Health insurance

From New World Encyclopedia

Health insurance is a type of insurance that covers costs incurred for unexpected medical expenses. Health insurance is a relatively recent form of insurance; and it did not become important for most people until advances in modern medicine that made many procedures possible for repairing injuries and pharmaceutical drugs for fighting disease. Today medical expenses often exceed the cost of housing. A health insurer may be a corporation, a social institution, or a government agency. Health insurance can be market-based, socialized, or mixed, but in most countries it is some form of mixture.

There are many types of health insurance plans. Some are high-deductible plans that insure one against major expenses; these are the least expensive. Others are complete managed care programs that cover every visit to a physician and all medications. Health insurance plans can be for individuals, families, or groups. Socialized medicine is a form of national health insurance. Related types of health insurance usually purchased or provided separately are dental insurance, long term care insurance, and disability insurance.

People want to live long healthy lives, but the cost of insuring for the ever-increasing number and variety of medical treatments available is higher than what many people and societies can afford. This creates a moral and social challenge to find more ways that people obtain health insurance or reduce medical costs.

History and evolution

Forms of life and disability insurance date back to ancient times. In ancient Greece, benevolent societies were formed to care for individuals families when the income of the breadwinner was lost. Medieval guilds had similar plans. Many of the first group health insurance plans were an outgrowth of the guild idea. They were mutual insurance companies, like cooperatives, that were owned by the members. As shareholders, members would divide any profits from the company.

In the 19th century, early health insurance was actually disability insurance. Patients were expected to pay all other health care costs out of their own pockets. During the 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.

The Origins of Social Insurance in Germany

State-mandated health insurance began in Germany in 1883, and initially covered workers in with the sickness funds of various trades and labor unions. These funds covered both medical care and loss of wages. Many other nations followed suit: Austria (1888), Hungary (1891), Norway (1909), Serbia (1910), Britain (1911), Russia (1912) and the Netherlands (1913).[1]

Most other European countries subsidized mutual aid funds to make them more affordable by a larger number of people. However, in the first decade of the twentieth century the population covered by these European plans was generally 25 percent or less. This is because health insurance was not primarily for medical care but for income stabilization for families. Thus many of the plans only applied to wage earners.

In Germany, coverage soon expanded to other parts of the work force, with family members of workers included after 1892. The state continually consolidated the various insurance funds. By 1928, practically all workers in Germany making less than 3,600 marks were forced to participate in the system.[2] As the program developed longer coverages and more benefits were applied for. The benefits paid out by the funds continuously exceeded contributions and required government subsidy.

The socialized health insurance also saw an increase in what Walter Sulzbach called "malingering" in his study The German Experience with Social Insurance (1947):

Over a period of fifty years (1880-1930), during which medical science scored one triumph after another, it took the average patient under compulsory health insurance an ever longer time to recover.[3]

Originally the insurance funds set the fees that would be paid for services. But in 1913, a German doctors' strike was averted by adding members of the medical profession to the committee that determined the fee system. The frequent practice of physicians charging higher fees to wealthier patients was outlawed. Thus, the physician's income became purely based on the number of procedures at the fixed fee per period, as opposed to the quality of the service provided.[4] Patient choice of a physician became reduced as doctors were assigned by the system. By the late 1920s, up to eighty percent of the medical profession in Germany was working for the mandatory health-insurance system, and sixty percent of all earnings in the medical profession came from payments from the compulsory-insurance funds. At the same time, patients grew increasingly dissatisfied with the factory-style treatment that developed. Pharmacies also became increasingly dependent upon the compulsory system, with as much as 85 percent of their business turnover coming from these insurance funds by 1932. Under the Nazi regime after 1933, the compulsory health insurance system became even more centralized and controlled.

Today 92 percent of Germany's residents receive health care through mandatory health insurance, provided by about 1,200 nonprofit sickness funds. Those not insured through these funds, mostly civil servants and the self-employed, have private for-profit insurance. An estimated 0.3 percent of the population has no health insurance. This population includes the very rich who do not need insurance and the very poor, who hope to receive health care through social assistance.

History of Private Health Insurance in the United States

The United States did not follow the course of European countries. For one thing, the federal government was very small compared to today and health and labor issues were basically left to individual states and local governments. Instead, private insurance companies grew out of mutual assistance societies, which were not as widespread as in Europe. The first policy giving health benefits was offered by Massachusetts Health Insurance of Boston in 1847.[5] A few other companies organized around 1850, but these early efforts quickly went bankrupt.[6] The first individual plans in the United States began as a form of travel insurance to cover the cost if one was injured in an accident on a steamship or railroad.

Insurance companies issued the first individual disability and illness policies in the 1890s. This payment model continued until the 20th century in some jurisdictions (like California), where all laws regulating health insurance actually referred to disability insurance.[7] Many of the early policies were expensive and only 30 to 35 percent of the premiums were returned to policyholders as benefits. The new industry was unregulated and fraud was widespread.

John Dryden, founder of Prudential Insurance, said in 1909 that such insurance should be left to fraternal organizations that could better monitor members and that commercial insurance could only be soluble if it was limited to death benefits. Many industrial life insurance policies were issued to working-class families in the first part of the twentieth century.

Labor Unions and Socialized Medicine

The American Association for Labor Legislation (AALL), organized in 1906, included notable progressive economists John R. Commons and Richard T. Ely and had had success in promoting workers compensation and child labor laws. President Theodore Roosevelt was receptive to the AALL campaign for mandated federal health insurance, but was defeated in the 1912 election. AALL continued to hold conferences and meet with the American Medical Association (AMA) and gradually moved the public toward greater support for health insurance, however business interests successfully lobbied to defeat any legislation that would make health insurance compulsory. Franklin D. Roosevelt's Committee on Economic Security, which shaped the Social Security bill in the 1930s, favored including compulsory health insurance but it was omitted from the Social Security Act for fear it would lead to the larger bill's defeat. As progressive labor unions continued to push for national health insurance, World War II intervened.

President Roosevelt had planned to take up the issue of national health care again after the war, and President Harry S. Truman unsuccessfully tried to get national health legislation passed. However, Truman developed some piecemeal ways that government could get involved in improving national health care. One method was to fund medical research and institutes to develop new advances in medicine. Another method was to create more welfare programs that could provide health care to the uninsured.

Hospital Insurance

In the 1920s the development of modern hospitals became a new factor in health costs. Hospitals had traditionally been religious and charitable institutions primarily for care of people without families to care for them. However, with advances in surgery and expensive medical equipment more hospitals became facilities for general medical treatment. Traditional insurance plans did not cover hospitalization and the first plan normally cited was Baylor University hospital's idea of providing school teachers up to 21 days of care for a $6 annual fee. Other hospitals in Dallas followed suit. This was the origin of an idea which developed into Blue Cross; hospital insurance backed, not by capitalization, but by a guarantee by hospitals to provide care. Within a year after the stock market crash of 1929 hospital receipts per person fell to 25 percent of what they had been in the robust economy. In 1932 the American Hospital Association acknowledged the crisis in hospital finance and recommended other hospitals adopt hospital underwriting. The Blue Cross logo became used as a symbol that a hospital plan met certain standards of care.

Industrial Plans

General Motors signed a major contract with Metropolitan Life Insurance to cover 180,000 workers with health insurance in 1928. Under this plan and similar ones, about 10 percent actually was paid out in medical expenses and the bulk for lost wages. The National Labor Relations Act (or Wagner Act) passed in 1935 had given workers more rights in forming labor unions and entering into collective bargaining agreements with employers. During the World War II wage freezes were imposed, causing employers to seek additional ways to attract workers during the war economy. One alternative that could indirectly increase wages was to offer fringe benefits like health insurance. Employers with large groups of employees could bargain with private insurance companies or doctor's groups and clinics that sold prepaid group plans. This created a climate in which health care became a key issue in employment, and the results spilled over for non-union workers as well, expanding both the scope of coverage and the percentage of employer contributions. Many Unions preferred the Blue Cross plans for hospitalization because full payment for services was guaranteed.

Medicare

As migration from rural to urban areas continued in the United States in the 1950s and 1960s, the majority of U.S. workers became covered under company health plans. Governments adopted similar or better plans for their workers. The major portion of the population not covered by health insurance was older people who were not employed, or retired. This set the stage for another push for national or compulsory health insurance for these groups. In 1960 Congress responded to this push with the introduction of federal support for medical welafare programs in the states. When the Democrats swept the election of 1964, Medicare became a top priority and was finally passed, not as outright welfare, but as a compulsory program in which workers contributed a portion of incomes towards old-age medical insurance while they were employed.

The Growing Crises

The ad hoc measures which arose to address health insurance in the United States in the twentieth century contained within themselves the seeds of an unstable national medical system which grew into a leviathan. The increase in the number and expense of medical treatments available, the rise of near monopolistic groups among doctors and hospitals, the monopoly that patents provided on drugs, the lack of market forces in the health field with third party health insurance payers, and the insatiable demand for health care by consumers all led up to a collision course between what health insurers had to charge and what consumers were able to pay.

Add to this the fruits of post-war affluence that made many unhealthy practices fashionable: insufficient exercise; junk food and unhealthy diets; excessive alcohol use, smoking, street drugs, obesity, and the sedentary lifestyle of office jobs as opposed to jobs based on physical labor. These further raised the cost of health insurance.

Medicaid

While Medicaid was instituted for the very poor, beginning in 1972, the number of individuals in the United States who lacked any form of health insurance for any period during the year increased each year, every year with the exceptions of the years 1999 and 2000.[citation needed] 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. [8]

COBRA and mandatory continuation

HMOs and Managed Care

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

Rise of managed care in the U.S.
Year conventional plans HMOs PPOs POS plans
1988 73% 16% 11% NA
1993 46% 21% 26% 7%
1996 27% 31% 28% 14%
1998 14% 27% 35% 24%
1999 9% 28% 38% 25%
2000 8% 29% 41% 22%
2001 7% 23% 48% 22%

According the Centers for Medicare and Medicaid Services, nearly 100% of large firms offer health insurance to their employees.[9] 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.[10] This follows the impact of global labor trends like outsourcing on the general cost of labor.

Health Savings Accounts

Health insurance census in the United States

According to the latest United States Census Bureau figures, approximately 85% of Americans have health insurance. Approximately 60% obtain health insurance through their place of employment or as individuals, and various government agencies provide health insurance to over 29% of Americans.[11]. In 2005, 46.6 million (15.9%) Americans were without health insurance for at least part of the year.[11] However, approximately one-third of these without insurance live in housholds with an income over $50,000, with half of these having an income of over $75,000.[12] Also, one third are people who are eligible for public health insurance programs but have not signed up for them. People living in the western and southern United States are more likely to be uninsured.[11]

History of Health Insurance in England

The National Health Service (NHS) is the "public face" of the four publicly funded health care systems of the United Kingdom. The organisations provide the majority of healthcare in the UK, from general practitioners to Accident and Emergency Departments, long-term healthcare and dentistry. They were founded in 1948 and have become an integral part of British society, culture and everyday life: the NHS was once described by Nigel Lawson, former Chancellor of the Exchequer, as 'the national religion'. Private health care has continued parallel to the NHS, paid for largely by private insurance, but it is used only by a small percentage of the population, and generally as a top-up to NHS services.

History of Health Insurance in the Soviet Union

Private health insurance

A health insurance policy is a legal, binding contract between the insurance company and the customer. The largest difference between private sector health insurance and life insurance is that for life insurance, a person may purchase guaranteed renewable insurance for the whole of the insured's life at a constant premium rate, while health insurance is generally purchased year by year with generally no assurance of renewability and if renewable no guarantee that premium rates will not increase.

Inherent problems with private insurance

Any private insurance system will face two inherent challenges: adverse selection and Ex-post moral hazard.

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. For instance, an insurance company has a pool of 1000 randomly selected subscribers, each paying $100/month. One of them gets really sick while the others stay healthy, which means that the insurance company can use the money paid by the healthy people to treat the sick person. Adverse selection upsets this balance between healthy and sick subscribers. It will 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 use a patient's medical history to screen out persons with pre-existing medical conditions. 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 or not the person has been treated for any of a long list of diseases and so on. In general, those who look like they will be large financial burdens are denied coverage or charged high premiums to compensate. On the other side, applicants can actually get discounts if they do not smoke and are healthy.

Starting in 1976, some states started providing "health insurance" "risk pools", which allow individuals who are medically-uninsurable through private health insurance to be able to purchase a state-sponsored health insurance plan, usually at a higher-than-market cost. Minnesota was the first to offer such a plan, there are now 34 states which do. Plans vary greatly from state-to-state, both in the costs and benefits to consumers and to their methods of funding and operating. They serve a very small portion of the uninsurable market — about 183,000 people nationwide — but in best cases do 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. Efforts to pass a national pool have as yet been unsuccessful, but some federal tax dollars have been awarded to states to innovate and improve their plans.

Moral Hazard

Moral hazard describes the state of mind and change in behavior that results from one's knowledge that if something bad were to happen, the out-of-pocket cost would be mitigated by an insurance policy—in this case, one which provides reduced prices for medical care. In the same way that people treat water with little care when it is very inexpensive, people will also tend to overuse medical care when the out-of-pocket costs are small.

However, the reverse problem also occurs. People who have no health insurance, or who are severely under-insured, may wait too long, or not seek medical care at all for conditions that could be immediately life threatening out of fear of being financially ruined by enormous medical bills.

Health insurance in modern societies can be very expensive for the following reasons:

  1. Most people treasure good health, the potential demand for medical care is nearly infinite. However, the amount of money to pay for health insurance is finite, causing a gap between desired coverage and actual coverage.
  2. Many forms health of insurance are provided by third parties—governments or corporations—health care providers frequently over bill the insurers and consumers frequently seek more care than is reasonable or necessary.
  3. Heavy government regulation of health insurance sometimes provides favored status to some companies that gives them a protected status which allows them to over bill.
  4. The large amounts of money that are pooled together to provide for insurance can become a target for corruption and theft.

Other factors affecting insurance price

Because of advances in medicine and medical technology, medical treatment is more expensive, and people in developed countries are living longer. The population of those countries is aging, and a larger group of senior citizens requires more medical care than a young healthier population. (A similar rise in costs is evident in Social Security in the United States.) These factors cause an increase in the price of health insurance.

Some other factors that cause an increase in health insurance prices are health related: insufficient exercise; unhealthy food choices; a shortage of doctors in impoverished or rural areas; excessive alcohol use, smoking, street drugs, obesity, among some parts of the population; and the modern sedentary lifestyle of the middle classes.

In theory, people could lower health insurance prices by doing the opposite of the above; that is, by exercising, eating healthy food, avoiding addictive substances, etc. Healthier lifestyles protect the body from some, although not all, diseases, and with fewer diseases, the expenses borne by insurance companies would likely drop. A program for addressing increasing premiums, dubbed "consumer driven health care," encourages Americans to buy high-deductible, lower-premium insurance plans in exchange for tax benefits.

Common complaints of private insurance

In a state with an unregulated market, health insurance is an optional product provided for people who want to buy it. However, many people that do not purchase insurance are unable to pay for medical expenses and might die if familes, churches or another social agency did not care for them. Human compassion usually leads to a social burden falling on someone to care for such people. In a socialized state insurance program, all people are covered, but only at the level at which the state decides it can fund the program. Since human health wants are infinite and state resources are finite, this means only approved services will be provided, and rationed according to the state budget. Many people are unsatisfied with the level of care they receive in such a system, and those who can afford it will seek additional care from private providers whether they are legal or not. Thus, most societies have some mixture of payment, either state insurance with additional private payments, or private insurance with additional payments by states or other social institutions.

Some common complaints about private health insurance include:

  1. Insurance companies do not announce their health insurance premiums more than a year in advance.[citation needed] This means that, if one becomes ill, he or she may find that their premiums have greatly increased (however, in many states these types of rate increases are prohibited).
  2. If insurance companies try to charge different people different amounts based on their own personal health, people will feel they are unfairly treated.[citation needed]
  3. When a claim is made, particularly for a sizable amount, it may be deemed in the best interest of the insurance company to use paperwork and bureaucracy to attempt to avoid payment of the claim or, at a minimum, greatly delay it.[citation needed]
  4. Health insurance is often only widely available at a reasonable cost through an employer-sponsored group plan.[citation needed]
  5. Employers can write some or all of their employee health insurance premiums off of their taxable income whereas traditionally individuals have had to pay taxes on income used to fund health insurance (this does not apply to Health Savings Account [HSA] plans which are tax deductible).[citation needed]
  6. Experimental treatments are generally not covered.[citation needed] This practice is especially criticized by those who have already tried, and not benefited from, all "standard" medical treatments for their condition.[citation needed]
  7. The Health Maintenance Organization (HMO) type of health insurance plan has been criticized for excessive cost-cutting policies in its attempt to offer lower premiums to consumers.[citation needed]
  8. As the health care recipient is not directly involved in payment of health care services and products, they are less likely to scrutinize or negotiate the costs of the health care received.[citation needed] The health care company has few popular and many unpopular ways of controlling this market force.[citation needed]
  9. Some health care providers end up with different sets of rates for the same procedure. One for people with insurance and another for those without.[citation needed]

Publicly funded health insurance

With publicly funded health insurance the good and the bad risks all receive coverage without regard to their health status, which eliminates the problem of adverse selection and amplifies the problem of moral hazard.

National Health Service

Health insurance in Canada

Until recently, private health insurance was illegal in all of Canada. All insurance was supplied by the government. Recently, the Supreme Court of Quebec ruled, in Chaoulli v. Quebec that private business must be allowed to offer health insurance and compete with the public program.

Notes

  1. Paul Starr, The Social Transformation of American Medicine: The Rise of a Sovereign Profession and the Making of a Vast Industry, p. 237-239.
  2. Richard M. Ebling National Health Insurance and the Welfare State, Part II.
  3. Ibid.
  4. Ibid.
  5. [http://www.lieberson.com/en/medical%5Fhistory%5Fand%5Fethics/history/history_of_health_insurance.htm The History of Health Insurance in the United States], viewed January 26, 2007.
  6. Paul Starr, The Social Transformation of American Medicine: The Rise of a Sovereign Profession and the Making of a Vast Industry, p. 240.
  7. See California Insurance Code Section 106 (defining disability insurance).[1] In 2001, the California Legislature added subdivision (b), which defines "health insurance" as "an individual or group disability insurance policy that provides coverage for hospital, medical, or surgical benefits."
  8. Cunningham P, May J. "Medicaid patients increasingly concentrated among physicians." Track Rep. 2006 Aug;(16):1-5. PMID 16918046.
  9. http://www.cms.hhs.gov/TheChartSeries/downloads/private_ins_chap4_p.pdf
  10. http://www.cms.hhs.gov/TheChartSeries/downloads/private_ins_chap4_p.pdf
  11. 11.0 11.1 11.2 "Income, Poverty, and Health Insurance Coverage in the United States: 2005." U.S. Census Bureau. Issued August 2006.
  12. Income, Poverty, and Health Insurance Coverage in the United States: 2005. U.S. Census Bureau

References
ISBN links support NWE through referral fees

  • Bodenheimer, Thomas S., and Kevin Grumbach, Understanding Health Policy, McGraw-Hill Medical, 2004. ISBN 0071423117
  • Boni, John A., et. al., The Health Insurance Primer, HIAA Insurance Education, 2000. ISBN 1879143496
  • Starr, Paul, The Social Transformation of American Medicine, Basic Books, 1984. ISBN 0465079350
  • Webster, Charles, National Health Service: A Political History, Oxford University Press, 2002. ISBN 019925110X

See also

  • COBRA
  • Government ownership
  • Health economics
  • Health maintenance organization
  • Healthcare reform
  • Health Insurance Portability and Accountability Act
  • Self-funded health care
  • List of insurance topics
  • Public health
  • RAND Health Insurance Experiment
  • Social security
  • Social welfare
  • AHIP

External links