A New Theory of Health Insurance: Preventive Care and Health Care Reform

April 12, 2010

In all of the commentary about The Patient Protection and Affordable Health Care Act, little has been said about the dramatic change in the theory of health insurance that was embedded in the Act.

While there are many changes to health insurance in the bill, most of them affirm the original foundations of health insurance in America: community rating, guaranteed issue, and the like. These provisions return health insurance to the structure it was founded upon in the late 1920s – a structure that was eroded as the health insurance industry became increasingly dominated by for-profit, commercial insurers.

One set of provisions, however, substantially shifts away from that original foundation: the scope of coverage requirements.

When the first Blue Cross plan was established in Baylor, Texas in 1929, it was designed to protect individuals from catastrophic financial losses that could occur as a result of sickness (and at least equally important, to protect hospitals from unpaid bills). The theory behind health insurance then followed the traditional concept of other kinds of insurance; i.e. insurance should be provided for things that cannot be anticipated and would result in a significant financial burden. In fact, one definition of insurance is “a means of indemnity against a future occurrence of an uncertain event.”

In its early days, and in conformance with this definition, the health insurance provided by Blue Cross plans covered hospitalizations – events that clearly met the traditional definition of insurance. Somewhat later, Blue Shield plans were developed to provide coverage for physician services, but in those early days of health insurance Blue Shield generally limited coverage to costly physician care associated with hospitalizations. Over time – often as a result of collective bargaining – the scope of health insurance changed to include more predictable and optional services: elective surgery, office visits, and the like. And consumers began to expect that such services should be part of health insurance.

The Patient Protection and Affordable Health Care Act embeds and extends this concept in statute. Indeed, the Act goes further than private health insurance has generally gone before, mandating coverage for certain preventive services – with no cost sharing – for all new health plans and all Medicare enrollees (existing private plans are grandfathered from this provision). This is one item that many consumers will experience in the near term, since the provision goes into effect in September of this year for new health insurance plans and in January 2011 for Medicare enrollees.

This change is one part of the bill that is, in fact, quite radical, as you can read here: it contradicts decades of theory on health insurance and bows to the practical reality of what health insurance has become over time. Its advocates argue that coverage for preventive services is one of the cost saving measures in the Act – that it will save money because illnesses will be identified and treated earlier or prevented all together. Indeed, the New York Times describes this change –without equivocation – as based on the idea is that healthy Americans will be less costly Americans, and it quotes Helen Darling, president of the National Business Group on Health, as saying: “This is transformative. We’re moving from an insurance model that was based on treating illness and injury, to a model that’s focused on improving an individual’s health and identifying risk factors.”

There is no question that this change is transformative and that health reform significantly expands the focus on wellness and preventive services. The question, however, is, will this change do what many of its proponents claim? Will it save money? In fact, on that point, the evidence is not nearly as positive as many politicians would like. It sounds great to say that we are expanding coverage and saving money at the same time. Sounds great; but probably not true. Most researchers agree that though preventive care can be cost effective care, most is not cost saving.

Does this mean covering preventive care broadly, as required by health reform, is a bad thing? Absolutely not.

There is no question that this provision of the Act will benefit many consumers and may – if done right – improve the health of the population. But, it is also essential to understand just how radical this change is and not expect it to have an equally positive impact on the cost of health care. A clear reality about what can and can’t be accomplished by the various parts of health reform will be essential to the evaluation of their success (or failure): it would be a shame for all of us to put a burden of proof on preventive care services for cost savings that are unlikely to be achieved.