Insurance description
Health insurance is a type of
insurance whereby the insurer pays the medical costs of
the insured if the insured becomes sick due to covered
causes, or due to accidents. The insurer may be a
private organization or a government agency.
Market-based health care systems such as that in the
United States rely primarily on private health
insurance.
The concept of health insurance was proposed in 1694 by
Hugh the Elder Chamberlen from the Peter Chamberlen
family. In the late 19th century, early health insurance
was actually disability insurance, in the sense that it
covered only the cost of emergency care for injuries
that could lead to a disability[citation needed]. This
payment model continued until the start of the 21st
century in some jurisdictions (like California), where
all laws regulating health insurance actually referred
to disability insurance.[1] Patients were expected to
pay all other health care costs out of their own
pockets, under what is known as the fee-for-service
business model. During the middle to late 20th century,
traditional disability insurance evolved into modern
health insurance programs. Today, most comprehensive
private health insurance programs cover the cost of
routine, preventive, and emergency health care
procedures, and also most prescription drugs, but this
was not always the case.
The largest difference between private sector health
insurance and life insurance is that for life insurance,
a person may purchase guaranteed renewable insurance for
the whole of the insured's life at a constant premium
rate, while health insurance is generally purchased year
by year with generally no assurance of renewability and
if renewable no guarantee that premium rates will not
increase.
Before buying health insurance, a person typically fills
out a comprehensive medical history form that asks
whether the person smokes, how much the person weighs,
and has the person ever been treated for any of a long
list of diseases. Applicants can get discounts if they
do not smoke and live a healthy lifestyle, which might
encourage some people to quit smoking or make other
improvements in their lifestyle. The medical history is
also used to screen out persons with pre-existing
medical conditions.
A health insurance policy is a legal, binding contract
between the insurance company and the customer.
Critics of private health insurance claim that this
conflict of interest between the needs of insurance
companies to remain solvent versus the needs of their
customers to remain healthy is why state and federal
regulation of health insurance companies is
necessary.[citation needed] Some say that this conflict
exists in a liberal healthcare system because of the
unpredictability of how patients respond to medical
treatment, but proponents of regulation argue that too
many health insurance companies put their desire for
profits above the welfare of the consumer or
patient.[citation needed]
The following is a hypothetical example of a situation
that might confront an insurance company: Suppose that a
large number of customers of a particular insurance
company contracted a rare disease and the hospital
charged 10 million dollars a patient to treat them. The
insurance company would then be faced with a choice of
paying all claims without complaint (thus losing money
and possibly going out of business) or denying the
claims (thus outraging patients and their families,
discouraging potential customers, and becoming a target
for lawsuits and legislation).
Health insurance companies and consumer advocates agree
that private health insurance faces unique
problems.[citation needed] Health insurance companies
use the term "adverse selection" to describe the
tendency for sick people to be more likely to sign up
for health insurance. Insurance companies say that
asymmetry of information about a person's health and
behavior is likely to lead to adverse selection and
(ex-ante) moral hazard. Health insurance companies say,
that in essence, those seeking health insurance are
likely to be those with existing medical problems or
those who are likely to have future medical problems,
and that those who take out insurance may engage in
risky behavior, such as smoking and excessive alcohol
consumption, which an otherwise sane person would not
do.[citation needed] Insurance companies say that the
cost of providing health insurance to these bad risks
raises the cost of insurance to the 'good' insurance
risks, possibly pricing them out of the market, and
could create a situation in a market where insurance was
uneconomical for private insurance companies to
provide.[citation needed]Ex-post moral hazard is in
essence the consequence of reduced prices for medical
care. Since most insurance plans, whether public or
private, reduce the out-of pocket cost of medical care,
the behavior of individuals will be affected by those
reduced prices. In the same way that people treat water
with little care when it is very inexpensive, people
will also tend to over-use medical care when the out-of
pocket costs are small. Of course, medical care still
needs to be financed, and so taxes or premiums will be
higher than the optimal amount. This inflation of taxes
or premiums to cover the choices made under subsidized
prices is what is termed ex-post moral hazard, and is a
different phenomena than the ex-ante moral hazard
mentioned above.
Critics of private health insurance state that those who
are sick should be able to get health insurance because
they need it the most and that if everyone had health
insurance, adverse selection would not be a
problem.[citation needed]
With publicly funded health insurance the good and the
bad risks all receive coverage without regard to their
health status, which eliminates the problem of adverse
selection, although it introduces a problem of moral
hazard.
Insurance companies explain the economics of insurance
by saying that, in general, if many sick people buy
health insurance from a private health insurance
company, but few healthy people buy it, the price of the
insurance rises.[citation needed] (Critics of private
health insurance point out that few sick people are
allowed to buy health insurance).[citation needed]
Insurance companies also say that if more healthy people
buy health insurance, but few sick people buy it, the
price drops. In other words, the price drops if more
money goes in and less is paid out.
Because of advances in medicine and medical technology,
medical treatment is more expensive, and people in
developed countries are living longer. The population of
those countries is aging, and a larger group of senior
citizens requires more medical care than a young
healthier population. (A similar rise in costs is
evident in Social Security in the United States.) These
factors cause an increase in the price of health
insurance.
Some other factors that cause an increase in health
insurance prices are health related: insufficient
exercise; unhealthy food choices; a shortage of doctors
in impoverished or rural areas; excessive alcohol use,
smoking, street drugs, obesity, among some parts of the
population; and the modern sedentary lifestyle of the
middle classes.
In theory, people could lower health insurance prices by
doing the opposite of the above; that is, by exercising,
eating healthy food, avoiding addictive substances, etc.
Healthier lifestyles protect the body from some,
although not all, diseases, and with fewer diseases, the
expenses borne by insurance companies would likely drop.
Under these circumstances, the consumer would hope to
benefit from the savings; however, critics of private
health insurance claim that too much of the insurance
premiums are paid out in executive salaries or retained
as profits by the company.
Common complaints of private insurance
Some common complaints about private health insurance
include:
Insurance companies do not announce their health
insurance premiums more than a year in advance. This
means that, if one becomes ill, he or she may find that
their premiums have greatly increased. BUPA does not
penalise indiviudals who claim but spreads the cost
across the customer base.[citation needed]
If insurance companies try to charge different people
different amounts based on their own personal health,
people will feel they are unfairly treated.
When a claim is made, particularly for a sizeable
amount, it may be deemed in the best interest of the
insurance company to use paperwork and bureaucracy to
attempt to avoid payment of the claim or, at a minimum,
greatly delay it.
Health insurance is often only widely available at a
reasonable cost through an employer-sponsored group
plan. This means that unemployed individuals and
self-employed individuals are at a disadvantage[citation
needed].
Employers can write some or all of their employee health
insurance premiums off of their taxable income whereas
traditionally individuals have had to pay taxes on
income used to fund health insurance. This reduces the
employee's bargaining power in negotiating service with
the insurance provider and also increases their
dependence on the employer.[citation needed]
Experimental treatments are generally not covered. This
practice is especially criticized by those who have
already tried, and not benefited from, all "standard"
medical treatments for their condition.[citation needed]
It also leads to many insurers claiming or attempting to
claim that procedures are still "experimental" well
after they have become standard medical practice in many
instances.[citation needed]
The Health Maintenance Organization (HMO) type of health
insurance plan has been criticized for excessive
cost-cutting policies.
As the health care recipient is not directly involved in
payment of health care services and products, they are
less likely to scrutinize or negotiate the costs of the
health care received. To care providers, insured care
recipients are essentially seen as customers with
relatively limitless financial resources who don't look
at prices.[citation needed] The health care company has
few popular and many unpopular ways of controlling this
market force.[citation needed]
Some health care providers end up with different sets of
rates for the same procedure. One for people with
insurance and another for those without. |
