By JULIE CARLE
BG Independent News
The differences between public and private health insurance in the United States are not as disparate as most Americans would believe.
“The majority of public health costs are managed by private insurance companies even if they are on Medicare or Medicaid,” says Dr. Amanda Cook, professor of economics at Bowling Green State University, at the virtual BGSU Science Café Tuesday night (14/3). ).
Medicare and Medicaid were developed in the 1960s with a social function to protect parents and children. “There has been a shift since then and governments are increasingly relying on private markets to manage plans,” he said.
Significant changes in the industry have occurred over the decades that especially started in the 1990s, the decade of the “managed care revolution,” he explains. At the start of the decade, about 8% of plans had managed care and by the end of the decade the number had skyrocketed to over 90%.
“Managed care, which is really meant to be cost containment, has become the new framework for thinking about health insurance,” said Cook. In a managed care system, “insurance networks with preferred providers at significantly lower costs to their enrolled individuals.”
Insurance companies like Aetna, Anthem, Cigna, United HealthCare and Kaiser are familiar names in the industry and those that provide the majority of coverage in the US. Because these insurers are so large, they’ve been successful in negotiating lower rates for consumers, Cook said. “An important function of these insurers is to negotiate rates and allow individuals access to rates they would not otherwise be able to obtain on their own.”
Managed care has an impact on the private sector and the public sector. In 2007, there were 8 million people enrolled in Medicare Advantage plans, which are designed for Medicare enrollees but run through private companies. By 2022, there will be 28 million people on Medicare Advantage plans.
Medicaid numbers have seen a similar increase with 16 million people covered in Managed Care Organizations in 2003 compared to 58 million Americans in 2020.
“You’ve seen huge improvements over the last 15 years,” said Cook. “I don’t think it’s bad. Insurers are really good at what they do, but the notion that Medicaid is a public program is completely wrong.
“We are now in a place where public plans are mostly run by private insurers. We have to consider whether the goals of public health plans – such as Medicare and Medicaid, align with the goals of private health insurance whereby private health insurance companies are traded on the stock market and have an obligation to their shareholders to make a profit,” he said.
Back to basics
Health insurance is a mechanism designed to protect households from the financial impact of injury, illness and disability, by transferring risk from the household to the insurer.
Health insurance has three main functions, according to Cook:
- Collect and bear the risk.
- Claim process.
- Negotiate networks and rates.
Insurance is often viewed today as primarily covering catastrophic health events that are low in frequency but high in severity. “But even if you never make a claim, what you get is the peace of mind that in the event of a bad outcome, you’ll be covered financially,” says Cook.
Health insurance functions as both traditional insurance (major events) and as a prepaid component, “which is part of what makes it so expensive,” he said.
Health spending is growing faster than inflation. According to Cook, for every health care dollar, 50 cents are for hospital care, 33 cents cover doctor visits and about 16 to 17 cents are for prescription expenses.
“We can see that more than half of our insurance dollars go to things that we consider ideally uninsurable,” he says.
More employers are becoming self-insurance
Another change in health insurance is that because health costs have been rising faster than inflation, many employers, where most Americans get their health care coverage, have self-insured. Thus, employers retain financial risks that they previously passed on to insurance companies.
The phenomenon of employers providing health insurance started in World War II when wages were frozen. “Employers offer health insurance as a benefit in lieu of higher wages,” says Cook. When people don’t pay full price for health care, it triggers them to seek more care, which in turn fuels higher health care costs.
It’s becoming more and more difficult for employers to get a fully insured plan at a price they find acceptable.
“When your employer is taking all of this risk, and they are trying to keep costs down, then we are in a bit of a tough situation, Employers are going to change the generosity plan. They might increase the deductible or they might increase the out-of-pocket max that individuals have to pay,” said Cook.
Often people don’t realize they are in a plan where their employer is self-funding and using an Administrative Services Only (ASO) contract.
“When we think about people’s understanding of their benefits, you may feel differently about your employer being financially responsible for your medical expenses than a major insurer,” he says. Chances are if health insurance through Aetna, Anthem or Cigna the plan is an ASO contract.
What also happens in employee self-insurance plans is that the insurance company has transferred the risk to the employer and the employer has transferred the risk back to the household. “We are in a situation where insurance does not serve the essential function of transferring risks that lead to complicated social problems,” he said.
“How do we protect the household? How do we support socially vulnerable populations? How do we create systems that promote health and well-being?” he says. “I think the answer is through regulation. Thinking about our healthcare system and how we create an environment that supports people being healthy is important to me.”