Many countries—such as
Government-funded health insurance systems increasingly offer incentives for people to seek supplementary coverage through private insurance companies. For example, in 1998
Contributed By:
Norma L. Nielson
HEALTH INSURANCE IN OTHER COUNTRIES
Canada Health Act
In 1979 a federal government study found that doctors in some provinces were charging patients an extra fee to supplement the amount they were paid by the government plan. The study determined that these supplemental user fees had created an unequal system that threatened to limit access to health care for low-income citizens. The Canadian Parliament responded to these concerns by passing the Canada Health Act in 1984. This legislation reaffirmed the government’s commitment to a universal, comprehensive, and publicly administered health insurance system. Today, the Canada Health Act continues to define the central principles of the Canadian health care system.
HISTORY IN THE UNITED STATES
X HISTORY IN THE UNITED STATES
Health insurance in the
The first modern group health insurance policy was issued in 1929, when a group of teachers in Dallas, Texas, contracted with Baylor Hospital for room, board, and medical services as needed in exchange for a monthly fee. Many life insurance companies entered the health insurance field in the 1930s and 1940s, and the popularity of health insurance grew quickly. In 1932 nonprofit organizations called Blue Cross or Blue Shield first began to offer policies of group health insurance. Blue Cross and Blue Shield were the first programs that established contracts directly with health care providers, who would then offer services to subscribers at reduced rates. Originally, Blue Cross plans covered the cost of hospital care, whereas Blue Shield plans covered doctors’ bills. Eventually, however, both Blue Cross and Blue Shield plans began covering all health care services.
Employee benefit plans became a widespread source of health insurance in the 1940s and 1950s. Increased union membership at
Government programs to cover health care costs began to expand during the 1950s and 1960s. Disability benefits were included in social security coverage for the first time in 1954. When the government first implemented Medicare and Medicaid programs in 1965, private sources paid 75 percent of health care costs in the
Throughout most of the 1980s and 1990s the majority of employer-sponsored group insurance plans switched from fee-for-service plans to managed care plans. As a result, most Americans with health insurance were enrolled in managed care plans by the mid-1990s. For example, in 1980 only 9.1 million Americans were enrolled in health maintenance organizations. By 1995 that figure had risen to 46.2 million. Employers made the change to managed care as part of an effort to improve the quality of health care for their employees while also monitoring the cost of providing insurance.
In 1993 President Bill Clinton presented to the U.S. Congress a health care reform plan that would guarantee health insurance for all Americans. Under the leadership of the president’s wife, Hillary Rodham Clinton, the Democratic Clinton administration’s special commission on health care reform claimed that in addition to providing universal health insurance, the proposal would stem the rapidly rising cost of health care. Republican leaders in Congress fiercely opposed the plan for being too expensive and for imposing excessive governmental regulations on health care. Opponents of the plan also attacked it for restricting patient choice of health care providers and for placing an undue burden on small businesses by forcing them to provide health insurance for their employees. In 1994 members of Congress introduced a variety of alternative proposals, but the administration never reached a compromise with Republicans, and
In 1996 Congress passed the Mental Health Parity Act, a law that requires employers with more than 50 workers to offer health plans that set yearly and lifetime limits for mental health care at the same level as limits for physical health care. Despite these important safeguards for workers, the law allows employers in some states to eliminate coverage of services to treat mental illness altogether. Also, the law allows employer-sponsored plans to charge higher deductibles and copayments to workers seeking mental health care.
Origins of National Health Insurance
Before the late 1940s private sources paid for the vast majority of health care in
HEALTH INSURANCE IN CANADA
XI HEALTH INSURANCE IN
Alternative Medicine
An increasing number of health insurance policies provide benefits for so-called alternative medicine—that is, for therapeutic practices and treatments that lie outside the mainstream of Western medical care. Policies that cover alternative medicine may provide benefits for such treatments as acupuncture, chiropractic care, therapeutic massage, and naturopathy (treatments that avoid drugs and surgery in favor of natural remedies). Advocates of alternative medical practices believe that they can provide safe, natural approaches to treating illnesses or injuries that conventional medicine has had limited success in curing, such as chronic pain and drug addiction.
Substance Abuse and Alcoholism Treatment
Most comprehensive policies offer limited coverage for treatment of alcoholism and other forms of substance abuse. These policies generally pay a percentage of the cost for treatment performed by an approved facility or counselor, but benefits are usually limited to a maximum amount paid over a specified period.
Emergency Care
Most insurance policies cover emergency care provided in hospital emergency departments, but they generally discourage overuse of emergency room visits by requiring the patient to make a copayment. Health insurance policies also usually offer limited coverage for ambulance transportation to emergency rooms.
Outpatient Care
Patients who do not require an overnight hospital stay receive outpatient care, which is generally covered by comprehensive policies. Outpatient care could be provided in a doctor’s office, a neighborhood clinic, or in a hospital if the patient is sent home the same day. For example, patients often will come to the hospital the day before surgery so that doctors can perform blood tests. Simple surgeries like a tonsillectomy (a procedure to remove the tonsils) usually can be performed on an outpatient basis. Even very sophisticated surgeries like a cochlear implant (a device used to stimulate the auditory nerve in deaf people) often do not require a hospital stay. To encourage patients to make cost-effective use of the health care system, health insurance plans—particularly managed care plans—often include financial incentives to use outpatient services whenever possible.
Treatment of mental illness is commonly performed on an outpatient basis, but insurance coverage is often limited for such services as psychotherapy. For example, private insurers generally pay 80 percent of the cost of most outpatient medical services, but they traditionally limit reimbursement for psychotherapy to 50 percent or less of its cost. Also, many insurers limit their coverage of psychotherapy to a specified maximum dollar amount or to a maximum number of visits.
Many insurance policies will offer coverage of health care performed in the patient’s home by an approved medical provider. Home health care benefits are generally limited to medically necessary services that are part of a treatment plan prescribed by the patient’s doctor. Some policies also cover hospice care that allows a terminally ill patient to receive health care services at home or in an approved hospice center instead of in a hospital.
SPECIFIC BENEFITS
IX SPECIFIC BENEFITS
Each health plan or insurance policy must define what kinds of medical services are covered by insurance. These policies must also explain limitations or exclusions of coverage for specific services. In addition, insurance policies define the kinds of medical care providers that are covered by insurance. For example, covered providers usually include physicians and hospitals, but the policy’s terms may also include coverage for nurse practitioners, midwives, chiropractors, and naturopaths.
Almost all health insurance plans cover the cost of diagnostic tests, prescription drugs, and other items necessary to provide care in hospitals. Some policies also provide coverage for such things as prescription drugs to be taken outside of hospital settings.
Hospitals provide inpatient care when they admit a patient for an overnight stay. Most comprehensive health insurance policies cover the costs of inpatient care as long as that level of care is considered necessary to treat the patient’s condition.
Long-Term Care Policies
Americans increasingly buy long-term care policies to cover nursing home costs. Medicare and most private medical insurance policies cover medically necessary services such as care while recuperating from surgery, but they do not pay for the so-called custodial care offered by nursing homes. In about 80 percent of American families, at least one family member will eventually need long-term care. The average annual cost of a nursing home stay in the
Specified Disease Policies
Some insurance companies offer specified disease policies that cover only one illness, such as cancer. These plans offer no benefits at all for medical costs associated with any disease other than that specified in the policy. Therefore, most people who purchase these policies also need to be covered by a more comprehensive policy. Some of these policies provide only for the treatment of the specified illness and exclude from their benefits package the costs of diagnosing the disease.
Catastrophic Coverage
Catastrophic health insurance—also known as major medical insurance—is a policy of health insurance with a relatively high deductible, often as high as $500 or $1000. Although catastrophic health insurance policies offer coverage only beyond this high deductible amount, they can help people avoid bankruptcy in the event of a catastrophic illness or injury that requires expensive medical treatments. Because catastrophic health insurance policies have a high deductible, they typically charge policyholders relatively low monthly premiums.
Hospital-Surgical Coverage
Hospital-Surgical policies provide separate limits for hospital charges and for physician charges associated with a hospital stay. A hospital-surgical plan usually limits its benefits to cover a relatively low amount of medical costs, so most people consider it only in conjunction with a more comprehensive policy.
LEVEL OF COVERAGE
VIII LEVEL OF COVERAGE
The extent to which an insurance policy will cover specific health care services varies considerably based on the level of benefits outlined in the policy. Because each person has different medical needs and risks, no one level of health insurance coverage is right for everyone. Some of the most common levels of coverage available in the
A Comprehensive Coverage
Comprehensive medical insurance is a single plan that combines coverage for both doctor and hospital charges. Most medical services are covered by comprehensive policies, although even comprehensive plans limit benefits for certain specific conditions. They also may not cover services associated with preexisting conditions.
Preexisting Conditions
When a policyholder has medical conditions before being issued a health insurance policy, these are referred to in the new policy as preexisting conditions. Many newly issued policies contain a clause that limits the amount the insurance company will pay for services related to preexisting conditions. The precise limit can be expressed in this clause as a dollar amount, as a period of time for which benefits are limited, or as a permanent exclusion of coverage for particular services related to the conditions. By including such clauses, private insurance companies can make limited insurance available even to people with known health problems. At the same time, these clauses protect the company and the other members of the policy group from the likelihood of paying large bills associated with new policyholders’ preexisting conditions.
Lifetime Policy Limit
Some health insurance companies establish lifetime policy limits that define the maximum amount the insurer agrees to pay for a policyholder’s medical expenses. For example, a policy with a $500,000 limit pays up to $500,000 toward covered medical expenses over the life of the policy. A policy covering as much as $1 million or more of medical expenses usually does not cost the policyholder much more in premiums than one with $250,000 or $500,000 limits. The difference in cost is so slight because the probability of needing the highest amounts of coverage is very small. If the cost of medical services exceeds the lifetime policy limit, the insured person is liable for the difference, regardless of the limits set by the out-of-pocket maximum.
Out-of-Pocket Maximum
Health insurance policies define the maximum amount that an individual or family must pay each year for deductibles and coinsurance combined. This amount is called the out-of-pocket maximum. For example, a policy with a $250-per-person deductible might have a $1,000 limit on the total amount that a person would have to pay in both deductibles and coinsurance.
Terms and Limits
Most health insurance policies limit coverage to services that the insurance company defines as both “reasonable and necessary.” These terms are key to understanding the policy’s benefits because they define whether particular services are within the scope of coverage.
Insurance companies carefully determine what they consider to be “reasonable” costs of medical services. To do this, an insurance company gathers statistics on what health care providers in a particular area typically charge for identical or similar services. That information helps the company determine the amounts it considers to be reasonable. For example, many insurance policies cover payment for an office visit to a doctor. If 90 percent of the doctors in a particular geographical area charge $60 or less for an office visit, an insurance company might logically decide to limit its policy’s coverage of office visits to the first $60 in charges. When a particular patient’s doctor charges $75 for an office visit, the insurance company may send the patient a bill—known as a balance billing charge—for the additional $15. Some benefit programs, such as Medicare, may not hold patients responsible for balance billing charges.
Premium
Insurance policies charge a certain monthly amount—called a premium—to maintain an insurance contract. The premium is the payment an individual policyholder makes in exchange for the promise of financial assistance for medical costs. The premium charged for the insurance reflects the value of the benefits received. For example, insurance with a $500 deductible generally has a lower premium than insurance with a $250 deductible.
Copayment
Most managed care policies require policyholders to make a modest payment—called a copayment—toward the cost of services for each visit to a health care provider. Copayments are usually $10 or less. Although the amount of money collected from copayments may contribute little toward the actual cost of medical services, it does force some cost onto consumers in a way that provides incentives against overusing the health care system. These policies also assume that unless patients pay something for the services they receive, they place little value on those services. Indemnity plans typically do not require policyholders to make a copayment in addition to the deductible amount.
Coinsurance
Many insurance policies also require policyholders to pay a certain portion of medical costs that exceed the deductible. This extra amount is called the coinsurance figure. For example, consider a person who has already paid her policy’s deductible for the year and then has a diagnostic test that costs $100. If that person’s health insurance policy sets the terms of coinsurance at 20 percent, the insurance company must pay $80 of the bill for the test and the policyholder must pay $20. Policies that do not require a coinsurance payment usually charge subscribers a relatively high premium.
FEATURES OF HEALTH INSURANCE POLICIES
VII FEATURES OF HEALTH INSURANCE POLICIES
Nearly all health insurance policies in the
A Deductible
Health insurance policyholders pay a specified amount of money each year for medical services before the insurance policy pays anything at all. This amount is called the deductible. For example, a person who selects a policy with a $500 deductible agrees to pay the first $500 of medical costs in a given year. Likewise, the insurance company agrees to pay some or all costs that exceed $500. Policies with a low deductible generally charge a relatively high monthly fee—called a premium—to maintain the insurance account. Policies may express the deductible in terms of per-person and per-family amounts. For example, the policy might provide for a deductible amount of $250 per person, but it might also set a maximum deductible of $500 per family when more than one person in the family has incurred medical expenses.
Individual Plans
Individuals who do not have access to less expensive group plans can buy policies directly from health insurance companies. Approximately 10 percent of Americans purchase individual health insurance policies to cover medical costs.
Group and Employer Plans
Groups of people who have something in common other than their need for insurance often can join forces to purchase group health insurance. For example, individuals who all work for the same employer may join a group health insurance plan sponsored by their employer. Group plans typically have lower administrative costs than do individual health insurance plans, so they are able to charge individual subscribers lower monthly premiums. They also offer significant tax advantages in the
Approximately two-thirds of American families obtain health insurance coverage through employer-sponsored group plans. Employers usually cover some or all of the cost of group health insurance for plan participants. Most employer-sponsored programs are with managed care programs, although many employers offer workers a choice of managed care or fee-for-service plans.
The Consolidated Omnibus Budget Reconciliation Act (COBRA), enacted by the U.S. Congress in 1985, requires most
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People can obtain private health insurance coverage as a member of a group or as an individual. Both group plans and individual plans may offer coverage in either a managed care program or in a fee-for-service program. Most Americans receive group coverage through their employers, although some Americans join group plans through unions, professional associations, and other organizations that offer group insurance policies. People who obtain health insurance as individuals are typically self-employed, or they work for small companies that do not provide insurance. Elderly and some low-income Americans may qualify for the government-funded health insurance programs Medicare and Medicaid.
DISABILITY INSURANCE
Another type of health insurance coverage is disability insurance, which replaces workers’ income when an accident or illness prevents them from performing their jobs. Disability insurance is less common than medical coverage, but it can be important to assure future financial security for any family that depends on each paycheck to meet its financial obligations. Benefits are generally structured to pay a proportion of a person’s actual earnings, usually from 40 to 60 percent. Short-term disability insurance covers up to six months of disability. Coverage for longer than six months is called long-term disability insurance. Most disability insurance policies limit coverage to a maximum period of time—such as to age 65—that determines the term of the policy.
A few
Medicaid
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Medicaid
Medicaid programs provide medical coverage for some people with low incomes, especially children and pregnant women. Depending on individual state eligibility requirements, Medicaid may also provide coverage for adults with certain disabilities. State programs that meet federal guidelines qualify to receive federal funding that pays for most of the program’s cost. These guidelines use federal statistics that define the poverty level (minimum level of income below which households are considered poor) to help states determine which low-income families are eligible for Medicaid.
As originally conceived, any household that fell below the federal poverty level would qualify for Medicaid benefits. In practice, however, budget shortfalls have forced states to vary eligibility standards for Medicaid. In a particular budget cycle, for example, a given state might set its eligibility requirements at 80 percent of the federal poverty level. For that year, households earning 79 percent of the federal poverty level could receive government-paid health care, but those earning 81 percent could receive no Medicaid benefits.
Advocates for the poor have led calls for Medicaid reform that would reinstate health insurance for all Americans below the federal poverty level. Between 1989 and 1995 the state of
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Medicare
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Medicare
Medicare is a health insurance program in the United States that helps provide access to health services for citizens 65 years of age and older. It also provides health coverage for people under age 65 who have certain disabilities, such as kidney disease. Medicare is funded primarily by federal payroll taxes and by monthly premiums paid by participants.
As with other
Because insurance is regulated on a state-by-state basis, Medicare supplement policies can vary from one state to the next. However, in the 1980s the National Association of Insurance Commissioners persuaded many states to require that health insurance companies offer a core Medicare supplement policy called Plan A. Many insurance companies also offer nine additional plans (B through J) that feature increased benefits—and costs. For example, only the three most expensive plans (H, I, and J) cover the cost of prescription drugs.
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Government-Funded Plans
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Government-Funded Plans
Established by the U.S. Congress in 1965, Medicare and Medicaid offer basic health care coverage to qualified individuals, but these programs do not always provide access to comprehensive medical treatment. Limited funding for these programs can also lead to long waiting periods for nonemergency procedures.
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Health Maintenance Organizations
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Health Maintenance Organizations
Health maintenance organizations (HMOs) agree to provide whatever medical services are required in exchange for the plan participant’s monthly premium payment. HMO members generally receive excellent coverage of routine health care services, but they often face restrictions on their choices of doctors and hospitals. Services provided by HMO member physicians and facilities are covered almost in their entirety. Services provided by nonmember physicians and facilities are not covered at all except in emergencies or when specialized care is needed and the referral is authorized in advance.
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Point-of-Service Plans
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Point-of-Service Plans
Point-of-service (POS) plans combine aspects of indemnity health insurance policies with some elements of PPOs. Like PPOs, point-of-service plans establish contracts with health care providers who agree to offer services to plan members. Unlike PPOs, which require participants to select a preferred provider in advance, point-of-service plans allow participants to choose at the time they need health care whether to seek treatment within the plan's network of health care providers or outside the network. Expenses for services received outside the network are reimbursed, usually after the patient pays a specified deductible amount and a coinsurance percentage. The benefits are exactly the same as in a PPO plan if the services are provided by a health care provider on the preferred list. The benefits are exactly the same as an indemnity policy if the health care provider is not on the preferred list.
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Preferred Provider Organizations
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Preferred Provider Organizations
Preferred provider organizations (PPOs) combine characteristics of traditional insurance plans and HMOs. PPOs establish contractual agreements with health care providers, who accept lower fees for services rendered to PPO members. The PPOs distribute lists of these participating providers to their members, who then select a primary care provider. This primary care provider is the patient’s first contact for health care, providing health care services as well as referrals to specialists. PPO members who use the services of participating providers will generally receive more generous benefits than those who choose the services of health care providers not on the preferred list. Essentially, a PPO offers its participants some coverage for any doctor or hospital they choose, but participants’ costs will be higher if they go outside the network of preferred providers.
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