Health insurance

The term health insurance is generally used to describe a form of insurance that pays for medical expenses. It is sometimes used more broadly to include insurance covering disability or long-term nursing or custodial care needs. It may be provided through a government-sponsored social insurance program, purchased on a group basis (e.g., by a firm to cover its employees) or purchased by individual consumers. In each case, the covered groups or individuals pay premiums or taxes to help protect themselves from high or unexpected healthcare expenses. Similar benefits paying for medical expenses may also be provided through social welfare programs funded by the government rather than the beneficiaries.

Health insurance works by estimating the overall risk of healthcare expenses and developing a routine finance structure (such as a monthly premium or annual tax) that will ensure that money is available to pay for the healthcare benefits specified in the insurance agreement. The benefit is administered by a central organization, most often either a government agency or a private or not-for-profit entity operating a health plan.^[1]

Market-based health care systems such as that in the United States rely heavily on private and not-for-profit health insurance. In the U.S., according to the Census Bureau, some 60% of the population receives health insurance coverage through employer-sponsored plans. Government programs cover another 27% of the population, and about 9% of the population purchases insurance directly (there is some overlap in these figures).

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History and evolution

The concept of health insurance was proposed in 1694 by Hugh the Elder Chamberlen from the Peter Chamberlen family. In the late 19th century, "accident insurance" began to be available, which operated much like modern disability insurance.^[2].This payment model continued until the start of the 20th century in some jurisdictions (like California), where all laws regulating health insurance actually referred to disability insurance.^[3]

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 U.S. by 1866, but the industry consolidated rapidly soon thereafter. While there were earlier experiments, the origins of sickness coverage in the U.S. effectively date from 1890. The first employer-sponsored group disability policy was issued in 1911.^[4]

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-service business 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.^[4] The predecessors of today's Health Maintanence Organizations (HMOs) originated beginning in 1929, through the 1930's and on during World War II.^[5][6]

How it works

A Health insurance policy is a contract between an insurance company and an individual. The contract can be renewable annually or monthly. The type and amount of health care costs that will be covered by the health plan are specified in advance, in the member contract or Evidence of Coverage booklet. The individual policy-holder's payment obligations may take several forms^[7]:

• Premium: The amount the policy-holder pays to the health plan each month to purchase health coverage.
• Deductible: The amount that the policy-holder must pay out-of-pocket before the health plan pays its share. For example, a policy-holder might have to pay a $500 deductible per year, before any of their health care is covered by the health plan. It may take several doctor's visits or prescription refills before the policy-holder reaches the deductible and the health plan starts to pay for care.
• Copayment: The amount that the policy-holder must pay out of pocket before the health plan pays for a particular visit or service. For example, a policy-holder might pay a $45 copayment for a doctor's visit, or to obtain a prescription. A copayment must be paid each time a particular service is obtained.
• Coinsurance: Instead of paying a fixed amount up front (a copayment), the policy-holder must pay a percentage of the total cost. For example, the member might have to pay 20% of the cost of a surgery, while the health plan pays the other 80%. Because there is no upper limit on coinsurance, the policy-holder can end up owing very little, or a significant amount, depending on the actual costs of the services they obtain.
• Exclusions: Not all services are covered. The policy-holder is generally expected to pay the full cost of non-covered services out of their own pocket.
• Coverage limits: Some health plans only pay for health care up to a certain dollar amount. The policy-holder may be expected to pay any charges in excess of the health plan's maximum payment for a specific service. In addition, some plans have annual or lifetime coverage maximums. In these cases, the health plan will stop payment when they reach the benefit maximum, and the policy-holder must pay all remaining costs.
• Out-of-pocket maximums: Similar to coverage limits, except that in this case, the member's payment obligation ends when they reach the out-of-pocket maximum, and the health plan pays all further covered costs. Out-of-pocket maximums can be limited to a specific benefit category (such as prescription drugs) or can apply to all coverage provided during a specific benefit year.

Prescription drug plans are a form of insurance offered through many employer benefit plans in the U.S., where the patient pays a copayment and the prescription drug insurance pays the rest.^{[citation needed]}

Some health care providers will agree to bill the insurance company if patients are willing to sign an agreement that they will be responsible for the amount that the insurance company doesn't pay, as the insurance company pays according to "reasonable" or "customary" charges, which may be less than the provider's usual fee.^{[citation needed]}

Health insurance companies also often have a network of providers who agree to accept the reasonable and customary fee and waive the remainder.^{[citation needed]} It will generally cost the patient less to use an in-network provider.^{[citation needed]}

Health plan vs. health insurance

Historically, HMOs tended to use the term "health plan", while commercial insurance companies used the term "health insurance". A health plan can also refer to a subscription-based medical care arrangement offered through health maintenance organization,HMO, PPO, or POS plan. These plans are similar to pre-paid dental, pre-paid legal, and pre-paid vision plans. Pre-paid health plans typically pay for a fixed number of services (for instance, $300 in preventive care, a certain number of days of hospice care or care in a skilled nursing facility, a fixed number of home health visits, a fixed number of spinal manipulation charges, etc.) The services offered are usually at the discretion of a utilization review nurse who is often contracted through the managed care entity providing the subscription health plan. This determination may be made either prior to or after hospital admission (concurrent utilization review).

Inherent problems with insurance

Insurance systems must typically deal with two inherent challenges: adverse selection, which affects any voluntary system, and ex-post moral hazard, which affects any insurance system in which a third party bears major responsibility for payment, whether that is an employer or the government.

Adverse selection

Insurance companies use the term "adverse selection" to describe the tendency for only those who will benefit from insurance to buy it. Specifically when talking about health insurance, unhealthy people are more likely to purchase health insurance because they anticipate large medical bills. On the other side, people who consider themselves to be reasonably healthy may decide that medical insurance is an unnecessary expense; if they see the doctor once a year and it costs $250, that's much better than making monthly insurance payments of $400 (example figures).

The fundamental concept of insurance is that it balances costs across a large, random sample of individuals (see risk pool). For instance, an insurance company has a pool of 1000 randomly selected subscribers, each paying $100 per month. One person becomes very ill while the others stay healthy, allowing the insurance company to use the money paid by the healthy people to pay for the treatment costs of the sick person. However, when the pool is self-selecting rather than random, as is the case with individuals seeking to purchase health insurance directly, adverse selection is a greater concern.^[8] Some individuals have extremely high medical expenses, in extreme cases totaling a half million dollars or more. These represent a relatively small percentage of the insured population, however. ^[9] Adverse selection could leave an insurance company with primarily sick subscribers and no way to balance out the cost of their medical expenses with a large number of healthy subscribers.

Because of adverse selection, insurance companies employ medical underwriting, using a patient's medical history to screen out those whose pre-existing medical conditions pose too great a risk for the risk pool. Before buying health insurance, a person typically fills out a comprehensive medical history form that asks whether the person smokes, how much the person weighs, whether the person has been treated for any of a long list of diseases and so on. In general, those who present large financial burdens are denied coverage or charged high premiums to compensate.^[10] One large U.S. industry survey found that roughly 13 percent of applicants for comprehensive, individually purchased health insurance who went through the medical underwriting in 2004 were denied coverage. Declination rates increased significantly with age, rising from 5 percent for individuals 18 and under to just under a third for individuals aged 60 to 64.^[11] Among those who were offered coverage, the study found that 76% received offers at standard premium rates, and 22% were offered higher rates.^[12] On the other side, applicants can get discounts if they do not smoke and are healthy.^[13]

Starting in 1976, some states started 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 to their methods of funding and operations. They serve a very small portion of the uninsurable market — about 182,000 people in the U.S. as of 2004,^[14] but in best cases 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.^[15] 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.

Moral hazard

Main article: Moral hazard

Moral hazard occurs when an insurer and a consumer enter into a contract under symmetric information, but one party takes action, not taken into account in the contract, which changes the value of the insurance. A common example of moral hazard is third-party payment — when the parties involved in making a decision are not responsible for bearing costs arising from the decision. An example is where doctors and insured patients agree to extra tests which may or may not be necessary. Doctors benefit by avoiding possible malpractice suits, and patients benefit by gaining increased certainty of their medical condition. The cost of these extra tests is borne by the insurance company, which may have had little say in the decision. Co-payments, deductibles, and less generous insurance for services with more elastic demand attempt to combat moral hazard, as they hold the consumer responsible.

Other factors affecting insurance prices

A recent study by PriceWaterhouseCoopers examining the drivers of rising health care costs in the U.S. pointed to increased utilization created by increased consumer demand, new treatments, and more intensive diagnostic testing, as the most significant driver.^[16] People in developed countries are living longer. The population of those countries is aging, and a larger group of senior citizens requires more intensive medical care than a young healthier population. Advances in medicine and medical technology can also increase the cost of medical treatment. Other factors that increase utilization and therefore insurance prices are lifestyle-related: increases in obesity caused by insufficient exercise and unhealthy food choices; excessive alcohol use, smoking, and use of street drugs. Other factors noted by the PWC study included the movement to broader-access plans, higher-priced technologies, and cost-shifting from Medicaid and the uninsured to private payers.^[16]

Health insurance in the United States

Main article: Health care in the United States

According to the United States Census Bureau, approximately 84% of Americans have health insurance. Some 60% obtain health insurance through an employer, about 9% purchase it directly, and various government agencies provide coverage to about 27% of Americans (there is some overlap in these figures).^[17] In 2006, there were 47 million people in the U.S. (16 percent of the population) who were without health insurance for at least part of that year.^[17] About 37% of the uninsured live in households with an income over $50,000.^[17] Health insurers have a significant economic impact as employers - in 2004 they directly employed almost 470,000 people at an average salary of $61,409.^[18]

Public: Medicare

Main article: Medicare (United States)

In the United States, Medicare is a social insurance program provided by the federal government to provide health insurance coverage 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 consequence of 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.^[19]

Medicare Advantage

Medicare Advantage plans 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 D provides a private insurance option to allow Medicare beneficiaries to purchase subsized coverage for the costs of prescription drugs. It was enacted as part of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA) and went into effect on January 1, 2006.^[20]

Public: Medicaid

Main article: Medicaid

Medicaid was instituted for the very poor in 1965. Despite its establishment, the percentage of U.S. residents who lack any form of health insurance has increased since 1994.^[21] 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. ^[22] Medicaid is a social welfare or social protection program rather than a social insurance program.

Public: State Children's Health Insurance Program (SCHIP)

Main article: State Children's Health Insurance Program

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.

Public: 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.

Private: employer-sponsored

Health insurance paid for by businesses on behalf of their employees as part of an employee benefit package. Most private health coverage in the U.S. is employment based, and the employer typically makes a substantial contribution towards the cost of coverage.^[23] Employee contributions can be made on a pre-tax basis if the employer offers the benefits through a section 125 cafeteria plan. According to the Centers for Medicare and Medicaid Services, nearly 100% of large firms offer health insurance to their employees.^[24]

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.^[25]

However, in a 2007 analysis, the Employee Benefits Research Institute concluded that the availability of employment-based health benefits for active workers in the U.S. 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.^[26]

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.^[27]

Small employer group coverage

According to a 2007 study, about 59% of employers at small firms (3-199 workers) in the U.S. provide employee health insurance, compared to 99% of large employers. 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.^[28]

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.^[29]

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.^[30] Over time, the effect of initial underwriting "wears off" as the cost of a group regresses towards the mean — the average health status of the group eventually moves towards that of an average group.^[31] The process used to price small group coverage changes when a state enacts small group reform laws.^[32]

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.^[33]

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 Benefit Plan (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).

"Portability" of group coverage

Two federal laws address the ability of individuals with employment-based health insurance coverage to maintain coverage.

The 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.

The Health Insurance Portability and Accountability Act of 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.

The shift to managed care in the U.S.

Through the 1990s, managed care grew from about 25% of U.S. employees with employer-sponsored coverage to the vast majority.

Private: individually purchased

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 U.S. Census Bureau, about 9% of Americans are covered under health insurance purchased directly.^[17] The range of products available is similar to those provided through employers. Average premiums are generally somewhat lower than those for employer-sponsored coverage, but vary by age. Deductibles and other cost-sharing are also higher, on average, and the individual consumer pays the entire premium without benefit of an employer contribution.^[35]

Research confirms that consumers in the individual health insurance market are sensitive to price.^[36] 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.^[37]

Many states allow medical underwriting of applicants for individually purchased health insurance by insurance companies. 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. ^[38]

Individual health insurance is primarily regulated at the state level, consistent with the McCarran-Ferguson Act. A degree of uniformity between the states is provided through the model acts and regulations promulgated by the National Association of Insurance Commissioners (NAIC). 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 healt 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:

• The Health Insurance Portability and Accountability Act (HIPAA);
• The Newborns' and Mothers' Health Protection Act;
• The Women's Health and Cancer Rights Act;
• The Fair Credit Reporting Act; and
• Federal rules governing Medicare supplement policies.^[39]

Private: Types of medical insurance in the U.S.

Traditional indemnity or fee-for-service

Commercial insurance companies began offering accident and sickness insurance (disability insurance) as early as the mid-1800s.^[40][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.^[4]

Early hospital and medical plans offered by insurance companies paid either a fixed amount for specific diseases or medical procedures (schedule benefits) or paid 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 indemnity or fee-for-service plans.^[4]

Blue Cross & Blue Shield plans

Main article: Blue Cross and Blue Shield Association

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 University Hospital in Dallas, Texas.^[41][4][42] 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.^[4][43]

Health Maintenance Organizations

Main article: Health Maintenance Organization

The Ross-Loos Clinic, founded in Los Angeles in 1929, is generally considered to have been the first HMO.^[44] Henry J. Kaiser organized hospitals and clinics to provide pre-paid health benefits to his shipyard workers during World War II. This became the basis for the Health maintenance organization|health maintenance organization (HMO) Kaiser Permanente. 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").^[4][43]

Managed care

Main article: Managed care

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").^[45] Many of these techniques were pioneered by HMOs, but they are now used in a wide variety of private health insurance programs.

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.^[46]

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 organization plans 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 practicioners, opening participation in the network to any provider in the community that meets the plan's credentialling requirements and is willing to accept the terms of the plan's contract.

Other managed care techniques

Other managed care techniques include such things as disease management, case management, wellness incentives, patient education, utilization management and 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."

Blurring lines

Over time, the operations of many Blue Cross and Blue Shield operations have become more similar to those of commercial health insurance companies.^[47] However, some Blue Cross and Blue Shield plans continue to serve as insurers of last resort.^[48] 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).^[4][49][43] 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.^[50]

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 in the U.S.

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.^[51] 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.^[52]

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.

Medicare Supplement Coverage (Medigap)

Main article: Medigap

Medicare Supplement policies are designed to cover expenses not covered (or only partially covered) by the traditional Medicare (Parts A & B) 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.

Private: Other types of health insurance in the U.S.

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

Main article: Disability 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).^[53] 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). ^[54]

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

Main article: 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.^[55] 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.^[56]

Private LTC insurance is growing in popularity in the U.S. 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.^[57]

Dental insurance

Main article: Dental 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.

Health insurance in Canada

Most health insurance in Canada is administered by each province, under the national law that requires all people to have free access to basic health services. Collectively, the public provincial health insurance systems in Canada are frequently referred to as Medicare. Private health insurance is allowed, but in the Quebec province it is allowed only for services that the public health plans do not cover; for example, semi-private or private rooms in hospitals and prescription drug plans. Canadians are free to use private insurance for elective medical services such as Lasik surgery, plastic surgery such as liposuction, and other non-basic medical procedures. Some 65% of Canadians have some form of supplementary private health insurance; many of them receive it through their employers.^[58] Private-sector services not paid for by the government account for nearly 30 percent of total health care spending.^[59] In 2005, the Supreme Court of Quebec ruled, in Chaoulli v. Quebec, that the province's prohibition on insurance for health care already insured by the state could constitute an infringement of the right to life and security if there were long wait times for treatment as happened in this case. Certain other provinces have legislation which financially discourages but does not forbid private health insurance in areas covered by the public plans. The ruling has not changed the overall pattern of health insurance across Canada but has spurred on attempts to tackle the core issues of supply and demand and the impact of wait times ^[60].

Health insurance in Australia

The public health system is called Medicare. It ensures free universal access to hospital treatment and subsidised out-of-hospital medical treatment. It is funded by a 1.5% tax levy.

The private health system is funded by a number of private health insurance organisations. The largest of these is Medibank Private, which is government-owned, but operates as a government business enterprise under the same regulatory regime as all other registered private health funds. The conservative Howard government had announced that Medibank will be privatised in 2008 if it won the 2007 election. The electorate however voted into office the opposing Australian Labor Party under Kevin Rudd which had already pledged that it would remain in government ownership if the party was elected into office.

Some private health insurers are 'for profit' enterprises, and some are non-profit organizations such as HCF Health Insurance. Some have membership restricted to particular groups, but the majority have open membership.

Most aspects of private health insurance in Australia are regulated by the Private Health Insurance Act 2007.

The private health system in Australia operates on a "community rating" basis, whereby premiums do not vary solely because of a person's previous medical history, current state of health, or (generally speaking) their age (but see Lifetime Health Cover below). Balancing this are waiting periods, in particular for pre-existing conditions (usually referred to within the industry as PEA, which stands for "pre-existing ailment"). Funds are entitled to impose a waiting period of up to 12 months on benefits for any medical condition the signs and symptoms of which existed during the six months ending on the day the person first took out insurance. They are also entitled to impose a 12-month waiting period for benefits for treatment relating to an obstetric condition, and a 2-month waiting period for all other benefits when a person first takes out private insurance. Funds have the discretion to reduce or remove such waiting periods in individual cases. They are also free not to impose them to begin with, but this would place such a fund at risk of "adverse selection", attracting a disproportionate number of members from other funds, or from the pool of intending members who might otherwise have joined other funds. It would also attract people with existing medical conditions, who might not otherwise have taken out insurance at all because of the denial of benefits for 12 months due to the PEA Rule. The benefits paid out for these conditions would create pressure on premiums for all the fund's members, causing some to drop their membership, which would lead to further rises, and a vicious cycle would ensue.

There are a number of other matters about which funds are not permitted to discriminate between members in terms of premiums, benefits or membership - these include racial origin, religion, sex, sexual orientation, nature of employment, and leisure activities. Premiums for a fund's product that is sold in more than one state can vary from state to state, but not within the same state.

The Australian government has introduced a number of incentives to encourage adults to take out private hospital insurance. These include:

• Lifetime Health Cover: If a person has not taken out private hospital cover by the 1st July after their 30th birthday, then when (and if) they do so after this time, their premiums must include a loading of 2% per annum. Thus, a person taking out private cover for the first time at age 40 will pay a 10 per cent loading. The loading continues for 10 years. The loading applies only to premiums for hospital cover, not to ancillary (extras) cover.

• Medicare Levy Surcharge: People whose taxable income is greater than a specified amount (currently $50,000 for singles and $100,000 for families) and who do not have an adequate level of private hospital cover must pay a 1% surcharge on top of the standard 1.5% Medicare Levy. The rationale is that if the people in this income group are forced to pay more money one way or another, most would choose to purchase hospital insurance with it, with the possibility of a benefit in the event that they need private hospital treatment - rather than pay it in the form of extra tax as well as having to meet their own private hospital costs.

• Private Health Insurance Rebate: The government subsidises the premiums for all private health insurance cover, including hospital and ancillary (extras), by 30%, 35% or 40%.

Notes and references

• Navigating your health benefits for dummies. Charles M Cutler MD Tracey A Baker CFP (c)2006 ISBN-13:978-0-470-08354-3

See also

• COBRA
• Injury cover
• Economic capital
• Government ownership
• Health economics
• Health maintenance organization
• Healthcare reform
• Health Insurance Portability and Accountability Act
• Self-funded health care
• List of insurance topics
• Physicians for a National Health Program
• Public health
• RAND Health Insurance Experiment
• Sicko (film)
• Social security
• Social welfare
• America’s Health Insurance Plans

External links (United States)

• National Association of State Comprehensive Health Insurance Plans (NASCHIP): http://www.naschip.org/
• National Association of Health Underwriters (NAHU) http://www.nahu.org
• Kaiser Family Foundation: http://www.kff.org/insurance/7672/index.cfm
• Center for Studying Health System Change: http://www.hschange.com/
• AHIP Center for Policy and Research: http://www.ahipresearch.org/
• U.S. Census Bureau - Health Insurance Statistics: http://www.census.gov/hhes/www/hlthins/hlthins.html
• National Health Expenditure Data (U.S.): http://www.cms.hhs.gov/NationalHealthExpendData/01_Overview.asp
• National Center for Health Statistics: http://www.cdc.gov/nchs/
• National Association of Insurance Commissioners: http://www.naic.org/
• Health Claim Appeals - A Guide to Resolving Health Insurance Disputes: http://www.healthclaimappeals.org/
• Centers for Medicare and Medicaid Services: http://www.cms.hhs.gov
• A History of Health Insurance Benefits from the Employee Benefits Research Institute (EBRI): http://www.ebri.org/publications/facts/index.cfm?fa=0302fact
• "Healthcare 2015 and U.S. health plans: New roles, new competencies" from the IBM Institute for Business Value: http://www-03.ibm.com/industries/healthcare/doc/content/landing/2956079105.html