The Escalating Costs of Health Insurance: Understanding Market Concentration, Premiums, and Coverage Gaps

The landscape of health insurance in the United States is complex, with rising costs and shifting market dynamics impacting millions of Americans. This article delves into the factors contributing to increasing health insurance expenses, explores the differences between private and public options like Medicare, and highlights the critical issues of underinsurance and medical debt. By understanding these key aspects, individuals can make informed decisions about their healthcare coverage.

Market Consolidation and Its Impact on Insurance Costs

One significant trend influencing the cost of health insurance is the increasing market concentration among fewer insurance companies. Over the last decade, the number of private health insurance companies in each state has decreased, with just a few companies insuring most private policy holders in many states. A market is considered concentrated when three or fewer insurance companies hold at least 80% of the market share. This consolidation raises concerns because less competition may lead to higher premiums, decreased access to affordable health insurance, and fewer choices for consumers.

• Individual Market: The individual market, where people without employer-sponsored coverage obtain insurance, has seen fluctuations in concentration. While it peaked at 47 concentrated states in 2019, it decreased to 35 states by 2022. In 2022, about 13.5 million people got their health coverage through individual exchanges like Healthcare.gov.
• Small-Employer Group Market: This market, covering over 11 million people in 2022, also became more concentrated from 2011 through 2022, with 47 states having concentrated markets in 2022.
• Large-Employer Group Market: This is the largest market, with more than 40 million people enrolled in 2022. This market has remained consistently concentrated with slight increases from 40 states in 2011 to 43 states in 2022.

Mergers and acquisitions among existing insurance companies have largely contributed to the increased market concentration, which is also exacerbated by companies leaving the market. High concentration makes it difficult for new issuers to enter a market.

Comparing Private Health Insurance Costs

Private health insurance is a major source of coverage in the U.S., with spending potentially exceeding $1.5 trillion in a year. Costs are rising, impacting Americans significantly. Private plans are available through employer-sponsored plans or the individual market.

• Employer-Sponsored Plans: Approximately 165 million Americans receive health coverage through employer-sponsored plans, where the employer and employees share the cost of the premium.
• Individual Market Plans (Healthcare.gov): Those without employer-sponsored plans can get coverage through individual market plans, often via Healthcare.gov, where the federal government and the policyholder share premium costs. In 2022, 13.5 million people signed up for Marketplace plans.

A comparison of employer-sponsored and Marketplace plans showed that, on average, employer-sponsored plans had lower monthly per-person premiums. However, they also required higher estimated contributions from those covered. For 33 states reviewed, monthly per-person premiums were $54 lower under employer-sponsored plans, while monthly per-person contributions were $41 higher. These comparisons are complex because of differences in covered populations, plan designs, and tax treatment between the two types of plans.

Private Health Insurance Premiums in 2024

In 2024, private health insurance premiums have increased for the third consecutive year. A study found that Americans will spend $584 per month on health insurance if they purchase a private plan on the marketplace, totaling $7,008 per year. This represents a 4% increase over the previous year.

• Premium Increases: 35 states experienced premium hikes, with the largest increases for platinum and gold tier plans, along with HMO and PPO plans, ranging from 6% to 10%.
• Geographical Disparities: Alaska, Vermont, West Virginia, New York, and Wyoming will face the highest costs, with premiums significantly above the national average. In contrast, New Hampshire, Maryland, Virginia, Minnesota, and Indiana will have the cheapest premiums.

Understanding Medicare and Its Relationship to Private Insurance

Medicare is a federal program that provides health insurance to eligible individuals, while private companies administer private health insurance and Medicare Advantage plans on behalf of the government. Medicare includes several parts:

• Medicare Part A: Covers hospital insurance, including inpatient care, skilled nursing facilities, hospice care, and some home healthcare. Most people qualify for premium-free Part A.
• Medicare Part B: Covers medical insurance for doctor visits, outpatient care, durable medical equipment, and various preventative services. The standard monthly premium is $185, with income-related adjustments ranging from $259 to $628.
• Medicare Advantage (Part C): Private insurance companies offer Medicare Advantage, which combines the coverage of Part A and Part B into a single plan, often including prescription drug coverage. These plans may offer additional benefits like dental, vision, and hearing care.
• Medigap: Offered by private companies, Medigap policies help fill coverage gaps in Original Medicare.
• Medicare Part D: Private insurance companies offer prescription drug plans, which can be added to Original Medicare.

Private insurance premiums vary widely, depending on factors such as location, age, and coverage level. Generally, private insurance costs more than Medicare. Making direct cost comparisons is challenging due to variables like employer contributions, Medicare Advantage plans, and Medigap policies. In 2024, average annual private insurance premiums are $8,951 for single coverage and $25,572 for family coverage.

The Growing Issue of Underinsurance

Beyond the uninsured, a significant portion of the population is considered underinsured. This term refers to people who have health insurance all year but still face high out-of-pocket costs and deductibles that make it difficult to afford necessary care.

• Definition of Underinsured: People are classified as underinsured if their out-of-pocket costs (excluding premiums) are 10% or more of their household income, or 5% or more for those under 200% of the federal poverty level. This also applies if their deductible is 5% or more of their income.
• Prevalence: In 2024, 23% of working-age adults were underinsured.
• Sources of Coverage: Most underinsured adults have coverage through their employer (66%), with others enrolled in Medicaid or Medicare (16%) or plans purchased in the marketplace (14%).

Underinsurance leads to significant consequences, including delayed medical care, worsened health conditions, and medical debt. Approximately 57% of underinsured adults reported avoiding necessary healthcare due to its cost.

The Burden of Medical Debt

The combination of high healthcare costs and inadequate coverage has resulted in a significant medical debt burden for many Americans.

• Prevalence of Medical Debt: Nearly 30% of adults are paying off medical debt, with underinsured adults reporting this at the highest rate.
• Amount of Debt: Approximately half of adults with medical debt are paying off $2,000 or more.
• Sources of Debt: Hospital stays are a major source of medical debt, with about half of adults with debt saying it stemmed from an ongoing condition.
• Consequences of Debt: Medical debt leads to delayed healthcare, reduced spending on basic necessities, lower credit ratings, and increased anxiety and stress.

Policy Recommendations to Improve Coverage and Affordability

Several policy changes could help address the issues of rising costs, underinsurance, and medical debt:

• Extending Enhanced Marketplace Premium Tax Credits: The enhanced tax credits, set to expire in 2025, have helped make marketplace plans affordable. Failure to extend these credits could lead to premium increases and millions of newly uninsured people.
• Medicaid Expansion: Establishing a federal fallback option for Medicaid-eligible people in states that have not expanded their programs. This could cover an estimated 1.5 million uninsured people.
• Continuous Medicaid Eligibility: Allowing states to maintain continuous enrollment for adults for 12 months, similar to the policy for children.
• Autoenrollment Mechanism: Creating an autoenrollment mechanism for Medicaid or subsidized marketplace coverage for eligible uninsured people.
• Lowering Deductibles and Out-of-Pocket Costs: Congress could extend cost-sharing subsidies to middle-income people and change the benchmark plan to improve financial protection.
• Adjusting Premiums and Cost Sharing: Employers should consider adjusting premiums and cost sharing based on employee income.
• Protecting Consumers from Medical Debt: The Biden-Harris administration has taken steps to ban medical debt information from consumer credit reports and ensure more scrutiny of bill collection tactics. States can also implement legislation to relieve medical debt.
• Slowing Healthcare Cost Growth: Addressing the high prices that commercial insurers and employers pay to providers and for pharmaceuticals is essential to lower health care costs.

Conclusion

The challenges of health insurance in the United States require a multi-faceted approach. By addressing market concentration, controlling premium increases, strengthening coverage options, and alleviating the burden of medical debt, policymakers can work towards ensuring access to affordable and comprehensive health care for all Americans. Individuals also need to stay informed about their options and understand the differences between various plans to choose the best coverage for their needs and circumstances.