Private Health Insurance 101

1
Private Health Insurance 101

• High Costs, Poor Choices,
• No Guarantees

2
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

3
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
• Securityif your insurance is comprehensive, it
  should cover the services you may need at a price
  you can afford

4
Who pays for health insurance

• We are already spending what a high-quality
  system that covers everyone should cost but
  arent 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 moneyyour tax dollarspays 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.

5
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

Employer, Dependent30
Uninsured/IHS18
Employer,Own32
Medicaid/Other public 15
Individual Policies5
Source KFF analysis of Urban Institute estimates
of March 2005 Current Population Survey, U.S.
Census Bureau.
6
Why private insurance doesnt 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
7
Getting a balanced mix of sick and healthy members

• Called Risk-Spreading
• Why is it important?
• Equity
• Efficiency
• Security

8
Concentration of health spending by Americans,
2003
Source KFF calculations using data from Agency
for Healthcare Research and Quality, Medical
Expenditure Panel Survey, 2003.
9
Why private insurers dont 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

10
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

11
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

12
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, whats covered and what you
  pay can change with
• Marriage, divorce, spouses death
• Loss or change of job
• Birthday (e.g. 19th)
• Move
• Change in health status

13
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

14
Health conditions denied by individual market
insurers

• Always denied
• n Cancer n Multiple Sclerosis
• n HIV/AIDS n Pregnancy
• n Diabetes n Stroke
• Often denied
• n Overweight n High blood pressure
• n Cancer history n Asthma
• Sometimes denied
• n Acne n Hay fever

15
What does private health insurance cover?

• It depends and its 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

16
What does health insurance cost?

• It depends
• Cost (premium) of health insurance depends on
• Whos covered (age, health status history)
• Whats 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

17
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

18
Regulation of private health insurance alone not
enough

• Even with good regulations, we cannot rely
  exclusively on profitdriven 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.

19
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

20
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

21
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

22
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

23
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 peoples 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

24
We need public insurance option

• 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 dont want us to have the choice of a public
  health insurance option.

25
We need public 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

26
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.

27
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