A way of offsetting the cost of medical treatment. The individual pays an annual fee (premium) to a health insurance company, and when treatment is needed the company pays the bills. This is common practice in the USA, and in the UK before 1948, when the National Health Service was introduced. Today, private health insurance is re-emerging as a major factor in British health care. At the same time, there is pressure in the USA for the adoption of a national health plan.
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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. Market-based
health care systems such as that in the United States rely primarily on private health insurance. 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. This payment model continued until the start of the 20th century in some jurisdictions
(like California), where all laws regulating health insurance actually referred to disability insurance. 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.
Private health insurance
A health insurance policy is a legal, binding contract between the insurance company and the customer. 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.
Inherent problems with private insurance
Any private insurance system will face two inherent challenges: adverse selection and Ex-post moral hazard.
Adverse Selection
Insurance companies use the term "adverse selection" to describe the tendency for only those who will benefit from insurance to buy it. Specifically when talking about health insurance, unhealthy people are more likely to purchase health insurance because they anticipate large medical bills. 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, whether or not the person has been treated for any of a long list of diseases and so on.
Some other factors that cause an increase in health insurance prices are health related: insufficient exercise;
In theory, people could lower health insurance prices by doing the opposite of the above; A program for addressing increasing premiums, dubbed "consumer driven health care," encourages Americans to buy high-deductible, lower-premium insurance plans in exchange for tax benefits.
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. 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. 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.Publicly funded health insurance
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.
National Health Service
The National Health Service (NHS) is the "public face" of the four publicly funded health care systems of the United Kingdom. Private health care has continued parallel to the NHS, paid for largely by private insurance, but it is used only by a small percentage of the population, and generally as a top-up to NHS services.
Health insurance in the United States
According to the latest United States Census Bureau figures, approximately 85% of Americans have health insurance. Approximately 60% obtain health insurance through their place of employment or as individuals, and various government agencies provide health insurance to over 29% of Americans..
Medicaid
While Medicaid was instituted for the very poor, beginning in 1972, the number of individuals in the United States who lacked any form of health insurance for any period during the year increased each year, every year with the exceptions of the years 1999 and 2000.
| Rise of managed care in the U.S. | |||||
|---|---|---|---|---|---|
| Year | conventional plans | HMOs | PPOs | POS plans | |
| 1988 | 73% | 16% | 11% | NA | |
| 1993 | 46% | 21% | 26% | 7% | |
| 1996 | 27% | 31% | 28% | 14% | |
| 1998 | 14% | 27% | 35% | 24% | |
| 1999 | 9% | 28% | 38% | 25% | |
| 2000 | 8% | 29% | 41% | 22% | |
| 2001 | 7% | 23% | 48% | 22% | |
According the Centers for Medicare and Medicaid Services, nearly 100% of large firms offer health insurance to their employees.
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