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Healthcare Insurance Development and Importance

Introduction

Most people had very low medical expenditures prior to 1920, even according to a survey carried by the Bureau of Labor Statistics in 1918. Hospital care took only 7.6% of the average annual medical expenditure for 211 families living in Columbus, Ohio, according to the Ohio Report (qtd. in Thomasson, 2003). The lost wages that accrued from sickness were found to be four times larger than the medical expenditure for treating the illnesses according to a study by the State of Illinois done in 1919 (Thomasson, 2003).

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The earliest forms of insurance began in the United States in 1861-1865 during the Civil War. Coverage was offered by accidents related to steamboat or railway before more comprehensive plans would allow for coverage for sicknesses and injuries. The Massachusetts Health Insurance of Boston in 1847 offered the first group policy which gave comprehensive benefits. The first illness policies and individual disabilities were firstly issued by insurance companies in about 1890. in 1929, a group of teachers in Dallas paid a fee for contracts for medical services, board and the room, with the Baylor Hospital and therefore comprised the first modern group health insurance plan. Life insurance became popular in the field in the 1930s and 1940s and many life insurance companies joined the field. Blue Cross and Blue Hospital, which offered group health plans in 1932, had successful outcomes because they involved discounted contracts negotiated with hospitals and doctors. The company received discounts from providers in return for a promise to pay them increased volume and prompt payment. Healthcare costs in the United States averaged $6,280 per person in 2004. Despite the increasing cost of healthcare, about 46.6 million Americans ended up uncovered by insurance according to Smith et al. (2006). In addition, the sum total of healthcare cost increase by 10% more of the income for 18 families, when insurance costs are considered. Increase in insurance costs is likely to force individuals out of health and financial coverage. Marsha does not support the idea of changing the players in the healthcare system (by policymakers’ act of transferring responsibilities to commercial health insurers so as to reign in the rapid growth in spending within public insurance programs-as they perceive it), instead of changing the rules of the game (2006). After the implementation of the price controls and wages in the United States during the Second World War, modern private health insurance which began in 1930 expanded as an employee fringe benefit. Employer-based health care financing systems became common in the United States by the 1960s. Health insurance coverage for federal employees provided by the federal government was begun in the 1950s. The federal government became a dominant financer of health care after the adoption of Medicaid and Medicare in 1965.

The Public Health Insurance

The government expanded plans to cover individuals’ health plans during the 1950s and 1960s. in 1954, disability benefits were added to social security coverage. Private sources contributed 75% of the healthcare costs when the government created Medicaid and Medicare in 1965. by this time, the government paid half of the healthcare while the other costs were covered by individuals and companies. By the mid-1990s, most of the Americans with health insurance had been enrolled in managed care plans following the shift of most of the employer-sponsored group insurance plans shifted from “fee-for-service” plans to the cheaper “managed care plans” as a result of rising health care costs during 1980s and 1990s. Bill Clinton did not succeed to persuade Congress to pass a health care insurance plan he presented to them in 1993 and which would ensure coverage of all Americans, on the basis that it was highly regulated and too expensive. The Mental Health Parity Act which required employers to offer health plans with psychiatric benefits was passed by Congress in 1996, and the same Congress passed the Health Insurance Portability and Accountability Act in 1996, which would make sure that individuals didn’t loose insurance by changing job or turning to self-employment. The Act fell short of ensuring the overall quality and comprehensiveness of employer-provided insurance. The enrollment of individuals into the Medicaid plan has been said to fluctuate with the economy, leaving the government with budgetary uncertainty (Marsha, 2006). States may prefer to use risk-based managed care plans because they are more likely to offer budget predictability and improvement of Medicaid’s historical problems with the provider participation.

A large new market was opened by the requirement enacted by congress that beneficiaries must enroll in private plans before receiving coverage by Medicare. This has made Medicare enjoy larger participation from commercial health insurers. The market has manifested itself in the selective expansion in the Medicare Advantage (MA) plans through new and historical options, and the venture in new freestanding prescription drug plans (PDPs). While some firms have avoided MA in favor of Medicare supplements because the latter does not require them to “build risk-based networks or accommodate fluctuations in payment rates” that stem from the role of congress in the program (Marsha, 2001), other firms have reaped the benefits of MA. Examples of great beneficiary firms are United and Humana, both with 2.4 million enrollees in June 2006.

The government has applied some strategies including the sharing of risks for selected MA products and the PDPs in order to encourage the participation of commercial insurers in the market. Marsha posits that these plans would be difficult to sustain in the future in cases of budgetary constraints (2006). This is because firms would withdraw from Medicare or limit their offerings through unattractive ways to the consumer if the payment increases do not keep up with inflation. This is the case with historical trends.

Employment-based health Insurance

Employer-sponsored health insurance was bargained in the 1940s and 1950s by workers in strong unions, alongside better benefits packages. Group health care got momentum with the wage freezing imposition by the government during wartime (1939-1945). Healthcare for employees was this time added by employers as an incentive to attract workers because employers failed to attract workers on the basis of increased compensation. This type of insurance experienced growth during the first three decades after World War II, followed by some relative stability for about a decade and then a decline in coverage since the 1980s. About a fourth of the United States’ population had been covered for major medical expenses by 1963, while more than a half had been covered for regular medical expenses by the same time. The hospital insurance coverage had swollen to 77% by this time (Health Insurance Association of America, 1999). Rapid expansion was facilitated or encouraged by the fact that the employer payments would be excluded from the employee’s taxable amount and the advantages that could accrue from group compared to individual insurance. A decline in employer-based health insurance from the 1980s has been documented by various sources. Linkage of two of these sources (Employee Benefit Research Institute (EBRI)-one from 1987 to 1999 and the other from 1999 to 2004, all for ages 18-64) reveals that there was a fall of 6.3% points from 1987 to 2004.

Employee-based health insurance has undergone a transformation from quasi-social insurance to one based on actuarial principles. Under the former arrangement, people who are expected to use more care do not pay a differential premium, but individuals will be expected to share the costs collectively. Under the latter, the insurance is to cover unpredictable risks and the premiums are adjusted for the differential if risks are predictable.

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The dominance of the large firms in most important industries after World War II facilitated cross-subsidization of insurance across workers in the same firms and among industries and firms in the same community. These major industries included General Motors and Dupont. Even the regulated and private AT&T which had guaranteed profits was able to offer health insurance.

One disadvantage about the use of an employer-based health insurance scheme is that workers are forced to consume more of their compensation earnings in the form of health insurance benefits in the event of the rising cost of health care.

Most employers have “thinned out” the coverage that was previously being offered, through increasing the cost-sharing and emphasizing more on catastrophic benefits. Consumer-directed care may be seen as a means of forcing the employees into the thinning out of their coverage in favor of other forms of compensation (Moran, 2005).

Diversification of the insurance industry into the public sector has been viewed as not solving fundamental challenges the industry faces and presenting short-lived gains. Marsha posits that the benefits people seek from insurance, namely, financial protection and stable coverage, will wane further unless drivers of healthcare costs are tamed (2006).

Although the increase in population could be used to explain the decrease in the percentage of those covered by employer-based insurance plans, only 64.4% of the elderly people were covered-a percentage which rose to 66.8% in the year 2000. in addition to the decline in the number of people covered, especially among the same employees, a good percentage of firms do not have retiree health coverage for their employees. For example, there was a half decline in the share of large firms having retiree health coverage (from 66% to 33%) between 1988 and 2005. The shift from the managed care plans for employees to provide plans that are more loosely structured is a result of backlash from the policymakers, the press, consumers, and providers. More recent plans involving high-deductible plans have made healthcare costlier to the employee.

The government has developed an interest in increasing the role of private insurance companies in public programs like Medicaid and Medicare, and this has contributed to the weakening of the private insurance arrangement plans.

There was some unpredictable trend in the membership or subscription for the insurance coverage. It had been projected that the establishment of an appropriate employer mandate by the federal or state government would stem the erosion by making sure that all employees were covered and by placing heavy penalties on the employers who failed to comply. The mandate requirement can be exemplified by the Massachusetts health plan’s employer mandate which was $295 at one time. This amount was perceived as too little to make effective impacts. It is possible that, in the future, employer-based insurance could increase with an offer of individual mandates which have income-related subsidies. It would be possible that those with too high incomes to receive any subsidy but without insurance could resolve to look for jobs with health benefits rather than purchasing insurance in the costlier individual market.

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If firms would offer income subsidies, it was also likely that those low-income employers who already have insurance through their employers and qualifying for the income subsidies, chose to go for better-paying jobs with firms that don’t offer health insurance. It could also be costly for the government if it would choose to extend the subsidies to the low-income workers with employer insurance and those who would purchase individual insurance.

The government needs to consider the costs of the uninsurance to the society in the present and the future, and therefore implement the necessary measures aimed at improving the situation. The rates of uninsurance could possibly go up with the increase in healthcare costs.

The rate of uninsurance for the United States less than 65 years population has remained relatively constant fluctuating between 15% and 18%. The continuation of the problem of a large number of uninsured has been partly a result of employment-based coverage for the non-elderly populations. The policymakers have been accused of not appreciating the costs of the status quo, which means that they do not act to ensure universal coverage. A high rate of uninsurance is not healthy for the country because of the related economic costs. High rates of insurance could lead to high societal costs which could be borne by a large or majority of the members of the society in the form of diminished health services capacity (Miller, Vigdor, and Manning, 2004).

The costs of uninsurance could be categorized as those to private entities (for example the firms, individuals and families), and those spillover costs affect the society more generally (Miller, Vigdor, and Manning, 2004). The authors have presented the value of health loss due to uninsurance. The uninsured face high mortality and worse health than those insured. In addition, other results of uninsurance could include financial risks and uncertainty because it leads to an increase in unpredictability of medical expenses and financial crisis such as bankruptcy, spillover costs including diminished economic vitality and diversion of public health resources (Miller, Vigdor, and Manning, 2004).

References

  1. Claxton G. et al., Employer Health Benefits: 2005, Summary of Findings, 2005.
  2. Fronstin P. Sources of Health Insurance and Characteristics of the Uninsured: Analysis of the March 2005 Current Population Survey. EBRI Issue Brief no. 287. Washington: Employee Benefit Research Institute, 2005
  3. Health Insurance Association of America. (1999). HIAA Source Book, 1999–2000 (Washington: HIAA, 1
  4. Marsha Gold. (2006). Commercial Health Insurance: Smart or simply lucky?
  5. Marsha. Gold. (2001). Medicare+Choice: An Interim Report Card. Health Affairs 20, no. 4 (2001): 120–138 and Gold. Private Plans in Medicare
  6. Merlis D. Gould, and B. Mahato. (2006). Rising Out-of-Pocket Spending for Medical Care: A Growing Strain on Family Budgets. New York: Commonwealth Fund
  7. Miller Wilhelmine, Vigdor Elizabeth & Manning Willard. (2004). Covering the uninsured: What is it worth?
  8. Moran Donald. Whence and whither health insurance? A revisionist history.
  9. Northern California Neurosurgery Medical Group. The History of health insurance in the United States.
  10. Robinson. J.C. (2006).The Commercial Health Insurance Industry in an Era of Eroding Employer Coverage. Health Affairs 25, no. 6: 1475–1486
  11. Rosenberg, Charles E. (1987). The Care of Strangers. New York: Basic Books, Inc.
  12. Scofea, Laura A. (1994). The Development and Growth of Employer-Provided Health Insurance. Monthly Labor Review: 117
  13. Shyrock Richard Harrison. (1979). The Development of Modern Medicine. Madison: University of Wisconsin Press
  14. Smith C. et al. (2006). National Health Spending in 2004: Recent Slowdown Led by Prescription Drug Spending,” Health Affairs 25, no. 1: 186–196 and R. Lyman, “Census Reports Slight Increase in ’05 Incomes,” New York Times
  15. Thomasson Melissa. Health Insurance in the United States. EH.Net Encyclopedia. Robert Whaples (Ed.). 2003.

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