The U.S. health care financing system is based on shared financial risk. Employers, federal and state government, and households all share in paying premiums for health insurance coverage. Such coverage is essential to protect individuals from potentially devastating medical bills and to ensure financial access to care. With rising health care costs, insurance is all the more important to prevent families' savings from being wiped out and to make sure that everyone can get the care they need.
Unfortunately, the rise in health care costs this decade has coincided with an erosion in health insurance coverage and with rising economic insecurity for American families caused by the shifting of a greater share of financial responsibility for coverage and health care directly to families. American's mixed system of private and public health coverage has its strengths and is worth preserving; however, the trend toward increasing the individual's responsibility for insurance and health care expenses is shifting an unacceptable level of risk onto families. As a consequence, the number of Americans without adequate protection from health care expenses has been on the rise:
- The number of uninsured Americans has jumped almost 20 percent between 1999 and 2007; today there are 45.6 million uninsured.
- The number of underinsured—people with inadequate coverage that ensures neither access to care nor financial protection—has jumped 60 percent between 2003 and 2007, from 16 million to 25 million.
- Low-income adults have been hardest hit. Nearly three-fourths (72%) of adults with incomes below twice the poverty level are uninsured or underinsured. Private markets are simply not working for low-income adults.
- The numbers of Americans who face difficulty paying medical bills and have accumulated medical debt have also risen substantially, with middle-income families earning less than $60,000 a year being particularly squeezed. In a recent Commonwealth Fund survey, 79 million Americans reported difficulties paying medical bills or accumulated medical debt. About 60 percent of those experiencing medical bill problems were insured at the time they incurred their expenses.
- Managed care plans have increasingly used tiered prescription drug copayments that limit access to more expensive medications. In addition, most managed care plans place limits on mental health outpatient visits and inpatient days.
- It should be noted that private managed care plans come in many shapes and sizes. Nonprofit managed care plans that are part of nonprofit integrated delivery systems—the best-known include Kaiser Permanente, Geisigner Health System, Henry Ford Health System, and Intermountain Health Care—have been found in Commonwealth Fund–supported case studies to have superior performance on quality and have been among the leaders in adopting electronic information systems and quality improvement care processes to deliver better results for patients.
- Coverage for employees of small firms is eroding—both in terms of the proportion of firms offering any health benefits and the quality of those benefits. The rise in deductibles shifts risk to patients; premiums are shared between employers and workers and spread equally among all enrollees but patients are fully responsible for deductible amounts and uncovered services. Higher deductibles are particularly a burden for the sickest Americans, who have the highest medical expenses; they also undermine their ability to get needed care.
- Individual health plans represent the weakest part of the health insurance market. Such plans are characterized by high administrative costs and poor benefits, and, in most states, they exclude poor health risks. Because health expenditures are so skewed—with 10 percent of people accounting for 64 percent of health care outlays—health insurers have a strong incentive to avoid covering those with health problems, to charge much higher premiums, or to provide policies with very restrictive benefits.
- Fortunately, Medicare, Medicaid, and the State Children's Health Insurance Program buffer some of the risk to families by covering the elderly, many of the disabled, low-income children, and some very-low-income adults. In 1965, Medicare and Medicaid were enacted to cover those who were often left uncovered by private insurance: the elderly and low-income people. Medicare and Medicaid have low administrative costs. Medicaid expenditures per person are lower than costs for privately insured children and adults. Moreover, growth in Medicare spending has been somewhat lower than growth in spending by private insurers over time. Yet Medicare beneficiaries continue to report good access to health care services.
Ensuring stable, affordable health insurance coverage for all Americans will require a significant increase in the role of government to set the rules for the operation of private markets and reverse the trend toward shifting greater financial risk to families who are unable to bear that risk. Action is needed to guarantee affordable coverage that provides adequate financial protection and ensures that individuals can obtain needed care—the two essential functions of health insurance. Steps should include:
- Providing health insurance premium assistance to low-income and modest-income families who cannot afford family premiums, which now average over $12,000 even under employer plans.
- Strengthening, not weakening, employer coverage.
- Setting national rules for the operation of individual health insurance markets or creating a national insurance connector, such as the one implemented by Massachusetts, that makes affordable health insurance policies available to those without access to employer coverage. Structuring insurance choices through rules governing the operation of private markets, or through a health insurance exchange or connector, could ensure the availability of quality, affordable coverage to a larger number of individuals who are either uninsured or have inadequate or unstable coverage, or for whom premiums create major financial burdens.
- Offering a public plan modeled on Medicare to small businesses and individuals would lower premiums by 30 percent and increase the stability of insurance coverage.
- Building on Medicare, Medicaid, and SCHIP to cover older adults, the disabled who are in the two-year waiting period for Medicare, and low-income adults, as well as children. Private insurance markets do not serve these populations well.
Finally, insurance reforms need to be part of a comprehensive strategy to bring about a high performance health care system that achieves better access, improved quality, and greater efficiency. This will require fundamental changes in the way health care providers are paid—changes that help align financial incentives with these goals and create a more organized health system that takes full advantage of modern information technology and evidence-based medicine and spreads best practices. Rather than shifting more financial risk to families, public programs and private insurers alike need to do more, both independently and in collaboration, to slow the growth in health care costs and transform the delivery of health care services to improve quality and enhance value for the money spent on health care.