Healthcare Costs: Healthcare Insurance in the United States

Healthcare Costs: Healthcare Insurance in the United States

Three Main Parts of Health Insurance in the U.S and the Solvency and Longevity of each

Health insurance plays a core role in the US healthcare system and determines the ability of consumers to access care. Three main parts of healthcare insurance are public insurance (Medicaid, Medicare and other public), employment-based, and private Non-group plans (Kumar, Ghildayal, & Shah, 2011). Employers may either self-insure their employees or offer insurance plans to employees through a contracted insurance company. According to an analysis of a 2009 Current Population Survey, Austin and Hungerford (2009) reported that employment-based insurance covers most of the US population aged below 65 years, whereas public (Medicare option) covers the majority of those aged 65+ years (p. 16). Private non-group plays a minor role in the under 65 population (5.1 % for under 19 and 6.3 % for under 65; both below the uninsured in both populations), but a comparatively larger role in the 65+ population (above the uninsured in this population) (Austin & Hungerford, 2009, p. 16). The employer-based option offers various advantages over other forms, for example allowing negotiation for better prices from providers, or insurance intermediaries, and offering tax benefits for covered employers (Austin & Hungerford, 2009). Further, the ability of employers to pass-on the insurance burden to employees through a reduced compensation (Austin & Hungerford, 2009, p. 16), offers employers a motivation to support such insurance arrangement. Such a structure makes this form the most solvent type of insurance due to the incentives that promote continued payment of premiums. However, findings that employers avail such insurance only to long-term core employees but not to peripheral, short-term employees (Farber & Levy, 1998; SHADAC & Robert Wood Johnson Foundation, 2013) threatens the longevity of such insurance plans as jobs become defined on short-term contract periods in contemporary world. Unlike the employer-sponsored structure, public sponsored insurance has benefit of the backing by public finances, but a disadvantage in that expenditures towards the insurance plans are determined by the political regime (Kumar, Ghildayal, & Shah, 2011). As such, change in ruling government may affect the longevity of such insurance plans. The disadvantages of the private non-group insurance include limited ability to negotiate better prices from providers or insurance intermediaries and low population coverage (Austin & Hungerford, 2009). Such disadvantages challenge the solvency and longevity of such plans, since, in the case of individuals, they depend only on high-income individuals, necessitating the private companies to enter into contractual arrangements with employers, unions or groups to enhance their profits.

Does Private Health Insurance Violate Standard Principles of Insurance?

Private health insurance, in its current state, violates the standard principles of insurance. Insurance principles demand that premiums be pegged to assessment of individual risk and adoption of strategies that dissuade the prevalence of moral hazard. In such a model, the insurance premise is that individuals have a free choice and their taking of insurance is determined by ability to pay. The basis of private health insurance was on such a premise where healthcare access was argued to be based on ability to pay and free choice (Dror, 2000). In such a way, market forces and consideration of inherent risk, which would demand insurance providers to adjust their rates according to the risk structure, would dictate the premium amounts paid for insurance providers to remain competitive. Subsequently, however, private insurance has departed from such a premise, where, for example, legislation brought about by adoption of and attempts to maintain a four-party model (Kroncke & White, 2009), have prevented a voluntary enrollment to the private insurance. For instance, government mandates for employers to pay insurance for employees, and employees demand for quality care than offered via government’s social insurance programs (Kroncke & White, 2009), has implied that private healthcare insurance has deviated from a free-choice model. Such legislation and other initiatives that encourage employers and groups to sign up to healthcare insurance has also diverted the private insurance from the “ability to pay” model (Kroncke & White, 2009). As a consequence, the private healthcare insurance industry has become integrated into a model that, instead of encouraging variance of healthcare costs in line with income trends, has led to the astronomical increment in the provision of healthcare in the US.

Evolution of the Promotion of Health and Disease Prevention in the U.S

The evolution of health care promotion in the US is traced to the development of the hospitals, initially as charitable organizations that were based on the moral responsibility of physicians as envisaged in Hippocratic Oath.  Not until well into the twentieth century, hospitals were regarded as institutions of last resort; members of the family were the principal caregivers to their ill loved ones then (Kroncke & White, 2009). However, spurred by urbanization and increase in scientific medicine, in the 1920s, hospital care became a high-demanded service in society (Kroncke & White, 2009). However, it was with the advent of Blue Cross policies shortly afterwards, that a great impact in the healthcare system started. The Blue Cross policies provided an assurance for healthcare providers to get paid for services rendered, irrespective of achievement of cure or financial status of the client (Kroncke & White, 2009). As such, the providers had the incentive to promote healthcare services. Subsequently, the morphing of such Blue Cross policies into successful non-profit insurance entities attracted commercial insurers to the healthcare industry. The entry of for-profit entities proved another turning point of the health industry where complex relationships among the patient, employers, providers of care and payers (e.g. employers) arose (Kroncke & White, 2009). Such multiple players have occasioned the increase in the cost of health care, and reversed the mode of provision of care in a way that has proved difficult to change.

 

References

Dror, D. M. (2000). Reforming health insurance: A question of principles? International Social Security Review, 53(2), 75-99.

Farber, H.S., & Levy, H. (1998). Recent trends in employer-sponsored health insurance coverage: Are bad jobs getting worse? NBER Working Paper Series, no. 6709. Retrieved from http://www.nber.org/papers/w6709

Kroncke, C., & White, R. F. (2009). The modern health care maze: Development and effects of the four-party system. Independent Review, 14(1), 45-70.

Kumar, S., Ghildayal, N. S., & Shah, R. N. (2011). Examining quality and efficiency of the US healthcare system. International Journal of Healthcare Quality Assurance, 24(5), 366-388. DOI:10.1108/09526861111139197

State Health Access Data Assistance Center (SHADAC) & Robert Wood Johnson Foundation. (2013). State-level trends in employer-sponsored health insurance: A state-by-state analysis. ESI Report April 2013, Retrieved from http://www.rwjf.org/content/dam/farm/reports/reports/2013/rwjf405434

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