Insurance in the United States can be divided into two funding categories: private and government. Government insurance is paid for or subsidized by the government, while private insurance is either employer-sponsored or paid for by the individual. In the United States, both types of insurance function similarly, with insurance paying a certain amount for a service and sometimes requiring a copay, deductible, or monthly/annual premium from individuals. The benefits of insurance policies have become increasingly important in recent years as healthcare costs have increased. In 2018, healthcare spending increased by 4.6% to a total of $3.6 trillion, according to a study by Hartman et al [1].
Government insurance in the United States is offered to certain vulnerable groups. Medicare and CHIP are government insurance programs that offer coverage to individuals over 65 years of age, under 18 years old, and, in certain states, those significantly below the poverty line. Medicaid, however, is not an insurance product but a program that helps cover medical bills for low-income Americans and those with disabilities. In 2018, the U.S. government paid out a total of $731 billion for these government insurance programs, which accounted for 15% of federal spending [2].
Despite its high price tag, government insurance tends to be more affordable and offers lower administrative costs than private insurance. In a study by Ku and Broaddus, the researchers simulated moving from private coverage to government insurance and found that, on average, costs dropped by 26% per person [3]. While government insurance tends to be the lower-cost option, it also tends to be less flexible. Government insurance has fewer, if any, options for plans, and little-to-no coverage for procedures it deems unnecessary.
Overall, private health insurance tends to cost significantly more than government insurance. The tradeoff, however, is that plans tend to be more flexible and individuals can usually select from a variety of plans or customize their own according to their needs. Private insurance, which accounted for 34% of spending on healthcare in 2017, almost always requires a monthly or annual premium [4]. These premiums tend to be significantly higher than government plans but are sometimes covered or split with employers. For those who are covered under government insurance, private plans can also provide supplemental coverage for items or procedures not covered under the government plan [5].
In the United States, public healthcare marketplaces can blur the line between public and private insurance. Under the Affordable Care Act, which was put into law in 2010, every state was required to launch a public healthcare marketplace. Those who qualify for the Affordable Care Act can choose plans from an array of options on the marketplace [6]. While the federal government mandated that plans on these marketplaces follow certain regulations regarding coverage and cost, the plans themselves are offered by private companies.
Recently, the role of private companies and the government in providing insurance has come to the forefront with the rise of “Medicare for All.” This proposal would eliminate private insurance, expanding Medicare to cover everyone in the United States [7]. Another option is the so-called “public option,” which would expand government insurance to cover everyone, while allowing individuals to keep private coverage. According to an article by Herzlinger and Boxer in the Harvard Business Review, this option has proven successful in Germany and the Netherlands, two countries with strong universal healthcare programs [8].
While private insurance tends to be more flexible and can be split with employers, government insurance is usually more affordable and has lower administrative costs. Indeed, it is the difference between these two models that is at the core of recent proposals to expand government insurance programs.
References
[1] Hartman, Micah, et al. “National Health Care Spending In 2018: Growth Driven By Accelerations In Medicare And Private Insurance Spending.” Health Affairs, vol. 39, no. 1, 2020, pp. 8–17., doi:10.1377/hlthaff.2019.01451.
[2] Cubanski, Juliette, et al. “The Facts on Medicare Spending and Financing.” Medicare, Kaiser Family Foundation, 20 Aug. 2019, www.kff.org/medicare/issue-brief/the-facts-on-medicare-spending-and-financing/.
[3] Ku, Leighton, and Matthew Broaddus. “Public And Private Health Insurance: Stacking Up The Costs.” Health Affairs, vol. 27, no. 1, 2008, doi:10.1377/hlthaff.27.4.w318.
[4] “Health Care Almanac.” CHCF, May 2019, www.chcf.org/wp-content/uploads/2019/05/HealthCareCostsAlmanac2019.pdf.
[5] Shafrin, Jason. “What Should Be Covered by Government vs. Private Insurance?” Healthcare Economist, 20 Aug. 2018, www.healthcare-economist.com/2018/08/20/what-should-be-covered-by-government-vs-private-insurance/.
[6] Carrns, Ann. “It’s Enrollment Time for Obamacare.” The New York Times, The New York Times, 22 Nov. 2019, www.nytimes.com/2019/11/22/business/obamacare-enrollment.html.
[7] Qiu, Linda. “Examining Conflicting Claims About ‘Medicare for All’.” The New York Times, The New York Times, 9 Nov. 2019, www.nytimes.com/2019/11/09/us/politics/medicare-for-all-fact-check.html.
[8] Herzlinger, Regina, and Richard Boxer. “The Case for the Public Option Over Medicare for All.” Harvard Business Review, Harvard Business School Publishing, 10 Oct. 2019, hbr.org/2019/10/the-case-for-the-public-option-over-medicare-for-all.