Private Health Insurance 101

1
Private Health Insurance 101
Slide 1

• Karen Pollitz
• Georgetown University
• Health Policy Institute
• August 2006

2
Why Health Insurance Matters
Slide 2
Percent Reporting Barriers to Health Care, 2003
Notes Experienced by the respondent or a member
of their family. Insured includes those covered
by public or private health insurance. SOURCE
Kaiser 2003 Health Insurance Survey.
3
Diagnosis of Late-Stage Cancer, Uninsured vs.
Privately Insured
Slide 3
Ratio of the Probability of Diagnosis of Late
vs. Early stage Cancer.
Uninsured/Privately Insured
Ratio of the Risk of Death, Uninsured/Privately
Insured
Equally likely to have late-stage cancer
Equal chance of death
Uninsured people are almost 3 times as likely to
have late stage melanoma than people with private
insurance.
Among cancer cases identified in 1994, mortality
follow-up through 1997
SOURCE Roetzhelm RG, et. Al., 1999, 2000 from
Headley, J., Sicker and Poorer The Consequences
of Being Uninsured, 2003, prepared for KCMU.
4
Where do people under age 65 in the U.S. get
health insurance?
Slide 4

• Two-thirds of nonelderly population 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
Total 255 million people under 65
Source KFF analysis of Urban Institute estimates
of March 2005 Current Population Survey, U.S.
Census Bureau.
5
Key Players
Slide 5

• Consumers/Patients
• Providers
• Insurance companies
• Employers

6
Some Basic Concepts
Slide 6

• Risk spreading/Risk selection
• Pluralism in private health insurance
• Dynamics of insurance coverage

7
Risk Spreading
Slide 7
Concentration of Health Spending in the U.S.
Population, 2003
Note Population includes those without any
health care spending. Health spending defined as
total payments, or the sum of spending by all
payer sources. Source KFF calculations using
data from Agency for Healthcare Research and
Quality, Medical Expenditure Panel Survey, 2003.
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Challenges to Risk Spreading
Slide 8

• Adverse selection
• Medical underwriting
• Pre-existing exclusions
• Risk-based rating
• Benefit design
• Risk selection
• Trade off of availability and adequacy vs.
  affordability

9
Pluralism in Private Health Insurance Not all
health insurance is created equal.
Slide 9

• Employer-sponsored coverage
• Often comprehensive, but not always
• Variation in benefits covered as well as premium
  and deductible costs
• Individually-purchased policies
• Typically less comprehensive
• Less coverage of maternity, mental health and
  prescription drugs
• Can have high deductibles as well

10
Models of Private Insurance
Slide 10

• Indemnity
• Managed Care
• Preferred Provider Organization (PPO)
• Health Maintenance Organization (HMO)
• Point of Service (POS)
• Consumer-Directed Health Arrangements

11
Dynamics of Health Coverage
Slide 11

• Health insurance coverage is not static
• 45 million uninsured in 2004, vs. 80 million
  uninsured over two-year period
• Approximately 2 million Americans lose health
  insurance every month often for a short period
• Coverage options can change with
• Loss or change of job
• Change in family status (e.g. divorce, death of
  spouse)
• Birthday (e.g. 19th)
• Move
• Change in health status

12
Who is eligible for private health insurance?
Slide 12

• Employer-Sponsored Insurance (ESI)
• Up to employers
• Less likely to be offered to
• Employees of small (vs. large) firms
• Part time/seasonal workers (vs. full time)
• Low wage workers
• Newly hired workers (waiting periods)
• Dependents (vs. employees)
• Retirees
• Eligibility cannot be based on health status
• Individual insurance
• Purchased by individuals
• Age and health status are a determining factor,
  called Medical Underwriting

13
Health Conditions Denied by Individual Market
Insurers
Slide 13

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

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What does private health insurance cover? It
depends.
Slide 14

• Covered benefits
• Standard policy rarely defined in law
• Mandated benefits
• Benefit limits (annual, lifetime, service and
  cost limits)
• Cost-sharing
• Deductibles, co-pays, co-insurance
• Out of pocket cost sharing maximums, balance
  billing
• Terms of coverage
• Provider networks
• Care authorization/utilization review
• Condition exclusions
• Pre-existing
• Other conditions
• ESI typically (not always) more comprehensive

15
What does health insurance cost? It depends.
Slide 15

• Cost (premium) of health insurance depends on
• Whos covered (age, gender, health)
• Whats covered (benefits, cost sharing/deductible,
  terms, pre-existing conditions)
• Insurer profits, administration
• Subsidies (premium, reinsurance)
• Underlying health care costs, inflation

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Variation in Individual Market Policies
Slide 16
HI PREME Policy
HEALTHY STATE Policy
HEY DUDEPolicy
Underwritten, risk/age based rating, limited
Guaranteed issue, community rated, comprehensive
Guaranteed issue, community rated, limited
139/ any age, health status
64/ up to age 29 in perfect health
449/ any age, health status
4/ year _at_ 20 copay
Not covered
Generic Only
Not Covered
Not Covered
Not covered
5,000
Likely permanent exclusion or denied
17
Regulation of Health Insurance
Slide 17

• Purpose
• Insure solvency
• Oversee risk spreading/risk selection
• Guaranteed issue
• Community rating
• Government Role
• State primary regulator
• Rules vary by state/insurance market
• Federal government sets national rules

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ERISA
Slide 18

• Initially a pension law
• Federal law, national reach
• Preempts state regulation of employee health
  benefits saves state regulation of insurance
  that employers buy
• Fully-insured plans
• Self-insured plans
• Few health benefit standards at outset
• Disclosure summary plan document
• Fiduciary standards plan operated in interest of
  beneficiaries
• Claims standards
• Health benefit standards augmented by COBRA, HIPAA

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COBRA
Slide 19

• Applies to job-based plans sponsored by employers
  with gt 20 employees
• Temporary continuation of coverage after
  qualifying event
• Loss of employment 18 months
• Change in family/dependent status 36 months
• Disability 29 months
• Employer premium contribution not required
• Can be very costly for individuals to afford

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HIPAA
Slide 20

• Protections for all group plan participants
• Nondiscrimination
• Limits on pre-existing conditions
• Special enrollment periods
• Credit for prior coverage
• Standards for individual policies
• Guaranteed issue, no pre-ex for HIPAA-eligible
  individuals
• Silent on what can be charged often costly

21
Case Example
Slide 21

• Ryan (47) lives in Tennessee and has diabetes.
  He worked for years in a job with health
  benefits. His employer paid most of the premium,
  which was about 350/month.
• Four months ago, Ryan was laid off. His
  unemployment benefits pay 210/week. Most of that
  goes for rent ( 630/month.) Staying insured is
  important because care for Ryans diabetes is
  expensive. Insulin, test strips, other meds, and
  doctor visits cost 400 in an average month. But
  Ryan couldnt afford either insurance or the cost
  of care to manage his diabetes, so he tried to do
  without both.
• Ryan developed liver problems and neuropathy in
  his feet and was hospitalized for a week. He
  asked the hospital to forgive at least some of
  this bill (over 10,000), but a collections agent
  recently called.

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Health Insurance Options for Ryan
Slide 22

• COBRA?
• No, monthly premium of 350 was too high.
• Individual health insurance?
• No, he has diabetes and would be turned down
• HIPAA?
• No, Ryan didnt elect COBRA. If he had, HIPAA
  policies in Tennessee can cost over 800/month.
• Other ESI?
• No, Ryans unemployed
• Medicaid?
• No, Ryan is not disabled or a parent of dependent
  child.

23
Conclusions
Slide 23

• Private insurance is mainstay of health coverage
  for most Americans, but
• Access, affordability, adequacy of coverage not
  guaranteed
• Difficulty of getting/keeping private coverage
  increases with health problems, especially during
  coverage transitions
• Regulation to limit risk selection involves
  tradeoffs access vs. adequacy vs. affordability
• Additional public policy responses needed to
  subsidize and expand coverage

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Slide 24

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