U.S. Health Insurance Coverage and Financing
U.S. Health Insurance Coverage and Financing Sabrina Corlette
The United States has a patchwork system of health insurance coverage, in which people’s access to coverage and services varies with their birthplace, age, job, income, location, and health status.
The Covid-19 pandemic has shone a spotlight on the fragmented nature of the U.S. health care system. Some Americans were fortunate to enter the pandemic period with comprehensive health insurance and to retain their coverage as the public health emergency dragged on for weeks, then months, then years. Some people have been protected, if temporarily, by federal congressional and administrative actions designed to expand subsidies for private insurance, maintain Medicaid enrollments, and reimburse health care providers for testing uninsured people for SARS-CoV-2 and treating those who are ill. But others continue to slip through the many cracks in our system and find themselves imperiled not only by a life-threatening virus but also by life-ruining medical bills.
According to a New York Times story, for example, a Texas man named John Druschitz fell ill in April 2020 with a suspected but unconfirmed case of Covid-19 and spent several days in the hospital.1 From a financial perspective, the Times reports, circumstances couldn’t have been worse. Druschitz had retired a few months earlier and signed up for private insurance through the federal health insurance marketplace established by the Affordable Care Act (ACA). But when he was a month shy of turning 65 and qualifying for Medicare, he accidentally terminated that plan earlier than intended. He then ended up in the hospital, feverish and struggling to breathe — and uninsured. Worse yet, although he tested positive for Covid-19 antibodies, diagnostic tests came back negative, rendering him unqualified for federal funding that might otherwise have covered his bills. He faced more than $20,000 in hospital bills from the 1 month he spent uninsured.
U.S. Health Insurance Coverage, 2019.
As Druschitz learned, the United States has a patchwork system of health insurance coverage, in which people’s access to services and level of financial protection — not to mention whether they have coverage at all — varies depending on their birthplace, age, job, income, location, and health status. If you are 65 years of age or older or have a disability, you might be eligible for Medicare. If you work full time for a company that chooses to offer benefits, you might be eligible for employer-sponsored insurance. Depending on your income, state of residence, and other factors, you might qualify for Medicaid. You could also fall through the cracks: 12 years after the enactment of the ACA, more than 9% of Americans remain uninsured (see pie chart).
Many people in the United States work for employers that do not offer insurance or do not sufficiently subsidize it, making it unaffordable for lower-income workers. Most documented immigrants must wait 5 years to qualify for Medicare or Medicaid; those who are undocumented may never be eligible for any type of government insurance. And immigration status aside, millions of people live in states where eligibility rules mean they are actually too poor to qualify for subsidized coverage.
History of the U.S. Health Care System, 1912–2010.
No one would purposefully design the system we have. Unlike many of our peer countries, the United States has never had a centrally planned, cohesive system to help its citizens obtain and pay for health care services. Ours is a system built on happenstance, unintended consequences, and gap filling (see timeline).
The United States has made sporadic efforts at creating a national system of health coverage, beginning with proposals in the early years of the 20th century to finance sick pay and the payment of medical bills. A few presidents and congresses made other attempts over the years. A proposal by President Harry Truman would have created a federally run, compulsory national insurance program, and Presidents Richard Nixon and Bill Clinton both envisioned systems of universal insurance with responsibilities shared by the government and employers. These efforts all foundered in the face of opposition from health insurers, the American Medical Association, and other health industry stakeholders, as well as concerns about the proposals’ costs.
The backbone of our health coverage system is employer-sponsored insurance, which makes access to health care heavily dependent on the ability to work a full-time job. This system arose not from any intentional public policymaking, but as the unintended consequence of hospitals seeking a steady stream of revenue, war-driven labor policy, and a decision by officials at the Internal Revenue Service. In 1929, a Texas-based hospital system created the Blue Cross organization to receive prepayment for future health care costs, with schoolteachers as its first clients. At that time, many traditional insurers shied away from offering health insurance policies, fearing that only people who were likely to get sick would sign up. But by focusing on groups of employees and making insurance part of a total compensation package, Blue Cross demonstrated that a company could manage risk and sell health insurance without losing its shirt.
Still, employer-sponsored health insurance did not take off widely until World War II, when a cap on wage growth and changes to collective bargaining rules led employers to offer health benefits to attract and retain workers. Federal officials added fuel to the fire when they decided that employer-sponsored health benefits were not taxable. Today, employer-sponsored insurance covers nearly 60% of Americans younger than 65 years of age, and the tax subsidy is the largest single tax expenditure for the federal government.2,3
In the latter half of the 20th century, health care reform efforts largely focused on filling in gaps for people who were too old to work, could not work because of disability, or whose employers chose not to offer health benefits. In 1965, President Lyndon Johnson signed legislation creating Medicare (designed for people 65 years of age or older) and Medicaid (for people receiving welfare benefits — largely poor, elderly people, people with disabilities, and poor families with dependent children). Later congresses expanded Medicare by extending eligibility to people with disabilities and those with end-stage renal disease, as well as adding a drug benefit (Medicare Part D).
In 1986, Congress enacted the Consolidated Omnibus Budget Reconciliation Act (COBRA), which allows people to remain on their employer-sponsored insurance for a limited time after losing their job. Ten years later, the Health Insurance Portability and Accountability Act (HIPAA) of 1996 aimed to help people as they change jobs, prohibiting insurers from discriminating (in eligibility or premiums) on the basis of health status as long as enrollees maintain continuous employer-based coverage. Congress also created the State Children’s Health Insurance Program (S-CHIP), which provides public coverage to children in families with incomes too high to qualify for Medicaid.
In spite of these gap-filling efforts, by 2010, nearly 50 million Americans were uninsured.4 Millions more faced the risk that they could be denied insurance or charged exorbitant premiums on the basis of their health status. Drawing lessons from Clinton’s failed reform efforts, President Barack Obama signed a bill that built on, but did not radically change, our gap-ridden system. The ACA expanded insurance coverage by broadening Medicaid eligibility to people with family incomes up to 138% of the federal poverty level ($17,774 per year for a single person in 2022), although this provision was weakened by a 2012 Supreme Court decision making Medicaid expansion optional for states. The law also created insurance “marketplaces” where people with slightly higher incomes (up to 400% of the poverty level, or $51,520 per year for a single person in 2022) could obtain tax credits to defray their premium costs. The law also set minimum standards for coverage generosity and prohibited several practices that had been common in the insurance industry, such as denying insurance to people with preexisting conditions and setting premiums on the basis of health status.
The ACA proved to be a critically important safety net during the Covid-19 pandemic. This net was made even stronger when Congress temporarily expanded subsidies for people purchasing coverage through ACA marketplaces and the federal government invoked emergency powers to enable people to maintain continuous Medicaid enrollment through the course of the Covid-19 public health emergency. Despite massive job losses, the boosted ACA kept the uninsurance rate flat and made coverage more affordable for many families. But these bulwarks carry a price tag that, to date, Congress has been unwilling to commit to paying for the long term.
Among the people still most at risk for falling through the cracks are historically marginalized populations. The ACA, like other federal health laws before it, explicitly bars undocumented immigrants from obtaining federal benefits. The Medicaid program continues to allow states to adopt eligibility rules and impose funding restrictions that disproportionately hurt members of historically marginalized racial and ethnic groups. The inherently regressive tax exclusion for employer-sponsored insurance disproportionately helps higher-income workers rather than lower-income workers, while the ACA blocks many low-income workers from dropping their employer-sponsored plans in favor of subsidized individual market coverage.
Americans who have “good” insurance today may be surprised to learn that they, too, are vulnerable. Underinsurance is a growing problem, as fewer and fewer Americans are able to afford their share of costs. Premiums and deductibles continue to increase as health care costs rise, straining the budgets of families, employers, and state and federal governments. Unless and until policymakers curtail the power of health care monopolies to drive up costs and do more to limit health care prices across our array of public and private coverage systems, virtually everyone’s access to affordable care is at risk.
Our patchwork system of health coverage is not going away anytime soon. However, the primary reason millions of Americans remain uninsured or have insurance coverage that leaves them financially exposed is the high costs in our health care system. Constraining the growth of costs while reducing inequities in access and outcomes will require new but difficult reforms.
Disclosure forms provided by the authors are available at NEJM.org.
This article was published on December 17, 2022, at NEJM.org.
The series editors are Erin C. Fuse Brown, J.D., M.P.H., Aaron S. Kesselheim, M.D., J.D., M.P.H., Debra Malina, Ph.D., Genevra Pittman, M.P.H., and Stephen Morrissey, Ph.D.
Author Affiliations
From the McCourt School of Public Policy, Georgetown University, Washington, DC.