Private vs. Federal Insurances: A Breakdown

One of the nation’s biggest ongoing debates is on the topic of insurance. Private and public health care have been constantly competing on the grounds of customer satisfaction and benefits to the country’s economy. Private insurance companies are favored for supposedly having better benefits, higher coverage, greater choice for consumers and adding competition to the marketplace. Public insurance, primarily Medicare, is favored for being simple, with benefits that are constant throughout the population, lower costs, and aiding with steady movement through changes in the healthcare system. Through a study made by the Federal Office of the Actuary on Medicare, Medicaid, and private health insurance company spending, it shows  that private companies are having to pay more for their customers per capita at an increasingly higher rate than public insurance. This may be because private insurance companies are responding to demands of higher coverage while public insurance remains consistent. [1]

Medicare is a health insurance program funded by the federal government usually for people who are 65 years or older, with certain exceptions for people with disabilities and particular diseases. Citizens will usually get a letter to sign up for Medicare before they turn 65, and if they decline and decide to sign up later on they may have to pay a penalty. In the case of people over 65 that are still working, they may stay with their work insurance and sign up for Medicare as soon as they decide to retire. Medicare plans can be given either through original Medicare or through approved private companies. Funding for the insurance plan comes from federal and state sources. [2]

Part A of Medicare is the hospital insurance that covers services related to hospital care. Part B is medical insurance including outpatient care and medical supplies, Part C is Medicare Advantage Plans, and Part D is prescription drug coverage. In Medicare, the periodic payment for health coverage is called a premium. If a person has paid Medicare taxes while working, they will not have to pay for Part A after they sign up for Medicare, because they are automatically signed up. Any other plan, the person has to sign up for in the window of time around their 65th birthday. According to Medicare.gov, after including Social Security benefits, Part B premium payment is around $109. Part D varies depending on coverage and income. Part C of Medicare, also known as Medicare Advantage plans, is a special type of plan Medicare provides where the customer is taken out of Medicare and placed with a private insurance company. The patient then becomes subject to all of the private insurer’s conditions and policies. When choosing between Medicare and private insurance for high-cost services, consumers should weigh out the costs between the two. While regular Medicare plans usually have higher premiums, they are more flexible for the patient and provide consistent care. A patient with this type of plan can be attended at any hospital or clinic that takes Medicare. For patients with medicare Advantage plans (MA), the private insurance company sets all the rules for them, including which hospitals they can go to and whether they need doctor referrals or not. MA plans tend to have lower premiums but it comes a cost, and generally the lower the premium, the more restrictive the insurance plan becomes. When choosing between workplace insurance and Medicare, it is necessary to outweigh the costs. Additionally, some workplace insurances have compensation accounts to pay extra costs when people leave their plan. This can result in a more appealing reason to switch to Medicare, assuming the payments will be lower.

As of a 2002 study, people with Medicare were more satisfied with their health insurance than consumers with private insurance.[3] The higher levels of satisfaction were probably due to more confidence in constant payments, for private insurance customers were more anxious with the costs of their healthcare plan.[4] The more stable health care plans and less financial difficulty of Medicare make it have “a level of security that is not typically found in employer or individual coverage markets.”[3] With a decrease in health, certain public health care consumers must pay for a larger portion themselves. For those below the poverty line, annual health expenditures almost double, and most of the burden goes onto Medicaid. Interesting enough, as age increases, the share of expenditures paid for by Medicaid rises while Medicare decreases. This is because as people get older, they often find themselves in elderly homes, a service Medicare does not pay for. When the elderly choose to live in a nursing home they many times pay for it with the last of their funds, lowering their wealth enough to qualify for Medicaid.

Something else to consider is the seemingly long periods of time that patients have to wait for an appointment with a specific doctor. Depending on the type of insurance that is accepted by different doctors and the specialization of the doctor, wait time could be up to months.[6] In a study done on dermatologists, it was concluded that between private and public insurance, it was necessary to draw a distinction between Medicare and Medicaid. Medicare and private insurance had similar wait periods for an appointment while Medicaid patients were rejected treatment by a physician at higher rates than the other two. Medicaid’s overall acceptance rate came in at 32%, while Medicare and private insurance were at 85% and 87% respectively.[6] Basically, the higher the physician is getting paid through the insurance and is feeling like he or she deserves, the more likely they are to treat a patient. It is necessary to understand, however, that regardless of the similarity between Medicare and private insurance acceptance rate, Medicare is simply accepted in a larger network than private companies. A person with private insurance must comply to the specific network the insurance provides, and there are usually no out-of-network services. If they do, the costs of having them outweigh the necessity.

Some elderlies choose to supplement their Medicare insurance with private insurance, where the supplemental insurance will pay the costs the primary insurance doesn’t cover.[5] If Medicare is the primary insurance, then a customer might have to pay for Part B premium before secondary insurance kicks in. If Medicare is the secondary insurance, then the deductible fee has to be paid before Medicare starts paying. When a person continues to work after 65 with their employee insurance, Medicare is the secondary insurance. After that, Medicare becomes primary.

The Commonwealth study shows that more Medicare people rate their health insurance as excellent than private insurance holders, but our healthcare system in the United States is far from perfect.[4] In most cases, Original Medicare are a considerable alternative to private insurance plans or Medicare Advantage plans,with more stable and flexible plans. A person that might not make many hospitals visits might be better off with a MA plan with cheaper premiums, but most elderly with regular doctor visits would benefit more from Original Medicare that might possibly just have higher coverage. It is important to stress the importance of choosing the correct plan from the beginning. While switching from Medicare to Medicare Advantage might not have any extra costs, adding supplemental plans when switching from MA to Medicare gives a heavy penalty that is probably not worth it. Anyone over 65 with the availability to apply for Medicare should and determine the best plan for their own medical needs.

 

Sources:

  1. “Public vs. Private Health Insurance on Controlling Spending” Drew Altman. The Kaiser Family Foundation, Wall Street Journal Think Tank (April 26, 2015)

  2. Medicare.gov

  3. "Medicare vs. Private Insurance: Rhetoric and Reality," Karen Davis, Cathy Schoen, Michelle Doty et al., Health Affairs Web Exclusive (October 9, 2002)

  4. The Commonwealth Fund 2001 Health Insurance Survey

  5. “Does Supplemental Private Insurance Increase Medicare Costs?” Lee A. Lillard, Jeannette Rogowski et al., Working Paper Series 95-16 (July 1995)

  6. “Medicare, Medicaid, and access to dermatologists: the effect of patient insurance on appointment access and wait times,” Jack Resneck, Mark J Pletcher, Nia Lozano et al., Journal of the American Academy of Dermatology V. 50 Issue 1 (January 2004)

 

Naile Ruiz