Private insurance plans include all forms of health insurance that are not funded by the government. These plans are intended to protect their beneficiaries from the high costs that may be incurred for health care. Most private insurance plans in the United States are employment-based; of the 194 million Americans who were covered by private health insurance in 1999, 172 million, or 89%, were enrolled in employment-based plans.
Description
Private health insurance plans may be purchased on an individual or a group basis. Most group plans are offered by large employers, although some are offered by voluntary associations. Individual policies are usually more expensive than group policies; they may also have additional coverage restrictions.
There are several major categories of private health insurance in the United States.
Indemnity plans
Indemnity plans are private insurance plans that allow beneficiaries to choose any physician or hospital when they need medical care. Most indemnity plans have a deductible, or amount that the policyholder must pay before the plan will pay any benefits. After the deductible, indemnity plans pay a co-insurance percentage, most often 70%–90% of the charges. The beneficiary pays the remainder of the bill.
Preferred Provider Organization (PPO) plans
PPO plans are like indemnity plans in that they usually have both a deductible and a co-insurance percentage. Unlike indemnity plans, however, PPOs offer beneficiaries a list of physicians and hospitals from which they must select in order to receive the plan's maximum benefit. PPOs tend to be less expensive than indemnity plans because health care providers are often willing to reduce their fees in order to participate in these plans. Many large companies have moved their insured employees into PPOs because of their cost effectiveness.
A person enrolled in a PPO can choose to go "out of network" and continue under the care of their present physician. They may also propose their physician for membership in the PPO so that continuity of service can be provided.
Health Maintenance Organization (HMO) plans
HMOs usually have no deductibles; the beneficiary is charged a small co-payment, typically $5 or $10, per visit, and the plan covers all other charges. Beneficiaries are, however, usually offered a much smaller list of health care providers from which to choose. In most HMOs, each beneficiary selects a primary care doctor who is responsible for all health care needs. Referrals to specialists must be made through the primary care doctor. Like PPOs, HMOs are usually able to charge lower premiums because their health care providers agree to substantially reduced fees.
Long-term care (LTC) insurance
Long-term care insurance, or LTC, is a type of private health insurance intended to cover the cost of custodial or nursing home care. It can be very expensive, and persons considering this form of insurance should not purchase it if the premiums would cause financial hard-ship in the present.
Medigap insurance plans
Medigap insurance plans are private plans intended to supplement Medicare coverage, because Medicare
does not offer complete health insurance protection. There are ten standard Medigap benefit "packages,"identified by the letters A through J, that are available inmost states, United States territories, and the District of Columbia. Medigap policies pay most or all of the co-insurance amounts charged by Medicare, and some Medigap policies cover Medicare deductibles.
Medical savings accounts
Medical savings accounts (MSAs) are not healthinsurance plans in the strict sense, but offer a partial alternative to expensive individual private insurance plans. MSAs are similar to Individual Retirement Accounts (IRAs) and have been considered a significant tax breakfor self-employed individuals. They were created as afour-year pilot project by the Health Insurance Portabilityand Accountability Act (HIPAA) of 1996. The federalgovernment issued an extension on these accounts fortwo years, effective December 31, 2000. The governmentwill not revoke these accounts once they have been opened.
An MSA must be combined with a qualified high-deductible private health plan. Without an MSA, a self-employed individual can deduct qualified medical expenses only under the itemized deductions of a 1040tax form; and the expenses must exceed 7.5% of the adjusted gross income.
KEY TERMS
Co-insurance—The percentage of health care charges that an insurance company pays after the beneficiary pays the deductible. Most co-insurance percentages are between 70% and 90%.
Deductible—An amount of money that an insured person is required to pay on each claim made on an insurance policy.
Indemnity plans—Private health insurance plans that allow the policyholder to choose any physician or hospital when health care is needed.
Long-term care (LTC) insurance—A type of private health insurance intended to cover the cost of long-term nursing home care or home health care.
Medigap—A group of ten standardized private health insurance policies intended to cover the coinsurance and deductible costs that Medicare does not cover.
Portability—A feature that allows employees to transfer health insurance coverage or other benefits from one employer to another when they change jobs.
Preferred provider organizations (PPOs)—Private health insurance plans that require beneficiaries to select their health care providers from a list approved by the insurance company.
Premium—The amount paid by an insurance policyholder for insurance coverage. Most health insurance policy premiums are payable on a monthly basis.
The high cost of health insurance
The cost of private health insurance has risen steadily over the past two decades, largely because of the rising cost of health care in the United States. Between 1980 and 1995, the total amount spent on health care in the United States rose from $247.2 billion to $1.04 trillion, more than a 400% increase. The reasons for the escalating costs include the following:
Increased longevity. The life expectancy of most Americans is around 75 years. When older people join an insured group, the whole group's health care risks and costs rise.
Advances in medical technology. New technology is often expensive.
Increased use of health care. Between 1991 and 1996, the average number of visits to doctors' offices rose from 2.7 per person to 3.4.
The rising costs of health insurance over the past thirty years have caused many employers to curtail or drop health insurance as an employee benefit. The cost of health insurance premiums increased from $16.8 billion in 1970 to $310 billion in 1995. Some employers have increased the amount of money that employees are expected to contribute toward their health care. Others, particularly smaller businesses, do not offer insurance at all. A 1997 study found that only 34% of workers in smaller businesses were covered through their employers, whereas 82% of employees in the largest companies were covered. Workers in large-employer health insurance plans are also more likely to have policies that cover more health services, policies with lower deductibles, and more opportunities to enroll in HMOs.
The uninsured
The U. S. Census Bureau reported in 1997 that 43.4 million people in the United States, or 16.1% of the population, had no health insurance coverage. Between 1998 and 1999, both the number and the proportion of uninsured Americans declined slightly, to 42.6 million and 15.5% respectively.
Some workers do not have health insurance because they cannot afford it. In the 1950s, employer-based health insurance served most American families reasonably well because many workers were employed by large firms and remained with them for life. Over the past two decades, however, more and more people are employed by small firms that do not offer health insurance as a benefit, and more workers move from company to company every few years. Most uninsured workers are either self-employed, work only part-time, or work in low-wage jobs that do not give them access to lower-cost employer-sponsored group plans. At the same time, workers in these three categories do not qualify for coverage by government programs for low-income people.
The other major category of uninsured people includes those who cannot purchase private insurance at affordable rates because they are likely to need expensive medical services. Those who have a high risk of developing cancer or are HIV-positive may not be able to obtain coverage from any insurance company. Some insurance companies began introducing so-called "preexisting condition" clauses in their policies as early as the 1980s that denied private insurance to anyone already diagnosed with a serious medical condition. The Health Insurance Portability and Accountability Act of 1996 was intended to help workers who could not change their jobs because they had family members with serious health problems. They would be denied health insurance by the preexisting condition clauses in the plan offered by their new employer. HIPAA requires employer-sponsored insurance plans to accept transfers from other plans without imposing preexisting condition clauses.
An individual private health insurance plan can be expensive and restrictive. It may, however, be the only choice for a consumer who is not employed; is self-employed; or is a new hire at a company and must wait for several months or more before the company's coverage takes effect.
Tax credit proposals
One approach to the rising costs of private health insurance that is gaining bipartisan political support is to offer tax credits that would allow more Americans to purchase health insurance. The present federal tax code favors workers who already have employer-sponsored health insurance. Supporters of the tax credit approach maintain that it would give workers a wider choice of health plans; create greater portability of health insurance; and encourage groups other than employment-based populations (e.g., church groups, unions, fraternal organizations, etc.) to sponsor insurance plans for their members.
ORGANIZATIONS
Health Insurance Association of America. 555 13th Street, NW, Suite 600, East Washington, DC 20004-1109. (888) 844-2782. <http://www.hiaa.org>.
United States Census Bureau, Housing and Household Economics Statistics Division. (301) 457-3242. <http://www.census.gov/hhes>.
United States Department of Health and Human Services, Health Care Financing Administration. 6325 Security Boulevard, Baltimore, MD 21207.
OTHER
Frogue, James. A Guide to Tax Credits for the Uninsured. Report produced by the Domestic Policy Studies Department of the Heritage Foundation, May 4, 2000.
Guide to Health Insurance for People with Medicare. Publication No. HCFA-02110, developed jointly by the National Association of Insurance Commissioners and the Health Care Financing Administration of the U. S. Department of Health and Human Services.
Health Insurance Association of America. Guide to Medical Savings Account (MSA)/High Deductible Health Plans. East Washington, DC: HIAA, 1997.
Nichols, Len, et al. Small Employers: Their Diversity and Health Insurance. Report to the Urban Institute, June 1997.
State of Wisconsin, Office of the Commissioner of Insurance. Frequently Asked Questions on Health Insurance. Madison, WI: Office of the Commissioner of Insurance, 2000.
