How does the health insurance market work?
Health insurance spreads the cost of care among large groups of people. In that way, insurance premiums paid by one person help to pay for the care of others. In any large group in any year, most people are healthy and use few health services. A minority (about 20 percent) account for the majority (roughly 80 percent) of health care spending for the group. Because it is likely that every person at some point will get sick, be injured, or even become disabled, sharing this risk is a critical part of insurance.
Health insurance markets work best when a large group of relatively healthy people buy insurance and pay their premiums year after year. Insurance markets do not work well when healthy people do not participate in great numbers and the primary purchasers of health insurance are those who will require expensive care. Indeed, insurers prefer to sell coverage to groups formed for reasons other than to purchase insurance, such as employer groups.
In addition to spreading financial risk, health insurance has another important function - guaranteeing access to health care services. Doctors and hospitals are more likely to care for people when they are assured they will be paid. Numerous studies have shown that people without health insurance receive far fewer health services (or delay needed health care) compared to the insured. Thus health insurance not only protects us from catastrophic expenses, it also secures access to important routine, preventive, and primary care services.
Who are the uninsured?
Despite the clear importance of health insurance, almost 50 million non-elderly Americans are uninsured (or 19 percent of the non-elderly population.
- Most of the uninsured have low incomes, below 200 percent of the federal poverty level (or $44,700 for a family of four).
- Most of the uninsured are full-time workers, and their family members, whose jobs don't offer health benefits.
- This is a changing group of people; many people who are uninsured one year are insured the following. And millions of people who have insurance today may be counted among next year's uninsured. An estimated 32 percent of Americans and their families had a gap in health insurance for at least one month, and 87 million people were uninsured at some point during 2007 and 2008.
Not all insurance is alike
It is important to note that having insurance (See "How do people get insurance?" for more information) doesn't necessarily mean people have health security. In addition to the uninsured, an estimated 25 million Americans are under-insured; that is, they have insurance, but it is not adequate to protect them from catastrophic medical expenses or to secure access to needed care. The leading cause (approximately 50 percent) of personal bankruptcy in the U.S. is high medical expenses. The majority who cite this reason for their bankruptcy had health insurance. Thus, not only the presence of insurance, but the adequacy of insurance, is critical for health insurance to provide the protection consumers expect and need.