Health Insurance Concentration and Its Consequences - Medicaid - Research Paper Example

Task: Health insurance concentration and its consequences The health care cost in the United s is very high. Consequently, several individuals are unable to access it. The congress is trying to address this challenge by considering various proposals to improve the country’s health care system. One of the major causes for the rise in insurance cost includes the health care concentration. This not only affects the cost of insurance, but also affects the effectiveness and admittance to health care in the country. How/ where do Americans get health insurance? And how insurance works Some Americans get their health care insurance through the Medicare and Medicaid programs that conform to public health insurance. However, a significant proportion receives through the employer private and the individuals private. Medicare/Medicaid public Medicare is public insurance program sponsored by the Centers for Medicare and Medicaid services (CMS). This central government insurance program provides medical coverage to certain groups of citizens in America. The individuals covered by this insurance encompass persons above the age of 65, workers with impairments, and those with chronic illnesses such as End-Stage Renal Disease (ESRD). This insurance system consists of three phases and some of them are optional. The three phases entail Part A, Part B, and Part C (Qin 1). The Medicare Part A gets its funds through its trust fund. This part obtains its funds through the employers and employees taxes. The public employers and employees pay 1.45 percent of the pays, while the private workers and employers pay 2.9 percent. The trust funds earn interests that are included in the fund. Medicare part serves everyone, is mandatory, and automatic once the America citizens reach the age of 65 especially if they had been paying for the Social Security taxes for about 10 years while employed. This Medicare part does not require premium, but one has to meet the yearly 792 dollars deductible prior the commencement of the cover services. The deductibles are the funds that the beneficiaries have to pay from their own pockets Austin & Hungerford 19). For the qualified individuals, this part fails to cover everything in the health care aspects. They cover the inpatient care for 90 days each time the person gets sick and other 60 additional days. They also cover experienced nursing facility care for about 100 days each time one gets ill after staying in the hospital for 3 days. Additionally, it covers the hospice care and the psychiatric care until 90 days are over during the individuals’ lifetime. Part A can be very expensive for patients with chronic illnesses. This is because the covered period is not enough for them to be cured. Consequently, the CMS introduced the Medicare Part B that is not mandatory (Austin & Hungerford 19). Part B is an additional insurance and covers other medical needs that are not in Part A. It covers 80 percent of the health care expenses. The beneficiaries themselves pay for the rest 20 percent. The Part B covers for the medical doctor services, medical facilities, diagnostic services, outpatient hospital services, some rehabilitation, and blood transfusion. This part, unlike Part A lacks income and trust fund. It gets its funds by collecting 25 percent from the patients’ premium, which varies yearly and 75 percent from the government revenues. Before one qualifies for the Part B, he has to ensure that he meets the 100 dollars deductible conditions. After a combination of Part A and B, one is not fully covered. This is because parts do not cover some health care aspects such as recommended drugs, sustainable care, preventive, and dental care. This uncovered part can be very expensive if the patient in not covered. Consequently, it is commendable to get Part C as an additional cover (Hadley & Reschovsky 1). The Medicare Part C enables the patients to choose other health plan providers that are not public. The private plan providers collaborate with the Medicare to enable the patients get all the covered health care services. An example of the private health plan givers encompasses the Health Maintenance Organization (HMO). The private firms have to cover all services and receive the flat monthly charges from CMS regardless of the cost obtained. Part A, B, and C still leave some uncovered services in the Medicare Coverage. Consequently, the US Congress addressed this by introducing the Medigap regulations in order to cover the gap left by the Medicare Parts (Hadley & Reschovsky 1). Medicaid is also a health insurance that covers the elderly, impaired individuals, and the single parents with low pays. It receives resources from the federal administration and each state. The insurance benefits differ from state to state because of the varying federal donations. However, the state’s fund is equal because the states have to meet the minimum set coverage procedure. The differences between the Medicaid and Medicare are the different services they cover. Medicaid has no parts and covers all the healthcare services needed by the qualified patients. This is because it assumes that the people who qualify for it are very poor. Consequently, they cannot afford to pay for the extra money from their pockets (Hadley & Reschovsky 1). Employer private Several American citizens get insurance covers through the Employer private health insurance. In the year 2003, the Employers-bases insurance had covered about 159 million individual in the country between January and June. This population was about two thirds of persons below 65. This is a voluntary program where employers choose to offer insurance to their workers after the workers have chosen to enroll. Most employers attract workers through this insurance. This employer-based insurance is not expensive compared to the individual coverage (DiSimone 1). Employees qualify for this insurance cover after meeting certain employers’ condition. For instance, the new employees have to wait for a certain period before the cover becomes effective. Other employers may require the workers to be full time workers or to work for specified hours within a week to qualify for the health insurance cover. Other employers may ask the workers to fund the premium partially. Some employers especially the ones with low-wage employees fail to offer health insurance. This is because the higher cost of funding and administering coverage for every worker in a small labor force elevates the premium cost. Many employers in large firms who offer health insurance benefits are self-insured. This increases competition pressures on the insurers (Hadley & Reschovsky 1). According to research outcomes, the cost of the health care insurance is rising because of the employer-sponsored insurance. Employees let the employers buy the insurance on their behalf. Employers are asking their workers to pay more from their pockets for the insurance coverage. Between 1999 and 2005, the employees’ monthly contributions escalated from 129 dollars to 226 dollars. The game of shifting the insurance cost has made some employees quit paying for the insurance because it is becoming costly (Qin 1). Individual private Very few Americans pay for their health insurance because many people cannot afford it. America is increasing the health care insurance coverage by encouraging employers and the uninsured persons to buy the individual or the non-group insurance. The country is doing this by offering incentives such as tax credits to subsidize the non-group insurance price. Currently, only about 4.5 percent of the individual in the United States under the age of 65 depends on the individual insurance (Hadley & Reschovsky 1). Asymmetric information Some insurance markets do not produce effective outcomes because of contradicting information among the market participants. The two basic concepts of Asymmetry information encompass the Adverse Selection and Denial of Preexisting Conditions. a) Adverse selection Adverse selection is the difference in the beneficiaries and insurer’s information regarding the health risk factors. The buyers of the insurance may have more information regarding the risk factors compared to the insurance firms. This makes it difficult for the insurance firms to tell the difference between the less healthy applicants who may benefit greatly and the healthier ones. Consequently, the insurance company can incur huge losses especially if it deals with individuals with excess health care needs. Consequently, some insurance firms charge too high premiums because of uncertainty. This drives the individuals with very little health care needs out of the insurance market. The high cost of insurance is usually passed to the workers through reduced pays. Some insurers have managed to attract the healthier beneficiaries through considerable taxes and the employers’ cost sharing of the cover charges. Group insurance plans are responsible for the increase in insurance charges. This is because they do not consider healthier individuals. This leads to the higher number of the less healthy individuals depending on the insuring companies after the high dropout of the healthier ones, leading to further increase in insurance costs (Austin & Hungerford 17). Denial of Pre-existing Conditions The denial of the Pre-existing Condition has made it difficult for many individuals to access the health insurance covers. The pre-existing conditions exist before one applies to join the new insurance policies. There has been the increase in discrimination in the insurance market due to the pre-existing conditions. Individuals with the conditions face discrimination when buying the insurance especially in the no-group insurance market. This is attributable to the fact that the insurance entities refuse to cover them, raise premium costs, or decline to cover particular medical conditions. The individuals that face the denial include the ones with chronic illnesses or conditions that are very expensive to treat such kidney diseases. This denial has lead to the high costs of insurance (Austin & Hungerford 19). b) Monopoly/Monopsony power Monopoly in the insurance market occurs when the insurers sustain the prices above or below the market level for a long period. However, monopsony is the capacity to control the market price beyond the competitive levels by the buyers. In the insurance market, the insurance firms practice both monopoly and monopsony. This decreases the welfare of the beneficiaries financially. Health insurers’ practice monopsony when they purchase health services from suppliers. Additionally, they practice monopoly when selling the health care insurance. They have negatively affected the consumers by setting very high insurance charges (Hadley & Reschovsky 1). Demand for health insurance The insurance prices affect the need for healthcare insurance. The requirement for the health care insurance in relation to prices in inelastic. This has contributed to monopoly in the insurance market. People in the country need the insurance regardless of the prices. However, most of them cannot afford it. Despite the increases in the prices of the insurance, the demand for insurance is still high (Austin & Hungerford 30). Correlation between Price and concentration According to Weiss study outcomes, market concentration increases the prices (Weiss, 19). The health insurance market hinders market through concentrated markets. The insurance markets are concentrated in various local regions. Market concentration leads to high insurances prices because it enhances unhealthy competition. This leads to very high insurance prices because it increases the insurance firms’ market power. The exercise of market power by the insurances firms in the concentrated markets leads to the elevated prices and lower outputs. The firms increase prices through high premiums. This lowers the outputs since it causes limited access to insurance (Robinson 1). Measuring concentration HHI The Herfindal-Hirschman Index quantifies the insurance providers’ concentration. This is the total squares of market share portions of all the firms in the market. The higher HHI indicates higher the market concentration. Based on the US market analyses of HHI, the insurance market is highly concentrated. According to the merger guidelines, an HHI of about 1800 represents high market concentration. The HHI measurement of the year 2007 showed that the health insurance market is concentrated because it had over 1800 HHI (Czurak 1). MSA concentration and AMA lead to high medical loss ratios Medical loss ratio is the results obtained after dividing the all the health benefits by the premium income. This ration shows the output and the efficiency of the health insurance. The concentration of the Medical Savings Account (MSA) and American Medical Association (AMA) increases the ratios. This is because the analysts ensure that the insurers do not raise the premiums quickly. This is because the higher premiums may exceed the claim costs. The concentration of the insurance analysts raises the loss ratio because they transfer the insurance risks to the beneficiaries through cost sharing or the insurers through capital adjustments (Austin & Hungerford 31). Conclusion The health care insurance helps in making the health care affordable. Americans access the insurance through the Medicare/Medicab, through the employer-sponsored insurance, and the non-group private insurance firms. Some insurance firms make the health care affordable by partially paying for their beneficiaries’ health care bill, while others pay for all the healthcare services. The insurance firms are becoming ineffective because of the high costs of the benefits. The high costs result from the high market concentration and the asymmetric information between the insurers and the beneficiaries. The market concentration is measure using the HHI, which indicates that the insurance market is highly concentrated. Works Cited Austin, Andrew. The market structure of the health insurance industry. Congressional Research Service. 2009. Web. 22nd November 2012. Czurak, David. "Measuring a Monopoly." Grand Rapids Business Journal 13.34 (1995): 1-. ABI/INFORM Complete. Web. 22 Nov. 2012. DiSimone, Rita L. "Health Insurance Reform Legislation." Social security bulletin 2007: 18-31. ABI/INFORM Complete. Web. 22 Nov. 2012. Hadley, Jack, and D. Reschovsky James. "Health and the Cost of Nongroup Insurance." Inquiry - Excellus Health Plan 40.3 (2003): 235-53. ABI/INFORM Complete. Web. 22 Nov. 2012. Qin, Xuezheng. The Health Care Safety Net and Health Insurance: A Theoretical and Empirical Investigation.2009. Web. 22 Nov. 2012. Robinson, James. "Hospitals Respond to Medicare Payment Shortfalls by both Shifting Costs and Cutting them, Based on Market Concentration." Health affairs 30.7 (2011): 1265-71. ABI/INFORM Complete. Web. 22 Nov. 2012. Weiss, Leonard. Concentration and Price. Cambridge, Mass: MIT Press, 1990. Print. Read More