. In recent years, these plans have taken the name mini-med plans or association plans. These plans may provide benefits for hospitalization, surgical, and physician services however, they are not meant to replace a traditional comprehensive health insurance plan. Scheduled health insurance plans are more of a basic policy providing access to day-to-day health care such as going to the doctor or getting a prescription drug; but these benefits will be limited and are not meant to be effective for catastrophic events. Payments are based upon the plan's "schedule of benefits" and are usually paid directly to the service provider. These plans cost much less then comprehensive health insurance. Annual benefit maximums for a typical scheduled health insurance plan may range from $1,000 to $25,000. [ [http://www.healthinsurancequotesamerica.com/comprehensivevsscheduledplans.html "Comprehensive Health Insurance vs. Scheduled Health Insurance"] ]
Dental insurance helps pay for the cost of necessary dental care. Many medical expense plans include coverage for dental expenses, and stand-alone dental insurance is also available. Discount dental programs are also available. These do not constitute insurance, but provide participants with access to discounted fees for dental work.
Vision care insurance
Vision care insurance provides coverage for routine eye care and is typically written to complement other medical benefits. Vision benefits are designed to encourage routine eye examinations and ensure that appropriate treatment is provided.
Specified disease provides benefits for one or more specifically identified conditions. Benefits can be used to fill gaps in a primary medical plan, such as co-payments and deductibles, or to assist with additional expenses such as transportation and child care costs.
Accidental Death and Dismemberment (AD&D) insurance
AD&D insurance is offered by group insurers and provides benefits in the event of accidental death. It also provides benefits for certain specified types of bodily injuries (e.g., loss of a limb or loss of sight) when they are the direct result of an accident.
Status of the uninsured
In 2007, more than 45 million people in the US (15.3% of the population) were without health insurance for at least part of the year. The percentage of the non-elderly population who are uninsured has been generally increasing since the year 2000. Among the uninsured population, some 37 million were employment-age adults (ages 18 to 64), and more than 27 million worked at least part time. About 38% of the uninsured live in households with incomes over $50,000. According to the Census Bureau, nearly 36 million of the uninsured are legal US citizens. Another 9.7 million are non-citizens, but the Census Bureau does not distinguish in its estimate between legal non-citizens and illegal immigrants. It has been estimated that nearly one fifth of the uninsured population is able to afford insurance, almost one quarter is eligible for public coverage, and the remaining 56% need financial assistance (8.9% of all Americans). [Dubay L, Holahan J and Cook A., [http://www.healthaffairs.org/RWJ/Dubay2.pdf The Uninsured and the Affordability of Health Insurance Coverage] , "Health Affairs" (Web Exclusive), November 2006. Accessed February 4, 2007.] An estimated 5 million of those without health insurance are considered "uninsurable" because of pre-existing conditions.
The costs of treating the uninsured must often be absorbed by providers as
charity care, passed on to the insured via cost shifting and higher health insurance premiums, or paid by taxpayers through higher taxes. [ [http://www.acponline.org/hpp/cost.pdf The Cost of Lack of Health Insurance,] American College of Physicians]
A report published by the
Kaiser Family Foundationin April 2008 found that economic downturns place a significant strain on state Medicaidand SCHIP programs. The authors estimated that a 1% increase in the unemployment rate would increase Medicaid and SCHIP enrollment by 1 million, and increase the number uninsured by 1.1 million. State spending on Medicaid and SCHIP would increase by $1.4 billion (total spending on these programs would increase by $3.4 billion). This increased spending would occur at the same time state government revenues were declining. During the last downturn, the Jobs and Growth Tax Relief Reconciliation Act of 2003(JGTRRA) included federal assistance to states, which helped states avoid tightening their Medicaid and SCHIP eligibility rules. The authors conclude that Congress should consider similar relief for the current economic downturn. [Stan Dorn, Bowen Garrett, John Holahan, and Aimee Williams, [http://www.kff.org/medicaid/upload/7770.pdf "Medicaid, SCHIP and Economic Downturn: Policy Challenges and Policy Responses,"] Kaiser Family Foundation, April 2008]
America’s Health Insurance Plans
Health care reform in the United States
Health Insurance Portability and Accountability Act
Health maintenance organization
National health insurance
Physicians for a National Health Program
Publicly-funded health care
RAND Health Insurance Experiment
Self-funded health care
Uninsured in the United States
Universal health care
Notes and references
* [http://www.ebri.org/ Employee Benefit Research Institute (EBRI)]
* [http://www.naschip.org/ National Association of State Comprehensive Health Insurance Plans (NASCHIP)]
* [http://www.nahu.org/ National Association of Health Underwriters (NAHU)]
* [http://www.kff.org/insurance/7672/index.cfm Kaiser Family Foundation]
* [http://www.hschange.com/ Center for Studying Health System Change]
* [http://www.ahipresearch.org/ AHIP Center for Policy and Research]
* [http://www.census.gov/hhes/www/hlthins/hlthins.html U.S. Census Bureau - Health Insurance Statistics]
* [http://www.cms.hhs.gov/NationalHealthExpendData/01_Overview.asp National Health Expenditure Data]
* [http://www.cdc.gov/nchs/ National Center for Health Statistics]
* [http://www.naic.org/ National Association of Insurance Commissioners]
* [http://www.healthclaimappeals.org/ Health Claim Appeals - A Guide to Resolving Health Insurance Disputes]
* [http://www.cms.hhs.gov Centers for Medicare and Medicaid Services]
* [http://eh.net/encyclopedia/article/thomasson.insurance.health.us History of Health Insurance in the United States]
* [http://www-03.ibm.com/industries/healthcare/doc/content/landing/2956079105.html "Healthcare 2015 and U.S. health plans: How U.S. health plans can succeed in the changing healthcare environment," from the IBM Institute for Business Value]
* [http://www.academyforhealthcare.com/glossary/ Glossary of managed care terms]
* [http://healthinsuranceinfo.net/ Georgetown University Consumer Guides to Health Insurance]
* [http://www.dollarsandsense.org/archives/2008/0508harrison.html Paying More, Getting Less] from
Dollars & Sense
Wikimedia Foundation. 2010.
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