Health Insurance: A Primer

Publication Date: January 2006

Publisher: Library of Congress. Congressional Research Service

Author(s):

Research Area: Health

Type:

Abstract:

People buy insurance to protect themselves against the possibility of financial loss in the future. Such losses may be due to a motor vehicle collision, natural disaster, or other circumstance. For patients, financial losses may result from the use of health care services. Health insurance then provides protection against the possibility of financial loss due to health care use. In addition, since people do not know ahead of time exactly what their health care expenses will be, paying for health insurance on a regular basis helps smooth out their out-of-pocket spending.

While health insurance continues to be mostly a private enterprise in this country, government plays an increasingly significant role. Especially during the latter half of the 20th century, the government both initiated and responded to dynamics in medicine, the economy, and the workplace through legislation and public policies. For example, the Internal Revenue System clarified that employer contributions to employee health benefits are exempt from taxation, which encouraged the growth of employment-based health coverage. Given the frequent introduction of legislation aimed at modifying or building on the current health insurance system, understanding the potential impact of such proposals requires a working knowledge of how health insurance is designed, provided, purchased, and regulated. This report provides background information about these topics.

Individuals and families without health coverage are more likely than those with coverage to forgo needed health care, which often leads to worse health outcomes and the need for expensive medical treatment. Since uninsured persons are more likely to be poor than insured persons, the uninsured are less able to afford the health care they need. Uninsurance can lead to health care access problems for communities, such as overcrowding in emergency rooms. Taxpayers and the nation as a whole are affected through increased taxes and health care prices to cover the uncompensated care expenses of uninsured persons.

Americans obtain health insurance in different settings and through a variety of methods. People may get health coverage through the private sector, or from a publicly funded program. Consumers may purchase health insurance on their own, as part of an employee group, or through a trade or professional association. However, nearly 46 million Americans did not have health coverage for the entire year of 2004.

Health insurance benefits are delivered and financed under different systems. The factors that distinguish one delivery system from another are many, including how health care is financed, how much access to providers and services is controlled, and how much authority the enrollee has to design her/his health plan. To illustrate, managed care is characterized by predetermined restrictions on accessing services and providers, whereas individual decision-making regarding use of health benefits is a hallmark of consumer driven health care. As economic conditions change, a specific delivery system may gain or lose the interest of affected parties.

This report will be updated periodically.