Private Health Insurance 101 High Costs, Poor Choices, No Guarantees

Private Health Insurance 101High Costs, Poor Choices,

No Guarantees

2www.InsuranceCompanyRules.org

Health insurance in America

Why insurance matters Who pays for it How private insurance works

Different types of private insurance How you get it What it costs How it is regulated

Why we cannot rely exclusively on private insurers to guarantee quality, affordable health care we can count on


Why health insurance matters

Access to good health care Early detection/prevention Necessary health services Institute of Medicine found 18,000

Americans die each year because they do not have health insurance

Protection from financial risk Half of all bankruptcies related to health

care costs, in most cases borne by people who are insured but have inadequate coverage

Security—if your insurance is comprehensive, it should cover the services you may need at a price you can afford


Who pays for health insurance

We are already spending what a high-quality system that covers everyone should cost – but aren’t getting it. The US spends twice as much on health care per

person than every other advanced country, all of which cover all their residents.

Public money–your tax dollars–pays for about 60% of the $2 trillion annual U.S. health care bill through federal and state governments.

Individuals and employers pay for less than 40% percent of total US health care spending.


Where do people under age 65 in the U.S. get health insurance?

67% of those under 65 has private coverage

62% have employer-sponsored covered

5% purchase individual policies

15% have Medicaid or other public coverage

18% are uninsured

Source: KFF analysis of Urban Institute estimates of March 2005 Current Population Survey, U.S. Census Bureau.

Employer, Dependent

30%

Employer,Own32%

Uninsured/IHS18%

Medicaid/Other public

15%

Individual Policies5%


Why private insurance doesn’t meet our needs

Only want to cover the healthy and divide the population into small groups, driving up costs

Do not want to cover costly services Cover different services varying conditions and pay

different amounts. Can change many terms of coverage whenever they please.

www.healthcareforamericanow.org


Getting a balanced mix of sick and healthy members

Called “Risk-Spreading” Why is it important?

Equity Efficiency Security


Concentration of health spending by Americans, 2003

24%

49%

64%73%

80%

97%

3%0%

20%

40%

60%

80%

100%

Top 1% Top 5% Top10%

Top15%

Top20%

Top50%

Bottom50%

Population Percentile Ranked by Health Care Spending

Source: KFF calculations using data from Agency for Healthcare Research and Quality, Medical Expenditure Panel Survey, 2003.


Why private insurers don’t do it

Most insurers try to get only healthy members Rejecting sick (high-risk)

people Excluding coverage of

pre-existing conditions Charging people more if

they are high risk Design benefits so that people with costly conditions

either do not want to join or must pay high costs for their care.

The healthier their members, the higher their profits


Private health insurance varies

All health insurance is different.

There is no standard for health benefits.

Employer-sponsored coverage: Increasingly less comprehensive Different benefits covered as well

as different costs Individually-purchased policies:

Typically still less comprehensive Less coverage of maternity, mental health

and prescription drugs Can have caps on needed services, high

copays and high deductibles as well


Types of private insurance

Indemnity, fee-for-service

“Managed Care” Preferred Provider

Organization (PPO) Health Maintenance

Organization (HMO) Point of Service (POS)

High deductible/high cost health plans


Private plans: No guarantees

Insurers can change terms of coverage as largely as they please : raise premiums, deductibles and copays from one year to next Change networks of doctors and other providers at any time. Decide what services they pay for and how much they pay at any time

Two million people lose health insurance every month More than 70 million people have inadequate coverage 47 million uninsured in 2007, vs. 80 million uninsured over two-

year period Choice of doctors, what’s covered and what you pay can change

with… Marriage, divorce, spouse’s death Loss or change of job Birthday (e.g. 19th) Move Change in health status


Employer v. individual health insurance

Employer-Sponsored Insurance (ESI) Employers decide what they offer Less likely to be offered to

Employees of small firms Part time/seasonal workers Low wage workers Newly hired workers Dependents Retirees

Eligibility cannot be based on health status

Individual insurance Purchased by individuals if available and affordable Age and health status are a determining factor in

whether you can get insurance on your own


Health conditions denied by individual market insurers

Always denied Cancer Multiple Sclerosis HIV/AIDS Pregnancy Diabetes Stroke

Often denied Overweight High blood pressure Cancer history Asthma

Sometimes denied Acne Hay fever


What does private health insurance cover?

It depends and it’s not clear Covered benefits

Standard policy: rarely defined in law Depends on state, insurer and purchaser Benefit limits (annual, lifetime, service and cost limits)

Cost-sharing Deductibles, copays, coinsurance Out-of-pocket cost-sharing maximums, high charges on top of what the insurance

pays for out-of-network care Terms of coverage

Provider networks Care authorization/utilization review

Condition exclusions Pre-existing conditions Other conditions based on work, history etc.

Employer-sponsored insurance typically (not always) more comprehensive Individual insurance typically (not always) less so


What does health insurance cost?

It depends Cost (premium) of health insurance depends on:

Who’s covered (age, health status & history) What’s covered (benefits, cost sharing/

deductible, terms, pre-existing conditions, limits) Insurer profits & administration costs Subsidies (premium & reinsurance) Underlying health care costs

Health Care Costs are Too High

Half of all bankruptcies in the US are due to medical costs, and three-fourths of those bankrupted had health insurance at the time they got sick or injured


Regulation of private insurance

State is primary regulator 50 states, 50 rules Few national regulations

Regulations Ensure solvency Oversee risk spreading/

risk selection Generally very limited or ineffective

Best practices: Guaranteed issue: Must allow anyone to buy Community rating: Must charge everyone the same


Regulation of private health insurance alone not enough

Even with good regulations, we cannot rely exclusively on profit–driven private insurers to guarantee quality, affordable health care.

To rein in costs, guarantee comprehensive benefits and financial security, we need:

A public insurance option that sets standards and drives accountability from private plans; and

Fair regulation of private insurers.


Regulations: Employee benefits

Employee Retirement Security Act (ERISA)

Federal law that precludes states from regulating employee health benefits for employers whoself-insure

Allows joint federal/state regulation of insurance that employers buy Fully-insured plans

Does not allow states to regulate self-insured plans


Regulations: Keeping insurance

Consolidated Omnibus Budget Reconciliation Act (COBRA)

Federal law offers temporary continuation of coverage after:

Loss of employment Change in family/dependent status: 36 months Disability: 29 months

Applies to plans sponsored by employers with 20 employees or more

Individual pays full premium and cost of administration

Very costly and unaffordable for most


Regulations: Keeping insurance

Health Insurance Portability & Accountability Act (HIPAA)

Federal law that protects all group plans participants Employers cannot discriminate against them based on their health or

worker status Can buy individual coverage if they lose group plan coverage

So long as they have exhausted COBRA protections and switch plans within 63 day window (check) of losing group plan coverage, new insurer must cover you

Pre-existing conditions covered

Federal law does not speak to individual insurance premiums and cost-sharing

Insurance tends to be very costly


Private insurance: Case example

All these regulations could not help Mr. Jones. Mr. Jones has diabetes. He is laid off from his job with employer-

sponsored private health benefits. His unemployment benefits are $1,150 a month His rent is $750 a month That only leaves him $400 a month for utilities, food, gas and other

expenses

He cannot afford the cost of private health insurance: His COBRA premium is $425 a month Individual insurance plans turned him down because he has diabetes

He cannot afford the cost of properly managing his diabetes: Insulin and other medications, test strips, and doctor visits cost over $400

a month

As a result, Mr. Jones developed liver problems and was hospitalized: The hospital bill was over $15,000


We need public insurance option

What have private insurance companies done for us? Failed to offer coverage we can count on Denied health care claims Rejected people for coverage for being too

old or sick or just being a woman of child-bearing age

Charged people higher premiums based on their health history

Canceled people’s coverage after they got sick Left 47 million people without health insurance Left millions more in medical debt or bankrupt because

their health care coverage did not meet their needs


What do private insurance companies expect of us?

They want to continue to decide how much they charge and keep making higher and higher profits.

They want to continue to decide what services they cover, under what circumstances and how much they pay and keep their decisions secret.

They want to be able to shift more of costs of care to us.

They don’t want us to have the choice of a public health insurance option.




Public insurance sets standards, predictable costs and benefits, transparency as to what is covered and how much is paid, reins in costs, provides safety net

Public health insurance option creates competition, removes private insurer quasi-monopoly power.

Exclusive reliance on private insurers gives them monopoly, even with regulation, allows them to control costs, benefits and access


Public insurance: Case example of how it could work

Mr. Jones has diabetes. He is laid off from his job with employer-sponsored private health benefits.

He automatically gets affordable insurance through a national insurance pool that gives him a choice of a public plan or private plans that guarantee him access to care he needs and covers the costs of his diabetes.

Mr. Jones has diabetes and gets his health insurance from the public plan in the national health insurance pool. He is laid off from his job and his insurance continues.

Mr. Jones’ premium costs are subsidized according to his income, so he gets extra help while he is unemployed.

The U.S. health care system saves moneyin the long-term by keeping Mr. Jones’ diabetes under control.


Conclusions With private insurance, cost as well as adequacy

and availability of coverage are not guaranteed

As your health status changes and you get older, it often becomes increasingly expensive and difficult to get and keep private insurance

Government can guarantee access to affordable, high quality health care through fair insurance regulation coupled with a public insurance option that sets standards and drives accountability

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Private Health Insurance 101 High Costs, Poor Choices, No Guarantees