American Journal of Law & Medicine

Health Insurance Is Dead; Long Live Health Insurance

I. INTRODUCTION

Upon the death of a king or queen, the proclamation "the king is dead, long live the king" announces a new monarch's accession to the throne, preserving the sovereign order. As the Patient Protection and Affordable Care Act (ACA) (1) is implemented, it is tempting to proclaim the reign of a new system of health insurance. But, will it preserve the old order or initiate a new form of governance? As states and insurers grapple with new rules and regulations being issued from the Department of Health and Human Services, the Treasury Department and the Department of Labor, one might believe an entirely new health insurance system is being built. Yet, the ACA is designed to preserve existing forms of public and private health insurance, such as Medicare and private employer group health plans, which will continue to operate much as they have in the recent past. (2) What has changed is the role that insurance will play and how that will shape the way we think about health policy.

Under the ACA, health insurance will function more like social insurance than conventional indemnity insurance. (3) Consequently, the new queen may look more like a prime minister--no longer reigning as a sovereign, but responsible to her subjects and accountable to their governing institutions. This represents a notable change, but it is less dramatic than one might suspect, as health insurance has long functioned differently from other categories of insurance.

Health insurance no longer operates like conventional life or car insurance, as it did in the 1950s and 1960s, when health insurance began displacing direct cash payments from patients to physicians. Blue Cross and Blue Shield offered indemnity policies to reimburse patients for fees patients paid to physicians and hospitals. (4) Even then, however, Blue Cross and Blue Shield characterized their policies not as insurance, but as hospital and medical service payment plans, respectively; and they were governed by state laws similar to, but distinct from, other insurance licensure statutes. (5) As healthcare costs rose, commercial insurers entered the market with indemnity policies. In the early years, insurers typically paid whatever prices hospitals and physicians charged, but today's insurers negotiate prices with providers, and large insurers that have substantial bargaining power can set their own prices. Insurers also added managed care components to their plans to control costs, (6) and in many cases insurance coverage determines the kind of care that patients receive in practice.

Today, health insurance is no longer simply a class of insurance that covers risks to health, and it has not been so for many years. (7) Part II argues that health insurance has become a unique form of insurance--a mechanism to pay for healthcare that uses risk spreading as one of several pricing methods. (8) Part III explains how the ACA builds on this important payment function to create a complex social insurance system to finance healthcare for (almost) everyone. Health insurance is now so integrated into the healthcare system that we can no longer have one without the other. This shift poses challenges to laws governing health insurance policies. Part IV, therefore, examines how the ACA draws on various conceptions of insurance to produce a quasi-social insurance system. Such a system poses new challenges to laws governing insurance, not all of which are resolved by the ACA itself. I conclude that, whether or not the ACA is fully implemented, health insurance has already changed--but more nuanced questions remain about whether and how laws governing insurance licensure and claims determinations should also change.

II. CHARACTERISTICS OF HEALTH INSURANCE

Health insurance today differs from other classes of insurance in three critical respects. (9) First, it is the primary source of payment for medical care in the United States. (10) Second, because everyone needs healthcare, almost everyone needs health insurance to pay for that care. (11) Third, health insurance is no longer designed like conventional insurance policies and thus no longer functions like conventional insurance. (12) Any one of these characteristics is enough to distinguish health insurance from conventional indemnity insurance, but together they make health insurance unique. Indeed, healthcare may be the only market that could not exist in its current form--providing today's sophisticated services--without third party payers. (13)

A. PUBLIC AND PRIVATE COVERAGE PAYS FOR MOST MEDICAL CARE

Americans pay for most of their healthcare with health insurance, not cash. In 2009, they used public and private insurance to pay for 85.7% of their personal healthcare expenditures. (14) Only 12.8% was paid out-of-pocket for insurance deductibles and co-payments, over-the-counter medication costs and other health service expenses not covered by insurance. (15)

The vast majority of health insurance payments go directly to providers to pay for care--medical services, procedures, medications and devices. (16) The practice of reimbursing patients for their out-of-pocket payments to providers is the exception today. (17) When a person needs medical care, her health insurance pays the physicians, hospitals and laboratories for the services rendered to the patient. In this respect, both private commercial health insurance and public benefit programs like Medicare function in the same manner. Thus, the average person is likely to think of her health plan as the entity that pays for her medical care. To be sure, insurance does not pay for some services, but these are the minority--accounting for less than fifteen percent of national personal health expenditures. (18)

There is no other product that is purchased with insurance benefits. One might argue that repairs to one's house or car are often paid directly by homeowners or car insurance. However, that analogy ignores an important distinction. Individuals do not seek repairs in a vacuum. First, they must buy a house or a car with money from their own assets or a loan. Then they may buy insurance to pay for any repairs needed in the future. Later, if damage occurs, they may call upon insurance to pay for repairs, but they do not use car insurance proceeds to buy the car in the first place.

In contrast, individuals seek health insurance to buy the initial "product"--healthcare--before seeking that care. One might claim that health insurance is like a car loan obtained to buy the car in the first place, except that the "loan" does not have to be repaid. Health insurance is not analogous to car insurance, unless we consider the human body to be the original product and health insurance as the source of payment for repairs to the body. Of course, the human body is not a product; the Thirteenth Amendment has prohibited treating a human being as a commodity since 1865. (19)

In his opinion on the ACA's individual mandate in National Federation of Independent Business v. Sebelius, Chief Justice John Roberts rejected the idea that health insurance differs from car insurance. (20) Very few things are purchased for their own sake, he asserted: a car is purchased for transportation to go places. (21) If health insurance is similarly purchased for an ultimate purpose, as the Chief Justice implied, that purpose can only be to buy healthcare, which, under his reasoning, is itself purchased for the further purpose of getting well. This theory makes analogies--a mainstay of legal reasoning--unmanageable. At issue is the source of payment for products or services like cars and healthcare. Intangible states of being, like going places and getting well, are not products that can be bought. Buying health insurance is at least one step too far removed from buying a car to satisfy the Chief Justice's attempt at analogy.

A. THE UNIVERSAL NEED FOR HEALTH INSURANCE

Insurance is used to pay for most healthcare because healthcare is often extremely expensive and unpredictable. To be sure, some other purchases can be expensive and unpredictable. But, healthcare is not an optional good. Almost everyone needs some sort of healthcare at one time or another during their lives. (22)

The National Center for Health Statistics (NCHS) reports that only 1% of adults have never visited a healthcare professional in their lifetimes. (23) Of course, the need for healthcare varies over a lifetime. Yet, most Americans use healthcare frequently. The same NCHS survey reports that 95.9% of adults had visited a healthcare professional within the preceding 5 years, and 82.5% had done so within the preceding year. (24) Children see healthcare providers even more often. (25)

Much of this care is expensive. National health expenditures accounted for 17.9% of the United States GDP in 2011, totaling about $2.7 trillion. (26) Life-saving care is especially expensive, with organ transplants costing hundreds of thousands of dollars. (27) Coronary artery bypass surgery cost $86,914 at private insurance rates in 2005. (28) Few Americans can pay for such care out-of-pocket. In 2009, the median household income in the U.S. was $49,777, (29) and the median net worth was about $120,000. (30) More than half the population does not have enough income or assets to pay for this type of care.

The cost is exacerbated by the unpredictability of major illnesses and injuries. (31) One never really knows when a devastating medical crisis will occur. This makes it difficult, if not impossible, to plan or save for future care. Moreover, when illness strikes, patients have little control over the treatments they receive--and therefore their costs--typically relying on physician recommendations. Thus, patients are often faced with the kind of personal and financial crises that can only be financed by the cost-spreading techniques of insurance.

Of course, insurance is useful for expensive and unpredictable events, such as the loss of one's house in a fire or flood. But, few expensive products are necessities. Food, water, shelter, and clothing are necessities, but they are not unpredictable. Unlike medical care, these necessities are essentially the same for all human beings. The quantity and quality sufficient to sustain survival are predictable. Also unlike medical care, consumers can choose what clothes, housing, and food to buy without professional intervention. These necessities generally are available at affordable prices. To be sure, too many indigent persons are unable to afford healthy food and safe housing without social assistance. Nevertheless, there is no imperative to use insurance to buy food, water, housing, or clothing.

Despite many who consider healthcare to be a commercial good that should be allocated through commercial markets, more Americans treat healthcare like a necessity and a public good. (32) The public generally responds to an individual in an emergency by providing rescue. (33) Professional medical ethics has long recognized physicians' responsibilities to help patients in an emergency. (34) State court decisions have incorporated this ethic into common law, while state and federal legislation has codified it for hospitals with emergency departments, requiring care for emergency medical conditions regardless of ability to pay. (35) Even though limited to emergencies, this sense of responsibility distinguishes medical care from commercial goods. Medical facilities do not refuse care to anyone whose life could be saved by immediate intervention, whether or not the facilities will be paid for the services they provide. Commercial vendors, however, do not typically provide food, housing, or automobiles to individuals who cannot pay for them.

C. HEALTH INSURANCE ALSO PAYS FOR PREDICTABLE AND PREVENTIVE SERVICES

Health insurance today pays not only for needed medical care that patients cannot foresee, but also for many entirely planned and predictable services. …

Log in to your account to read this article – and millions more.