The National View of Health Insurance

1. The National View of Health Insurance Cathy Schoen Senior Vice President, The Commonwealth Fund Alaska Work Shop Panel: National Overview and State Strategies Anchorage, Alaska December 7, 2006

2. Overview: Health Insurance, Costs and Health System Performance • Triple threats to health and economic security • High rates uninsured, unstably insured and under-insured • Rising health care costs outpacing incomes • Low value for high $ investment: inefficient insurance and care systems with wide variations in quality • Consequences of inadequate and fragmented insurance coverage • Health and financial risks for uninsured and under-insured • Less healthy, productive workforce • Inefficient health care system • Barrier to achieving a high performance system • National and state insurance reform strategies: national proposals and recent state action • Health insurance as critical element to improving overall care system performance

3. U.S. Healthcare System Falls Short - Need for Policy Action • Highest costs in the world • Increasing much faster than wages or incomes • Average family premium exceeds minimum wage worker annual income • Rising numbers uninsured and underinsured • Public programs + employer base under stress • Quality widely variable • National scorecard score of 66 reflects wide gaps on access, quality and efficiency* • US evidence – little relationship between quality and efficiency. Opportunity for net gains • International evidence – not getting value for money • Lack of 21st Century Infrastructure *Commonwealth Fund Commission on a High Performance Health System, Why Not the Best? Results from a National Scorecard on U.S. Health System Performance, Sept. 2006

4. Health Insurance and Cost Trends and Implications

5. 47 Million Uninsured in 2005 Increasing Steadily Since 2000 Millions uninsured 47 46 2013 Projected *1999–2005 reflect effect of verification question and implementation of Census 2000-based population controls. Note: Projected estimates for 2005–2013 are for non-elderly uninsured based on T. Gilmer and R. Kronick, “It’s the Premiums, Stupid: Projections of the Uninsured Through 2013,” Health Affairs Web Exclusive, April 5, 2005. Source: U.S. Census Bureau, March CPS Surveys 1988 to March 2006.

6. One in Five Adults Uninsured: Up 7 Million in 5 YearsPopulation Under Age 65 Uninsured Percent uninsured Millions uninsured 46 45 45 43 41 40 39 Data: Analysis of Current Population Survey, March 2000–2006 supplements; EBRI Sources of Health Insurance and Characteristics of the Uninsured, Current Population Survey March 2006. Source: Commonwealth Fund National Scorecard on U.S. Health System Performance, 2006 6

7. Rising Rates of Adults Uninsured Across States: Percent of Adults Ages 18–64 Uninsured 1999–2000 2004–2005 NH NH ME WA NH VT ME WA VT ND MT ND MT MN MN OR NY MA WI OR MA NY ID SD WI RI MI ID SD RI WY MI CT PA WY NJ CT IA PA NJ NE IA OH DE IN NE OH NV DE IN IL MD NV WV UT VA IL MD CO DC WV UT VA KS MO KY CA CO DC KS MO KY CA NC NC TN TN OK SC AR OK AZ NM SC AR AZ NM MS GA AL MS GA AL TX LA TX LA FL FL AK AK 23% or more HI HI 19%–22.9% 14%–18.9% Less than 14% Data: Two-year averages 1999–2000 and 2004–2005 from the Census Bureau’s March 2000, 2001 and 2005, 2006 Current Population Surveys. Estimates by the Employee Benefit Research Institute. Source: Commonwealth Fund National Scorecard on U.S. Health System Performance, 2006 7

8. International Comparison of Spending on Health, 1980–2004 Average spending on healthper capita ($US PPP) Total expenditures on healthas percent of GDP Data: OECD Health Data 2005 and 2006. Source: Commonwealth Fund National Scorecard on U.S. Health System Performance, 2006 8

9. U.S. National Health Expenditures as a Percent of National Income (GDP): Total Projected to Double from $2 trillion to $4 Trillion in 10 Years Projected Percent Source: Smith et al., “National Health Spending In 2004: Recent Slowdown Led By Prescription Drug Spending,” Health Affairs (January/February 2006): 186-196; Smith et al., “Health Spending Projections Through 2015: Changes On The Horizon,” Health Affairs Web Exclusive (February 22, 2006): W61-73.

10. Growth in National Health Expenditures: Private, Public, and Total Expenditures, 1980–2004 Average percent growth in health expenditures Source: Smith et al., “National Health Spending In 2004: Recent Slowdown Led By Prescription Drug Spending,” Health Affairs (January/February 2006): 186-196.

11. Health Expenditure Growth 1980–2004for Selected Categories of Expenditures Average annual percent growth in health expenditures Source: Smith et al., “National Health Spending In 2004: Recent Slowdown Led By Prescription Drug Spending,” Health Affairs (January/February 2006): 186-196.

12. Percent of National Health Expenditureson Health Insurance Administration, 2003 Net costs of health administration and health insurance as percent of national health expenditures a b c * a 2002 b 1999 c 2001 * Includes claims administration, underwriting, marketing, profits, and other administrative costs; based on premiums minus claims expenses for private insurance. Data: OECD Health Data 2005. Source: Commonwealth Fund National Scorecard on U.S. Health System Performance, 2006 12

13. Increases in Health Insurance Premiums Compared to Other Indicators, 1988-2005 Percent Source: KFF/HRET Survey of Employer-Sponsored Health Benefits: 2005. Note: Data on premium increases reflect the cost of health insurance premiums for a family of four. Historical estimates of workers’ earnings have been updated to reflect new industry classifications .

14. Deductibles Rise Sharply, Especially in Small Firms, Over 2000–2005* PPO in-network and out-of-network deductibles In-network Out-network In-network Out-network Small Firms, 3-199 Employees Large Firms, 200+ Employees *Out-of-network deductibles are for 2000 and 2004. Source: J. Gabel and J. Pickreign, Risky Business: When Mom and Pop Buy Health Insurance for Their Employees (Commonwealth Fund, April 2004); KFF/HRET Employer Health Benefits 2005 Annual Survey.

15. Greater Out-of-Pocket Costs Not Associated with Lower Spending in Cross-National Comparisons National Health Expenditures per Capita, US$ United States Canada Germany Australia Netherlands France OECD Median Japana New Zealand a Out-of-Pocket Health Care Spending per Capita, US$ a2002 Note: Adjusted for Differences in the Cost of Living, 2003. Source: B. Frogner and G. Anderson, “Multinational Comparisons of Health Systems Data, 2005,” The Commonwealth Fund, April 2006.

16. Insurance Dynamics: Gaps in Coverage • Annual uninsured estimates undercount the uninsured • An estimated one third of total under 65 population has had a time uninsured during past 2 years – 80 million people • Change in family or job status can trigger part-year or longer loss of coverage • Low wage families and seasonal workers at highest risk for moving in and out of private • High rates of “churning” in public programs • Negative consequences • Undermines health access and financial security • Inefficient and lower quality of care • High insurance administrative overhead for programs and providers

17. Uninsured Rates Rising Among Adults with Low and Moderate Incomes, 2001–2005 Percent of adults ages 19–64 53 52 49 41 35 28 28 26 24 18 16 13 7 4 4 2001 2003 2005 2001 2003 2005 2001 2003 2005 2001 2003 2005 2001 2003 2005 Total Low income Moderate income Middle income High income Note: Income refers to annual income. In 2001 and 2003, low income is <$20,000, moderate income is $20,000–$34,999, middle income is $35,000–$59,999, and high income is $60,000 or more. In 2005, low income is <$20,000, moderate income is $20,000–$39,999, middle income is $40,000–$59,999, and high income is $60,000 or more. Source: S.R. Collins et al., Gaps in Health Insurance Coverage: An All-American Problem, Findings from The Commonwealth Fund Biennial Health Insurance Survey, The Commonwealth Fund, April 2006.

18. Lacking Health Insurance for Any Period Threatens Access to Care Percent of adults ages 19–64 reporting the following problems in the past year because of cost: Source: The Commonwealth Fund Biennial Health Insurance Survey (2005).

19. Adults Without Insurance Are Less Likely to Be Able to Manage Chronic Conditions Percent of adults 19–64 with at least one chronic condition* *Hypertension, high blood pressure, or stroke; heart attack or heart disease; diabetes; asthma, emphysema, or lung disease. Source: The Commonwealth Fund Biennial Health Insurance Survey (2005).

20. Adults Without Insurance Are Less Likely to Get Preventive Screening Tests Percent of adults Note: Pap test in past year for females ages 19-29, past three years age 30+; colon cancer screening in past five years for adults age 50+; and mammogram in past two years for females age 50+. Source: The Commonwealth Fund Biennial Health Insurance Survey (2005).

21. Adults With Any Time Uninsured Receive Less Efficient Care: Duplicate tests and delays Percent of adults ages 19–64 reporting the following problemsin past two years: Source: S.R. Collins et al., Gaps in Health Insurance Coverage: An All-American Problem, Findings from The Commonwealth Fund Biennial Health Insurance Survey, The Commonwealth Fund, April 2006.

22. Medical Bill Problems or Accrued Medical Debt for Insured and Uninsured, 2005 Percent of adults (ages 19–64) with any medical bill problem or outstanding debt* By income and insurance status By race/ethnicity and income * Problems paying or unable to pay medical bills, contacted by a collection agency for inability to pay medical bills ), had to change way of life to pay bills, or has medical debt being paid off over time. Data: Analysis of 2005 Commonwealth Fund Biennial Health Insurance Survey Source: Commonwealth Fund National Scorecard on U.S. Health System Performance, 2006 22

23. Insurance Design Shift: Market Trends and Policy Increase Patient Cost Sharing • Double digit premium increases triggering shift in insurance design • Increased patient cost sharing & benefit limits • Move away from spreading costs through premiums to shift to sicker patients and their families • Current federal tax policies for health savings accounts encourage high deductible plans • Risk to basic goals of insurance • facilitate timely access to medical care • financial protection • Deductibles and cost sharing limits rarely adjust for income • Underinsured emerging concern

24. One-Third of All Adults Underinsured or Uninsured: 61 Million Adults, 2003 Uninsured During Year 26% Insured All Year, Not Underinsured 65% Underinsured 9% Source: C. Schoen, et al., “Insured But Not Protected: How Many Adults Are Underinsured?” Health Affairs Web Exclusive, June 14, 2005. Underinsured=insured all year but had out of pocket costs of 10% of income or 5% if low income or deductible equal to 5% of more of income.

25. Underinsured and Uninsured Adults At High Risk of Access Problems and Financial Stress Percent adults 19-64 * Did not fill a prescription; did not see a specialist; skipped recommended care; or did not see doctor when sick because of costs. Source: C. Schoen, et al., “Insured But Not Protected: How Many Adults Are Underinsured?” Health Affairs Web Exclusive, June 14, 2005.

26. Privately Insured Adults with High Deductibles Report Higher Rates of Medical Bill Problems Percent of adults ages 19–64 privately insured all year Source: The Commonwealth Fund Biennial Health Insurance Survey (2005).

27. Cost-Sharing Reduces Use of Both Essential and Less Essential Drugs and Increases Risk of Adverse Events Percent reduction in drugs per day Percent increase in incidence per 10,000 Source: R. Tamblyn et al., “Adverse Events Associated With Prescription Drug Cost-Sharing Among Poor and Elderly Person,” JAMA 285, no. 4 (2001): 421–429.

28. Tiered Prescription Drug Cost-SharingLeads to People Not Filling Prescriptions Percent of enrollees discontinuing use of all drugs in class Source: H.A. Huskamp et al., “The Effect of Incentive-Based Formularies on Prescription-Drug Utilization and Spending,” New England Journal of Medicine (December 4, 2003): 2224–32.

29. Health Care Costs Highly Concentrated: Sickest 10% = 70% Total Expenditures Distribution of Health Expenditures for the U.S. Population, By Magnitude of Expenditure, 1997 Expenditure Threshold (1997 Dollars) 1% 5% 10% $27,914 27% 50% $7,995 55% $4,115 69% $351 97% Source: A.C. Monheit, “Persistence in Health Expenditures in the Short Run: Prevalence and Consequences,” Medical Care 41, supplement 7 (2003): III53–III64.

30. Summary of Trends and Implications • Trends point to increase in under-insured as well as uninsured • Affordability and access concerns make it harder to distinguish from uninsured • Insurance design matters for access to effective care and financial protection • Low and modest income and chronic ill at risk • Need for attention to costs relative to income and benefit designs that encourage essential and effective care • Design of insurance expansions need to target affordability and access for insured as well as uninsured

31. Public Support for Policy Action • Broad and increasing public support for action on coverage and costs – but no clear consensus • Rising concern among middle income families • Employers? • Surveys of public indicate willingness to relinquish some tax cuts to finance coverage expansions • Preferences for source of coverage varies by current source • Public view financing of coverage as a shared responsibility of citizens, employers, government

32. National Legislative Proposals Focused on Insurance Expansion

33. State Children’s Health Insurance Program (SCHIP): 2007 Reauthorization • SCHIP widely popular and generally viewed as a success. 10th Anniversary requires action to extend • Critical component of national and state success in maintaining or improving children’s insurance • Has lowered % of low income uninsured • Yet 8 million children remain uninsured • Two-thirds of uninsured children income eligible • Medicaid and SCHIP program rules barrier to enrolment or staying covered

34. Children’s Enrollment in Medicaid & SCHIP 1997-2005 Of 6.1 Million in SCHIP in 2005: - 1.7 million were in Medicaid - 4.4 million were in separate programs 34.0 32.3 30.8 27.2 25.2 23.5 22.3 21.0 Source: Jeanne Lambrew George Washington University Presentation, 10-31-06. Adapted from Georgetown Center for Children and Families and CRS. Based on children ever-enrolled over the course of a year.

35. Rate of Low-Income Uninsured Children, 1997-2005 22.3% 14.9% Note: Beginning in 2004, the NHIS changed its methodology for counting the uninsured. This results in the data for 2004 and later years not being directly comparable to the data for 1997 – 2003. Source: J. Lambrew based on Georgetown Center for Children and Families, L. Dubay analysis of data from the National Health Interview Survey.

36. Change in Rate of Uninsured Children by State Percentage Decline From 1997-98 to 2003-04 National Average Decline: – 20.5% Note: No state experienced a statistically significant increase in their rate of uninsured children. Source: Minnesota State Health Access Data Assistance Center, The State of Kids’ Coverage, August 9, 2006.

37. SCHIP Reauthorization 2007: Policy Issues • Opportunity to reassess health coverage priorities and approaches • Sustain with minimal change would require increase of $12 to $14 billion over 5 years to keep up + reauthorization • Revise or expand? • Eligibility issues • Maintain focus on core, currently eligible children • Restrict or retarget funds on low income children • Eliminate current “crowd out” provisions • Extend to all income eligible – legal immigrants, children of state employees, Medicaid eligible • Expand eligibility • Increase age to include young adults • Raise income threshold to higher level, with buy-in option • Extend to parents – family care • Benefits and financing • State options to wrap-around employer coverage • Sicker and special needs children benefits • Align matching rates of Medicaid and SCHIP

38. 109th Congress Health Insurance Expansion Bills– Federal Support for Expansion • Public program expansions • Medicare related • Medicare for All with group insurance options • Medicare buy-in older adults • Eliminate 2 year waiting period for disabled in Medicare • Universal coverage for kids • Up to age 21. Public expansion to 300%; tax credits and buy-in options for higher income families • Medicaid expansions: Various proposals • Expand to young adults age 23 • Family Care: expand to parents of low income children • Federal-State Partnership Approaches to Support Innovation

39. 109th Congress National Legislative Proposals to Facilitate State Health Insurance Innovations • Baldwin-Price: Health Partnership through Creative Federalism • State proposals for coverage, quality and efficiency and information technology. Statewide or multi-state • Commission to review • Voinovich-Bingaman: Health Partnership Act • State grants for innovation, priority to coverage and access • Commission to establish performance measures and goals and review proposals • Allen: Small Business Health Plans Act • Federal grants for states to establish small business health benefits program. Similar to federal employees benefit program • Federal reinsurance for coverage new programs • National program for employers in states without program

40. Health Insurance Expansion Bills 109th Congress – Private Market Focus • Employer mandates • Individual market and small group markets • Tax credit and tax deductibility approaches • Small group association plans: override state regulations

41. What Are the Goals of More Universal Coverage?Insurance as Foundation to Improve System Performance • Meaningful, affordable, and equitable access • Broad risk pooling • Eliminate insurance market incentives that reward avoidance of health risk or cost shifting • Use insurance as foundation to facilitate system-wide - • Timely, appropriate and effective care • Enhanced primary, preventive and well-coordinated care • More effective chronic care • Lower insurance administrative costs by simplification and more efficient coverage • Stable coverage with seamless transitions • Reduce marketing, underwriting and overhead costs • Simplification and coordination • Use insurance expansions as a vehicle and foundation to achieve more integrated, high quality and efficient care

42. State Strategies to Expand Coverageto Provide a Foundation to Improve Access, Quality and Cost Performance THE COMMONWEALTH FUND • Develop blueprints toward more universal coverage • Coherent policies that maximize connection and minimize complexity • Expand public programs and “connect” with private • Provide financial assistance for affordability – premium assistance; “buy-in” provisions • Assure benefit designs cover primary, preventive and essential care • Pool risk and purchasing power, with multi-payer collaboration • More efficient insurance arrangements and simplification • Pool purchasing power • Develop reinsurance or other financing strategies to make coverage more affordable, pool risk and stabilize group rates • Shared responsibility: mandate that employers offer and/or individuals purchase coverage

43. Acknowledgements THE COMMONWEALTH FUND Karen Davis President Sara Collins Assistant Vice President Future of Health Insurance Program Anne Gauthier Senior Policy Director, Commission of a High Performance Health System Sabrina How Research Associate For Commonwealth Fund Publications Visit the Fund at:www.cmwf.org

44. CATEGORIES OF PEOPLE IN THE U.S. HEALTH INSURANCE SYSTEM For the rich, “Disneyland” the sky-is-the limit policies without rationing of any sort (Boutique medicine) The federal-state Medicaid program for certain of the poor, the blind and the disabled The 47 million or so uninsured tend to be near poor The employed and their families who are typically covered through their jobs, although many small employers do not provide coverage. Near poor children may be temporarily covered by Medicaid and S-Chip, although 7-8 million are still uninsured. The Young Working-age people QUIMBIES SLIMBIES Persons over age 65, who are covered by the federal Medicare program, but not for drugs or long-term care. Often the elderly have private supplemental MediGap insurance People age 65 and over The poor The near poor The broad middle class The rich The very poor elderly are also covered by Medicaid Source: Professor Uwe Reinhardt, Princeton University

45. Making Coverage More AutomaticEmployer vs. Public Insurance EmployeeHealth BenefitDecision Low Income Public Program Applicant Decision Learn about programs Take ajob Obtain an application Decide to participate; choose plan Apply and prove eligibility Choose plan Payroll deduction Make regular payments by check or money order Periodic proof of eligibility 85%-90% participation rates 40%-70% participation rates Source: Based on D. Remler, S. Glied “What Can the Take-Up of Other Programs Teach Us: Increasing Participation in Health Insurance Programs,” Am. J. of Public Health, January 2003.

46. Health Expenditures for Selected Type of Services, 2000-2015 Source: Smith et al., “National Health Spending In 2004: Recent Slowdown Led By Prescription Drug Spending,” Health Affairs (January/February 2006): 186-196; Smith et al., “Health Spending Projections Through 2015: Changes On The Horizon,” Health Affairs Web Exclusive (February 22, 2006): W61-73.

47. Growth in National Health Expenditures (NHE) Under Various Scenarios NHE, in trillions of dollars Cumulative savings projections, 2007–2015: One-time savings 5%: $1.3 trillion Slowing trend 1%: $1.4 trillion $4.0 T $3.8 T $3.7 T $2.016 trillion in 2005 Source: Based on Borger et al., “Health Spending Projections through 2015: Changes on the Horizon,” Health Affairs Web Exclusive, February 22, 2006. 47