Private Health Insurance

Private health insurance coverage has slowly but steadily declined. Between 1980 and 1995, the population under age 65 covered by private health insurance declined from 79.5 to 70.5 percent. This trend has continued even though the U.S. economy is strong and employment has grown. Coverage for children, early retirees, and near-poor families has declined faster than for the overall population. The decline in private health care coverage has been accompanied by growing Medicaid enrollment, which in turn has increased government health expenditures. Factors behind the decline in private health coverage include the rising cost of health insurance, shifts in employment patterns, low growth in real family income, and the indirect effects of expanded Medicaid coverage. The high cost of health insurance and uncertainty about future increases remain concerns for employers and individuals purchasing coverage. As employers have tried to control the cost of health benefits, the expenses borne by consumers have increased. Since 1980, employees have been more likely to be required to pay a share of their health plans' premiums. In addition, most Americans are now enrolled in network-based plans, which encourage enrollees to use doctors and hospitals affiliated with the plans. Finally, nearly 40 percent of people with private employer-based health insurance participated in self-funded plans, under which the employers assume the risk for health claims and the plans are exempt from state insurance regulation. If health insurance costs start rising again, employers and insurers will face pressure to contain costs. 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.

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.