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July 1983, Vol. 106, No. 7
Trends in major medical coverage
during a period of rising costs
Douglas Hedger and Donald Schmitt
Since their inception in 1949, major medical insurance plans have grown rapidly in popularity, and now cover more than 150 million individuals. These plans offer protection against the large expenses resulting from a major injury or serious illness, paying a substantial portion of hospital and physicians' charges after a deductible amount has been paid by the insured person. While the coinsurance rate applicable to the insured has remained relatively constant in recent years, major medical protection has been enhanced by liberalization of other policy provisions, such as increases in maximum benefits and incorporation of curbs on expenses borne by insured individuals.
Rapid increases in the cost of medical care probably have provided the main impetus for adjustments in major medical coverage. Between 1974 and 1981, yearly per capita national health expenditures more than doubled from $535 to $1,225.1 During this period, the medical care component of the Consumer Price Index for Urban Wage Earners and Clerical Workers increased at an average 10.1-percent annual rate.2 Increases in health care expenditures also resulted from costly new treatments generated by advances in medical technology. Improvements in health insurance provisions also mirrored a general liberalization of supplementary benefits as parts of employee compensation during this period. Finally, more attractive major medical benefits offered by insurance carriers may stem from the keen competition which has occurred among individual insurance companies and between the traditional insurance industry and alternative approaches to health care financing, such as self-funding by employers and Health Maintenance Organizations.3
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1 As a percent of gross national product, national health expenditures advanced from 8.1 to 9.8 percent over the 7-year period. See Robert M. Gibson and Daniel R. Waldo, "National Health Expenditures, 1981," Health Care Financing Review, September 1982, p. 19.
2 The annualized rate of change was calculated from data presented in table 19, p. 66 of this issue.
3 Regarding HMOs, see Allan Blostin and William Marclay, "HMOs and other health plans; coverage and employee premiums," Monthly Labor Review, June 1983, pp. 28-33.
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