Health Insurance

I

Introduction

Health Insurance, insurance designed to pay the costs associated with healthcare. Health insurance plans pay the bills from physicians, hospitals, and other providers of medical services. By doing so, health insurance protects people from financial hardship caused by large or unexpected medical bills.

People obtain health insurance from private organizations or from government agencies. All industrialized countries other than the United States have government-funded national health insurance systems that provide health insurance for virtually everyone. Countries with national health insurance generally consider access to healthcare to be a basic right of citizenship.

In the United States private organizations have traditionally provided the vast majority of health insurance coverage. The U.S. government operates some publicly funded health insurance programs but access is limited to specific groups, such as the poor and the elderly. Most Americans obtain private health insurance through their places of employment.

Americans pay the cost of health insurance in a variety of ways. Workers may pay for private health insurance by authorizing their employers to deduct a specified amount from their paychecks. Alternatively, individuals may work for employers who pay the direct costs of health insurance. People who do not receive health insurance through their jobs or through government programs can purchase private health insurance policies by paying premiums directly to an insurance company.

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II

Social Issues in the United States

A

Access to Health Insurance

In 2007 the U.S. Census Bureau reported that as of 2006 about 47 million people in the United States (about 15.8 percent of the population) lacked health insurance coverage. Those without insurance are usually self-employed, work part-time, or work in low-wage jobs, so they lack access to low-cost, employer-sponsored group plans. Many of these workers cannot afford to purchase individual healthcare insurance, but they do not qualify for coverage under government programs for low-income Americans. For example, in the early 21st century almost half (47.5 percent) of full-time workers in low-wage jobs were uninsured. Nevertheless, even without insurance, these individuals may be able to receive emergency care without charge or at reduced rates in government-run hospitals.

Although millions of Americans lack health insurance because they cannot afford it, many others cannot buy health insurance because insurers consider them at especially high risk of needing expensive healthcare. Insurers assess the risks posed by applicants for insurance and then group applicants into similar classes of risk. Americans who are considered average or better-than-average risks can usually purchase insurance policies at a relatively affordable price. When an applicant presents too much risk, however, private companies consider it difficult or even impossible to offer insurance coverage to that person.

For example, some private companies will not offer coverage to an individual with a known predisposition to develop cancer because he or she presents a high risk of needing expensive treatment. Also, the few companies willing to insure such high-risk individuals will charge higher premiums to assume the risks. Increased premiums often make the insurance policy unaffordable to high-risk individuals. Even worse, occasionally no insurance company will offer a policy to a person who presents an exceptionally high risk of needing expensive medical care, such as a person infected with the virus that causes acquired immunodeficiency syndrome (AIDS).

Some insurance companies have introduced clauses to their policies that are designed to keep costs down by denying access to private insurance for anyone who already suffers from significant medical conditions. Introduction of preexisting condition clauses in insurance policies became especially widespread in the 1980s and early 1990s. Many workers found it virtually impossible to change jobs if any member of their families had a serious health problem because preexisting condition clauses in their new employer-sponsored plan would deny them access to insurance coverage. The Congress of the United States addressed this problem by introducing the Health Insurance Portability Act of 1996, which requires most employer-sponsored plans to accept transfers from other plans without imposing a preexisting condition clause.

Congress further addressed the issue of preexisting conditions in 2008 when it banned any form of discrimination based on an individual’s genetic makeup. The Genetic Information Nondiscrimination Act forbids health insurance companies from denying coverage or raising the cost of premiums to individuals whose genetic makeup predisposes them to disease or other condition requiring medical treatment. The new law also prohibits employers from using genetic information to make decisions about hiring, firing, or denying compensation to an employee. Employers who are found to have misused this information face fines up to $300,000. See also Gene; Genetics.

B

Insurance Costs and Quality of Healthcare

The costs of healthcare have increased dramatically for consumers and insurers, particularly since the 1980s. For example, in 1980 Americans spent $247.3 billion on healthcare. By 1999 that figure had more than quadrupled to $1.2 trillion, and it reached $2.3 trillion in 2007, according to one study.

One reason costs have risen is that Americans are living longer than ever before, and older people generally require more healthcare. In 1900 the average American had a life expectancy of about 50 years. In 2003 the average life expectancy was about 77.6 years. During the 20th century, the number of persons aged 65 or over increased 11 times. The elderly comprised only 1 in every 25 Americans in 1900, but represented 1 of every 8 Americans in 1994. By 2006 persons aged 65 or older represented 12.1 percent of the U.S. population. When older Americans join an insured group, the whole group’s healthcare risks—and costs—rise accordingly.

Advances in medical technology have also driven up the costs of healthcare and insurance. Medical procedures such as computerized tomography (CT) scans, magnetic resonance imaging (MRI) scans, and arthroscopic surgery are commonplace today, but they did not exist until the 1970s. Although such new technology sometimes allows healthcare providers to introduce less-invasive and less-expensive treatments, more often it provides new but expensive ways to treat conditions that were previously untreatable.

Increased use of healthcare has also led to a growth in healthcare costs. Americans are more likely than ever to seek professional health services for medical problems. For example, in 1991 there were an estimated 669.7 million visits to doctors' offices, or 2.7 visits per person. In 1999 there were an estimated 757 million visits to doctors' offices, or 2.8 visits per person. Many Americans today seek medical care for treatment of sexual impotence, attention-deficit hyperactivity disorder, and other problems that previously were not always considered health problems. Just as increased demand pushes prices up in other industries, increased demand for healthcare leads to escalating medical costs.

III

Reasons for Health Insurance

Health insurance protects people from financial loss caused by the high cost of medical care. The cost of a one-day stay in a hospital—excluding the cost of all other healthcare services—can exceed $1,000 in some parts of the United States. A hospital stay that includes the cost of surgery and other physician services can easily produce bills exceeding $10,000. Healthcare costs of this magnitude pose substantial risks to most families’ financial well-being.

By combining, or pooling, the risks of many people into a single group, insurance can make the financial risks associated with healthcare more manageable. Experts can reasonably predict the healthcare costs of a large group, even though they cannot know in advance how much healthcare will be required by any given individual. Through insurance, each person who buys coverage agrees to pay a share of the group’s total losses in exchange for a promise that the group will pay when he or she needs services. Essentially, individuals make regular payments to the plan rather than having to pay especially large sums at any one time in the event of sudden illness or injury. In this way, the group as a whole funds expensive treatments for those few who need them.

Many people believe that in addition to providing financial stability, health insurance can promote good health. Supporters of this idea claim that by lowering the personal cost of services, insurance induces individuals to seek health-maintenance services more regularly than they otherwise would, thereby heading off potentially serious illnesses.

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