" It's the Premiums Stupid " abstract and commentary

From Don Mcanne @QOTD, one of my favorite sources for research and data. I always enjoy the comments as well....

Health AffairsApril 5, 2005

It's The Premiums, Stupid: Projections Of The Uninsured Through 2013By Todd Gilmer and Richard Kronick


Abstract:
Increases in the cost of health care from 1979 to 1999 accounted for the decline in health insurance coverage that occurred during that time period, as our earlier work demonstrated. Here we examine whether the model we presented adequately accounts for the observed changes in health insurance coverage from 1999 through 2002, and we show that the model accurately predicted the increase in uninsured people during that time period. Using the model and projections for national health spending, we project that the number of nonelderly uninsured Americans will grow from forty-five million in 2003 to fifty-six million by 2013.
>From the Discussion:
In 2001 we published a paper titled "The Calm Before the Storm," projecting that the number of uninsured Americans would increase rapidly as a result of health insurance premiums rising more rapidly than personal incomes. It is clear that a full-force storm blew in from 1999 to 2002 and that the actual path of the percentage uninsured... followed the path we expected based on our estimated relationships between affordability and coverage.
We expect the storm to continue during the next decade. However, based on CMS spending projections, its ferocity will lessen. The CMS predicts that health spending for insured people under age sixty-five will grow 2.4 percent per year faster than personal incomes from 2002 to 2013. At this "moderate" rate of spending growth, we expect that the number of uninsured people will increase "only" thirteen million over the next decade from its 2002 level, or eleven million from the estimate of forty-five million uninsured people in 2003. Based on estimates from the Institute of Medicine, this will lead to an increase of 4,500 deaths annually and to an increased annual loss of human capital of $16-$32 billion. If the estimated growth rates for health care prices and income are wrong (as they almost certainly are), it seems much more likely to us that affordability will decline more quickly than expected rather than more slowly, and it seems more likely that the number of uninsured people will increase more quickly than projected rather than more slowly.
It is unlikely that we will be able to solve the problem of the uninsured without some form of universal health insurance coverage requiring contributions from some combination of employers, employees, and taxpayers. It is also unlikely that either our current system of employer-sponsored coverage or an alternative system of universal coverage will be sustainable without more effective efforts at cost containment.



Comment:
Professors Gilmer and Kronick have provided objective evidence of what we instinctively knew. Lack of affordability of insurance premiums has prevented tens of millions from being covered, and, without major change, the problem will only get worse. A few comments are warranted.
The term "affordability" is often avoided by economists because it is not well defined and includes an element of subjectivity based on varying opinions on what is and what is not affordable. Gilmer and Kronick have demonstrated that there is a degree of objectivity in the concept of affordability since the "affordability index" (per capita health spending for nonelderly insured adults divided by the median income of nonelderly adult workers) does correlate quite predictably with the percentage uninsured among nonelderly workers. This article provides us with credibility when we state that health care is becoming less and less affordable.
This article also provides us with a prediction of what would happen if we were able to bring the rate in growth of health spending down to the rate of inflation, assuming no other structural reform of health care financing. They project that an additional 13 million will be without insurance in 2013. Of those, 4.4 million would be due merely to the increase in the population, whereas 8.6 million would be due to a further deterioration in affordability. Though many suggest that all will be well if we merely control health care costs, the numbers of uninsured would still expand by 4.4 million. Obviously structural reform must involve more than merely containing costs.
Another crucial point is that the authors' model implicitly assumes that health insurance premiums will continue to purchase coverage that would provide financial protection against significant medical losses. Unfortunately, current trends could change their model. Competition based on premiums is resulting in a shift of risk to patients. Reports such as the recent Harvard bankruptcy study are demonstrating that we are facing an epidemic of underinsurance. Although this could reduce the upward pressure on premiums and lessen the growth in the uninsured, it could also have the paradoxical affect of causing even more to drop coverage when they recognize that it no longer protects against financial catastrophe. Why invest large sums in insurance premiums when major illness will drain all of your resources anyway?
Gilmer and Kronick are quite right that we need both universal coverage and more effective cost containment. But our current demand side efforts utilizing private plans can only increase the problem of underinsurance and affordability of health care. We need to change to supply side economics if we expect to have affordable, comprehensive care for everyone.
A single payer system, by design, is universal, comprehensive, and utilizes supply side mechanisms to contain costs. In the United States, the $6423 per capita that we are already spending on health care supplies some of us with too much care that is not beneficial, while leaving many with unmet needs. But we won't get our spending right until we decide to adopt supply side funding of a universal system. It won't be perfect (no system is), but it'll be vastly superior to what we have.
Or we can continue to do nothing. The lack of insurance will then cost us 22,500 nonelderly adult lives per year. Is that a price that we are willing to pay for our inaction? Before grumbling about another stupid rhetorical question, think about the consequences of merely walking away and going about your usual business. Tens of thousands of people will continue to die.