Health insurance is a type of insurance whereby
the insurer pays the medical costs of the insured if the insured
becomes sick due to covered causes, or due to accidents. The
insurer may be a private organization or a government agency.
Market-based health care systems such as that in the United
States rely on private medical insurance.
Private health insurance
Health insurance is one of the most controversial
forms of insurance because of the perceived conflict between
the need for the insurance company to remain solvent versus
the need of its customers to remain healthy, which many view
as a basic human right. Consumer advocates say that this conflict
of interest is why state and federal regulation of health insurance
companies is necessary. Some say that this conflict exists in
a liberal healthcare system because of the unpredictability
of how patients respond to medical treatment. But proponents
of regulation argue that too many health insurance companies
put their desire for profits above the welfare of the consumer
or patient.
Below is a hypothetical example of a situation
that might confront an insurance company.
Suppose that a large number of customers of
a particular insurance company contracted a rare disease and
the hospital charged 10 million dollars a patient to treat them.
The insurance company would then be faced with a choice of paying
all claims without complaint (thus losing money and possibly
going out of business) or denying the claims (thus outraging
patients and their families, discouraging potential customers,
and becoming a target for lawsuits and legislation).
Since a health insurance policy is a legal,
binding contract between the insurance company and the customer,
the insurance company should pay all valid claims without question.
Many insurance companies purchase re-insurance to protect themselves
from a catastrophic loss due to an unforeseen event. But just
like any other business, a health insurance company does not
have a right to shirk its legal obligations just to make a profit
or stay in existence.
Health insurance companies and consumer advocates
agree that private health insurance faces unique problems. Health
insurance companies use the term "adverse selection"
to describe the tendency for sick people to be more likely to
sign up for health insurance. Insurance companies say that asymmetry
of information about a person's health and behaviour is likely
to lead to adverse selection and moral hazard. Health insurance
companies say, that in essence, those seeking health insurance
are likely to be those with existing medical problems or those
who are likely to have future medical problems, and that those
who take out insurance may engage in risky behaviour, such as
smoking and excessive alcohol consumption, which an otherwise
sane person would not do. Insurance companies say that the cost
of providing health insurance to these bad risks raises the
cost of insurance to the 'good' insurance risks, possibly pricing
them out of the market, and could create a situation in a market
where insurance was uneconomical for private insurance companies
to provide.
Consumer advocates say that sick people should
be able to get health insurance, because after all, they need
it the most. Consumer advocates say that if everyone had health
insurance, adverse selection would not be a problem.
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,
although it introduces a problem of moral hazard. As to the
concept of moral hazard, those who favor public health insurance
ask, do people play with matches in their homes if they have
fire insurance or drive like maniacs if they have auto insurance,
or do some people just engage in self destructive behavior for
no rational reason.
Insurance companies explain the economics of
insurance by saying that, in general, if many sick people buy
health insurance from a private health insurance company, but
few healthy people buy it, the price of the insurance rises.
(Consumer advocates point out that few sick people are allowed
to buy health insurance). Insurance companies also say that
if more healthy people buy health insurance, but few sick people
buy it, the price drops. In other words, the price drops if
more money goes in and less is paid out.
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 25% of Americans.
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 disease, and with fewer diseases,
the insurance companies would pay fewer doctor bills.
Under these circumstances, consumer would hope
to benefit from the savings. But, consumer advocates say that
too much of the insurance premiums are paid out in executive
salaries or retained as profits by the company.
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, and has the person
ever been treated for any of a long list of diseases. Applicants
can get discounts if they don't smoke and live a healthy lifestyle,
which might encourage some people to quit smoking or make other
improvements in their lifestyle. The medical history is also
used to screen out persons with pre-existing medical conditions.
Publicly funded medicine
Many countries have made the societal choice
to avoid this important conflict by nationalizing the health
industry so that doctors, nurses, and other medical workers
become state employees, all funded by taxes; or setting up a
national health insurance plan that all citizens pay into with
tax or quasi-tax payments, and which pays private doctors for
health care. These national health care systems also have their
problems.
Some of these countries have citizen groups
which protest bureaucracy and cost-cutting measures that unduly
delay medical treatment. Similar issues exist with private health
management insurances (HMO) in countries with privately funded
medicine.
The British National Health Service has maintained
a compromise with doctors in general practice by not making
them state employees. Each practice decides its own working
pattern and contracts to the NHS providing designated services
(including the benefit of membership of state pension schemes
comensurate with the work for the NHS) with many also providing
private services. Some medical staff employed on an NHS contract
also have work in the private sector and others work exclusively
in either sector.
One result of a mixed system is that insurance
for alternative private care is greatly reduced, as basic needs
are met by the NHS. Many choose to have private care only where
it suits (such as to avoid waiting time or improve the facilities
they have access to in a hospital stay). Some proponents of
such a private system claim the benefits of coexisiting with
a nationalized system compared to countries where it is almost
exclusively private except for the very needy (as in the United
States) is that they can enjoy the benefits of private healthcare
but: not have to worry about providing the costs of more basic
needs; not have to pay for children; and have a system to fall
back on when they have a chronic illness which would be excluded
from a private policy and they would have to pay for if it were
not for the NHS.
Medicare/Medicaid
In the United States, health insurance is
made more complicated by federal Medicare/Medicaid programs,
which have had the unintended consequence of determining the
price of medical procedures. Many suspect that these prices
are set independently of medical necessity or actual cost. A
physician who refuses to accept a Medicare/Medicaid payment
will be banned from accepting any such payments for a number
of years, regardless of the reason for rejecting the payment
or the amount offered. In either case, this means that private
insurers have little incentive to pay more than the government
does.
History and evolution
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.
The concept of health insurance was proposed
in 1694 by Hugh the Elder Chamberlen from the Peter Chamberlen
family. In the late 19th century, early health insurance was
actually disability insurance, in the sense that it covered
only the cost of emergency care for catastrophic injuries that
could (and often did) lead to a disability.
This artifact of history persisted right up
to the start of the 21st century in some jurisdictions (like
California), where all laws regulating health insurance actually
referred to disability 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.
As the Industrial Revolution matured during
the middle to late 20th century, traditional disability insurance
evolved into modern health insurance as both employers and governments
recognized the value of encouraging patients to seek regular
checkups and preventative care from primary care physicians.
It is usually much cheaper to treat diseases like cancer if
they are diagnosed early.
Common complaints of private insurance
Some common complaints about private health
insurance include:
-
Insurance companies do not announce their
health insurance premiums more than a year in advance. This
means that, if one becomes ill, he or she may find that
his premiums have greatly increased. This largely defeats
the purpose of having insurance in the eyes of many.
-
If insurance companies try to charge
different people different amounts based on their own personal
health, people will feel they are unfairly treated. Some
states require that insurance companies cover all who apply
at the same cost, or that rates vary only by age of the
insured; this rule has the effect that healthy people subsidize
sick ones, and thus frequently only those in poor health
buy insurance, making the premiums very expensive.
-
When a claim is made, particularly for
a sizeable 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. Some percentage of insureds will simply
give up, leading to lower costs for the insurance company.
-
Health insurance is often only widely
available at a reasonable cost through an employer-sponsored
group plan. This means that unemployed individuals and self-employed
individuals are at a disadvantage.
-
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 reduces
the employee's bargaining power in negotiating service with
the insurance provider and also increases their dependence
on the employer. In the U.S., COBRA and more recent legislation
has been passed in an attempt to address the latter concern,
and full tax deductibility for health insurance premiums
paid by the self-employed has recently been passed by Congress
as well.
-
Experimental treatments are generally
not covered. This practice is especially criticized by those
who have already tried, and not benefited from, all "standard"
medical treatments for their condition. It also leads to
many insurers claiming or attempting to claim that procedures
are still "experimental" well after they have
become standard medical practice in many instances. (This
phenomenon was especially seen after organ transplants,
particularly kidney transplants, first became standard medical
practice, due to the tremendous costs associated with this
procedure and other organ transplantation.)
-
The Health Maintenance Organization (HMO)
type of health insurance plan has been criticized for excessive
cost-cutting policies. The least justifiable of these efforts,
according to critics, is having accountants or other administrators
essentially making medical decisions for customers by deciding
which types of medical treatment will be covered and which
will not.
-
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. To care providers, insured
care recipients are essentially seen as customers with relatively
limitless financial resources who don't look at prices.
The health care company has few popular and many unpopular
ways of controlling this market force. In response to this,
many insurers have implemented a program of bill review
in which insureds are allowed to challenge items on a bill
(particularly an inpatient hospital bill) as being for goods
or services not received; if this is proven to be the case,
the insured is awarded with a percentage of the amount that
the insurer would have otherwise paid for this disputed
item or items, usually 25% or occasionally even 50%, with
a ceiling so that the insured will not truly become wealthy
from this procedure.
Common complaints of publicly funded medicine
-
Price no longer influences the allocation
of resources, thus removing a natural self-corrective mechanism
for avoiding waste and inefficiency.
-
Health care workers' pay is often not
related to quality or speed of care. Thus very long waits
can occur before care is received.
-
Because publicly funded medicine is a
form of socialism, many of the general concerns about socialism
can be applied to this discussion.
-
People are afraid that they can't choose
their own doctor. The state chooses for them.
Future challenges
With the advent of DNA testing, previously
unknown risk factors involving genetic makeup will become known
and this is expected to lead to greater pressure on the private
health insurance industry as they try to limit their exposure
to high-risk individuals. As larger groups of these individuals
are identified and charged higher premiums (if they can get
coverage at all) the pressure on privacy laws to limit the flow
of personal medical data will only increase.
