Private health Insurance:
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Private health insurance benefit payments are an integral component of
estimates of national health expenditures. Recent analyses indicate that the
insurance industry has undergone significant changes since the mid-1970's. As a
result of these study findings and corresponding changes to estimating
techniques, private health insurance estimates have been revised upward. This
has had a major impact on national health expenditure estimates.
article describes the changes that have occurred in the industry, discusses
some of the implications of those changes, presents a new methodology to
measure private health insurance and the resulting estimate levels, and then
examines concepts that underpin these estimates.
What is Health Insurance
health insurance estimates prepared in conjunction with the national health
expenditure estimates have undergone a major revision. The need to re-examine
the private health insurance estimates became apparent during an investigation
of changes in the taxation of employer-sponsored health insurance. The
aggregate amount of employer contributions was being reviewed because it
determines the magnitude of the impact on Federal revenues for both the proposed
cap on employer contributions and proposals to permit widespread use of
flexible spending accounts in cafeteria plans.
publishing article for banking and finance, insurance and, legal and real
estate and property related. The examination disclosed that important
components of the industry, previously excluded from the estimates on the
grounds that they would cause double counting, were, in fact, not duplicative.
The principal items omitted were the “administrative services only” and “minimum premium plan” premiums of
insurance companies. In addition, provisions were made for new components of
the industry which were not previously estimated. An example is an emerging
form of insurance administration known as “third-party administrators.”
Private Health Insurance
Companies in India
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with other independent measures indicated that the previous Health Care Finanx`cing
Administration (HCFA) estimates were too low. For example, the proportion of
personal health care expenditures for hospital care and physicians' services
paid for by insurance was decreasing in the national health expenditure
accounts. This decline seemed unreasonable because it occurred during a time
when the proportion of population covered by insurance remained constant.
Furthermore, the level of benefits continued to increase, because deductibles
and out-of-pocket limits tend to be fixed in dollar terms.
article discusses the new methodology for measuring private health insurance,
and summarizes the results of the revised approach. Also examined are health
insurance concepts such as: administration, risk, regulation, provider choice,
and others, if you are planning to purchase property in India or any state
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section presents a summary of the findings and points out the need for further
research in this area.
New estimates of private
health insurance Industry changes
fundamental changes have occurred during recent years in the financing and
administration of private health insurance plans. Insurers increasingly provide
administrative services only for many employer health insurance plans, and they
no longer bear any of the risk.1 For many other employers, contracts have been
split into self-funded and insured portions, with the insurer providing
protection that is equivalent to a traditional insurance plan.2 Other employers
self-insure, but they obtain protection against catastrophic level of claims.
This type of insurance is variously referred to in the industry as excess-loss insurance,
stop-loss insurance, or reinsurance. It will be referred to herein as
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changes occurred at a time when large numbers of employers were converting
insurance contracts into some form of self-insurance or self-funding. Here
“self-insurance” refers to the assumption by an employer, union, or other group
of all or most of the risk of claims for a policy year. “Self-funding” refers
to the payment of claims from an employer bank account or a trust established
for the purpose. Whether a self-funded plan is also self-insured depends on
whether arrangements are made to transfer risk to another party through an
insurance contract. Self-insurance and self-funding offer several advantages to
employers. Self-insured plans are exempted from State regulation by Federal
legislation in the Employee Retirement Income Security Act of 1974. Hence,
State laws mandating coverage of specific facilities (such as alcohol treatment
facilities), practitioners (such as podiatrists, chiropractors, or clinical
psychologists), or therapy (such as outpatient psychiatric care) do not apply.
The potential advantages of self-funded plans are to avoid most premium taxes,
permit employers access to the claim reserves for business use, and obtain
tax-free interest on reserves.
to self-insurance and self-funding provided new market opportunities for
independent management companies, called “third-party administrators” (or
TPA's), and these companies have claimed a substantial portion of the market
share.3 Other significant changes have been the growth of health maintenance
organizations (HMO's) and other alternative health systems, including preferred
provider organizations (or PPO's) and “cafeteria plans.” All of these changes
fundamentally affect the division of risk between employers and insurers, the
responsibility for determining the amount to be reimbursed, and other important
aspects of insurance arrangements.
Health Insurance Association
of America (HCFA): Review of prior methods
HCFA private health insurance estimates were based on three principal data
sources: the Blue Cross Association and Blue Shield Association (the Blues),
the Health Insurance Association of America (HIAA), and the Survey of
Independent Prepaid and Self-insured Health Plans conducted each year by HCFA.
These sources continue to be available. The Blues provide estimates for the
national totals for Blue Cross/Blue Shield financial coverage and enrollment
data.4 HIAA provides similar estimates for insurance company regular business
and, since 1978, for administrative-service-only (ASO) contracts and
minimum-premium-plans (MPP) business. These estimates are based on an annual
sample survey conducted with insurance companies writing health insurance. The
results from their regular business survey are controlled to totals compiled
from annual statements filed with State insurance departments.5 Finally, the
HCFA Survey was designed to cover the rest of the health insurance industry.
Surveyed are self-insured employer and union plans, and prepaid plans such as
HMO's, and dental and vision plans.
Many of the
problems with the previous estimates are associated with the treatment of
independent plans and, in particular, with proper measurement of self-insured
plans. The HCFA Survey of independent health plans has been conducted each year
since 1942. This annual Survey is benchmarked to periodic census measures of
the independent plan universe. The last census was conducted in 1978 for 1977
Recent Evaluation of TPA
evaluation of the process suggested two general shortcomings. First, the
universe of independent plans was incomplete, because virtually all of the
labor management plans in the census are self-insured and self-administered.
Plans which are self-insured but administered by a third party, an insurance
company, Blue Cross or Blue Shield Plan, or a TPA, were found to be largely
missing from the data base. Second, no method existed to measure annual changes
in the number of new independent plans in the universe. These problems are
especially serious because, according to data from HIAA, a large proportion of
participating experience-rated plans insured by commercial insurers were
converted to ASO or MPP during this period. ASO and MPP estimates became
available in 1978. However, they were not included in the private health
insurance estimates because they were thought to duplicate the HCFA Survey
estimates of self-insured plans.
to ASO's and MPP's, the TPA's were growing rapidly. Hundreds of TPA firms have
been identified, though only a few of these were in operation in 1975. Finally,
new developments have led to a rise in the number of self-administered plans.
Notable among these developments is the availability of time-shared software
and specialized consultants to assist plan administrators.
of the incomplete and fixed sample frame for surveys conducted in 1978 and
later years was a downward bias in the estimate of self-insured plans. In fact,
no TPA administered plans were surveyed, and relatively few ASO or MPP plans
were included in the sample frame. In addition, the fixed sample frame did not
allow for a growth in the number of self-administered, self-insured plans.
These findings were revealed by a special survey of the 66 self-insured plans
included in the annual HCFA Survey. Only two had an ASO arrangement and none
used a TPA. The plans were also asked about their administration in 1977, the
census year, and the responses were the same.
Revised methodology: Bhartiya Jeevan Beema Nigam
information gaps cited above are that neither the HIAA nor the HCFA estimates
of self-insured plans are complete measures of self-insurance. Each measures a
different type of self-insured plan: HIAA measures those that are administered
by insurance companies, and HCFA those that are self-administered. In addition,
neither includes still another type of self-insured plan, namely those
administered by TPA's. As noted, the previous methodology used only the HCFA
Survey results to avoid presumed double counting. The conclusion from current
studies is that data from both HIAA and the HCFA Survey should be used as the
basis for estimates of their respective components of self-insured plans. In
addition, a measure of the TPA self-insured plans is needed.
needed to make the ASO and MPP changes were available from HIAA. Information on
third-party administrators were not readily available, and an estimation
procedure had to be developed for these new measures of private health
insurance. The estimates are an amalgamation of information from a variety of
sources, principally from Business Insurance, a weekly trade journal, and from
Temple, Barker, and Sloane, Inc., an industry management and consulting firm.
Insurance conducts an Annual Survey of Third-Party Administrators (Cain, 1984).
The information reported includes the total number of claims administered for
all firms and for self-insured firms and the proportion of claims that were for
health insurance. Also included are estimates of gross revenues and total
information is available for some TPA's from a survey by Temple, Barker, and
Sloane that was used to supplement the Business Insurance list of TPA's. This
information includes estimates of total health insurance claims paid, the staff
devoted to paying claims, and the dollar volume of health claims paid. TPA's
administer claims for many entities, including self-insured plans, insurance
companies, associations, and prepaid plans. The TPA estimates are for the
administration they provide for self-insured plans only.6 From all sources,
information was available for 137 TPA's serving the health insurance industry.
Since many more TPA's are known to exist, these estimates should be considered
preliminary and most likely as a lower bound of the actual level.
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