Testimony--Insurance Design Matters: Underinsured Trends, Health and Financial Risks, and Principles for Reform

February 24, 2009

Authors: Cathy Schoen, M.S.
Contact: cs@cmwf.org

Downloads

Executive Summary

Thank you, Mr. Chairman, for the invitation to testify on the underinsured and the implications for national health reform. Rapidly rising health care costs and stagnant incomes have fueled steep erosion in insurance coverage across the nation. In addition to steady increases in the number of people uninsured during the year, we are seeing a surge in the number of adults and families who are "underinsured"—those who are poorly protected in the event of illness although they are insured all year long. In the midst of a severe recession, current trends are saddling individuals with medical debt that can last for years. Although employer coverage remains the mainstay and primary source of insurance for working families, rising costs are stressing private businesses and public employers, leading to shifts of significant financial risk back onto families or drops in coverage. As a nation, we urgently need health reform to provide a more secure foundation for the future.

Insurance reform is essential and central to improving national health system performance. Design matters. To provide a more secure foundation, coverage reforms must be designed to facilitate the two primary goals of health insurance—increasing access to care and providing financial protection. Insurance reforms are also key for providing a strong base for payment and other system changes needed to sustain coverage over time and improve the performance and value we get in return for our nation's unparalleled expenditure on health. Moreover, insurance reforms could focus competition on better outcomes and added value. My remarks this morning and prepared testimony present recent trends, summarize studies regarding the consequences of inadequate coverage and gaps, and discuss design principles with the potential to move our system in new, more positive directions.

Erosion in Coverage: Rising Number Underinsured and Uninsured

  • From 2000 to 2007, a time of relatively low unemployment, the number uninsured increased by 7 million. The number of uninsured is projected to reach 61 million over the next decade, assuming recovery from the current recession. Moreover, these estimates do not include all of those who lose coverage for at least part of the year.
  • From 2003 to 2007, the number of adults who were insured all year but were underinsured increased by 60 percent. Based on those who incur high out-of-pocket costs relative to their income not counting premiums despite having coverage all year, an estimated 25 million adults under age 65 were underinsured in 2007.
  • Erosion in benefits is moving up the income scale. The percent underinsured nearly tripled among adults with annual incomes in the middle-income range. Although low-income adults are most at risk, more than one of four adults with incomes above 200 percent of the federal poverty level were underinsured or uninsured in 2007. In total, 42 percent of all adults were either uninsured or underinsured.
  • The underinsured were more likely to report limits on benefits, gaps in benefits, and higher deductibles than those without high costs relative to income. At the same time, underinsured adults devoted a high share of their income to premiums.

Access, Quality, and Health at Risk: Consequences of Inadequate Insurance

  • Compared with adults with more adequate coverage, underinsured and uninsured adults were far more likely to go without needed care because of costs—over half of the underinsured and two-thirds of the uninsured went without recommended treatment, follow-up care, or medications, or did not see a doctor when sick. Half of both groups faced financial stress, including medical debt. Indeed, experiences among the underinsured and the uninsured were often similar.
  • The share of adults under age 65 who went without needed care because of costs increased sharply from 2001 to 2007, rising from 29 percent to 45 percent. Rates were up across all income groups, providing evidence of the breadth of coverage erosion. Middle-income adults, although typically insured all year, reported the steepest increases, jumping from 24 percent to 43 percent.
  • Among adults with chronic diseases, half of the underinsured and more than 60 percent of the uninsured skipped medications for their conditions because of cost. Both groups were at higher risk of going to the emergency room or hospital than chronically ill adults who were insured all year and not underinsured.
  • In the 2008 Commonwealth Fund eight-nation survey of adults with chronic conditions, the U.S. stands alone with half of all adults forgoing medications, not following up on recommended care, or not going to a doctor when sick because of costs. Rates were high for the insured as well as the uninsured.
  • These experiences reflect an ongoing insurance design shift away from pooling risk through premiums toward higher deductibles, limits, and cost-sharing.
  • Although the design shift in part aims at incentives to avoid unnecessary care, studies repeatedly find that reductions are about equally likely to occur for effective as more discretionary care. Moreover, low-income individuals are most likely to forego care.
  • Recent studies focused on medications find that caps and cost-sharing that do not take the value of care into account lead to adverse health outcomes, including complications from chronic disease, increased hospitalization, and spikes in deaths.
  • A study of low-income Medicaid beneficiaries found that interruptions in coverage lead to increases in hospital admissions for ambulatory care-sensitive (potentially preventable) conditions. Yet, we fail to design such programs for continuity.
  • Poor access undermines quality and effective care. The U.S. is falling behind other countries in reducing deaths from conditions amenable to health care. As of 2003, we ranked last among 19 industrialized nations. Although the U.S. mortality rates declined marginally (4%), other countries improved faster with an average 16 percent decline in mortality.

Financial Stress and Economic Insecurity

The sharp increase in the number of adults finding it difficult to pay medical bills or in debt is perhaps the most visible consequence of the deterioration in insurance coverage.

  • In 2007, 41 percent of adults—72 million people—said they had problems paying their medical bills, faced bill collectors, or were in debt for medical care, up from 34 percent or 58 million in 2005. The majority reported having insurance at the time these bills were incurred.
  • The increase occurred across all income groups, though rates were highest among lowand moderate-income families. Underinsured or uninsured adults were most at risk.
  • Among those reporting difficulty paying bills or debt, 29 percent were unable to pay for necessities because of medical bills, 39 percent had used up their savings, 30 percent took on credit card debt, and 10 percent added mortgages against their home.

It is important to remember that this stress occurred during a time of relatively low unemployment, well before the current severe recession.

Moving in New Directions: Insurance and Health System Reform

To move in a more positive direction, it is critical that we extend affordable insurance to all and do so in a way that ensures access and provides financial protection. Coverage expansion and insurance reform are essential to addressing rising costs as well as concerns about wide variations in quality and health care delivery system performance. Fractured insurance makes it difficult to develop coherent payment policies that could align incentives with better outcomes and prudent use of resources. Unstable coverage, complex benefit variations, and fragmented markets also increase administrative costs and erode incentives to invest in population health for the long term.

Attention to insurance design is essential to provide affordable coverage for all in a manner that ensures access to health care and financial protection. Needed reforms include:

  • Setting a minimum floor and standard for health insurance with benefits designed to support access to effective care and protection when sick or injured.
  • Providing income-related premiums to ensure coverage is affordable.
  • Establishing lower cost-sharing and ceilings on out-of-pocket expenses for lowincome families.
  • Limiting the range of variation to facilitate choice and discourage risk segmentation. This would also facilitate the publication of useful comparisons.
  • Assuring insurance access and renewal and prohibiting premium variations based on health risks. Coupled with risk-adjusted premiums, such insurance market reforms would focus competition on outcomes and added value.
  • Structuring insurance choices through a national insurance exchange to help individuals and families choose coverage and stay continually insured.

The design of insurance reforms should also aim to provide a more secure foundation for payment and system reforms. Without a comprehensive approach to improve the quality and cost performance of the U.S. health system, coverage expansions will be difficult to sustain.

A recent report by the Commonwealth Fund Commission on a High Performance Health System illustrates the potential of an integrated set of strategies. The analysis indicates reforms to provide affordable, adequate coverage for all, align incentives with value, and invest in essential information systems and public health measures have the potential to achieve better access for all, improve health outcomes, and reduce projected growth in national spending by $3 trillion through 2020 (11 years) if reforms begin in 2010. National spending would continue to increase but at a much slower rate.

Although politically difficult, there is an urgent need to move in a new direction. Wide public concern and stress on private business and the public sector make it increasingly clear that we cannot afford to maintain the status quo. Each year we wait, the problems grow worse. The nation needs national leadership and public–private sector collaboration to forge consensus to move in positive directions. Insurance coverage reform, coupled with payment and delivery system changes, have the potential to bend the curve of our nation’s spending on health and put the nation on a path to high performance.

The time has come to act. Thank you for the opportunity to testify. This hearing could not be more timely.

Citation

C. Schoen, Insurance Design Matters: Underinsured Trends, Health and Financial Risks, and Principles for Reform, Hearing on "Addressing the Underinsured in National Health Reform," U.S. Senate Health, Education, Labor and Pensions Committee, February 24, 2009.