Nowadays, the insurance industry is one of the largest industries in the world, accounting for $53.3 billion in disclosed deals in 2015 (PWC, 2016). In this essay we will try to answer the question raised by drawing connections between insurance and inequality using the example of the US healthcare insurance system. The essay is separated into 4 main sections: Insurance as a form of risk governance, US Healthcare Insurance System, Insurance and Inequality in the US Healthcare Insurance System, and Conclusion. We will first look on how insurance may be used as a form of risk governance. Then, we will look in detail the inequalities that arise from insuring specific groups and transferring the health insurance to private sector, as in my case study. These inequalities may include, denial of access to certain groups, and price differences and premium charges based on a categorization technique used by insurers. Lastly, we try to summarize the main points and outline their various implications.
Firstly, we investigate the notion of insurance as a form of risk governance. The literature makes clear that insurance plays an important role in governing the various risks of the society. However, it is very important to distinguish between the government and the insurance industry as risk governors. The government is referred as the ultimate risk manager (Ericson & Doyle, 2004) and is responsible for taking over when the private sector is unable to govern the risks. The insurance industry is highly driven by profits and thus is able to discriminate the population that is referring to. Various scientific techniques are employed by the insurance companies in order to pool the risks, which in turn result to greater inequality and exclusion (Ericson, 2003 and Ericson & Doyle, 2004). Thus, the insurance industry has been greatly contested and faces various limitations when governing risks. According to Ericson these include the limitations in information availability, capital liquidation, and dependence to the government.
The US healthcare system is used as an example to show the relationship between insurance and inequality. Giving a brief explanation of how the system functions, we see a combination of governmental and private policies affecting the insurance. The public insurance places lots of restrictions to those that are eligible, when defining the low income under that of poverty level (Sridhar, 2005). Thus, the literature has suggested the introduction of new benefits to cover insurance costs for those in need. On the other the hand, we see that even those who are able to pay for private insurance do face restrictions according to their age and medical history and may even be denied access.
We then follow the analysis by looking how the US healthcare system justifies the claims made by the literature about the relationship between insurance and inequality. We see that inequality due to insurance is emphasised mainly due to the rapidly escalating costs and a growing number of Americans without any health coverage which fuel each other to increase the divide between the haves and the have-nots (Sridhar, 2005, pg.9). Insurance premiums are becoming more expensive due to the nature of the business, as insurers are highly interested in profits. As a result, many groups of the society such as women are left without insurance either because they are unable to participate to their employer-group insurance policies or because they are assumed to be more vulnerable and thus costing more for the insurers. However, when taking into account the risk pooling techniques employed by the insurance industry we can further identify inequalities provoked by the distinction and discrimination between the population, either by the benefits provided in each group category or by the restrictions they face. Therefore, we conclude that insurance companies and people are highly interdependent, as the one relies one the other to pay the premiums in order to be able to cover the medical costs.
Insurance as a form of risk governance
Todays societies have been very prone to tackling and governing any risk that arises despite the field, area or industry. The government has acted as the ultimate risk manager in many events, such as terrorist attacks (Ericson & Doyle, 2004). Therefore, the government has tried to act as an insurer against the risks in order to protect its people. This was done effectively since the government has legal, monetary, preventive security and informative power compared to the insurance industry left alone (Ericson & Doyle, 2004). As Baker and Moss highlight, the government has a vital role in managing risk because private markets for risk do not always work optimally on their own (Baker & Moss, 2009, pg.87).
However, there are many cases where the insurance industry has taken great action to face potential risks left alone. According to the literature, insurance is one of the core regulatory institutions of contemporary societies and a central institution of governance beyond the state (Heimer, 2002 & Ericson, doyle and barry, 2003). ‘it is the insurance companies which operate or mark the frontier barrier of risk society’ (Beck 1999, pg 77). Baker and Moss point out that when risk management is shifted from the government to the insurance industry, the risk of loss and damages is spread universally. Thus, insurance can be used as an example in the risk-spreading techniques they use (Baker & Moss, 2009).
However, there has been lots of evidence that insurance contributes to greater individualization as the burdens on individuals increase (Handout, 2016). The insurance companies tend to separate the individuals into different groups, which in respect fall into different premiums categories. These categories may either be due to individual characteristics such as age, interests, and income but also due to the disposable income of each person. In the latter, the insurance companies leave the decision burden on which category the individual will fall on the person concerned. Ericson agrees that in this way the insurers may exclude certain people and thus prevent undertaking any risk related to them. With this categorization, the insurance companies are able to distribute the various risks between the participants, resulting in pools (Ericson, 2003).
On the other hand, there has been great criticism in the literature for the pooling technique used by the insurance companies. Individuals who are thought to bring lower risk into the pool tend to subsidize for those who bring higher risk into the pools. This is done by estimating the degree of risk that each person will bring into the group and then by projecting any costs to occur, for the insurance company to be alert and reliable to its commitments. When objective risks are classified in this way accidents become normal, and in that sense not accidents at all (Ericson, 2003 pg.47). By pooling the risk insurance systems are able to provide security and solidarity (Ericson, 2003). Thus, insurance companies take advantage of such differences and are able to discriminate between the groups while providing the same level of services between the individuals who fall into the same category. However, Stone highlights that without such discrimination the goal of mutual aid can unravel.
Beck believes that insurers will ensure only what they can calculate. Therefore, insurance companies employ statistical analysis and scientific risk spreading techniques in their business. In this way they can evaluate and select the amount of risk they are willing to take and the loss ratio that they have accounted (Ericson & Doyle 2004). Hence, driven by profits, insurances try to turn threat into opportunity (Ericson & Doyle, 2004). However, this turn requires time and calculations, which are not always available to insurers. Great uncertainty exists in the cases of natural catastrophes and terrorist attacks, which create a vague environment towards insurance companies and whether they should insure or not, thus provoking new forms of inequality and exclusion (Ericson & Doyle, 2004). As Hutter points out, insurance is the enemy of the good as it is designed to average out loss resulting in the good not being rewarded and the bad not being punished.
However, criticism behind the insurance has brought light into its limitations. Ericson and Doyle highlight the loss ceiling that insurance companies might have, meaning that we are unable to estimate how much prepared the industry might be in order to face major losses. Additionally, they discuss the cost that such companies are prepared to bear in a case of an accident or disaster, mainly due to the nature of the business since profits and capital are the insurers main motive. We are unable to know if the compensation systems that are currently in place will be able to satisfy the needs when necessary. Therefore, we see that whenever the referred risk is related to peace and security, insurers are highly dependant to the government (Ericson & Doyle, 2004). Despite its limitations, insurance either through the government or the insurance companies has been a form of risk governance in contemporary societies.
Case Study: US Healthcare Insurance System
The US Healthcare Insurance Systems is employed as a case study to be used as an example for this essay. Although its great ambiguity and opposing opinions related to it, the US health insurance system combines private and public coverage, making inequalities and discrimination even more distinct. In order to extract the relationship between insurance and inequality based on this case study, I will give a brief outline of how the US healthcare system works.
The US health insurance is separated into two streams; the private insurance and the public-social insurance. There is only a small number of the population that can actually benefit from publicly provided insurance. Thus, the majority of the population have to take the burden of their insurance, either through their employers’ group insurance schemes or by paying solely the whole amount of the insurance. As a result, the US healthcare system exacerbates the inequality in access to care and health status between the haves and the have-nots (Sridhar, 2005, pg.1).
The US healthcare system is a combination or private and public insurance schemes, which cause great gaps between the population. The government, having introduced Medicare, is responsible to insure those aged 65 or older. However for those younger than 65 the insurance coverage is not as promising. Looking at some statistics as collected by the UNDP, employer-sponsored insurance accounts for 63% of the US citizens, public insurance for 14% and private non-group insurance for 5% (Sridhar, 2005, pg.5-6). Thus leaving 17% of those under 65 uninsured, which accounts for over 43 million Americans lacking health insurance in 2002 (Sridhar, 2005, pg.7).
In detail, employers usually choose to offer health insurance coverage for their employees, who they can in turn choose to extend coverage to their families. The health insurance policy is seen as a benefit and thus is on the employer’s decision to whether to provide it or not. However, the government does give incentives, as it provides subsidies through the federal tax system through employee tax exclusion of the health insurance premiums paid by employers (Sridhar, 2005, pg.5).
The government is also responsible for the health insurance of low-income Americans who cannot support their health insurance by themselves. These state-federal programs are Medicaid and State Children’s Health Insurance (SCHIP) (Sridhar, 2005, pg.5). Medicaid has strict eligibility criteria. In order to be eligible for Medicaid health coverage the person of interest has to be of low income and either a child, a parent or have recognized disabilities. Therefore, Medicaid only covers for 12% since it does not cover single adults and childless adults regardless of how poor they are (Sridhar, 2005, pg.6). On the other hand SCHIP insures children under 19 who come from poor families (Sridhar, 2005, pg.5). There has been great opposition to the definition of poor families by the US government, as those eligible for these for public insurance schemes have to have income that is less than poverty level (Sridhar, 2005). These eligibility restrictions leave over 40% of poor adults under age 65 uninsured (Sridhar, 2005, pg.6), them mostly being low paid individuals who cannot benefit from their employers group insurance or unemployed. Therefore, as Baker and Moss suggest, the government should introduce a health insurance premium payment feature to unemployment benefits (baker and moss, 2009 pg. 102). Although the increase in government expenditure his would result into positive externalities for the society, as less people would be affected by health problems, placing more of the risk of involuntary unemployment to employers (baker and moss, 2009 pg. 102).
Private insurance only refers to the part of the population that has enough money to pay for the premiums for themselves and their families based on their medical history and the risk they might face. Therefore, they tend to be more expensive with the costs varying according to your personal characteristics, i.e. age, history, interests in dangerous activities. As a result, the insurance companies may deny or limit coverage to persons in poor health or with chronic conditions (Sridhar, 2005, pg.6).
Insurance and Inequality in the US Healthcare Insurance System
One of the main issues that arise in the insurance industry is the distinction of the people falling in each group that will benefit or be excluded from each insurance scheme. Many groups of people are denied access to insurance, thus promoting inequalities in the society (Hutter, 2016). The restrictions to access may be done either directly or indirectly.
On the one hand, people may be given the opportunity to access insurance. However, the cost may be restrictive. Thus, the wealthier proportions of the population are more likely to have insurance than the poorer. The same stands for the employed compared to the unemployed. On the other hand, people may be denied access into an insurance scheme because of their medical history or chronic diseases. As Beck highlights, insurers will only ensure what they can calculate. Chronic conditions usually bring larger costs to the insurance company, which they can usually not predict. This is because, when it is extremely difficult to diagnose, measure, and treat the problem, it is also extremely difficult to know what level of professional service is required (Ericson, 2003, pg. 55). In this section I will try to further explain the inequalities that arise from such discrimination.
The UNDP Human Development Report identified that national surveys consistently show that the primary reason people are uninsured is because health coverage is too expensive (Sridhar, 2005, pg.7). Cost burden may be the premiums, coinsurance or out-of-pocket payments to cover health related expenses. As mentioned above, the majority of the American people will have to take advantage of their employer-group insurance cause otherwise will have to cover the whole insurance cost on their own. However, by doing so they also have to account for the money they have to put into these group insurance schemes, which makes it restrictive for many low paid employees. These are the poorer members of the population, which cannot however benefit from the public insurance schemes due to them not being poor enough. However, one cannot blame the US government for not spending enough on healthcare insurance, since spending exceeds $1.6 trillion (Sridhar, 2005).
It has been suggested that these cost restrictions are more likely to be faced by certain groups of the society. These groups include women, minority groups and people leaving in rural areas. Among workers, women are less likely than men to be eligible for and to participate in their employer’s health plan (39% versus 53% respectively) (Sridhar, 2005, pg.8). This shows that inequalities between genders exist due to insurance coverage in the workplace but also due to their position in the corporation that women work. Women may not be able to benefit from group insurances because they usually occupy positions that are in the bottom of a company’s hierarchy, meaning that in turn they have lower salaries and thus not being able to cover their insurance premiums. In addition, women are considered by the insurance companies to be more vulnerable than men thus being in greater need for health care services throughout their lives (Sridhar, 2005, pg.10), resulting to greater cost for the insurers.
Without access to health insurance services offered by private companies and without the support of the state, the majority of the poor members of the society are unable to enjoy the good of medical services, thus when in need, struggling without any assistance. However, healthcare is considered to be a necessity in today’s world. Rather, it was reported that half of personal individual bankruptcies are related to medical expenses (Sridhar, 2005, pg.4). Therefore, the state has to act in order to protect these minority groups from further discrimination and also protect the society as a whole from unequal treatment and support. The US government, for instance, has as a result introduced certain protocols and regulation in trying to eliminate such inequalities. It was noted that liberal risk regimes use insurance technologies as part of their effort to equalize social conditions (Ericson 2003, pg.55).
Insurance, although its risk governing role and high cooperation with the government, it is still a business that is highly interested in profits. Thus, due to competition for a larger market share, insurance companies increase their profits through price discrimination techniques. This means that insurers separate their consumers into different groups, who pay different premiums for the same service, therefore minimizing their opportunity cost. Compared to any other conventional public health insurance system, the US health insurance system is interested in high profits.
Leaving the market open to private corporations, the US government was hoping for a fruitful competition between the companies in order to achieve greater market share and more evolutionary treatment techniques, which would save them money in the long run. Unfortunately, instead of investing in R&D, the insurance sector treats healthcare as a commodity (Sridhar, 2005). Their main concern is to spread the risks and costs they bear to as many groups as possible. However, in order to achieve this goal, expensive analytics and management techniques are put in place, which result into higher administrative costs. These are in turn transferred to the insured through higher premiums. This policy has been vastly criticized, as the resources are not used efficiently and effectively. Greater investment into research, which would bring innovative treatment techniques, would lower the patient expenses. Business-oriented ‘market’ medicine undermines accountability and the capacity of the health care markets to function efficiently (Sridhar, 2005, pg.9).
The effects of the rising price of insurance premiums are broadly spread across the population. Firstly, the employers face increased expenses over group health insurance costs. Taking into account that business insurance is purely voluntary, we can conclude that companies will be less prone to continue providing such benefits to its employees and retirees, according to the UNDP. Limiting this benefit only to high-ranking employees, even less people will have access to insurance, although they might be employed full-time for the full-year (Sridhar, 2005).
Inequalities are marked by denial of access to insurance for some groups (Hutter, 2016, pg. 4).
The problem however is that as more and more people are unable to support their insurance costs, the number of uninsured rises. This in turn leaves more and more people without sufficient medical care and higher premiums fro those insured in order to compensate for the loss in the demand. Therefore the society is left in a vicious cycle. As a result, one could argue that purely public healthcare insurance systems are preferred, as they do not exclude members of the population, although criticized for wasteful bureaucracy and centralization. (Sridhar, 2005, pg.9).
Conclusion
Having gone through the literature and looking into the US Healthcare insurance system we have drawn some key points related to the relationship of insurance and inequality by examining insurance as a form of risk governance.
Looking at the literature we identified the role of insurance as risk governor and the limitations, which this might have. Heimer, Ericson, Doyle & Barry all agree that insurance plays a vital role in contemporary societies when risk has to be managed without the intervention of the government. We found out that when insurance is used as a form of risk governance inequalities arise due the way the business functions. It is however found that in most cases the government does cooperate with the private insurance in order to provide the optimal risk governance.
The US healthcare insurance system used as a case study for our analysis provides insurance to the ones over 65 and to children and parents that have income below the poverty level through social programs like Medicare and Medicaid. However, this leaves 17% of the American under 65 uninsured either because they are not entitled to employer-group insurance schemes or because they cannot pay individually their insurance premiums. Unfortunately, there have also been cases where those with heavy medical history or chronic diseases are denied access or enjoy limited treatment.
Hutter highlights that by restricting the access to insurance to certain individuals, inequalities arise. These may be either due to the cost of the premiums or the categorization of the population into groups. Keeping in mind that the insurance industry is still a business, thus highly interested in profits, inequalities within the population are inevitable. Although through risk pooling, insurance companies have found a way to support and compensate the medical claims of their customers, they still have to exclude certain groups which they consider as more vulnerable in order to avoid any unexpected expensive medical expense, which they will not be able to cover.
Summing up, insurance promoted inequality between people when referring to the US health insurance system. This may be due to the differences between the groups as defined by the insurance companies. These groups may be formed either due to the medical history of the person involved, the cost that each individual and/or company has to bear, or due to the structure of the industry.
Therefore, we can conclude that the insurance industry is currently used as the main source of risk governance either provided by the government through public insurance schemes or through private insurance companies. Either provided by the public or private sector, the insurer has to take lots of risks into account and will try to minimize the effect of each by spreading it across the population. Thus, pooling techniques are employed, which may lead into discrimination and the rise of inequality. However, with the current resources and information this is inevitable. The optimal solution currently is the cooperation of the government and the insurance companies to provide the optimal coverage for its population.