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OCR for page 30
2
Lessons from Previous Reports
In this chapter the Committee reviews findings from its five previous reports
that document the health and financial repercussions of being uninsured for indi-
viduals, families, communities, and the nation.1 The chapter is structured as a
series of questions whose answers are fundamental to understanding why it is
necessary to redesign our country’s overall approach to health insurance coverage.
• The first section examines the scope of uninsurance and current coverage
patterns by identifying how many people lack insurance, their basic economic and
demographic characteristics, the ways people obtain and lose coverage, current
barriers to coverage, and the potential for growth in the uninsured population in
the near future.
• The second section reports findings on how the lack of coverage affects
access to and timely use of appropriate health care services, and adverse health
outcomes for children and adults without health insurance.
• The third section reviews family and community effects of uninsurance:
financial repercussions for family budgets, the extent of uncompensated health
care, and potential impacts of large uninsured populations on community access to
care and on the economic and physical health of communities.
• The fourth section outlines available evidence and projections of the cur-
rent cost to the nation of uninsurance by looking at out-of-pocket expenditures of
families, the cost of uncompensated care, an estimate of the value of life and health
1This chapter summarizes material presented in earlier reports. Evidence cited in the Committee’s
previous reports is updated where newer data are available.
30
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31
LESSONS FROM PREVIOUS REPORTS
lost due to uninsurance, and the potential for offsetting the cost of extended
coverage.2
• The fifth section of this chapter looks at how the structure of insurance can
affect health care usage and health outcomes, for example, how employment-
based insurance, differing eligibility rules for public coverage for persons within
the same family, and the cost and availability of individual health insurance policies
can result in coverage gaps.
• The chapter concludes with a statement of the Committee’s perspective
on health insurance in America.
UNDERSTANDING THE SCOPE OF
UNINSURANCE AND SOURCES OF COVERAGE
Americans are often unaware of the characteristics of people who lack health
insurance (IOM, 2001a). More than 80 percent of uninsured children and adults
under the age of 65 live in working families and about the same percentage are
U.S. citizens (Hoffman and Wang, 2003). People may lack coverage regardless of
age, education, or state of residence. Nearly two-thirds of all uninsured persons are
members of lower income families (earning less than 200 percent of the federal
poverty level, or FPL), however.
In this section the Committee reviews how many people are uninsured,
how coverage is gained or lost, and the pathways and barriers to health coverage.
Several alternative economic scenarios are also described, suggesting that without
a fundamental change in national policy, the uninsured population is projected to
continue growing.
How Many People Lack Health Insurance and Who Are They?
Estimates of the number of uninsured Americans depend on how uninsurance
is measured. Increasingly, the lack of health insurance is understood as a condition
for which virtually all Americans are to some extent at risk over the course of their
lives, particularly at transitional points such as the age of majority or the loss of
student status, rather than as a fixed characteristic of a well-defined segment of the
population. Not all people, however, are equally at risk of being uninsured nor are
all spells of uninsurance of equal length.
During 2002, the Current Population Survey (CPS), conducted annually by
the Census Bureau, showed that approximately 43.6 million people in the United
States reported being without health insurance coverage for the entire year (Mills
and Bhandari, 2003).3 Some analysts believe that the CPS estimate is closer to a
2Italicized terms are defined in the glossary (Appendix B).
3The Committee’s series of reports has relied on the CPS annual estimates of the number of
uninsured persons in the United States. See Appendix A for a discussion of the features and limitations
of various national surveys measuring insurance status.
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32 INSURING AMERICA’S HEALTH
point-in-time count of uninsured Americans than it is of those uninsured for an
entire year. In 2000 the CPS added a verification question to improve the accu-
racy of its estimates, which reduced the estimate of the full-year uninsured popu-
lation, although the CPS still probably overestimates full-year uninsurance. The
CPS, however, provides the most consistent data on health insurance coverage
over time and is the most widely used source of information on coverage. The
Committee has used this historical series as its basic data set throughout the study
for these reasons.
Other data sets, the Survey of Income and Program Participation (SIPP) and
the Medical Expenditure Panel Survey (MEPS), provide more precise information
on length of time without coverage. An analysis of MEPS data found that one out
of every three Americans under age 65, 80.2 million people, lacked health insur-
ance for at least one month during a two-year period, while 23.5 million persons
under age 65 were uninsured throughout that period (1996-1997), and 31.6 million
were uninsured throughout 1996 (Short, 2001). A recent Congressional Budget
Office publication compared SIPP and MEPS, which reported 21 and 31 million
persons under age 65, respectively, who were uninsured for the entire year 1998
(CBO, 2003). The latest SIPP reports that, over the 48-month period calendar
years 1996 through 1999, the overall median spell without health insurance lasted
just under six months (Bhandari and Mills, 2003). Two separate analyses of MEPS
(using some combination of data for 1996, 1997, and 1998) found that the average
monthly count of uninsured persons for at least a one-year period is 45 million
(Short, 2001; Hadley and Holahan, 2003a). People with low family income tend
to remain uninsured for longer periods of time than those with incomes above the
poverty level (McBride, 1997).
Socioeconomic and demographic indicators help characterize those who
go without health insurance and identify who is most likely to go without insur-
ance. Full-time, full-year employment offers families the best chances of acquiring
and keeping health insurance, as does an annual income of greater than 200
percent of FPL.4 While white, non-Hispanic people make up about half of the
uninsured, minority group members have a higher risk of being uninsured. Afri-
can Americans are nearly twice as likely as non-Hispanic whites to be uninsured,
and Latinos are more than three times as likely as non-Hispanic whites to lack
4In 2003, 200 percent of FPL is $36,800 for a family of four (DHHS, 2003). (See Appendix A,
Table A.1.) In this report, family income levels are defined as follows:
• Low income: an annual income of less than 100 percent of FPL, which is established on a yearly
basis for different types of family groups that comprise a given household, for example, one adult, or
one adult and two children;
• Lower income: an annual income of less than 200 percent of FPL; and
• Moderate income: an annual income of between 200 and 400 percent of FPL for a given family
group.
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33
LESSONS FROM PREVIOUS REPORTS
coverage. Although most uninsured persons under age 65 are U.S. citizens (79
percent), foreign-born, noncitizen residents are more likely than citizens to be
uninsured (Hoffman and Wang, 2003). The uninsured rate declines with the
length of time foreign-born persons are in the United States: 42 percent of
noncitizens living in the United States for more than 5 years are uninsured,
compared with 50 percent of noncitizens in the country for less than 5 years
(Hoffman and Wang, 2003).
How Do People Obtain and
Lose Health Insurance Coverage?
Most people choose to enroll in health insurance when it is offered on the
job, including lower income workers and young adults who work. About two-
thirds of Americans under age 65 are covered through employment-based plans
offered at either their job or that of a parent or spouse (Fronstin, 2002).5 Typically
employees and their employer share the cost of coverage. Nearly seven percent of
Americans under age 65, including some lower income people, purchase their
own individual or family policies from the private, nongroup insurance market.
About 15 percent are covered by public insurance (primarily Medicaid) (Fronstin,
2002). When parents are insured, whether they are in single- or two-parent
families, more than 95 percent of the time all of their children are also covered
(IOM, 2002b). Medicare covers nearly all individuals over age 65 (Mills and
Bhandari, 2003).
Despite the variety of paths to coverage (employment, public programs,
individual purchase), 17.2 percent of working-age Americans and children remain
uninsured (Mills and Bhandari, 2003). Roughly one-fourth of workers have not
been offered coverage by their employer, and half of these remain uninsured
(Custer and Ketsche, 2000b). Some with a workplace offer report that they cannot
afford the out-of-pocket or employee’s share of the premium. Insurance is becom-
ing increasingly expensive for employers of low-wage workers and those with
small firms to offer the benefit and for workers to accept coverage when it is offered
(Thorpe and Florence, 1999; Chernew et al., 2002; Kaiser/HRET, 2003). For a
cohort of adults between ages 21 and 60 that was followed for four years (1996–
2000), a job change or loss of a job was more often the reason for becoming
uninsured than was the loss of public coverage. Those experiencing an uninsured
spell were more likely than average to be young, African American or Latino,
5Some people report multiple sources of coverage, for example, they may have Medicaid for part of
a year and a workplace policy at another time. Therefore, adding together employment-based, indi-
vidual, and public insurance coverage rates yield more than the 83.5 percent of the U.S. population
with some form of coverage during the year.
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34 INSURING AMERICA’S HEALTH
How People Gain Coverage How People Lose Coverage
• Get a job where insurance is offered and • Lose a job where insurance was offered,
premiums are affordable so employer no longer subsidizes
premiums
• Purchase insurance on your own, if you
qualify and can afford the premiums • Lose Medicaid or SCHIP eligibility once
you or your children grow up or if your
• Marry someone with insurance and if
family’s income increases
family out-of-pocket premiums are
affordable • Lose your spouse due to separation,
divorce, or death
• Qualify for Medicaid, SCHIP, or
• Attain the age of 19 or graduate from
Medicare
college and lose eligibility under
parents’ plan
• Your insurer goes out of business or
cancels its contract with you, or your
employer denies coverage to you
• Be priced out of the market when the
cost of premiums increases
FIGURE 2.1 Gaining and losing coverage.
SOURCE: IOM, 2001a.
lower waged, less well educated (high school graduate or less), and from a lower
income household (Kuttner and McLaughlin, 2003). Federal reforms, such as the
Health Insurance Portability and Accountability Act of 1996, have established
limited rights to purchase individual plans for those formerly covered by employ-
ment-based insurance but do not regulate the size of the premium that might be
charged (Nichols and Blumberg, 1998; IOM, 2001a).
People can lose coverage when they change jobs or become unemployed,
when life circumstances shift, or when rising premiums make insurance
unaffordable (IOM, 2001a); see Figure 2.1. When a worker with employment-
based coverage reaches age 65, retires, and qualifies for Medicare, a younger
spouse may be left without coverage. When children turn 19 years old, generally
the age limit for coverage as a dependent, they must purchase a separate, individual
health insurance policy unless they are still in school or become uninsured. While
teenagers or those graduating from college may be ready to go to work, they are
less likely than their older coworkers to find jobs that include health benefits or to
earn enough to purchase insurance independently (Quinn et al., 2000; IOM,
2001a; Collins et al., 2003). Some young, healthy people may choose to take the
risk rather than buy coverage. Marriage is associated with job and career choices
that lead to an increased likelihood of having employment-based health insurance
for the whole family. Becoming separated, divorced, or widowed are other ex-
amples of life transitions that can increase the risk that family members will lose
their employment-based coverage.
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35
LESSONS FROM PREVIOUS REPORTS
What Are the Barriers to Insuring People
Under the Current System?
Health insurance eligibility, enrollment in a plan, and maintenance of enroll-
ment depend on many interdependent factors, including the local labor market
and health services, state regulatory and program policies, demographics, con-
sumer knowledge, and personal choices (see Figure 2.2). Health insurance may or
may not be available to an employer depending on its size and type of industry;
a firm may or may not offer a policy that its employees perceive to be affordable;
an individual applying for a nongroup policy may or may not be healthy enough
to qualify or be able to afford the risk-adjusted premium; and public programs
may have more or less restrictive eligibility standards. Every state and locality has
a particular configuration of characteristics, including its industrial base, regula-
tory environment, demographics, and public programs, that ultimately affects the
opportunities for coverage and results in more or fewer people having health
insurance.
Affordability of Premiums
As a group, those who lack health insurance most often share the perception
that coverage is unaffordable. This is not to say, however, that health insurance
becomes “affordable” across the board at a given premium cost or income level
(Bundorf and Pauly, 2002; Levy and DeLeire, 2002). Although two-thirds of all
people without coverage have incomes below 200 percent of FPL, some individu-
als and families with relatively low incomes do take up employer offers of cover-
age and some relatively high-income individuals and families forgo coverage
(IOM, 2001a; Bundorf and Pauly, 2002). Nonetheless, unaffordability is the top
reason uninsured adults give for why they are uninsured (Hoffman and Schlobohm,
2000), as well as the major reason employed persons turn down coverage when
their employer offers it (Cooper and Schone, 1997; Thorpe and Florence, 1999;
Cutler, 2002). Most uninsured families would not have sufficient funds in their
budget to purchase health insurance without a substantial premium subsidy (IOM,
2001a, 2002a).
The high cost of premiums is also the most common reason small firms give
for not offering health insurance (Kaiser/HRET, 2003). Small employers often
receive poorer benefits for premiums comparable to larger firms. Administrative
costs and expenses other than benefits are usually 10 percent of premiums for large
employers but 20 to 25 percent for small employers (GAO, 2001).
Medical Underwriting and Denial of Coverage
Medical underwriting practices applied to individual applicants for nongroup
coverage are necessarily sensitive to an applicant’s health status, age, family in-
come, and geographic area in order to protect the insurer from expected risks
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36
Insurance premium to firm
Federal tax policy
Employment-based
insurance is offered
Insurance premium
to employee
Employer characteristics
(firm size, industrial sector)
Work status Family income
Individual is eligible Individual enrolls
Health status Individual nongroup
for coverage
insurance is offered
Public insurance
Knowledge of
Age; Family is offered
eligibility
composition
Administrative
Family income
Public policies
barriers to enrollment
FIGURE 2.2 Factors affecting eligibility and enrollment.
NOTE: Bold lines indicate major pathways and decision points.
SOURCE: IOM, 2001a.
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37
LESSONS FROM PREVIOUS REPORTS
(Chollet and Kirk, 1998). Medical underwriting directly affects only those who
purchase health insurance in the individual market. Nonetheless it is a significant
barrier to coverage for some of the people most likely to benefit from coverage
because of their relatively high expected use. Medical underwriting is inevitable in
a competitive market with small and voluntary risk pools. Whereas young and
healthy people face below-average premium prices, an older person or someone in
poor health may face prohibitively high premiums. One study of eight nongroup
insurance markets found that persons with health problems were quoted a pre-
mium price nearly 40 percent higher than were otherwise comparable potential
buyers without health problems (Pollitz et al., 2001). In addition, most states allow
risk rating by age, making individual policies relatively expensive for older people
(Chollet and Kirk, 1998; Blue Cross Blue Shield Association, 2000). Still, because
older people highly value having health insurance, they are more likely to pur-
chase it in the nongroup or individual market than are younger adults. Some 29 states
have established high-risk pools for persons who are uninsurable in the individual
market because their poor health puts them at risk for incurring large health care
bills. However, there are often waiting lists or closed enrollments as well as high
premiums (GAO, 1996; Achman and Chollet, 2001).
Eligibility Restrictions for Public Programs
Public programs such as Medicaid and the State Children’s Health Insurance
Program (SCHIP) provide coverage for specific categories of the poor who tend
to be excluded from the employment-based approach to financing health services
delivery. The combination of strict eligibility requirements and complex enroll-
ment procedures often makes public coverage difficult to obtain and even more
difficult to maintain over time. Qualifying to participate in public programs in-
volves fulfilling requirements related to income and assets (so-called means test-
ing), being a member of a specific group that is eligible for benefits (e.g., pregnant
women, minor children, or disabled), and meeting immigration status and resi-
dency requirements. Eligibility requirements vary from state to state.
Medicaid and SCHIP eligibility and enrollment policies are also subject to
fluctuating fiscal conditions for the states that administer these programs, with
more expansive eligibility and outreach to potential participants in better eco-
nomic and fiscal times and cutbacks in eligibility and enrollment efforts during
periods of fiscal stress (Howell et al., 2002; Smith and Ellis, 2002; Nathanson and
Ku, 2003).
Is the Uninsured Population Growing?
Over the past 25 years, growth in the number of uninsured Americans has
exceeded the rate of growth in the population under 65 years, despite an increas-
ingly tight labor market that expanded employment-based coverage and yielded
tax revenues to expand public coverage programs (IOM, 2001a). With the current
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38 INSURING AMERICA’S HEALTH
combination of higher unemployment, rapidly rising costs of health care and
insurance premiums, and state budget problems, absent major public policy re-
forms, the national uninsured rate will rise more rapidly in future years (Chernew
et al., 2002; Cutler, 2002).
Looking forward, one study of the impact of different economic scenarios
estimated that
• “Assuming continued economic growth and moderate health care cost
inflation, the number of uninsured Americans will rise to more than 48 million in
2009.
• In the event of a recession, the number who lack coverage will reach 61
million by 2009.
• Rapid economic growth, coupled with rapid health care cost inflation
such as characterized the 1980s, would lead to roughly 55 million uninsured in
2009” (Custer and Ketsche, 2000, p. 3).
Even without growth in the overall numbers, there is substantial variation in state
and local uninsured rates, median durations of uninsured spells of individuals, and
sizes and concentrations of uninsured groups within different populations (IOM,
2001a). This varied concentration of uninsured populations means that some
adverse effects of uninsurance can be more severe in certain communities than
would be expected from the national averaged data discussed in the section above.
ASSESSING THE EFFECTS OF HEALTH
INSURANCE ON HEALTH-RELATED OUTCOMES
Isolating and measuring the independent effect of having or lacking health
insurance is an analytic challenge because virtually all studies are observational and
many characteristics that vary with health insurance status, including income,
education, race and ethnicity, and health behaviors, also affect individual health
outcomes. Figure 2.3 outlines the mechanisms by which health insurance influ-
ences the amount and kind of health care received and a person’s health outcomes.
Coverage facilitates receipt of health care services that can improve personal
health.
Uninsured people are less likely to have any medical contact and on average
have fewer visits for care than people with either public or private coverage. Thus
opportunities for detecting the presence of an illness or forestalling the progression
of a chronic condition like diabetes are missed. Patients are also less likely to have
a regular source of care to coordinate their health care or to have high-quality,
evidence-based care. When the uninsured receive care in hospitals, their care
management, even for trauma or premature birth, differs from that of insured
patients, with uninsured patients receiving less intensive services (Hadley, 2002;
IOM, 2002b).
This section summarizes the Committee’s findings about the effect of health
OCR for page 39
Obtaining Access to Health Care Health-Related Outcomes
Individual and Family Level
Decision Making Process of Care Intermediate Health Outcomes
Resources (e.g., health
Outcomes
insurance status, income) •Subjective health
• Presentation of
• Individual,
Characteristics illness or status
about use of • Timeliness of
Needs diagnosis
condition
health services • Functional/
disability status
• Prevention • Severity of
• Provider (e.g.,
differential illness at
• Management • Clinical markers
management) diagnosis for specific conditions
of disease
• Patient-provider
Community Level • Quality, • General and
communication
Resources (e.g., health disease-specific
intensity, and
insurance coverage rates, mortality
site of care
safety net services)
Characteristics
Needs
Effects on Communities: Health Disparities
FIGURE 2.3 A conceptual framework for assessing the effect of health insurance status on health-related outcomes for adults.
SOURCE: IOM, 2002a.
39
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40 INSURING AMERICA’S HEALTH
insurance on a spectrum of health-related outcomes. These findings were drawn
from methodologically sound research studies and natural experiments in which
states extended health care coverage.6
Does Lack of Insurance Impede Access to and
Use of Health Care?
Without coverage, the uninsured—whether children, pregnant women, or
other adults—receive fewer services than their insured counterparts or no care at
all (IOM, 2002a, b). They are less likely to have any physician visit within a year
or establish a “medical home” with a regular source of primary care. They receive,
on average, fewer preventive health services, less regular care for management of
chronic diseases, and poorer care in the hospital.
Lesser Use and Lack of Preventive Health Services for Children and
Adults
Uninsured children use medical and dental services less frequently and are less
likely to get their prescriptions filled than insured children, even after taking into
account differences in family income, race and ethnicity, and health status
(Newacheck et al., 1998b; McCormick et al., 2001; IOM, 2002b). They are less
likely to receive routine, preventive well-child checkups and immunizations. Half
of uninsured children have not had a doctor’s visit in the past year, more than
twice the rate of privately insured children (McCormick et al., 2001).
Adolescents as a group are particularly at risk of not having any physician visits
in the past year or a regular source of care. Their need for some kinds of health
care services, such as mental health screening and treatment for drinking and other
risky behaviors, increases in their late teenage years, yet 17 percent of adolescents
ages 15 to 17 are uninsured, the highest rate of all children (McCormick et al.,
2001). Over one-quarter (27.4 percent) of adolescents ages 10 to 18 in families
earning less than the federal poverty standard are uninsured (Newacheck et al.,
1999). Forty-four percent of young adults aged 19-29 are uninsured at least part of
the year. Though generally a healthy population, young adults are particularly
vulnerable to injuries, HIV, and pregnancy, but when uninsured their regular
access to the health system is disrupted (Collins et al., 2003).
Uninsured women receive fewer prenatal care services than their insured
counterparts and report greater difficulty in obtaining the care they believe they
6The Committee based its findings and conclusions on studies that adjusted for basic social, demo-
graphic, and health characteristics. In health outcomes studies, unless otherwise noted, health insur-
ance status was measured at baseline and does not reflect duration of coverage or period of uninsurance.
Appendix B in Care Without Coverage and Appendix C in Health Insurance Is a Family Matter summarize
the studies reviewed by the Committee.
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55
LESSONS FROM PREVIOUS REPORTS
the rate of uninsurance. In two states with comparable portions of residents
lacking employment-based coverage (22 percent for Colorado and 18 percent for
Minnesota), the state of Minnesota enrolled 45 percent of persons without em-
ployment-based coverage in public insurance compared to Colorado, which en-
rolled 19 percent. As a result, the uninsured rate is 10 percent in Minnesota,
compared with 17 percent in Colorado (Holahan, 2002).
Does the Size of the Uninsured Population Affect the
Physical Health of a Community?
The sheer number of uninsured persons in an area adds to the community
burden of disease and disability because uninsured persons are more likely than
their privately insured counterparts to have poorer health, to be at greater risk for
some communicable diseases, and to draw on public health resources (IOM,
2003a).
Worse Health Status and More Preventable Hospitalizations
Geographic differences in self-reported health status among the states corre-
late with state uninsured rates (Holahan, 2002). For urban, suburban, and non-
metropolitan communities across the country, uninsured rates also correlate with
the health status reported by residents. Community uninsurance rates converge
with a number of other factors that affect access to care and health status, such as
the proportion of the population that is lower income and the proportion that
consists of racial and ethnic minorities (Shi, 2000, 2001; IOM, 2001a, 2002a).
Although these geographic disparities in health status are certainly not entirely
attributable to the lack of coverage, the uncompensated care demands on health
care providers and population health impacts are greater in communities with high
uninsured rates (IOM, 2003a).
Potentially avoidable hospitalizations (sometimes called ambulatory-care-sen-
sitive conditions) serve as an indicator of adequate access to primary and regular
care. Uninsured patients are more likely to experience avoidable hospitalizations
than are privately insured patients when measured as the proportion of all hospi-
talizations (Pappas et al., 1997). Hospitalization rates for potentially avoidable
hospitalizations are higher in communities that include greater proportions of
lower income and uninsured residents, indicating both access problems and greater
severity of illness (IOM, 2003a).
Increased Risk for Communicable Diseases
Areas with relatively high uninsured rates are likely to have a greater burden
of vaccine-preventable and communicable diseases and disability. For example,
underimmunization increases the vulnerability of entire communities to outbreaks
of diseases such as measles, pertussis (whooping cough), flu, pneumonia, and other
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56 INSURING AMERICA’S HEALTH
diseases (IOM, 2000). Childhood and adult immunization levels are positively
correlated with having either public or private health insurance. When uninsured
children received coverage under SCHIP in New York state, statewide immuni-
zation rates for young children increased (Rodewald et al., 1997).
Increased Burden on Public Health Resources
Competing demands on state and local health departments as providers of last
resort and as guardians of public health can adversely affect their ability to perform
both functions adequately (GAO, 2003; IOM, 2003a,c). Public health functions
include disease and immunization surveillance, community-based health educa-
tion and behavioral interventions, emergency preparedness, and environmental
health. The need for population-based public health services is expected to be
greater now; at the same time there are growing demands on health departments
to provide or pay for safety-net services for the uninsured. A recent survey finds
that more than one-quarter of local health departments serve as the only safety-net
provider in their community (Keane et al., 2001). Budgets for population-based
public health activities that benefit all members of the community frequently are
squeezed by these demands.
CURRENT COSTS AND SOCIETAL COSTS
ATTRIBUTABLE TO UNINSURANCE
As a society, we directly invest in the health of those who have health
insurance through tax subsidies for private insurance and publicly sponsored cov-
erage. We also spend substantial public resources for direct health care services for
those who lack coverage, yet the uninsured continue to have worse health out-
comes. By estimating the health services costs now incurred by the tens of millions
of uninsured Americans and some of the incremental costs and benefits across
society of extending coverage, we provide an economic baseline against which
health insurance reform strategies can be measured.
What Are the Health Services Costs Now Borne by the
Uninsured Themselves?
As described earlier in the chapter, the uninsured use fewer health services yet
have higher average out-of-pocket health expenses as a proportion of family
income when they do use services. When uninsured people use health care
services, they are often charged substantially more than are insured patients, whose
insurance company has negotiated discounts (Lagnado, 2003). Among families
with no members insured during the entire year and incomes below the poverty
level, more than one in four had out-of-pocket expenses that exceeded 5 percent
of income in 1996 (Taylor et al., 2001b). Families with no insurance for any of its
members for the full year were nearly twice as likely to exceed the 5 percent
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57
LESSONS FROM PREVIOUS REPORTS
TABLE 2.1 Out-of-Pocket Expenses as Percentage of Family Income, by
Insurance Coverage and Duration, Non-Medicare Families, 1996a
Families Exceeding Threshold (percent)
5% or More 10% or More
of Income of Income
All members insured for entire year 8.8 3.0
Some members uninsured and/or some
period without health insurance 10.7 4.6
All members uninsured for entire year 15.4 8.0
All families 10.0 4.0
aThese out-of-pocket expenses cover medical services; they do not include insurance premiums.
SOURCE: Medical Expenditure Panel Survey 1996 data across families of all sizes in Merlis,
2001.
threshold of out-of-pocket expenditures as were fully insured families in 1996
(Merlis, 2001; see Table 2.1). Paying medical bills can have profound, long-lasting
economic and social effects on uninsured families (IOM, 2002b).
If the uninsured were to gain coverage, the change in their out-of-pocket
costs would depend on both the scope of benefits and cost-sharing requirements.
What Are the Costs of Uncompensated Care
Used by the Uninsured?
The best estimate of the value of uncompensated health care services provided to
persons who lack health insurance for some or all of a year is roughly $35 billion
annually, about 2.8 percent of total national spending for personal health care
services (Hadley and Holahan, 2003b). This estimate includes the value of free
hospital, physician, and clinic services that the uninsured use annually, adjusted to
reflect spending in 2001.
About two-thirds of this uncompensated care ($23.6 billion) is public subsi-
dies to hospitals, paid through federal Medicaid and Medicare disproportionate share
hospital (DSH) adjustments and other financing mechanisms, state Medicaid DSH
payments, and other state and local appropriations for the support of hospital
services and operating costs. The public also supports a variety of governmental
grant and direct care programs such as Community Health Centers, National
Health Service Corps, Department of Veterans Affairs, and local health depart-
ments, amounting to about $7 billion annually. Donated physician time and
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58 INSURING AMERICA’S HEALTH
services account for the remaining $5 billion of uncompensated care (Hadley and
Holahan, 2003b).
If the uninsured were to gain coverage, some of the current spending for their
health care would be redistributed among payers, for example, from physicians,
who now provide uncompensated care, to taxpayers. Hospital bad debt and char-
ity care caseloads would decline. As mentioned previously, the public sector
already finances between 75 and 85 percent of the uncompensated care burden for
uninsured individuals. Depending on the particular plan design, some of that
amount could be reallocated to health insurance.
What Is the Cost of the Worse Health and Shorter Lives of
Uninsured Americans?
In Hidden Costs, the Committee adapted an analytic strategy similar to that
used by government agencies to estimate the benefits of life-saving and health-
improving safety and environmental interventions in order to assess the economic
losses borne by uninsured individuals as a result of their poorer health outcomes
relative to those of insured counterparts. This analysis, commissioned by the
Committee from economist Elizabeth Vigdor, is the first modeling exercise of its
kind to evaluate the health benefits of coverage and is included in its entirety as
Appendix B of Hidden Costs (2003b). Vigdor assigned an economic value to health
by imputing a monetary value to a healthy life year and calculated the average
difference in the present value in money terms of expected years of life in particu-
lar states of health between otherwise similar insured and uninsured populations.
This difference constitutes an estimate of the economic value lost as a result of the
current level of uninsurance within the U.S. population. Conversely, it is an
estimate of the economic value of the better health outcomes that could be
realized if the entire population had continuous health insurance coverage.
Based on this analysis, the Committee estimates that, in the aggregate, the
diminished health and shorter life spans of Americans who lack health insurance
are worth between $65 and $130 billion for each year spent without health
insurance (IOM, 2003b). This estimate does not include spillover losses to families
and society as a whole of the poorer health of the uninsured population. It does
account for the value of those experiencing poorer health, including individual
losses in work effort and developmental losses due to poor health in children. If
the uninsured were to gain coverage comparable to that of the currently insured
population, this $65–$130 billion in “health capital” would be an economic benefit
rather than a cost.
The Committee’s calculation of the economic value of improved health
and longer life is likely an underestimate of the actual health benefits of continuous
health insurance, in part because it only includes the effects up to age 65. Addi-
tional positive effects on health and longevity after age 65 also would be likely if
health insurance were continuous before this age. In addition, there could be
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savings to the Medicare program. As it is now, there is likely to be pent-up
demand for services at age 65 among those previously uninsured (IOM, 2003b).
Are Additional Costs Associated with Uninsurance?
Although the Committee could not develop specific dollar estimates, other
public programs such as Social Security Disability Insurance and the criminal
justice system likely have higher budgetary costs than they would if the U.S.
population in its entirety had health insurance up to age 65 (IOM, 2003b).
Disability insurance claims could decrease with the health and functional
status improvements that health insurance accords. Increased productivity in the
workplace could also accompany increased population coverage rates. Studies
have shown that productivity is lost on the job when workers have particular
illnesses. Separate studies suggest that workers’ health status can improve as a result
of having coverage. However, the effects of coverage on workplace productivity
have not been studied systematically or in any controlled fashion.
As already discussed above, persons with either private or public insurance are
more likely than those without any coverage to receive appropriate treatment for
mental health problems. More than 3 million adults have serious mental illness that
can involve psychosis and aberrant behavior; 20 percent of these adults who do
not reside in institutions lack health insurance. Between 600,000 and 700,000
persons with severe mental illness are jailed each year. Access to effective treat-
ment prior to incarceration would be expected to reduce criminal justice ex-
penses. Ironically, once people with serious mental illness have contact with the
criminal justice system, they have an increased chance of obtaining access to
specialty mental health services (McAlpine and Mechanic, 2000).
What Would the Additional Services Cost That the Uninsured
Would Be Expected to Use if They Gained Coverage?
Closing the access gap for the uninsured would mean increased utilization of
services. As described earlier, the uninsured population is less likely to use any
kind of health service within a given year, and on average the uninsured person
uses one-half to two-thirds of the volume and value of services that the privately
insured person uses (IOM, 2003b). The Committee reviewed several sets of
estimates of the value of the additional health services that would be provided to
the uninsured once they became insured. Estimates of the additional costs of
health services that the population that now lacks insurance could be expected to
use if they gained coverage range from $34 billion to $69 billion a year in 2001
dollars. This range reflects the difference between the average per capita expendi-
ture within public insurance programs (primarily Medicaid) and that for popula-
tions with private health insurance (Hadley and Holahan, 2003a). This range of
estimated costs amounts to between 2.8 and 5.6 percent of national spending for
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60 INSURING AMERICA’S HEALTH
personal health care services in 2001, equivalent to roughly half of the 8.7 percent
increase in personal health care spending between 2000 and 2001 (IOM, 2003b).
These estimates do not reflect the costs of any particular plan to provide health insurance
to the uninsured, nor do they include any costs of establishing a minimum benefit package
that would affect the currently insured population. The cost range of $34 billion to $69
billion, which encompasses the results of three independent analyses, assumes no
structural changes in the systems of health services delivery or finance, scope of
benefits, or provider payment from those that currently operate in the public and
private sectors (2003b). The defined benefit package for covering the uninsured
would influence the nature of benefits offered to the currently insured. If it were
a relatively generous package and there were no other structural changes, the costs
of additional services would be greater than the $69 billion because of greater use
by the currently insured as well as new utilization by the previously uninsured.
Ultimately, the full cost of any reform will depend on the specific features of the
approach taken, an estimate of which is beyond the scope of this report.
In its previous report, the Committee assessed the individual health and
longevity benefits of continuous health insurance coverage for the uninsured
population relative to the costs of providing this population with the kind and
amount of health care used by comparable insured populations (IOM, 2003b).
The Committee concluded that the economic value that would be gained in terms
of better health outcomes among those now uninsured would likely exceed the
incremental resource costs of providing the uninsured with the level of services
now used, on average, by demographically similar people with either public or
private coverage. In addition, the Committee’s estimate of providing this “in-
sured” level of health care services to those who now lack coverage compares
favorably with other societal investments in improving health and extending life
(IOM, 2003b).
EFFECTS OF THE STRUCTURE OF INSURANCE
The current amalgam of service arrangements and the mix of public and
private insurance sources were not designed as an integrated system; rather, they
have resulted from the aggregation, over time, of initiatives and developments in
both the private and public sectors. A variety of factors related to the terms and
structure of insurance affect eligibility for and affordability of insurance. Current
insurance mechanisms and programs do not match the needs of all persons over
time. Life-course and employment transitions, in particular, result in gaps in
coverage (Kuttner and McLaughlin, 2003).
Coverage Gaps Associated with Employment-Based Coverage
Nearly two-thirds of all firms offer health benefits to their employees
(66 percent), with offer rates ranging from 55 percent for small firms employing
3 to 9 workers to 98 percent for firms employing 200 or more workers
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(Kaiser/HRET, 2003). Most employees take up the offer of coverage or obtain
coverage through a family member’s workplace health insurance plan. The link
between health insurance and employment, however, creates many opportunities
for loss of coverage. Job loss and retirement increase the risk of losing coverage.
Work choices may be constrained for those with private coverage by the need to
obtain and maintain health benefits with the current job (sometimes referred to as
job lock). Even people who receive public insurance coverage may be limited in
their job choices because of means testing for public benefits (IOM, 2002b).
Many of the uninsured, however, are not eligible for the plan offered where
they work or work in settings that do not offer any plan. During the mid-1990s,
only 55 percent of workers who earned less than $7 per hour were offered
employment-based insurance compared with 96 percent of workers whose hourly
rate was above $15 per hour (Cooper and Schone, 1997). This can result in
inequities in coverage even if total family income is the same. A family having a
single wage earner with a salary of $50,000 is more likely to have access to health
insurance than is a family of two wage earners, each of whom earns an annual
salary of $25,000.8 So while working improves the chances of coverage, even
members of families with two full-time wage earners have an 8 percent chance of
being uninsured (Hoffman and Wang, 2003).
The prime economic force behind the declining portion of Americans cov-
ered by employment-based insurance is the gap between workers’ purchasing
power and increases in health services costs and costs of purchasing insurance
(Cooper and Schone, 1997; Holahan and Kim, 2000; Cutler, 2002). In constant
1998 dollars, the cost of employment-based insurance increased 260 percent be-
tween 1977 and 1998 and the employee’s share of insurance premiums increased
350 percent (Gabel, 1999). During the same period, median household incomes
increased in real terms by 17 percent (U.S. Census Bureau, 2000). Health care cost
increases exceeded growth in the general economy due to factors that included
technology changes and increased use of services per capita, including prescription
drugs (Glied, 2003). A recent econometric analysis by David Cutler (2002) con-
cluded that virtually all of the decline in employee take-up rates between 1988 and
2001 (for full-time male workers, from 94 to 90 percent take-up of offers of
coverage) could be attributed to increases in the employee share of premiums over
this period.
8The distinction between the income of a “health insurance unit,” i.e., family members who
qualify for coverage together, and that of a household is important to the interpretation of coverage
trends. For example, some have concluded that the increase of 1.4 million uninsured persons between
2000 and 2001 in the CPS represents an influx of middle-income persons, because about 800,000 of
them lived in households with yearly incomes of at least $75,000 (Mills, 2002). Analyzing these
estimates in terms of health insurance units, however, and accounting for changes in household
composition supports a different conclusion: an increasing number of people with lower incomes
joined households that earned over $75,000 annually, and almost all of the newly uninsured in 2001
(1.3 million people) were in families that earned less than twice the federal poverty level (Holahan, et
al., 2003b).
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62 INSURING AMERICA’S HEALTH
Coverage Gaps Due to Differing Eligibility Rules for
Members of the Same Family
Achieving coverage of the entire family can prove difficult (IOM, 2002b).
Private insurers often restrict the definition of family to a traditional family struc-
ture. This mismatch between insurers’ eligibility criteria and a functional family
unit affects coverage. Most publicly financed health insurance programs are even
more restrictive because they provide coverage for individuals rather than for
families. Lower income parents are more likely to lack coverage than are their
children because public programs provide coverage for children up to higher
family income levels than they do for adults. Public programs also tend to have
more generous family income limits for younger children than older ones, with
the result that uninsurance rates are higher among older children (Hoffman and
Wang, 2003).
Furthermore, simplification of eligibility rules and enrollment processes can
reduce barriers to coverage. More than half of the 7.8 million children uninsured
in 2002 were eligible for Medicaid or SCHIP coverage (Kenney et al., 2003).
Parents’ decisions on whether, when, and from whom to seek care for their
children may be influenced by their own experiences with and knowledge of the
health system (IOM, 2002b). When states have expanded Medicaid programs
broadly to include low-income parents as well as their children, the enrollment of
eligible children has increased more than it has in states without the broader
parental coverage (Ku and Broaddus, 2000).
Gaps Because of the Cost of Coverage
The national average total annual premium for a family policy in an employ-
ment-based group exceeded $9,000 in 2003, with workers themselves picking up,
on average, 27 percent of the cost of family coverage (Kaiser/HRET, 2003). In
firms with at least 35 percent low-waged workers, employees pay a greater portion
of the premium, typically 36 percent of the premium—an extra $68 per month
compared with the national average (Kaiser/HRET, 2003). For a worker earning
$20,000 per year, roughly $10 per hour, the employee’s premium share for family
coverage would take more than 16 percent of his or her income before taxes.
When it is available, individual coverage is often a stop-gap measure for adult
children who lose their coverage as dependents before they can obtain job-based
coverage and for retirees under the age of 65 before they become eligible for
Medicare. A study comparing premiums for individual and group insurance plans
with comparable benefits (comprehensive, preferred provider organization) in 17
health insurance markets found that for young adults (27 years old), the median
premium for individually purchased (nongroup) coverage is roughly comparable
to the premium for group coverage, especially for men, but that the median
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premium for individually purchased coverage for 55-year-olds is more than twice
the premium for group coverage (Gabel et al., 2002).
Underwriting assumptions account for some of the differences in premiums
that employers and employees face (IOM, 2001a). The price of an insurance
premium that the insurer offers to a firm reflects a number of considerations,
including firm size, whether it is unionized, the employment sector, and any risk
or experience rating of the employees. Employers have sought ways to economize
by increasing employee premiums and cost sharing, dropping coverage for retirees,
and restricting benefit packages.
Gaps in Service Coverage and Their Effects
Lack of coverage affects the availability of care across the spectrum of preven-
tive health services, chronic disease care, medications, mental health, acute care,
emergency room treatment, and hospital care. When health insurance includes
preventive and screening services, prescription drugs, and mental health care as
well as acute and diagnostic care, it is more strongly associated with the receipt of
appropriate care than when insurance does not have these features (IOM, 2002a).
Generally, insurance benefits are less likely to include preventive and screen-
ing services than physician visits for acute care or diagnostic tests for symptomatic
conditions. A positive and statistically significant “dose-response” relationship has
been found between the extent of coverage for preventive services and their
receipt (Faulkner and Schauffler, 1997). Yet as long as people have some form of
health insurance, even if it does not cover preventive services, they are more likely
to receive appropriate services, partly because they are more likely to have a
regular source of care or a primary provider (IOM, 2002a).
Adults with mental health coverage are more likely to receive mental health
services from both general medical and specialty mental health providers and to
receive care consistent with clinical practice guidelines than are those without any
health insurance or with insurance that does not cover mental health conditions.
Receipt of appropriate care has been associated with improved functional out-
comes for depression and anxiety disorders (Sturm and Wells, 1995; Wang et al.,
2000). Studies also show that uninsured adults with severe mental illnesses receive
less appropriate care or medications and experience delays in receiving services
until they gain insurance coverage (Rabinowitz et al., 1998, 2001; McAlpine and
Mechanic, 2000).
Lack of insurance also can impede access to necessary prescription drugs. For
example, persons without health insurance have been shown to wait an average of
4 months longer than privately insured patients to receive newer drug therapies for
HIV (Shapiro et al., 1999). Only 43 percent of uninsured children have their
prescriptions filled compared with 61 percent of privately insured and 56 percent
of publicly insured children (McCormick et al., 2001).
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SUMMARY
Health insurance is one of the most common, flexible, and reliable means
used to gain access to health care. In the United States, health insurance is a
voluntary matter, yet some people do not have the choice of coverage and many
find it unaffordable. Because so many common events can precipitate the loss of
insurance, the chance of being uninsured over the course of a lifetime is substan-
tial. There is no guarantee for most people under the age of 65 that they will be
eligible for or able to afford to purchase or retain health insurance. Reviewing the
Committee’s work to date allows us to draw some general conclusions important
for designing effective strategies for extending coverage to everyone:
• Currently, health insurance coverage is not universal and it is not continu-
ous, resulting in gaps in coverage that put people’s health and finances at risk.
Although coverage is needed throughout the course of life, persons can become
uninsured regardless of age and family circumstances, with the notable exception
of Medicare for those over age 65.
• Efforts to fill coverage gaps need to be affordable to individuals, employers,
and the public budgets of government agencies that purchase insurance. Most
uninsured families would need a substantial premium subsidy in order to purchase
health insurance.
• Health insurance is important as a stable and efficiently targeted revenue
source for health care service providers. Local communities with disproportionate
populations without coverage are unable to shoulder the burden alone.
• Lack of coverage affects access to care across a spectrum of health care
services. A high uninsured rate in a community can also affect availability of
primary through tertiary care for both uninsured and insured community resi-
dents.
• Lack of coverage affects the amount and adequacy of care delivered and
ultimately health outcomes. Having coverage for preventive health services,
chronic disease care, medications, mental health, acute and diagnostic care, and
hospital care promotes improved access to these services and improved health
outcomes. Coverage increases the likelihood of receipt of cost-effective, evi-
dence-based services in the appropriate settings (e.g., avoiding expensive crisis care
for chronic conditions such as hypertension or asthma with regular use of appro-
priate ambulatory care). Increased coverage is especially likely to improve the
health of people who are in the poorest health and who are most disadvantaged in
terms of access to care and thus would likely reduce health disparities among racial
and ethnic groups. Broad-based health insurance strategies across the entire unin-
sured population would be more likely to produce the desired health benefits than
would “rescue” programs aimed only at the seriously ill or those continuing to
piece together categorical coverage.
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• Public dollars are not as well targeted to achieve improvements in health
across the population as they could be if everyone had insurance-based financing
for health care services.
• Current health insurance arrangements are complex and inefficient.
• When insurance becomes available, the uninsured will use more health
services. Their increased use would be a positive change; the services, quality, and
continuity of care that those without coverage do not get accounts for their poorer
health outcomes compared with otherwise similar insured persons.
• Federal or shared federal-state health insurance programs distribute the
burden of financing health care more broadly among taxpayers than the costs of
uncompensated care, which fall more heavily on local communities with concen-
trations of uninsured residents. Insurance-based financing could alleviate some of
the financial demands on communities disproportionately affected by uninsurance.
Representative terms from entire chapter:
uninsured patients
