Health Insurance


Role of Insurance?

To SHARE risk?

    Community rating.

    e.g. original Blue Cross.
 

To SEGREGATE risk?

    Experience rating; individual underwriting.

    e.g. original maritime insurance. 


In either case, to what extent does insurance:

        Assure access (to deal with the problem of great unevenness in health and hence costs of health care, as with catastrophic coverage)?

        Remove cost consciousness on the part of the provider, practitioner, and patient (creating problem of 3rd party payment, i.e. moral hazard, as with comprehensive coverage)?

       


Brief History of Health Insurance in the U. S.

late 1920s -- 1930s

    Establishment of Blue Cross and Blue Shield
    Prompted by provider interest in increasing the ability of patients to pay for the costs of hospitalizations, and then of physician fees.
    Controlled by providers.
    Community rated.

World War II
    Growth of employer based health insurance, as a means to attract workers during times of tight labor market and wage and price controls.

    Exemption of premium payment from the Federal income tax, in a period in which income tax became the major source of Federal revenue and a major deduction from wages and salaries (marginal rates going above 90%).

post war through the 1950s

    Expansion of employer based health insurance as wage and salary agreements were made more attractive by using the tax preference for health insurance premiums as a way to shield the premium costs from the taxes which would be levied upon equivalent payments for wages or salaries.

1960s -- 1970s

    Growing competition in the insurance market, using experience rating which gradually forced out community rating. This was inevitable is such a market, because of the highly uneven distribution of  cossts and charges for health care. In any given year, 1% of the population accounts for more than a quarter of health care costs; 2% account for more than a third; and 5% account for more than half. For health insurers, profitability and even survival depends upon understanding this distribution and managing it through enrollee selectivity and charges.
    Establishment of Medicare (Title XVIII of the social Security Act) and Medicaid (Title XIX), eventually making government the major payer.
    Growth in the value and in the cost of health care, creating more demand for insurance coverage.

1980s

    Costs of health care exceeding 10% of GDP and headed toward 15%.
    Payers, including government, taking major roles in managing the costs of health care.

1990s

    Costs of health care saw slower growth, which combined with the economic boom resulted in total costs staying about or slightly below 14% of GDP.

2000 --
    Costs again increasing faster than the economy, reaching about 16% of GDP in 2005.
    Most employees remained covered through their place of work, while the nature of the coverage evolves. For further information the Kaiser Family Foundation makes an annual report of employer health benefits.
    Government expenditures approaching half of all health care costs.
    Medicaid catches Medicare in total numbers of enrollees and in total expenditures.


Who Regulates Insurance
The ERISA Question

ERISA (Employees Retirement Income Security Act), a 1974 federal statute administered by the (for further information) Department of Labor, is a reform act to assure the financial integrity of retirement plans and other employee benefit plans including health insurance. Because of the principle that federal laws preempt state laws (the supremacy clause of the Constitution), ERISA often has been found to exempt from state insurance regulations the health benefit plans that are self funded. (i.e. The employer guarantees payment of benefits rather than buying insurance from an insurance company that then makes such a guarantee; note the employer may still hire an insurance company to actually administer the plan, but not to take the financial risks of the costs of the care.)

Until ERISA, employers who opted for self funding did so because they sought cost savings by not buying the risk protection and because they thought they could afford to cover the risk ( normally because they were major employers, with a large number of enrollees across whom the risk could be spread). But since ERISA, there has been a gradual migration to self funding as a way to avoid state regulations, such as legislative mandates of benefits. Self-funded plans not account for about half of all employees receiving health insurance benefits.

This migration reduces the influence of state insurance regulations, for whatever purpose, because: the tougher the regulation the more likely the migration to self-insurance. Some purposes are to mandate specific benefits such as mental health, chiropractic, or birth control; to limit the range of  premiums in order to  reduce the problem of pricing some individuals or groups out of the market; and "any willing provider" requirements that the insurer accept  any provider meeting the insurer's standards regarding qualifications, reimbursement rates, etc.

In the last decade, court decisions have been chipping away at the previously established or presumed preemption. In its April 2, 2003 decision regarding Kentucky Association of Health Plans v. Miller, the U.S. Supreme Court attempts to clarify the situation. ERISA specifically pre-empts state actions that "relate to any employee benefit plan" but exempts from such pre-emption state acts that "regulate insurance, banking or securities." This focuses attention upon the question of whether a state act re health benefits is a regulation of insurance. Justice Scalia's opinion in the case set forth a two-part standard to decide this question. A state act is considered a regulation of insurance if "specifically directed toward entities engaged in insurance" rather than just happening to impact the insurance industry and if it also substantially affects "risk pooling arrangement between the insurer and the insured." In this case, the court ruled that states may adopt "any willing provider" laws.

ERISA also affects the abililty to sue health plans. For further information the AMA's American Medical News reported in November 2004 that "Lawsuits against health plans crumble in wake of Supreme Court ruling" (Aetna Health Inc. v. Davila). "The fallout is that patients only have limited remedies when these companies make negligent decisions to deny necessary care," said Donald J. Palmisano, MD, American Medical Association immediate past president. "It's a loss for patients."


Criticism of the structure of the U.S. health insurance market:

TIME FOR CHANGE: THE HIDDEN COST OF A FRAGMENTED HEALTH INSURANCE SYSTEM
Karen Davis, The Commonweslth Fund
For further information: Invited Testimony Senate Special Comittee on Aging, March 10, 2003

"There are five types of costs inflicted by our fragmented health insurance system:

Long-term care insurance
An example of  the questions of whether to insure and how to regulate

For further information the Kaiser Family Foundation issued two reports in March 2003 regarding long-term care insurance.

The first is (for further information) "Private Long-term Care Insurance: Who Should Buy It and What Should They Buy?" "(T)he private long-term care insurance products that have emerged in response to the demands of a small, relatively affluent market are not affordable for most people and may not even be very well-designed to meet the real need of many people who can afford modest coverage.  . . . Stand-alone LTCI products are a feasible investment for only a small minority of active workers.  . . . Few retirees are able to afford comprehensive long-term care protection. The pared-down products that may be financially within their reach can provide only limited asset protection and at the same time may be poorly designed to meet other goals, such as maximizing the likelihood of being able to remain at home or in a community setting." (p. 35)

The second is (for further information) "Regulation of Private Long-Term Care Insurance: Implementation Experience and Key Issues."  "There has been real progress in addressing some of the most troublesome practices . . . The NAIC's model language for law and regulations has been highly influential . . . although there are still states that have not adopted key components .  . . . (E)ven those that have adopted all the components of the NAIC models or have similar rules, may not be vigorously enforcing them.  . . . Consumers still need more assistance in determining whether LTCI is right for them and in choosing from among available plans." (pp. 35-36)