Health insurance premiums go up to cover costs of uninsured
Health insurance premiums go up to cover costs of uninsured
Many studies have demonstrated the problems that occur to people who don’t have health insurance and often thus lack access to care until health concerns become too great to be ignored and they finally go to hospitals or doctors.
But a new Families USA analysis of Census Bureau data quantifies for the first time the dollar impact on private health insurance premiums when doctors and hospitals provide health care to uninsured people. This year, the report says, family health insurance coverage provided by private employers will include an extra $922 in premiums due to the cost of care for the uninsured. Premiums for individual coverage will cost an extra $341.
The report found that without insurance, the uninsured struggle to pay as much as they can toward the cost of their care. Some 35% of the total cost of health care services provided to people without insurance is paid out of pocket by the uninsured themselves. But the remainder — some $43 billion this year — is paid primarily by two sources: One-third is paid from a number of government programs, and two-thirds is paid through higher premiums charged to those who have health insurance.
"The large and increasing number of uninsured Americans is no longer simply an altruistic concern on behalf of those without health coverage but a matter of self-interest for everyone," notes Ron Pollack, executive director for Families USA. "The stakes are high both for businesses and for workers who have health insurance because they bear the brunt for costs of the uninsured."
Families USA says a vicious circle is developing because as the costs of care for the uninsured are added to health insurance premiums that already are rising steeply, more employers can be expected to drop coverage, leaving even more people without insurance. And as more people lose coverage and the cost of their care is added to premiums for the insured, still more employers will drop coverage. The report says the vicious circle will not end until the nation acts to solve the underlying problems.
A pocketbook issue for all
Kathleen Stoll, Families USA director of health policy, tells State Health Watch the group looked for a way to appeal to a broad range of people to demonstrate that they have an investment in solving the problem of the uninsured. "We wanted to show that this is not just a moral and ethical issue," she says. "It also is a pocketbook issue. The notion of costs being shifted to insurance premiums is not new. But we wanted to quantify it so we could motivate people to care about the uninsured."
The report says that for this year, there are six states in which health insurance premiums for families are at least $1,500 higher due to the unreimbursed cost of health care for the uninsured:
- New Mexico ($1,875);
- West Virginia ($1,796);
- Oklahoma ($1,781);
- Montana ($1,578);
- Texas ($1,551);
- Arkansas ($1,514).
And in eight states, health insurance premiums for individuals are at least $500 higher due to the unreimbursed cost of health care for the uninsured in 2005:
- New Mexico ($726);
- Oklahoma ($680);
- West Virginia ($660);
- Montana ($594);
- Alaska ($565);
- Arkansas ($560);
- Idaho ($551);
- Texas ($550).
The analysis projects that health insurance in 2010 for families who have insurance through private employers will be $1,502 higher on average due to the unreimbursed cost of health care for the uninsured. It says there will be 11 states with premiums at least $2,000 higher:
- New Mexico ($3,169);
- West Virginia ($2,940);
- Oklahoma ($2,911);
- Texas ($2,786);
- Arkansas ($2,748);
- Alaska ($2,248);
- Florida ($2,248);
- Montana ($2,190);
- Idaho ($2,152);
- Washington ($2,144);
- Arizona ($2,028).
For individuals, health insurance premiums will average $532 higher in 2010 to cover the cost of the uninsured, with eight states having individual premiums at least $800 higher:
- New Mexico ($1,192);
- Oklahoma ($1,127);
- West Virginia ($1,037);
- Arkansas ($943);
- Texas ($922);
- Alaska ($857);
- Idaho ($820);
- Montana ($807).
To develop an estimate of the cost of care that the uninsured receive and cannot afford to pay (uncompensated care), the study adjusted the total charges to the uninsured to reflect what the privately insured would pay, on average, in the state for the same health care services. Nationally, Families USA estimated that about $43.1 billion in health care for which the uninsured cannot afford to pay will be provided by hospitals and doctors in 2005 and projected that the amount would come to $60.4 billion in 2010.
The estimates do not include uncompensated care provided to insured people who may be unable to pay because they face high deductibles, high copayments, uncovered services, and other out-of-pocket costs that people with insurance sometimes are unable to pay.
Uncompensated care
According to the study, the uncovered costs are paid through three sources: 1) nonpatient, nongovernment revenue sources including philanthropy; 2) federal, state, and local programs that partially reimburse providers for the cost of care to the uninsured; and 3) higher premiums for people with private health insurance. Philanthropy is estimated to cover only 1% to 2% of the cost of the care, with the combined government program share estimated at 33% in 2005 and 29% in 2010.
The government support includes Medicaid and Medicare disproportionate share hospital payments from the federal government and various state and local government programs. "Thus, uncompensated care is partially financed by all of us who pay federal, state, and local taxes," Families USA says. In 2005, we will collectively pay more than $14 billion in taxes that support programs that help pay for health care for the uninsured. In 2010, if our federal, state, and local governments continue their commitment to helping the uninsured, the total dollars in taxes paid will rise to more than $17 billion."
But that still leaves two-thirds of the cost of uncompensated care unpaid, and that’s the gap that Families USA says is filled by patients with private health insurance. The group estimates that almost $29 billion worth of unpaid care received by the uninsured in 2005 and more than $43 billion in 2010 will be financed by higher premiums for privately insured patients. And as a result, the cost of private insurance will be on average in the nation 8.5% higher in 2005 than if everyone in the United States was to have health insurance. In 2010 the average annual impact will be 8.7%.
Provider cost bases increase
The reason this cost of care for the uninsured ends up being passed on through higher premiums for the insured is that it is built into the cost base of doctor and hospital revenues. Providers attempt to recover these uncompensated care dollars through various strategies, including negotiating higher rates for health care services paid for by private insurance.
Families USA says the extent to which providers can succeed in such negotiations varies from state to state, but the rates always reflect a significant amount of uncompensated care.
"Given that most health care providers are not driven to bankruptcy and our health care system survives from year to year, we can say with certainty that those with health insurance finance the residual two-thirds of the cost of care for the uninsured provided by a state’s hospitals and doctors," the report asserts. "Ironically, this increases the cost of health insurance and results in fewer people who can afford insurance — a vicious circle."
The analysis says the state-to-state variation in the impact on premiums can be explained by a number of factors, including the percentage of a state’s population that is uninsured; the dollar amount that federal, state, and local programs pay to offset the cost of care received by the uninsured and the percentage of the total costs borne by the combination of government programs; the number of safety net providers in a state; the cost of services to the uninsured; and the aggressiveness of debt collection practices by providers serving the uninsured and the protections in state law to prevent the most egregious debt collection practices.
Improving productivity
In addition to making the case for reducing the number of uninsured based on the impact on health insurance premiums paid by and for the insured, the report also makes the case that when more people have health insurance, it leads to more productivity and a stronger economy. It notes that economists estimate that between $65 billion and $130 billion of productivity is lost each year due to uninsurance in America.
The impact is seen, the report says, because insured workers are healthier, insured workers are absent from work less and are more productive when on the job, health insurance reduces turnover, matching the right workers with the best jobs for their skills maximizes productivity, the fear of going without health insurance discourages individuals from starting new businesses on their own, health insurance reduces the risk of medical bankruptcy, and a well-educated work force increases productivity, with health insurance coverage helping children reach their full potential.
Ms. Stoll points out that the report has received significant state and local media coverage and also has attracted attention from many state legislators interested in whether they are correct in making a connection between this report and Medicaid cuts being considered in their state.
"They are absolutely correct that if Medicaid is cut, there will be even more uninsured and the impact on premiums paid by those who are insured will be even greater," she says.
Asked if she has hope the problem of the uninsured can be solved, Ms. Stoll says Families USA is "invested in a lot of processes to look for common ground among the many solutions that are out there. There is no shortage of potential solutions. The problem is how to pay for it, how to find the political will to allocate the dollars that are needed. We’re open to a wide range of solutions.
We support universal coverage, but not necessarily a single payer. We’re willing to go step by step and remain open to trying to find what can be done."
[For a copy of the report, go to www.familiesusa.org. Contact Ms. Stoll at (202) 626-0618 or by e-mail at [email protected].]
Calculating impact on insurance premiums
The report builds on uninsured data provided annually by the Census Bureau and uses other government data sources to project the number of people in the country and in each state who will go without health insurance during 2005 and 2010. The researchers estimated that nearly 48 million people will have no health insurance during the entire year of 2005 and that the number will grow to nearly 53 million in 2010.
The answer to the question of the actual dollar impact of the uninsured on premiums for private, employer-sponsored health insurance is derived in four steps:
- Data from the Medical Expenditure Panel Survey — Household Component were used to develop a national estimate of uncompensated care for 2005 and 2010.
- To provide state-level numbers, Families USA used a model based on government guidelines that allowed the researchers to link the Medical Expenditure data to Current Population Survey data to create state-by-state estimates of uncompensated care. These estimates are based on the amount that insured persons would pay for the same care rather than what an uninsured person might be charged. Thus, the researchers say their numbers reflect a conservative estimate of uncompensated care.
- From the state-by-state estimated of uncompensated care, the researchers subtracted the portion of the costs covered by government programs including Medicaid disproportionate share hospital payments, Medicare disproportionate share hospital payments, and state and local dollars from programs that pay for care for the uninsured. The remaining amount is built into physician and hospital charges and passed on through higher health insurance premiums.
- To calculate the estimated dollar increase in premiums, Families USA estimated the average private insurance premium for single and family policies in 2005 and 2010 and calculated the dollar impact on premiums by developing a ratio of the cost of care for the uninsured (not paid by government programs or out-of-pocket) to the total care expenditures of the privately insured. That ratio indicated how much higher individual and family premiums would need to be to cover the cost of care for the uninsured.
Many studies have demonstrated the problems that occur to people who dont have health insurance and often thus lack access to care until health concerns become too great to be ignored and they finally go to hospitals or doctors.
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