Private Health Insurance 101
High Costs, Poor Choices,
No Guarantees
Health insurance in America
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Why insurance matters
Who pays for it
How private insurance works
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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
www.InsuranceCompanyRules.org
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Why health insurance matters
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Access to good health care
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Protection from financial risk
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Early detection/prevention
Necessary health services
Institute of Medicine found 18,000
Americans die each year because
they do not have health insurance
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
www.InsuranceCompanyRules.org
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Who pays for health insurance
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We are already spending
what a high-quality system
that covers everyone should
cost – but aren’t getting it.
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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.
www.InsuranceCompanyRules.org
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Where do people under age 65
in the U.S. get health insurance?
Employer,
Dependent
30%
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Uninsured/
IHS
18%
Medicaid/
Other public
15%
67% of those under 65
has private coverage
Employer,
Own
32%
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62% have employersponsored covered
5% purchase individual
policies
15% have Medicaid or
other public coverage
18% are uninsured
Individual Policies
5%
Source: KFF analysis of Urban Institute estimates of March
2005 Current Population Survey, U.S. Census Bureau.
www.InsuranceCompanyRules.org
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Why private insurance doesn’t
meet our needs
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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
www.InsuranceCompanyRules.org
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Getting a balanced mix of sick
and healthy members
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Called “Risk-Spreading”
Why is it important?
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Equity
Efficiency
Security
www.InsuranceCompanyRules.org
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Concentration of health
spending by Americans, 2003
97%
100%
73%
80%
80%
64%
60%
49%
40%
24%
20%
3%
0%
Top 1% Top 5%
Top
Top
Top
Top
Bottom
10%
15%
20%
50%
50%
Population Percentile Ranked by Health Care Spending
Source: KFF calculations using data from Agency for Healthcare
Research and Quality, Medical Expenditure Panel Survey, 2003.
www.InsuranceCompanyRules.org
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Why private insurers don’t do it
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Most insurers try to get
only healthy members
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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
www.InsuranceCompanyRules.org
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Private health insurance varies
All health insurance is different.
There is no standard for health benefits.
Employer-sponsored coverage:
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Increasingly less comprehensive
Different benefits covered as well
as different costs
Individually-purchased policies:
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Typically still less comprehensive
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Less coverage of maternity, mental health
and prescription drugs
Can have caps on needed services, high
copays and high deductibles as well
www.InsuranceCompanyRules.org
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Types of private insurance
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Indemnity, fee-for-service
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“Managed Care”
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Preferred Provider
Organization (PPO)
Health Maintenance
Organization (HMO)
Point of Service (POS)
High deductible/high cost
health plans
www.InsuranceCompanyRules.org
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Private plans: No guarantees
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Insurers can change terms of coverage as largely as they please :
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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 twoyear period
Choice of doctors, what’s covered and what you pay can change
with…
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Marriage, divorce, spouse’s death
Loss or change of job
Birthday (e.g. 19th)
Move
Change in health status
www.InsuranceCompanyRules.org
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Employer v. individual
health insurance
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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
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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
www.InsuranceCompanyRules.org
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Health conditions denied by
individual market insurers
Always denied
 Cancer
 HIV/AIDS
 Diabetes
Often denied
 Overweight
 Cancer history
Sometimes denied
 Acne
Multiple Sclerosis
 Pregnancy
 Stroke
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High blood pressure
 Asthma
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Hay fever
www.InsuranceCompanyRules.org
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What does private health
insurance cover?
It depends and it’s not clear
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Covered benefits
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Standard policy: rarely defined in law
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Depends on state, insurer and purchaser
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Benefit limits (annual, lifetime, service and cost limits)
Cost-sharing
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Deductibles, copays, coinsurance
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Out-of-pocket cost-sharing maximums, high charges on top of what the
insurance pays for out-of-network care
Terms of coverage
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Provider networks
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Care authorization/utilization review
Condition exclusions
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Pre-existing conditions
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Other conditions based on work, history etc.
Employer-sponsored insurance typically (not always) more comprehensive
Individual insurance typically (not always) less so
www.InsuranceCompanyRules.org
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What does health insurance cost?
It depends
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Cost (premium) of health insurance depends on:
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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
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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
www.InsuranceCompanyRules.org
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Regulation of private insurance
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State is primary regulator
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50 states, 50 rules
Few national regulations
Regulations
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Ensure solvency
Oversee risk spreading/
risk selection
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Generally very limited or ineffective
Best practices:
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Guaranteed issue: Must allow anyone to buy
Community rating: Must charge everyone the same
www.InsuranceCompanyRules.org
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Regulation of private health
insurance alone not enough
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Even with good regulations, we
cannot rely exclusively on profit–
driven private insurers to
guarantee quality, affordable
health care.
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To rein in costs, guarantee
comprehensive benefits and
financial security, we need:
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A public insurance option that sets
standards and drives accountability
from private plans; and
Fair regulation of private insurers.
www.InsuranceCompanyRules.org
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Regulations: Employee benefits
Employee Retirement Security Act
(ERISA)
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Federal law that precludes states from
regulating employee health benefits for
employers whoself-insure
Allows joint federal/state regulation of
insurance that employers buy
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Fully-insured plans
Does not allow states to regulate self-insured
plans
www.InsuranceCompanyRules.org
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Regulations: Keeping insurance
Consolidated Omnibus Budget
Reconciliation Act (COBRA)
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Federal law offers temporary continuation of
coverage after:
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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
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Very costly and unaffordable for most
www.InsuranceCompanyRules.org
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Regulations: Keeping insurance
Health Insurance Portability & Accountability Act
(HIPAA)
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Federal law that protects all group plans participants
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Employers cannot discriminate against them based on their health or
worker status
Can buy individual coverage if they lose group plan coverage
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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
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Insurance tends to be very costly
www.InsuranceCompanyRules.org
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Private insurance: Case example
All these regulations could not help Mr. Jones.
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Mr. Jones has diabetes. He is laid off from his job with employersponsored private health benefits.
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He cannot afford the cost of private health insurance:
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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:
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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
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:
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The hospital bill was over $15,000
www.InsuranceCompanyRules.org
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We need public insurance option
What have private insurance companies done for us?
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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 childbearing 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
www.InsuranceCompanyRules.org
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We need public insurance option
What do private insurance
companies expect of us?
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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.
www.InsuranceCompanyRules.org
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We need public insurance option
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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
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Public health insurance option
creates competition, removes
private insurer quasi-monopoly
power.
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Exclusive reliance on private
insurers gives them monopoly,
even with regulation, allows them
to control costs, benefits and
access
www.InsuranceCompanyRules.org
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Public insurance: Case example
of how it could work
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Mr. Jones has diabetes. He is laid off from his job with employersponsored 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 money
in the long-term by keeping Mr. Jones’
diabetes under control.
www.InsuranceCompanyRules.org
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Conclusions
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With private insurance, cost as well as adequacy
and availability of coverage are not guaranteed
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As your health status changes and you get
older, it often becomes increasingly expensive
and difficult to get and keep private insurance
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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
www.InsuranceCompanyRules.org
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