A recent report from Cover the Insured.org reviews the how health insurance trends have evolved over the last ten to fifteen years. The percent of uninsured individuals has increased from 16.0% of the population in 1995 to 17.5% of the population in 2006. The increase is entirely due to the increase in uninsurance among working aged adults (i.e., aged 18-64). Among children, uninsurance rates dropped from 13.7% of children in 1995 to 11.7% of of children in 2006. SCHIP expansions likely played a large role in the increase in childhood insurance coverage.
Why are more and more working-aged adults left without insurance? The reason is that health insurance costs are increasing faster than income. Let us look at the following table:
Between 1996 and 2006, overall health insurance premiums for employer-provided plans increased by 4.87% for single coverage and 5.98% for family coverage. These are average annual increases above secular inflation (i.e., CPI). However, median real income increased by only 0.76% per year between 1994 and 2006. Is there really a 5% gap in between income and health insurance premium growth?
The answer is yes and no. There is still a large gap between income and health insurance premium growth, but the gap is not 5%. Using salary as the only measure of workers compensation does not take into account the fact employer contributions towards health insurance plans has increased over time. While salary has increased only by 0.76%, employer health insurance contributions have increased by 4.62% (single) and 6.03% (family) per year. After taking into account employer health plan contributions, we see that the true increase in real worker compensation ranges between 1.01% and 2.02% per year.
Even after taking into account the increased employer contributions, we still see that real health insurance premiums have outpaced real labor compensation by about 3.9%. In order to decrease the number of uninsured, we need to bring down the cost of health insurance. This means either increased cost-sharing or enacting more limitations on medical services provided. If we do not want to increase cost-sharing or limit care coverage, premiums will continue to increase. Whether these premiums are paid by individuals, the employer or the government, they represent a real cost to society that needs to be spent efficiently.
- At the Brink: Trends in America’s Uninsured, March 2009, RWJ Foundation.
It is important to note that as more people have a stake in managing the costs of their own care, health insurance premiums will be contained.
Third party, first dollar benefit for coverage created a culture of an insulated consumer, e.g. insulated from the ‘real’ cost of health care. Providers (doctors and hospitals) had the power of the pen to order costly, unnecessary and ineffective services, with no consequence for not offering value to the patient or the payer supporting the patient.
The more people can be exposed to the ‘real’ cost of healthcare, via participation in Health Savings Accounts, or just sheer curiosity of what the insurance company is being billed, the more we will see populist anger aimed at providers of care, ala the style of the outrage against AIG for the financial debacle.