Journal Issue: The Next Generation of Antipoverty Policies Volume 17 Number 2 Fall 2007
The Price of Health System Failures
Low-income Americans pay the price of health system failures in three ways. They pay through poor health and premature death, through personal financial hardship, and through lost opportunities for productive public investments that could improve their future prospects.
The health of low-income Americans suffers because health insurance is not universally available. Of the more than 46 million nonelderly Americans without health insurance in 2005, 65 percent had family income at or below 200 percent of the federal poverty level ($39,942 for a family of four in 2005). An additional 16 percent of the uninsured had income between 200 and 300 percent of the federal poverty level.1
The importance of health insurance to good health has been well established. Although it is true that emergency care is available to all Americans, other types of care—preventive care, services that help people manage chronic conditions, diagnostic tests, and highly specialized care—are all hard to obtain without health insurance. Researchers have found that people who lack health insurance are less likely to get preventive care and services for chronic and acute conditions, even after personal characteristics (such as health status and education) that affect use of care, are taken into account. Again, taking into account these measurable differences between the populations, analysts find that the uninsured are sicker, more likely to suffer from chronic conditions, and more likely to die younger than people with health insurance. 2 And the consequences of a lack of insurance extend beyond the individual to burden entire families and communities.3
In an effort to contain the rising cost of health insurance, many employers have increased the deductibles and copayments in the coverage they provide their employees. Although these cost-sharing strategies reduce the premiums employers must pay, a growing body of research shows that they cause lowerincome employees and their dependents to forgo necessary care, yielding negative health consequences, particularly for those trying to manage chronic conditions.4 Recent efforts to encourage people to purchase highdeductible insurance plans and to use health savings accounts to cover the deductibles also place lower-wage workers at risk. Fourteen percent of those with high-deductible plans have no funds in their health savings account, and another 16 percent have less than $200.5 The combination of high deductibles and depleted health savings accounts will lead to even more care forgone than the incremental increases in cost sharing that face other Americans.
Good health—one’s own and one’s family’s— is a precursor to adequate earnings. People in fair or poor health have average earnings far below those who report that their health is good or excellent.6 Of course, poor health is both a cause and consequence of having low income, but good health care may offer a path to better health and higher earnings. The time required to care for a family member with a debilitating disease or a chronic condition makes it hard to work enough hours to earn one’s way out of poverty. Having health insurance reduces the likelihood that a person leaving welfare will return to the rolls.7
Low-income Americans pay a heavy financial price for the nation’s ailing health care system even when they are insured. Those who have insurance have a degree of financial protection, but the rising cost of coverage has made family budgets much tighter over recent decades. Between 2000 and 2005, median family income grew a total of 11 percent, from $50,732 to $56,194, with an annual growth rate of just over 2 percent.8 During that same period, typical family insurance premiums rose almost 70 percent, from $6,200 to $10,400, with an annual growth rate of 11 percent.9 Most economists believe that even though employers appear to subsidize their employees’ health insurance, employees ultimately bear the cost through lower wages. If the money employers paid for more costly health insurance premiums had gone instead to workers’ wages, median family income could have risen to as much as $60,400, an average annual growth rate of 3.5 percent—one and three-quarters times the 2 percent rate families experienced.
Even when Americans at the lower end of the income scale have insurance, they may find themselves “underinsured.” Sixteen million people, or 9 percent, among those aged nineteen to sixty-four, have health insurance but are considered underinsured because they have inadequate financial protection against high health costs.10 Underinsurance is most prevalent among those with incomes below 200 percent of poverty.11 People with inadequate insurance may gain access to services, but at the cost of substantial financial hardship in the event of an illness or injury.
The financial burdens associated with health care are greatest for those without insurance. When confronted with illness they often pay the highest prices for services because they do not benefit from the negotiated discounts available to group payers.12 If they are unable to pay, collection agency reports will harm their credit ratings, forcing them to pay higher interest rates when borrowing for other purchases. Ultimately they may face bankruptcy.
Rising costs for Medicaid and Medicare have limited federal and state options for spending on other public priorities. The share of state general fund spending consumed by Medicaid increased from 15.1 to 16.2 percent between 1999 and 2003.13 The combined federal cost of Medicare and Medicaid rose from 18.6 to 20.1 percent of total federal outlays over the same period (from $317 billion to $435 billion).14 Given policymakers’ reluctance to increase taxes, these trends have tightened public spending in other areas.
Long-term projections of Medicaid and Medicare cost growth have contributed to the sense that Americans cannot afford additional investments in antipoverty programs because they seem unable to afford the programs they already have. Congressional Budget Office projections over the next few decades are particularly gloomy. In the absence of policy changes that control these costs it is almost impossible to imagine government making major new investments in anything else.15