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Chapter 1

Why Do We Need Health Care Reform?

The American health care system is approaching a breaking point. Rising medical costs are increasing the numbers without health coverage and straining the system's capacity to provide care for those who cannot pay. The gap is widening between the majority of Americans, who can take advantage of the best medical services in the world, and the rest, who find it hard to get even basic care. As the gap increases, the weight of financing care for those without adequate coverage is undermining the stability of our health institutions. Even for the majority, the explosive growth in health care costs is steadily eroding the private insurance system—the bulwark they count on as their defense against financial risk in the event of serious illness.

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Our two basic systems for providing health coverage for nonelderly Americans-job-based insurance and public health care coverage by Medicaid and other state-based programs-share the blame. Costmotivated benefit cutbacks by large employers and the disintegration of the health insurance market facing small employers jeopardize coverage most of us count on through the workplace. Public programs targeted to the poor fail to take up the slack.

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The Commission examined the characteristics of the uninsured and reasons for the recent growth in the uninsured population. It identified trends in the private insurance market that are making coverage harder to purchase, along with reasons why the Medicaid safety net is failing to protect so many lowincome Americans. The Commission looked, too, at the consequences of being without insurance-needless sickness and disability because of care delayed or denied. It reviewed our current system of providing care to those who cannot pay through public subsidies and hidden taxes on private payers. It also looked at the pressures of rising costs and growing needs that are eroding this system. Finally, the Commission considered nonfinancial barriers to medical care: the shortages of doctors and services in our rural areas and inner cities, and the special needs of such populations as minorities, the physically and mentally handicapped, and the chronically ill.

Although most Americans get health insurance through their jobs, three out of four uninsured people are workers or in workers' families.


In 1987, 31.5 million Americans under age 65— nearly 15 percent of the nonelderly population-were without health insurance (see Table 1-1)." About 28

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The trend since 1986 is unclear because the CPS questions asking about insurance have been changed and appear to be finding fewer people without insurance. In 1988, for example, the CPS identified about 15 percent of the nonelderly population without insurance. This does not mean that the growth in the uninsured found in earlier surveys was not real. If the same improved counting methods could be applied to the entire period since 1979, the uninsured population would probably have been smaller in each year, but the upward trend would have been unlikely to change.

Hispanics are white and non-white. SOURCE: Lewin/ICF analysis of the March 1988 Current Population Survey data.

percent of U.S. residents lacked health insurance for at least a month during the 28-month period ending May 1987.2

Anyone can become uninsured and the uninsured include people of all ages, incomes, and employment status. But the following characteristics of the uninsured population stand out.

One factor contributing to the decline in coverage is a slight reduction in the proportion of workers covered through their own work—probably due to shifts


Figure 1-1 Distribution of Nonelderly

Uninsured, by Age, 1987

The uninsured disproportionately young. Nearly half are under 25 years of age, and more than a quarter are children under 18 (see Figure 1-1). Young adults aged 18 to 24 are the group most likely to be without protection; in 1987 more than a quarter of these young people lacked health insurance (see Figure 1-2). They are likely to be in entry-level jobs with no insurance and, working or not, are often too old to be picked up as dependents of a privately insured or Medicaid-eligible family member.


The uninsured are disproportionately poor or nearpoor (see Table 1-2, Figure 1-3). About 30 percent are in families with incomes below the federal poverty level; just over 30 percent are in families with incomes between 100 percent and 200 percent of poverty.

Although disproportionately low income, however, the vast majority of the nonelderly uninsured, about 75 percent, are either workers or live in families of





Total Uninsured Under 65: 31.5 Million people

Under 18 (8.9 million)
18-24 (6.1 million)
25-44 (11.4 million)
45-64 (5.1 million)

SOURCE: Congressional Research Service analysis of Lewin/ICF estimates based on Current Population Survey data, March 1988.

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Annual Family Income as a

Percent of Poverty

Number of Uninsured Persons (in


Percentage of All Uninsured

Uninsured as Percentage of Persons in


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Another is the lower proportion of the population getting coverage through another family member's employment. Part of this reduction is simply a consequence of the decline in coverage of primary workers. But part is because employers have reduced their contributions toward coverage of dependents. Ten years ago two-fifths of employers paid for dependent coverage in full; today the proportion has dropped to one-third. As employees are asked to pay more for dependent coverage increasing numbers can be expected to drop it, particularly low-wage workers with other pressing financial needs.

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The changing nature of American families may also play a role. The proportion of households with older children and unrelated individuals has been growing, and insurance policies generally do not allow such persons to be covered under family policies.


Accompanying the decline in employer-based coverage has been a drop in coverage from nonemployment-based sources, especially Medicaid. Although the absolute number of people in poverty was rising for at least the first half of the 1980s, the number receiving Medicaid has remained almost unchanged for a decade. Recent changes in Medicaid policy have expanded program enrollment, especially among pregnant women and young children. But preliminary data suggest that these expansions may be offset by dropping enrollment among other segments of the Medicaid population.

Below 100% of poverty 100-199% of poverty 200-299% of poverty

300% + of poverty SOURCE: Lewin/ICF analysis of Current Population Survey data, March 1988

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The second feature consists of payments required even for covered services. Enrollees are generally responsible for an initial payment for covered services, a deductible. After the deductible is paid, the plan may also require enrollees to pay a percentage of costs incurred for covered services, usually 20 percent. About 83 percent of plans offered by medium and large firms have an out-of-pocket cap that places a ceiling on the enrollee's annual liability for covered services. But some plans have no such limits on coinsurance payments, leaving enrollees at risk for unlimited health care expenses. Nongroup enrollees are more than twice as likely as group enrollees to have no out-of-pocket cap. In addition to deductible and copayment requirements, some plans reimburse the provider of services an amount less than the fee charged, leaving the enrollees liable for the balance.



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First, a specific service may be excluded from a policy, leaving the enrollee liable for its full cost. According to a 1986 survey of all businesses conducted by the Small Business Administration, 17 percent of all firms exclude physician office visits from their health plans, 13 percent exclude outpatient prescriptions, and 18 percent exclude mental health services. 8 In addition to blanket exclusions, some policies ex





1981 1982





Figure 1-4 Work Force Connections of the

Uninsured and Their Dependents, 1987*

"Unemployment is a percentage of the workforce; uninsured status, a percentage of the under 65 population. SOURCE: For the uninsured, Congressional Research Service analysis of Current Population Survey data for selected years (data on the uninsured are unavailable for 1980, 1981, and 1982). For unemployment rate, U.S. Congress, House Committee on Ways and Means, Overview of Entitlement Programs: 1990 Green Book, 101st Cong., 2d Sess., 190, WMCP 100-293, 479.

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Millions of People


The final feature determining out-of-pocket expenses is a lifetime maximum provision. Enrollees in plans with such a provision are held accountable for all expenses beyond the maximum. About 60 percent of all plans have no maximum lifetime benefit or a maximum of $1 million or more. But 11 percent of all plans have a maximum of only $250,000. Another 3 percent of plans set an even lower limit. These thresholds can readily be exceeded by very severe burns or

7.7 (24.5%)


4.2 (13.2%) Dependents


Full-time Workers Part-time Workers No Connection and Their Dependents and Their Dependents with Employment

*Under 65 Population
SOURCE: Lewin/ICF analysis of Current Population
Survey data, March 1988.

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