Reinsuring Health

Reinsuring Health: Why More Middle-Class People Are Uninsured and What Government Can Do

Katherine Swartz
Copyright Date: 2006
Published by: Russell Sage Foundation
Pages: 224
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  • Book Info
    Reinsuring Health
    Book Description:

    America's current system of health insurance, which relies almost exclusively on employer-sponsored coverage, is in danger of collapse, and this problem is not limited to the poor and working class. An increasing number of middle class Americans do not have employer-provided insurance and—due to skyrocketing premiums—cannot afford to purchase coverage for themselves. Reinsuring Health, by economist Katherine Swartz, examines this growing national crisis and outlines a concrete plan to make health insurance accessible and affordable for all Americans. Reinsuring Health documents why the number of uninsured Americans—now 45.5 million people—has grown in the last twenty-five years. Swartz focuses on how labor market changes—such as the decline of domestic manufacturing, decreased unionization, and the growth of non-standard work arrangements—have led U.S. employers to retreat from providing health insurance for their workers. These trends, combined with the increasing costs of medical care, have led to an explosion in health insurance premiums and a decline in coverage, particularly among the middle-class. Since those who seek insurance as individuals are generally most likely to need health care, private insurers charge higher premiums in the individual (non-group) markets than to people who obtain group insurance. This makes individual health insurance less attractive to the young and increasingly unaffordable for middle-class Americans. Similarly, insurers charge higher per person (or per family) premiums to small firms than to large companies, so many small firms do not sponsor coverage for their employees. Reinsuring Health shows how these problems can be overcome if the federal government provides a new reinsurance program which would protect insurance companies that provide small group and individual health insurance against the possibility that their policy-holders will incur very high medical expenses. By assuming some of the risk that people will face extremely costly medical bills, the government will make insurers less hesitant to offer coverage to high-risk individuals, and will help drive down premiums for others. Reinsuring Health demonstrates that this form of government reinsurance has worked in the past, helping to establish smooth running private markets for catastrophe insurance and secondary mortgages. Today, growing numbers of middle class Americans lack health insurance. Protection against the possibility of falling ill or getting hurt and having to pay extraordinary health care bills should not be a luxury available only to the very rich and the very poor. Reinsuring Health proposes a straightforward solution that would bring health insurance back within the reach of the increasing ranks of the uninsured, particularly those who are in the middle class.

    eISBN: 978-1-61044-520-7
    Subjects: Health Sciences, Business, Political Science

Table of Contents

  1. Front Matter
    (pp. i-vi)
  2. Table of Contents
    (pp. vii-viii)
  3. About the Author
    (pp. ix-x)
  4. Preface
    (pp. xi-xii)
  5. Acknowledgments
    (pp. xiii-xvi)
  6. Chapter 1 A Health Insurance System in Crisis?
    (pp. 1-12)

    Susan Mitchell* does not have health insurance. She is a freelance editor and writer who until three years ago was an employee of a medium-sized company in Washington, D.C. Health insurance had been part of her compensation. Susan writes public relations announcements and edits documents that are sent to the firm’s clients. When the company felt pressure to reduce its labor costs, it eliminated Susan’s job but asked whether she would work on a freelance basis, doing the same work she had been doing as an employee.

    By changing the terms of Susan’s employment, the company reduced its fringe benefit...

  7. PART I Why People Lack Health Insurance

    • Chapter 2 The Growing Ranks of the Insured: Who Lacks Health Insurance?
      (pp. 15-43)

      If you want to have a career in broadcasting, journalism, advertising, graphic design, filmmaking, or interior design, prepare to live without health insurance. Even many high-tech computer-related occupations, such as software programming, hold out the same prospect. None of this was true twenty-five years ago—but when it comes to health insurance, we are in a new economy.

      Sam (not his real name) is a thirty-four-year-old sports broadcaster who does play-by-play announcing. He has a master’s degree in journalism from one of the top three broadcast journalism schools in the country and is in his seventh year of television sports...

    • Chapter 3 Why Employer-Group Health Insurance Is Cheaper—and Why Those Who Have It Are Lucky
      (pp. 44-59)

      What is it about employer groups that insurance companies find attractive? How did it come to pass that the United States has an employer-based health insurance system? In 2004, 63 percent of Americans under age sixty-five obtained health insurance through their own or a family member’s employer, down from 67 percent in 2000.¹ Only seventy years ago, almost no one had health insurance from an employer—so it is somewhat amazing that three out of five Americans have employer-sponsored health insurance today. Even so, this fraction is not as high as some envisioned fifty years ago, and it has been...

    • Chapter 4 How Health Insurance Markets Work
      (pp. 60-82)

      Health insurance is different from most of the goods and services we buy each week. The price of a half-gallon of milk or a sweater does not depend on who buys it. But the costs of producing and purchasing health insurance depend in large part on who buys it and who belongs to a group that buys it.

      A major factor in determining premiums is the amount of medical expenses a person or group is expected to have. As described in chapter 3, premiums equal the expected spending of a person or group plus a loading fee. Expected medical expenses...

  8. PART II Public Policies to Make Private Insurance More Available

    • [PART II Introduction]
      (pp. 83-84)

      The need for government policies to help small firms and individuals obtain health insurance is urgent. But policies focused only on providing subsidies to help people purchase private insurance are inadequate because they fail to address the way insurers respond to adverse selection in the individual and small-group markets. In this part of the book, we shift our focus to examine three approaches that the federal government or state governments could take to reduce insurers’ fear of adverse selection.

      In chapter 5, we look closely at two of these approaches: formal highrisk pools and an equivalent of high-risk pools that...

    • Chapter 5 Two Approaches: High-Risk Pools and Assessments to Cover High-Risk People
      (pp. 85-100)

      We need to devise a policy approach that substantially reduces insurers’ risk of extremely high expenditures. The costs of using selection mechanisms will then exceed their advantages for insurers. Moreover, if the expenses of very high-cost people are spread among the total population, low-risk people will not face significantly higher premiums when they are pooled with high-risk people. So long as low-risk people can find low premiums, they will buy health insurance, ensuring that the overall level of expected medical expenses in the risk pool will not rise dramatically with the addition of high-risk people.

      Two policy approaches that have...

    • Chapter 6 A Third Approach: The Government as Reinsurer for Small-Group and Individual Markets
      (pp. 101-122)

      Almost all insurers purchase reinsurance to protect themselves from low-probability but very costly events that could force them into bankruptcy. The hurricane seasons of 2004 and 2005 provide good examples of financial disasters that occasionally befall property and casualty insurers with a large proportion of their business in Florida and along the entire Gulf Coast. In 2004 the federal government, through the Federal Emergency Management Agency, provided more than $10 billion to reimburse hurricane-related losses in Florida that were not covered by private-market business property and homeowner’s insurance. In 2005, after Hurricanes Katrina and Rita (and before Wilma), Congress authorized...

  9. PART III Getting from Here to There

    • Chapter 7 The Need for a New Health Insurance Structure
      (pp. 125-136)

      The American system of health insurance is in trouble. Since at least the 1950s, the country has had a health insurance structure that relies on the vast majority of people having insurance as part of employment compensation. The expectation has been that as the economy grew and the country prospered, more and more workers and their families would gain employer-sponsored coverage. After 1965, anyone who could not work would get help from Medicare or Medicaid, filling out the rest of the system. Changes in the economy and in employer-employee relationships over the last twenty-five years, however, have upset that expectation....

  10. Appendix Precedents for Government Assuming Responsibility for the Worst Risks
    (pp. 137-148)
  11. Notes
    (pp. 149-180)
  12. References
    (pp. 181-192)
  13. Index
    (pp. 193-208)