Private Health Insurance
Ian McCarthy | Emory University
Table of contents
- History of Health Insurance
- Employer Sponsored Insurance
- Non-group Coverage
Background
Early history of health insurance
- 1929: “Hospital insurance” for schoolteachers to receive care from Baylor University Hospital in Dallas, TX
- Essentially pre-paid medical care for about 1,500 schoolteachers in the area
- Annual fee (or “premium”) of $6 per year, $104 in 2023, for up to 21 days of hospital care
- Subscription model offered regular cash flow for hospitals
- Popular revenue model for hospitals
- Network of hospitals grew to be Blue Cross, first established in Sacramento, CA in 1932
- Structure introduces a few distortions:
- Care concentrated in hospitals, even if other settings could provide care at lower cost
- No price competition
- Blue Cross plans grew in the 1930s
- Operated as a not-for-profit
- Exempt from typical regulations on insurance markets
- Expansion into prepaid physician services (Blue Shield), combined to be Blue Cross and Blue Shield
- By 1940, half of all health insurance plans were Blue Cross and Blue Shield plans
- Hospitals paid on a cost-plus basis (more on this later)
- Any competing insurance plans had to offer the same structure
Modern health insurance
- Primarily through employers
- Only developed country to rely on employer-sponsored insurance
Employer-sponsored Insurance
Figure 1: Source of Health Insurance (2012)
Why dependent on ESI?
- Stabalization act of 1942 (wages frozen but not benefits)
- Tax exemption for insurance expenditures (1954)
How does ESI work?
- Employer pays large share of premium
- Employee pays smaller share “pre-tax”
- Often only a few plan options
- Many large employers are “self-funded”
- Employer actually pays for the health care
- Insurer is an administrator and negotiator
- Avoids state mandated benefits and state premium taxes (ERISA laws)
- Maybe useful for employers across state lines
Non-group coverage
What is “non-group” coverage?
- Health insurance plans purchased by individuals directly from insurers, rather than being obtained through employers or government programs
- Possibly more choices, depending on where you live
- Premiums vary based on factors such as age, location, and (historically) pre-existing conditions
- Significant changes with the implementation of the Affordable Care Act (ACA) in the United States, which introduced marketplaces where individuals can compare and purchase health insurance plans, along with subsidies to help lower-income individuals afford coverage
Big changes in non-group options from the ACA
- Health insurance marketplaces
- Essential health benefits
- Pre-existing condition protections
- Subsidies and financial assistance
- Coverage requirements and individual mandate
- Mandate challenged in Supreme Court and upheld at first
- Effectively removed in 2019 when penalty was set to $0