What’s All This About the Death Spiral for Health Insurance Coverage?

Anyone and everyone with an interest in the healthcare system is anxiously awaiting the Supreme Court’s decision on the validity of the Patient Protection and Affordable Care Act. Will the individual mandate be thrown out? If it is, will the insurance market reforms go with it? Will health insurers be allowed to raise rates out of proportion to any change in the risks they take, forcing older, sicker individuals without group coverage into a coverage “death spiral”? If the consumer protections stand, will the cost of covering people who need insurance push the health insurance industry into its own “death spiral”? And does a lack of insurance coverage really increase a person’s risk of death?

In 2002, the Institute of Medicine reviewed the available research and found that an adult under 65 without insurance was more likely to die than an adult with insurance. One study that followed subjects for 17 years found that the risk of death increased 25 percent among adults who were uninsured. IOM estimated that 18,000 people died each year because they lacked health insurance coverage.  Some of the reasons for the disparity may be obvious. The uninsured are not likely to get cancer screenings, for example, so when they do get cancer they are diagnosed later and are more likely to die. But uninsured trauma victims also were more likely to die; they were less likely to be admitted to the hospital and received fewer services while there. And uninsured patients who presented with a heart attack were more likely to die in the hospital or shortly thereafter. IOM estimated that 18,000 adults under age 65 die each year because they had no insurance.

Families USA recently updated IOM’s research and found that the number had grown to 26,100. An article in Forbes pointed out that some of the IOM data was actually from 1993—”before the Internet, before …Lipitor,” so that the actual death toll today is probably higher.

No matter what the Supreme Court decides, one result we won’t see from Congress is a thoughtful discussion of what system is best for the country as a whole. Where should the money come from for primary care, preventive care, or the drugs people need? Should the healthcare options available to you depend on where you work, or if you’re a young adult without employer-based coverage, where your parents work?

Of course, that’s not the issue before the Supreme Court. The Justices must apply legal standards concerning individual rights, government power and the relationship between the federal government and the states. The average nonlawyer may not see much difference between having to buy car insurance and having to buy health insurance, but because the health insurance mandate is federal, the legal issues are completely different.

JD Power just released a survey indicating that employers may be likely to substitute a defined-contribution benefit for group coverage if the Affordable Care Act is upheld. From there, it’s easy for some to jump to the conclusion that PPACA will drive a nail into the coffin of employer-sponsored coverage.

But actually, the percentage of workers and families with employer-sponsored insurance (ESI) has been dropping for a long time. In 1988, 73 percent of American workers under age 65 were covered by ESI, 55 percent through their own employer, 17 percent through a family member, and 85 percent of Americans under age 65 had health insurance. In 2010, according to the Employee Benefits Research Institute, 58.7 percent of nonelderly individual were covered by employer-based health plans, 68.6 percent of working adults had coverage. The percentage of workers with coverage through their own employer was down to 51.5 percent, the lowest since 1994.

Higher rates of unemployment due to the recession account for some of the decrease, but more and more workers aren’t offered coverage through their employers. In 1997, 79.8 percent of workers were employed by firms that offered health insurance, and 70.1 percent were eligible for the coverage. Access to insurance increased somewhat by 2002, when 81.1 percent of workers were employed by organizations that offered health insurance and 71.6 percent were eligible. But by 2010, the percentage of workers who were eligible for coverage dropped to 67.5 percent. That year, 46.7 percent of workers between 18 and 64 reported that their employers did not offer health insurance, and another 14.7 percent were not eligible for benefits. Of these, 9 percent were not eligible because they were contract or temporary workers.

Availability of insurance and the “take-up” rate vary by the size of the employer and the salary of the worker. Lower-income workers are less likely to be offered coverage and less likely to be able to afford it. The smaller employers have to pay more for coverage, while they are often less able to afford it. (Most new jobs come from small businesses. Does that matter?)

Don’t the changes in health insurance benefits parallel the changes in the availability of pension and retirement benefits? The decrease in benefits of all kinds reflects larger changes in the economy and society as a whole. Health insurance benefits began as a way to raise compensation when pay raises were unavailable because of price freezes. If employers no longer consider the benefit viable, we’ll have to find another way to assure people have access to care. If the Supreme Court strikes down PPACA, we’ll have to talk about how—and whether—we’ll do that.