What's New with HCFO - 11/21/2008 (Plain Text Version)In this issue: Implications of the Economic Downturn on Health Care Access
The recent economic downturn has adversely affected job security, investments and retirement accounts, and consumer spending. In October 2008, the unemployment rate was 6.5 percent, 1.7 percent higher than the unemployment rate the previous year, and 0.4 percent higher than September 2008.1 Some predict that the unemployment rate could increase to more than 8 percent.2 Increased unemployment affects consumer spending, sales and income tax revenue, and access to affordable health insurance and care. As individuals lose eligibility for employer-sponsored insurance (ESI), they may turn to the individual insurance market, gain eligibility for public insurance, such as Medicaid or State Children’s Health Insurance Program (SCHIP), or become uninsured. In addition, the current economy has adversely impacted states’ and the federal government’s budgets. Thus, meeting the demand for public health insurance coverage may prove challenging. The weakened economy, coupled with the pervasive problem of rising health care costs, will be a complex challenge for the Obama administration to tackle in 2009. Individual Impact The rising unemployment rate and economic uncertainty may lead to changes in people’s insurance coverage. Recent reports from the Census Bureau show that the number of uninsured individuals decreased in 2007 to 45.7 million people.3 Despite this decline, the number of people covered by either ESI or private insurance did not increase. In fact, both types of insurance saw declines in their overall enrollees in 2007.4 However, government programs saw an increase in the number of people enrolled, with Medicaid enrollees increasing by 1.3 million people.5 Instead of people transitioning to the private insurance market, they are increasingly relying on government programs to obtain health care.6 There has been considerable concern about the potential of public insurance crowding out private insurance coverage. HCFO recently funded Helen Levy, Ph.D., from the University of Michigan to look at the crowd-out phenomenon in SCHIP.7 Her work seeks to identify whether switching to public coverage by low-income families is beneficial by freeing up household resources that otherwise would have been allocated for out-of-pocket medical spending. The researchers will also examine how SCHIP has improved the material well-being and the categories of spending that have increased as a result for these families. Rising health care costs and the weakened economy may also cause employers to increase employee cost sharing or discontinue health benefits. Affordability issues in obtaining either ESI or private insurance will increasingly become a barrier for people, especially as the unemployment rate continues to rise. Even those individuals who have health insurance coverage are reporting affordability problems relating to their health care costs. Many people are delaying or not receiving their medical care to cut back on their costs. In 2007, 59 million people reported skimping on their health care due to factors such as cost and health system barriers.8 The economic woes are also affecting people’s ability to payoff medical bills and causing an increase in medical debt. In 2007, 57 million people reported having trouble paying their medical bills and of those, 42.5 million individuals actually had some form of health insurance coverage.9 With such high numbers facing problems paying their medical bills, it is no surprise that people would limit or delay seeking necessary health care. Even for those individuals who have ESI, increases in health insurance cost may result in lower wages. Brad Herring, Ph.D., of Johns Hopkins University, is currently studying how rising health care costs affect worker compensation.10 He will be looking at how increases in health care premiums are transferred to workers in the form of lower wages. Finally, in spite of the fact that the majority of individuals get their insurance through ESI, a significant number still obtain insurance through the individual market. However, the individual market is different than large and small group health plans, with different underwriting and risk segmentation that make the market challenging for many people. The individual market has different regulatory restrictions, products, sales channels, and companies selling the products.11 The overall structure of the individual market also differs in its transient nature where people are constantly entering and exiting the market, increasing the likelihood of adverse selection.12 For more information on the individual market and its potential role in health reform, please see the HCFO report, The Individual Insurance Market: A Building Block for Reform?, and the companion policy brief, at http://www.hcfo.net/pdf/synthesis0508.pdf. A weakened economy not only impacts individuals, but also state governments, the majority of which must balance their budget each year.13 Increased unemployment increases demand for public support while decreasing the amount of revenue raised by the state. A 1 percent increase in unemployment, for example, may result in a 3 to 4 percent decrease in state General Fund revenue.14 Moreover, a recent Kaiser Family Foundation study found that a 1 percent increase in the unemployment rate may subsequently increase Medicaid and SCHIP enrollment by 1 million individuals, resulting in a $1.4 billion increase in state Medicaid and SCHIP spending.15 In addition, a weakened economy may stymie health care reform efforts or sustainability of reform.16 A recent report estimates that 41 states are experiencing or will experience a budget shortfall in 2009.17 As state budgets are constrained, policymakers will be faced with difficult budgetary decisions. To finance Medicaid during periods of economic slowdowns, states have traditionally used “rainy day” funds, borrowed funds from the federal government, or implemented cost-containment measures.18 In 2003, the state of Oregon, for example, experienced a massive budget shortfall which led state administrators to reduce Medicaid expenditures by cutting benefits and increasing cost sharing. In a related HCFO study, Jeanene Smith, M.D., administrator at the Office for Oregon Health Policy and Research, examined the impact of the cost sharing and benefit reductions on former and current Oregon Health Plan (the state’s Medicaid program) beneficiaries.19 The researchers found that lower income beneficiaries were more likely to drop out of the program as a result of stricter premium payment rules.20 (Visit http://www.hcfo.net/pdf/findings0708.pdf for additional findings.) Federal Impact In addition to affecting individuals and state governments, the economic downturn will have serious implications for the federal government’s financing and budget. The Congressional Budget Office (CBO) estimates that the federal deficit in 2008 will be near $407 billion dollars, a substantial increase from the deficit of $161 billion in 2007.21 Moreover, the passage of the Emergency Economic Stabilization Act of 2008—which is estimated to cost approximately $700 billion—will further constrain future spending. CBO also predicts that the fiscal future will depend heavily on health care costs, which continue to rise, and on the aging elderly population.22 As more and more adults age into the Medicare program, resources will continue to be squeezed. Currently, Medicare accounts for 14 percent of the total federal budget and 22 percent of national health care spending.23 Between 2008 and 2017, Medicare spending is projected to increase by 7.5 percent annually.24 The deficit and projected spending increases for Medicare are extremely important to watch because of the potential for funds that support the Medicare program to run out. Experts warn that by 2019 there will be insufficient funds in Medicare Part A trust to fully pay claims, and federal subsidies may be required.25 With only 10 years remaining until the projected shortfall, many are concerned about how to make programmatic changes to sustain the program. The following are select grants from HCFO's portfolio that address issues related to health insurance access and the economy. For other HCFO grants, see www.hcfo.net. HCFO Grants: Title: Consequences of SCHIP for Household Well-Being The researchers will explore the consequences of State Children's Health Insurance Program (SCHIP) expansions, including "crowd out,"--the term used to describe the phenomenon of individuals dropping private health insurance coverage in response to expanded availability of public coverage. The researchers hypothesize that switching from private to public coverage reduces a family's out-of-pocket medical spending, freeing up more resources for other uses, making crowd-out a "windfall" not a "problem" for low-income families. They will address the following research questions: (1) How have expansions of SCHIP improved the material well-being of the low-income families the program is intended to assist, and (2) What categories of spending increase as a result of gaining eligibility for coverage? The objective of the proposed project is to reconsider the context for crowd-out and reframe the debate over SCHIP expansions with a renewed emphasis on the benefits rather than merely the costs of coverage expansions. Title: Defining Affordability for the Uninsured and People with Chronic Conditions Title: Economic Impact of Adverse Health Events on the Uninsured Near Elderly The researchers will measure the extent to which increases in health insurance premiums are borne by workers in the form of lower wages relative to the extent to which they are borne by employers in the form of lower profits. They will also examine whether there are significant differences in this relationship between small and large firms and between low and high income workers. Finally, they will examine the extent to which any wage offsets vary by the expected health care costs across groups of workers with different characteristics, such as age, gender, health status, and family size. The objective of the study is to better understand where the burden of rising health care costs falls, so as to develop appropriate policy incentives. Title: Surviving the Perfect Storm: Impacts of Benefit Reductions and Increased Cost Sharing in a Medicaid Program How have benefit reductions and increased cost sharing impacted the Oregon Health Plan (OHP)? The researchers are examining: (1) impacts on economic viability, including whether cost savings accrue to Medicaid or whether additional costs will be incurred as beneficiaries shift from one benefit to another; (2) impacts on access, including whether access and continuity of care will be compromised as a result of cost sharing and benefit reduction strategies; and (3) impacts on coverage, including the degree to which Medicaid beneficiaries leave the program due to these changes. The objective of this study is to inform state decision makers who continue to seek efficient cost-saving strategies and consider competing approaches for maintaining and rebuilding benefits following reductions in Medicaid and reshaping publicly financed health care. Title: The Dynamics of Health Insurance Coverage: 1996 to 2000 What is the price sensitivity and related health plan choices of Medicare-eligible retirees? Building on previous HCFO-funded research and analyzing data from a large western employer, the researcher analyzed the following: 1) What is the effect of out-of-pocket premiums on the health plan choices of Medicare-eligible retirees? 2) How price-sensitive are early retirees (under 65)? and 3) How responsive are retirees to financial incentives for declining coverage? The objective of this study was to educate decision makers who develop Medicare reforms by providing credible estimates of the price sensitivity of Medicare beneficiaries. In addition, the researcher sought to inform policymakers about how retirees respond to financial incentives and the impact this response might have on how insurance costs are allocated. Title: The Safety Net and Employer-Provided Health Insurance How does the health care safety net affect the private insurance market? The researchers examined how the structure and characteristics of the safety net (i.e., hospitals and federally qualified health centers [FQHCs]) affect employees’ decisions to accept coverage for themselves and their dependents and employers’ decisions to offer coverage. The researchers posited that a stronger safety net may lead employees to accept jobs without health insurance or to refuse coverage if offered. At the same time, they suggested that a stronger safety net may prompt employers not to offer coverage, especially for smaller employers with many low-wage, low-skill workers. The researchers used Current Population Survey (CPS) data from 1988 to 1999 and Medical Expenditure Panel Survey (MEPS) data from 1996 to 1999. This study informs policymakers about the decision of employees to accept and employers to offer health insurance coverage and how the safety net influences those decisions. Title: Patterns of Individual Coverage
1 “Employment Situation Summary,” News Release, U.S. Bureau of Labor Statistics, November 7, 2008. Also see http://data.bls.gov/cgi-bin/print.pl/news.release/empsit.nr0.htm |