In conjunction with Dr. Tom Lee’s visit to UND this week, I thought I would start my series of discussions regarding several aspects of health care delivery and health insurance that I promised. Tom is the chief medical officer at Press Ganey, the nationally acclaimed health care consulting firm. Dr. Lee, as I hope you know from meeting with him or hearing his talk, was our Visiting Professor this week and delivered yesterday’s Dean’s Hour lecture on “Five Ideas from Outside Health Care—and How they Fit Together.”
The five ideas that Dr. Lee discussed in his presentation were developed following discussions with five non-health care leaders. They are:
Since health insurance has clear implications for value delivery in health care and a patient’s overall health care experience, let’s consider the question I posed last month: How does the way most people think about health insurance differ from the actual intent and purpose of insurance? My answer is twofold. First of all, insurance is intended to protect against unexpected and catastrophic loss (think of an automobile accident or house fire), but not for routine things (like an oil change for your car or changing the filters on the furnace in your house). But that’s not the way we typically think of and use health insurance; rather, we use it to pay for health care in general, whether major and unexpected (treating a heart attack or cancer) or routine and expected (mammograms, routine physical examinations, and preventive services like checking for glaucoma, etc.).
The second major difference between health insurance and all other forms of insurance is that most of us either don’t pay for our health insurance premiums at all or pay only part of them—or don’t even realize that we actually are paying the premiums. For most people who have it, health insurance feels like having a credit card to pay for health care where someone else (whoever that may be) is paying for the charges on that credit card.
So who really is paying our health insurance bills? Let’s start with seniors. The vast majority of them are covered by Medicare, the federal health insurance program that is funded mainly by payments made over the years while people work (payments are made both by the employee and employer), premiums paid by seniors once they start drawing Medicare benefits, and general revenue dollars contributed by taxpayers. So while a portion of the costs of Medicare have in fact been paid for by the participants, the benefits that the typical participant gets from Medicare far exceed what the participant contributed; the ratio is in the range of three to one. This difference is in the order of several hundred thousand dollars per typical participant, and ultimately is borne by future generations because the shortfall contributes to the country’s budget deficit.
This highlights one of the principles of insurance–it functions as a transfer of wealth. For all forms of insurance, it is a money transfer from people who are lucky (those who don’t have an auto accident, house fire, or illness) to those who are unlucky (and suffer an accident, fire, or illness). But what is unique about health insurance (and likely one of the sources of controversy) is that it also involves a transfer of dollars from the more wealthy to the less wealthy (and from younger generations to older ones).
The next group affected by health insurance is the large minority of non-seniors (as well as many seniors) who do not pay for their health insurance at all, or pay only a small fraction of the cost. Many of these folks get health insurance from Medicaid (which is jointly funded by the federal and state governments; in North Dakota, the cost is split 50-50). A second smaller group are those who get their insurance through the exchanges established by the Affordable Care Act (ACA), and most of these folks have much of their insurance premium costs subsidized by the federal government. The substantial expansion of health insurance coverage that occurred under the ACA was largely due to an expansion of Medicaid, followed by coverage under the exchanges sought by non-Medicaid enrollees needing a policy (because their employer does not provide health insurance).
The last major group is composed of those who have insurance provided through their employers, like all of us who work at UND. Coverage through private employers constitutes the single largest component of non-senior health insurance, both in North Dakota and the United States. The interesting question, though, is “who pays for private health insurance?” The obvious answer would be “the employer” (UND, for example). But that answer would be wrong. It turns out that health economists say that the employee actually pays for much of the premium above and beyond their deductible or co-pay in the form of what is called “foregone wages,” meaning that employers would have to pay employees more if the employer didn’t provide health insurance coverage.
How did this come about? It turns out that the provision of health insurance by private employers started in large measure during World War II, when there were government-ordered wage freezes in place. To compete for employees in the tight labor market that existed then (since many Americans were directly involved in the war effort and/or employed by the military), companies started offering benefits like health insurance to attract the limited number of workers available. Thus, health insurance coverage and other benefits were given in lieu of higher wages—and thus today it really is the employee who is "paying for" the health insurance provided by the employer. But it just doesn’t feel that way to the typical employee; rather, it feels more like an entitlement that goes along with employment.
So the bottom line is that most people in America have come to expect health insurance whether or not they pay for it—and in many cases, they pay only a fraction of the cost (or none at all). And even for those who are paying for it, in many cases it just doesn’t feel like it. Additionally, we use health insurance coverage to pay for routine and minor as well as emergency and catastrophic care. Thus, on these two issues—who pays for the insurance, and what is covered by that insurance—health insurance differs in major ways from all other forms of insurance. In my view, those differences are two of the root causes of the often contentious debate that surrounds health care and health insurance.
I plan to delve a little deeper into some further considerations of health care and health insurance in future columns of ENews. Please let me know your thoughts and comments.
Joshua Wynne, MD, MBA, MPH
UND Vice President for Health Affairs
Dean, UND School of Medicine and Health Sciences