Private Health Insurance:

Continued Erosion of Coverage Linked to Cost Pressures

HEHS-97-122: Published: Jul 24, 1997. Publicly Released: Jul 24, 1997.

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Pursuant to a congressional request, GAO reviewed major trends in the private health insurance market, during the 1980s and 1990s, focusing on: (1) the decline in private health insurance coverage and factors contributing to this decline; (2) trends in health insurance premiums and reasons for these trends; and (3) employer's efforts to control health benefits costs.

GAO noted that: (1) private health insurance coverage has slowly but steadily declined; (2) between 1980 and 1995, the population under age 65 covered by private health insurance decreased from 79.5 percent to 70.5 percent; (3) coverage for children, early retirees, and near-poor families has declined faster than that for the overall population; (4) declining private health coverage has been accompanied by growth in the uninsured population and Medicaid enrollment, which in turn increased government health expenditures; (5) a major reason for declining private health coverage is the rising cost of health insurance; (6) this has absorbed a growing share of business and family incomes and has influenced employers and employees' health insurance decisions; (7) health insurance premiums, in contrast, have alternated between rapid growth and relative stability over the past two decades; (8) several reasons cited as contributing to the recent near-zero growth in health plan premiums include the cyclical nature of health insurance premiums, the expansion of managed care, the increasingly competitive market for health insurance, and low overall inflation; (9) nonetheless, the high level of health insurance costs and uncertainty about future increases remain a concern of employers and individuals purchasing coverage; (10) as employers have adopted various strategies to control the costs of health benefits, the costs consumers bear have increased and the types of health insurance products they receive has evolved; (11) since 1980, employees are more likely to be required to pay a share of their health plans' premiums, typically 20 to 30 percent; (12) in addition, most Americans are now enrolled in a network-based plan; (13) a network-based plan requires or encourages enrollees to use physicians and hospitals affiliated with the plan; (14) however, network-based plans often have lower deductibles, and most of these plans allow enrollees to use nonaffiliated providers at a higher cost; (15) nearly 40 percent of persons with private employer-based health insurance participate in a self-funded plan; (16) in such plans, unlike conventional health insurance, the employer assumes the risk for health claims and the plan is exempt from state insurance regulation; (17) if at some point health insurance costs start rising again, employers and insurers will face heightened pressure to control costs; and (18) this may lead to increased cost shifting from employers to employees, reduced benefits in employer-based health plans, and faster declines in the number of employers offering health benefits.

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