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P E R S P E C T I V E :
D I S P A R I T I E S
 
6 December 2005  
  

Health Insurance Trends Are 
Contributing To Growing 
Health Care Inequality

Universal coverage is needed to assure access to
essential care for all Americans.


by Eric L. Book


ABSTRACT:

A health plan chief medical officer comments on several trends underscoring the conclusion reached by Robert Hurley and colleagues that disparities in health care are widening. Growing use of new technology is driving up premiums, increasing the ranks of the uninsured and underinsured. Cost shifting by hospitals because of inadequate public program reimbursements drives premiums even higher. Although disparities in health care can never be eliminated, access to essential services can—and must—be made universal. That goal can be accomplished if insurance coverage is mandated and responsibility for its cost is spread broadly.

The evidence of increasing disparities in health care described by Robert Hurley, Hoangmai Pham, and Gary Claxton is disturbing but hardly shocking. In news coverage of health care, we often see stories about promising new medical treatments juxtaposed with reports about the rising cost of care and growing number of uninsured people. As a health plan chief medical officer, I wish I could report that things really aren’t that bad—or that there’s reason to expect improvement. Unfortunately, the trends I see suggest a dire, worsening situation. Expensive new diagnostic tests, treatments, and pharmaceuticals are relentlessly driving up insurance costs, putting comprehensive coverage beyond the reach of more and more people.

New technologies. On the bright side, the care we can offer our members has never been more wide-ranging or effective, and it continues to improve every year. Not surprisingly, people with good insurance are making extensive use of the new medical technology available to them. One notable example is diagnostic imaging, in which recent advances have led to dramatically improved disease detection capabilities. As a result, demand for imaging services has surged. Medicare saw a 60 percent increase in payments for imaging between 1999 and 2003.¹ Blue Shield of California’s utilization trend looks just as steep: Imaging costs increased 20 percent from 2003 to 2004. And this higher expense represents just a portion of the full cost impact, since greater use of diagnostic services inevitably results in greater use of treatment regimens, which are also growing more sophisticated and costly.

For the well-insured among us, new medical technologies are a blessing. Many of them have undeniably powerful capability to diagnose and treat, but that access comes at some detriment to society at large. The new tools are too often used unnecessarily with little benefit to patients, helping drive up premiums by double-digit rates in recent years.

This trend has effectively denied coverage to millions of people. Between 2000 and 2004, as premiums for employer-sponsored coverage rose by a cumulative rate of just over 50 percent, the percentage of nonelderly adults with employer-sponsored coverage fell from 68 percent to 63 percent, while the uninsurance rate among this group grew from 19 percent to 22 percent—or seven million people.²

Rising uninsurance. A less extreme but more prevalent consequence of big premium increases is rising un-derinsurance. Blue Shield of California’s fastest-growing individual health insurance product is a preferred provider organization (PPO) plan that requires 40 percent coinsurance for physician and hospital care and has a $7,500 out-of-pocket maximum. Although it’s perfectly understandable why individuals and employers would seek out lower-cost options, this trend is as much about scaling back coverage as it is about empowering consumers. The early evidence on the effects of these high-deductible plans shows that consumers are indeed more cost-conscious but that many people choose not to seek needed care because they can no longer afford it. So even among the privately insured, we see a growing disparity in access.

Cost shifting. Exacerbating these trends is another problem we are increasingly confronting in our business: cost shifting. Reimbursement levels paid to hospitals by Medicaid and Medicare are falling further and further behind actual cost growth, and hospitals are charging private payers higher rates to make up the difference. Consistent with the “cost-shirking” phenomenon discussed by Hurley and colleagues, an analysis we commissioned last year found that California hospitals are losing money on public programs while earning margins in excess of 20 percent from their private payers. Accounting for as much as 10 percent of premiums, this cost shifting is helping fuel the vicious cycle of higher premiums leading to higher rates of under- and uninsurance.³

Solving disparities. So what do we do about this growing disparity in access? Unless we’re willing to limit the care that the well-insured can use, we’ll always have disparities in health care access, just as we do with houses, cars, and everything else money can buy. But that does not mean that we should tolerate disparities in access to a basic level of care. Any reasonable conception of a just society surely dictates that access to essential health care services must be universal.

How can we get there? We can’t do it through product design. Creating more low-premium, high-deductible products won’t provide reasonable access for the majority of uninsured people, who are relatively low-income. In my view, we’ll get there only if we recognize that health access for all is a shared responsibility. Here are a few principles that should guide us. (1) Participation in the health insurance pool should be mandatory. (2) All Americans, to the full extent of their capability, have a responsibility to pay their fair share. (3) Government must help those who can’t afford to pay their own way. (4) As long as employment remains the primary vehicle for obtaining private coverage, all employers and employees need to contribute something. (5) In a mandatory system, insurers should be required to take all comers.

I recognize that enacting a system of universal coverage through legislation poses enormous political challenges, so we must not let the perfect be the enemy of the good, and we must be careful not to upend what works today. We shouldn’t provide incentives that undermine people’s existing private coverage, and we shouldn’t mandate more coverage than is absolutely necessary. If we’re going to require everyone to pay, it’s vital to incorporate real cost containment into the fabric of the system. We should pursue pragmatic measures such as incentives for healthy behavior, intensive case management, electronic medical records, and evidence-based medicine (including comparative effectiveness research and pay-for-performance programs). Even if these cost a little more on the front end, they will yield substantial benefits over time.

Hurley and colleagues make a valuable contribution to the policy debate by spotlighting the myriad ways in which disparities infiltrate our current health care system. The trends they illuminate show no signs of abating and will ultimately threaten the quality of care even the best-insured Americans are able to receive. If 25 percent, 30 percent, or more of Americans lack meaningful access to basic care, the public health and emergency systems upon which we all rely will be strained beyond the breaking point. We will never be able to eliminate all health care disparities, but we can—and must—make progress to stabilize the system and reduce morbidity among the less well insured.

NOTES

1. Mark Miller, executive director, Medicare Payment Advisory Commission, testimony before the Health Subcommittee of the House Ways and Means Committee, 17 March 2005.
2. Henry J. Kaiser Family Foundation/Health Research and Educational Trust, Employer Health Benefits: 2004 Survey and Employer Health Benefits: 2000 Survey (Menlo Park, Calif.: Kaiser Family Foundation, various years); and A. Dube et al., Falling Apart: Declining Job-based Health Coverage for Working Families in California and the United States (Berkeley: University of California, Berkeley, Labor Center and Working Partnerships USA, June 2005).
3. Milliman Inc., “Analysis of Office of Statewide Health Planning and Development Reported California Hospital Costs and Revenue” (San Francisco: Milliman, July 2005). If hospital reimbursement rates paid in 2004 by all payers had been equal relative to costs incurred for providing care, private insurers would have spent 24 percent less on hospital care. This amounts to 9.5 percent of premiums.

Eric Book (eric.book{at}blueshieldca.com) is chief medical officer of Blue Shield of California, based in San Francisco.

Read related articles by Robert E. Hurley and colleagues , and Timothy G. Ferris and David Blumenthal.

DOI: 10.1377/hlthaff.w5.577
©2005 Project HOPE–The People-to-People Health Foundation, Inc.