The American Health Insurance Paradox: Everyone Pays, But Some Aren’t Covered

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Health Policy in Your Hands
information and study guides for faith communities a project of Texas Impact

The American Health Insurance Paradox:
Everyone Pays, But Some Aren’t Covered

In the United States, access to health insurance (or more broadly, health coverage) determines access to health care. In the current system, ability to have health insurance determines access to what many experts and consumers consider basic health services such as preventative care, a primary care physician, and timely health interventions to prevent unnecessary suffering or escalation of health problems. A study by the Kaiser Family Foundation showed that individuals without health insurance are more likely to have hospitalizations for avoidable health problems “and experience declines in overall health”.1 The current US health insurance system is supported by government dollars like insurance systems in many other countries. Unlike in other nationally funded health insurance systems, however, in the American system everyone pays but not everyone is covered.

Health Insurance, Health Coverage, and Access to Health Care
The terms health insurance, health coverage, and health care are ubiquitous in discussions on health care reform. These terms, however, may become confusing if not clarified. Health coverage refers to any plan or policy that charges an incremental payment (or wage loss) to ensure access to health care services for both present and future health needs. This can include traditional insurance plans and policies, modeled after the first Blue Cross Blue Shield plans, as well as more contemporary forms of health coverage including indemnity plans, HMOs, pre-paid plans, and employee health benefit plans. Regardless of which approach is employed, individuals buy into these plans and policies for more or less the same reasons: “1.) to protect themselves from the potentially extreme financial costs of medical care if they become severely ill, and 2.) to ensure that they have access to health care when they need it.”1 Health insurance is a form of health coverage which involves the transfer of health risk from an individual to the insurer. Health insurance and health coverage are often used interchangeably to refer to plans that provide access to health care. However, a distinction is made when discussing the difference between traditional health insurance plans and employee welfare benefits plans that provide health and medical coverage (in the latter, companies assume their own health risks whereas in the former, companies and individuals transfer their risk to a private insuring entity). State and federal regulations governing these two forms of health coverage are also different, and these distinctions are discussed in the section on employer sponsored health coverage. Health care refers to the actual health services that are provided to individuals who either have health coverage or who are in a state of emergency as per the Emergency Medical Treatment and Active Labor Act (EMTALA), which stipulates that health care providers must serve individuals in emergency need regardless of ability to pay, citizenship status, or legal status. Health care providers is also a general term that can refer to health professionals such as doctors, nurses, dentists, psychologists, etc; health facilities such as hospitals nursing homes, community health centers, and institutional care facilities; and other key service providers including pharmaceutical or drug companies, medical equipment suppliers, etc.2 1 “How Private Health Insurance Works: a Primer,” Kaiser Family Foundation (April 2002): p. 1, http://www.kff.org/insurance/2255-index.cfm. 2 “Medicaid History & Organization (Chapter 3),” Texas Medicaid in Perspective (Texas Health and Human Services Commission, January 2007): p. 5, http://www.hhsc.state.tx.us/ medicaid/reports/PB6/PDF/Chapter03.pdf.

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Taxes Pay for Health Insurance
Everyone who pays income taxes pays for health coverage—if not for themself, then for someone else. Tax dollars go into subsidizing employer-sponsored health coverage, including coverage purchased by self-employed workers.2 Tax dollars also go towards providing health coverage for public employees and certain categories of needy individuals. Tax dollars also go to subsidize health services directly. American taxpayers spent as much as $200 billion in 2007 to subsidize the purchase of employer-sponsored health insurance.3 Both workers and employers benefit from this subsidy, which exempts premium contributions from income and payroll taxes. Workers whose employers do not offer health insurance—or who are offered coverage but cannot afford to pay the premium—must pay taxes

to subsidize the health coverage of higher-wage workers who are offered employer-sponsored coverage and can afford to accept it. The self-employed may deduct their health insurance premiums from income tax, but not payroll tax, if they do not have access to an employer-sponsored plan. In addition to the tax subsidy for employer-sponsored coverage and coverage purchased by self-employed workers, the government subsidizes individuals with health care expenses exceeding 7.5 percent of their adjusted gross income by allowing these individuals to deduct their health costs (including premiums) on their tax returns.4 All taxpayers chip in for the health insurance that is provided to state, local and federal employees, from the local county clerk to the President of the United States.

The ESI exclusion is an upside-down subsidy. The largest subsidies go to high-income taxpayers who would be most likely to obtain insurance under almost any system. Those with low incomes get little or nothing. The subsidy for ESI depends on the marginal income tax rate, which increases with income. Taxpayers in the highest income tax bracket (35 percent) save 35 cents in income taxes for every dollar of earnings received in the form of health insurance. The roughly 30 percent of low-income households in the zero tax bracket, in contrast, receive no income tax benefit. (They might save payroll taxes, but that is a mixed blessing since their reduced payroll contributions to Social Security produce a commensurate drop in retirement benefits.) The result is a system in which households that face the highest premium burden as a share of income receive the smallest subsidy rate. —Statement of Leonard E. Burman, Director, Tax Policy Center, Senior Fellow, the Urban Institute, before the House Committee on the Budget Tax Code and Health Insurance Coverage, October 18, 2007.

Source: Tax Policy Center (www.taxpolicycenter.org)

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These payments are usually counted in the category of employer-sponsored private coverage (government as ‘employer’), but they also constitute a form of public, state-sponsored health coverage. Tax dollars go towards purchasing health care for prisoners—the only Americans with a legally defined “right” to health care. Tax dollars foot the bill for health coverage for military personnel, as well as individuals who qualify for Medicare, Medicaid, SCHIP and other meanstested programs. College students at public universities who are offered subsidized health insurance also receive this benefit through state dollars. Thus, individuals who fall into specific categories or meet established eligibility criteria are awarded health coverage that all taxpayers buy. Large government grants go towards financing research, technology development, and other advances in health care, and access to these tax-funded advances depends on access to health coverage. For example, all taxpayers support breast cancer research, from those in the lowest income bracket to those in the highest income bracket. Yet when new findings lead to the development of new treatments, only those taxpayers who can afford the new treatments will benefit.

Source: “The Uninsured: A primer,” Kaiser Commission on Medicaid and the Uninsured (Oct. 2007): p. 2, http://www.kff.org/uninsured/upload/7451-03.pdf

Who Has Health Coverage?
Most Americans—approximately 249 million or 84 percent of the total US population5—have some form of health coverage and access to health care. Of those under age 65 (commonly referred to in census and survey data as the “non-elderly population”), 82 percent have health insurance (see Figure 24).6 Almost all Americans age 65 and over have health insurance due to the availability of Medicare.7 • • • • • Very low-wage workers, individuals with disabilities, and pregnant women and children receive health insurance through Medicaid. Almost all elderly citizens over age 65 have health insurance through Medicare. Workers whose employers offer coverage (and whose premium share they can afford) have employer-sponsored health insurance. Public employees who get insurance from local, state or federal government are covered. Wealthy individuals who can afford expensive, robust health insurance plans from the private market or middle and low-income groups who can afford bare-bones private insurance plans have health insurance.

The majority of non-elderly Americans—61 percent—are covered through their employer. The share of non-elderly Texans with employer-sponsored coverage is lower at 54 percent.8 Of those receiving coverage from an employer, 93 percent live in families with at least one full time worker.11 The majority of individuals receiving coverage from their employers, 84 percent, have incomes at or above the 200 percent Federal Poverty Line (FPL) .12 Of Americans with employer-sponsored coverage, 73 percent are White. Ten percent are Black, 10 percent are Hispanic, and 7 percent are ‘Other race’.13 Medicaid is the second-largest source of insurance in America. It primarily covers low income children, pregnant women, welfare recipients and SSI recipients. Medicaid is the primary source of health coverage for the nation’s low-income population, covering approximately 13 percent of the non-elderly U.S. population in 200615 The vast number of people covered under this public program make it larger than any single health insurer in the nation.18 Medicaid covered one in four children in 2005 (28 million children total), making it the largest source of health insurance for children in the U.S.19 One in nine Texans relied on the Medicaid program for either basic health insurance or long-term services and supports in 2006. Seventy-four percent of Texas’ Medicaid caseload in 2005 was comprised of individuals below the age of 21, and 64 percent constituted children ages 14 and under.21 Medicaid pays for more than half of all births in Texas. Medicare is the nation’s third largest source of health coverage. Medicare is the primary form of health coverage for the elderly and permanently disabled. Prior to 1965 roughly half of all seniors lacked medical insurance – today, nearly all individuals age 65 and older have health insurance under Medicare.23 Medicare is an entitlement program under Title XVIII of the Social Security Act that provides health insurance to US citizens and legal residents age 65 and over regardless of health
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Most non-elderly Americans who are insured get their health coverage from an employer, either their own or a family member’s. Most Americans with employersponsored coverage are not classified as poor, and they are mostly White.
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status or income and to individuals under age 65 with permanent disabilities. Depending on data source, approximately 12-14 percent of the total population and 14 percent of the insured population is covered by Medicare.24 In 2007, Medicare provided health care coverage for 44 million Americans,25 of which 37 million were age 65 and over while 7 million were under age 65 with permanent disabilities.26 The trends in rising health care costs and higher Medicare enrollment due to an ageing population have led to projections that Medicare spending will grow faster than the overall economy over the next few years. If these trends continue, Medicare is expected to rise from constituting 3.1 percent of GDP in 2007 to constituting 7.3 percent of GDP in 2035.27 These projections raise further concerns about the financial security of the Medicare program and have led the debate on health care reform to critically consider the role of programs like Medicare and Medicaid in terms of changing national demographics and an unpredictable economic future.

Endnotes
“The Uninsured: A primer,” Kaiser Commission on Medicaid and the Uninsured (Oct. 2007): p. 8, http://www.kff.org/uninsured/upload/7451-03.pdf (accessed Nov. 2, 2007). 2 Ibid, p. 3 3 Statement of Leonard E. Burman, Director, Tax Policy Center, Senior Fellow, the Urban Institute before the House Committee on the Budget Tax Code and Health Insurance Coverage October 18, 2007, http://www.taxpolicycenter.org 4 “The Uninsured: A primer,” Kaiser Commission on Medicaid and the Uninsured (Oct. 2007): p. 3, http://www.kff.org/uninsured/upload/7451-03.pdf (accessed Nov. 2, 2007). 5 “Health Insurance Coverage of the Total Population, U.S. (2006),” Statehealthfacts.org (Kaiser Family Foundation, 2007), http://www.statehealthfacts.org/comparebar.jsp?ind=125&cat=3 (accessed Dec. 12, 2007). 6 “The Uninsured: A primer,” Kaiser Commission on Medicaid and the Uninsured (Oct. 2007): p. 2, http://www.kff.org/uninsured/upload/7451-03.pdf (accessed Nov. 2, 2007). 7 “Medicare: a Primer,” Kaiser Family Foundation (March 2007): p. 1, http://www.kff.org/medicare/ upload/7615.pdf (accessed Dec. 12, 2007) 8 Kaiser Family Foundation. Texas & the United States: State Medicaid Factsheet. 9 Ibid. 10 “Distribution of the Nonelderly with Employer Coverage by Age, US (2006),” Statehealthfacts. org (Kaiser Family Foundation, 2007), http://www.statehealthfacts.org/comparebar. jsp?ind=144&cat=3 (accessed Dec. 12, 2007). 11 “Distribution of the Nonelderly with Employer Coverage by Family Work Status, US (2006),” Statehealthfacts.org (Kaiser Family Foundation, 2007), http://www.statehealthfacts.org/ comparebar.jsp?ind=145&cat=3 (accessed Dec. 12, 2007). 12 “Distribution of the Nonelderly with Employer Coverage by Federal Poverty Level (FPL), US (2006),” Statehealthfacts.org (Kaiser Family Foundation, 2007), http://www.statehealthfacts.org/ comparebar.jsp?ind=146&cat=3 (accessed Dec. 12, 2007). 13 “Distribution of the Nonelderly with Employer Coverage by Race/Ethnicity, US (2006),” Statehealthfacts.org (Kaiser Family Foundation, 2007), http://www.statehealthfacts.org/ comparebar.jsp?ind=148&cat=3 (accessed Dec. 12, 2007). 14 “Employer Health Benefits 2007 Annual Survey,” Kaiser Family Foundation and Health Research and Educational Trust (2007): p. 45. 15 “The Uninsured: A primer,” Kaiser Commission on Medicaid and the Uninsured (Oct. 2007): p. 3, http://www.kff.org/uninsured/upload/7451-03.pdf (accessed Nov. 2, 2007). 16 “Health Insurance Coverage of the Total Population, U.S. (2006),” Statehealthfacts.org (Kaiser Family Foundation, 2007), http://www.statehealthfacts.org/comparebar.jsp?ind=125&cat=3 (accessed Dec. 12, 2007). 17 “Medicaid & SCHIP,” Statehealthfacts.org (Kaiser Family Foundation, 2007), http://www. statehealthfacts.org/comparecat.jsp?cat=4 (accessed Dec. 13, 2007). 18 “The Uninsured: A primer,” Kaiser Commission on Medicaid and the Uninsured (Oct. 2007): p. 3, http://www.kff.org/uninsured/upload/7451-03.pdf (accessed Nov. 2, 2007). 19 Medicaid: a Primer,” Kaiser Family Foundation (March 2007): p. 6, http://www.kff.org/ medicaid/7334-02.cfm (accessed Dec. 12, 2007). 20 “Texas Medicaid in Perspective (Chapter 1),” Texas Medicaid in Perspective (Texas Health and Human Services Commission, January 2007): p. 1, http://www.hhsc.state.tx.us/medicaid/ reports/PB6/PDF/Chapter01.pdf (accessed Dec. 12, 2007). 21 “Clients and Benefits (Chapter 4),” Texas Medicaid in Perspective (Texas Health and Human Services Commission, January 2007): p. 8, http://www.hhsc.state.tx.us/medicaid/reports/PB6/ PDF/Chapter04.pdf (accessed Dec. 12, 2007). 22 “Medicaid Coverage Rates for the Nonelderly by Age, states (2005-2006),” Statehealthfacts. org (Kaiser Family Foundation, 2007), http://www.statehealthfacts.org/comparebar. jsp?ind=159&cat=3 (accessed Dec. 14, 2007). 23 “Medicare: a Primer,” Kaiser Family Foundation (March 2007): Introduction, http://www.kff. org/medicare/upload/7615.pdf (accessed Dec. 12, 2007) 24 “12 percent of total population and 14 percent of the insured population” statistic based on CPS data: “Health Insurance Coverage of the Total Population, U.S. (2006),” Statehealthfacts. org (Kaiser Family Foundation, 2007), http://www.statehealthfacts.org/comparebar. jsp?ind=125&cat=3 (accessed Dec. 12, 2007). “14 percent of population” statistic based on CMS data: “Medicare Enrollment as Percent of Total Population, 2005,” Statehealthfacts.org (Kaiser Family Foundation, 2007), http://www. statehealthfacts.org/comparemaptable.jsp?ind=291&cat=6 (accessed Dec. 17, 2007) 25 “Medicare: a Primer,” Kaiser Family Foundation (March 2007): p. 1, http://www.kff.org/ medicare/upload/7615.pdf (accessed Dec. 12, 2007) 26 Ibid. 27 Ibid, p. 15. 28 “The Uninsured: A primer,” Kaiser Commission on Medicaid and the Uninsured (Oct. 2007): p. 2, http://www.kff.org/uninsured/upload/7451-03.pdf (accessed Nov. 2, 2007). 29 Ibid, p. 4. 30 Ibid. 31 Ibid. 32 Ibid, p.5. 33 Ibid. 34 Ibid. 35 Based on data collected from the Census Bureau, 2005 American Community Data Profile Highlights: Texas; and from Kaiser Family Foundation, Statehealthfacts.org: Texas. 36 Ibid.
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The Insured Can Easily Become Uninsured
Any American who has insurance can become uninsured if their life circumstances shift. You and your family might be at risk of losing your health insurance, if… … you are a low wage worker who receives a raise that puts you and your family slightly above the Medicaid eligibility line but in no position to afford the premium share of your company’s health insurance plan … you develop a chronic health condition from the type of job you perform that now makes you too much of a “high risk” for any health insurance, even your employer’s … you were diagnosed with a heath condition during your transition period that your new employer’s insurance carrier considers a “pre-existing condition” that it will not cover … you retire early to care for an ageing parent and lose your employer-sponsored coverage while still being ineligible for Medicare … you are an entrepreneur and decide to start a small enterprise of your own, but cannot afford any health insurance until your business has gained enough traction to afford such benefits … you get divorced from your spouse under whom you had health insurance … you graduate from college and volunteer your service with a global relief agency

Health Policy in Your Hands is a publication of Texas Impact, a statewide interfaith organization established by Texas religious leaders in 1973 to provide a voice of religious social concern to the Texas Legislature. This and other installments of Health Policy in Your Hands are available online at http://texasimpact.org/healthpolicyguide Publication of Health Policy in Your Hands is supported by Methodist Healthcare Ministries of South Texas. Copyright 2008 Texas Impact/ Texas Impact Education Fund.

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