Private Health Insurance
As of 2008, 65 percent of nonelderly Americans were estimated to have private health insurance, with 92 percent of the private coverage obtained through employers.1 The remaining 8 percent of private coverage is purchased directly in the non-group market. While employer sponsored insurance (ESI) is the dominant form of coverage for the nonelderly, the share of the population with that type of coverage is declining, particularly among those with low or modest incomes. As private coverage falls, the share of the population uninsured rises.
Components of the Patient Protection and Affordable Care Act of 2010 (PPACA), the comprehensive federal health care reform law, are designed to make private health insurance more affordable, make pricing of insurance more predictable and fair, promote competition based on price and quality, and provide additional oversight of insurer practices. Taken together, these measures should stem the decline in private health insurance and expand it for many of those currently uninsured. In the process, PPACA will make very significant changes to the way private health insurance is bought and sold, particularly in the small employer group and non-group insurance markets.
While many of the private health insurance changes associated with PPACA will not be implemented until 2014, some changes are being implemented in 2010 and 2011. These include expansion of eligibility for private coverage as a dependent to adult children up to age 26; prohibitions against lifetime benefit limits and restrictions on permissible annual benefit limits; making preventive care coverage available without cost sharing; and instituting minimum loss ratio requirements (i.e., limits on the share of premiums that are devoted to expenses other than paying claims). Review of premium increases and required justifications for increases will also be implemented during this time period.
In addition, federal financial assistance, via tax credits, is now available to assist some small, low-wage employers to purchase health insurance for their workers. And prior to the implementation of the broader-based reforms, government-financed reinsurance is also available to provide some relief to employers providing health insurance coverage to their early retirees.
The most significant shortcomings in today’s small employer group and non-group insurance markets are targeted under the reforms that will be implemented in 2014, however. These include high administrative costs of insurance; insurance underwriting (i.e., price discrimination by health status, claims experience, and gender); lack of accessible coverage for those with health problems; lack of financial assistance in the purchase of coverage by those with modest incomes; and poor information on coverage options, benefit details, and insurer operating practices.
In addition to an array of strategies intended to address these issues, PPACA includes a requirement for most legal residents of the U.S. to obtain qualifying insurance coverage (public or private) or pay a tax penalty. This requirement, in addition to the other reforms that will be put in place, will tend to increase enrollment in employer and non-group health insurance coverage while broadening health care risk pools.
Due to the complexity of the current private health insurance system, particularly in the pricing and structuring of benefits, the effects of PPACA on the private coverage will vary by the type of purchaser (large employer, small employer, individual/family), their geographic location, their health status or the average health status of their group, the level of coverage currently purchased (if any), and their income level. Plus, the ability of the reforms to promote greater competition in private insurance markets will relate to current concentrations of insurer and health care provider market share and entrants of new insurance options.