Health Insurance Coverage

 

Health Insurance Coverage

Competition in Health Care

Paula H. Song, … Ann S. McAlearney, in International Encyclopedia of Public Health (Second Edition), 2017

Competition among Health Insurers

The growth of health insurance coverage is one of the most significant developments in the health-care field over the past decades. Private health insurance began to spread in the U.S. during the Great Depression as a number of hospitals began accepting premiums from local residents to cover any medical services provided. During this period, the American Hospital Association created Blue Cross insurance plans that allowed enrollees free choice among hospitals within a city. These insurance plans enjoyed a virtual monopoly position in the insurance market throughout the 1930s, but at that time premiums were very low. They grew more competitive following World War II when the federal government imposed wage and price controls. Unable to attract additional laborers with higher wages, employers offered benefits such as health insurance to circumvent the wage controls. The resulting boom in insurance coverage attracted commercial insurance companies to a market that had previously been dominated by the Blue Cross plans, thereby increasing competition. Today private health insurance is responsible for financing 36% of all health-care expenditures in the U.S. and provides coverage to 70% of the population (Santerre and Neun, 2007).

The U.S. market for private insurance is made up of many different health insurers that can specialize in group health insurance, individual insurance, or a combination of both. Group health insurance is purchased by employers on their employees’ behalf, while individual insurance is purchased directly by a consumer. While the insurance market has many sellers, there is also high market concentration. It is estimated that out of 47 states and Washington D.C., the three largest health insurers accounted for more than 50% of enrollment in 43 states in 2003 (Robinson, 2004). Though the market for health insurance is relatively concentrated, many large employers choose to self-insure as an alternative to purchasing health insurance. This practice has grown because self-insured plans are exempt from paying premium taxes and from providing state-mandated benefits under the Employee Retirement Income Security Act of 1974 (ERISA). This can provide significant savings to firms that are large enough to have predictable medical expenses. Today most health insurance plans utilize provider networks to direct care and negotiate lower rates for services. The large expense of setting up these networks is seen as a barrier to entry for potential competition from new insurance companies.

Competition in the health insurance industry is much like an oligopoly with a large competitive fringe. A competitive fringe can be described as a large number of smaller firms with small market shares that compete with a few dominant firms. The smallest 50% of all group health insurers controlled 3% of the market in 2001. Since health insurers are purchasers of health services, the growing dominance of managed care and the increasing concentration of the insurance market have created concerns about monopsony power. Monopsony power exists when payers have enough buying power to drive price below a competitive level. Extreme monopsony would be one buyer and many sellers. Managed care firms with large market shares have substantially increased their bargaining power with hospitals and physicians. While a great deal of government attention has been paid to the anticompetitive implications of hospital mergers, regulators and courts have often regarded monopsony power as leading to reduced prices for consumers. Theoretically, the lower reimbursement tendered by a firm with monopsony power could force hospitals to reduce services to some unprofitable patients.

Private health insurance plans play substantially smaller roles outside of the United States. The U.S. system of voluntary, private health insurance is atypical among the higher-income, industrialized countries. Globally, competing, private insurers serve in a secondary role as supplements for government-sponsored social insurance programs or as insurers for affluent individuals in low-income countries.

 

State Insurance Mandates in the USA

M.A. Morrisey, in Encyclopedia of Health Economics, 2014

Prevalence of State Insurance Mandates

Most mandates apply to employer-sponsored health insurance coverage, although nongroup mandates also exist. There were few statutes until the 1970s when the number of laws began to proliferate. Although they only consider provider and service mandates, Laugesen et al. (2006) reported that of nearly 1500 state mandates enacted between 1949 and 2002, 12% were enacted in the 1970s, 25% in the 1980s, 39% in the 1990s, and another 16% in the first 3 years of the 2000s.

The Council for Affordable Health Insurance annually compiles a listing of all state health insurance mandates (Bunce and Wieske, 2010). Their 2010 edition reports the presence of 2156 mandates. The states display considerable heterogeneity in the number of mandates they enact. Idaho and Alabama have the fewest mandates with 16 and 19 provisions, respectively. Four states (Rhode Island, Maryland, Minnesota, and Texas) each have more than 60 provisions. Table 1 reports the most common mandates by category.

Table 1. Most prevalent health insurance mandates, by category

Health insurance mandates Number of states with the law
Service mandates (1251 total mandate laws)
 Mammography screening 50
 Maternity minimum stay 50
 Breast reconstruction 50
 Mental health parity 48
 Diabetic supplies 47
 Alcohol/substance abuse 46
 Emergency room service 45
Provider mandates (558 total mandate laws)
 Chiropractor 44
 Psychologist 44
 Optometrist 41
 Dentist 33
 Podiatrist 33
 Nurse practitioner 29
 Nurse midwife 27
Individual mandates (347 total mandate laws)
 Newborn 51
 Continuation employee 46
 Continuation dependent 45
 Adopted children 44
 Disabled dependent adult 42
 Conversion to nongroup coverage 41
 Dependent student/adult 34

Source: Reproduced from Bunce, V. C. and Wieske, J. P. (2010). Health insurance mandates in the states 2010. Alexandra, VA: Council for Affordable Health Insurance. Available at: http://www.cahi.org/cahi_contents/newsroom/article.asp?id=1036 (accessed 06.06.13).

 

 

Health Insurance and Health

A. Dor, E. Umapathi, in Encyclopedia of Health Economics, 2014

Introduction

Most developed countries provide universal or near-universal health insurance coverage. The US has lagged behind with 49.9 million individuals, or 16.3% of the population, reportedly uninsured as recently as 2010. Policy debates in the US, where proponents of universal coverage have argued that extending coverage to the uninsured would result in better access to health care, improved health outcomes, and ultimately lower costs, have culminated in the enactment of the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act (collectively referred to as the ACA) in 2010. In tandem with the policy debate, health economists have explored the impact of health insurance on health outcomes using empirical methods. Nevertheless, the evidence so far remains inconclusive. Both those favoring universal coverage and those arguing for limited steps were able to find some support for their respective positions, albeit on a selective basis. Although supporters of the legislation claim that the phased implementation of the ACA will dramatically reduce the ranks of the uninsured, millions of Americans are expected to remain without any coverage. Gaining a better understanding of what the health economics literature offers to this policy discussion thus remains highly relevant.

Economic theory suggests that health insurance can serve a dual purpose of protecting people against the financial burden of illness and of increasing access to care to meet unmet health care needs. Conventional expected utility theory, which is widely applied to evaluate the demand of health insurance, considers any medical expenditure to be a loss of income. In view of this theory, the purchase of health insurance or medical care reduces a consumer’s wealth. For the research question at hand that investigates whether health insurance improves health, medical expenditures may instead be considered an input in the health production function (Grossman model). Accordingly, the stock of health can be improved by investments in medical care which the purchase of insurance enables. Most of the relevant literature assumes such a model, at least implicitly. At the same time, the benefits of health insurance coverage may be partially offset by the effects of ex-ante moral hazard (Moral Hazard is the change in behavior that occurs as a result of becoming insured. Ex-ante moral refers to the change in the probability of illness or injury. Ex-post moral hazard refers to the size of the loss (medical expenditures) after the illness/injury occurred.). Accordingly, people with health insurance coverage may have less financial incentives to engage in healthy behaviors that prevent injury and illness.

A body of existing research supports a negative association between the lack of health insurance and access to care, and in turn, a positive association between access to care and health outcomes. Descriptive studies report that in the US the uninsured have less access to health care, higher risks of unmet health needs, and poorer health outcomes. For example, research has shown that uninsured adults use 60% less ambulatory health services and 30% less inpatient health services than insured adults. In addition, the uninsured are more likely to delay seeking care, to report not being able to see a physician due to costs, and to require costly emergency care. Even among patients that did see a clinician, only 18% of uninsured patients received all recommended follow-up treatment in comparison to 30% of insured patients. In comparison to insured adults, the uninsured are also more likely to have a lower self-reported health status and are more likely to be diagnosed at an advanced stage of cancer, suffer from cardiovascular diseases, exhibit worse glycemic control, and experience higher in-hospital mortality rates.

Although the positive association between health insurance coverage and health outcomes appears to be convincing, the issue has been a matter of considerable controversy among empirical economists. Mere associations may mask the fact that healthier individuals tend to be better equipped to obtain health insurance, leading one to overstate the actual contribution of insurance to health, a problem related to reverse causality and simultaneity in econometric estimation. To address this general concern different methodological approaches have been undertaken, perhaps contributing to occasionally conflicting results. In addition, this literature encounters measurement issues which merit further scrutiny.

In this article, the aim is to shed light on the nuances in the literature on the causal effect of health insurance on health outcomes. The objective here is to clarify the limitations of this literature and to provide a deeper understanding of the causal pathways between insurance and health, ultimately to better inform the policy debate. As will be seen, certain patterns have emerged: Lack of insurance may be more of an adverse factor for mortality and generic health outcomes although its effects on condition-specific measures are more complex. In addition, interruptions in insurance coverage can be just as harmful as the complete lack of insurance. This review focuses primarily on the US, and its private segment of the market, where the acquisition of insurance has largely been a matter of individual choice, at least before the implementation of ACA. However, inferences are also drawn from the literature on government sponsored insurance, namely, Medicare and Medicaid, where insurance coverage is simply assigned to individuals based on age and income, and the state in which the individual resides.

The remainder of this article is divided into five sections. First, there is a brief description of the characteristics of the US uninsured population and the anticipated changes for health insurance coverage under the ACA. Second, the methodological challenges related to estimating the impact of insurance on health are discussed. Third, the methods used in the source literature are illustrated. Fourth, general findings in the source literature are presented. Finally, challenges for future research are discussed and emerging implications of the ACA comes in as conclusion.

China, Hong Kong and Taiwan, Health Systems of

G.M. Leung, … J.R. Lu, in International Encyclopedia of Public Health, 2008

Taiwan

In contrast to the boom-bust trajectory of health insurance coverage (and therefore access to care) on the mainland, Taiwan has used the fruits of socioeconomic development to progressively expand coverage by establishing three major social insurance programs (and seven other smaller public insurance schemes), namely Labor Insurance in 1950, Government Employee Insurance in 1958, and Farmers Insurance in 1989 (for which its predecessor demonstration project started in 1985) (Lu and Hsieh, 2000a; Cheng, 2003). Collectively, this had covered about 57% of the total population by 1995. The 43% uninsured, mostly consisting of the two age extremes with the highest health-care need, were nevertheless deterred from seeking necessary medical services, which predictably resulted in socially patterned access to care, as in China progressively since the 1980s, that was consistent with Tudor Hart’s Inverse Care Law (Tudor Hart, 2000).

After nearly a decade of planning, including a 2-year legislative marathon (Cheng, 2003), Taiwan replaced its previous patchwork of ten separate social health insurance funds with a single-payer, National Health Insurance (NHI) scheme in 1995. The government planned its new NHI system to achieve two essential objectives: providing equal access to health care for all citizens, and controlling total health spending within a reasonable level. The NHI provides a comprehensive benefit package that covers preventive and medical services, prescription drugs, dental servicesChinese medicine, and home nurse visits (Lu and Hsiao, 2003). It is financed mainly through premiums (in the form of payroll tax) and supplemented with direct government funding, and it compensates a mixed health-care economy of public and private (dominant) providers predominantly on a fee-for-service basis (Chiang, 1997). Population coverage in the NHI scheme had reached 99% by the end of 2004 (International Symposium on Achievements and Challenges of National Health Systems, 2005). Therefore, both Taiwan and Hong Kong have now achieved universal coverage through social insurance and tax financing, respectively, which were instituted in tandem with their economic development (the former lags the latter by about 15 years). Table 3 summarizes the current health financing arrangements in the three populations.

Table 3. Health financing arrangements

  China Hong Kong Taiwan
Health insurance coverage Urban social health insurance (BMI) covers employees in the formal sector. Participation is mandatory but not strictly enforced. Dependants, unemployed, and informal sector workers are excluded. Rural health insurance (NCMS) is voluntary. Geographical coverage remains limited but is being expanded rapidly. In both urban and rural areas, private complementary insurance is available to increase the level of maximum benefit. For those outside formal health insurance schemes, government subsidies to health-care providers provide a form of implicit insurance. However, due to the declining share of these subsidies in overall financing, the implied price subsidy is limited Through a tax-financed system, all Hong Kong residents are entitled to full, universal access to public hospitals and clinics for a minimal copayment, where 95% of total bed-days and 15–20% of ambulatory episodes are provided. Supplementary private insurance, whether provided by employers or self-purchased, is generally enjoyed by the middle and upper socioeconomic strata, but such coverage is usually inadequate in the case of serious or chronic illnesses, which are predominantly provided for in the public sector National Health Insurance (NHI), a compulsory social insurance program implemented in 1995, expanded the insurance coverage rate from 57% to 92% by the end of 1995 and 99% in 2004
Risk pool structure/fragmentation Risk pooling in BMI is at city-level (country or municipality); in NCMS, it is at county level. In neither case is there risk-equalization across risk pools, although there are targeted central government subsidies in the NCMS The tax-financed public sector covers the entire population where private services are funded by household out-of-pocket payments and mostly employer-provided insurance policies NHI operates on a common risk pool
Government subsidies to health insurance In BMI, government pays contributions for government employees, and also allocates some funds to cover deficits and some extra benefits for civil servants. The NCMS is partly financed by central and local government. Some or all of funds from the new medical assistance (MA) scheme may be channeled through existing health insurance schemes N/A Government subsidizes 10% of the premium for the labor workers and 100% for the low-income households, veterans, and military service personnel
Health insurance contributions In BMI, both employers and employees make contributions that are a fixed percentage of income. In many localities, individuals can make voluntary payment for complementary coverage. Part of contributions go into a personal MSA, and the other part to a social pooling account. In NCMS, individual contributions are fixed for all beneficiaries within risk pools, but vary across risk pools (counties). MSA model is used in some counties Public sector services are funded from government general revenue. Private supplementary schemes such as employer-provided medical benefits for private care typically form part of the remuneration package whereas individually purchased insurance premiums vary a great deal and such policies typically exclude pre-existing medical conditions Current contribution rate: 4.55% (of wage income); the relative shares borne by employees and employers depend on the category (currently, the insured is classified into 6 major categories) that the insured falls into. For instance, for labor workers, employers, employees, and government pay for 60%, 30%, and 10%, respectively; the self-employed bear 100% of the premium
Benefits package and copayments BMI covers a certain percentage of eligible expenditures (after deductible), up to a ceiling. In most localities, MSAs are used to finance outpatient care and social pooling account for inpatient care. In other localities, social pooling account is only accessed when personal account is exhausted. Eligible expenditures and benefit caps vary across risk pools. NCMS arrangements are similar. However, due to lower level of financing, the range of eligible services is considerably more limited, and co-insurance rates are often high. As with the BMI, benefits packages varies across risk pools The public sector provides the full range of health-care services with minimal copayments, amounting to 3–5% of total bed-day costs and about 10–20% of ambulatory episode costs. All pharmaceuticals are included and are not separately billed NHI provides a comprehensive benefit package that covers preventive and medical services, prescription drugs, dental services, Chinese medicine, and home nurse visits. It also incorporates a copayment of U.S.$5 for each outpatient visit to clinics, U.S. $8 for each visit to hospital outpatient clinics. There is a higher copayment for hospital outpatient visits without a referral by a primary care physician. For inpatient services, the coinsurance rate is 10%, but the total payable amount is capped at 6% for each admission and 10% for each year of the average national per capita income. People with catastrophic illness, children under the age of 6, and users of maternal and preventive services, as well as low-income households, are exempted from the copayment requirement
Special arrangements for the poor (exemptions, subsidized insurance, etc.) The new medical assistance program is intended to provide benefits to the poorest segments of the population, and to those facing ‘very high’ health expenditures. Program details and implementation, including the extent to which the MA scheme is integrated with health insurance schemes, varies considerably across localities. In addition, some localities require hospitals to provide health care to the poor for free or at reduced prices, but this requirement is often not enforced Free (i.e. the usually minimal copayments are waived) public health-care services for welfare (namely, Comprehensive Social Security Assistance) recipients The low-income group whose premium is fully subsidized by the government is also exempted from point-of-care copayments

BMI, basic medical insurance; CMS, cooperative medical system; MA, medical assistance; MSAs, medical savings accounts; NCMS, new cooperative medical system; NHI, National Health Insurance.

 

 

A.J. Atherly, in Encyclopedia of Health Economics, 2014

Supplemental Insurance

In many countries with public health insurance coverage, individuals have the option to purchase additional coverage from private health insurers to supplement public coverage. This additional coverage can either duplicate public coverage or fill in gaps (supplement) in the public plan, such as covering services outside the public benefit package or filling in cost-sharing gaps in the public coverage. The Organization for Economic Co operation and Development (OECD) defines supplementary coverage as

Private health insurance that provides cover for additional health services not covered by the public scheme. Depending on the country, it may include services that are uncovered by the public system, such as luxury care ,elective care, long-term caredental care, pharmaceuticals, rehabilitation, alterative or complementary medicine, etc., or superior hotel and amenity hospital services.

Supplementary policies are commonly held in many OECD countries, including Australia, Canada, Germany, Ireland, Switzerland, the Netherlands, the UK, and the US Medicare population. Although the precise rules vary by country, the key motivation is that many types of public insurance leave policy holders with substantial potential liability for out-of-pocket expenses (Figure 1).

Figure 1. Percentage of population with supplemental insurance, selected countries.

 

 



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