Private health 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 nearly 239 million Americans who are covered by private health insurance, approximately nine in 10 (213 million, or 89%) are enrolled in employmentbased plans.
Private health insurance plans may be purchased on an individual or group basis. Most group plans are offered by large employers, although some are available through voluntary associations. Individual policies are usually more expensive than group policies. Furthermore, they may 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 cover any costs. After the deductible has been satisfied, 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 similar to indemnity plans in that they usually have both a deductible and a co-insurance percentage. Unlike indemnity plans, PPOs offer a list of physicians and hospitals from which enrollees must select in order to receive the plans 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 seek care from a non-network provider. This is called going out of network. Some people find this beneficial because it allows continuity of care from an existing provider. Enrollees may also propose their physician for membership in the PPO so that continuity of service may be provided.
Health maintenance organization (HMO) plans HMOs usually have no deductible. Beneficiaries are charged a small co-payment, typically $5 or $10, per visit, and the plan covers all other charges. The list of preferred providers is generally smaller than that of a PPO. In most HMOs, each beneficiary selects a primary care physician who is responsible for all health care needs. Referrals to specialists must be made through the primary care physician. Like PPOs, HMOs are usually able to charge lower premiums because their participating health care providers agree to accept 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 cause financial hardship in the present.
Medigap insurance plans
Medicare does not offer complete health insurance protection. Medigap insurance is a type of plan intended to supplement Medicare coverage. There are 10 standard Medigap benefit packages. These are identified by the letters A through J, and are available in most states, United States territories, and the District of Columbia. Medigap policies pay most or all of the co-insurance amounts charged by Medicare. Some Medigap policies cover Medicare deductibles.
Medical savings accounts (MSAs)
Medical savings accounts are not health insurance 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 break for self-employed individuals. They were created as a four-year pilot project by the Health Insurance Portability and Accountability Act (HIPAA) of 1996. Effective December 31, 2000, the federal government issued an extension on these accounts for two years. The future of MSAs is not clear; however, the government will not revoke these accounts once they have been opened.
An MSA must be combined with a qualified highdeductible private health plan. Without an MSA, a selfemployed individual can deduct qualified medical expenses only under the itemized deductions of a 1040 tax form, and the expenses must exceed 7.5% of the adjusted gross income.
The 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 each year rose from $247.2 billion to $1.04 trillion, more than a 400% increase. Between 1995 and 2002, the amount almost doubled again, to $2 trillion per year.
The reasons for the escalating costs include the following:
• Increased longevity. The life expectancy of most Americans is approximately 76 years. When older people join an insured group, the entire groups 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 annual number of physician office visits rose from 2.7 - 3.4 per person. The average number of visits has continued to rise, and was just under four per person per year in 2003.
The rising costs of health insurance over the past 30 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. By 2002, it had almost doubled again, to approximately $500 billion. Many employers have increased the amount of money employees are expected to contribute toward their health care. Others, particularly smaller businesses, do not offer health 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. Experts feel that this trend will continue. Workers in large-employer health insurance plans generally have policies that cover more health services, have lower deductibles, and offer more opportunities to enroll in HMOs.
Uninsured persons
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 proportion of uninsured Americans declined slightly, to 42.6 million and 15.5% respectively. As of 2000, the Centers for Disease Control and Prevention estimated that 40.5 million people under age 65 were without health insurance.
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. The trend over the past two decades is employment by small firms that do not offer health insurance as a benefit, and a tendency to change employers every few years. Most uninsured workers are self-employed, work only part-time, or hold low-wage jobs that do not give them access to lower-cost employer-sponsored group plans. 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. As early as the 1980s, some insurance companies began introducing clauses that excluded or restricted benefits for persons with pre-existing conditions. These clauses denied private insurance to anyone already diagnosed with a serious medical condition.
One of the goals of the Health Insurance Portability and Accountability Act (HIPPA) of 1996 was to help workers who could not change jobs because they had family members with serious health problems. In the past, they would have been denied health insurance by the preexisting condition clauses in the new employers plan. 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; self-employed; or is a new hire at a company and must wait several months or more before the companys 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) to sponsor insurance plans for their members.
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