Health Insurance

Health insurance provides people with a way to protect themselves against financial catastrophe and to assure themselves and their families of access to the health care system.

Private insurance companies determine premiums through actuarial assessments of the risk associated with the insured group, and premiums can differ from group to group because the risk within each group varies. In other words, a groups' premiums are based on their own medical claims experience known as experience rating.

Rising health care costs continue to be the most pressing problem of the health care system. In 1969, per capita expenditures for health care were $268 in this country. By 1990, the figure had increased to $2,567. During the same 20-year period, health expenditures grew from 5.3 percent of the gross national product (GNP) to 12.2 percent. By the end of this decade, the Health Care Financing Administration projects the per capita at $5,712 and the National Health Expenditure at $1,616 trillion, approximately 16.4% of the GNP.

Most commercial health insurance companies provide two basic categories of coverage: medical expense insurance and disability income insurance. Medical expense insurance provides broad benefits that can cover virtually all expenses connected with hospital and medical care and related services. Disability income insurance provides periodic payments when the insured is unable to work as a result of sickness or injury.

Health care coverage is also provided through HMOs offering comprehensive health care services to their members for a fixed periodic payment. In such plans, the HMO is both insurer and provider in being obligated to furnish needed care as specified in the subscriber's contract.

National growth in HMO membership quintupled in just over a decade, increasing from 6 million people in 1976 to nearly 38 million members enrolled in a total of 550 HMOs in 1991, according to the Group Health Association of America.

Self-insurance also plays an important role in the private coverage system. In this arrangement, employers, not insurers, assume the risk, although insurers or third-party administrators (TPAs) may administer the plan.

Plans administered by employers, labor unions, fraternal societies, communities, and by rural and consumer health cooperatives often make health insurance available to specific groups of people who are not covered under conventional plans.

Types of Private Health Insurance

There is an endless variety of policies available in today's health insurance market, all containing a single coverage or combination of coverages available in the following major types of health insurance.

Hospital/Medical Insurance
Hospital expense coverage provides specific benefits for daily hospital room and board and usual hospital services and supplies during hospital confinements.

Room and board benefits are usually stated in one of two ways. Indemnity plans reimburse for the actual room-and-board charge up to a specified maximum dollar amount per day for hospital confinement. The second type provides a service-type benefit that pays the full cost of semiprivate room-and-board charge.

Hospital/medical coverage may be extended in one of three ways: a health insurance policy usually sold in combination with a physician's or surgical expense policy that provides benefits for both surgical operations and doctor's in-hospital visits; a major medical policy that provides broad and substantial coverage for many types of medical expenses; or a combination of hospital-physician-surgical coverage plus a supplemental major medical policy.

Major Medical Expense Insurance
Major medical expense insurance, introduced nationally by insurance companies in 1951, has grown rapidly. There are two types of major medical plans. One supplements basic hospital-physician-surgeon expense insurance programs and the other offers comprehensive protection where both basic coverage and extended health care benefits are integrated. Major medical coverage offers broad and substantial protection for large, unpredictable medical expenses. It covers a wide range of medical charges with few internal limits and a high overall maximum benefit.

The majority of major medical policies, whether written for individuals or under group plans, are subject to some form of deductible and coinsurance payments by the insured person.

Medicare supplement policy.
Medicare supplemental insurance, often referred to as a "Medigap" or MedSup" policy, is accident and sickness insurance designed primarily as a supplement for hospital, medical, or surgical expenses for persons covered by Medicare.

Disability Income Insurance
Disability income coverage replaces income lost by an employee when injury or illness prevents the individual from working. Generally, disability income policies are divided into those that provide benefits for up to two years (short-term) and those that provide benefits for a longer period, usually for at least five years, to age 65, or for a life-time (long-term).

When provided on a group basis, the benefits are usually integrated with benefits from Social Security and other public programs. The total benefits from these sources generally is set at a level that does not exceed 60 percent of earnings.

Individual disability income policies usually pay a fixed dollar amount of coverage. This amount may be greater for those who are turned down by Social Security. Individual disability income policies take many forms and may be designed to fit the special needs of the individual policy owner.

Dental Expense Insurance
Dental expense insurance, generally available through insurance company group plans, prepayment plans, and dental service corporations, reimburses for expenses of dental service and supplies and encourages preventive care. The coverage normally provides for oral examinations (including X-rays and cleaning), fillings, extractions, inlays, bridgework, and dentures, as well as oral surgery, root canal therapy, and orthodontics.

Plans normally include substantial consumer copayments, although the copayments may be lower for preventive services.

Long-Term Care Insurance
The market for insurance coverage that continues broad-ranged maintenance and health services to the chronically ill or disabled began in earnest in 1985 when the number of companies selling this coverage doubled. The services provided by these policies may be provided on an inpatient or outpatient basis or entirely at home.

By December 1991, more than 2 million people had purchased long-term care insurance protection from more than 130 insurers.

Group Self-Insurance
The continuing growth in the number of insurance plans wherein the employer or union assumes all or part of the responsibility for paying claims made the nation's employers a principal bearer of the financial risks of illness and non-job-related injury in 1990.

There are two basic types of self-insured plans: fully insured and MPPs. In a totally self-insured plan, the employer assumes all the risk for paying claims. Under an MPP, the employer pays up to a specified maximum; then an insurer pays, or shares in the payment of additional claims. The administration of a self-insured plan includes claims processing, actuarial estimation of plan costs, and utilization review. The responsibilities may be assumed by the employer, and an insurance carrier, a TPA, or a combination of all three.

These plans, as with fully insured plans, typically cover medical expenses under basic coverage only, major medical coverage only, or basic plus major medical coverage. Commercial insurance and Blue Cross-Blue Shield plans offer basic plus major medical coverage.

Most self-insured plans are free-standing major medical plans and do not contain a basic hospital benefit that provides full and unlimited coverage for hospital-related charges. In most self-insured plans, covered services are subject to a deductible and coinsurance.

According to a 1992 report by Charles D. Spencer & Associates, TPAs paid $19 billion in claims in 1991. Surveyed TPAs indicated that 51% of the plans they administered were self-funded with stop-loss, 13% assumed total responsibility and another 34% were fully insured.

Employers Offering Health Insurance
Data from a 1991 survey of 3,322 firms show that 77 percent of employees are offered health insurance, but only a minority of firms (40 percent) offer health coverage. The difference is explained by the large number of small firms that do not offer coverage. In general, the larger the firm, the more likely it is to offer coverage.

Coverage differs from industry to industry. Virtually all state and local government agencies offer health insurance. Goods-producing firms are more likely to offer health benefits than are service-producing firms.

Coverage is less commonly offered by firms employing significant proportions of low-wage workers, that have a large proportion of part-time workers, or that experience high employee turnover.

The Population without Health Care Coverage
In recent years, the number of uninsured in this country has increased according to the Current Population Survey of the Bureau of the Census, from 33.4 million in 1989 to 34.7 million in 1990. Other sources place the figure in the range of 33 to 35 million persons. The population without health insurance defies stereotype. Contrary to intuition, those who are uninsured are not predominantly unemployed. Two-thirds of the uninsured population are in families of full-year steadily employed workers, most of whom were employed full-time.