Health insurance

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.

Social Health Insurance

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.

Germany

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 has named "malingering" in his study The German Experience with Social Insurance (1947), i.e., people not personally paying for the service use is more easily and longer.

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.^[3] 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.

Russia

In communist Russia, Stalin setup centralized state medical care. This system theoretically guaranteed medical care to every citizen. In reality, service was rationed, many remote areas were barely serviced and the nomenklatura, or elite members of the Communist Party (CPSU), received priority in the best hospitals in Moscow and major cities. The communist system went bankrupt in 1989, unable to fund medical treatment. The system was partially privatized along the lines of the British system. But many Russian citizens are unable to pay for health insurance plans and fail to get adequate treatment in the antiquated facilities, many of which were built in Stalin's time. The average lifespan of Russians has decreased by five years since the collapse of the communist system. Many Russians with money who want treatment in modern facilities with the latest equipment travel to other countries.

England and Canada

In England and Canada, and other governments that regulate national health care, budgetary constraints generally lead to rationing of medical services. People are treated more equally and everyone is covered. However, doctors are forced to see more patients and give them less time, and they are rated more on quantity rather than quality of care provided. There are longer waits for services, and few patients receive more expensive treatments. For example, Canadian and British doctors see about 50 percent more patients than American doctors. In the United States 87 per 100,000 people receive dialysis in a given year, whereas the number is 46 in Canada and 27 in England. Likewise, 203 people per 100,000 receive coronary bypass surgery in the United States compared to 65 in Canada and 41 in England. Britain, the country the invented the CAT scan, has exported many units to other countries, but has only half as many units per capita for its own citizens as the United States.^[4]

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 U.S. Health Care 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. Connected to this was modern scientific medicine's disdain for traditional alternative forms of medicine, chiropractic treatment, and preventive medicine, and the lack of insurance coverage for these things.

The final irony is that better medical care has greatly increased the lifespan of Americans, leading to an ever-increasing proportion of elderly citizens dependent upon Medicare to the number of workers paying into the government system.

These crises have led to many attempts to control costs or raise rates, with the end result being greater disillusionment with the health care system and a growing number of less-insured or uninsured citizens. In the 1990s, increased outsourcing of work and corporate restructuring often was often triggered by unsustainable health insurance costs of employees. By 2000, the health insurance contributed more to the cost of a producing a new Chevrolet than the physical components of the car. Fewer employer health insurance plans has contributed to the growing number of uninsured citizens.

Attempted Solutions to Health Insurance Problems

HMOs and Managed Care

One solution to the health insurance crises, aimed at controlling costs is managed care. Managed care plans often increase preventive coverage to keep members healthy, and they tend to ration treatments or at least limit expensive procedures. They often have nurses and lower paid employees doing preliminary screening and some other things doctors traditionally have done. 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.^[8] 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.^[9] This follows the impact of global labor trends like outsourcing on the general cost of labor.

Patient satisfaction is generally lower than traditional plans and has often been viewed as a temporary solution to a system whose crisis is larger than such types of care can solve.

COBRA and mandatory continuation

Another problem with employer paid health insurance is that terminated employees find themselves without insurance coverage, and if they acquired medical problems during their employment an insurance company is likely not to issue them a personal plan because they are too high a risk.

This problem has led to government legislation which provides a way for people to continue coverage. COBRA is

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.^[10]. In 2005, 46.6 million (15.9%) Americans were without health insurance for at least part of the year.^[10] 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.^[11] 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.^[10]

History of Health Insurance in England

History of Health Insurance in the Soviet Union

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:

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.
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.
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.
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.

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