The Evolution of Private Health Insurance and Why the Patient Protection and Affordable Care Act Is the Future of Health Care

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The Evolution of Private Health Insurance and Why the Patient Protection and Affordable Care Act is the Future of Health Care

One of the most hotly debated topics in the past two years has been health care reform. An effort by President Obama was successful and in March 2010, the Patient Protection and Affordable Care Act or PPACA was signed into law. This law aims to reform the entire U.S. health care delivery and financing system. In this paper, I will discuss how health insurance has evolved over time and how the PPACA is the future of healthcare. Originally, as early as the mid-1800s, workers were insured against lost wages resulting from work-related injuries. Later, insurance was created to cover lost wages resulting from catastrophic illness. Health insurance as we know it today began in the 1930s when insurance began to pay part or all of the cost of medical services to providers. A group of teachers from Baylor University contracted with Baylor Hospital in Dallas, Texas to provide coverage for hospital expenses. This arrangement yielded Blue Cross, the dominant form of insurance in the United States for the next forty years (Sultz & Young, 2011). Blue Cross was a private, not-for-profit insurance company which made payments directly to providers. Originally, a community rating was used in which “all individuals in a defined group pay single premiums without regard to age, gender, occupation or health status,” (Sultz & Young, 2011, p.231). This helped to provide insurance to the entire community without discriminating against those who might have varying risk characteristics. This remained the norm until commercial insurance invaded the marketplace and began to use experience rating in order to calculate higher premiums for those they deemed less healthy and offered lower premiums for those they deemed healthy (Sultz & Young, 2011). The creation of Blue Cross and the insurance it provided is significant for many reasons. It began a new era in U.S. health care delivery and financing. For the first time, hospital care was easily within reach of middle-class working Americans. Blue Cross removed financial barriers to care and increased access to and utilization of hospital services. Blue Cross led the way for Blue Shield plans which provided physician payments and by the early 1940s were operating across the country (Sultz & Young, 2011). In 1965, the Social Security Act brought about Medicare, for the elderly and federally funded, and Medicaid, for the indigent and funded jointly by federal and state programs. Instead of the government providing medical services directly to these programs, a contract is made with many different service providers to carry out treatment. Within a few years, Medicare spending grew significantly. With Medicare’s full cost reimbursement, providers saw no reason for efficiency. This all changed in 1983 when a new payment system using diagnosis related groups, or DRGs, went into effect and based payment on “established fees for services required to treat specific diagnoses rather than on discreet units of services,” (Sultz & Young, 2011, p.249). This system forced hospitals to be more efficient and only perform services needed to produce optimal patient outcomes. Managed care plans gained prevalence with the Health Maintenance Organization (HMO) Act of 1973. In this system, providers are prepaid for services and members of the HMO were required to obtain all care within the organization. Beneficiaries share financial risks with copayments and deductibles. Copayments are a set amount the beneficiary must pay when receiving covered services. Deductibles are a predetermined amount that must be paid by the beneficiary before the insurance company will assume financial responsibility for charges (Sultz & Young, 2011). Another type of managed care is a preferred provider organization or PPO. These plans are generally more expensive than an HMO because they provide more...
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