Gaming the individual mandate

Posted by on Monday, Apr 5, 2010

This entry is from Dr. McCanne's Quote of the Day, a daily health policy update on the single-payer health care reform movement. The QotD is archived on PNHP's website.

Short-term customers boosting health costs

By Kay Lazar
The Boston Globe
April 4, 2010

Thousands of consumers are gaming Massachusetts’ 2006 health insurance law by buying insurance when they need to cover pricey medical care, such as fertility treatments and knee surgery, and then swiftly dropping coverage, a practice that insurance executives say is driving up costs for other people and small businesses.

In 2009 alone, 936 people signed up for coverage with Blue Cross and Blue Shield of Massachusetts for three months or less and ran up claims of more than $1,000 per month while in the plan. Their medical spending while insured was more than four times the average for consumers who buy coverage on their own and retain it in a normal fashion, according to data the state’s largest private insurer provided the Globe.

The typical monthly premium for these short-term members was $400, but their average claims exceeded $2,200 per month.

The problem is, it is less expensive for consumers — especially young and healthy people — to pay the monthly penalty of as much as $93 imposed under the state law for not having insurance, than to buy the coverage year-round. This is also the case under the federal health care overhaul legislation signed by the president, insurers say.

Health policy science told us ahead of time that a mandate for individuals to buy private health insurance would not work if the penalties for not doing so were quite modest. Yet Massachusetts enacted such a plan, and now very similar policies have been enacted into federal law.

The Massachusetts experience has demonstrated that health care consumers will act in their own financial interest. Individuals who perceive themselves to be in good health will elect to pay the much lower penalty for being uninsured. If they then develop expensive medical problems, they will sign up for a health plan, but then will drop their coverage after their medical needs are met. It means little to them that this drives up premiums for those who remain in the insurance pools.

There are legitimate reasons that state and federal legislators have been reluctant to assign greater penalties for not being insured. The most important is that insurance premiums are simply not affordable for moderate income individuals who do not receive adequate public or employer assistance. Even the modest penalties create a financial hardship for some. Pushing the penalties higher would compound the financial stresses that too many middle income families are already experiencing.

There are policy interventions available, but those under consideration are based on leaving the private insurance industry in charge. One suggestion is to close enrollment except for a short period of open enrollment once or twice a year. This would leave already financially strapped individuals without a safety valve should problems arise during closed enrollment periods. Another suggestion would be to reinstitute (Massachusetts) or expand (federal) the waiting period before preexisting disorders are covered, even if of very recent onset, again preventing coverage for more urgent, serious problems.

Though some might suggest that these individuals would be getting what they deserve for not being insured, the real fault is with policies inherent in the design of a financing system based on private insurance plans. Individuals are forced to choose between private insurance coverage that they may not be able to afford, or exposing themselves to the potential of greater financial insecurity by remaining uninsured. If solving problems in a system creates new problems, then we should question the system itself.

We can do this far better. We can separate the financing from the delivery of health care. With a single payer, improved Medicare for all, everyone would be automatically covered, for life. The financing of the system would not be through premiums tagged to private plans, but rather would be through progressive tax policies in which each person would pay an equitable share, and no one would face a financial hardship.

Gaming the individual mandate is not a very fun game. Let’s shut it down, and change to a system that works for everyone.

WellPoint/Empire drops four non-profit hospitals

Posted by on Friday, Apr 2, 2010

This entry is from Dr. McCanne's Quote of the Day, a daily health policy update on the single-payer health care reform movement. The QotD is archived on PNHP's website.

WellPoint Unit Drops Stellaris From Network

By Avery Johnson and Suzanne Sataline
The Wall Street Journal
April 2, 2010

A unit of WellPoint Inc. dropped Stellaris Health Network, a four-hospital chain in Westchester, N.Y., from its network after Stellaris asked for a 15% increase in reimbursement payments from the health insurer.

Stellaris says it merely wanted the insurer to pay rates consistent with what it receives from other health plans in the market. “Our non-profit community hospitals can no longer subsidize the record profits of a health-insurance conglomerate,” said Arthur A. Nizza, Stellaris’s president and chief executive, in a statement. Empire asserts charges of overall profitability aren’t relevant to this particular situation.

The decision will affect thousands of members of Empire BlueCross BlueShield, a WellPoint unit in New York, who use the hospital system. Empire has six million members in New York, and Stellaris has been one of its top 10 hospital systems in the state based on size and member utilization.

The failure to reach an agreement, which resulted in the contract being terminated late Wednesday, is the latest in a string of negotiations between hospitals and insurers that have gone hostile.

It is common to hear hospital administrators complain about low reimbursement rates from Medicare, yet how many terminate their participation in the Medicare program? And of course Medicare never unilaterally terminates a provider except when appropriate in cases of criminal fraud or incompetency that constitutes a hazard to patients.

Yet what happens when a private insurer is the payer? The decision to terminate a contract is strictly a business decision made based on market conditions, having much less to do with the value, quality or necessity of the services being provided, but much more to do with the oligopolistic leverage that the insurer has in the market. The private insurer, based purely on a business decision, is quite willing to disrupt the continuity of health care services for its own customers. And WellPoint/Empire says that their profitability isn’t relevant when it makes these decisions!?

And what will the new reform legislation do to correct these blatant injustices? It will pour more taxpayer funds into the coffers of these intrusive middleman, providing them with even greater leverage in their negotiations with the health care delivery system.

Do we want a health care financing system that is designed to benefit the money managers, or do we want a financing system designed to be sure that health care is there when patients need it? If we favor the latter, then we need to dump the private insurers and adopt an improved Medicare program that takes care of everyone.

Taiwan to move towards more equitable financing

Posted by on Thursday, Apr 1, 2010

This entry is from Dr. McCanne's Quote of the Day, a daily health policy update on the single-payer health care reform movement. The QotD is archived on PNHP's website.

Talk of the day — Health insurance overhaul nearly ready

By Sofia Wu
Focus Taiwan News Channel
March 30, 2010

The health insurance premium rate will be raised from the current 4.55 percent to 5.17 percent April 1, but Department of Health (DOH) Minister Yaung Chih-liang said Monday the public could end up paying less in premiums when a second-generation health care system is adopted in two years.

Earlier Monday, Yaung briefed Premier Wu Den-yih on draft amendments to the National Health Insurance Act that will pave the way for the introduction of a new generation of health care insurance.

After listening to Yaung’s briefing, Wu said the executive branch will lobby lawmakers to pass the draft package during its current session to allow for an early implementation of the second-generation system.

Under the new system, premiums will be paid by the insured, employers and the central government. At present, the government’s contribution is financed by both central and local governments.

The new system will calculate premiums based on total household income (including wages, stock dividends, rental income and other unearned income) instead of the current model that considers only the insureds’ salaries or earned income.

Yaung said the new system will be more equitable, as wealthy households whose income does not mainly rely on earned income will have to pay higher premiums.

Taiwan’s single payer system has been phenomenally successful, though they, like all other nations, have had to confront increases in health care costs. Under the current financing system it has become necessary to increase the percent of income paid as insurance premiums, to the displeasure of the citizens of Taiwan. That has prompted recommendations to improve the financing system.

The most important change is to shift from a premium based on a percentage of earned income to a percentage of all household income, including wages, stock dividends, rental income and other unearned income. The obvious impact of this is to make the contribution more equitable by increasing the progressive nature of the health care tax. This acknowledges the necessity of instituting a transfer not only from the healthy to the sick, but also from the wealthy to those with more modest incomes. Costs are too high to do otherwise.

Another change is to eliminate the contribution of local governments, which frequently struggle with their budgets, and to shift the full responsibility for the government contribution to the central government.

When you think about, we’ve already adopted these principles for our Medicare program. The program was established as a federally funded program, unlike Medicaid which depends on state funding as well. Also, the reconciliation bill just signed by President Obama includes a Medicare tax on the unearned income of wealthier individuals.

But there is one glaring difference between the approaches of Taiwan and the United States. Taiwan uses an exceptionally efficient single payer system that covers everyone, whereas we lose almost all of the advantages of the single payer model by limiting our Medicare program to less than 15 percent of our population.

It’s great that we’ve accepted the principle of equitable financing of health care, but wouldn’t you think that our government stewards would be smart enough to know that we also need a stable, efficient financing infrastructure, if for no other reason than to ensure that everyone benefits from equitable financing? The Taiwanese stewards have already figured that one out.

Cerberus Capital provides another Massachusetts lesson for U.S.

Posted by on Wednesday, Mar 31, 2010

This entry is from Dr. McCanne's Quote of the Day, a daily health policy update on the single-payer health care reform movement. The QotD is archived on PNHP's website.

Seeking lower-cost care

By Steven Syre and Robert Gavin
The Boston Globe
March 30, 2010

The New York private equity firm that last week struck a deal to buy Caritas Christi Health Care could build the chain of six Catholic community hospitals into a competitive lower-cost provider of medical services in Massachusetts, touting it as a profitable national business model in the age of health care reform, analysts say.

Caritas, which also includes a physicians network, could become a new cost-conscious option for more patients under such a system.

Cerberus Capital Management plans to invest $830 million to acquire Caritas Christi and turn the charity into a for-profit venture. The investment, which includes money to reduce debt and invest in renovations and upgrades, would appear to be a steep price for the Caritas business as it exists today.

But the hospitals could emerge as an attractive lower-cost alternative to Boston’s big teaching hospitals as health care reform moves forward soon in Massachusetts and later across the country. And, as reforms aimed at controlling costs take effect, an increasing number of health insurance policies may well offer patients a choice: Go to a famous teaching hospital and pay more or go elsewhere and spend less.

If the ambitious plan works, it could eventually mean a sizable payoff for Cerberus and its investors, said Howard Anderson, senior lecturer at MIT’s Sloan School of Management. With a successful health care business, Cerberus could cash out by taking the company public and selling stock to investors, or by selling the chain to another for-profit health care firm.

Massachusetts has been held up as a model on which our new federal health financing program is based. The purchase of Caritas Christi Health Care by Cerberus Capital Management may give us a hint as to what efforts under such a reform model might be made to slow the growth in health care costs.

Cerberus Capital Management plans to convert Caritas Christi into “an attractive lower-cost alternative” to Boston’s expensive teaching hospitals.

Their concept of lowering costs is right out of the book on the promised rewards of free markets. They are going to take a chain of low-cost charity hospitals and convert it into a for-profit venture. Then they are going to reap a “sizable payoff” by cashing out, either by taking the company public and selling stock to investors, or by selling the chain to another for-profit health care firm.

The model of reform that has just been enacted expands the lucrative health care marketplace for opportunists such as these venture capitalists. These entities will be crawling out of the woodwork to try to glom on to a share of the massive infusion of tax dollars to be redistributed by the private insurance companies. Should we really have expected anything else?

It’s not too late to regroup and do it right.

Single payer adopted! …for Student Loans

Posted by on Tuesday, Mar 30, 2010

Congress adopted single payer student loans
by Sheldon H. Laskin

One of the ironies of the health insurance reform bill is the two dramatically different positions the Adminstration and Congress took on single payer health insurance as contrasted with single payer student loans, which were married together in the reconciliation process. Where the student loan program was concerned, Congress correctly abolished any role for the private sector in direct lending to students.

As Christi Parsons and Janet Hook described the measure in the Los Angeles Times:

The bill shifts responsibility for making low-interest student loans to the government, ending the federal subsidies and guarantees now given to private banks that lend to students.

The new law ends the role of private banks as middlemen, cuts program costs, and channels the extra money to the neediest students, ending years of controversy over a system in which both the government and the private sector were major players.

Overhauling the loan program, which fulfilled an Obama campaign promise, was a kind of stealth accomplishment for the president, coming as rider on the final piece of healthcare legislation. It is a defeat for the banking lobby, which has long succeeded in blocking efforts to cut out their lucrative role.

Ironically, the healthcare debate has been replete with outsized warnings of a government takeover of healthcare, but the student loan overhaul marks an even more direct government move to supplant the private sector.

In other words, Congress adopted single payer student loans. But for health care, Congress retained for profit insurance companies as the middleman in health care.

Why the Administration and Congress were willing to take on the financial industry and not the insurance industry is not clear. Perhaps the former was just too politically weakened right now in view of the financial crisis, although I doubt it. Whatever the reason, single payer (health care) advocates need to carefully monitor the direct student loan program going forward. If, as I suspect, it will be both very successful and extremely popular, single payer advocates need to use that success and popularity in advocating for single payer health care. Because of the private sector’s role in the student loan program up to now, there should be many parallels between the evils of private sector involvement in student lending and in health care financing.

If single payer student loans work out nicely (I think they will), we can make substantive points in favor of single payer health insurance. And it is worth noting that the same constituency who will benefit from single payer student loans (young people) are precisely the population that lacks private health insurance and will be compelled to purchase it.

Sheldon H. Laskin teaches State and Local Tax at the University of Baltimore Graduate Tax Program, where he is Adjunct Professor of Law.

Houston retirees face 50 percent premium increase

Posted by on Tuesday, Mar 30, 2010

This entry is from Dr. McCanne's Quote of the Day, a daily health policy update on the single-payer health care reform movement. The QotD is archived on PNHP's website.

Parker increases insurance premiums of city retirees

By Bradley Olson
Houston Chronicle
March 29, 2010

Working to close a looming $100 million budget shortfall projected for next year, Mayor Annise Parker has sharply increased the monthly insurance premiums that thousands of retired city of Houston employees must pay, prompting outrage from retirees.

Beginning May 1, more than 4,000 retirees under 65 will face a nearly 50 percent increase in their insurance premiums, a budget fix the mayor imposed without consulting City Council.

Parker said the city decided to restructure the benefit payments because retirees under 65 have far higher use of insurance claims than active employees or retirees over 65, whose insurance is subsidized by Medicare.

“People are being priced out of benefits. I’m hoping City Council will take another look at this thing,” said (Bill Elkin, executive director of the Houston Police Retired Officers Association)

So paraphrasing Mayor Annise Parker of Houston, the greater health care needs of the retirees made it important to restructure their premiums to make them even more unaffordable.

Now think about how the new health reform legislation would address this problem. It looks like these retirees under 65 would have to keep the insurance they have, without the choice of other options, and pay 50 percent higher premiums.

What if everyone were covered by an improved Medicare program? There would not be an issue here.

The point is that we have not reformed our health care financing system; we’ve only tweaked it. We have to keep working to be sure that people understand what didn’t happen this time around.

Who is Donald Berwick?

Posted by on Monday, Mar 29, 2010

This entry is from Dr. McCanne's Quote of the Day, a daily health policy update on the single-payer health care reform movement. The QotD is archived on PNHP's website.

Obama to nominate Berwick to head CMS

By the Associated Press
March 28, 2010

An administration official says President Barack Obama will nominate healthcare scholar Donald Berwick to be CMS administrator.

Berwick, a pediatrician and noted health policy expert, is president and CEO of the not-for-profit Institute for Healthcare Improvement in Cambridge, Mass.

Berwick is also a professor of pediatrics and healthcare policy at the Harvard Medical School and a professor of health policy and management at the Harvard School of Public Health.

An elected member of the Institute of Medicine of the National Academy of Sciences, Berwick served as a member of the IOM’s Committee on Quality of Health Care in America, which launched the slowly building revolution in healthcare quality improvement. The committee published in November 1999 To Err is Human: Building a Safer Health System, which gave the healthcare industry one of its most totemic phrases: “At least 44,000, and perhaps as many as 98,000 Americans, die in hospitals each year as the result of medical errors.”


Donald Berwick speaks up

Quote of the Day
November 18, 2005

‘A Deficiency Of Will And Ambition': A Conversation With Donald Berwick

By Robert Galvin
Health Affairs
January 12, 2005

Donald Berwick is president and chief executive officer of the Institute for Healthcare Improvement (IHI) in Boston, Massachusetts. Bob Galvin is director, Global Health Care, at the General Electric Company in Fairfield, Connecticut.


Galvin: I’m interested in your thoughts on the impact of the Leapfrog Group, an effort organized by the purchasers of health care, both private-sector employers and public purchasers. The Leapfrog agenda has focused on… benefit incentives that engage consumers and patients in the quality and cost of care…

Berwick: The one part of the (Leapfrog) plan that I am absolutely against at the moment is the shifting of burden to individual patients. I do not believe that making the individual American patient more “cost-sensitive” has any rationale in science, ethics, or evidence. It will fail, and it will fail miserably. It will result in a shifting of care away from the people who need it the most. It is a displacement of responsibility for changing the system. You know, if CalPERS or Xerox or GE can’t change care through using its purchasing power, then I absolutely promise you that Mrs. Jones can’t. The idea that she will now be more sensitive because she pays an extra ten bucks out of pocket is, to me, nearly stupid. So I really disagree with that element of the agenda.

Internationally, when one looks at high-performing systems around the world – and ours is nowhere near the highest-performing one – it is almost a routine characteristic of the best systems that they have first-dollar coverage, and there is no attempt to make patients pay more when they’re sick, which is a stupid thing to do.


Galvin: The conceptual basis of this is – as unsettling as it may be to “dangle money” to increase motivation-grounded in personality and motivation theory. In private industry, we would simply call it understanding what makes people tick. People respond to incentives. So part of the pay-for-performance movement is based on this idea that clinicians are really no different than other people and that they’ll respond to incentives.

Berwick: At the individual level, I don’t trust incentives at all. I do not think it’s true that the way to get better doctoring and better nursing is to put money on the table in front of doctors and nurses. I think that’s a fundamental misunderstanding of human motivation. I think people respond to joy and work and love and achievement and learning and appreciation and gratitude-and a sense of a job well done. I think that it feels good to be a good doctor and better to be a better doctor. When we begin to attach dollar amounts to throughputs and to individual pay, we are playing with fire. The first and most important effect of that may be to begin to dissociate people from their work. That’s really where we’ve come to, and we’ve done it by pay-for-performance in terms of throughput measurements and manipulating payment schemes.


Galvin: Let me move to another issue, and that is the explosion that’s about to play out in biomedical innovation. If you talk to patients… they are also interested in innovations that can cure them or their loved ones. They speak about it with pride and passion…

Berwick: I do think this: We have a learning disability in this country with respect to the difference between technologies that really do help and technologies that are only adding money to the margins of the companies that make them, without essentially paying their way in value. One of the drivers of low value in health care today is the continuous entrance of new technologies, devices, and drugs that add no value to care. If we had strong national policy, it would allow us to know the difference, and I would more fully support what I think you’re correctly proposing, which is an innovations value. We need to help the public know the difference. There’s a big agenda here, possibly for government, to help create a public awareness that more is not necessarily better. Frequently it’s worse. So we can be smart about what we buy and what we choose not to buy.


Galvin: Many of us on the purchaser side see radically improving the efficiency of the system as a way to free up capital to cover the uninsured and to fund innovation. How do you think efficiency fits into the quality agenda?

Berwick: Let’s define efficiency as making sure that every dollar you spend gets a dollar of value back, so that efficiency is the opposite of waste. Right from the start, it has been one of the great illusions in the reign of quality that quality and cost go in opposite directions. There remains very little evidence of that. There may be some innovations that raise cost while raising quality, but many, many improvements reduce costs.

What puzzles me is how to access efficiency as a social agenda in health care. There are couple of problems. The first is that a lot of people make a lot of money on inefficiency – on production of things that have no value. So the minute you try to become truly efficient, you’re going to run into stakeholders who are going to tell you that you’re harming care, and the knee-jerk reactions of doctors and others will be to reinforce that idea. And they include you. I mean, GE pays out of one pocket and then makes money on products and services that do not add real value.


Galvin: There’s a threshold issue with most purchasers when you talk about getting a patient financially engaged. That is that no one ends up paying more because they’re sick. The only option would be to pay less. Let me give you an example: Many employer-sponsored benefit plans across the country have hospital copays as part of their cost sharing. This means that there is a fee of a hundred or several hundred dollars when one is admitted to a hospital. In these benefit designs, while most people have pretty free choice of what hospital they go to, going to the one that objective data demonstrate is of superior quality and efficiency would result in a waiver of the copay.

Berwick: Well, I can be an empiricist about it. Go ahead and try it. I shudder to think about what may happen, because in the end, that sick patient arriving at that hospital is in the absolutely weakest position at that particular point to decide, “Aha, I’m going to save a hundred dollars and go elsewhere.” That person is more likely to be poor, more likely to be black, more likely to be a low-wage earner. I think it’s regressive social policy, and I predict that it won’t work. It’s a displacement of responsibility from the stewards who actually have the job of crafting systems to meet the needs of the people who come to them for help. I think it’s a bad, bad policy, and I don’t see it playing out productively in other countries, either.

Full interview:


Checking in with Donald Berwick, President and CEO, Institute for Healthcare Improvement

Kaiser Health News
November 12, 2009

An interview of Donald Berwick (video 8:39)


Video Segments of Dr. Donald Berwick from the Documentary “Money Driven Medicine”

Health Beat by Maggie Mahar
The Century Foundation
March 26, 2010

Nine video clips (total 9:38)

Soon everyone will know what Donald Berwick is – a Harvard professor and head of the Institute for Healthcare Improvement, about to become the administrator of CMS (Centers for Medicare and Medicaid Services), assuming that he survives the acrimonious vetting process in our highly politicized Congress.

More importantly than what, today’s message tries to show who he is by repeating a prior Quote of the Day extracted from an interview of him published in Health Affairs five years ago. Also included are links to more recent video interviews of him (total less than 20 minutes).

From Alice Faryna M.D.
Columbus, OH

After hearing someone say that health care reform is the civil rights issue of this decade, I retrieved the 1966 speech on civil disobedience by Dr. Martin Luther King. The two strategies described were marches and boycotts. His marches were successful because large target populations could be found in cities like Chicago and Atlanta , and quickly reached through churches. The single-payer movement has not been able to find such concentrated populations. Our rallies in D.C. and the Mad Docs tour in 2009 did not produce numbers of sufficient size to command attention. Let’s consider boycotts.

Dr. King said, “There is nothing quite so effective as refusal to cooperate economically with the forces and institutions which perpetuate evil in our communities.” Under the leadership of SCLC, refusing to buy products from companies which do not hire Negroes (sic), resulted in an increase of income in that community by more than $2 million annually.

Another example is the boycott organized by the Committee of African Organizations (CAO) with support from South Africa ’s Liberal Party in 1959. Additional support grew in British organizations and international labor movements. South African products came off the shelves. Eventually apartheid ended.

Paul Krugman recently commented on the sharp increase in premiums announced by WellPoint in their California individual market. WellPoint is not the villain. The current system invites a death spiral for the insurance industry which relies on large a large pool containing healthy clients to keep costs down. In the current economy, cash-strapped workers drop coverage resulting in a smaller, sicker pool. Legislation which bans discriminatory practices will further increase premiums and hasten the death spiral.

I suggest that PNHP and other organizations support disinvestment in companies which are on an unsustainable path. A precedent exists for pension fund managers to do this: In 2002, CALPERS embarked on a series of “socially responsible” investment boycotts starting with Asian companies which violated guidelines on human rights and labor standards. Also targeted were companies like Disney, Safeway, the New York Stock Exchange, and health maintenance organizations.

We could begin with encouraging PNHP members to purge their personal portfolios of health insurance companies; I have already done so. I intend to approach the STRS board with a request to divest from companies likely to see a sharp stock price reduction. Money talks.

India’s outsourcers outsource to U.S.

Posted by on Friday, Mar 26, 2010

This entry is from Dr. McCanne's Quote of the Day, a daily health policy update on the single-payer health care reform movement. The QotD is archived on PNHP's website.

US healthcare reform is boon for India outsourcing companies

By Taylor Barnes
The Christian Science Monitor
March 25, 2010

President Obama signed into existence not just a historic healthcare reform law but also monumental piles of paperwork: New member registration forms. More claims. Ever-expanding databases.

The bulge in administrative work may look like a nightmare to American insurance firms and government employees. But to outsourcing executives here in India, it’s heaven-sent.

The addition of 32 million insured Americans is “very significant” for Indian outsourcers, says Ananda Mukerji, chief executive officer of Firstsource Solutions in Mumbai. Companies like his will see “increased opportunities” as US health insurers and hospitals scramble to reorganize to comply with the new law.

This extra work will include processing new enrollments, organizing bigger member databases, processing more claims, providing more support services, and managing more revenue, he says.

The US healthcare reform offers a “natural extension” of the back-office outsourcing that Indian companies already specialize in, says Tu Packard, a senior economist with Moody’s

But some services in the US healthcare industry cannot be outsourced beyond America’s borders due to regulations. That’s one reason major Indian outsourcing firms have set up shop in the United States. In a twist, America’s outsourcers are now outsourcing back to America.

President Obama and Congress rejected the administratively efficient model of single payer, and have now enacted into law the most expensive and most administratively complex model of reform. In the ultimate of ironies, India is now outsourcing to the United States the profusion of health care administrative services outsourced to them. It reminds you of why Willie Sutton robbed banks.

Middle and high income levels experience largest increases in financial burden

Posted by on Thursday, Mar 25, 2010

This entry is from Dr. McCanne's Quote of the Day, a daily health policy update on the single-payer health care reform movement. The QotD is archived on PNHP's website.

The Growing Financial Burden Of Health Care: National And State Trends, 2001–2006

By Peter J. Cunningham
Health Affairs
March 25, 2010

The financial burden of health care — the ratio of total out-of-pocket spending for health care services and premiums to total family income — continues to increase nationally.

Although attention has been focused on rising health care costs, the fact that real median household income remained largely unchanged between 2000 and 2007 — hovering at about $50,000 — was an equally important contributor to increasing financial burden.

Among the total nonelderly U.S. population during 2004–6, 15.7 percent were insured people with high out-of-pocket expenses, and 14.2 percent were uninsured for the entire year. Thus, almost 30 percent of the U.S. population either had high financial burden or were uninsured.

Among those with employment-sponsored private insurance, the percentage with high financial burden increased from 15.1 percent in 2004 to 18.4 percent in 2006 — an increase that was very similar to that seen in the 2001–4 period.

Nationally, middle- and higher-income people with private insurance experienced the largest increases in financial burden.

Between 2001 and 2006, high burdens among the privately insured increased 17 percent for those below poverty, 56 percent among middle-income people, and 98 percent among higher-income people. An additional eleven million people with private insurance had high burdens in 2006 than in 2001; of these, 39 percent were high-income and 48 percent were middle-income.

(In the legislation just signed into law by President Obama) there are no subsidies for families with incomes greater than 400 percent of poverty, a group that has been experiencing the greatest percentage increase in high financial burden in recent years.

Thus, subsidizing private coverage and expanding public coverage for lower- and moderate-income families alone is not sufficient to stem the increase in high financial burden or to reduce the variation in financial burden across states. To stem the increase in financial burden among families at higher income levels — and to sustain proposed subsidies to lower-income people — it will be essential to combine cost containment efforts in health care along with achieving real gains in family income.

Those individuals with good incomes and who have employer-sponsored health plans should not be complacent, but should be very concerned for the following reasons:

* The largest increases in the financial burden of health care have been occurring amongst middle- and higher-income people

* Among those with employer-sponsored private insurance, 18.4 percent face a high financial burden (spending over 10 percent of income on health care)

* In the reform legislation just passed, there are no subsidies for families with incomes greater than 400 percent of poverty ($88,000 for a family of four)

* Subsidizing private coverage and expanding public coverage for lower- and moderate-income families alone (the reforms in the legislation) are not sufficient to stem the increases in high financial burden

The insurance reform legislation is now law, but the measures “are not sufficient to stem the increases in high financial burden.” There is no law against passing a new law. Do we live with the increasing financial burdens of this law, or do we eliminate the financial burdens by enacting an improved Medicare for all?

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