Lowering Financial Burdens and Increasing Health Insurance Coverage for Those with High Medical Costs

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The distribution of health expenditures is highly skewed—the top 10 percent of spenders account for about 70 percent of total expenditures in the country, while the bottom 50 percent of spenders account for only 3 percent of expenditures (Berk and Monheit 2001). As a result, private insurers in a voluntary, unsubsidized market have strong incentives to avoid enrolling highcost individuals. Insurers design plans—through benefits, cost-sharing, and provider networks—in an effort to enroll the most attractive health care risks. As medical costs escalate over time and particular plans become increasingly expensive because of the health risks of their enrollees, pressure mounts to modify costsharing and benefit packages so those in better health absorb less of the financial burden of those in worse health.

Health care expenses associated with high-cost medical cases in the United States are increasingly being shifted to the individual, a phenomenon exacerbated by recent trends in product design. Some examples of cost-shifting are high deductibles, tiered co-payments and coinsurance, significant differences in usual and customary fees as well as in the share of fees reimbursed for network and nonnetwork providers, service-specific benefit caps and exclusions, and annual out-of-pocket maximums that exclude certain services. These features reduce the amount of health-related expenditures covered by insurance and increase the amount paid by those who use health care services the most: critically or chronically ill patients. The shift from insurance-covered costs to increased individual out-of-pocket payments is intended to moderate the rapid growth in medical expenditures overall by encouraging cost-consciousness in consumers. Evidence of this trend includes increased marketing and sales of products identified under the broad rubric of "consumer-driven health plans," which include health savings accounts (HSAs),¹ health reimbursement accounts (HRAs), high-deductible health plans, and other plans that offer less comprehensive benefits.

As the costs of medical care are spread less broadly, financial burdens for seriously ill individuals with high medical costs can increase dramatically. This shift can have significant negative effects, not only on the financial stability of families with high-cost members—evidenced by the large share of personal bankruptcies attributable to medical expenses (Himmelstein et al. 2005)—but also on access to necessary care, and ultimately on health outcomes for the sick. This brief identifies evidence of the severity of these problems and presents policy options designed to address them. This work includes numerous ideas and insights contributed by experts at a meeting convened to discuss these issues. Participants included actuaries, insurance industry professionals, public policy analysts, economists, representatives of high-risk pools, and representatives of advocacy groups for those with specific illnesses.²

Notes from this section of the report

1. Health savings accounts provide incentives for individuals, particularly those in the highest tax brackets, to purchase medical care outside an insurance arrangement.

2. In addition to the authors, the participants were John Bertko, Randall Bovbjerg, Tom Boyer, Len Burman, Gary Claxton, Beth Fuchs, Earl Hoffman, John Holahan, Karl Ideman, Jim Mays, Len Nichols, Karen Pollitz, Ward Sanders, Christine Schmidt, Mary Beth Senkewicz, Tom Stoiber, Kathy Thomas, Cori Uccello, Tim Waidmann, and Steve Zuckerman.

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