October 1, 2008
Sara R. Collins
S. R. Collins, Rising Health Care Costs: Implications for the Health and Financial Security of U.S. Families, Invited Testimony, Committee on Finance, United States Senate Hearing on "High Health Care Costs: A State Perspective?", October 21, 2008.
Thank you, Mr. Chairman, for this invitation to testify on high health care costs and the implications for U.S. families. The soaring costs of health care and stagnant household incomes are leaving many working families without insurance or with medical expenses that consume a large share of their budgets. An analysis of the Commonwealth Fund Biennial Health Insurance Survey found that nearly two-thirds of working-age adults—an estimated 116 million people—either were uninsured for a time during 2007, had such high out-of-pocket costs relative to their incomes that they were "underinsured," reported a problem paying medical bills, or did not get needed care because of costs. Over the past seven years, these problems have spread inexorably up the income scale. The nation now faces a potentially severe economic downturn that could have potent financial implications for lower-income and middle-income families—those most at risk of being uninsured or underinsured. There is now an urgent need for a national solution that will provide families with affordable coverage options to ensure access to timely health care and provide protection against catastrophic financial losses.
Rising Health Care Costs Are Leading Employers to Drop Coverage or Increase Cost-Sharing
- In 2006, national health expenditures increased at a rate of nearly 7 percent per year, more than two times the rate of growth in the economy. Similar annual rates of growth are projected through 2017.
- Americans spend two times as much on out-of-pocket medical expenses than do residents of other industrialized countries.
- Premiums are growing at rates more than twice that of other indicators, such as wages and consumer price inflation. The average annual cost of family coverage in employer-based health plans, including employer and employee contributions, topped $12,680 in 2008—more than the average yearly earnings of a full-time worker earning the minimum wage.
- Employer coverage remains the predominant form of health insurance coverage for U.S. families; 99 percent of companies with 200 or more employees offer health benefits. But rising premiums have weakened the ability of small firms to offer comprehensive coverage. About 49 percent of employers with three to nine employees offered health insurance to their employees in 2008, down from 57 percent in 2000.
- Employers have tried to hold their premiums by increasing employee cost-sharing. In-network deductibles for single coverage in PPO plans have tripled since 2000. Among employers with fewer than 200 employees, deductibles have risen by greater than a factor of four.
Increasing Numbers of People Are Uninsured or Underinsured
- Rising health care costs over the past decade have occurred as incomes for working families have barely budged. Real incomes among working-age families have yet to regain levels prior to the 2001 recession: median income among households headed by someone under age 65 was $56,545 in 2007 compared with $58,721 in 2000.
- This dynamic is captured in the increasing numbers of Americans who are spending large shares of their income on health care. Between 2001 and 2007, the share of adults under age 65 who spent 10 percent or more of their incomes on health care costs, including premiums, climbed from 21 percent to 33 percent. Adults in all income groups spent more of their incomes on health care.
- As employer coverage has declined, the number of people without health insurance has surged, rising from 38 million in 2000 to 46 million in 2007.
- An increasing number of adults who are insured have such high out-of-pocket costs relative to their income that they are effectively "underinsured." In 2007, an estimated 25 million adults were underinsured, up from 16 million in 2003.
Increasing Numbers of Adults in All Income Groups Are Not Getting Needed Health Care Because of Cost
- The share of adults under age 65 who reported problems getting needed health care because of costs increased dramatically between 2001 and 2007, rising to 45 percent from 29 percent. Cost-related problems getting needed care rose across all income groups, with adults in low- and moderate-income families reporting the highest rates.
- Among adults with chronic health problems, more than 60 percent of those who were uninsured and nearly half of those who were underinsured reported skimping on medications because of cost. Both groups were more likely than those with adequate insurance to go to an emergency room or stay overnight in a hospital for their condition.
- McWilliams and colleagues found that previously uninsured adults with chronic health problems who acquire Medicare coverage at age 65 report significantly greater increases in the number of doctor visits and hospitalizations and in total medical expenditures than do previously insured adults, with the difference persisting through age 72.
Increasing Numbers of Adults Are Struggling to Pay Medical Bills
- Forty-one percent of working-age adults, or 72 million people, reported problems paying their medical bills or were paying off accrued medical debt during the past year, up from 34 percent or 58 million people in 2005. An additional 7 million adults 65 and older also reported bill or debt problems.
- This increase occurred across all income groups but families with low and moderate incomes were particularly hard hit: more than half of adults with incomes under $40,000 reported medical bills problems in 2007. Adults with gaps in health insurance coverage or those underinsured were most at risk of having problems with medical bills.
- One-quarter of adults with medical debt were carrying $4,000 or more in debt and 12 percent had $8,000 or more.
- Among adults who reported any problems with medical bills or accumulated debt, 29 percent said they had been unable to pay for basic necessities like food, heat, or rent because of medical bills; 39 percent had used all their savings; 30 percent had taken on credit card debt; and 10 percent had taken out a mortgage against their home.
- Three-quarters of adults under age 65 who reported a problem with medical bills said they had not pursued needed health care because of cost, compared with one-quarter of those who had not reported such problems.
- The public's desire for relief from rising health care costs is evident in recent polling data. Eight of 10 adults said in a May 2008 Commonwealth Fund survey that the health care system is in need of a major overhaul or fundamental reform. A strong majority of adults across political parties said that it will be important for the next president to improve the quality of health care, ensure that insurance and health care are affordable, and reduce the number of people who are uninsured.
- The Commonwealth Fund Commission on a High Performance Health System has identified the following five key strategies for moving the health care system to a higher level of performance:
- extending affordable health insurance to all;
- aligning incentives to reward high-quality, efficient care;
- organizing the health system to achieve accountable, coordinated care;
- investing in public reporting, evidence-based medicine, information technology, and infrastructure needed to deliver the best care; and
- exploring the creation of a national entity to set goals for improving health system performance and recommend best practices and policies.
- Universal coverage is a necessary, though not sufficient, condition for improving the overall performance of the health system. Moreover, the way in which policymakers design health insurance reform will affect whether everyone can be covered and sustained improvements in the quality and efficiency of care can be achieved. The Commission has identified the following principles of health insurance reform:
- equitable and comprehensive insurance for all;
- benefits should cover essential services with financial protection;
- premiums, deductibles, and out of pocket costs should be affordable relative to family income;
- broad health risk pools; competition based on performance, not risk or cost shifting;
- simple to administer: coverage should be automatic, stable, seamless;
- choice of health plans or care systems;
- dislocation at the outset should be kept to a minimum—people could stay in the coverage they have, if desired; and
- financing that is adequate, fair, and shared across stakeholders.
- Universal coverage must be pursued along with strategies geared to improving quality and efficiency and reducing the growth in heath care costs.
- A report by the Commission, Bending the Curve, examined the impact on health care costs of several strategies to improve quality and efficiency, including increasing the use of health information technology and comparative effectiveness evidence in insurance benefit design, promoting better health and disease prevention, aligning incentives to improve quality and efficiency, and correcting price signals in health care markets.
- Potential health system savings from these strategies ranged from $9 billion to $368 billion over 10 years.
- Including savings to state governments, businesses, and households, the nation could actually save $1.6 trillion over 10 years if universal coverage were coupled with efforts to reform the way the U.S. pays for health care, invest in better information systems, and adopt initiatives to improve public health.
The continuing loss of adequate health insurance—as well as the ability to afford it—is not only dangerous to the health and wealth of families, it also imperils the efficient functioning of the overall health system and the economic productivity of the nation. The U.S. is unique among industrialized nations in its failure to protect the population against the uncertainties of health. This failure has now turned into crisis for many working families facing economic pressures in nearly every aspect of their lives. The time has never been more urgent for policymakers to forge consensus around strategies for reform that have the greatest potential for success and move forward with pragmatic solutions to the worsening performance of our health system.