Private Health Insurance 101

1. Private Health Insurance 101 High Costs, Poor Choices, No Guarantees

2. Health insurance in America • Why insurance matters • Who pays for it • How private insurance works • Different types of private insurance • How you get it • What it costs • How it is regulated • Why we cannot rely exclusively on private insurers to guarantee quality, affordable health care we can count on

3. Why health insurance matters • Access to good health care • Early detection/prevention • Necessary health services • Institute of Medicine found 18,000 Americans die each year because they do not have health insurance • Protection from financial risk • Half of all bankruptcies related to health care costs, in most cases borne by people who are insured but have inadequate coverage • Security—if your insurance is comprehensive, it should cover the services you may need at a price you can afford

4. Who pays for health insurance • We are already spending what a high-quality system that covers everyone should cost – but aren’t getting it. • The US spends twice as much on health care per person than every other advanced country, all of which cover all their residents. • Public money–your tax dollars–pays for about 60% of the $2 trillion annual U.S. health care bill through federal and state governments. • Individuals and employers pay for less than 40% percent of total US health care spending.

5. Where do people under age 65 in the U.S. get health insurance? • 67% of those under 65 has private coverage • 62% have employer-sponsored covered • 5% purchase individual policies • 15% have Medicaid or other public coverage • 18% are uninsured Employer, Dependent30% Uninsured/IHS18% Employer,Own32% Medicaid/Other public 15% Individual Policies5% Source: KFF analysis of Urban Institute estimates of March 2005 Current Population Survey, U.S. Census Bureau.

6. Why private insurance doesn’t meet our needs • Only want to cover the healthy and divide the population into small groups, driving up costs • Do not want to cover costly services • Cover different services varying conditions and pay different amounts. • Can change many terms of coverage whenever they please. www.healthcareforamericanow.org

7. Getting a balanced mix of sick and healthy members • Called “Risk-Spreading” • Why is it important? • Equity • Efficiency • Security

8. Concentration of health spending by Americans, 2003 Source: KFF calculations using data from Agency for Healthcare Research and Quality, Medical Expenditure Panel Survey, 2003.

9. Why private insurers don’t do it • Most insurers try to get only healthy members • Rejecting sick (high-risk) people • Excluding coverage of pre-existing conditions • Charging people more if they are high risk • Design benefits so that people with costly conditions either do not want to join or must pay high costs for their care. • The healthier their members, the higher their profits

10. Private health insurance varies All health insurance is different. There is no standard for health benefits. Employer-sponsored coverage: • Increasingly less comprehensive • Different benefits covered as well as different costs • Individually-purchased policies: • Typically still less comprehensive • Less coverage of maternity, mental health and prescription drugs • Can have caps on needed services, high copays and high deductibles as well

11. Types of private insurance • Indemnity, fee-for-service • “Managed Care” • Preferred Provider Organization (PPO) • Health Maintenance Organization (HMO) • Point of Service (POS) • High deductible/high cost health plans

12. Private plans: No guarantees • Insurers can change terms of coverage as largely as they please : • raise premiums, deductibles and copays from one year to next • Change networks of doctors and other providers at any time. • Decide what services they pay for and how much they pay at any time • Two million people lose health insurance every month • More than 70 million people have inadequate coverage • 47 million uninsured in 2007, vs. 80 million uninsured over two-year period • Choice of doctors, what’s covered and what you pay can change with… • Marriage, divorce, spouse’s death • Loss or change of job • Birthday (e.g. 19th) • Move • Change in health status

13. Employer v. individual health insurance • Employer-Sponsored Insurance (ESI) • Employers decide what they offer • Less likely to be offered to • Employees of small firms • Part time/seasonal workers • Low wage workers • Newly hired workers • Dependents • Retirees • Eligibility cannot be based on health status • Individual insurance • Purchased by individuals if available and affordable • Age and health status are a determining factor in whether you can get insurance on your own

14. Health conditions denied by individual market insurers Always denied n Cancern Multiple Sclerosis n HIV/AIDSn Pregnancy n Diabetesn Stroke Often denied n Overweightn High blood pressure n Cancer historyn Asthma Sometimes denied n Acnen Hay fever

15. What does private health insurance cover? It depends and it’s not clear • Covered benefits • Standard policy: rarely defined in law • Depends on state, insurer and purchaser • Benefit limits (annual, lifetime, service and cost limits) • Cost-sharing • Deductibles, copays, coinsurance • Out-of-pocket cost-sharing maximums, high charges on top of what the insurance pays for out-of-network care • Terms of coverage • Provider networks • Care authorization/utilization review • Condition exclusions • Pre-existing conditions • Other conditions based on work, history etc. • Employer-sponsored insurance typically (not always) more comprehensive • Individual insurance typically (not always) less so

16. What does health insurance cost? It depends • Cost (premium) of health insurance depends on: • Who’s covered (age, health status & history) • What’s covered (benefits, cost sharing/deductible, terms, pre-existing conditions, limits) • Insurer profits & administration costs • Subsidies (premium & reinsurance) • Underlying health care costs • Health Care Costs are Too High • Half of all bankruptcies in the US are due to medical costs, and three-fourths of those bankrupted had health insurance at the time they got sick or injured

17. Regulation of private insurance • State is primary regulator • 50 states, 50 rules • Few national regulations • Regulations • Ensure solvency • Oversee risk spreading/risk selection • Generally very limited or ineffective • Best practices: • Guaranteed issue: Must allow anyone to buy • Community rating: Must charge everyone the same

18. Regulation of private health insurance alone not enough • Even with good regulations, we cannot rely exclusively on profit–driven private insurers to guarantee quality, affordable health care. • To rein in costs, guarantee comprehensive benefits and financial security, we need: • A public insurance option that sets standards and drives accountability from private plans; and • Fair regulation of private insurers.

19. Regulations: Employee benefits Employee Retirement Security Act (ERISA) • Federal law that precludes states from regulating employee health benefits for employers whoself-insure • Allows joint federal/state regulation of insurance that employers buy • Fully-insured plans • Does not allow states to regulate self-insured plans

20. Regulations: Keeping insurance Consolidated Omnibus Budget Reconciliation Act (COBRA) • Federal law offers temporary continuation of coverage after: • Loss of employment • Change in family/dependent status: 36 months • Disability: 29 months • Applies to plans sponsored by employers with 20 employees or more • Individual pays full premium and cost of administration • Very costly and unaffordable for most

21. Regulations: Keeping insurance Health Insurance Portability & Accountability Act (HIPAA) • Federal law that protects all group plans participants • Employers cannot discriminate against them based on their health or worker status • Can buy individual coverage if they lose group plan coverage • So long as they have exhausted COBRA protections and switch plans within 63 day window (check) of losing group plan coverage, new insurer must cover you • Pre-existing conditions covered • Federal law does not speak to individual insurance premiums and cost-sharing • Insurance tends to be very costly

22. Private insurance: Case example All these regulations could not help Mr. Jones. • Mr. Jones has diabetes. He is laid off from his job with employer-sponsored private health benefits. • His unemployment benefits are $1,150 a month • His rent is $750 a month • That only leaves him $400 a month for utilities, food, gas and other expenses • He cannot afford the cost of private health insurance: • His COBRA premium is $425 a month • Individual insurance plans turned him down because he has diabetes • He cannot afford the cost of properly managing his diabetes: • Insulin and other medications, test strips, and doctor visits cost over $400 a month • As a result, Mr. Jones developed liver problems and was hospitalized: • The hospital bill was over $15,000

23. We need public insurance option What have private insurance companies done for us? • Failed to offer coverage we can count on • Denied health care claims • Rejected people for coverage for being too old or sick or just being a woman of child-bearing age • Charged people higher premiums based on their health history • Canceled people’s coverage after they got sick • Left 47 million people without health insurance • Left millions more in medical debt or bankrupt because their health care coverage did not meet their needs

24. We need public insurance option What do private insurance companies expect of us? • They want to continue to decide how much they charge and keep making higher and higher profits. • They want to continue to decide what services they cover, under what circumstances and how much they pay and keep their decisions secret. • They want to be able to shift more of costs of care to us. • They don’t want us to have the choice of a public health insurance option.

25. We need public insurance option • Public insurance sets standards, predictable costs and benefits, transparency as to what is covered and how much is paid, reins in costs, provides safety net • Public health insurance option creates competition, removes private insurer quasi-monopoly power. • Exclusive reliance on private insurers gives them monopoly, even with regulation, allows them to control costs, benefits and access

26. Public insurance: Case example of how it could work • Mr. Jones has diabetes. He is laid off from his job with employer-sponsored private health benefits. • He automatically gets affordable insurance through a national insurance pool that gives him a choice of a public plan or private plans that guarantee him access to care he needs and covers the costs of his diabetes. • Mr. Jones has diabetes and gets his health insurance from the public plan in the national health insurance pool. He is laid off from his job and his insurance continues. • Mr. Jones’ premium costs are subsidized according to his income, so he gets extra help while he is unemployed. • The U.S. health care system saves moneyin the long-term by keeping Mr. Jones’ diabetes under control.

27. Conclusions With private insurance, cost as well as adequacy and availability of coverage are not guaranteed As your health status changes and you get older, it often becomes increasingly expensive and difficult to get and keep private insurance Government can guarantee access to affordable, high quality health care through fair insurance regulation coupled with a public insurance option that sets standards and drives accountability