Health Care Financing Health Article

HEALTH INSURANCE COVERAGE IN THE UNITED STATES

Health care financing in the United States is fundamentally different from that in most other developed countries because there is no national health insurance plan. There are a variety of third-party payers such is government programs (Medicare and Medicaid), insurance companies (which can be either for-profit and not-for-profit), self-insured plans operated by employers and provider sponsor organizations (providers that contract directly to provide health care services). Each of these types of third-party payers offer different health plans that have different financing "rules."

In the United States the majority of employed people and their dependents obtain health insurance through their employment. However, the provision of health insurance by employers is strictly voluntary (other than the state of Hawaii) with few regulations governing how insurance is provided. Some employers do not offer insurance at all, while others pay anywhere from all to none of the insurance premium. Employers may offer only one insurance plan or a multitude of plans for employees to choose from. Insurance plans are not standardized and can vary widely with respect to covered services, cost-sharing arrangements, and procedures for accessing medical services.

Active competition exists among insurance companies in the employment-offered health insurance market. Employer-offered plans are often experience rated, that is, the premium (or price of the plan) for employees of a particular employer are determined primarily by the past cost of medical care used by employees of that employer. When premiums are experience rated, they are lower for employers with healthier employees. However, premiums for some plans are community rated; that is, they are determined by the past cost of medical care for all people covered under a plan regardless of their employer.

Individuals may also purchase health insurance in either the individual insurance market or through groups that were formed independent of employment, such as professional associations. In this case, the premiums are generally experience rated and reflect the average, expected cost of illness for individuals within the defined group covered by a particular plan. The sicker the group of individuals covered by an insurance plan, the higher the premiums. There is tremendous variation in the types at insurance plans sold with respect to the characteristics such as cost-sharing, and access to services.

Although the United States does not have national health insurance for all its citizens, it does have a number of public programs that provide health insurance or other types of health programs for the poor, the disabled, and the elderly. The three most important public programs are the Medicare program, the Medicaid program, and the State Child's Health Insurance Programs (SCHIP).

The Medicare program is a federal program that was enacted in 1965. Medicare covers almost everyone who is sixty-five years of age and older, as well as a small subset of the general population who have been receiving Social Security Disability payments for two years and almost everybody who has end-stage renal disease (kidney failure). The Medicare program covers a wide range of services, although it does not cover most outpatient drugs and its coverage of long-term care services is limited. There is also cost-sharing on covered services. The Medicare program is funded through a combination of payroll taxes, general tax revenues, beneficiary premiums, and direct beneficiary payments. Medicare beneficiaries can privately purchase additional insurance (Medigap) that covers some (or all) of the beneficiary cost sharing for covered services as well as some additional services.

Medicaid was also enacted in 1965 to provide medical care for certain vulnerable and needy individuals with low incomes and assets. Jointly funded by the federal and state governments, it is subject to broad national guidelines and state-specific rules, which can vary by eligibility criteria as well as the type and intensity of services. Payment methods also may vary by state. In general, the Medicaid program covers a wide range of services with very little cost-sharing imposed on the patients. The federal share of the Medicaid program is funded through general tax revenues, the states fund their programs in a variety of ways (such as general taxes, provider specific taxes, and tobacco taxes).

The SCHIP program, first established in 1996, provides health insurance for children in families with low incomes but not low enough to qualify for family coverage under Medicaid. In essence, it increases the number of low-income children eligible for public insurance. It covers a broad range of services and requires some limited cost-sharing. It is funded by federal and state taxes. The federal share of these taxes is provided through general taxes, while states use a variety of methods to fund the program.

In addition to these programs, a number of smaller programs finance medical services for targeted populations. For instance, some states, such as Pennsylvania, provide funding for drug coverage for low-income senior citizens who do not qualify for Medicaid. In Pennsylvania, this program is funded by state lottery sales.

In 1998, some 44 million people in the United States under the age of sixty-five (18.4% of the population) did not have a health insurance plan, although some of them may have been eligible for medical services through specially targeted public and private programs (Fronstein, 2000).