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Almost 9 million children are uninsured-more than one- quarter of all those without public or private protection.

workers were in firms with fewer than 25 employees. Even though most small firms provide insurance to their workers, large numbers do not-increasingly because they are disadvantaged in the insurance market.

Small firms must pay more for insurance than large firms because they have fewer employees among whom to spread administrative costs and any losses for extremely costly enrollees. Small firms thought to present high risks pay even higher rates, and are often forced to exclude certain employees or certain conditions. They are sometimes unable to obtain coverage at any price.

Insurance practices that make it hard for small employers to obtain coverage are the byproduct of today's competitive market. So long as any insurer engages in assessing the risks of each individual in a group (medical underwriting) and group-specific

rating, others must follow suit or risk losing all but the highest-cost groups. Without reform of the insurance market, the problem will only get worse.

Coverage of the Poor-Coverage for the nation's poor is largely the responsibility of the Medicaid program, a federal/state entitlement program administered by the states under broad federal guidelines. Medicaid has accomplished a great deal. But Medicaid does not reach more than a fraction of the lowincome population. In 1987, the program assisted only 42 percent of those with incomes below the poverty line. Even among the extremely poor (family incomes below 25 percent of poverty) nearly a quarter are not covered by Medicaid or any other program.

The poor must meet two kinds of tests to receive Medicaid assistance. First, they must fall into one of the categories of persons traditionally eligible for cash

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assistance or welfare: the aged, disabled, or members of families with children. Completely omitted from the program, even if they are literally penniless, are single people and childless couples under 65 who do not meet disability tests. Second, applicants must meet financial standards imposed by the states. For many covered groups there are no federal requirements to prevent states from setting shockingly low standards. In Alabama, for example, a family of three qualified for Medicaid in 1990 only if its income was less than 13 percent of the federal poverty guidelines.

Moreover, because states have failed to increase their income eligibility levels to keep pace with inflation, Medicaid programs are covering smaller proportions of the poor. Even recent congressional efforts to expand coverage for pregnant women and young children-severing eligibility for Medicaid from eligibility for cash welfare-appear to have been largely offset by declining coverage among older children and other groups. Finally, in an effort to control costs, states frequently limit both the services covered and the payments made to providers for covered services. The result: inadequate access to service.

Some states have tried to fill in with programs of their own. But funding limitations and other problems have prevented these programs from reaching more than a few of the millions of poor people lacking health coverage.

Without major changes in public policy, Medicaid and supplemental programs will never reach all the poor. Protection will vary considerably from state to state. And many low-income Americans will go without health care coverage even in the more generous



Faced with costs they cannot pay, the uninsured delay or do not get medical care.

Often the uninsured delay care for minor or chronic problems until those problems become serious or acute. To the human costs of being uninsured, then, must be added the economic costs of the patterns of care that result.

this care? Although government programs provide some help for people who cannot afford to pay, the insured population foots much of the bill. Providers of care cover their losses on uninsured patients from their charges to those who can pay-primarily the privately insured. For hospitals this cost shifting totaled $8.3 billion in 1988.

Cost shifting has long been regarded as a hidden tax on those with insurance, much of which is paid by the employers who offer insurance, in effect, to pay for the workers of employers who do not.

Increasingly, employers and insurers are finding ways to avoid this hidden tax at the same time as the need for care is rising. Along with a greater number of uninsured people, the nation is experiencing a rise in costly social problems like drug abuse, AIDS, violent crime, and low birthweight babies-problems that require expensive care. Some hospitals are responding to squeezed resources by eliminating trauma centers and emergency rooms, which are most likely to attract those who cannot pay. These services are then lost to the entire community, causing everyone to travel farther for urgent care.

Is Health Care for the Insured In Jeopardy?

For the majority of Americans with health insurance, the problem of care for the uninsured may seem remote. This is a shortsighted view. As the strains on the system grow, those who depend on job-based coverage face an increasing risk of joining the ranks of the uninsured.

"Health insurance is supposed to be a bridge to security. ... [but] we have a system that's falling apart. The 'on-ramp' has collapsed and a lot of children are having difficulty, uninsured because of the income level of who they're born to. The [Medicare catastrophic] 'off-ramp' has collapsed. . . . The long-term care off ramp has never been open. And the group insurance concept is beginning to break apart, which has been sort of the main body of the bridge.... [This Commission] has the responsibility to be the safety engineers and architects and we need a review of the entire system."

-J. Robert Hunter, president, National Insurance Consumers Organization

Especially threatened are workers in smaller firms. Almost half of the smallest firms still offer insurance

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to their workers. But their ability to do so is jeopardized by the growing competition among insurers to avoid poor risks. A whole company may lose coverage or see its premiums skyrocket because of the experience of a single individual. Some of these workers may be able to find coverage on their own. But those in poor health may not find coverage at any price, or may only find coverage that excludes the precise condition for which they need care. It makes little sense that hard-working Americans, able and willing to pay, cannot find an insurer that will cover them.

While poor Americans typically face the greatest barriers to insurance coverage, the specter of inadequate insurance and catastrophic medical expenses threatens middle-income Americans as well.

Larger firms do not face problems in the insurance market. Yet their workers, too, are not entirely secure. Their coverage is jeopardized by continuously escalating health care costs. For the country as a whole, health care spending now absorbs 11 percent of the gross national product (GNP) and is projected to absorb 15 percent by the year 2000. For employers, health benefits are equivalent to more than 90 percent of after-tax profits, compared with 74 percent in 1984 and only 14 percent in 1965. Such dramatic increases

not only impede efforts to improve access to health care; they are bound to erode the access we now have as employers cut back on coverage. Employees increasingly are paying more of the premium for themselves and their dependents, causing growing numbers to drop coverage.

And as costs continue to rise, Americans are questioning whether we are getting our money's worth. Concerns about the appropriateness and effectiveness of medical procedures, the quality of health care providers, and the problems related to our approach to medical malpractice add to the crisis caused by the burden of unfinanced care. Unless these concerns are addressed, even those who are now well-insured may find their health coverage in jeopardy.

"I view health care finance in this country as a house of cards. You can add cards at the bottom: Medicaid expansions. You can add cards at the top: Medicare catastrophic. It is still a house of cards. A house of cards can stand in a quiet room, but it cannot stand when there is wind. [And] we have the wind of unmet need... the wind of public dissatisfaction... the wind of demographic change... the wind of cost. . . . This house of cards cannot stand in this wind."

-Deborah Steelman, chairman, Advisory Council on Social Security


The Commission concludes that, in the absence of systemwide reform, the proportion of Americans without adequate health care coverage will grow. The burden of caring for those who cannot pay will overwhelm the system, putting us all at risk of inadequate access to care. As costs continue to rise, more and more dollars will go to services of uncertain value, while millions of people will go without basic and necessary care.

To prevent such a disaster, the Commission unanimously adopted the following goal:

The Commission is committed to the development of recommendations for public policies that will assure all Americans access to affordable health care coverage that allows them to obtain necessary care and assures them adequate financial protection; that will promote quality

care and address the problem of health care costs; and that will provide the financing required to assure access.

Before selecting its preferred course of action, the Commission explored two major alternative strategies to achieve this goal. The first was an expansion of the Medicaid program to cover all the poor plus subsidies to help the near-poor purchase private health insurance. The Commission believes that such an approach would be an inadequate response to the crisis. Even the substantial expansion of public support the Commission considered would leave some 14 million Americans-almost half the uninsured populationwithout access to affordable coverage. Further, it would fail to provide help to additional millions whose coverage is inadequate. With so many remaining uninsured, cost shifting and the burden of uncompensated care would still mean inequity and instability in the system as a whole. Finally, broadening the public program for the poor but making no requirements on employers would allow employers who do not now provide coverage to continue to shift responsibilities to others. This approach could also reduce employers' willingness to cover low-income employees who are now protected-shifting substantial costs from employers to taxpayers.

The second major alternative the Commission considered was replacing of the current combined job-based and public approach with national health insurance. The Commission is convinced, however, that such a drastic departure from our current system would be controversial and disruptive to the majority of Americans-for whom insurance still works. It would also totally shift fiscal responsibility from employers to taxpayers. Furthermore, movement to a single federal system would eliminate the diversity and choice that many believe, appropriately guided, can increase the strength and flexibility of our health care system.

In order to act now, as we must, the Commission recommends that we build upon and strengthen the existing system of job-based and public coverage to create universal health care coverage. This is, in the Commission's judgment, the most pragmatic strategy for securing adequate health coverage for all Americans.

Combining universal coverage with other federal initiatives to strengthen the health care system can ensure the value for the health dollar and access to quality service, efficiently delivered, that the nation so sorely needs.

The Commission's blueprint for building a universal job-based/public system of health care coverage has five parts.

1. The Commission believes that employers and the government together should provide a minimum level of health care coverage for workers and nonworkers who, in turn, should be expected to accept that coverage.

Small employers face considerable and increasing obstacles to purchasing affordable health insurance policies for their employees. Other Commission recommendations address the problems of the insurance market (see below). Because of these obstacles, and because it would take time for the insurance market recommendations to take effect, the Commission recommends that small employers be encouraged through tax credits/subsidies to provide coverage for their employees.

Large employers do not face such obstacles. The Commission recommends that, after a period for adjustment, they be required to provide coverage for their employees.

The subsidies and the insurance market reform should allow small employers to purchase affordable insurance for their workers. If sufficient progress has not been made after several years, the Commission recommends that small employers become subject to the same requirements as large employers.

Even if job-based insurance becomes much more widely available, it will never be enough. The unemployed and the poor will need public protection. The Commission recommends that the federal government provide coverage for these groups by replacing and expanding the role currently performed by states through the Medicaid program.

When job-based coverage and the federal program are fully implemented and in place, the Commission recommends that all individuals be required to obtain health care coverage from their employer or from the public program.

2. The Commission believes that all parties-employers, individuals, and government-should share in financing health care coverage. Requirements for financial participation should not impose excessive burdens on individuals or employers. It is the federal government's responsibility to establish a ceiling on obligations related to ability to pay, and to provide

Commission recommends that the small employers encouraged to provide coverage receive tax credits/subsidies to reduce the costs of private insurance; that employers required to provide coverage be able to obtain it from a federal program for a contribution set at a fixed share of their payroll expenses; and that low-income workers and nonworkers receive subsidies to keep their contributions within reasonable bounds.

3. The Commission believes that private insurers and government should each play a role in administering health care coverage. But there is a critical need for reforms to strengthen both private and public performance, making coverage not only available but also adequate to ensure access to care. In order to preserve and expand private insurance as the primary source of job-based coverage, the Commission recommends requirements that would bring an end to the underwriting, rating, and marketing practices that are unraveling private insurance protection for small employers. At the same time, the Commission recommends that responsibility for providing public coverage be shifted from states to the federal government, be severed from the welfare system, be uniform across the country, and pay providers at rates determined by Medicare rules.

4. The Commission believes that universal health care coverage that ensures people access to necessary care must meet an adequate minimum standard. That standard should establish basic protection for the currently uninsured and underinsured and preserve protection for the currently insured into the future. For public and private coverage, the Commission recommends a federally specified minimum benefit package that includes preventive and primary care as well as other physician and hospital care. Individuals would be responsible for a share of premiums and service costs-on all but preventive services-up to a maximum and subject to their ability to pay.

5. The Commission believes that action cannot come too soon for the millions without coverage and millions more who see their coverage threatened. However, an effective system cannot be put into place overnight. It will take time to develop and implement.

To balance these concerns, the Commission recommends that the system be put in place a step at a time. The first and most critical step in expanding coverage is to ensure protection for pregnant women and children who are now uninsured and to initiate reforms that reverse the disintegration of the private insurance market for small employers. This would create an environment in which employers would have an op

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