President's Page November 2003

Robert W. Haley, MD

The Rise in the Medically Uninsured
Who will design the next reform to bring healthcare within the reach of all?

Figures released by the US Census Bureau show that the number of Americans without health insurance increased by 5% in 2002, bringing the two-year increase to an alarming 10%. Overall, 15.2% of the population was without coverage the entire year, and a much higher percentage went bare at least part of the year. Approximately 30% of young adults and 32.4% of Hispanics had none. Once a problem only of the poor, health insurance costs now are impacting people in the $20,000- to $50,000-per-year income bracket.

When viewed alone, the problem immediately seems related to rising unemployment in the jobless recovery, when more people are without access to employer-sponsored health plans and unable to afford private health coverage. The Census figures show, however, that 20 million of the 43.6 million uninsured were employed full time, either working for companies that did not offer health insurance benefits or for companies that had increased premiums and deductibles out of their workers’ reach. Many uninsured might have fallen back on Medicaid, except that state legislators struggling with budget deficits have been ratcheting down the income levels that can qualify for Medicaid.

The driving force behind this growing crisis, loosely referred to as increasing “healthcare costs,” is the increasing cost of health insurance premiums. More specifically, the problem is that health insurance premiums are increasing much faster (more than 12% per year in 2002) than workers’ earnings (approximately 3% per year) and the overall rate of inflation (approximately 2% per year) so that premiums are taking an ever larger share of workers’ earnings and corporate profits.

Analysis of the premium increases shows that the largest contributors are the rapid increases in the costs of pharmaceutical drugs and wage inflation for hospital workers, compounded by the rapid increases in diabetes, arthritis, hypertension, and other chronic diseases of the aging, glutinous baby-boom generation. Despite the hype about inflated executive salaries, excessive insurance company profits do not appear to contribute significantly to the crisis.

In an attempt to solve the problem, Congress is debating plans to provide a drug benefit to Medicare recipients; however, this merely would augment coverage of an already insured group and would not address the problem of the uninsured in the short term. (Actually, the strong pharmaceutical lobby is vigorously fighting this proposal because Medicare coverage of pharmaceuticals eventually would lead to tight price regulation, much as physicians and hospitals have experienced.) Several states, led by California and driven by labor unions, are pushing legislation to require businesses to provide basic levels of health insurance at affordable premiums; however, because premiums fundamentally are a component of employee compensation, this approach would tend to limit wage increases or reduce employment to compensate for the added compensation burden on business profits. Federal tax credits for premiums and expanding welfare programs to cover more of the uninsured are unlikely to be enacted.

I think none of the proposed fixes are going to work because containing the growth in healthcare expenditures, and thus the inflation in insurance premiums, is like trying to squeeze a water-filled balloon. As you press on one bulge, one pops out on the other side, and no matter how much pressure you apply, you never reduce its volume.

Historically, the rate of inflation in healthcare expenditures has shown a surprisingly consistent pattern throughout the past 40 years. The rise in out-of-pocket healthcare spending outstripped the overall inflation rate by 4% to 10% in most years, except for transient dips to zero or negative growth resulting from nationwide reform efforts. These included the introduction of Medicare and Medicaid in the mid-1960s, the wage and price controls of the mid-1970s, the voluntary effort of the late 1970s, and the craze for managed care and the threat of health reform through the 1990s.

The managed care movement was a reaction to an even more rapid growth in health insurance premiums in the late 1980s than we are seeing today, and the resulting drop in healthcare spending growth was the most sustained, lasting just over a decade. Like the water-filled balloon, however, premium growth has begun bulging again, as physicians successfully have rebelled against medical decisions by insurance clerks, and pharmaceutical prices have temporarily dashed ahead of the other players.

As healthcare premiums spiral up again and the roles of the uninsured once more swell, we must understand that new forces inevitably will develop to constrain this bulge. Wouldn’t it be better this time if physicians conceived the next reform and developed practice patterns based more rigorously on scientific determinations of cost-effectiveness as well as compassionate, but financially responsible, solutions to end-of-life and futile care? Now is when the next reform will be conceived.

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