America’s Healthcare System – Part 5
Our Misguided and Unhealthy Approach to Health Insurance
This is the fifth essay in Civic Way’s series on the US healthcare sector. In this essay, we describe the nation’s health insurance market, the means by which most Americans gain access to healthcare. The author, Bob Melville, is the founder of Civic Way, a nonprofit dedicated to good government, and a management consultant with over 45 years of experience improving public agencies.
Highlights:
For some, the US health insurance market is like a Willie Wonka golden ticket to good healthcare, but for many others it looks more like an unnerving maze of meandering corridors and dead ends
Our health insurance industry—long dominated by private insurers—is getting more concentrated
Our public programs—like Medicare, Medicaid and CHIPS—serve the elderly, disabled, poor and needy children at relatively lower costs
The uninsured, while half what they were before the ACA, remain a costly drag on our economy
Health insurance, unlike other insurance products, detaches the insured from the very asset that should be protected, if not cherished—the insured’s health
Introduction
Health insurance may have originated as an insurance product but, in the US, it has become something else entirely, a prerequisite to healthcare.
Good health insurance is like a Willie Wonka golden ticket guaranteeing us access to affordable, quality healthcare. In contrast, substandard health insurance (at best) helps us navigate (financially) catastrophic illness or injury. For the uninsured or under-insured, health insurance is but a pipedream.
Writ large, healthcare insurance has become this nation’s primary payment mechanism for most healthcare costs. It is not surprising that every effort to reform healthcare has begun—and in most cases ended—with health insurance. The term has become almost synonymous with healthcare, but it is something else altogether. And conflating the two has only made true reform more elusive.
In this essay, we summarize health insurance in the US. The overall market. The major types of insurance and what they do. We wrap with a call for something dramatically different.
The Health Insurance Market
As illustrated by the chart below (from Kaiser Family Foundation data), private insurance covers about 55 percent of the population, mostly through employers (49 percent) and the rest through individual plans (six percent). Government plans—Medicare, Medicaid and the Veterans Administration (VA)—cover another 36 percent of the population (some elderly have dual coverage). About nine percent are uninsured.
Tweaking such categories doesn’t alter the market’s dynamics. Despite the rising cost gap between private and public insurance plans, private insurers—even as they merge—dominate the market. Despite the relative cost-effectiveness of public insurance programs, some politicians continue to pillory them. And, the ACA notwithstanding, the health insurance market remains a virtual labyrinth to consumers and providers alike.
More about the major health insurance categories below.
Private Health Insurance
The US health insurance market, with about $1.1 trillion in revenue this year, is big. In 2020, private group and individual insurance plans covered 211 million people.
Many healthcare experts (including the AMA) worry about the market’s concentration (and competitiveness). From about 1995 to 2005, leading insurers consummated over 400 mergers. From 2000 to 2006, the number of members insured by the two top insurers more than doubled. From 2011 to 2020, the total market share of the top four Medicare Advantage (MA) insurers rose from 48 percent to 70 percent.
The nation’s largest health insurers (by total market share) are UnitedHealth Group (14 percent), Elevance/ Anthem (8 percent), Centene (6 percent), Humana (6 percent) and CVS Health (5 percent). In 2020, Centene acquired Wellcare. Centene leads the most states (five). UnitedHealth Group, the insurer with the largest national market share, held the top market share in only one state (Nevada).
The Blue Cross Blue Shield Association (BCBSA) is a federation of 38 nonprofits providing health insurance to over 100 million Americans. Under the BCBSA brand, they compete in every state, manage Medicare in many states and insure many federal and state employees. BCBS, if a single corporation, would be the largest insurer. One BCBS entity—the Health Care Services Corporation—holds a three percent national market share.
Private insurance firms offer several types of insurance, including the following:
Health Maintenance Organization (HMO) plan – emphasizes prevention and wellness, and covers care from HMO providers but not out-of-network care (except for emergencies)
Preferred Provider Organization (PPO) plan – covers care from network and out-of-network providers, but charges more for out-of-network care
Exclusive Provider Organization (EPO) plan – covers managed care but only from network providers (except for emergencies)
Point of Service (POS) plan – offers lower rates for network providers and covers specialty care (with a primary care referral)
Many insurers also offer indemnity plans, high-deductible health plans (HDHPs), health care spending accounts, limited benefit plans and discount medical cards.
The Affordable Care Act (ACA) standardized many plan benefits offered by insurers. Under the ACA, US health insurance plans must cover certain basic services, such as hospitalization, emergency and outpatient services. Insurers may base premiums on age, location, smoking, family size and plan quality, but not gender and medical history. All health plans must cover treatment for pre-existing conditions.
Employee group insurance plans still reign supreme, but with curious pricing. Private insurers pay much more than public insurers for the same services. Many employers are unable to secure lower rates. For those employers who can lower their rates, insurers often shift higher costs to employees through cost-sharing. Rising prices for out-of-network providers have contributed to a small decline in employer plan participation.
Medicare
Medicare, a federally administered insurance program funded by federal revenues, payroll taxes and enrollee premiums, serves over 62 million Medicare enrollees (seniors and some permanently disabled under 65). Every citizen is eligible by virtue of paying Medicare payroll taxes into the Medicare Trust Fund.
Medicare comprises four parts as follows:
Part A – covers most inpatient hospital costs
Part B – covers physician visits and outpatient services
Part C – Medicare Advantage (MA)
Part D – covers outpatient prescription drugs
Since 1965, Parts A and B have been the traditional Medicare workhorses. A and B let patients choose providers, but have substantial cost-sharing features (e.g., co-pays and deductibles). A and B cover most but not all provider costs. Some private insurers offer Medicare Supplement Insurance (Medigap) plans to cover certain uncovered costs.
Medicare Advantage (MA) was launched in 1997 as an option to traditional Medicare. For a fixed monthly amount, MA plans—mainly HMOs and PPOs—cover benefits that appeal to healthy, low-risk patients (e.g., dental, vision, hearing and gym memberships). MA plans, which cost about 12 percent more than traditional Medicare, cover over one-third of Medicare enrollees and generate respectable profits for private insurers.
Medicare Part D is a supplementary drug benefit. Since 2006, it has allowed Medicare enrollees—77 percent of all enrollees at last count—to purchase subsidized prescription drug coverage from private insurers. Part D plans pay one-third of total prescription costs, but do little to control those costs. Drug firm rebates (discounts) tend to benefit insurers, pharmacies and pharmacy benefit managers, not consumers.
There are questions about Medicare’s costs, coverage gaps and long-term financial viability, but Medicare has become indispensable. It boosts our economy. It sustains many providers, such as community hospitals. It saves state and local costs (i.e., employee post-retirement healthcare benefits). Most important, it assures some semblance of dignity for many Americans.
It is hard to imagine our nation without Medicare—and Medicare without Medicaid. Medicaid is often paired with Medicare, especially for the low-income elderly and disabled, to broaden coverage. Nearly 10 million low-income seniors and people with disabilities—the dual-eligibles—use both programs.
Medicaid
Medicaid, created in 1965, is a joint federal-state health insurance program operating under federal Centers for Medicare and Medicaid Services (CMS) guidelines. For years, about two-thirds of the costs were federally funded and one-third state funded, but the 2010 Affordable Care Act (ACA) significantly increased federal funding. Still, Medicaid takes a big slice out of state budgets (about 15 percent).
Every month, Medicaid provides health coverage for over 78 million people (over on-fifth of the US population). It covers healthcare costs for the poor (about two-thirds of Medicaid enrollees), individuals with disabilities and children from low-income families earning more than the Medicaid threshold (through the Children’s Health Insurance Program, more commonly known as CHIP). CHIP serves nearly 10 million children.
Medicaid covers catastrophic costs and some non-catastrophic services, including inpatient hospital care, outpatient care and drugs. Medicaid pays for 50 percent of all US births and over 50 percent of all long-term care costs. Through CHIP, it serves 40 percent of the nation’s children. Medicaid recipients increased from 10.5 percent in 2000 to 20 percent in 2015. Most receive care via managed care entities (MCEs).
Medicaid is supposed to pay providers for the marginal cost of covered services, but its reimbursement rates are often lower than Medicare’s. Many providers need private insurance patients to offset losses due to Medicaid patients (and the uninsured). Some physicians have even stopped accepting Medicaid. Still, despite its low (and slow) reimbursements, Medicaid is a lifeline for many providers in underserved communities.
Since federal guidelines give states considerable latitude, eligibility criteria, benefits and reimbursement rates vary widely by state. The non-expansion states tend to be less generous to Medicaid recipients than other states. The ACA established higher national standards for the state programs (e.g., standard benefits and banning discrimination or higher rates for pre-existing medical conditions).
The ACA boosted federal Medicaid/CHIP funding and offered to help states expand Medicaid (i.e., raise the eligibility threshold to 138 percent of the federal poverty level). DC and 38 states took the deal. In 2017, Maine voters passed an expansion measure. In 2018, Idaho, Nebraska and Utah voters okayed expansion measures. In 2020, Missouri and Oklahoma voters did the same, and, in 2022, South Dakota voters followed suit.
The Uninsured
The ACA significantly reduced the uninsured rate from 18 percent in 2013 to 8.5 percent in 2018 (since then, the rate has stabilized at 9 percent). The non-expansion states—like Texas—have the highest uninsured rates while the expansion states have the lowest rates (e.g., Illinois’ uninsured rate is only five percent).
There are 28 million uninsured in the US, but who are they? Those who view health insurance as too costly. The poor whose earnings exceed the Medicaid income thresholds, especially in non-Medicaid expansion states. And the undocumented who must defer care or visit emergency rooms (where costs are borne by others).
Why care about the uninsured? When the uninsured cannot obtain timely medical care, their risk of death soars. When they do get care, it is costly emergency or inpatient treatment (the uninsured account for over four percent of total inpatient hospital costs). Providers then shift such charity costs elsewhere—ultimately to the rest of us.
A Better Way?
When we buy other insurance like auto and property, those products protect us against serious, even catastrophic financial damages. These plans typically cover repair or replacement costs, but they don’t cover the day-to-day costs we incur for maintaining or improving those assets.
But here’s the thing—and this is critical—auto and property insurance don’t detach us from the assets we are trying to protect. They don’t deter us from investing in those assets to maintain their value. When we insure a hard asset like property, with a clear monetary value, we don’t stop maintaining it (and its value).
Health insurance affects us very differently.
Our health has intrinsic value, but no tangible market-based value. If we maintain our health, we don’t get a bonus. We can’t bequeath our good health—its monetary value—to our heirs. Instead, with good health insurance, we become disengaged from the costs of care, and stop giving our health the attention it deserves.
Sure, a good health insurance policy opens a door to healthcare we may desperately need. It also shields us from ruinous costs. A good plan covers most costs for treating a serious illness or injury. It may even give us financial peace of mind, but it alone does not give us our health.
Instead of the system we have, we need one that rewards healthy lifestyles. One that pushes us to take better care of our bodies—to eat better, exercise more, lose weight and curb unhealthy conduct. One that compels insurers to improve the health of the members they have instead of chasing the healthy customers they don’t.