qotd: Rising deductibles will make underinsurance worse

The Commonwealth Fund
May 20, 2015
The Problem of Underinsurance and How Rising Deductibles Will Make It Worse
By Sara R. Collins, Petra W. Rasmussen, Sophie Beutel, Michelle M. Doty

Abstract

New estimates from the Commonwealth Fund Biennial Health Insurance
Survey, 2014, indicate that 23 percent of 19-to-64-year-old adults who
were insured all year — or 31 million people — had such high
out-of-pocket costs or deductibles relative to their incomes that they
were underinsured. These estimates are statistically unchanged from 2010
and 2012, but nearly double those found in 2003 when the measure was
first introduced in the survey. The share of continuously insured adults
with high deductibles has tripled, rising from 3 percent in 2003 to 11
percent in 2014. Half (51%) of underinsured adults reported problems
with medical bills or debt and more than two of five (44%) reported not
getting needed care because of cost. Among adults who were paying off
medical bills, half of underinsured adults and 41 percent of privately
insured adults with high deductibles had debt loads of $4,000 or more.

Exhibit 2. Underinsured rates among adults ages 19-64 who were insured
all year, by source of coverage at the time of the 2014 survey

20% - Employer-provided coverage
37% - Individual coverage
22% - Medicaid
42% - Medicare (under age 65, disabled)

Conclusion

The rate of growth in medical costs and insurance premiums has slowed in
recent years. However, millions of consumers continue to be saddled with
high out-of-pocket health care costs. While the number of underinsured
people in the United States held constant in 2014, the steady growth in
the proliferation and size of deductibles threatens to increase
underinsurance in the years ahead.

The Affordable Care Act's coverage expansions and protections have
greatly improved the quality of insurance coverage available to people
who lack job-based health benefits. In addition, cost-sharing subsidies
significantly reduce deductibles for people with low incomes who buy
plans in the marketplaces. But those subsidies phase out quickly,
leaving families with deductibles that may be high relative to their
incomes. In addition, the law has only limited ability to improve the
cost protection of employer plans, which is the source of most
American's health insurance.

Reforms and new approaches are needed to improve the cost protection of
health plans. These could include innovations in benefit design that
slow growth in deductibles and emphasize incentives that encourage
people to utilize, rather than delay, timely health care. In addition,
policymakers should identify and address holes in health plans — like
out-of-network physicians in in-network hospitals — which are surprising
many families with unexpected costs. Finally, systemwide efforts to
lower the underlying rate of medical cost growth and share those savings
with consumers will be critical.

http://www.commonwealthfund.org/publications/issue-briefs/2015/may/problem-of-underinsurance

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Comment by Don McCanne

This update of The Commonwealth Fund's continuing study of the rate of
underinsurance confirms that the problem persists, and the trend of
increasing deductibles may well make it worse.

It is alarming that, since 2003, the category with the most
comprehensive coverage - employer-provided coverage - has doubled the
rate of underinsurance increasing from 10% to 20%. The greatest
contributing factor has been the increase in the use of high deductibles.

Because this study was of individuals insured for a full year, and it
was completed before the end of 2014 - the first year of the ACA
exchanges - the underinsurance rate of enrollees in the exchanges could
not be separated out, and they were included in the category of
individual coverage. In total, 37% of those with individual coverage
were underinsured. This is no surprise since high deductibles have been
used in the individual market in an attempt to prevent premiums from
becoming even less affordable, but this has been at the cost of more
than doubling the rate of underinsurance.

Although we do not have the data yet, we can make some assumptions,
based on plan design, for the trends in underinsurance for those
enrolled in the exchanges. Because of the subsidies for out-of-pocket
expenses for those with the lowest incomes that qualify for the exchange
plans, it is possible that the rate of underinsurance is slightly
reduced for this group. However, for those with moderate incomes,
especially for those who do not qualify for cost-sharing subsidies, the
relatively low actuarial values (percent of costs that the plans cover)
that most exchange enrollees select will likely perpetuate and perhaps
even expand the prevalence of underinsurance. So middle-income Americans
do not escape the risk of being underinsured.

Although Medicaid provides more comprehensive benefits with fewer
out-of-pocket expenses, the very low incomes of Medicaid beneficiaries
leave many of them underinsured since the modest cost sharing that they
do have consumes an excessive percentage of their incomes.

Patients under 65 who receive Medicare do so because of major long-term
disabilities. Since most of them have very limited incomes and other
expenses, and Medicare's comprehensiveness is limited, this group has
the highest rates of underinsurance - 42%. Obviously, when we speak of
Medicare for all, it is imperative that we clarify that we mean an
improved Medicare that has much more comprehensive coverage.

Can this trend be reversed? Can we put in place policies that will
result in reducing or even eliminating the deductibles?

If the plans were to maintain the same actuarial values to keep the
premiums the same while reducing deductibles, the out-of-pocket costs
would shift to those with greater health care needs who already have
enough financial problems. That would defeat one of the most important
functions of health insurance - preventing financial hardship in the
face of medical need.

Another possibility would be to reduce the deductibles and shift the
actuarial values upward, but that would result in sharp increases in
insurance premiums. That would not be acceptable to employers, nor would
it be acceptable to politicians who would have to find revenue sources
to increase the premium subsidies for the exchange plans. It is easy to
cut spending for employers and for the budget hawks in Congress, but it
is almost impossible to reverse the cuts and restore or even expand that
spending.

Suppose we leave the higher deductibles in place, but provide enough
subsidies to eliminate underinsurance for everyone. The administrative
complexity alone would make this a very foolish idea. Also when you look
at who is underinsured, you would have to increase the amounts of the
subsidies and expand eligibility to cover many more of the moderate
income individuals in the exchanges, and you would also have to provide
subsidies for those enrolled in employer-provided plans to cover the
increase in deductibles and other cost sharing in those plans. This
would further compound the wasteful administrative excesses that already
characterize our health care financing system.

Do we really need to say it again? A well designed single payer system
would fix this.