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Health Insurance

Health insurance

Definition

Health insurance is insurance that pays for all or part of a person's health care bills. The types of health insurance are group health plans, individual plans, workers' compensation, and government health plans such as Medicare and Medicaid.

Health insurance can be further classified into feefor-service (traditional insurance) and managed care. Both group and individual insurance plans can be either fee-for-service or managed care plans.

The following are types of managed care plans:

  • Health Maintenance Organization (HMO)
  • Preferred Provider Organization (PPO)

Purpose

The purpose of health insurance is to help people cover their health care costs. Health care costs include doctor visits, hospital stays, surgery, procedures, tests, home care, and other treatments and services.

Description

Health insurance is available to groups as well as individuals. Government plans, such as Medicare, are offered to people who meet certain criteria.

Group and individual plans can be further classified as either fee-for-service or managed care. Cancer patients may have specific concerns, such as the freedom to select specialists, that play a factor in choosing a health care plan. Fee-for-service plans traditionally offer greater freedom when choosing a health care professional. Managed care often limits a patient to health care professionals listed by the managed care insurance company.

Group health plans

A group health plan offers health care coverage for employers, student organizations, professional associations, religious organizations, and other groups. Many employers offer group health plans to employees and their dependents as a benefit of working with that particular employer (medical benefits). The employer may pay for part or all of the insurance cost (premium).

When an employee leaves a job he or she may be eligible for continued health insurance as a result of the Consolidated Omnibus Budget Reconciliation Act of 1986 (COBRA). This federal law protects employees and their families in certain situations by allowing them to keep their health insurance for a specified amount of time. The individual must, however, pay a premium to keep their insurance plan in effect It is important to note that COBRA only applies under certain conditions, such as job loss, death, divorce, or other life events. The COBRA law usually applies to group health plans offered by companies with more than 20 employees. Some states have laws that require employers to offer continued health care coverage for people who do not qualify for COBRA. Each state's insurance board can provide additional information.

Individual plans

These type of health care plans are sold directly to individuals.

Fee-for-service

Fee-for-service is traditional health insurance in which the insurance company reimburses the doctor, hospital, or other health care provider for all or part of the fees charged. Fee-for-service plans may be offered to groups or individuals. This type of plan gives people the highest level of freedom to choose a doctor, hospital, or other health care provider. A person may be able to receive medical care anywhere in the United States and, often, in the world.

Under this type of insurance a premium is paid and there is usually a yearly deductible, which means benefits do not begin until this deductible is met. After the person has paid the deductible (an amount specified by the terms of the insurance policy) the insurance company pays a portion of covered medical services. For example, the deductible may be $250 so the patient pays the first $250 of yearly covered medical expenses. After that he or she may pay 20% of covered services while the insurance company pays 80%. The exact percentages and deductibles will vary with each policy. The person may have to fill out forms (claims) and send them to the insurance company to have their claims paid.

People who have cancer may be attracted to the freedom of choice that traditional fee-for-service plans offer. However, they will most likely have higher out-of-pocket costs than they would in a managed care plan.

Managed care

Managed care plans are also sold to both groups and individuals. In these plans a person's health care is managed by the insurance company. Approvals are needed for some services, including visits to specialist doctors, medical tests, or surgical procedures. In order for people to receive the highest level of coverage they must obtain services from the doctors, hospitals, labs, imaging centers, and other providers affiliated with their managed care plan.

People with cancer who are considering a managed care plan should check with the plan regarding coverage for services outside of the plan's list of participating providers. For example, if a person wants to travel to a cancer center for treatment, he or she should find out what coverage will be available. In these plans coverage is usually much less if a person receives treatment from doctors and hospitals not affiliated with the plan.

HEALTH MAINTENANCE ORGANIZATION (HMO).

An HMO is a type of managed care called a prepaid plan. This type of coverage was designed initially to help keep people healthy by covering the cost of preventive care, such as medical checkups. The patient selects a primary care doctor, such as a family physician, from an HMO list. This doctor coordinates the patient's care and determines if referrals to specialist doctors are needed. People pay a premium, usually every month, and receive their health care services (doctor visits, hospital care, lab work, emergency services, etc.) when they pay a small fee called a copayment. The HMO has arrangements with caregivers and hospitals and the copayment only applies to those caregivers and facilities affiliated with the HMO. This type of coverage offers less freedom than fee-for-service, but out-of-pocket health care costs are generally lower and more predictable. A person's out-of-pocket costs will be much higher if he or she receives care outside of the HMO unless prior approval from the HMO is received.

PREFERRED PROVIDER ORGANIZATION (PPO).

A PPO combines the benefits of fee-for-service with the features of an HMO. If patients use health care providers (doctors, hospitals, etc.) who are part of the PPO network, they will receive coverage for most of their bills after a deductible and, perhaps a copayment, is met. Some PPOs require people to choose a primary care physician who will coordinate care and arrange referrals to specialists when needed. Other PPOs allow patients to choose specialists on their own. A PPO may offer lower levels of coverage for care given by doctors and other professionals not affiliated with the PPO. In these cases the patient may have to fill out claim forms to receive coverage.

Government health plans

Medicare and Medicaid are two health plans offered by the U.S. government. They are available to individuals who meet certain age, income, or disability criteria. TRI-CARE Standard, formerly called CHAMPUS, is the health plan for U.S. military personnel.

MEDICARE.

Medicare, created in 1965 under Title 18 of the Social Security Act, is available to people who meet certain age and disability criteria. Eligible people include:

  • those who are age 65 years and older
  • some younger individuals who have disabilities
  • those who have end-stage renal disease (permanent kidney failure)

Medicare has two parts: Part A and Part B. Part A is hospital insurance and helps cover the costs of inpatient hospital stays, skilled nursing centers, home health services , and hospice care . Part B helps cover medical services such as doctors' bills, ambulances, outpatient therapy, and a host of other services, supplies, and equipment that Part A does not cover.

MEDICAID. Medicaid, created in 1965 under Title 19 of the Social Security Act, is designed for people receiving federal government aid such as Aid to Families with Dependent Children. This program covers hospitalization, doctors' visits, lab tests, and x rays. Some other services may be partially covered.

TRICARE. Eligible military families may enroll in TRICARE Prime, which is an HMO; TRICARE Extra, which offers an expanded choice of providers; or TRI-CARE Standard, which is the new name for CHAMPUS.

Supplemental insurance

Supplemental insurance covers expenses that are not paid for by a person's health insurance. Cancer insurance is a specific form of supplemental insurance that covers expenses that are not normally covered by health insurance but are specifically related to cancer treatments.

Workers' compensation

Workers' compensation covers health care costs for an injury or illness related to a person's job. Medical conditions that are unrelated to work are not covered under this plan. In some cases an evaluation is done to determine whether or not the medical condition is truly related to a person's employment.

Special concerns

There are a variety of special concerns that people with cancer have regarding health insurance.

Waiting period

Insurance may not take effect immediately upon signing up for a policy. Sometimes a waiting period exists, during which time premiums are not paid and benefits are not available. Health care services received during this period are not covered.

Preexisting condition

A preexisting condition, such as cancer, is a concern when choosing insurance. If a person received medical advice or treatment for a medical problem within six months of enrolling in new insurance, this condition is called preexisting, and it can be excluded from the new coverage. The six-month time lapse before a person enrolls in a new health insurance policy is called the look-back period. If a person received medical advice, recommendations, prescription drugs, diagnosis, or treatment for a health problem during the look-back period, he or she is considered to have a preexisting condition. People should check with their state insurance boards to determine preexisting condition rules.

Coverage renewal

Some people with diseases such as cancer worry about group health plans renewing their coverage. As long as the person meets the plan's eligibility requirements and the plan covers similar cases, the coverage must be offered. Coverage cannot be cancelled for health reasons.

Experimental/investigational treatments

Experimental/investigational treatments are often a concern for people with cancer. These treatments may or may not be covered by a person's health insurance. Some states mandate coverage for investigational treatments. People should check with their insurance plan and state insurance board to determine if coverage is available.

A clinical trial is a type of investigational treatment. Costs involved include patient care costs and research costs. Usual patient care costs that may be covered by insurance are visits to the doctor, stays in the hospital, tests, and other procedures that occur whether a person is part of an experiment or is receiving traditional care. Extra patient care costs that may or may not be covered by insurance are the special tests required as part of the research study.

Health insurance plans have policies regarding coverage for clinical trials . People should determine their level of health insurance coverage for clinical trials, and they should learn about the costs associated with a particular study.

In 2000, Medicare began covering certain clinical trials. The trials must meet specific criteria in order to be covered. In eligible trials treatments and services such as tests, procedures, and doctor visits that are normally covered by Medicare are covered. Some items may not be covered including investigational items like the experimental drug itself or items that are used only for data collection in the clinical trial. Patients should check to see if the clinical trial sponsor is providing the investigational drug at no charge.

Complementary therapies

Complementary cancer therapies are another coverage consideration. A cancer patient undergoing this type of therapy should check with his or her insurance policy regarding coverage.

Cancer screening coverage

Cancer screening coverage is an important consideration. As of 2000, 44 states mandate insurance coverage of screenings for at least one of these cancers: breast, cervical, prostate, and colorectal. Breast cancer screening coverage is most commonly mandated. Most mandates refer to screenings that follow the American Cancer Society guidelines. A Women's Health Initiative Observational Study investigated the use of cancer screenings by more than 55, 000 women between September 1994 and February 1997. The study found that the type of insurance a woman had was linked with the number of cancer screenings she reported. Women age 65 years and older who had Medicare plus prepaid insurance were more likely to report that they had screenings than those who had Medicare alone.

Health care regulations

The Health Insurance Portability and Accountability Act (HIPAA), passed by the U.S. Congress in 1996, offers people rights and protections regarding their health care plans. Because of HIPAA there are limits on preexisting condition exclusions, people cannot be discriminated because of health factors, there are special enrollment requirements for people who lose other group plans or have new dependents, small employers are guaranteed group health plan availability, and all group plans have guaranteed renewal if the employer wishes to renew. In summary these rights and protections include:

  • Portability. This is the ability for a person to get new health insurance if a change is desired or needed.
  • Availability. This refers to whether or not health insurance must be offered to a person and his or her dependents.
  • Renewability. This refers to whether or not a person is able to renew his or her health plan.

The Women's Health and Cancer Rights Act of 1998 requires health insurance plans to cover breast reconstruction related to a mastectomy if the patient chooses to have reconstruction and if the health plan covered the mastectomy. The law became effective for different health plans on different dates, with the earliest date of effect being October 21, 1998.

Resources

BOOKS

Schwartz, Alan N. Getting the best from your doctor. Minneapolis, MN: Chronimed Publishing, 1998.

PERIODICALS

Hsia, Judith et al., "The Importance of Health Insurance as aDeterminant of Cancer Screening: Evidence from the Women's Health Initiative." Preventive Medicine (September 2000): 261-70

Rathore, Saif S. et al., "Mandated Coverage for Cancer-Screening Services: Whose Guidelines Do States Follow?" American Journal of Preventive Medicine (August 2000): 71-8

ORGANIZATIONS

Agency for Health Care Research and Quality, Checkup on Health Insurance Choices 27 March 2001 <http://www.ahcpr.gov/consumer/insuranc.htm>

National Cancer Institute, Cancer Trials and Insurance Coverage:A Resource Guide 4 May 2001 <http://cancertrials.nci.nih.gov/understanding/indepth/insurance>

Health Care Choices Our Newsletter: Better Health Choices (January 1999) 9 May 2001 <http://www.healthcarechoices.org/newslet/news199brreconst.htm>

Health Care Financing Administration HIPAA Online 27March 2001 <http://www.hcfa.gov>

TRICARE The History of CHAMPUS and its Evolving Role 9May 2001 <http://www.tricare.osd.mil/factsheets/history.pdf>

OTHER

"Supplemental Insurance Policies May Be Offered Under aFlex Plan, IRS Says" In Flex Plan Handbook: November 1999 9 May 2001 5 July 2001 <http://207.226.10.52/tpg/pen_ben/flex/flexnov99.html>

Rhonda Cloos, R.N.

KEY TERMS

Clinical trial

A study to determine the efficacy and safety of a drug or medical procedure. This type of study is often called an experimental or investigational procedure.

Health care provider

A doctor, hospital, lab, or other professional person or facility offering health care services.

Health insurance claim

A bill for health care services that is turned in to the health insurance company for payment.

QUESTIONS TO ASK THE DOCTOR

  • What types of insurance do you accept?
  • Does your office file claims for patients?
  • Will your office get pre-authorization for procedures where it is required?
  • Do you have a list of providers for my type of insurance in case a referral is necessary?
  • If an experimental procedure is recommended, what costs will be involved?

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Health Insurance

HEALTH INSURANCE

Health insurance originated in the Blue Cross system that was developed between hospitals and schoolteachers in Dallas in 1929. Blue Cross covered a pre-set amount of hospitalization costs for a flat monthly premium and set its rates according to a "community rating" system: Single people paid one flat rate, families another flat rate, and the economic risk of high hospitalization bills was spread throughout the whole employee group. The only requirement for participation by an employer was that all employees, whether sick or healthy, had to join, again spreading the risk over the whole group. Blue Shield was developed following the same plan to cover ambulatory (i.e., non-hospital) medical care.

The Blue Cross/Blue Shield plans were developed to complement the traditional method of paying for health care, often called fee-for-service. Under this method, a physician charges a patient directly for services rendered, and the patient is legally responsible for payment. The Blue Cross/Blue Shield plans are called indemnity plans, meaning they reimburse the patient for medical expenses incurred. Indemnity insurers are not responsible directly to physicians for payment, although physicians typically submit claims information to the insurers as a convenience for their patients. For insured patients in the fee-for-service system, two contracts are created: one between the doctor and the patient, and one between the patient and the insurance company.

Traditional property and casualty insurance companies did not offer health insurance because with traditional rate structures, the risks were great and the returns uncertain. After the Blue Cross/Blue Shield plans were developed, however, the traditional insurers noted the community rating practices and realized that they could enter the market and attract the healthier community members with lower rates than the community rates. By introducing health screening to identify the healthier individuals, and offering lower rates to younger individuals, these companies were able to lure lower-risk populations to their health plans. This left the Blue Cross/Blue Shield plans with the highest-risk and costliest population to insure. Eventually, the Blue Cross/Blue Shield plans also began using risk-segregation policies and charged higher-risk groups higher premiums.

During the 1960s, Congress enacted the medicare program to cover health care costs of older patients and medicaid to cover health care costs of indigent patients (Pub. L. No. 81-97). The federal government administers the Medicare Program and its components: Part A, which covers hospitalization, and Part B, which covers physician and outpatient services. The federal government helps the states fund the Medicaid Program, and the states administer it. Medicare, Part A, initially covered 100 percent of hospitalization costs, and Medicare, Part B, covered 80 percent of the usual, customary, and reasonable costs of physician and outpatient care.

Under both the fee-for-service system of health care delivery, where private indemnity insurers charge premiums and pay the bills, and the Medicare-Medicaid system, where taxes

fund the programs and the government pays the bills, the relationship between the patient and the doctor remains distinct. Neither the doctor nor the patient is concerned about the cost of various medical procedures involved, and fees for services are paid without significant oversight by the payers. In fact, if more services are performed by a physician under a fee-for-service system, the result is greater total fees.

From 1960 to 1990, per capita medical costs in the United States rose 1,000 percent, which was four times the rate of inflation. As a consequence, a different way of paying for health care rose to prominence. "Managed care," which had been in existence as long as indemnity health insurance plans, became the health plan of choice among U.S. employers who sought to reduce the premiums paid for their employees' health insurance.

managed care essentially creates a triangular relationship among the physician, patient (or member), and payer. Managed care refers primarily to a prepaid health-services plan where physicians (or physician groups or other entities) are paid a flat per-member, per-month (PMPM) fee for basic health care services, regardless of whether the patient seeks those services. The risk that a patient is going to require significant treatment shifts from the insurance company to the physicians under this model.

Managed care is a highly regulated industry. It is regulated at the federal level by the Health Maintenance Organization Act of 1973 (Pub. L. No. 93-222) and by the states in which it operates. The health maintenance organization (HMO) is the primary provider of managed care, and it functions according to four basic models:

  1. The staff-model HMO employs physicians and providers directly, and they provide services in facilities owned or controlled by the HMO. Physicians under this model are paid a salary (not fees for service) and share equipment and facilities with other physician-employees.
  2. The group-model HMO contracts with an organized group of physicians who are not direct employees of the HMO, but who agree to provide basic health care services to the HMO's members in exchange for capitation (i.e., PMPM) payments. The capitation payments must be spread among the physicians under a pre-determined arrangement, and medical records and equipment must be shared.
  3. The individual-practice-association (IPA) model HMO is based around an association of individual practitioners who organize to contract with an HMO, and as a result treat the HMO's patients on a discounted fee-for-service basis. Although there is no periodic limit on the amount of payments from the HMO, the physicians in an IPA must have an explicit agreement that determines the distribution of HMO receipts and sets forth the services to be performed.
  4. The direct-service contract/network HMO model is the most basic model. Under this variation, an HMO contracts directly with individual providers to provide service to the HMO's patients, on either a capitated or discounted fee-for-service basis.

All four of these models share one very important feature of HMOs: The health care providers may not bill patients directly for services rendered, and they must seek any and all reimbursement from the HMO.

Another form of managed care is the preferred provider organization (PPO). A PPO does not take the place of the traditional fee-for-service provider (as does a staff–model HMO), and does not rely on capitated payments to providers. Instead, a PPO contracts with individual providers and groups to create a network of providers. Members of a PPO may choose any physician they wish for medical care, but if they choose a provider in the PPO network, their copayments—predetermined, fixed amounts paid per visit, regardless of treatment received—are significantly reduced, thus providing the incentive to stay in the network. No federal statutes govern PPOs, but many states regulate their operations. There are three basic PPO models:

  1. In a gatekeeper plan, a patient must choose a primary-care provider from the PPO network. This provider tends to most of the patient's health care needs and must authorize any referrals to specialists or other providers. If the patient "self-refers" without authorization, the cost savings of the PPO will not apply.
  2. The open-panel plan, on the other hand, allows a patient to see different primary-care physicians and to self-refer within the PPO network. The financial penalties for seeking medical care out of the PPO network are much greater in this less-structured model than in the gatekeeper model.
  3. The exclusive-provider plan shifts onto the patient all of the costs of seeking medical care from a non-network provider, and in this respect it is very similar to an HMO plan.

Other forms of health care delivery that encompass features of managed care include point-of-service (POS) plans and physician-hospital organizations (PHOs). A POS plan is a combination of an HMO and an indemnity insurance plan, allowing full coverage within the network of providers and partial coverage outside of it. A patient must choose one primary-care physician and might pay a higher monthly rate to the POS if the physician is not in the HMO network. Another version of the POS plan creates "tiers" of providers, which are rated by cost-effectiveness and quality of patient outcomes. A patient may choose a provider from any tier and then will owe a monthly premium payment set to the level of that tier.

A PHO is very similar to an IPA in that it is an organization among various physicians (or physician groups) and a hospital, set up to contract as a unit with an HMO. Physician-hospital networks, within HMOs or through PHO contracts, further the managed-care mission of "vertical integration," which is the coordination of health care (and payment for that care) from primary care through specialists to acute care and hospitalization.

Managed care has affected Medicare as well as private health care. In 1983, Congress changed the payment system for Medicare, Part A, from a fee-for-service-paid-retroactively system to a prospective payment system, which fixes the amount that the federal government will pay based on a patient's initial diagnosis, not on the costs actually expended (Pub. L. No. 98-369). Medical diagnoses are grouped according to the medical resources that are usually consumed to treat them, and from that grouping is determined a fixed amount that Medicare will pay for each diagnosis. Although this system is applicable only to the acute-care hospital setting, it is clearly an example of shifting the risk of the cost of health care from the payer (in this case, Medicare) to the provider, which is an important element of managed care. In addition, many HMOs now offer Medicare managed-care plans, and many older citizens opt for these plans because of their paperless claims and preset co-payments for physician visits and pharmaceuticals.

The most recent development in the area of health insurance is the medical savings account (MSA), a pilot program that was created by the Health Insurance Portability and Accountability Act of 1996 (Pub. L. No. 104-191). The premise behind the MSA is to take the bulk of the financial risk, and premium payments, away from the managed-care and indemnity insurers; and to allow individuals to save money, tax free, in a savings account for use for medical expenses. Individuals or their employers purchase major-medical policies, medical insurance policies with no coverage for medical expenses until the amount paid by the patient exceeds a predetermined maximum amount, such as $2,500 per year. These policies have extremely high deductibles and correspondingly low monthly premiums. The participants take the money that they would have spent on higher premiums and deposit it in an MSA. This money accrues through monthly deposits and also earns interest, and it can be spent only to pay for medical care. The major-medical policy applies if a certain amount equal to the high deductible is expended or if the account is depleted. MSAs do not incorporate any of the cost-controlling aspects of managed-care organizations, and instead depend on competition among providers for patients (who are generally more cost-conscious about spending their own money) to encourage efficient health-care delivery and to discourage unnecessary expense.

Litigation has resulted from insurance companies seeking to place limits for certain conditions. The decision by the U.S. Court of Appeals for the Seventh Circuit in Doe and Smith v. Mutual of Omaha Insurance Co., 179 F.3d 557 (7th Cir. 1999), cert. denied, 120 S. Ct. 845 (2000), concerns AIDS caps insurance policies. At issue in the case was whether the Americans with Disabilities Act (ADA) covers the content of insurance policies. The plaintiffs, who sued under the pseudonyms john doe and Richard Smith, argued that Mutual of Omaha Company had discriminated against them by selling them insurance policies with lifetime caps on AIDS-related expenditures. John Doe's policy had a lifetime AIDS cap of $100,000, and Richard Smith's policy had a cap of $25,000. Other health insurance policies sold by the company had lifetime caps for other diseases of $1 million. The Seventh Circuit found that AIDS caps do not violate the ADA. The court found that Doe and Smith were not discriminated against, because the company did offer them an insurance policy. The ADA, the court determined, would only prohibit Mutual of Omaha from singling out disabled people and refusing to sell them insurance. The court ruled that the ADA did not prohibit the company from offering disabled parties insurance policies with different terms and conditions from other people. The court held the plaintiffs were not denied a policy because they had AIDS but rather were denied coverage for certain AIDS treatments.

In August 2000, a federal appeals court upheld the dismissal of a class-action RICO suit against Aetna-U.S. Healthcare Inc. after finding that the plaintiffs had failed to allege a valid RICO injury and that they therefore lacked standing to sue. In Maio v. Aetna Inc., 221 F.3d 472, 493 (3d Cir. 2000) the court found that the plaintiffs were unable to demonstrate that Aetna's policies gave less of a health care product than what Aetna had promised to deliver in terms of the level and quality of health care coverage under its HMO plan. The court found that without proof that systemic practices actually negatively affected the health care that Aetna provided to its HMO members through its participating providers, the case could not stand. The consumers who alleged that Aetna had lured them in with false promises of high-quality care, while secretly pressuring doctors to cut costs and to provide only minimal care, did not prevail in the suit.

further readings

Ellwood, Paul M., Jr., and George D. Lundberg. 1996. "Managed Care: A Work in Progress." Journal of the American Medical Association 276 (October 6).

Freiburg, James P. 1993. "The ABCs of MCOs: An Overview of Managed Care Organizations." Illinois Bar Journal 81 (November).

Halvorson, George C. 1993. Strong Medicine. New York: Random House.

Harris, Jeffrey R., et al. 1996. "Prevention and Managed Care: Opportunities for Managed Care Organizations, Purchasers of Health Care, and Public Health Agencies." Journal of the American Medical Association 275 (January 3).

cross-references

Health Care Law; Physicians and Surgeons.

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Medicaid Act (1965)

Medicaid Act (1965)

Sara Rosenbaum

Enacted in 1965 as a legislative "afterthought" to Medicare, the Medicaid program (P.L. 89-97) has grown into a central part of the American health care system. Medicaid finances health needs throughout the entire life cycle: In 1999 the program funded nearly one-third of all U.S. births and approximately one-half of all nursing home care. It is the largest single funder in the treatment of HIV/AIDS and for serious mental illness, and provides more than a third of the revenues used to support the health care "safety net" for low-income, uninsured, and medically underserved persons. Medicaid insures nearly 14 percent of the nonelderly population and 20 percent of all children. In fiscal year 2002, combined federal and state Medicaid expenditures totaled nearly $250 billion, virtually equaling Medicare spending levels. Total program enrollment that year stood at forty-four million persons, making Medicaid the nation's largest single public insurance program.

Medicaid's structural elasticity and its resulting ability to respond to national health priorities involving individuals and conditions considered uninsurable in the commercial market explain its importance to the health system. Legislators have amended Medicaid dozens of times since its original enactment to add numerous classes of eligible persons and covered services to address the range of priorities that have arisen over the nearly four decades since the law's original enactment. Examples include coverage for low-income pregnant women, uninsured women with breast and cervical cancer, community-based health care for children and adults with severe disabilities and at risk for institutionalization, workers with disabilities, and transitional insurance for families moving from welfare to work. Medicaid also has come to play a critical role in compensating for Medicare's limitations by offering premium and cost-sharing assistance to lower-income Medicare beneficiaries, as well as supplemental coverage for low income and medically needy beneficiaries for the many benefits and services that Medicare does not cover. This is particularly the case for prescription outpatient drugs and long-term care.

MEDICAID'S COMPLEXITY

The federal Medicaid statute is extremely complex, made so by two factors. The first is the program's historic ties to cash welfare payment principles. Originally Congress limited mandatory eligibility classifications to families with children and elderly and disabled persons receiving cash welfare. It significantly modified these rules over the years to either mandate or permit coverage for certain groups of low-income persons other than those who receive cash welfare assistance, but it never entirely replaced the original rules. The result is a complicated eligibility scheme that offers more than five dozen separate eligibility categories, some mandatory, others optional, encompassing pregnant women, children, families with children, and elderly and disabled adults. Poverty and low income (either outright or as the result of having incurred catastrophic medical expenses) are hallmarks of virtually all eligibility categories.

Ironically, no federal eligibility category exists for nondisabled, nonelderly, nonpregnant adults without children, even though these persons comprise a significant proportion of the nation's forty-two million uninsured persons. A number of states do extend coverage to such individuals by operating their Medicaid programs as "demonstrations" under the legal authority of Section 1115 of the Social Security Act. This provision of law, which dates back to 1963 (pre-Medicaid), permits the Secretary of the U.S. Department of Health and Human Services to waive otherwise applicable provisions of certain Social Security Act grant-in-aid programs in order to conduct welfare demonstrations that further federal objectives. Only a minority of states have expanded Medicaid eligibility standards in this fashion.

The second factor contributing to Medicaid's complexity is the program's special coverage structure. Several classes of benefits are federally required as a condition of state participation, and states must cover reasonable levels of benefits and services for their enrolled populations. Coverage is particularly comprehensive for children under twenty-one. The program either bars outright or severely curtails the use of patient cost-sharing and premiums. Unlike commercial health insurance or Medicare, Medicaid contains no pre-existing condition exclusion clauses or waiting periods. In addition, the statute bars discrimination in the provision of required services on the basis of a condition. For example, the types of hospital and medical care coverage limitations found in commercial plans for persons with HIV or mental illness would be impermissible in Medicaid.

Medicaid's legal structure accounts for its growth over the years. It is also this structure and its attendant costs that account for the deep controversy surrounding the program. Medicaid is a grant-in-aid program that provides federal assistance to states with approved plans to help defray the cost of extending covered benefits to eligible individuals when furnished by participating providers. The federal financial participation rate ranges from 50 to 77 percent of each dollar spent by a state on medical assistance under an approved state plan. Unlike other grant-in-aid programs, however, there is no aggregate upper limit on this federal contribution level: federal financing is open-ended and limited only by a state's own desires to contain the size and scope of their plans.

From a legal point of view, Medicaid is unique because unlike other grant-in-aid programs, it is an individually enforceable legal entitlement in the case of persons eligible for and receiving services under a state plan. Furthermore, enforceability is not simply an issue for beneficiaries. States have an enforceable right to payment, and participating health care providers that furnish covered services to eligible persons have a legally enforceable federal right to payment, although in recent years Congress has reduced provider protections by repealing key provider payment standards.

FUNDING CONTROVERSIES

Medicaid's controversy also relates to its sheer size and its legal entitlements; the law mandates continued funding increases, even as the number of persons and the cost and intensity of health care increase. State officials facing the worst financial crisis since the Great Depression have responded in 2003 with efforts to reduce Medicaid spending through reductions in "optional" eligibility, benefits, and provider payments. Although two-thirds of all Medicaid expenditures are attributable to "optional" benefits and services, the reality is such that these "options" are politically sensitive. For example, most nursing home expenditures are optional, as is coverage of women with breast cancer, prescription drug coverage, and residential facilities for persons with mental retardation.

Repeated calls for program reforms range from expanding existing eligibility and benefit rules in order to reduce the number of uninsured Americans or to respond to specific health problems (such as breast and cervical cancer) to eliminating much of the program and replacing it with aggregate block grants to states, as called for by the Bush administration in 2003. Most reform efforts are viewed as so politically and economically difficult that in many respects, Medicaid has remained essentially untouched since its original enactment, merely expanding in both scope and complexity over the years as needs arose. Whether this cycle of public outcry over program costs produces different results remains to be seen.

See also: Medicare Act; Social Security Act of 1935.

BIBLIOGRAPHY

Schneider, Andy, et al. The Medicaid Resource Book. Washington, DC: Kaiser Family Foundation, 2003.

INTERNET RESOURCES

National Health Law Program. <http://www.healthlaw.org>.

Center for Medicare and Medicaid Services. <http://www.cms.gov>.

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health insurance

health insurance, prepayment plan providing services or cash indemnities for medical care needed in times of illness or disability. It is effected by voluntary plans, either commercial or nonprofit, or by compulsory national insurance plans, usually connected with a social security program.

Health Insurance Worldwide

Compulsory accident and sickness insurance was initiated (1883–84) in Germany by Otto von Bismarck; it was adopted by Great Britain, France, Chile, the Soviet Union, and other nations after World War I. In Britain the National Health Insurance Act of 1946, which went into effect in 1948, provided the most comprehensive compulsory medical care plan introduced anywhere up to that time. Under the plan the individual obtained free medical attention from any doctor participating in the national health service. The cost was met by the national government and local taxation; a small charge for some services has been instituted since then. In 1958 the Canadian Hospital and Diagnoses Act provided full hospital service almost free of charge in public wards; more comprehensive coverage was added in 1967. The program is financed by the federal government but administered by the provinces. National health insurance has been widely adopted in Europe and parts of Asia. The United States is the only Western industrial nation without some form of comprehensive national health insurance.

Health Insurance in the United States

In the past, health insurance in the United States took the form of voluntary programs. Such programs date from about 1850, when health insurance was provided chiefly by cooperative mutual benefit and fraternal beneficiary associations. Limited coverage by commercial companies was also introduced during that period, and subsequently many plans were established by industries and labor unions.

Advocacy of government health insurance in the United States began in the early 1900s. Theodore Roosevelt made national health insurance one of the major planks of the Progressive party during the 1912 presidential campaign, and in 1915 a model bill for health insurance was presented, but defeated, in numerous state legislatures. After 1920 opposition to government-sponsored plans was led by the American Medical Association and was said to be motivated by the fear that government participation in medical care might lead to socialized medicine.

Over the years in the United States, many plans have been set up by societies of practicing physicians, but the largest enrollment has been in Blue Cross and Blue Shield plans. These were set up as community-sponsored, nonprofit service plans based on contracts with hospitals and with subscribers. Most general voluntary plans accept subscribers, in groups or as individuals. These plans extend coverage to dependents and exclude accidents and diseases covered by workers' compensation laws. Although valuable in cushioning the financial distress caused by illness or injury, voluntary health insurance not only limits benefits in order to avoid prohibitive rates but excludes many people, particularly the poor, who cannot afford it, and senior citizens, for whom the cost is often prohibitive. By the mid-1990s many of the Blue Cross companies, which had been suffering financially, were reorganizing, and by 2002 more than 20% of Blue Cross members were covered by plans that had converted to for-profit status.

During the middle of the 20th cent. it became apparent that legislation was necessary to provide medical care for the elderly. A voluntary federal-state grant-in-aid program providing medical care to the elderly was first implemented in 1961. Legislation proposed by President Kennedy to provide medical care for the aged through the social security mechanism was defeated in 1961, but in 1965, during President Lyndon B. Johnson's administration, Federal legislation in the form of Medicare for the aged and Medicaid for the indigent was enacted. Since 1966, both public and private health insurance has played a key role in financing health-care costs in the United States.

Over 70% of all medical bills are now covered by government programs and insurance, and the number of people covered by some form of health insurance increased from about 12 million in 1940 to over 225 million in 1996. About 38 million Americans were enrolled in Medicare, and there were more than 36 million Medicaid recipients. In that same year, about 187 million people were covered by private health insurance. However, more than 44 million Americans are not covered by any health insurance, and those who are have seen significant cost increases. As premiums increased from $16.8 billion in 1970 to $310 billion in 1995, and national health-care costs rose from $75 billion in 1970 to just over $1 trillion in 1996, many businesses increased the amount of money employees contribute toward their health insurance. This situation has led to continuing political pressure for restructuring of the national health-care insurance system.

Congress debated many bills for a national health insurance plan in the 1960s and 70s, and in 1973 it passed the Health Maintenance Organization (HMO) Act, which provided grants to employers who set up HMOs (see health maintenance organization). Unlike insurers, HMOs provide care directly to patients; HMOs were viewed as low-cost alternatives to hospitals and private doctors. In 1997 approximately 651 HMOs provided care to 66.8 million people.

In the 1980s and 90s political leaders again advanced a variety of national health insurance proposals. One plan backed by leading Democrats was known as "pay or play" because it would have forced employers to provide health insurance or pay into a national fund that would cover uninsured workers. A second, advanced by President G. H. W. Bush in 1992, would have provided tax breaks, vouchers, and other incentives to employers to extend health insurance benefits. A third proposal, based on the Canadian model and nationalized health care, was opposed by most doctors and the insurance industry.

In 1993, President Clinton, who had been elected on a promise of health-care reform, proposed a national health insurance program that would have ultimately provided coverage for most citizens, but opposition by insurance, medical, small-business, and other groups killed it. In 1999, Clinton and Congress battled over developing a "patient's bill of rights," to protect people from denial of service and other HMO limitations.

A federal overhaul of the U.S. health insurance system again became a national issue in 2009 after the election of President Barack Obama. The Democratic president and Democratic-controlled Congress attempted to craft a federal law that would expand U.S. health-insurance coverage, but despite securing broader support than President Clinton had they still faced difficulty in winning passage of the legislation, which was only achieved in Mar., 2010. The resulting legislation largely left the current U.S. health insurance system unmodified, attempting to increase the number of Americans covered by health insurance to an estimated 95% by 2019 by expanding Medicaid, providing subsidies to low- and middle-income families, requiring many companies to provide insurance and most Americans to have it, creating insurance exchanges on which individuals could shop for health insurance, and increasing taxes on the wealthiest Americans. Participation in the expansion of Medicaid (effective 2014) is voluntary for the states, and only about half have elected to participate. Many individual states have developed their own health insurance alternatives by using managed-health-care systems that monitor the type of services offered and have set fees for each service, by expanding Medicaid to help serve formerly ineligible patients, and by establishing statewide or small-business health insurance alliances that pool people into a large group that has more buying power.

Bibliography

See H. Eckstein, The English Health Service (1958); D. S. Hirshfield, The Lost Reform (1970); M. V. Pauly, Medical Care at Public Expense (1971); J. Blanpain, National Health Insurance (1978); O. Anderson, Health Services in the United States (1985); F. T. O'Grady, Individual Health Insurance (1988); D. Long, Principles of Life and Health Insurance (1988).

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Health Insurance

HEALTH INSURANCE

HEALTH INSURANCE. Most Americans believe medical care should be available to every citizen. Yet the United States is the only wealthy democracy that does not insure millions of its citizens, and Americans pay higher health care costs than patients in any other country. From 1970 to 1996 the percentage of Americans without medical insurance climbed from 10.9 to 15.6. At the turn of the twenty-first century over 40 million Americans lacked any type of coverage and roughly the same number were underinsured against serious illnesses.

A poorly designed health care system explains why so many either lack coverage or must worry about losing insurance if they lose or change jobs. In the United States, health insurance is closely linked to employment. Government-sponsored programs cover only certain groups—veterans and military servicemembers, the elderly and the poor, and Native Americans. Most Americans enroll in a plan offered by their employer. Coverage therefore depends on both government policies and the ability of private employers to offer job-related benefits.

In the early twentieth century, most Americans lacked health insurance. In 1915, the American Association for Labor Legislation (AALL) urged state lawmakers to provide coverage for low-income families. Fifteen states were considering legislation before opponents of government-sponsored insurance attacked the proposals as "un-American" forms of "socialism." Although critics defeated the AALL legislation, Congress established a national hospital system for veterans in 1921.

In the 1930s the depression put medical care beyond the reach of many middle-class Americans. The influential American Medical Association (AMA) nevertheless opposed both private and public insurance plans, and AMA opposition forced President Roosevelt to exclude health care provisions from his Social Security Act. Over AMA objections, cash-strapped hospitals nevertheless began implementing new prepayment schemes. At Baylor University, a plan devised by Dr. Justin Ford Kimball offered hospitalization benefits in exchange for monthly prepayments. By 1940, fifty-six "Blue Cross" programs were offering hospital benefits to 6 million subscribers. In 1943 the AMA itself established Associated Medical Care Plans, the model for "Blue Shield," to maintain some control over the reimbursements paid to doctors.

After World War II, President Truman called on a Republican-controlled Congress to enact universal health coverage. When Congress did not act, Truman won the 1948 election, and the Democrats won back Congress. Truman renewed his campaign for universal coverage, but the AMA spent millions to thwart him. Weak support among voters and political divisions among Democrats contributed to the plan's defeat. So, too, did the relative availability of private insurance after the war. Many employers now offered benefits to attract scarce workers, and tax policies encouraged them by exempting revenues used to pay employee premiums. Moreover, after labor unions won the right to bargain for health insurance, many union members gained employer-financed coverage.

In the 1950s many elderly, unemployed, and chronically ill Americans remained uninsured. When Democrats swept Congress and the presidency in 1964, Lyndon Johnson made government-sponsored health insurance for the elderly a top priority. In 1965 Congress amended the Social Security Act to create Medicare and Medicaid, providing health coverage for the elderly and the poor. Under Medicare, age and social security status determined eligibility; under Medicaid, income determined eligibility, and benefits varied by state.

Since the 1960s, health care costs have consumed an ever larger percentage of the gross national product, and the problem of cost containment has dominated health care discourse. President Nixon elevated health maintenance organizations, or HMOs, to the top of his health care agenda. In 1973 Congress passed the Health Maintenance Organization Act, which financed the creation of HMOs (prepaid group practices that integrate financing and delivery of services) and required employers to offer HMO plans. Since then, the number of Americans insured by HMOs has skyrocketed.

In 1960 fewer than 50 percent of Americans had health insurance; at the beginning of the twenty-first century roughly 85 percent were covered by private insurance, Medicare, or Medicaid. In 1992, 38.9 million Americans still lacked health insurance. Upon his election, President Clinton kept a campaign promise by introducing a plan to reform health care financing, control costs, and extend coverage to the uninsured. Clinton's "Health Security" plan featured universal coverage, employer mandates, and complex regulatory mechanisms.

Health insurance companies and other interest groups spent millions of dollars to defeat the Clinton initiative. Republican Party strategists feared that Democrats would earn the confidence of middle-class voters if Health Security became law. Antigovernment conservatives used moral suasion and grassroots mobilization to undermine the Clinton plan. Opponents successfully portrayed Health Security as a choice-limiting takeover of the health care system by liberals and bureaucrats. The Clinton plan would have guaranteed every American a choice, however, of at least three different plans, including a fee-for-service option. From 1992 to 1997 enrollment in HMOs and other health plans that limit one's choice of doctors soared by 60 percent. By the beginning of the twenty-first century, over half of all insured American workers were enrolled in employer-sponsored HMOs.

BIBLIOGRAPHY

Bok, Derek. The Trouble with Government. Cambridge, Mass.: Harvard University Press, 2001.

Gamble, Vanessa Northington. "Health Care Delivery." In Encyclopedia of the United States in the Twentieth Century. Edited by Stanley I. Kutler et al. Vol. 2. New York: Scribners, 1996.

Skocpol, Theda. Boomerang: Health Care Reform and the Turn Against Government. New York: Norton, 1997.

JustinSuran

See alsoHealth Care ; Health Maintenance Organizations ; Insurance ; Medicare and Medicaid .

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Penn Central Company

Penn Central Company, former U.S. transportation company, formed in 1968 by the merger of the New York Central RR and the Pennsylvania RR. By the early 1970s the railroad was bankrupt; in 1976 the U.S. government created Conrail from the Penn Central and five other failed eastern railroads. In 1994 the company became an insurance firm, American Premier Underwriters. Conrail itself was taken over in 1999 by the CSX and Norfolk Southern railroads.

See J. R. Daughen and P. Binzen, The Wreck of the Penn Central (1971, repr. 1999).

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Health Insurance

HEALTH INSURANCE

Health insurance is a prepayment plan that provides services or monetary reimbursements for medical care needed because of illness or disability. Health insurance is provided to individuals either through voluntary plans that are commercial or nonprofit or through obligatory national insurance plans that are usually connected with a Social Security program.

Medical Coverage for America: Past and Present

Health insurance in the United States originated around 1850 as voluntary programs through cooperative mutual benefit and fraternal beneficiary associations, as well as through some commercial companies, industries, and labor unions that offered limited coverage. President Theodore Roosevelt instigated the idea for government health insurance in the early 1900s, but his concept never materialized because of the public's fear of socialized medicine.

Over time, many plans were developed by societies of practicing physicians, but it was the community-sponsored, nonprofit service plans based on contracts with hospitals and subscribers that drew the greatest enrollment. Under the name "Blue Cross and Blue Shield," these plans extended coverage to dependents while excluding coverage of accidents and diseases covered by workers' compensation laws, but their limitations—such as excluding those who could not afford the coverage and senior citizens—led to their downfall and subsequent restructuring in the mid-1990s.

In 1965 the federal government created two national health insurance programs: Medicare for the elderly and Medicaid for the poor. The Health Maintenance Organization (HMO) Act was passed by Congress in 1973 to provide low-cost alternatives to hospitals and private doctors through employer-based plans.

While there are many health insurance options available in the country, the United States remains the only Western industrial nation without some form of comprehensive national health insurance. According to the U.S. Bureau of the Census, 15.5 percent of the population was without health insurance coverage in 1999, and 13.9 percent of the uninsured were children (under age eighteen). Even though the uninsured rate for children decreased between 1998 and 1999, poor children continued to represent the highest number without health insurance coverage, making up 28.2 percent of all uninsured children in 1999.

Providing Children with Health Insurance

Health insurance plays a critical role in ensuring that children access the health care they need—and without it, the health status of children and the well-being of families is jeopardized. Studies have shown that lack of health insurance affects children in all aspects of their lives, not just their health. Those without primary or preventive care generally use inappropriate, more expensive services and have more serious medical problems. Their neglected health problems cause them to miss school and fall behind in their studies, possibly affecting future educational and employment opportunities, and may prevent them from achieving their full potential.

Because of the serious consequences of the lack of health insurance, providing children with medical care is a constant area of concern for the U.S. government. There are three major sources of health insurance for children in the United States: employment-based or privately purchased; Medicaid; and the State Children's Health Insurance Program.

According to the Census Bureau, 68.9 percent of children were covered by an employment-based or privately purchased health insurance plan in 1999. Privately purchased plans can be bought through numerous health insurance companies. While full-time employees may receive the option of health-care coverage for themselves and their families through pay-deduction contributions, this coverage is often not guaranteed.

In 1999, 20 percent of children were covered by Medicaid. Since its beginning in 1965, Medicaid has been instrumental in financing health-care costs for the poor. Medicaid is a jointly funded, federal-state health insurance program for certain low-income and needy people and is administered by the Health Care Financing Administration. It covers approximately 36 million individuals including children, the aged, people who are blind or disabled, and people who are eligible to receive federally assisted income maintenance.

While Medicaid offers a great deal of health insurance coverage to children, the Balanced Budget Act of 1997 took the government's efforts one step further by allowing states to expand Medicaid eligibility with an enhanced federal match. Once passed, the Balanced Budget Act of 1997 restored Medicaid to those who previously lost the entitlement after passage of the Personal Responsibility and Work Opportunity Act of 1996. It also granted states greater flexibility when determining eligibility.

A major provision of the Balanced Budget Act of 1997 was the State Children's Health Insurance Program (SCHIP), also known as Title XXI, which allowed for more than $40 billion to be given to states over a ten-year period. This stipulation allowed states to implement Medicaid eligibility expansions and provisions to ensure enrollment of all children qualified for Medicaid under federal legislation. The passage of Title XXI helped form health insurance programs in each state for infants, children, and teens. For little or no cost, these state insurance programs pay for doctor visits, prescription medicines, hospitalizations, and much more. Although each state has different eligibility rules, most states insure children who are eighteen years or younger and whose families earn up to $34,100 a year (for a family of four).

SCHIP has been widely supported, and in 1999 the American Academy of Pediatrics (AAP) recommended that states implement the following to ensure that all children who are eligible for Medicaid are enrolled in the program:

  • immediately extend Medicaid coverage to all children at or below the federal poverty level who are younger than nineteen years old to take advantage of the enhanced federal match offered under Title XXI;
  • ensure that Medicaid-eligible children who lose cash benefits under the Supplement Security come program as a result of welfare reform remain enrolled in Medicaid;
  • eliminate asset testing to determine Medicaid eligibility;
  • guarantee twelve months of continuous Medicaid eligibility for children younger than nineteen years;
  • adopt presumptive Medicaid eligibility options for children younger than nineteen years, similar to the option available for pregnant women;
  • ensure that a redetermination of eligibility be made before disenrolling any children from Medicaid because of changes in their eligibility for cash assistance under the Temporary Assistance for Needy Families program; and
  • ensure that children who are removed from their homes by the state are immediately enrolled in Medicaid.

The AAP and other national organizations strongly support the expansion of Medicaid because of the countless children who have yet to benefit from it. The AAP estimated that in 1997, approximately
4.5 million uninsured children were eligible for Medicaid but were not enrolled. Another 4.6 million children who were privately insured were also eligible for Medicaid as a supplement to their private insurance but were not enrolled.

The Children Left Behind

While Medicaid's benefits seem endless, many may question why so many children do not have the health insurance that they so desperately need. When Medicaid was separated from welfare during the mid- 1980s the hope was that children would benefit from major eligibility expansions. But state eligibility procedures have been shaped over time by federal rules that penalize states for enrolling ineligible beneficiaries, and the AAP indicates that there has been silence about the millions of eligible beneficiaries who are not enrolled. Beginning with the passage of Title XXI, the AAP has put a call out to pediatricians, otherhealth-care professionals, and child advocates to assist state Medicaid agencies in providing outreach to families whose children are uninsured or underinsured.

In the United States there are specific groups of children that are at an especially high risk for being without health insurance. A national survey in 1998 found that teens, children of color, and children in single-parent families were at a particularly high risk for being uninsured. Other research also indicated that the educational status of adult family members is a good predictor of a child's insurance status. For instance, parents who have not completed high school are likely to work in unskilled jobs lacking health insurance benefits, and therefore their children are most likely to be without health coverage. The Census Bureau reported that black children had a higher rate of Medicaid coverage in 1999 than children of any other racial or ethnic group. The rate for black children was 36.2 percent, compared with 30.8 percent for Hispanic children, 16.7 percent for Asian and Pacific Islander children, and 13.2 percent for white non-Hispanic children.

In order to increase enrollment in Medicaid, President Clinton in 1998 launched the Children's Health Insurance Outreach Initiative, which gave the states additional funds and flexibility to find and enroll hard-to-reach children. President Clinton's initiative also challenged the public and private sectors to educate families about Medicaid and SCHIP. An additional step taken by the Clinton administration was the nationwide "Insure Kids Now" campaign in 1999 to enroll eligible children in Medicaid and SCHIP.

While Title XXI is a significant progression for U.S. socikal policy by offering a way to reduce the number of children who are uninsured, there are many variables that must coincide for the program to be successful. The biggest issues that remain are: reaching those who are eligible for Medicaid and educating families about the importance of health insurance for their children.

See also:STATE CHILDREN'S HEALTH INSURANCE PROGRAM

Bibliography

American Academy of Pediatrics. "Implementation Principles and Strategies for the State Children's Health Insurance Program." Pediatrics 107 (2001):1214-1220.

American Academy of Pediatrics, Committee on Child Health Financing. "Medicaid Policy Statement."Pediatrics 104 (1999):344-347.

Health Care Financing Administration [web site]. Boston, 2001.Available from http://www.hcfa.gov; INTERNET.

Perloff, Janet D. "Insuring the Children: Obstacles and Opportunities." Families in Society: The Journal of Contemporary Human Services (September 1999):516.

U.S. Bureau of the Census. "Health Insurance Coverage: Consumer Income." Washington, DC: U.S. Bureau of the Census, 1999.

Beth A.Kapes

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Health Insurance

HEALTH INSURANCE

•••

The social and economic vulnerability of wage laborers gave rise to nineteenth-century reforms that are the forerunners of modern health insurance. When the flow of resources to a household depends on wage labor, sickness for any prolonged period threatens the family's ability to secure food and shelter. The practice of organizing workers to contribute a portion of their wages to health (or sickness) insurance funds was a response to this vulnerability, and set a social pattern in industrialized nations that has continued for more than a century. The two principal ethical concepts associated with health insurance are social solidarity and social justice.

Health Insurance and Social Solidarity

As was evident in the European sickness funds, the insurance compact expresses an underlying solidarity among insurance pool subscribers. Persons facing a common vulnerability organize into a group whose shared resources, built up from relatively small individual contributions, will assist members who suffer financial loss as a result of illness or injury. Since the anticipated harm is a matter of probability, the group that pools its resources must be large enough and composed of persons with sufficiently variable risk levels so that, in a given period of time covered by the contributions (or premiums), only a minority of those at risk will actually experience illness or injury. The majority will contribute without needing to draw on the pooled resources. Those who do not encounter harm stand in a relationship of fiscal solidarity with those who do. The smaller the group, the more vulnerable it is to being overwhelmed by a small number of very large claims. If the group includes a large number of persons with high probability of need (the elderly, for example), a high level of member contributions will be required to guarantee adequate resources to cover every claim.

In addition to the purely fiscal relationship among contributors, reigning social and political ideas affect the conscious feelings of solidarity they experience as members of an insured group. Compulsory sickness insurance for workers, providing for both lost wages and the cost of medical care, was first organized at a national level in 1883 in Germany by the conservative chancellor Otto von Bismarck as a defensive maneuver against the rising influence of the German Social Democratic Party. As Paul Starr noted in his 1982 work, Bismarck believed workers were less likely to demand more radical reforms if certain harsh realities of the industrial revolution could be tempered with benevolence flowing from the monarchy.

In the closing decades of the nineteenth century, several other European nations took similar actions to protect workers' vulnerability, but the United States showed little interest in the idea until the Progressive reformers began to press the issue in the early years of the twentieth century (Hirshfield). They promoted compulsory health insurance as a form of enlightened self-interest on the part of the middle class: The survival of individual freedoms essential to capitalism required taming the tendency of free enterprise to pursue profit without concern for the precarious circumstance of wage laborers. Robert N. Bellah, et al. (1985) noted that the vocabulary of individualism typical of the culture of private consumption has shaped public discourse about health insurance in the United States, and the concept of social solidarity is only faintly evident in the debate that has evolved since the early twentieth century (Churchill).

In some societies, social consciousness about health insurance sees it as a component of the nation's system of social insurance—that is, a public guarantee that certain basic human needs will be met at some minimum level for all members of the community. This has typically been the meaning of health insurance in Western Europe. Conversely, health insurance may be seen as a marketable service properly residing in the private sector, which has been the dominant, though not unanimous, social understanding in the United States (Greenlick, 1988).

The Progressives' compulsory insurance campaign had failed prior to 1920, and by the late 1930s, the idea of voluntary health insurance for workers as a fringe benefit of employment had taken over as the prevailing rationale for social change. The appeal of voluntary insurance, supported by tax subsidies for employers and workers, was fully compatible with the Progressives' individual freedoms argument. Indeed, the voluntary approach seemed capable of solving the solidarity problem, as the percentage of the whole population with voluntary hospital insurance shot up from less than 10 percent in 1940 to 57 percent in 1950 and to nearly 90 percent by the early 1970s (Anderson). With health insurance spreading widely through the working community, yet systematically leaving those not in the workforce outside the fold, the idea of national health insurance based on explicit appeals to solidarity and social justice emerged periodically but each time failed to pass into law (Hirshfield; Starr).

Health Insurance, Social Justice, and Rights

The concept of justice is the second major ethical theme associated with health insurance. Concerns about justice and health insurance derive from the question whether it is fair for some, but not all, citizens to have insured access to healthcare. Originally, health insurance was viewed as required by social justice not for everyone, but only for those made vulnerable by the conditions of wage labor. Compulsory insurance schemes were designed to help capitalism by making the working class more secure. The U.S. middle class broadly committed itself to the voluntary purchase of health insurance when, as a means of winning better fringe benefits through collective bargaining (intensified under wage and price controls during World War II), getting health insurance as a benefit became a normative expectation of workers.

Once the idea of health insurance takes hold in a society and is widely believed to give access to a fundamental benefit of social existence, it comes to be seen as the way members of the society purchase their healthcare, not merely the way they protect themselves from potential financial loss. Having insurance and getting needed healthcare become closely linked in the logic of justice. (For an account of how social expectations give rise to the perception of entitlement and societal obligation, see the work of Michael Walzer.)

The idea of a right to healthcare as a requirement of social justice is intimately connected to the practice of collectively financed healthcare. The notion that healthcare might count among positive human rights derives from the widespread belief that healthcare successfully meets fundamental human needs, such as security, relief from suffering, prevention of premature death, and maintenance of functional capacity. (For a philosophical argument about the grounds and limits of universal entitlement, see Norman Daniels's work and Charles J. Dougherty's publication.) Creating legal protections for that right becomes a problem of political will.

The injection of rights language into political arguments about health insurance is itself evidence of the evolution of the concept and expansion of its original limited goal of protecting wage laborers from the effects of major illness. In the absence of a constitutional or statutory declaration of a right to healthcare, opinion leaders use human rights language to motivate members of society and to provoke legislative action aimed at helping persons whose needs are being ignored. While specific contractual rights to healthcare exist between insured persons and their insurance carriers, that is not what advocates of a right to healthcare have in mind. When reformers argue for a right to healthcare, they mean that basic relationships of solidarity and interdependence among all members of society create a societal obligation to ensure access to healthcare for all. (For a discussion of issues raised by rights discourse in relation to health insurance and access to healthcare, see the U.S. President's Commission Report, and the 1994 work edited by Audrey Chapman.)

During the second half of the twentieth century, aggregate expenditures for healthcare rose at such a dramatic rate that by the 1980s, cost control in healthcare became a central issue for reformers. However, the question of setting limits makes debate about a right to healthcare politically difficult. Unlike rights to liberty or the pursuit of happiness, which entail noninterference by others, a right to healthcare entails paying someone to provide costly services. By 1990, the need to speak of a limited right was clear to many leaders, although negative reaction to the idea of rationing healthcare led many to deny its necessity, and how to define limits was hotly debated (Strosberg). In 1989, the state of Oregon intensified the debate when it organized a unique social experiment to guarantee coverage to uninsured persons while setting limits on what would be covered based on a prioritized list of healthcare services (Garland, 1992, 1994, 2001).

Organization and Financing of Health Insurance

The fundamental concept of any form of insurance is risk sharing: A large number of people who face a common threat of harm (auto accident, fire damage, costs of treatment for illness or injury) share their risks by paying premiums to an insurer who promises to finance payments to those who in the future actually suffer misfortune. All members of the risk-sharing group get a sense of security in return for their contributions even if they do not receive specific insurance payments (as a result of being personally harmed).

Ethical issues in risk sharing through health insurance are shaped by the insurer's decisions about how to organize and finance the common fund that members of a group rely on for protection against potential financial loss. For example, insurers may organize risk-sharing pools among individual subscribers, various age groups, business firms, or labor organizations. Financing might be done through a single, community-wide premium or through variable premiums tied to past utilization, health-risk or ethnic group or age or gender. The European approach was to develop social insurance mechanisms, or sick funds, initiated by the public sector. In the United States, the free market casualty insurance model was adapted in a unique form to fulfill the social insurance function. The resulting hybrid fails to satisfy either free market norms or social insurance ideals.

The major development in U.S. health insurance in the 1930s and 1940s was led not by government or business but by nonprofit corporations such as Blue Cross (hospital insurance service corporations), Blue Shield (physician insurance service corporations), and a variety of consumer and producer cooperatives that provided coverage for hospital and medical services. The corporate missions and characteristics of these organizations gave U.S. health insurance a strong social insurance tendency without fully incorporating the European approach.

Because they believed that the nonprofit organizations' approach to health insurance violated the basic tenets of casualty insurance, commercial insurers initially showed no interest in this market (Iglehart). Casualty insurance assumes that a hazard insured against is measurable and not something the insured person wants (such as checkups or preventive services), or can control (such as pregnancy).

From the beginning in the United States strict casualty insurance principles were ignored. While health insurance protects subscribers from the financial impact of relatively rare high-cost medical services, plans commonly also cover many low-cost services used every year by most members of the insured group. The typical health insurance plan provided to employees of large corporations includes coverage for some ambulatory care costs (office visits, X-rays, and laboratory services) and the major portion of emergency room and hospital charges. About 80 percent of the population will use some ambulatory care services, while only 10 percent of the population will need hospital care in any given year.

By the time the commercial insurers overcame their suspicion of the field, the nonprofit insurers had already brought much social insurance philosophy into the market. Consequently, while the health insurance language includes many standard insurance terms ("adverse selection," "moral hazard," "product lines," "lives covered by plans"), leading the casual observer to conclude that the field is a traditional casualty insurance market, it is, in reality, a form of social insurance peculiar to the United States. However, the competitive practices of commercial insurers have led to widespread use of experience rating, which undermines the social insurance spirit by making health insurance more expensive for those in greatest need. Health insurance plans use three basic methods to protect subscribers: indemnity benefits, service benefits, or direct provision of service. Indemnity insurance, typical of commercial insurers, reimburses a patient for a portion of incurred medical expenditures. Service benefits, typical of nonprofit insurers, pay physicians and hospitals directly on behalf of subscribers. Health maintenance organizations, by contrast, actually organize and deliver services directly to their members at clinics and hospitals that the plans usually own and operate, paying for professional services by salary or contract, not on a fee-for-service basis.

In a widespread effort to control medical care costs in the 1990s, managed care systems, especially those who were not associated with organized delivery systems, used various discounting and risk-sharing reimbursement mechanisms to pay medical service providers. By 2000, providers and patients had grown increasingly unhappy with the restrictions imposed by managed care strategies and the organizations could claim little success in controlling medical costs (Levit, Smith, and Cowen). New strategies relied on shifting costs to patients and members of insurance plans (Draper, Hurley, and Lesser; Christianson, Parente, and Taylor; Trude, Christianson, and Lesser). Six major tendencies characterize the way U.S. health insurance adapted casualty insurance concepts to serve a social insurance function: leadership by nonprofit corporations; a gradual shift from financing based on equal shares (community-rated premiums) to financing based on unequal shares (experience-rated premiums); consumer preference for comprehensive benefits; use of service and indemnity methods of benefit definition; carriers' preference for group rather than individual marketing of plans; and persistent ambivalence in the general public about the role of government in health insurance.

NONPROFIT STATUS OF HEALTH INSURANCE PIONEERS. Because the pioneers in U.S. health insurance were nonprofit, charitable organizations, they were developed to provide a social function beyond creating a profit for shareholders or syndicate owners. However, the social objective was not always to benefit consumers. Blue Cross was first organized to provide for the financial survival of the American voluntary, nonprofit hospital system during the period of the Great Depression. Although organized medicine initially opposed the new insurance schemes as unwanted intrusions into the privacy of the patient-physician relationship, Blue Shield was eventually formed as a preventive measure to keep mechanisms for paying physicians under the direct control of organized medicine. Provider cooperative prepaid group practices, such as Kaiser Permanente, were formed because some reform-minded physicians believed that prepaid group practice was a more satisfying and socially responsible way to practice medicine.

These nonprofit institutions were chartered in the public domain and were guided by boards of directors who were reminded that they represented society at large, rather than a group of stockholders. The corporate cultures that emerged under this influence generally produced organizational behavior different from that found in commercial insurance companies (Greenlick, 1988). The nonprofit corporations possessed a sense of mission to the community, a sense nurtured by their close ties to community hospitals and physicians' organizations. In the 1970s, pressured by their large corporate customers to contain costs, the nonprofit insurers began to behave like their competitors, the commercial insurance companies, and moved from community rating of premiums to experience-rating practices. Consequently, premiums increased for high-risk groups, making it difficult for the most needy to maintain health insurance coverage.

COMMUNITY-RATED VERSUS EXPERIENCE-RATED PREMIUMS. In an institutionalization of the concept of solidarity, the pioneer U.S. health insurance organizations originally used community-rating principles to fund their programs. In pure community rating, the premium is set by estimating the required budget for the covered population for the next year and dividing the total budget by the number of people expected to be covered. The result is the premium charged to each member of the population for the coming year. Thus, all employers in an insurer's service area would be charged the same per capita premium for their employees.

By contrast, in an experience-rated system, the approach favored by commercial carriers, the most recent available claims experience is analyzed to define a risk profile for specific groups. These risk profiles are applied to the next year's expected total budget to calculate group-specific premiums. Experience rating increases the premiums for groups that include high-use subscribers and reduces premiums for groups that include infrequent users. Consequently, people with serious and chronic health problems, who most need the risk-sharing of health insurance, are forced to pay higher and higher premiums, until they can no longer afford the cost of coverage (Greenlick, 1989).

As experience rating became more common, people with preexisting health conditions were frequently excluded from insurance coverage. This led many states during the 1980s to create special high-risk pools for "uninsurables." The practice also made health insurance too expensive for thousands of firms with small numbers of workers, especially those where even one worker had recently experienced a high-cost illness episode. The shift toward experience rating by nonprofit insurers has led to a disturbing incongruity between a social policy that favors free market practices in U.S. health insurance and a prevailing public expectation that private health insurance should fulfill a social insurance function.

COMPREHENSIVE BENEFIT PACKAGES. Because pioneer health insurance organizations had among their objectives supporting the providers of care, they designed insurance plans based on comprehensive benefits that would cover not only infrequently needed high-cost services but also many low-cost services that might be used regularly by most subscribers. The idea of comprehensive benefits was very popular with the employees whose employers were paying most, or all, of the premiums for health insurance. This popularity was supported by the post-World War II belief that economic growth could permanently keep pace with new demands. During the 1960s and 1970s, most Blue Cross Blue Shield and prepaid group practice plans covered, with little deductible or coinsurance cost to the insured, most of the costs of physician, laboratory, X-ray, emergency room, and hospital medical and surgical services. During the 1970s, insurers increasingly added coverage for prescription drugs. To keep pace, commercial insurance companies increased the breadth and depth of their coverage, particularly for low-risk groups.

The preference for comprehensive benefits contributed to the explosive rate of growth in the health services industry during the postwar era. In 1940 healthcare accounted for 4.1 percent of the gross national product (GNP). It had expanded to 7.2 percent by 1970, reaching 10.7 percent in 1985 (Eastaugh). By the late 1970s, a chronic sense of crisis afflicted business and government administrators of health insurance budgets. Cost-containment strategies that used deductibles and coinsurance to reduce the use of health services by insured persons achieved only modest success. However, these typical casualty insurance mechanisms conflicted with the social insurance function of health insurance and were hotly debated among health insurance reformers in the early 1990s.

SERVICE BENEFITS VERSUS INDEMNITY BENEFITS. A distinguishing characteristic of the Blue Cross/Blue Shield programs and the prepaid group practices is that they sell their customers a promise to provide medical care services (service benefits) rather than a promise to reimburse incurred expenses (indemnity benefits). Service benefit organizations concern themselves with issues of delivery of care more than indemnity insurers, who cover only a specified portion of medical care expenses.

Preferred provider organizations (PPOs) and multiple forms of health maintenance organizations (HMOs) emerged from the cost-controlling strategies of the 1970s and 1980s. These service-delivery reforms sought cost savings through peer group review of practice patterns, favoring those that produced effective care while reducing frequency and length of hospitalizations, using fewer repeat visits, and increasing the use of outpatient care in place of costly hospital services.U.S. insurers took a hand in designing and administering these delivery system reforms, giving them a significant role in healthcare that went far beyond merely paying the bills.

GROUP ENROLLMENT VERSUS INDIVIDUAL MARKETING. Like the European social insurance movement, the development of health insurance in the United States was based on enrollment through employment groups. As more Americans left rural occupations and moved to the cities during and after the Great Depression of the 1930s, they found work in large industrial companies that increasingly offered comprehensive health insurance coverage as a fringe benefit of employment. The health insurance industry focused on enrolling members through work groups. As long as employment in these industries grew, so did the proportion of U.S. citizens covered by health insurance. Labor market forces seemed to be producing social insurance goals without the need of centralized decisions.

Employment-based group enrollment ultimately comes up short from the social insurance perspective, however, since many persons with significant healthcare needs are not in the work force and will not have access to health insurance. This way of distributing health insurance leaves workers doubly vulnerable to fluctuations in the labor market: Low-wage jobs frequently do not include health insurance benefits, and business cycles or industry competition may cause work force reductions leading to loss of health insurance for employees and their dependents (homemakers and children).

Inequities in the labor market carry over to health insurance when employment is the basis for its distribution (Jecker). Women's groups argue that healthcare services important to women, such as mammography, have tended not to be covered. Women who work are less likely than men who work to have employer or union contributions to their insurance. Women are also more likely to work part-time and receive no fringe benefits. Women are less likely to belong to a labor union and they change jobs more frequently than men, making them more vulnerable to preexisting condition exclusions from insurance. Women predominate in low-paying jobs where insurance is usually not offered as a benefit. Many of these distribution inequities also affect minorities, leading some reformers to argue for uncoupling health insurance from employment.

After vigorous growth between 1940 and 1960, the employment-based system had generated health insurance coverage for nearly 70 percent of the population under sixty-five, while only slightly more than 40 percent of the elderly were covered, leading to the establishment of Medicare and Medicaid in 1965 (Anderson). These two programs brought health insurance protection to virtually all of the elderly, and to a significant proportion of those living in poverty, as well. They did not, however, provide coverage for everyone, so that the United States entered the 1990s with more than thirty million citizens having no health insurance. This fueled a vigorous revival of interest in a national health insurance program capable of guaranteeing coverage for every citizen.

During the 1980s, self-insurance emerged as a cost-control strategy among large corporations. These firms stopped buying health insurance for their workers and set themselves up as the at-risk entity for healthcare costs incurred by their employees. The practice put these corporations beyond the reach of state insurance regulations because of a 1974 federal law, the Employee Retirement Income Security Act (ERISA). The intent of ERISA was to protect pension trust funds in companies with employees in several states from inconsistent and burdensome state regulations. The effect on health insurance, while not a primary goal of ERISA, so complicated health-insurance reform that, by the late 1980s, it became a critical element in all proposals that relied on employee benefits as the primary vehicle for distributing health insurance to citizens.

At the beginning of the twenty-first century, the concept of defined contribution to employee benefit packages (rather than defined benefits) became popular among free market reformers (Christianson et al.). This concept responded to employers' desire to be less involved in insurance purchasing and shift decision making to their employees. The strategy combined a set amount of employer contribution with a responsibility on employees to purchase their own health insurance. Employees could use a portion of the defined contribution for direct purchase of services. In the final analysis, employees in such a plan would be individually responsible to cover the costs of their care with a combination of out-of-pocket spending, insurance protection, and limited access to the defined contribution pool created by the employer. This approach can be understood as an effort to deemphasize the social insurance model by insisting on increased consumer responsibility for non-catastrophic healthcare needs.

The Government Role in U.S. Health Insurance

The U.S. government has had a role in health insurance since the eighteenth century, when it accepted the responsibility to provide medical care for the U.S. Merchant Marine. During the growth period of private health insurance in the United States prior to Medicare and Medicaid (1940–1965), the federal government let the private market work, limiting itself to indirect involvement through tax incentives for employers and employees who favored the purchase of health insurance as a fringe benefit. State and local governments were expected to provide care to the indigent and to the mentally ill. As a large employer, the federal government became a major purchaser of health insurance for its employees.

Finally, the federal government is a major supplier of social insurance for medical care for Native Americans, active-duty military personnel and their dependents, and veterans. The total public expenditure for medical care services in 2000 was $590 billion, 45 percent of the $1.3 trillion total national expenditure for health services and supplies during the year.

Government involvement in U.S. health insurance differs distinctly from paths followed by most other industrial nations. In Europe, several nations have made the direct delivery of healthcare a national government responsibility (e.g., the United Kingdom and the Scandinavian countries); others have taken up the role of coordination in mixed public-private systems (e.g., Germany, the Netherlands, Switzerland); others have assumed the role of providing health insurance to the citizenry, allowing hospitals and physicians to operate in a fee-for-service environment (France).

In the late 1960s, Canada adopted an approach similar to France's: Each province has a monopoly on health insurance for basic services, while the federal government plays a coordinating role. Canadian Medicare rests on five essential principles: universal entitlement, accessibility of services, comprehensive benefits, portability of benefits across provincial boundaries, and public administration of the system within each province.

Questions about the proper role of government in health insurance continue to be central issues in debates among U.S. health insurance reformers. Proposals put forward in the first decade of the twenty-first century will succeed or fail on the basis of their ability to make the case that they have found an acceptable balance point on the public-private continuum where private markets (insurance carriers, providers, suppliers) come together under public policy constraints to produce an acknowledged common good.

Conclusion

As the twenty-first century dawned, the evolution of health insurance in the United States and elsewhere had reached a point where significant new public policy decisions were increasingly demanded by the consumer groups, business, politicians, and health professionals (see Rashi Fein's work). In all industrial nations, the rates of growth in total expenditures for healthcare were creating economic strains and social concern (see the report of the Government Committee on Choices in Healthcare). Particularly in the United States—with the highest percentage of its GNP devoted to healthcare—business, government, and consumer groups insisted on effective control of total healthcare expenditures. Some argued that the solution had to come from submitting healthcare to a competitive market. Others preferred government regulation through global budgets, delivery system reforms, and limitations on services that qualify for collective financing. Most reformers insisted that health insurance had to stop fueling uncontrolled growth in healthcare spending.

Expenditure control has major consequences for the social insurance aspect of health insurance schemes. Many European nations and Canada have sought to control total expenditures without sacrificing the healthcare component of their social insurance commitments. In the United States, many providers, social reformers, and the general public have demanded explicit commitment to the social insurance dimension of health insurance: a universal system that would guarantee a decent minimum of healthcare to every citizen. Reformers were particularly concerned to have the nation address the equity issue. During a thirty-two-month period in 1990–1992, one-fourth of the entire population outside of institutions were without health insurance for at least one month; more than one-third of the African-American population and nearly one-half of the Hispanic population found themselves excluded from coverage (Pear).

Growing public awareness of the size of the uninsured population and the vulnerability of the middle class to loss of job-related health insurance have led to growing dissatisfaction with the system and sparked a renewed interest in health insurance reform. Dozens of proposals emerged in the late 1980s and 1990s driven by several key questions. Should America continue its multiple payer, public-private system, or embark on a new path with a streamlined single-payer system? Should the single payer be the federal government or each state? If there were to be multiple payers, who would conduct the negotiations needed to coordinate their practices so that universal coverage would be achieved and maintained?

The multiple-payer approach continues the path of adapting casualty insurance and free-market forces to serve the social insurance function. In the mid-1990s, President Bill Clinton proposed a market-structuring, multiple-payer solution (White House Domestic Policy Council; Zelman), and was immediately criticized by sponsors of competing market proposals for interfering too much with market forces and not trusting them to achieve efficient allocations (Enthoven and Singer). Single-payer advocates, arguing that Clinton was fundamentally mistaken and that the private health insurance market was simply the wrong vehicle for achieving universal coverage and cost control, invoked the social insurance model, abandoning market pluralism in favor of uncomplicated universality and administrative efficiency achievable through centralized financing.

Finally, the Clinton proposal failed politically. Backing away from universal coverage, the Clinton Administration launched a special program to increase children's access to coverage in 1997 (Title XXI of the Social Security Act, the State Children's Health Insurance Program). By 1999, all fifty states had approved programs that either created a special program for children, an expansion of Medicaid, or some combination of the two. Despite success in reaching children, the percentage of Americans without health insurance has grown, costs have not come under control, and the critics of the status quo remain unable to attract sufficient political consensus to bring about universal coverage.

Health insurance in the United States continues to evolve. The tension between the casualty insurance practices and social insurance ideals frustrate reformers in both camps. The enduring challenge is to formulate policies that can control total expenditures while allocating resources fairly and promoting the common good.

michael j. garland

merwyn r. greenlick (1995)

revised by authors

SEE ALSO: Conflict of Interest; Corporate Compliance; Economic Concepts in Healthcare; Genetic Discrimination; Healthcare Institutions; Managed Care; Medicaid; Pharmaceutical Industry; Profit and Commercialism; Race and Racism; Sexism

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INTERNET RESOURCE

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