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Background Analysis:
Estimating
the Impact of the Economic Downturn
And Rising Insurance Premiums
On the Number of Uninsured in America
Gail Shearer
Director, Health Policy Analysis
Washington Office
CONSUMERS UNION
December 4, 2001
Overview
How many people will lose their health insurance in the coming months and years as a result of double-digit premium increases, a rapidly rising unemployment rate, and continued economic downturn? Based on past recessions and economic modeling of the future, it is clear that we simply do not know.
Economists design models in worlds where "all other things are equal." But as economists point out, in the real economy, much is changing, and little remains stagnant. Some of the factors that complicate the projections of the number of uninsured during an economic downturn and rising premiums include the following:
· Eligibility and enrollment in Medicaid and SCHIP are likely to change when a parent becomes unemployed.
· States will be under budget constraints and may seek to cut costs by cutting back Medicaid eligibility and benefits, just as need for Medicaid coverage increases.
· The SCHIP budget will decrease in FY 2002 to FY 2004 and it is unclear how long "leftover" funds from earlier years will forestall cutbacks in enrollment.
· Double-digit increases in premiums have returned, and we don't know what the premium increases will be over the next several years.
In 2000, the Bureau of Census estimated that 38.7 million people (16% of those under age 65) were uninsured. A prolonged recession, combined with double-digit premium increases, could lead to the number of uninsured growing to 45 million, or even 61 million.(1) As a result, it is critical that Congress take steps to minimize the growth in the uninsured. It can do so by:
· Providing a 75% subsidy for COBRA premiums for the newly unemployed;
· Providing states the option to provide Medicaid coverage for additional premium subsidies for low-income displaced workers;
· Providing states the option to extend Medicaid coverage to displaced workers who are ineligible for COBRA coverage because they work for a small employer or did not have coverage when they were employed;
· Providing an enhanced federal match rate for the states for Medicaid to relieve pressure on state budgets and avoid cutbacks in Medicaid coverage or eligibility.
· Providing funds needed for SCHIP to avoid cutbacks in coverage of children.
· Developing a long-term blueprint that will eventually result in all people in America having high-quality, affordable health-care coverage.
Summary Table: Studies Estimating Growth in Uninsured
Estimates of the
Uninsured:
Summary of Various Studies
Under pessimistic assumptions about health care spending and the economy,
the number of uninsured could increase by 12.8 million by 2009, according to
one study.
Todd Gilmer and Richard Kronick use a logistic regression model to show that the number of uninsured will rise substantially in the coming years. The model predicts the probability of an adult worker having health coverage based on various factors such as per-capita health spending divided by income, demographic characteristics, and employment characteristics.(2) They estimate that under a pessimistic assumption about health spending and income, the percentage of uninsured among adult workers will increase from 23.1 percent in 1999 to 30.3 percent in 2009. Assuming no change in eligibility or enrollment in public coverage, this would result in an increase in uninsured of 12.8 million. Note, however, that they use a 1988 to 2000 time-frame to develop their model, which does not fully reflect the recent changes in eligibility under Medicaid and SCHIP. The actual number of newly uninsured may be lower if enrollment growth in SCHIP and Medicaid is quite large.
Rapidly increasing unemployment is likely to lead to large increases in the uninsured: While 18% of adults in the general population are uninsured, 37% of unemployed adults are uninsured, according to a Commonwealth Fund study.
An analysis prepared by Jeanne M. Lambrew(3) reports that COBRA premiums often amount to two-thirds of unemployment benefits - it is no wonder that so many Americans cannot afford them. Applying the study's estimates to the current workforce of 143 million, an unemployment rate increase of 2 percent would increase the number of uninsured adults by about 560,000.(4) These estimates do not take into account the impact of rising health insurance premiums. As the report notes, employed people are also at risk of losing coverage since employer-provided coverage is reduced when health insurance premiums rise rapidly, as they have recently.
Researchers at the Urban Institute estimate that loss of income by unemployed adults will expand eligibility for Medicaid, which could have an additional enrollment of 400,000 non-disabled adults, 1.0 million children, and 130,000 disabled adults if unemployment increases from 4.5% to 5.5%.
Researchers John Holahan and Bowen Garrett of the Urban Institute estimate that if unemployment increases one percent, with no change in federal/state match rates, federal expenditures will increase in 2002 by $1.5 billion, and state expenditures will increase by $1.1 billion.(5) To relieve pressure on state budgets and to forestall cutbacks in coverage under Medicaid, the paper suggests possibly increasing federal matching rates on a short-term basis.
Studies of the effect of past recessions on the number of uninsured have shown a large increase in the uninsured: The Congressional Budget Office estimates that during the recession of 1982-1983, 5 million unemployed workers and 5.2 million of their dependents lost health insurance coverage.(6)
However, estimating the number of uninsured during recessions is analytically challenging. Other studies of the 1982-1983 indicate far fewer uninsured, with 1.4 million of the unemployed losing coverage.(7) One of the challenges for researchers has been that a substantial number of newly unemployed were uninsured when they were employed. It is notable that the recession of 1982 to 1983 occurred before COBRA was enacted in 1985, which at least mandated that most large firms (with greater than 19 employees) give displaced workers the option of continuing their group health insurance (at their own expense) after becoming unemployed.
Recent research by the National Coalition on Health Care suggests that a confluence of economic events could result in an increase in the uninsured of 6 million people in 2001-2002.
Research by Joel Miller at the National Coalition on Health Care concludes that the rapidly rising health insurance premiums will be a "dominant force" leading to an increase in the uninsured in 2001-2002 and that the downturn in the economy and increasing unemployment would exacerbate this problem.(8) The report describes the element of the "perfect storm," the confluence of events that is likely to lead to erosion in insurance coverage. The three key factors are:
· Increasing health care costs and health insurance premiums
· Growing unemployment
· A sustained economic recession (9)
A study by economist Kenneth Thorpe estimates that "each 0.5 percentage point increase in the unemployment rate can in theory … add approximately one million Americans to the ranks of the uninsured over a period of a year."(10)
Based on this study, a one-percent growth in unemployment would result in an additional 2 million uninsured people.
Medicaid and SCHIP provide some degree of safety-net protection for children of the unemployed, but expanded enrollment in Medicaid puts a tremendous burden on state budgets, and the SCHIP budget for FY2002 through FY2004 is already strained owing to the erratic funding pattern established by Congress.
Researchers at the Urban Institute calculate that an increase in the unemployment rate of one percentage point (from 4.5% to 5.5%) will lead to growth in Medicaid enrollment of 1.5 million people. This is larger than the actual number of people newly unemployed people (1.4 million). 1.0 million of these newly enrolled will be children; 400,000 will be adults; and 130,000 will be blind/disabled persons.(11)
Researchers at the Center on Budget
and Policy Priorities (CBPP) point out that Congress created an "erratic
funding pattern for SCHIP," with a 26 percent dip in funding for FY 2002
because of the constraint of balancing the federal budget in 2002.(12)
The funding remains at a low level through FY 2002. CBPP points out that because
of the dip in funding, the states need the flexibility of using funds from earlier
years in order to avoid cutting back the number of children covered by
SCHIP. (The Administration had suggested using more than $11 billion of unspent
SCHIP funds to pay for subsidies for the unemployed.)
Research prepared for the Health Insurance Association of America (HIAA) estimates that a recession similar to that of the early 1990s could lead to 61 million uninsured people in America in 2009.(13)
This would represent an increase
in the number of uninsured of 22 million.
The exact impact will depend on the severity of the recession, its duration,
and other factors such as premium increases and government subsidy programs.
The Lewin Group estimates that inflation-adjusted premium increases of 10 percent (apart from the recession) will result in a growth in the uninsured of 3 million.
The Lewin Group has estimated that for every one-percent "real" (inflation adjusted) increase in health insurance premiums, an estimated 300,000 fewer people take employer coverage.(14) While the Lewin Group does not project the impact of double-digit premium increases repeated many years over, it is likely that long-term, continuous double-digit premium increases will put health care coverage out of reach for many millions of people.
Consumers Union Washington DC Office
Endnotes
1 William S. Custer, Ph.D. and Pat
Ketsche, Ph.D., M.H.A., Center for Risk Management and Insurance Research, Georgia
State University, "The Changing Sources of Health Insurance," prepared
for the Health Insurance Association of American, December 14, 2000. Available
at http://www.hiaa.org search for "Custer."
2 Todd Gilmer and Richard Kronick, "Calm Before The Storm: Expected Increase In the Number Of Uninsured Americans," Health Affairs, November/December 2001.
3 Jeanne M. Lambrew, George Washington University, "How the Slowing U.S. Economy Threatens Employer-Based Health Insurance," November 2001. Available at http://www.cmwf.org/programs/insurance/lambrew_slowingeconomy_511.pdf/.
4 With a workforce of 143 million, there would be 8.6 million unemployed at an unemployment rate of 6% and 11.4 million unemployed if the unemployment ate were 8%, an increase of about 3 million. If 18% were uninsured when employed and 37% uninsured when they become unemployed, then the increase in the number of uninsured adults would be 560,000 (1,100,000 - 540,000).
5 John Holahan and Bowen Garrett, Urban Institute, "Rising Unemployment and Medicaid," Health Policy Online, October 16, 2001. Available at http://www.urban.org/pdfs/HPOnline_1.PDF.
6 U.S. Congressional Budget Office. Providing Health Insurance for the Unemployed. Washington, D.C.: U.S. Congressional Budget Office, 1983, cited in Alan C. Monheit et.al., Editors, Informing American Health Care Policy, Jossey-Bass Publishers, San Francisco
7 Monheit, A.C., et.al., Unemployment, Health Insurance, and Medical Care Utilization, Rockville, Md: National Center for Health Services Research, 1983 and Monheit, A.C., et.al, "Health Insurance for the Unemployed: Is Federal Legislation Needed? Health Affairs, 1984, 3, 101-111, cited in Alan C. Monheit et.al, op. Cit.
8 Joel E. Miller, National Coalition on Health Care, "A Perfect Storm: The Confluence of Forces Affecting Health Care Coverage," November 2001, Washington, D.C. Available at http://www.americashealth.org/APerfectStorm.pdf.
9 Ibid., p. 3.
10 Kenneth Thorpe, Derived from a regression analysis based on March 1991 through March 1998, Current Population Survey, cited by Steven Findlay, and Joel Miller, "Down a Dangerous Path: The Erosion of Health Insurance Coverage in the United States," National Coalition on Health Care, May 1999. Available at http://www.nchc.org/1999PolicyStudies/DownADangerousPath.html.
11 Holahan and Garrett, op.cit.
12 Edwin Park and Matthew Broaddus, "OMB Estimates Indicate 400,000 Children Will Lose Health Insurance Due to Reductions in SCHIP Funding," Center on Budget and Policy Priorities, November 8, 2001. Available at http://www.cbpp.org/11-8-01health.htm.
13 Custer and Ketsche, op.cit.
14 Statement of John Sheils, Vice President, Lewin Group, Testimony before
the Subcommittee on Health of the House Committee on Ways and Means, Hearing
on Uninsured Americans, June 15, 1999. Citing John Sheils, et.al., "Exploring
the Determinants of Employer Health Insurance Coverage," (Report to the
AFL-CIO) The Lewin Group, Washington, D.C., January 20, 1998. Available at
http://waysandmeans.house.gov/health/106cong/6-15-99/6-15shei.htm
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