Both the market and government have important roles in helping ensure the availability, affordability, and adequacy of private health insurance. But many think that health insurance and the health care it pays for are different from other goods and services. It does this through public programs, such as Medicare and Medicaid, and through policies that affect the market for private insurance. Subsidies make health insurance more affordable for consumers and employers, and regulations help ensure access to insurance and the adequacy of benefits. This report analyzes the roles of the market and government in providing, financing, and regulating private health insurance. The Market

By generating diverse insurance products and by adapting to different and changing conditions, the market for private health insurance provides choices for consumers and employers who have different needs and preferences. Offering Insurance Products with Different Features

Consumers and employers want affordable yet generous coverage. They also want unfettered access to health care providers and services, but generally they must make tradeoffs between cost on the one hand and generous coverage and access on the other. Adapting to Changing Conditions

In addition to providing a variety of products, the market adapts over time to changing circumstances. In addition to providing health benefits for vulnerable populations, the federal government uses tax and regulatory policy to influence the market for private health insurance. Largely because of tax policy, in 2006 about 60% of Americans got health benefits through work. Subsidies for Health Insurance

By far the largest health-related tax benefit is the exclusion for employer-paid insurance. Other Subsidies

Tax benefits also help consumers pay for qualified medical expenses not covered by insurance. Limitations of Tax Policy

Although all of these tax benefits help people pay for health insurance and health care, government—like the market—does not serve everyone equally. Low-income people may be unable to afford coverage or all of the care they desire, even with support. States have primary responsibility for regulating insurance, but the federal government has sought to address selected issues regarding health coverage. This protection is called portability. The Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) also helps ensure access to health insurance. Federal law includes a few benefit mandates. For example, although HIPAA and COBRA require insurers and employers to offer coverage to certain individuals under certain circumstances, these Acts do not guarantee access to insurance for everyone. In addition, even where regulations require insurers to sell or employers to offer coverage, eligible people may find coverage unaffordable.
Both the market and government have important roles in ensuring the availability, affordability, and adequacy of private health insurance. These roles complement one another, but even together the market and government have limitations.
The market provides a variety of insurance products for consumers and employers with different needs and preferences. These products differ on many dimensions, including the breadth of provider networks, amount of beneficiary cost-sharing, and techniques for managing the use of health care services. Large employers, small employers, and individuals have different health insurance options, but all must make tradeoffs between the cost of coverage and desired features.
A strength of the market is its flexibility to adapt over time to changing circumstances. As economic conditions, consumer preferences, and government policies evolve, the market generates different products with different features. The primary limitation of the market is its failure to provide affordable options for all consumers.
The federal government helps ensure access to health coverage through public programs, such as Medicare and Medicaid, and it influences the market for private insurance through tax and regulatory policies. Some tax subsidies help people purchase insurance, and others—including those for Health Savings Accounts—help pay for medical expenses not covered by insurance. By far the largest subsidy is the tax exclusion for employer-provided health benefits. Because of this exclusion, most people get health insurance through work.
Tax subsidies make health insurance and health care seem more affordable for certain taxpayers, but do not provide equivalent support to everyone. In addition, subsides may increase health care spending by reducing the apparent cost of health insurance and health care services.
Regulations affect both access to insurance and the adequacy of benefits. States have primary responsibility for regulating insurance, but the federal government has sought to address selected issues regarding health coverage. For example, the Health Insurance Portability and Accountability Act of 1996 and the Consolidated Omnibus Budget Reconciliation Act of 1985 include provisions that allow certain people to obtain or continue health coverage under certain circumstances. In addition, several federal laws mandate coverage for specific health benefits.
Although regulations provide some protection for consumers, neither federal nor state rules guarantee access to coverage for everyone. In addition, even where regulations require insurers or employers to offer coverage, consumers may find this coverage unaffordable. This report will be updated.