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When Being Insured Is Not Enough

By Clea Benson, CQ Staff

June 3, 2009 -- As the drive for an overhaul gains momentum, consumer advocates have been recounting horror stories of people facing devastating medical costs: a breast cancer patient struggling to pay more than $30,000 she owes her doctors; a couple losing their home to foreclosure after paying for their daughter's treatment for a chronic disease; a prostate cancer survivor having to forgo annual screenings because he can't afford them.

Though much of the discussion has centered on the need to cover the nation's 46 million uninsured, the people behind these particular stories are examples of a different problem. They're all insured; their policies just aren't comprehensive enough to protect them from potentially crushing bills.

As costs rise and employer benefits become weaker, the phenomenon of "underinsurance" has become increasingly common, patient advocates say. About 25 million Americans had inadequate health coverage in 2007, according to one widely cited estimate by the Commonwealth Fund, a foundation that supports health care research.

The problem is giving rise to one of the central questions lawmakers face as they tackle an overhaul of the system: Exactly what needs to be covered by an insurance policy, and how far should the federal government go in mandating the specific details?

"The policy issue we're facing as a country is that we've never put a floor under insurance benefits and said, at a minimum, a policy has to be broad in scope," said Cathy Schoen, senior vice president at the Commonwealth Fund. "There are still policies on the market that don't protect you from high costs. We've never done basic insurance standards."

Historically, this area of regulation has been left up to the states, with the result that insurance protections vary widely around the country. Now, though, consumer groups say the federal government should begin to play a role not only in extending health insurance to those who don't have it, but also in spelling out exactly what should be covered.

"I think it's important that Congress and the administration focus on what is actually insurance and what benefits are sufficient, and that co-pays and deductibles are reasonable for people," said Robert Restuccia, executive director of Community Catalyst, a Boston-based organization that promotes affordable health care. "We feel like people need coverage that meets their medical needs and that they can afford."

Insurers have indicated an openness to increased federal regulation, but they have also made it clear that they want to retain the flexibility to offer low-cost insurance plans with only basic benefits.

And conservative policy experts argue that such regulation is not the proper role for the federal government. Moreover, they question whether Congress is capable of coming up with a workable solution. "We've got 300 million Americans who have 300 million different opinions as to what would really qualify as proper insurance," said Grace-Marie Turner, president of the Galen Institute, a think tank that advocates a free-market approach to health care. "It's just really hubris for Congress to think that it's going to make a decision that's going to work for 300 million people."

A Growing Problem

The Commonwealth Fund has been tracking the underinsured in surveys of health care consumers every two years. Between 2003 and 2007, its researchers found, the number of Americans reporting that they had inadequate health coverage jumped 60 percent.

The group defines the underinsured as middle-class workers who spend 10 percent or more of their income on out-of-pocket medical expenses, and low-income workers who spend 5 percent or more of their income on health care.

Schoen, one of the authors of the report, believes the numbers have only gotten worse during the recession. As more workers lose their jobs and are forced into the individual insurance market at a time when health care costs are continuing to rise, the only policies they might be able to afford are those with limits on coverage and high cost-sharing, she said. Incomes are down or flat, so workers with health insurance are less able to afford their premiums and deductibles. Meanwhile, many employers who do offer health care coverage, particularly small businesses, have passed along more of the increased costs to their employees or cut back on the quality of benefits entirely, she said.

"As companies have tried to hold on to benefits, the effort to hold on to benefits has also meant trimming them," she said.

Commonwealth Fund researchers found that the underinsured were racking up personal debt by mortgaging their homes and running up credit card bills. They were more likely to skip medications for chronic conditions, and less likely to go to the doctor in the first place than those with better insurance.

While some of the underinsured were aware that they would have high costs when they bought their policies, others reported that they only discovered how limited their plans were after they got sick and needed care.

To advocates such as Schoen, that's why the federal government needs to set basic standards for health coverage much the way there are standards in other industries.

"When we buy a car, none of us would expect to come home and find it didn't have any brakes or a steering wheel, but we never really said there's a basic standard for health care," she said. "Doing it on a federal level would protect consumers if they moved across state lines."

But that's where opponents of government involvement disagree. Mandating what insurers must cover will only drive up costs, they say. One of the factors driving health care inflation, they say, are the requirements for coverage that have been put in place in many states.

Turner, of the Galen Institute, has a car analogy of her own: "We say you have to have health insurance for all your health care needs, but if you had auto insurance that covered every time you got your gas tank filled up, your car washed, and your oil changed, the price of the policy would be much higher," she said.

Setting Limits

The question, then, is where to draw the line between guaranteeing that benefits will be adequate and requiring so much coverage that all policies become more expensive.

The insurance industry is staking out middle ground, acknowledging the need for basic standards but also suggesting that Congress should avoid getting too specific.

"Yes, you have to have essential benefits like prevention, chronic care management, and catastrophic and acute care," said Robert Zirkelbach, a spokesman for America's Health Insurance Plans, the leading industry trade group. "It might be something that Congress doesn't need to outline what a specific benefit is. It could be that a separate commission is set up to take the politics out of this."

But insurers are insistent that they need to be able to offer stripped-down plans with high cost-sharing that enable small employers to provide insurance. "It's hard for small businesses to afford coverage as it is, because they're bound by all these state mandates," Zirkelbach said.

Consumer groups, meanwhile, say they want an end to insurance products that don't cover hospital stays or drugs and include deductibles that are so large that they discourage families with modest means from ever going to the doctor.

"We think there's a baseline level of benefits, adequate premium support, and limitations on co-pays and deductibles," Restuccia said.

Restuccia and other advocates point to the benefits in the Massachusetts overhaul, where, according to a report last year from the Urban Institute, the percentage of people who are underinsured dropped from 4 percent to 3 percent. The state, which requires nearly all residents to obtain health care policies, mandates that plans meet basic standards for coverage of hospital stays and other essentials and cover preventive care without charging a deductible. The system offers three benefit packages at different costs.

Senate Finance Chairman Max Baucus' May white paper on health care suggested setting up four benefit options ranging from low to high and requiring all insurers to offer coverage in each category. All of the options would include preventive benefits, primary care, emergency services, hospitalization, physician services, and prescription drugs. Plans could not include annual or lifetime limits on coverage.

Other members have expressed their support for setting a national floor on benefits for the first time.

"The question of the right balance between underinsurance, which can lead to individual financial risk or avoidance of needed health care and the resulting poor health outcomes that come from that, and overinsurance, which can drive up health care costs, is a difficult one, but one that obviously needs to be addressed if we're going to do comprehensive health care," Sen. Jeff Bingaman, D-N.M., said at a recent hearing on the issue.

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