American health insurance seems to frustrate everyone. Patients complain that it’s expensive and complicated. Providers say it buries them in paperwork and can negatively affect patient care.
Yet identifying a villain here is no simple matter.
The American health payment system is a ramshackle structure comprising public and private insurance plans offered by a host of providers across multiple states. Over many decades, the system has been layered with more legislative patches than the roof on your grandfather’s barn.
Despite the good intentions of lawmakers, regulators, countless health care workers, and insurance companies, health insurance remains expensive and confusing for the 92 percent of Americans who have it and for the 8 percent who don’t.
Despite its problems, many experts believe the health payment system can be improved. Some want to level the ground and build a new system from scratch. Others advocate refinements to make health insurance less expensive and more transparent. Any solution will require cooperation among a host of key players, including insurance companies, health care providers, state governments, and that most unpredictable of all institutions, the United States Congress.
Here’s an overview of the symptoms affecting the health care payment industry, some root causes, and cures suggested by industry analysts.
But first, here are the primary ways people get health insurance in the United States.
The Payers
Employer-sponsored insurance (ESI) is the most common way Americans get health care coverage. This includes self-funded plans, in which the employer acts as the insurer, and commercial health insurance purchased by a company for its employees. More than 178 million people had ESI in 2023, according to the U.S. Census Bureau.
Medicare is a federal entitlement program that provides health insurance for Americans age 65 and above, people with a disability, and those having end-stage renal disease or ALS. Medicare covered about 63 million people in 2023.
Medicaid is a government program that provides health insurance and other benefits to low-income Americans. Medicaid is funded by both the federal government and the states. It is administered by the states within guidelines provided by the federal government. Coverage can vary from state to state. Medicaid covered about 63 million people in 2023.
Also in 2023, about 9 million people were covered by TRICARE, a program for U.S. servicemembers, their dependents, and retirees administered by the U.S. Department of Defense. Another 3 million people were covered by the Veterans Administration and related programs.
About 26 million people had no health insurance in 2023.
Symptoms
The most frequent complaint about health insurance is the cost. About half of Marketplace (55 percent) and ESI users (46 percent) gave their health insurance a negative rating based on its premiums in a 2023 survey by KFF. That’s roughly double the dissatisfaction rate for Medicare (27 percent) and Medicaid beneficiaries (10 percent).Cost is a major complaint for employers too, according to Orriel Richardson, an executive director at Morgan Health, a business unit of JPMorgan Chase aimed at improving health care.
“The growing refrain within small and mid-sized businesses is that providing health insurance for their employees is becoming unsustainable,” Richardson told The Epoch Times.
Another pain point with health insurance is the complexity of the plans. Consumers say this makes their coverage difficult to use and often seems unfair. Providers say the requirements are burdensome to them and make it more difficult to provide good health care.
Providers are frustrated too. The administrative demands required by insurance companies are a particular pain point. Experian found that 65 percent of providers said meeting the insurers’ claim-submission requirements is harder now than before the pandemic.
Insurance companies are aware of the problems.
Causes
Witty touched on a root problem commonly mentioned by health insurance experts. The industry did not develop purely as a market response to a need as many other businesses did. It was patched together over a hundred years or so through a combination of business and government interventions.
The many silos and layers of legislation make for a complex system that is difficult for Congress, let alone consumers, to understand.
For example, Richardson said, “You just don’t have a sense of how one change in a Medicare program has consequences across the broader health care marketing ecosystem.”
Insurers have also consolidated vertically, meaning that some have acquired the health providers they pay for services. This can make it harder for the government or consumers to track how much of the money paid in insurance premiums is actually spent on health care.
That number, known as the medical loss ratio (MLR), is a key metric in both public and private health insurance. When the MLR dips below a certain threshold—typically 80 or 85 percent depending on the type of insurance—the company is required to rebate premiums to the consumer.
Perhaps the most sobering root problem affecting the cost of health insurance is that Americans, on the whole, are sicker than they used to be.
The study found that about one-third of Millennials suffer from conditions that can affect quality of life and reduce life expectancy. Millennials had higher rates of cardiovascular disease and endocrine conditions such as diabetes.
“Health care is just simply not working. We’re sicker, our life expectancy is lower, our quality of life is poor,” Richardson said.
Prescriptions for Change
Ideas for improving the health payment system come in two types: reboots and refinements.
Unlike Medicare and Medicaid, which have no cost cap, the Einav-Finklestein plan would set an overall limit on taxpayer spending for health care.
Other ideas for improving health insurance would maintain the basic framework of public and private insurance systems but refine it to reduce cost and improve transparency. Several of these ideas focus on making health insurance more competitive.
Bruce Ratner, a former head of the Consumer Protection Division for New York City, advocates requiring health insurers to publish their denial rates. That would likely require an act of Congress and would lower prices according to Ratner.
“That way we choose our company based on denial rates, and that makes the companies work very hard to be competitive,” Ratner said in a Dec. 9 interview with CNBC.
Mark Bertolini, CEO of Oscar Health, advocates eliminating ESI to improve competition. Oscar Health is an insurance company that uses data to match individuals with tailored health coverage.
“The ability of your employer to negotiate against the large insurance company that has much a larger relationship with the provider community is very stunted now,” Bertolini said in a Dec. 13 interview with CNBC.
Small and mid-sized companies are hit hardest, seeing double-digit annual rate increases for their health plans, Bertolini said. That’s because they must buy more expensive plans to meet the needs of all employees. Giving employees a cash contribution for health insurance rather than purchasing a plan for them would allow each person to select the insurance that fits their needs, Bertolini said.
Those practices include clauses that force a provider to charge an insurer lower rates than those offered to other companies, gag clauses that prevent either the payer or provider from disclosing price information to patients, and exclusivity clauses that make the contracted provider the only in-network option.
Improving the transparency in the industry would also improve the situation, according to Richardson.
Health insurers operate in multiple states, often offering a mix of individual, ESI, Medicare Advantage, and other plans, each with its own standards and definition. That makes it difficult for anyone to assess the entire industry and has given rise to a multi-billion-dollar industry around health care data, said Richardson.
One solution might be “a real transparency report that says, if a new Medicare requirement comes onboard, how do you show that effect was isolated within that Medicare book of business and not ... a ripple effect went into the other books of business,” she said.
Insurers are quick to point out that their sometimes confusing rules are intended to reduce costs by preventing wasteful or fraudulent use of the health care system. Many people are skeptical of that.
Insurers could help by educating customers on how insurance works and the reasons behind their coverage decisions, according to Witty.
“Together with employers, governments, and others who pay for care, we need to improve how we explain what insurance covers and how decisions are made,” he said. “Behind each decision lies a comprehensive and continually updated body of clinical evidence focused on achieving the best health outcomes and ensuring patient safety.”
Acknowledging the growing urgency to improve health insurance, Richardson likens the system to a house with several layers of shingles on the roof. At some point, previous solutions may need to be peeled away to ensure that the system survives.
“We have a house that is sustainable enough, but instead of removing the shingles to repair the roof we keep cobbling new shingles onto it,” she said. “The very house itself is going to collapse under this patchwork of things we keep doing.”
