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Study: Underinsured Population on the Rise, Facing Similar Challenges as Uninsured

By Reed Cooley, CQ Staff

June 10, 2008 -- While the number of uninsured Americans has risen only marginally in the past several years, the number of individuals "insured but poorly protected" has spiked, rising 60 percent since 2003 to total 25 million people in 2007, according to a new Commonwealth Fund study.

Commonwealth Fund president, Karen Davis, called insurance a "ticket into the health care system" but joined researchers in cautioning that the "underinsured" can face the same challenges as those without coverage.

"Today you can have health insurance and still go bankrupt if you get sick. This puts individuals, families, and the nation's health and economic security at risk," said Cathy Schoen, Commonwealth senior vice president and the report's lead author.

The study found that the health care choices of the underinsured mirror those of the uninsured on a slightly smaller scale: while 68 percent of those without insurance reported foregoing "needed" care because of cost, 53 percent of those insufficiently insured did so as well. Among Americans deemed appropriately covered by the study, 31 percent demonstrated this type of behavior.

The authors defined the underinsured population as spending between 5 and 10 percent of total income on out of pocket medical expenses or those whose health insurance deductibles amounted to 5 percent of their income.

The spike, which researchers said hit middle-income Americans the hardest and nearly tripling for those above 200 percent of the federal poverty level, resulted from increased limitations on benefits and a rise in cost-sharing for consumers that is consistently higher than inflation rates.

The highest erosion of what a given plan can buy occurred among small group plans such as those provided by small firms and among individual private plans, Schoen said. The press release indicates that the underinsured tend to face higher deductibles than those more sufficiently covered, and the report's authors noted that deductible rates have gone up across the board: for employer-based plans in both small and large firms and for individuals.

While researchers blamed cost-sharing, insurance representatives blamed costs. "I think the survey highlights the need to address the underlying costs of health services," Robert Zirkelbach, a spokesman for the insurance lobby America's Health Insurance Plans (AHIP), said, adding "Our members are trying to provide the most affordable health care coverage they can to consumers."

Sara Collins, assistant vice president at the Commonwealth Fund and a co-author of the study, praised the Massachusetts health care overhaul of the past year as an example for policy makers on a wider scale. The Massachusetts program eliminates deductibles for low-income residents and instates a minimum standard for what all health plans need to cover.

Zirkelbach declined to say whether AHIP would support a minimum standard benefits package for all Americans. "Health insurance plans should be given the flexibility to provide a variety of coverage options that meet the individual needs of consumers. The focus needs to be on addressing the cost-drivers," he said.

While Commonwealth representatives were optimistic that the advent of a new administration in 2009 would be an opportunity to spur change in health care that would drive down rates of both un- and underinsured, Collins expressed concern about the overhaul plan of Republican hopeful Sen. John McCain of Arizona. She called the value of McCain's proposal to replace the tax exemption for employer-based coverage with a $5,000 tax credit "highly variable," depending on income and premium levels.

Karen L. Pollitz, project director at the Health Policy Institute at Georgetown University, agreed that McCain's plan would be ineffective in the realm of underinsurance. She noted that his proposal to allow insurers to operate in all 50 states based on the regulation policies of a single state of their choosing would potentially heighten an opaqueness that she considers to be the root of the problem. "Part of what will determine how much this trend will continue will be the extent to which insurers have the ability to hide policy features that make people underinsured," she said.

"It's hard for a lot of people to know whether they have good coverage or not," she added.

The plan of Sen. Barack Obama, D-Ill., which Collins said has a "similar framework" to the project in Massachusetts, is more closely aligned with another proposal released by the Commonwealth Fund in May. Both involve a "pay-or-play" mandate for businesses to work toward universal coverage and a countrywide minimum standard benefits package.

Pollitz agreed that the standard benefits package would work to reduce the number of underinsured. She asked, "Do you know what the government definition of health insurance is?

"Any policy sold by a licensed health insurance company—that's not much of a definition," she said.

The Reality of Incomplete Plans, High Deductibles
Lisa Kelly, a former grocery store clerk and cancer patient from Lake Jackson, Texas, who testified before the Senate Finance Committee Tuesday, described experiences that appeared to reflect the symptoms of underinsurance outlined in the study.

When she was diagnosed with acute leukemia in 2006, M.D. Anderson Cancer Center refused her UnitedHealthcare insurance policy, and told her she would have to procure $45,000 to start treatment, Kelly said. Since then she has paid $82,000 out of her own pocket and owes another $137,000 to the Center, she said.

Testimony from Raymond Arth discussed the small business difficulties of providing health insurance. In the past five years Arth, president and CEO of Phoenix Faucets, a company of nearly 100 employees in Avon Lake, Ohio, has seen a more than tenfold deductible rise on his employees' health insurance plans, from $250 for individuals and $500 for families in 2003 to $3,000 and $5,900 in 2007, he said. A looming potential 22 percent premium increase in the last year forced the company to switch to policies with much higher deductibles.

Wage rates at Phoenix have been frozen since 2001 and assembly line workers earn an average of $19,000 a year, Arth said.

His company self-insures part of each plan so that employees are only exposed to about half of the deductibles, but with premium levels expected to rise another 35 percent in the next year, amounting to a $40,000 increase, Arth said he has "no more rabbits to pull out of the hat," adding that he may have to start dipping into paid vacation days and other benefits.

Arth, a past chairman of the National Small Business Association, said he would support the "notion of a bare bones policy" or something in line with a minimum standard benefits package.

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