Trends in Health Care Financial Burdens, 2001 to 2009

Context: Over the past decade, health care spending increased faster than GDP and income, and decreasing affordability is cited as contributing to personal bankruptcies and as a reason that some of the nonelderly population is uninsured. We examined the trends in health care affordability over the past decade, measuring the financial burdens associated with health insurance premiums and out-of-pocket costs and highlighting implications of the Affordable Care Act for the future financial burdens of particular populations.Methods: We used cross sections of the Medical Expenditure Panel Survey Household Component (MEPS-HC) from 2001 to 2009. We defined financial burden at the health insurance unit (HIU) level and calculated it as the ratio of expenditures on health care—employer-sponsored insurance coverage (ESI) and private nongroup premiums and out-of-pocket payments—to modified adjusted gross income.Findings: The median health care financial burden grew on average by 2.7% annually and by 21.9% over the period. Using a range of definitions, the fraction of households facing high financial burdens increased significantly. For example, the share of HIUs with health care expenses exceeding 10% of income increased from 35.9% to 44.8%, a 24.8% relative increase. The share of the population in HIUs with health care financial burdens between 2% and 10% fell, and the share with burdens between 10% and 44% rose.Conclusions: We found a clear trend over the past decade toward an increasing share of household income devoted to health care. The ACA will affect health care spending for subgroups of the population differently. Several groups’ burdens will likely decrease, including those becoming eligible for Medicaid or subsidized private insurance and those with expensive medical conditions. Those newly obtaining coverage might increase their health spending relative to income, but they will gain access to care and the ability to spread their expenditures over time, both of which have demonstrable economic value.     

A decade of health care cost growth has wiped out real income gains for an average US family

Although a median-income US family of four with employer-based health insurance saw its gross annual income increase from $76,000 in 1999 to $99,000 in 2009 (in current dollars), this gain was largely offset by increased spending to pay for health care. Monthly spending increases occurred in the family's health insurance premiums (from $490 to $1,115), out-of-pocket health spending (from $135 to $235), and taxes devoted to health care (from $345 to $440). After accounting for price increases in other goods and services, the family had $95 more in monthly income to devote to nonhealth spending in 2009 than in 1999. By contrast, had the rate of health care cost growth not exceeded general inflation, the family would have had $545 more per month instead of $95-a difference of nearly $5,400 per year. Even the $95 gain was artificial, because tax collections in 2009 were insufficient to cover actual increases in federal health spending. As a result, we argue, the burdens imposed on all payers by steadily rising health care spending can no longer be ignored.     

Unreimbursed expenses for medical care among urban elderly people

Out-of-pocket medical expenditures were examined among a sample of 400 low-to-moderate income Medicare recipients living in the Bronx for a twelve month period in 1986–87. Using three different measures of magnitude, the most significant expenses were for Medicare and private insurance premiums, medications, and dental care. The mean percent of per capita income spent out-of-pocket for medical care (including health care premiums) was 11.0%. Elderly people who spend over 12% of their own income on medical care include those in the poorest health, those with annual incomes under $15,000, people living with spouses or others, and those using a private physician as a primary source of medical care.Cynthia Thomas, Ph.D. is Senior Research Associate, Howard R. Kelman, Ph.D. is Director, Division of Health Services Organization & Policy, Department of Epidemiology and Social Medicine, Montefiore Medical Center and Albert Einstein College of Medicine, Bronx, New York 10467. Portions of these data were presented at the American Public Health Association Annual Meeting, New Orleans, Louisiana, October 18–22, 1987. Supported by grants from the United Hospital Fund of New York and the National Institute on Aging (PO1 AGO3424 and RO1AGO8125)The authors would like to thank Lourdes Foley and Irene Young for their patient and careful preparation of the data for analysis.     

Lower-income families pay a higher share of income toward national health care spending than higher-income families do

All health care spending from public and private sources, such as governments and businesses, is ultimately paid by individuals and families. We calculated the burden of US health care spending on families as a percentage of income and found that at the national level, lower-income families pay a larger share of their incomes toward health care than do higher-income families. Specifically, we found that payments made privately, such as those for health insurance or out-of-pocket spending for care, and publicly, through taxes and tax expenditures, consumed more than 20 percent of family income for families in the lowest-income quintile but no more than 16 percent for families in any other income quintile. Our analysis provides a framework for considering the equity of various initiatives under health reform. Although many effects remain to be seen, we find that, overall, the Affordable Care Act should reduce inequities in the burden of paying for national health care spending.     

Financial Burden and Out-of-Pocket Expenditures for Mental Health Across Different Socioeconomic Groups: Results from HealthCare for Communities

BACKGROUND: Mental health benefits have traditionally been much less generous than benefits for physical health care, with separate deductibles, higher copayments or coinsurance, and lower limits on covered services, a trend that continues despite a recent wave of 'parity' legislation. In spite of the current policy debates on mental health insurance reforms, little is known about the burden of mental health out-of-pocket expenditures. AIMS OF THE STUDY: This study examines differences in out-of-pocket expenditures and their burden across different populations, stratified by insurance status, age, ethnicity, and socioeconomic groups. METHODS: This study uses the 1998 HealthCare for Communities household survey, the latest national survey data that are currently available, to measure the burden of out-of-pocket mental health expenditures. We use several measures of burden such as total out-of-pocket expenditures, their share of total treatment costs, and their share of family income. To address the methodological issues that arise in the calculation of the relative measures of burden (e.g. outliers, measurement error, systematic underreporting) we consider three different approaches that have been suggested in the literature and discuss their relative advantages given the type of data typically available. RESULTS: Although there is a common perception that out-of-pocket expenditures for mental health services represent a significant burden for service users, the estimates suggest that this is not the case. In fact, across the three measures of out-of-pocket expenditures as a share of income the estimates are under 10 percent for most groups. However, there is some variation in burden across groups with people who are older, uninsured, or minority spending a larger share of their income out-of-pocket. Since many insurance plans have limits on the number of visits covered and on the total amount that the insurer will pay for mental health services, the share of total mental health expenditures that are paid by individuals is another important measure of the burden faced by people with mental health service needs. We estimate that the mean out-of-pocket share of total expenditures for the group as a whole is 25 percent. In addition, we find that the burden varies across groups with older, more educated, or privately insured individuals paying a larger share of expenditures out-of-pocket. DISCUSSION: Although the overall picture regarding the burden of out-of-pocket costs relative to income is encouraging, it is also important to keep in mind that individuals make treatment decisions based on their available income. The fact that the burden of actual out-of-pocket payments is relatively low may also reflect decisions to forego potentially valuable care. Nevertheless, the results for mental health do not suggest that out-of-pocket costs are currently a major burden for most users. This situation may reflect a major change from the past given the recent shifts towards managed care, however there are no comparable data available to test this hypothesis empirically. IMPLICATIONS FOR HEALTH POLICY FORMULATION AND FURTHER RESEARCH: It may be tempting to attribute the low estimates of out-of-pocket expenditures as a share of income in this paper to recent parity legislation. However, recent research shows that parity legislation has not led to significant changes in benefit design. In fact the high ratio of out-of-pocket payments relative to total mental health care expenditures presented in this paper are consistent with a limited role of parity legislation. Another possible explanation for the observed results is the growth of managed care and the shift in treatment style towards greater use of medications, which are comprehensively covered in most private insurance plans, has reduced total treatment costs and consequently the size of out-of-pocket payments.     

Subsidies to employee health insurance premiums and the health insurance market

One approach to covering the uninsured that is frequently advocated by policy-makers is subsidizing the employee portion of employer-provided health insurance premiums. But, since the vast majority of those offered employer-provided health insurance already take it up, such an approach is only appealing if there is a very high takeup elasticity among those who are offered and uninsured. Moreover, if plan choice decisions are price elastic, then such subsidies can at the same time increase health care costs by inducing selection of more expensive plans. We study an excellent example of such subsidies: the introduction of pre-tax premiums for postal employees in 1994, and then for the remaining federal employees in 2000. We do so using a census of personnel records for all federal employees from 1991 through 2002. We find that there is a very small elasticity of insurance takeup with respect to its after-tax price, and a modest elasticity of plan choice. Our results suggest that the federal government did little to improve insurance coverage, but much to increase health care expenditures, through this policy change.     

Medicare beneficiaries less likely to experience cost- and access-related problems than adults with private coverage

The experiences of people covered by Medicare and those with private employer insurance can help inform policy debates over the federal budget deficit, Medicare's affordability, and the expansion of private health insurance under the Affordable Care Act. This article provides evidence that people with employer-sponsored coverage were more likely than Medicare beneficiaries to forgo needed care, experience access problems due to cost, encounter medical bill problems, and be less satisfied with their coverage. Within the subset of beneficiaries who are age sixty-five or older, those enrolled in the private Medicare Advantage program were less likely than those in traditional Medicare to have premiums and out-of-pocket costs exceed 10?percent of their income. But they were also more likely than those in traditional Medicare to rate their insurance poorly and to report cost-related access problems. These results suggest that policy options to shift Medicare beneficiaries into private insurance would need to be attentive to potentially negative insurance experiences, problems obtaining needed care, and difficulties paying medical bills.     

Measuring financial protection in health in the United States

One rationale for health insurance coverage is to provide financial protection against catastrophic health expenditures. This article defines a lack of financial protection as household spending on health care when: (1) out-of-pocket (OOP) health expenditures exceed 10% of family income; (2) out-of-pocket expenditures exceed an absolute level of 2000 US dollars per family member on an annual basis; and (3) combined out-of-pocket and prepaid health expenditures exceed 40% of family income. The article explores how the likelihood of households in the United States surpassing these thresholds varies by income level, extent of insurance coverage, and the number of chronic conditions. The results show clearly that there is a lack of financial protection for health services for a wide segment of the US population-particularly so for poor families and those with multiple chronic conditions. The results are placed in an international context. Similar studies in other countries would allow for more in-depth comparisons of financial protection than are currently possible.     

Federal budgetary costs of blindness.

Federal expenditures for blindness-related disability among Americans are examined. The government, rather than the private sector, frequently bears the economic consequences of visual disability through entitlement and public assistance programs. Findings suggest an average $11,896 federal cost of a person-year of blindness for a working-aged American, which includes income assistance programs (SSDI/SSI), health insurance programs (Medicare/Medicaid), and tax losses resulting from reduced potential earnings. Almost 97 percent of the aggregate annual federal costs of blindness in 1990, which totaled approximately $4 billion, is accounted for by working-aged adults, who represent less than one-third of the total blind population. Approximately 25 percent of all blindness is attributed to preventable causes.     

Trends in the golden state: small-group premiums rise sharply while actuarial values for individual coverage plummet

Using multiple databases, this paper examines recent trends in the affordability and comprehensiveness of small-group and individual health insurance markets in California. Both became less affordable over the study period. In 2006, a single person age 32-52 earning the median income who purchased individual insurance spent on average 16 percent of income on premiums and out-of-pocket medical expenses. For individual insurance, the share of medical expenses paid by insurance as opposed to patients declined from 2002 to 2006. In the small-group market, premiums rose more than 50 percent from 2003 to 2006, but the proportion of claims paid by insurers for a standardized population remained constant.     

Progressive segmented health insurance: Colombian health reform and access to health services

Equal access for poor populations to health services is a comprehensive objective for any health reform. The Colombian health reform addressed this issue through a segmented progressive social health insurance approach. The strategy was to assure universal coverage expanding the population covered through payroll linked insurance, and implementing a subsidized insurance program for the poorest populations, those not affiliated through formal employment. A prospective study was performed to follow-up health service utilization and out-of-pocket expenses using a cohort design. It was representative of four Colombian cities (Cendex Health Services Use and Expenditure Study, 2001). A four part econometric model was applied. The model related medical service utilization and medication with different socioeconomic, geographic, and risk associated variables. Results showed that subsidized health insurance improves health service utilization and reduces the financial burden for the poorest, as compared to those non-insured. Other social health insurance schemes preserved high utilization with variable out-of-pocket expenditures. Family and age conditions have significant effect on medical service utilization. Geographic variables play a significant role in hospital inpatient service utilization. Both, geographic and income variables also have significant impact on out-of-pocket expenses. Projected utilization rates and a simulation favor a dual policy for two-stage income segmented insurance to progress towards the universal insurance goal.     

An "All-American" health reform proposal

Reforming the U.S. health care system is frequently thought of in absolutist terms: managed competition versus rate regulation; federal versus state administration; and business mandates versus individual insurance purchases. While these choices must be resolved over the long run, the transition to a new health care system will take several years and require more flexible solutions. The "All-American" Deal offers just that. It requires individual households to be insured and allows businesses to voluntarily offer health insurance; relies on the federal income tax system to collect income-based premiums and transfer funds to states through risk-adjusted payments; and lets states manage the disbursement of funds for uninsured residents.     

The California Cost and Coverage Model: Analyses of the Financial Impacts of Benefit Mandates for the California Legislature

Objective. To produce cost estimates of proposed health insurance benefit mandates for the California legislature.
Data Sources. The 2001 California Health Interview Survey, 2002 Kaiser Family Foundation/Health Research and Education Trust California Employer Health Benefits Survey, Milliman Health Cost Guidelines, and ad hoc surveys of large health plans were used.
Study Design. We developed an actuarial model to estimate short-term (1 year) changes in utilization and total health care expenditures, including insurance premiums and out-of-pocket expenditures, if insurance mandates were enacted. This model includes baseline estimates of current coverage and total current expenditures for each proposed mandate.
Principal Findings. Analysis of seven legislative proposals indicated 1-year increases in total health care expenditures among the insured population in California ranging from 0.006 to 0.200 percent. Even when proposed mandates were expected to reach a large target group, either utilization or cost was sufficiently low to keep total cost increases minimal.
Conclusions. Our ability to develop a California-specific model to estimate the impacts of proposed mandates in a timely fashion provided California legislators during the 2004 legislative session with more-detailed coverage and cost information than is generally available to legislative bodies.     

Consumer advocacy in Medicare HMOs

Rising out-of-pocket health care costs and premiums for Medicare supplemental insurance are driving many beneficiaries out of traditional fee-for-service Medicare and into health maintenance organizations. These consumers give up unrestricted provider choice in exchange for controlled costs and some additional service. However, in the context of weak oversight by the federal Health Care Financing Administration, the push by health plans to increase profits has meant that vulnerable Medicare HMO enrollees may not receive the services and consumer protections required by law.     

Redistributional consequences of community rating.

OBJECTIVE: To predict the geographical effects of community rating of health insurance premiums on the amount individuals pay for insurance. DATA SOURCES: We estimate premiums and health expenditures for a 5 percent sample of Californians from the 1990 U.S. Census (the Public Use Microdata Sample) and use data from Blue Cross of California to adjust for regional price differences in services. STUDY DESIGN: We use an episodic health simulation model to estimate health expenditures for 975,074 Californians. Because the simulations do not reflect expenditure differences due to price variation in cost of services, we adjust these data for relative price differences by county. This leaves us with a sample of Californians for whom we have estimated health expenditures. We then compute average expenditures within areas of different sizes (all California, two regions, within counties) to estimate community-rated premiums. We then compare these premiums with actual expenditures on a county-by-county basis. PRINCIPAL FINDINGS: With a single California-wide premium, rural residents pay premiums that exceed their use of care, while urban residents pay premiums that are less than their use of care. These transfers are substantial. Dividing California into regional risk pools at the county level still results in poorer communities providing substantial subsidies to their more wealthy counterparts. CONCLUSIONS: Mandated community rating of premiums in a heterogeneous state such as California results in large unintended transfers of wealth from poorer, rural communities to urban, wealthier communities. Allowing premiums to vary with the regional cost of medical care would eliminate some of the transfers without sacrificing the benefits of community rating. Subsidies to low-income families could also effectively mitigate this redistribution. UTILITY: This article points out some potentially regressive consequences of geographic community rating and suggests ways to mitigate them.     

Public support for social financing of health care in Switzerland.

The purpose of this study was to identify factors associated with the public's preference for financing health care according to people's ability to pay. The authors compared voters' support in 26 Swiss cantons for a legislative proposal to replace regionally rated health insurance premiums (current system) with premiums proportional to income and wealth, and co-financed through the value added tax. The vote took place in May 2003, and the initiative was rejected, with only 27 percent of support nationwide. However, support varied more than threefold, from 13 to 44 percent, among cantons. In multivariate analysis, support was most strongly correlated with the approval rate of the 1994 law on health insurance, which strengthened solidarity between the sick and the healthy. More modest associations were seen between support for the initiative and the health insurance premium of 2003, and proportions of elderly and urban residents in the population. Hence support for more social financing of health care was best explained by past preference for a social health insurance system in the local community.     

The Within-Year Concentration of Medical Care: Implications for Family Out-of-Pocket Expenditure Burdens

Objective. To examine the within-year concentration of family health care and the resulting exposure of families to short periods of high expenditure burdens.
Data Source. Household data from the pooled 2003 and 2004 Medical Expenditure Panel Survey (MEPS) yielding nationally representative estimates for the nonelderly civilian noninstitutionalized population.
Study Design. The paper examines the within-year concentration of family medical care use and the frequency with which family out-of-pocket expenditures exceeded 20 percent of family income, computed at the annual, quarterly, and monthly levels.
Principal Findings. On average among families with medical care, 49 percent of all (charge-weighted) care occurred in a single month, and 63 percent occurred in a single quarter). Nationally, 27 percent of the study population experienced at least 1 month in which out-of-pocket expenditures exceeded 20 percent of income. Monthly 20 percent burden rates were highest among the poor, at 43 percent, and were close to or above 30 percent for all but the highest income group (families above four times the federal poverty line).
Conclusions. Within-year spikes in health care utilization can create financial pressures missed by conventional annual burden analyses. Within-year health-related financial pressures may be especially acute among lower-income families due to low asset holdings.     

The impact of public voluntary health insurance on private health expenditures in Vietnam

As a financing mechanism with the potential to raise additional funds for health services, whilst improving access to services amongst the poor, non-profit health insurance has become increasingly attractive to health policy-makers. Using data from a household survey in Vietnam, out of pocket health expenditure are compared between members and eligible non-members of the government-implemented voluntary health insurance scheme. Expenditures are analysed for individuals who sought care during their most recent illness. Using an endogenous dummy variable model to control for bias resulting from self-selection into the scheme, we find that health insurance reduces average out-of-pocket expenditures by approximately 200%. Whilst income inelastic, health expenditures are found to be significantly influenced by an individuals level of income, irrespective of insurance status. Despite this, insurance reduces expenditures significantly more for the poor than for the rich.     

National health insurance reform in South Africa

Background

A recent health reform proposal in South Africa proposes universal access to a comprehensive package of healthcare services in the public sector, through the implementation of a national health insurance (NHI) scheme. Implementation of the scheme is likely to involve the introduction of a payroll tax. It is implied that the introduction of the payroll tax will significantly reduce the size of the private health insurance market.

Objective

The objective of this study was to estimate the impact of an NHI payroll tax on the demand for private health insurance in South Africa, and to explore the broader implications for health policy.

Methods

The study applies probit regression analysis on household survey data to estimate the change in demand for private health insurance as a result of income shocks arising from the proposed NHI.

Results

The introduction of payroll taxes for the proposed NHI was estimated to result in a reduction to private health insurance membership of 0.73%. This suggests inelasticity in the demand for private health insurance. In the literature on the subject, this inelasticity is usually due to quality differences between alternatives. In the South African context, there may be other factors at play.

Conclusion

An NHI tax may have a very small impact on the demand for private health insurance. Although additional financial resources will be raised through a payroll tax under the proposed NHI reform, systemic problems within the South African health system can adversely affect the ability of the NHI to translate additional finances into better quality healthcare. If these systemic challenges are not adequately addressed, the introduction of a payroll tax could introduce inefficiencies within the South African health system.     

Tax policy toward health insurance and the demand for medical services

Researchers have argued that the tax subsidy to employer-provided health insurance has led to overinsurance, excess demand for medical care, and to rapid expenditure growth in the medical care sector. This paper determines the quantitative significance of this linkage, using existing estimates of the elasticities of demand for health insurance and medical services in a static microsimulation model. We find that incorrect assumptions about the elasticities of demand and pattern of health insurance coverage led earlier researchers to overestimate the likely impact of the elimination of the tax expenditures for health insurance. We estimate, using mid-range assumptions, that complete elimination of the favorable tax treatment of employer contributions to health insurance would reduce the demand for employer-sponsored health insurance by 16–27 percent and the overall demand for medical services by about 4–6 percent and not more than 10 percent.