Evolution of Health Insurance in the United States

Indemnity insurance ensures payment to licensed healthcare providers for covered services. Fee-for-service indemnity plans have become more similar to managed care plans, offering individuals a wide choice of healthcare professionals. Providers have the freedom to decide on services based on their professional judgment and receive reimbursement for all care provided.

Today, most fee-for-service plans have implemented utilization-management strategies previously associated with managed care, such as preauthorization for hospitalization or specialist referrals. Indemnity plans are falling out of favor with employers and may not be prevalent in the next three decades.

HMOs are the most tightly closed of all managed care systems, offering no coverage for out-of-plan services and requiring health care providers to share the financial risk. Research indicates that communities with higher HMO plan penetration and increased competition among health plans have lower premiums. HMOs maintain lower premiums through restricted provider networks and a reliance on primary care physicians, though consumer dissatisfaction with limited provider choice has led to the rise of more expensive managed care options like PPOs and POS plans.

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It is anticipated that this trend will result in increased premium levels as well as higher individual copayments and deductibles moving forward. This increase in premiums may lead to the gradual decline of HMOs within the next three decades. In the mid-80s, legislation was passed that allowed insurers to selectively contract with various providers at different reimbursement rates, laying the groundwork for the emergence of preferred provider organizations (PPOs) (Gabel &Ermann 1985). Generally, PPOs refer to a third-party payer system that contracts with specific providers for patient services at discounted fee-for-service rates.

Patients are incentivized to choose "preferred providers" with benefits such as expanded coverage, and providers in-network benefit by gaining a larger patient pool in exchange for offering discounted services (Gabel & Ermann 1985). Unlike HMO coverage, PPO patients have the option to seek care out-of-network. While patients are typically responsible for majority of the expenses in these cases, there is usually a yearly cap on out-of-pocket expenses that enables patients with severe chronic illnesses to receive long-term specialty care from out-of-network providers without facing excessive costs.

According to Sengupta & Kreie (2011), there has been a significant increase in the popularity of PPOs over the past two decades. In 1988, only 11 percent of employer-provided health care was through PPOs, but by 2005, at least one PPO option was offered by 85 percent of large employers (Hirth, Grazier, Chernew, & Okeke, 2007). PPOs are predicted to remain prominent for the next thirty years due to their flexibility in allowing patients to seek care out-of-network. The debate surrounding whether private health insurance violates the standard principles of insurance is ongoing.

Start at top of next page PHI started with coverage mainly for hospital and physicians’ services. As debates on health insurance continue in the United States, there has been significant debate and critique about the overhead generated by the PHI system (Woolhandler & Himmelstein, 1991). From 1960 to 2000, average total overhead costs of PHI were around 12 percent of premiums, ranging from approximately 9 to 16 percent. This total encompasses administrative costs, taxes, profits, and other nonbenefit expenses (Lemieux, 2005).

The total cost of administering private health insurance for Americans, including administrative costs for insurers, additions to reserves, rate credits, policyholder dividends, premium taxes, and carriers' profits or losses, is estimated to be around 15% of total national health expenditures. This does not account for additional costs incurred by providers for submitting claims, gathering data on care quality, and sending financial reports to insurers. The main components of private health insurance include commercial carriers, the Blues, HMOs, and self-funded plans.

Despite the fact that government health insurance programs like Medicare provide benefits at a lower administrative cost compared to private health insurance, the significance of Private Health Insurance (PHI) as a financing source for personal health care expenses has been gradually increasing (Williams & Torrens, 2010). The health insurance industry may not always be lucrative for insurers, especially in the high-end market segment where self-funded administrative-services-only clients typically yield minimal profit margins for most group insurers.

The health insurance industry has experienced net underwriting losses in numerous years since 1976. Health insurance is advantageous for insurers as it allows them to sell other, more profitable products and generates revenue through investment income (Whitted, 2001). Various health insurance entities, such as commercial carriers and the blue, provide coverage for individuals and families (Pauly & Percy, 2000). Some of the biggest commercial accident and health insurers in the country sell minimal individual policies or none at all.

Ordinary individual policies for basic medical (hospital and the physician coverage are incredibly costly due to adverse selection. Insurers believe that the individual has information about their future health needs that the insurance plan does not have. This can result in premiums reaching up to $5,000 per year, even for HMO plans with extensive cost-sharing provisions. Furthermore, underwriting guidelines for individual policies have become stricter, preventing many people from purchasing coverage (Saver & Doescher, 2000). Analyzing the evolution of health promotion and disease prevention in the U.S. reveals a shift in thinking within the dominant culture that greatly impacted the health care insurance system. Public health initiatives in the U.S. originated in local seaport communities and eventually expanded to state and federal government agencies. The Constitution reserves health functions to the state unless specified for federal government involvement.

Throughout the majority of our nation's past, public health duties were mainly performed by local or state government entities. It wasn't until after World War II that the establishment of a federal cabinet-level Department of Health, Education, and Welfare was deemed essential. This progression implies that public health initiatives, and health matters in general, have been primarily seen as the responsibility of local and state authorities. The increased involvement of the federal government emerged post-World War II, largely due to the availability of federal tax funds that could be allocated to states and localities.

The ongoing efforts to decrease the size and reach of the federal government and give more responsibility and resources to local and state governments in recent times can be viewed as an extension of this overarching concept (Williams & Torrens, 2010). As per Williams & Torrens (2010), the organized public health initiatives in the U.S. initially involved isolating and quarantining those who may spread diseases, then shifted towards enhancing environmental sanitation, and eventually concentrated on vaccinating children and managing individuals with contagious illnesses.

The majority of activities have concentrated on acute infectious diseases, regardless of their origins. There is an implicit understanding that the main goal of organized public health actions in the United States should prioritize preventing and managing acute illnesses over chronic diseases. These efforts have primarily targeted sudden and severe outbreaks like diphtheria and polio.

The United States no longer faces major public health issues such as heart disease, cancer, and stroke. This is due to political conflicts in the 1930s regarding national health insurance, which has led to a cautious relationship between private medical sector and public health agencies nationwide.

Public health agencies initially received support from the private sector when they focused on traditional roles like sanitation, immunizations, and infectious disease control. However, opposition arose when they expanded into offering general health services or overseeing facilities and personnel in the private sector.

Organized public health agencies have been hesitant to go beyond traditional public health activities due to opposition. It is believed that public health should ensure the public's access to quality health services, but this role has not been widely accepted in the United States until recently (Williams & Torrens, 2010). References Gabel J, & Ermann D. (1985). Preferred provider organizations: performance, problems, and promise.

Health Aff (Millwood), 1985, 4(1), 24-40, Hirth RA, Grazier KL, Chernew ME, Okeke EN.
Inquiry, 2007, 44(4), 400-411, Lemieux JJ. (2005). Perspective: Administrative cost of private health insurance plans. Washington, DC: America’s Health Plans.
Pauly, M. V., & Percy, A. M. (2000). Cost and performance: A comparison of the individual and the group health insurance markets. Journal of the health politics policy and law, 25, 9-26, Saver, B. G., & Doescher, M. P. (2000).

Factors related to the purchase of non-group private health insurance are explored in a study published in Medical Care (Sengupta B, & Kreier RE, 2011). The dynamic model of health plan choice is analyzed in the Atlantic Economic Journal (Sisk, J. E., Gorman, S. A., & Reisinger, A. L., 1996). Evaluation of Medicaid managed care is discussed in the Journal of the American Medical Association by Stein, R. E. K. et al (1996).

United Hospital Fund, 1997. Stroll, B., ed. (Year) Children’s mental health: Creating systems of care in a changing society. Baltimore, MD: Paul H. Brookes Publishing Company, 1996. Whitted, G. (2001). In S. J. Williams & P. J. Torrens (Eds.), Introduction to health services (6th ed.). Albany, NY, Delmar.

Williams, S. J., Torrens, P. R., (2010). Introduction to health services (7th ed.). Albany, NY, Delmar.

Woodhandler, S., & Himmelstein, D.(1991). The deteriorating administrative efficiency of the U.S.health care system.New England Journal of Medicine ,324(18),1253-1258.