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Insurance Overview & History

1. Health Insurance and the effects of less public enrollment

1.1 Trends in private coverage
1.2 Trends in public coverage
1.3 Status of the uninsured
      1.3.1 Death
      1.3.2 Reform

2. History

2.1 The rise of employer-sponsored coverage
2.2 Medicare and Medicaid
2.3 Towards universal coverage

3. Public health care coverage

3.1 Medicare
3.1.1 Medicare Advantage
3.1.2 Medicare Part D
3.2 Medicaid
3.3 State Children's Health Insurance Program (SCHIP)
3.4 Military health benefits
3.5 Indian health service
3.6 State risk pools
3.7 Pre-existing Condition Insurance Plan

4. Private health care coverage

4.1 Employer-sponsored
4.1.1 Small employer group coverage
4.1.2 College-sponsored health insurance for students
4.1.3 Federal employees health benefit plan (FEHBP)
4.1.4 "Portability" of group coverage
4.2 Association group health insurance
4.3 Individually purchased
4.4 Types of medical insurance
4.4.1 Traditional indemnity or fee-for-service
4.4.2 Blue Cross Blue Shield Association
4.4.3 Health Maintenance Organizations
4.4.4 Managed care
4.4.4.1 Network-based managed care
4.4.4.2 Other managed care techniques
4.4.5 Blurring lines
4.4.6 New types of medical plans
4.5 Health care markets and pricing

5. Other types of health insurance (non-medical)

5.1 Disability income insurance
5.2 Long-term care insurance

6. Supplemental insurance coverage

6.1 Medicare Supplement Coverage (Medigap)
6.2 Hospital indemnity insurance
6.2.1 Scheduled health insurance plans
6.3 Dental insurance
6.4 Vision care insurance
6.5 Specified disease
6.6 Accidental death and dismemberment insurance

7. Criticism of the US health insurance system

 

1. Health Insurance and the effects of less public enrollment
In the United State any program that helps pay for medical expenses, whether privately purchased or government funded is referred to as Health Insurance. That term covers any form of insurance that pays all or some of the costs of medical services.

Under the broad umbrella of health insurance lies a variety of plans ranging from privately purchased policies with major medical insurance companies to programs such as Medicare and Medicaid or the State Children's Health Insurance Program. These various programs cover both those who can afford to pay for their own coverage and those who cannot and whose coverage for medical service and long-term care is subsidized by the government.

Obviously the scope of coverage can vary widely from policy to policy. Comprehensive coverage in a private policy can be prohibitive for some users. More than 40 percent of insured individuals reported in 2007 that their plans do not fully meet their needs. They were not able to afford policies that gave the broadest set of benefits and therefore gave them the best coverage.

In recent years the number of Americans with privately purchased health insurance has been declining. As of 2010 less than 84% of Americans had any form of health insurance. That left 49 million people without coverage for at least part of 2010.

As less people purchase coverage the cost of health care goes up as there are fewer insured people to share the costs/risks. This rise in premium costs leads to more Americans needing to rely on publically funded insurance. Fully 31% of Americans now rely on public programs.

1.1 Trends in private and public coverage
Employer-sponsored coverage has dropped by 7% between 2000 and 2009. Rising costs to the employer is the major factor in this decline. Additionally, the uptick in the number of unemployed since 2008 has increased the number of uninsured as workers who lost employer-sponsored insurance. In the first three months of 2009 alone over one million workers lost their health care. To correspond with that trend, more Americans have needed public coverage. That number has risen almost 5% for both Medicaid (14.5% in 2010) and Medicare (15.9%).

Surveys indicate that whenever the economy takes a downturn, there is an increased demand for public assistance with health care. When the unemployment rolls increase by only 1% it can add a million people to the public insurance list. That increase would boost spending for those programs by $1.4 billion. Funding in 2010 was increased significantly under the health reform bill to deal with exactly this situation.

1.2 Status of the uninsured
In 2010 16% (49 million) of the population was uninsured. Of those, 40 million were employment-age adults and over half of those were working part time. Of the uninsured, 40 million are U.S. citizens, 9.7 are non-citizens (a number that does not differentiate between documented and undocumented aliens). Within that pool of uninsured, 20% could afford private coverage but opted not to enroll and 25% are eligible for public assistance. The remaining uninsured (8.9% of the population) require financial assistance in order to get coverage. Treating the uninsured leads to cost shifting via higher taxes and higher health care premiums.

1.2.1 Death: The uninsured cannot get timely care and have a 40% higher risk of death. In 2005, 45,000 deaths were linked to lack of health insurance.
1.2.2 Reform
The Affordable Care Act of 2010 has expanded Medicaid, added to employer incentives and called for the uninsured to obtain coverage in state-run exchanges. The CBO says that 33 million Americans will get coverage by 2022 because of the act.

2. History
The first accident insurance was offered in 1850 for injuries on railroads or steamboats. The first coverage for sickness came in 1890 but was primarily like a disability policy and did not cover medical costs. Patients were expected to pay all their own medical bills and it was not until the mid 20th century that health insurance as we know it today had evolved to cover emergency and preventative health care and prescription drug costs. As the private insurance grew in coverage public insurance kept pace covering those who could not get insurance.

Hospitals offered prepaid services that led to the formation of Blue Cross organizations in the 1930s. Teachers in Dallas began with the first employer-sponsored policy in 1929. It was only good at one hospital similar to today’s HMOs (health maintenance organizations).

The Roosevelt administration considered a national health insurance program at the same time the Social Security system was being created. The health aspect failed in the face of opposition from the American Medical Association.

2.1 Employer-sponsored coverage grows
During WWII the government imposed wage controls but said that fringe benefits such as health care insurance were not restricted. Employers used the insurance and other fringe benefits as a way to attract much-needed workers.

President Truman proposed an optional public health system open to all Americans in 1945. Doctors who signed on would be paid for their services by the government on behalf of Americans who paid a monthly fee to take part. The plan also included cash payments to replace lost wages. The Chamber of Commerce, AMA and American Hospital Association vehemently opposed the proposal and called it Socialism.

The labor unions, sensing a long, costly battle shifted their support to an employer-sponsored model and by 1958 a full 75% of Americans had health coverage of some type.

2.2 Medicare and Medicaid
Despite gains in overall coverage, many poor, unemployed or elderly could not afford private insurance. Only half of the elderly had coverage prior to 1965 and they paid three times the premium amount of younger people. Beginning in 1960, the Kerr-Mills Act gave funds to states to help with medical bills but Congress said no to a plan to subsidize private coverage to those on Social Security. That assistance didn’t come into being until President Johnson signed the Medicare and Medicaid programs into law in 1965. The programs reduced senior poverty and proved more able to contain costs than the private sector insurance.

2.3 Moving toward universal coverage
Health care reform has been the subject of fierce debate on the national level for the past four decades. In the 1970s two options were debated with Senator Ted Kennedy on one side promoting a single-payer, universal system while then-President Richard Nixon supported incentives to employers coupled with mandates to increase enrollment. Nixon’s plan also offered public coverage for low-income workers and the unemployed. Neither side prevailed.

President Clinton also introduced a plan that included mandates and subsidies. With the exceptions of unions and some liberals few supported the plan and it also failed.

President Obama signaled that universal health care was a priority to his administration when he took office. After considerable compromise, including the removal of the “public option,” the Patient Protection and Affordable Care Act passed in March of 2010. This plan mandates coverage.

3. Public health care coverage
The current public options include Medicare for those 65 and over and some disabled; Medicaid for low income children and their families; SCHIP for children and families who can’t qualify for Medicaid but cannot afford the cost of private coverage; TRICARE and Veterans Health Administration for members of the military and help for Native Americans through the Indian Health Service. Some are federally funded and others are funded in a state-federal collaboration. Some of the states have their own, additional programs.

3.1 Medicare
The federally funded Medicare program serves those over 65; those who become permanently or totally disabled; those with end stage renal disease and people with ALS. Surveys indicate that many previously uninsured or underinsured people who begin Medicare see improvements in their health. Most, nearly 90%, of Medicare recipients also have supplemental insurance to pay for charges not covered by Medicare. As the population ages there are concerns about the corresponding rising costs of funding Medicare. Those costs are expected to double from 3% to 6% of the GDP over time.

3.1.1 Medicare Advantage
Although it was created in 1997 by the Balanced Budget Act to control the growth in Medicare costs and give more choice to recipients, the plan does cost 12% more that standard coverage. There is also evidence to indicate that the Advantage plan chooses patients with lower risk of needing major medical care. While this increases profits for Medicare Advantage, it puts more strain and cost on Medicare.

3.1.2 Medicare Part D
This program covers the costs of prescription drugs via private insurance. It came into being in 2003 and went into effect in 2006.

3.2 Medicaid
In 1965 Medicaid was formed to assist the very poor. It is considered a social welfare program since recipients must pass a means test. Many doctors do not participate in this program and the number of residents without coverage has increased.

The Affordable Care Act expanded the program to cover everyone with income below 133% of the federal poverty level who does not qualify for Medicare. Initially the federal government will fund this expansion of services but it will shift to the states by 2020.

3.3 State Children’s Health Insurance Program (SCHIP)
SCHIP is a joint federal/state health insurance program for children whose families have income too high to quality for Medicaid but do not have enough income to afford private coverage. It falls under title XXI of the Social Security Act and is run by the states. The programs must meet requirements similar to those of Medicare and Medicaid and may take the form of expanded existing plans or independent programs. Some states combine these various implementations.

3.4 Military Health
Active duty members of the military, retired service members and their dependents receive health care from the Department of Defense Military Health System (MHS) under TRICARE which is dispensed in a direct care network and/or a purchased care network. Veterans also receive care and benefit through Veterans Health Administration.

3.5 Indian Health Service
The Indian Health Service (IHS) serves the eligible American Indian population at IHS centers and may pay some costs for services given by other health care providers.

3.6 State risk pools
A very small portion of residents who are considered medically uninsurable in the private health pool get coverage through state pools which began in 1976. A total of 34 states offer the coverage at greatly varying rates and benefits.

The risk pools do create the option of getting health insurance for those with pre-existing conditions like diabetes, heart disease or cancer who might otherwise be excluded from private coverage. It also allows those people to change jobs without fear of losing their coverage. The plans are costly, as much as double traditional private insurance premiums, and serve only 4% of those considered uninsurable. There are more affordable options but those do come with deductibles as high as $10,000 and are in effect for catastrophic care only.

Despite failed efforts to create a national pool in the past, the Patient Protection and Affordable Care Act has a clause taking effect in 2014 that will prohibit higher rates or discrimination against those with pre-existing conditions.

3.7 Pre-existing Condition Insurance Plan
Currently, citizens or legal residents may be eligible for the new Pre-existing Condition Insurance Plan (PCIP). To qualify one must have not been insured for the past six months and have a pre-existing condition or have been turned down for coverage due to that condition. Anyone with health insurance or who is already in the state’s high risk pool cannot qualify regardless of whether their current insurance covers their condition or not.

The PCIP plan is run by the states in conjunction with the government department of Health and Human Services. PCIP is transitional and will continue until 2014 when the new Affordable Care Act takes full effect.

The plan covers only the individual, not the family, and is offered in three versions: standard, extended or as a Health Saving Account.

4. Private health care coverage
Approximately 70% of Americans are covered by private insurance with 60% obtaining the coverage through their employers and the remainder purchasing individual plans.

Insurance coverage is regulated by the states under the McCarran-Ferguson Act. Those regulations control what health care plans cover. Large employers are generally exempt from this Act and fall under the Employee Retirement Income Security Act.

4.1 Employer-sponsored
Most large employers offer some type of health care coverage. Frequently the company allows the employee to become part of the plan the company has contracted with and the company pays a percentage of the cost of the premium, in some cases as much as 85%. The employee pays the remainder. This benefits the employee with lower premiums and tax reduction but can be problematic when changing jobs.

The cost for health care insurance premiums paid through an employer has risen considerably in the past decade, far outstripping the increase in wages by as much as a four to one basis. The cost of offering the insurance has increased for the employer as well. Despite that, a 2007 study by the Employee Benefit Research Institute showing a small drop in enrollment indicates that there continues to be a stable percentage of employees choosing to take part. This situation is made tenuous by the fact that some employers in the interview said they would consider discontinuing the subsidized plans if a major employer did so first.

Recent years have also seen a decline of nearly half the number of companies that offer continued health care plans to their retired employees.

The Patient Protection and Affordable Care Act will levy a $2000 fine per employee on companies with more than 50 employees who do not offer full time employees a health care plan option.

4.1.1 Small employer group coverage
Compared to the over 90% of large companies that offer health insurance plans only about 60% of smaller firms do so and that number has steadily decreased since 1999. Cost was the major issue and the length of time a company had been in business was also a factor. For example, based on a 2005 survey, 43% of companies with less than 10 employees who had been in business 20 years offered health plans while only 24% of those who had been operating five years or less did.

Small companies face a larger cost burden as they cannot reasonably self-fund their plans, something larger companies can do more easily. The per-employee cost is higher. The American Enterprise Institute study of 2008 also found that the more mandates that existed for the self-employed relative to offering coverage the more likely that potential employer was to not hire other workers.

Small group plans often ask employees for health histories. These histories are used to determine rates.

Although the states regulate variations in what health care insurance companies can charge in premiums for small groups, those rates as they change over time are affected by the amount of claims filed. When claims go up, premiums will likely follow.

Small employers often rely on insurance brokers to help find plans since the brokers are more informed about the current offerings and pricing. Group commissions vary and brokers often help with enrollment and with benefit issues if they arise.

4.1.2 College-sponsored health insurance for students
Many colleges, universities and other training schools offer insurance plans to their students. Some schools will require the student to enroll in the plan if he or she does not have other coverage.

New government rules beginning in 2010 stipulated that if an employee has children that those children will be allowed to enroll or to continue their coverage until age 26. This is expected to help one third of all young adults get coverage.

4.1.3 Federal employees health benefit plan (FEHBP)
Full-time civilian federal employees are covered by the Federal Employees Health Benefits Program (FEHBP). Active and retired military are covered by their own plans (see 3.4).

4.1.4 “Portability” of group coverage
Two federal laws relate to maintaining coverage after employment ends.

COBRA (the Consolidated Omnibus Budget Reconciliation Act of 1985) allows some individuals to extend employer-sponsored coverage. Employees may be required to play the full premium and COBRA only applies to companies with more than 20 employees.

HIPAA (Health Insurance Portability and Accountability Act of 1996) is concerned with employees that either move to another employer with a health plan or to those who have no other plan to move to. HIPAA ensures that the previous insurance coverage will cause the waiting period for pre-existing plans to be waived as along as not more than 63 days elapse between plans and if the employee had 18 months of continuous coverage prior to the break. Those not having access to coverage by a new employer’s plan are guaranteed the right to purchase some kind of individual coverage.

4.2 Association group health insurance
Members of certain associations sometimes are offered the option to gain coverage through their organizations under a group plan.

4.3 Individually purchased
Approximately 9% of Americans are covered by plans they purchased individually. The premium to obtain similar coverage to that offered by group plans is generally higher and the deductibles can be higher too. There may be additional co-payments or cost sharing called for by the plan. Major medical, the most common plan, is basically catastrophic coverage that also includes some free preventative benefits.

Premiums vary by age and in some states by health status. That type of discrimination caused by pre-existing conditions will end in 2014 with the Patient Protection and Affordable Care Act.

Self-employed individuals can get a tax deduction for their premiums and may see other tax benefits as well. Others may not see similar tax relief. There is some indication that competition is increasing among insurers and that prices may come down.

Individual health insurance falls under the McCarran-
Ferguson Act and is regulated by the state pursuant to that Act. The National Association of Insurance Commissioners also sets out model acts and regulations that states can choose to adopt and/or amend and if they do, those regulations gain the force of law.

4.4 Types of medical insurance

4.4.1 Traditional Indemnity or fee for service
Plans initially paid either a percentage of the charges for a service or a flat rate for that service. That is effectively the way things still work. The insurer pays what they have agreed to pay and the patient is responsible for the remainder.

4.4.2 Blue Cross Blue Shield Association
The Blue Cross Blue Shield Association is made up of 39 health insurance organizations that offer health care coverage in every U.S. state. Each one is a stand-alone franchise and in total they provide insurance to 100 million Americans. Additionally they administer Medicare in some states and provide coverage to government employees.

4.4.3 Health Maintenance Organizations
Health Maintenance Organizations (HMOs) provide managed care via hospitals, doctors and providers who contract with the HMO. The Health Maintenance Organization Act of 1973 requires employers to offer HMO options if they have more than 25 employees.

4.4.4 Managed Care
In order to reduce health care costs and improve the quality of care, so-called managed care is used. They are present in both HMO and private insurance organizations. Demand and usage is increasing.

insurance chart

4.4.4.1 Network-based managed care
In managed care, providers are selected to deliver medical services to the enrollees in a given network. There is an emphasis on preventative care. Costs can be well controlled but if an enrollee goes “out of network,” costs can quite high.

Networks can be “open” or “closed.” In closed networks only services from in-network providers are covered with few exclusions like emergencies. Open networks cover some costs from providers who are out of network. HMOs can be either open or closed depending on the plan.

4.4.2 Other managed care techniques
Other techniques include disease management, incentives for wellness, education, case management and utilization review.

4.4.5 Blurring lines
With all insurers trying to cut costs, the lines between the different types of health care insurance coverage is blurred in many areas. One may find preferred providers specified in an HMO, a PPO, a commercial company or a Blue Cross Blue Shield operation. Various plans fall under different regulatory oversight. The blurring continues within the industry’s trade associations and what were separate groups have now often merged.

4.4.6 New types of medical plans
New to the market is the HDHP (high deductible health plan). Spiraling costs have made it difficult for some to afford plans that offer a broad range of coverage but they can still get catastrophic care via an HDHP plan.

The HDHP can be coupled with a health care savings plan in which pre-tax dollars are set aside for health care expenses. This allows users to get services including doctor fees, Medicare part A or B fees and drugs through an HSA (Health Savings Account). There is also the Flexible Spending Account (FSA) that is commonly part of an employee benefit plan. The amount one can deposit in the FSAs may be limited by law.

Another new plan is the discount medical card. The offer only discounts from certain providers, no actual coverage.

4.5 Health care markets and pricing
Over 400 mergers in the past decade have concentrated health care options in fewer insurers. In 2006 Unitedhealth Group and Wellpoint had 67 million members and controlled 36% of the market. This large amount of control and influence is a matter of concern to many groups including the AMA. The larger insurers agree to raise their rates in return for the providers charging smaller insurers even higher costs for the same services.

The current pricing system is largely blamed for the rising health care costs that have gone up much more than economic growth. Public health insurance with its larger group size pays less than private plans for contracted services which can slow the overall rising costs for consumers.

5. Other types of health insurance
The insurance industry includes disability and long-term care insurance under the broad heading of health care insurance.

5.1 Disability income insurance (DI)
Disability income insurance plays benefits to those insured when they cannot work either due to illness or to injury. Instead of paying for care, DI pays for lost income. Policies can be written to cover short or long term disability or both.

The federal government also offers coverage under the Social Security Disability Insurance (SSDI) for workers completely and permanently unable to return to work if the disability is expected to last a year or longer or result in death.

5.2 Long-term care insurance
Long –term care insurance (LCI) pays the cost of long-term care needed due to age, disability or chronic illness. While similar to DI, LCI pays for care while DI pays for lost income due to the same circumstances. The cost for this popular insurance is also rising, especially if one waits to near retirement age to enroll.

6. Supplemental coverage
As the name suggests, supplemental insurance is an adjunct to primary insurance for medical care. The plans may offer supplemental coverage to existing Medicare coverage or take the form of dental or vision insurance, accidental death insurance or insurance for a particular disease.

The supplemental plans may pay co-payments or deductibles not covered by the primary plan or help with extra expense brought on by serious illness.

6.1 Medicare Supplement Coverage (Medigap)
Medigap plans are standardized in offering benefits to cover charges not covered by original Medicare A & B. One must be enrolled in A&B to qualify. If one signs up in the six-month open enrollment period when first eligible for Medicare acceptance is guaranteed.

6.2 Hospital indemnity insurance
This kind of insurance does not pay specific hospitalization costs, instead it pays a weekly or monthly benefit for the period of time the insured is in the hospital. It is usually a flat fee.

6.2.1 Scheduled health insurance plans
These are plans with limited benefits, anywhere from $1000 to $25,000 and can be used to pay for doctor visits and prescription drugs. They do not cover catastrophic care for major illness.

6.3 Dental insurance
Dental insurance assists in routine dental care with limits on types of services though all plans offer preventative care and cover the usual dental issues such as root canals or crowns. These can be in-network or open plans.

6.4 Vision care
Vision care insurance pays for routine eye care that most medical plans do not cover.

6.5 Specified disease
Specified disease insurance covers that, a specified disease, and can be used to cover costs related to treatment for that disease that are not covered by ones primary medical plan.

6.6 Accidental death and dismemberment
Accidental death and dismemberment pays benefits for loss of life caused by accident or dismemberment such as the loss of the limb or eyesight.

7. Criticism of the US health insurance system
In the United States the consolidation of so many health care insurers has led to problems. Instead of creating a class of strong insurers who negotiate effectively with the hospitals and health care systems to control costs while delivering needed services, the current insurers have not risen to that standard. Costs continue to rise for the consumer and smaller insurers who are charged more by the hospitals for the same services must charge similar premiums or fail to attract customers. Either way the smaller companies are at a financial disadvantage that can easily translate into the larger insurer getting an even bigger market share and more power.

Private insurers were paying an average salary of over $61,000 back in 2004 and were employing 470,000 — one reason why costs for private insurance are hard to control.

Instead of providing insurance in the traditional way by pooling risk, health insurers are instead behaving like low risk money managers who pocket the interest on what amounts to long-term health care savings according to analysts like Edward Beiser and Jacob Appel.

And while the insured find their premiums rising and benefits often cut, the largest health care insurance providers continue to post gains in their profits.

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