rans ‘siness Insights: Essentials Skip to Main Content Help View Gale Resources Select Interface Language: Engish Eraisn) : BUSINESS INSIGHTS: ESSENTIALS Back to Search Results Accident and Health Insurance Encyclopedia of American Industries This category covers establishments primarily engaged in underwriting accident and health insurance. This industry includes establishments that provide health insurance protection for disability income losses and medical expense coverage on an indemnity basis. These establishments are operated by enterprises that may be owned by stockholders, policyholders, or other carriers. Industry snapshot In 2012, health care spending in the United States reached $2.8 trillion, or $8,915 per person. This represented a fourth consecutive year of growth with a 3.7 percent increase over 2011. The 2012 total represented 17.2 percent of the gross domestic product, a 0.1 percent decline from 2012. As the first baby boomers age into retirement, the need for health care services was expected to rise throughout the 2010s and beyond, with the government expected to be covering nearly half the bill by 2020 through Medicare and other programs ‘A movement to provide more universal, low-cost health care led to the passage, in 2010, of the Patient Protection and Affordable Care Act (PPACA). This hotly contested bill included numerous provisions to help insure the uninsured, including subsidies and credits to employers, expanded coverage for young people, and the planned creation of state-based exchanges for purchasing insurance, The constitutionality of the bill was challenged in the Supreme Court, but the court upheld the major provisions of the act in June 2012 Despite continuing legal and political challenges, the health care act, as it was being implemented in the mid-2010s, was expected to be a game changer for much of the health care industry. Organization and Structure Accident and health insurance is provided on an indemnity basis by commercial carriers and Blue Cross & Blue Shield plans. Under indemnity insurance, the insurer pays the insured directly for any hospital or physician costs for which the insured is covered. Other providers of accident/health insurance include specialty health insurers, self-funded employer plans, and government plans. Accidenthealth insurance companies may also provide service plans in connection with health care providers. Insurance companies arrange to pay health care providers for any service for which an enrollee has coverage. Under the service plan, the insurance company effectively agrees to provide the insured with health care services, rather than reimbursement dollars. Service plans offer the advantages of reduced paperwork and less financial liability for the insured In addition to voluntary insurance, a second type of private health insurance is managed care, Managed care plans, or prepaid health plans, increased in popularity during the 1980s and the 1990s. By the mid- ip gale ch exe scodtld netesserialslarcle/GALEY7CRN2SO14QU7SMbe 13ete4204 1242500207 TebsBstaBURnys!_ce_orehm aavis fsiness ns: Essentials 1990s, managed care plans had proven their ability to control medical costs more effectively than traditional fee-for-service insurance plans. Under a managed care plan, a person can enroll in an organization that charges a monthly fee. In return for this monthly fee, the enrollee receives access to health care services from the organization, Organizations that offer such prepaid plans include health maintenance organizations (HMOs), preferred provider organizations (PPOs), and exclusive provider organizations. Background and Development Accident and health insurance, like other lines of insurance, serves to spread the consequences of a loss. that would normally fall on a single individual over the members of a large group. It also ensures that health care providers will be paid for services that an uninsured individual would otherwise not be able to afford. Although the concept of insurance dates back more than 2,000 years, the first form of health insurance in the United States can be traced back to the 1800s, when merchant seamen paid a modest premium to obtain health care as they traveled from port to port. Health insurance as it is known today, however, is a relatively new concept that has its roots in the Great Depression of the 1930s. The most popular form of health insurance is major medical expense protection, which insures a person for a maximum amount of loss, The insured pays a deductible, usually $100 to $500. This plan of insurance is favored because it protects against catastrophic losses yet avoids administrative burdens associated with smaller claims below the deductible amount. Critics of this type of insurance, though, believe it discourages preventive treatment and encourages inflation of health costs. Growth of the Industry. Only since the 1960s has the accident/health industry grown massively in proportion to other types of insurance. One of the greatest reasons for the explosion in the popularity of health insurance during this time was the increase in benefits offered by employers After World War Il, health insurance became a popular benefit for employees. Health insurance premiums were, and remained in the 2010s, tax-deductible to the employer and were not taxable to the employee Therefore, it became a cost-effective form of compensation, Also, as unions began to find it more difficult to gain wage increases for their members, health care benefits became an increasingly popular bargaining tool. One of the primary reasons for the growth of the accident/health insurance industry was the advent in the 1970s of modified agreements that shifted a greater amount of health care risk to the employers that offered employee insurance plans. Under these agreements insurers, employees, and health care providers had little reason to control health care costs because the employers, as policyholders, were paying the insurance bill. In fact, one result of these agreements was that insurance company profits increased in proportion to the rise in the cost of medical care. These circumstances resulted in an unprecedented rate of growth in group health insurance, an average of 15 percent per year in the 1970s and early 1980s. Industry Stagnation. By 1983, changes in the American economy began to dictate a need for change in the accident/health insurance industry. Employers began to shift more of the insurance burden to their employees, as ‘economic stagnation exerted downward pressure on company profits and a new corporate cost- consciousness developed. At the same time that employers were trying to reduce their insurance ‘expenses, insurance companies were battling new economic and regulatory forces. Skyrocketing inflation, ip gale ch exe scodtld netesserialslarcle/GALEY7CRN2SO14QU7SMbe 13ete4204 1242500207 TebsBstaBURnys!_ce_orehm 26avis fsiness ns: Essentials deregulation of banks and financial institutions, and public pressure to cap rising insurance rates all contributed to a decline in industry profitability. In response to the new business environment, insurance companies changed their products, marketing objectives, underwriting goals, and investment strategies. The result of these changes by the early 1990s, however, was reduced industry stability, record financial losses, and company insolvency. In addition to other problems in the industry, health care costs continued to spiral upward much faster than inflation throughout the 1980s and early 1990s. This trend helped to open the door to accidenthealth insurance alternatives such as HMOs and other managed care alternatives. Moreover, prior to the passage of the PPACA, the system failed to insure millions of Americans Legislation. Accident/health insurers in the United States are subject to regulation at both the state and federal levels. Many of the regulations are designed to require that insurers maintain sufficient reserves to cover future liabilities. Other regulations require that companies not discriminate against certain customers or raise premium rates above certain levels that are deemed competitive by the governing body. Additional legislation that has had a significant effect on the industry relates to Medicare and Medicaid, which ensure coverage for elderly and poor citizens. Under the PPACA, insurance companies must cover all applicants and offer the same rates to everyone, regardless of preexisting conditions or gender. The failure of many health insurers to cover people with preexisting conditions (such as diabetes, for example) was a major point in the debate about health care reform. In the first decade of the twenty-first century, the cost of health insurance rose sharply. Between 2000 and 2006, employment-based health care premiums rose by 87 percent, and the average employee contribution increased more than 143 percent in that time. Additionally, the average out-of-pocket costs for deductibles, copayments for medications, and coinsurance for physician and hospital visits rose 115 percent. According to the Kaiser Family Foundation, in 2011 average annual premiums for family health insurance coverage totaled $15,000; individual coverage averaged $5,429. The group said that 2.3 million young adults were added to their parents’ insurance plans as a result of health care reform. The survey also found that more workers were in high-deductible plans, with 31 percent facing deductibles of at least $1,000 Workers employed in small businesses were most likely to have those high-deductible plans. In 2006, the Commonwealth of Massachusetts passed its own health care reform law, requiring that nearly everyone in the state obtain health insurance, either through private carriers or a free program for people with income below the poverty level. This law, which has been revised a few times since its passage, was one model for the later federal legislation, the PPACA. Current industry conditions ‘The passage of the PPACA provided both opportunities and challenges for health insurance companies. Faced with the requirement to underwrite more people, companies were looking at ways to decrease per capita cost and increase health care quality. By 2012, the heallth insurance industry was beginning to see what effects President Obama's health care reform efforts would have. The reform, signed into law in March 2010, has provisions that were being rolled out in stages. While originally scheduled to be fully implemented in 2014, some provisions of the law were deferred. For example, the president deferred the requirement that insurers cancel health plans that do not ip gale ch exe scodtld netesserialslarcle/GALEY7CRN2SO14QU7SMbe 13ete4204 1242500207 TebsBstaBURnys!_ce_orehm 36avis fsiness ns: Essentials meet the new regulations until 2016 or, in some cases, 2017, Sam Baker reported for the National Journal. Enrollment in the new health insurance exchanges fell far below initial expectations in the fall of 2013, when widespread technical issues with the new federal website for enrollment prevented potential customers from signing up. Steven Brill reported for Time that the government had spent $319 million on the faulty site by October 2013 and had to bring in a new team of technicians to rescue the project. By mid-February 2014, Brill noted, some 1.9 million people had enrolled through the revamped site, When fully implemented, PPACA is intended to expand insurance coverage to 30 million previously uninsured Americans but also set regulations and fees on health insurers; this latter aspect threatened industry profit margins. Alex Wayne reported for Moneynews that the president's proposed fiscal 2015 budget included $5.5 billion that would offset losses by major insurers such as Humana and WellPoint that may result from higher than expected costs under the law. Discussions on the health care reform issue were heated and rampant throughout the industry and society as a whole, including legal challenges to the PPACA itself. The Centers for Medicare & Medicaid Services (CMS), the government's health insurance agency, projected in late 2013 that U.S, health care spending would rise by 6.1 percent in 2014 “once key provisions in the Affordable Care Act take effect," California Healthline reported. CMS had projected in 2012 that 20 million Americans would enroll in Medicaid in 2014, but CMS revised the number down to 8.7 million after the Supreme Court ruled states could opt out of the law's provisions for expanding Medicaid coverage. The report also noted projections by other government analysts that the total U.S. health care bill would rise from $2.9 trillion to $3.1 trillion in 2014 and reach $5 trillion by 2020, accounting for 19 percent of the total U.S. economy by the end of the decade. Industry leaders In 2014 the largest U.S. health insurance provider based on direct premiums written was UnitedHealth Group Inc., based in Minnetonka, Minnesota. UnitedHealth had 2013 revenues of $122.5 billion and 165,000 employees in all 50 states and more than 125 countries. Second was Indianapolis-based WellPoint, Inc., which had annual revenues of $71 billion and 48,000 employees. WellPoint provided medical insurance to 35.7 million customers, primarily under the Blue Cross and Blue Shield brands. Kaiser Permanente was based in Oakland, California, and had sales of $50.6 billion in 2013 and more than 174,000 employees. Humana Group of Louisville, Kentucky, reported $41.3 billion in revenues and 52,000 ‘employees. Fifth place went to Aetna Inc. (Hartford, Connecticut), with 35,000 employees and 2013 revenues of $47.361 billion. “The largest 125 U.S. health insurers collected some $713 billion in 2012 premiums," Evi Heilbrun reported for U.S. News & World Report, with the top 25 accounting for two-thirds of the market. The U.S. Treasury's June 2013 report on the insurance industry stated that UnitedHealth had almost $40.4 billion in direct written premiums the previous year. This amounted to a 22.7 percent market share, giving UnitedHealth the top spot among accident and health insurers. Humana was second with $19.4 billion and a 10.9 percent share, followed by AFLAC ($17.48 billion and 9.8 percent), Aetna ($16.26 billion), and Cigna (almost $11.4 billion) UnitedHealth Group also topped lists of the largest health insurance companies by members, with 70 million. WellPoint was second with 33.3 million, followed by Aetna (18 million), CIGNA (11.4 million), Humana (10.2 million), and Kaiser Permanente (8.9 million). ip gale ch exe scodtld netesserialslarcle/GALEY7CRN2SO14QU7SMbe 13ete4204 1242500207 TebsBstaBURnys!_ce_orehm 48rans ‘siness Insights: Essentials America and the World In 2010, the United States spent the highest percentage of gross national product (17.9 percent of GDP) on health care of all developed nations that provide health care to their citizens. According to data from the World Health Organization, the United States was fith in per capita health spending in 2009, behind Luxembourg, Monaco, Norway, and the Netherlands. In 2013, the trend continued, according to research cited by Mort Zuckerman in U.S. News & World Report. “We spend twice as much on a per capita basis as other high-income countries such as England and France," Zuckerman wrote, with the United States spending 18 percent of its GDP, compared to second- place France at 12 percent. "Our system costs 100 percent more per capita than in Canada and 150 percent more than in the U.K." Another study referenced in the article found prescription prices in the United States average 50 percent higher than in other developed countries, adding $100 billion to health care costs each year. Industry research and technology By 2012, all major providers maintained comprehensive websites. These sites enabled members to access accounts, review policies and explanation of benefits, and locate doctors and medical services. The sites also provided extensive links to drug and medical information. Automated pharmacy options, sometimes contracted out to a third-party provider, provided members with online options to fill or renew prescriptions. The shift to putting more medical records online provided convenience and also allowed doctors to more fully see a patient's medical history, but also raised concerns about privacy. The early 2010s also saw health insurance providers embracing new technology, such as social media and apps for smartphones and tablet computers. Ankita Rao, reporting for Kaiser Health News, found that companies such as Aetna regularly monitor social media platforms such as Twitter to supplement traditional customer service outlets. "While insurance companies are hoping to connect through their customers through social networks,” Rao noted, “they have not yet made enough headway to replace the telephone systems." Further Readings ‘Austin, D. Andrew, and Thomas Hungerford. "The Market Structure of the Health Insurance Industry.” Congressional Research Service, 17 November 2010. Available from http:/www.fas.gov. “Average Annual Premiums for Family Health Benefits Top $15,000 in 2011." Menlo Park, CA: Kaiser Family Foundation, 27 September 2011. Available from http:/hww kff.org. Baker, Sam. "Another Obamacare Delay." National Journal, 6 March 2014. Brill, Steven. "Code Red: Obamacare's Trauma Team." Time, 10 March 2014. "CMS Predicts U.S. Health Care Spending Will Increase by 6.1% in 2014." California Healthline, 19 September 2013. Available at http:/mmw.californiahealthline.org "Health Care Costs." Washington, DC: America’s Health Insurance Plans, 2014. Available from http:/iwww.ahip.org. "Health Insurance.” New York: Insurance Information Institute, July 2012. Available from http:/Awww ili.org “Health insurers Shake Up Model After U.S. Overhaul." Business Insurance, 11 November 2010. Heilbrunn, Evi. "Top Health Insurance Companies.” U.S. News & World Report, 16 December 2013. “Highline Data Provides Vital Visibility into Health Insurers’ Adaptation to Health Care Reform with Addition of Quarterly Health Group Financial Data.” Investment Weekly News, 13 November 2010. “Keeping It Simple: Data and Systems Integration/Consolidation Is a Key toward Modemization, and a Priority for insurers of All Sizes.” Insurance Networking News: Executive Strategies for Technology Management, 1 December 2010. ip gale ch exe scodtld netesserialslarcle/GALEY7CRN2SO14QU7SMbe 13ete4204 1242500207 TebsBstaBURnys!_ce_orehm 56rans ‘siness Insights: Essentials “National Health Expenditures 2012 Highlights." Washington, DC: Centers for Medicare & Medicaid Services, 2013. Available from http:/www.cms.gov. "Obama Signs Health Care Overhaul Bill” New York Times, 23 March 2010, Pear, Robert, and David M. Herszenhorn. "A Primer on the Details of Health Care Reform." New York Times, 9 August 2009. Rao, Ankita. "Health Insurers Tune In to Twitter for Customer Service.” Kaiser Health News, 8 August 2013, Available from http:/www.kaiserhealthnews. org. “Trends in Health Care Costs and Spending." Menlo Park, CA: Kaiser Family Foundation, March 2009. Available from http://www.kff.org U.S. Department of Commerce, Bureau of the Census. "Income, Poverty and Health Insurance Coverage in the United States: 2009," 2010. Available from http:/Avww.census gov. U.S. Department of the Treasury. Federal Insurance Office. " Annual Report on the Insurance Industry," June 2013. Available from http://www treasury gov. "U.S. Health Care Costs.” Menlo Park, CA: Kaiser Family Foundation, 2012. Available from http://www. kf. org, Wayne, Alex. "Insurers' Obamacare Losses May Cost US $5.5 Billion in 2015." Moneynews, 4 March 2014. Available from http:/www.moneynews.com Zuckerman, Mortimer B. "The High Cost of Staying Well." U.S. News & World Report, 22 October 2013. Source Ci ion: “Accident and Health Insurance." Encyclopedia of American Industries. Farmington Hills, MI: Gale, 2014. Business Insights: Essentials. Web. 1 Mar. 2015, URL http://bi.galegroup.com/essentials/article/GALE%7CRN2501400799/be 1 3efc42041f2a25892b77ebd8813a6? u=nysl_ce_onehm. Document Number: GALE|RN2501400799 > \. CENGAGE «= Learning ip gale ch exe scodtld netesserialslarcle/GALEY7CRN2SO14QU7SMbe 13ete4204 1242500207 TebsBstaBURnys!_ce_orehm 66