The same affordability issues that low-income families experienced a decade ago have begun to affect middle-income families today

By Jessica S. Banthin, Peter Cunningham and Didem M. Bernard
Health Affairs
January/February 2008

In the first part of this decade, health care costs continued to increase at rates far above general inflation, and employers increasingly shifted these higher costs to workers in the form of higher out-of-pocket payments for premiums, deductibles, and copayments. Adding to the pressure on families was slower economic growth during 2001-2004, which resulted in increases in poverty rates and the number of uninsured people.

Families’ health care burden

We define health care burden as the ratio of total family out-of-pocket spending for health care services and premiums over total family income.

High-burden individuals

People who live in families that spend more than 10 percent of family income on health care are defined as individuals with high burdens.

Study Results

Financial burden of health care

The financial burden of health care increased for American families during the first part of this decade as a result of rising out-of-pocket spending for health care and stagnant family incomes. Between 2001 and 2004, the percentage of the nonelderly population living in families with high out-of-pocket health care burdens rose from 15.9 percent to 17.7 percent. By 2004, 45.4 million people lived in families with high burdens—an increase of almost six million from 2001.

Increases in out-of-pocket spending between 2001 and 2004 were driven by both increases in health insurance premium payments and spending on health care services. Even after general inflation is accounted for, total out-of-pocket spending on health care rose by $373 to $2,656 in 2004, an increase of about 16 percent over the three-year period. In contrast, average family incomes not only failed to keep pace with rising out-of-pocket spending during this period but were largely unchanged after general inflation was accounted for.

Health insurance coverage and financial burden

The increase in families’ financial burdens was driven entirely by people with private (employer-sponsored) insurance: 17 percent (or twenty-nine million people) faced high burdens in 2004, an increase of 2.3 percentage points from 2001. Together, out-of-pocket spending for premiums and services rose $553 to $3,211, a 21 percent increase over the period.

Although relatively small in number, people covered by private policies purchased in the nongroup market were much more likely than those in any other insurance group to bear high financial burdens during 2001-2004. This was because people with private nongroup insurance must pay the entire premium, and benefits in such plans are often less generous than those in employer-sponsored plans. Moreover, the percentage of people with nongroup plans experiencing high out-of-pocket burdens rose dramatically, from 39 percent in 2001 to 52.7 percent in 2004.

Financial burden and income

The burdens were highest among poor (less than 100 percent of the federal poverty level) and low-income (100-199 percent of poverty) people with private insurance, a subgroup of particular policy concern. We found that 53.5 percent of poor and 37.4 percent of low-income people with private insurance faced high financial burdens in 2004, about two times as high as middle-income people faced and four times as high as high-income people faced. Moreover, financial burdens increased between 2001 and 2004 for low-income people, which indicates that private coverage was becoming less affordable for this group. At the same time, one out of five privately insured people with incomes of 200-399 percent of poverty (middle income) spent more than 10 percent of their income on health care, a rate that is twice as high as that for higher-income people.

Discussion

Compared to poor and low-income people, the prevalence of high financial burdens during our study period was much lower for privately insured people in middle-income families. Still, one out of five privately insured people in middle-income families faced high financial burdens, and this number is likely to increase in future years as health care costs continue to outpace growth in family incomes. Thus, the same affordability issues that low-income families experienced a decade ago might affect middle-income families in the future.

http://content.healthaffairs.org/cgi/content/full/27/1/188

Comment:

By Don McCanne, MD

The policy lesson? One-fifth of privately insured, middle-income people are already classified as “high-burden individuals” because they live in families that spend more than ten percent of their family income on health care, “and this number is likely to increase in future years as health care costs continue to outpace growth in family incomes.”

The failure of private insurance to provide affordable health care has already become a crisis for middle-income America. Current proposals to provide us with even more deteriorating private insurance plans amount to no more than a cruel joke by the policy/political community. But who’s laughing? Listen carefully. It sounds like sobbing to me.

Updating the Institute of Medicine Analysis on the Impact of Uninsurance on Mortality

By Stan Dorn
Urban Institute
January 2008

The absence of health insurance creates a range of consequences, including lower quality of life, increased morbidity and mortality, and higher financial burdens. This paper focuses on just one aspect of this harm–namely, greater risk of death–and seeks to illustrate its general order of magnitude.

In 2002, the Institute of Medicine (IOM) estimated that 18,000 Americans died in 2000 because they were uninsured. Since then, the number of uninsured has grown. Based on the IOM’s methodology and subsequent Census Bureau estimates of insurance coverage, 137,000 people died from 2000 through 2006 because they lacked health insurance, including 22,000 people in 2006.

Much subsequent research has continued to confirm the link between insurance and mortality risk described by IOM. In fact, subsequent studies and analysis suggest that, if anything, the IOM methodology may underestimate the number of deaths that result from a lack of insurance coverage.

More broadly, these estimates should be viewed as reasonable indicators of the general magnitude of excess mortality that results from lack of insurance, not as precise “body counts.” The true number of deaths resulting from uninsurance may be somewhat higher or lower than the estimates in this paper, but that number is surely significant.

http://www.urban.org/UploadedPDF/411588_uninsured_dying.pdf

Comment:

By Don McCanne, MD

More numbers…

Is this what the health care reform movement is all about?

Do we just keep tallying casualties? Body counts that aren’t real body counts? Policy studies from statistical tables that are devoid of any references to real human beings that we knew and loved?

Well, yes. This is work that has to be done to better understand the flaws in our health care system. The Institute of Medicine and the Urban Institute are to be commended for quantifying the consequences of lack of insurance in terms of the lethality of that health care financing deficiency. We now know that the 18,000 deaths per year due to lack of insurance has become 22,000 – a new number for us to use in our advocacy work.

But what are we doing with these studies? Since the IOM study was designed to isolate the single factor of uninsurance as a cause of mortality, it is clear that these lives would not have been lost had the individuals been insured. But is that true? Our response has been to attempt to cover more individuals by expanding the use of underinsurance, even though other studies are now showing that underinsurance is resulting in many of the same adverse outcomes as uninsurance. So simply being insured is no longer enough.

So where is the momentum on reform currently headed? State efforts and the proposals of leading candidates for president would have us all covered by individual private health plans, even though premiums for comprehensive plans are no longer affordable for average-income individuals. But instead of supporting financing systems that would provide comprehensive coverage for everyone (i.e., single payer), the policy/political community is supporting the shift to affordable private plans. The policy challenge has been to design underinsurance plans that are still comprehensive enough to avoid adverse outcomes because of financial barriers to care. It is a challenge they cannot meet. In order to make the premiums affordable for average-income individuals, the plans must be stripped of their function of removing financial barriers to care.

Do we really have to go through another decade or two of sterile examination of the statistical tables to calculate the mortality rates of the consequences of uninsurance and now underinsurance? Will the body counts that aren’t real body counts because they’re devoid of any references to real human beings provide us with any more motivation for honest reform? The numbers will be much larger, but will that really induce change?

Forgive me for being personal for a moment, but my current career as a full-time volunteer activist in the health care reform movement has a basis in my prior career. For over three decades, as a family physician, I saw real people who were uninsured and died merely because they didn’t have insurance. They died primarily because they delayed accessing the system because they didn’t have the money to pay for health care. I also saw many “underinsured” patients in the form of Medicaid, a program with such low reimbursement rates in California that it resulted in a lack of willing providers, with consequent impaired access and outcomes for the patients.

Was my practice about body counts? These were real people…

(I’m sorry. I can’t finish this…)

By Ellen Nolte and C. Martin McKee
Health Affairs
January/February 2008

We compared trends in deaths considered amenable to health care before age seventy-five between 1997-98 and 2002-03 in the United States and in eighteen other industrialized countries. Such deaths account, on average, for 23 percent of total mortality under age seventy-five among males and 32 percent among females. The decline in amenable mortality in all countries averaged 16 percent over this period. The United States was an outlier, with a decline of only 4 percent. If the United States could reduce amenable mortality to the average rate achieved in the three top-performing countries, there would have been 101,000 fewer deaths per year by the end of the study period.

… although ranking fifteenth in 1997-98 and performing considerably better than Ireland, the United Kingdom, and Portugal, by 2002-03 the United States had the highest rate of amenable mortality, just above Ireland and the United Kingdom but far above countries such as France, Japan, and Australia.

The concept of amenable mortality captures the potential impact of health care on population health only; thus, assessment of overall health system performance also requires analyses of indicators that measure the relative success of policies outside the direct control of the health care sector that also affect the public’s health, such as tobacco and alcohol policies. Although such an analysis would enrich the picture painted here, it clearly goes beyond the scope of this paper. Even in the absence of such an analysis, it is important to highlight the comparatively slow U.S. progress in reducing mortality from IHD and other circulatory diseases, largely stroke. Further interpretation of these observations must remain speculative. It is, however, difficult to disregard the observation that the slow decline in U.S. amenable mortality has coincided with an increase in the uninsured population, an issue that is now receiving renewed attention in several states and among potential presidential candidates from both parties.

http://content.healthaffairs.org/cgi/content/full/27/1/58

Comment:

By Don McCanne, MD

Amenable mortality is defined in this study as “deaths from certain causes that should not occur in the presence of timely and effective health care.”

Those who still claim that the United States has the best health care system in the world need a reality check. Of the nineteen OECD nations studied, the United States has the highest rate of deaths that “should not occur in the presence of timely and effective health care.”

Further, in the time interval studied, the United States ranked last in the reduction of amenable mortality. The other eighteen nations were more effective in reducing these preventable premature deaths.

The opponents of reform will provide alternative explanations for these numbers, likely blaming a lack of personal responsibility (poor nutrition, smoking, lack of exercise, etc.). But what they will suppress is the fact that these are amenable death rates. Interventions through public health services and personal health care can prevent many of these deaths.

In the United States we are spending more than enough to accomplish these goals. The other eighteen nations have done so with far less health care spending, but with financing systems that are more efficient, more effective, and more equitable.

When the reform process is disrupted by those who wish to shift the topic to individual responsibility, we can agree that individuals should be encouraged to adhere to optimal health habits, and that we should use our abundant resources to help accomplish that. But we cannot digress from our advocacy for an efficient, effective, equitable financing system that is the essential first step toward providing timely, effective health care for everyone. One hundred thousand lives depend on it.

By Aaron Catlin, Cathy Cowan, Micah Hartman, Stephen Heffler the National Health Expenditure Accounts Team
Health Affairs
January/February 2008

Health care spending in the United States grew 6.7 percent to $2.1 trillion, or $7,026 per person, in 2006. This rate of growth was slightly faster than the 6.5 percent rate in 2005, which marked the slowest growth since 1999. Health spending accounted for 16.0 percent of gross domestic product (GDP) in 2006. In 2006, health spending growth outpaced nominal GDP growth by 0.6 percentage point.

http://content.healthaffairs.org/cgi/content/full/27/1/14

And…

Don’t Break Out The Champagne: Continued Slowing Of Health Care Spending Growth Unlikely To Last

By Paul B. Ginsburg

Aaron Catlin and colleagues report a fourth year of slowing of the rate of growth of personal health care spending. But many factors indicate that relief for purchasers and consumers will be short-lived. Research on local health care markets suggests that rapid expansion of provider capacity and incentives to increase volume of care are continuing. Increasing incidence of obesity is a major factor behind rising costs. The influence of the economic cycle on health spending, which has lowered the trend in recent years, is likely to reverse its impact shortly.

Hospital activity

Hospitals have been expanding capacity, not predominantly by adding new beds but by expanding specialized facilities (such as operating rooms and imaging facilities) needed to serve patients with the latest technology. When hospitals do increase inpatient beds, the new construction typically occurs in rapidly growing suburbs, where well-insured patients live. Competing hospital systems also have expanded into some communities where hospital systems have already established dominance, raising concerns about overcapacity.

HSC researchers have documented the hospital “specialty-service line” strategy, and such strategies are continuing. Hospitals have identified the types of services that are most profitable–under a mix of diagnosis-related group (DRG), per diem, and discounted charge reimbursement–and are expanding capacity to provide those services. Interviews with hospital executives suggest that the profitability of the services is the key to developing a service line, with cardiac procedures often topping the list. As one hospital chief executive officer (CEO) told me in response to a question about capital spending priorities: “We just list the specialty lines by profitability and go down the list.” We found no hospitals developing a mental health service line; such admissions generally are considered money losers.

Physician activity

More entrepreneurial physicians have recognized the opportunities for particularly high returns from facility, as opposed to professional, payments for procedures such as imaging, endoscopies, and cardiac tests, which are performed in outpatient settings, as well as outpatient surgery. They have formed ventures to open facilities to perform these services, either jointly with hospitals or to compete with hospitals. Physicians also have brought capabilities to perform profitable ancillary services into their offices, sometimes forming larger single-specialty group practices to achieve the scale needed.

“Medical arms race”

Before the managed care era, many health policy researchers concluded that increased capacity led to greater use of services. With extensive authorization requirements and use of capitation in the early 1990s, concerns about the “medical arms race” receded. But with the loosening of managed care restrictions, the medical arms race has resurfaced.

Self-referral incentives

Today, as more physicians have an increased financial stake in the provision of services, self-referral incentives apply to a much larger portion of health care spending than in the past.

Two other macro factors

Two macro factors tend to discourage optimism about continued slowing in cost growth. Research by the CMS National Health Expenditures group and by outside economists and actuaries has established the role of the economic cycle in health spending trends. As mentioned in last year’s paper on spending trends, a portion of the slowing in trends over the past few years may in fact be the lagged impact of the 2001 recession, indicating that the impact of recent years of economic recovery and rapid growth on health spending trends is likely to be ahead of us.

The other factor is trends in obesity prevalence.

The reduction in the trend of spending has been a welcome development to those who pay for health care. But it would be a stretch to conclude that the corner has been turned in dealing with the long-term gap between growth in health spending and growth in income and the resulting financial pressures. This diminishing trend has already led to a reduced intensity in efforts to address costs on the part of employers and may be contributing to more-aggressive activities by providers to boost their revenues. With GDP growth starting to slow and most forecasters predicting further slowing, concerns about cost trends are likely to only increase.

http://content.healthaffairs.org/cgi/content/full/27/1/30

Comment:

By Don McCanne, MD

Increases in health care spending continue to outpace increases in wages, and it is only going to get much worse. Paul Ginsburg tells us why. The players in the health care delivery system are busy chasing the buck with ever more excessive high-tech services and facilities, while only cursory attention is being given to actual health care needs (or sometimes no attention, as in mental health).

That we continue to tolerate such a system, we should hang our heads in shame.