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There are 3 main types of insurance coverage in the United States today (Figure 15-1): private sector insurance sponsored by employers, public sector insurance through the Medicare program (for the elderly), and public sector insurance through the Medicaid program (for the poor). As of 2015, private insurance covered over half (56%) of the population and 62% of the nonelderly population (Figure 15-2).

Figure 15-1

Three Main Types of Insurance Coverage in the United States.

Figure 15-2

Insurance Coverage for Non-Medicare Population. (Source: Employee Benefit Research Institute Estimates of the Current Population Survey, March 2018 Supplement.)

This chapter reviews the role of employers in the healthcare system, the goals behind employer-based health insurance (EBHI), the tools at their disposal to influence the cost and quality of healthcare, and their degree of success in doing so. Chapter 16 continues the discussion of employers in managing a particularly difficult and little understood subject—pharmacy benefits (drug coverage) and the chain of participants in the drug channel. Chapter 17 analyzes the role of health insurers who work on behalf of the employers and who also contract with the public insurers. Chapters 18 and 19 examine the Medicare and Medicaid programs, respectively.


As covered in Chapter 13, the first insurance plans were community-based schemes covering local workers in specific industries (eg, teachers, Kaiser construction). Many of these schemes were capitated, prepaid plans that presaged the rise of health maintenance organizations (HMOs). These plans, organized by local hospitals to help finance themselves, were known as “hospital service plans.” The hospitals called on their national association, the American Hospital Association (AHA), for guidance, which set up a committee and began approving them. This culminated in the establishment of the AHA Blue Cross Commission in 1946. Similarly, local medical societies established “medical service plans” to finance physician services, which were approved by the American Medical Association (AMA). In contrast to the hospital plans, these were indemnity plans where the insurer paid the patient, who, in turn, paid the physician. In this manner, local nonprofit Blue Cross and Blue Shield plans (covered in Chapter 17) were organized by the AHA and AMA, respectively, starting in the 1930s to help pay for the services rendered by their members.

Three major changes over the next 50 years transformed this landscape. The first major change was the rapid development of private sector insurance coverage during World War II. The federal government imposed wage and price controls in 1942 to stem inflation to help the war effort. This prevented private companies from offering higher wages to attract scarce labor, however. To alleviate the problem, the National ...

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