October 15, 2009
Sara R. Collins
S. R. Collins, The Growing Problem of Underinsurance in the United States: What It Means for Working Families and How Health Reform Will Help, Invited Testimony, Committee on Energy and Commerce, Subcommittee on Oversight and Investigations, United States House of Representatives Hearing on "Insured But Not Covered: The Problem of Underinsurance," October 15, 2009.
Thank you, Mr. Chairman, for this invitation to testify on the growing number of people in the United States who are underinsured. The soaring costs of health care, along with the economic recession and stagnant wages, are leaving many working families without insurance or with medical expenses that consume a large share of their incomes. In September the Census Bureau reported that 46.3 million people lacked health insurance in 2008, up from 45.7 million in 2007. Among people who do have health insurance, The Commonwealth Fund estimates that in 2007, 25 million working-age adults had such high out-of-pocket costs relative to their income that they were effectively underinsured, an increase from 16 million in 2003. Both these trends have had serious financial and health consequences for U.S. families. An estimated 72 million adults under age 65, both with and without health insurance, reported problems paying their medical bills in 2007, and 80 million reported a time that they did not get needed health care because of cost. This Committee and the other key health Committees in the House and the Senate are to be commended for pursuing health reforms that will help families secure access to affordable and comprehensive health insurance.
The Growing Problem of Underinsurance
- According to an analysis by Cathy Schoen and colleagues of the Commonwealth Fund Biennial Health Insurance Survey, between 2003 and 2007 the number of underinsured adults in the country climbed from 16 million to 25 million, or from 9 percent to 14 percent of the 19-to-64 population. Underinsured adults were defined as those who spent 10 percent or more of their income on out-of-pocket health costs, excluding premiums; spent 5 percent or more of their income, if their incomes were under 200 percent of poverty; or had deductibles that amounted to 5 percent or more of their income.
- Adults with low incomes are the most likely to be underinsured. Almost one-quarter of adults with incomes under 200 percent of poverty were underinsured in 2007, up from 19 percent in 2003.
- The problem of cost exposure is moving up the income scale. The share of adults with incomes of 200 percent of poverty or more who were underinsured nearly tripled from 2003 to 2007, climbing from 4 percent to 11 percent. The most rapid growth occurred among adults in households earning between $40,000 and $60,000 annually.
- Reflecting higher rates of chronic illness and poor health, older adults ages 50 to 64 are the most likely of any age group to be underinsured. Between 2003 and 2007 the share of older adults who were underinsured increased by 60 percent, rising from 11 percent to 18 percent.
- Underinsurance is associated with health plans that cover fewer health care benefits. More than one-quarter (26%) of underinsured adults reported a deductible of $1,000 or higher, compared with 8 percent of insured adults who were not underinsured; 48 percent reported that their health plan placed limits on the total dollar amount their plan would pay for medical care each year, compared with 36 percent of adults who were not underinsured; and 19 percent reported that their health plans limited the number of times per year that they could see physicians, excluding mental health visits, compared with 11 percent of adults who were not underinsured.
- Underinsurance is also associated with reports of health plan problems. Forty-four percent of underinsured adults reported that they had had expensive medical bills for services that were not covered by insurance, twice the rate reported by adequately covered adults; 38 percent of underinsured adults reported that their doctor had charged them a higher price than their insurance plan would pay and they had to pay the difference, compared with 25 percent of adequately insured adults; and 42 percent said that they had to contact their insurance company because they had failed to pay a bill or were denied payment, compared with 32 percent of adequately insured adults who reported similar problems.
- Adults with plans purchased in the individual insurance market are more likely to be underinsured than those who have health benefits through their employer. In 2007, 30 percent of adults who had a health plan they purchased on the individual insurance market were underinsured, up from 17 percent in 2003. About 17 percent of adults in employer plans were underinsured in 2007, an increase from 10 percent in 2003.
Rising Health Care Costs, Slow Growth in Incomes, and Higher Cost-Sharing Are Contributing to the Growth in Underinsured Adults
- In 2007, national health expenditures grew at a rate of 6.1 percent, faster than the overall rate of growth in the economy, with similar annual rates of growth projected through 2018. Steady annual increases in health care costs have placed upward pressure on the cost of health insurance: premiums grew at a rate of 5.5 percent in 2009, faster than wage growth and consumer price inflation. The average annual cost of family coverage in employer-based health plans, including employer and employee contributions, topped $13,375 in 2009. A recent analysis by The Commonwealth Fund found that at current cost trends, average family premiums in employer plans will nearly double by 2020.
- Employers have tried to hold their premiums by increasing employee cost-sharing. In-network deductibles for single coverage in PPO plans have more than tripled since 2000, rising from $187 to $634 in 2009. Among companies with fewer than 200 employees, deductibles have risen by nearly a factor of five, climbing to an average $1,040 in 2009.
- Jon Gabel and Roland McDevitt found that the actuarial value, or the percentage of total health spending paid by insurance, declined in employer plans nationally between 2004 and 2007, falling from an average 81.4 percent to 80.1 percent, a statistically significant drop. Expected out-of-pocket spending for all medical services by adults enrolled in employer plans increased on average by 34 percent, from $545 to $729. For the highest-cost 1 percent of adults, expected out-of-pocket spending increased by 42 percent to $8,703.
- Rising exposure to health care costs over the past decade has occurred at the same time that incomes for working families have grown very little.
Adults with Individual Insurance Market Coverage Face Higher Health Care Costs Than Those with Employer Health Benefits
- The individual insurance market is usually the sole option for people who do not have access to employer coverage and whose incomes are too high to qualify for Medicaid, but it has proven to be a sorely inadequate substitute. People who buy health insurance on their own must pay the full premium, and, in all but a handful of states, insurance carriers can underwrite prospective enrollees on the basis of health status, age, gender, and other characteristics that increase the potential for high claims costs in the future.
- A recent study by The Commonwealth Fund found that of adults who tried to purchase insurance in the individual market in the last three years, nearly three-quarters (73%) said they never bought a plan, either because they could not find a plan they could afford, they could not find a plan that met their needs, or they were turned down, charged a higher price, or had a condition excluded from coverage because of a preexisting health problem.
- People who do purchase health insurance in the individual market pay far more out-of-pocket for their premiums, face much higher deductibles, face more limits on what their plans will pay, and spend larger shares of their income on premiums and out-of-pocket costs than their counterparts with employer-based group coverage.
- Half (51%) of adults with individual market plans spent more than 10 percent of their income on premiums and out-of-pocket expenses in 2007, compared with 29 percent of adults in employer plans.
Underinsured Adults Are Nearly as Likely as Uninsured Adults to Not Get Needed Health Care Because of Cost
- Underinsured adults report not getting needed care because of cost at rates that are nearly as high as those who are uninsured: 60 percent of underinsured adults in The Commonwealth Fund survey reported at least one cost-related problem getting care in 2007, including not going to a doctor or clinic when sick; not filling a prescription; skipping a medical test, treatment, or follow-up visit recommended by a doctor; or not seeing a specialist when a doctor or the respondent thought it was needed.
- Among adults with chronic health problems who regularly took prescription drugs, 46 percent of those who were underinsured reported skipping doses of medications or not filling prescriptions for their chronic conditions because of cost, compared with only 15 percent of adults with chronic conditions who had adequate health insurance. Adults with chronic health problems who were underinsured reported seeking care in an emergency room, staying overnight in the hospital, or both, for their condition at higher rates than did those with adequate health insurance.
Underinsured Adults Report High Rates of Medical Bill Problems
Based on the Commonwealth Fund Biennial Health Insurance Survey, an estimated 72 million adults under age 65, both with and without health insurance, reported problems paying their medical bills in 2007, up from 58 million in 2005.
- Adults with gaps in health insurance coverage or those who were underinsured were most at risk of having problems with medical bills: in 2007, three of five reported any one medical bill problem or accrued medical debt, more than double the rate of those who had adequate insurance all year. Nearly half of adults who were underinsured reported that they were paying off medical debt over time.
- Among underinsured adults who reported medical bill problems, 46 percent had used all their savings to pay for their medical bills, 33 percent took on credit card debt because of their bills, and 29 percent were unable to pay for food, heat, or rent.
America's Health Choices Act (H.R. 3200) and the Problem of Underinsurance
- The America's Health Choices Act (H.R. 3200) aims to provide near-universal health insurance coverage by building on the strongest aspects of the insurance system—large-employer insurance and Medicaid and the Children’s Health Insurance Program (CHIP)—and regulating and reorganizing the weakest part of the system—the individual and small-group insurance markets, where so many individuals and small businesses are hurt by high premiums, high administrative costs, underwriting, and a lack of transparency in the content of benefit packages.
- The bill would go a long way toward reducing the problem of uninsurance in the United States. The Congressional Budget Office estimates that by 2019 the number of people without health insurance would fall to 17 million—about 97 percent of legal residents—from an estimated 54 million people.
- Several provisions in the bill would also likely reduce the number of people who are underinsured and the numbers of people who accumulate medical debt each year.
- The bill replaces the individual insurance market with a regulated insurance exchange operated at the federal level with a choice of both private and public health plans. The new market regulations would extend to all health plans sold in the United States. Guaranteed issue and adjusted community rating with 2:1 age bands would ensure that people in poor health or who are older could not be denied coverage, charged a higher price, or have a condition excluded from coverage because of a preexisting condition. Insurance carriers could not impose annual or lifetime limits on what plans would pay and would be prohibited from the use of rescissions.
- The bill would establish a new minimum benefit standard with four tiers. Annual out-of-pocket spending in the essential benefits package is limited to $5,000 for individuals and $10,000 for families. Such standards will ensure that families do not become bankrupt because of medical costs, encourage the use of timely preventive services, and protect against catastrophic costs and bankruptcy in the event of a serious accident or injury. Standardized benefits will also facilitate the ability of people to compare prices of similar health plans and provide incentives for insurers to compete on price.
- While keeping the benefit package constant, the bill defines three levels of cost-sharing tiers by actuarial value, or the average share of medical expenses covered by a health plan: 70 percent (basic), 85 percent (enhanced), and 95 percent (premium and premium plus, which also includes oral and vision care). Cost-sharing could include a combination of deductibles, coinsurance, and out-of-pocket limits. The average actuarial value in employer-based
plans is an estimated 80 percent and about 84 percent to 87 percent for the Blue Cross Blue Shield Standard Option in the Federal Employees Health Benefits Program.
- The premium subsidies and cost-sharing credits in H.R. 3200 will substantially improve the affordability and protection of health plans offered through the new exchange. The premium subsidies cap spending on premiums at no more than 1.5 percent of income for those earning 133 percent of poverty, or $29,327 for a family of four, and rise to no more than 12 percent of income for those with incomes at 400 percent of poverty, or about $88,200 for a family of four in 2009. People earning less than 133 percent of poverty are eligible for Medicaid.
- The cost-sharing credits will significantly reduce out-of-pocket expenses for people with incomes under 350 percent of poverty, raising the actuarial value of the basic plan to 97 percent for those with incomes of 133 percent of poverty and sliding down to 72 percent for those with incomes at 350 percent of poverty.
- For people whose incomes exceed the income thresholds for subsidies, premium costs will likely decline from current levels because of a decrease in administrative costs due to restrictions on underwriting and reduced marketing and because of savings achieved through reduced provider payments and profits if a public option is included in the exchange.
- In addition to insurance market regulations, benefit standards, and premium and cost-sharing subsidies, a choice of a public plan in the insurance exchange reducing out-of-pocket expenditures will also require national reforms aimed at improving the overall performance of the health system. The House bill includes key provisions for improving health system performance and lowering the rate of cost growth, including investing in primary care; replacing the current Sustainable Growth Rate (SGR) formula for updating physician fees; adjusting for geographic variations; piloting programs for rapid-cycle testing of innovative payment methods, including medical homes, accountable care organizations, and bundled hospital payments; ensuring choice of private and public plans; containing costs, including reviewing premium increases in the exchange; and fostering quality improvement. These provisions, in combination with provisions of the American Recovery and Reinvestment Act of 2009, would enhance the value obtained for health spending and set in motion reforms to slow the growth in health care costs over the long term.
With working families in crisis from a combination of declining job, income, and health security, the time has never been more urgent for policymakers to find consensus and forge ahead on implementing solutions to the nation’s worsening health insurance problem, while placing the health care system on a path to high performance.