Diagnosis: What Is Happening in the Health Care Financing Systems

The Uninsured

In 2004, 56 percent of Texans 65 and younger had health insurance through their own or a family member's job, well below the U.S. average of 63 percent. Texas, sadly, now leads the nation in the percent of uninsured adults, number of uninsured working adults, percent of uninsured children, and number of uninsured children. [14]

The uninsured are up to four times less likely to have a regular source of health care and are more likely to die from health-related problems. [15]

They are much less likely to receive needed medical care, even for symptoms that can have serious health consequences if not treated. [16]  About one in six Texans lives at or below the poverty level; for children, it is nearly one in four. Extending health coverage to the uninsured could improve their overall health by 7 to 8 percent. [17] Lack of insurance increases their dependence on Medicaid.

Lacking a medical home, uninsured people tend to look for health care in the emergency room, the most expensive setting they could possibly choose. Nationally, patients made 108 million emergency room visits in 2000, up 14 percent from 1997. The National Center for Health Statistics estimates that non-emergencies account for one in 10 of those emergency room visits. [18]

Click For Larger Image Using Medicaid payment rates and data on Medicaid patients' unnecessary emergency room visits, the Legislative Budget Board estimates that a condition that could be treated in a doctor's office for $56.21 (including lab and x-ray) costs $193.92 in the emergency room. (See  Figure 2 .) National studies back up that data, finding, for example, that the charge for treating an ear infection in the emergency room is $170 versus $55 in a family physician's office. [19]

While physicians' Medicaid reimbursement for even simple cases is far less than half the cost of providing care, they frequently treat uninsured patients for far less - even free. Texas Medical Association surveys show Texas physicians provide about $1 billion in charity care each year. [20]

Taxpayers, Texans with insurance, and employers who offer health benefits also pay extra for caring for the uninsured. Families USA estimates the total cost for Texas in 2005 to be more than $9.2 billion. Of that:

  • The patients and their families pay about half ($4.6 billion);
  • Government health programs pay one-sixth ($1.6 billion); and
  • Those with private health insurance subsidize the remaining third ($3 billion). [21]

In 2000, the 11 trauma centers in the Houston-Galveston area provided $39 million in care to uninsured trauma patients. The hospitals lost more than $2,500 for every trauma patient they admitted; losses on some patients exceeded $200,000. [22]  To cover these costs, hospitals charge insured patients higher prices, which in turn drives up insurance premiums. In what Families USA calls a "vicious cycle," those increased costs are added to already-rising health insurance premiums, leading more employers to drop coverage, and leaving even more people without insurance. That further adds to premiums for the insured and further boosts the rolls of the uninsured.

In 2005, typical premiums in the United States for family health insurance coverage provided by private employers include an extra $922 due to the cost of care for the uninsured. In Texas, home of the greatest percentage of uninsured in America, that figure is $1,551. By 2010, the national average will catch up to Texas' current figure; by then, the annual cost per Texas family will soar to $2,786. [23] Two-thirds of the uninsured Texans of working age are employed. These employed but uninsured are particularly likely to work in small firms. Across the country, the percentage of firms with fewer than 200 employees providing health coverage to their workers decreased from 69 percent in 2000 to 60 percent in 2005. [24]

Smaller employers are the largest generators of new jobs today, and the Texas economy consists disproportionately of small companies. Therefore, these companies need access to reasonably priced health insurance for their employees if we are to reduce the state's large uninsured population. Smaller employers have no leverage in the health insurance marketplace. They are more vulnerable to insurers who refuse to renew, or insist on huge premium increases because of one employee's expensive illness. Even in small firms that offer insurance, the employer-paid subsidy may be too small to allow lower-paid workers to purchase coverage for themselves and their families. Resolving these problems will require some creative approaches to allow smaller employers more affordable access to insurance markets.

The Private Sector

The one essential fact of our current health care financing system is that every major stakeholder in the financing system is unhappy - except the for-profit managed care plans.

Why are these plans happy? In a word, profits. U.S. HMOs saw a 10.7-percent increase in profits in 2004, continuing a longstanding trend. [25] The nation's 17 largest health plans saw their average profits rise from $193 million in 2000 to $414 million in 2003. In the same period, they:

  • Decreased their payments for health care services from 84.8 percent of every premium dollar to 81.5 percent,
  • Increased their premiums by 60 percent, and
  • Doubled their profit margins to 5 percent. [26]

Average pay for the five top executives at 16 of those insurers almost doubled, from $1.6 million to $3 million each. Stock options added millions more.

Just what value do Texans receive for the large rewards we have given these companies, their senior managers, and their stockholders? In aggregate, these 17 managed care companies' profits exceeded $7 billion in 2003. Texans constitute roughly 8 percent of the U.S. population. If we allocate those profits proportionately, the plans have siphoned 560 million Texas dollars away from clinical care.

Moreover, the finances of for-profit managed care plans constitute only a partial portrait of the inefficiencies that the health plans foster in the delivery system. Medical practices have seen their administrative expenses grow to pay for employees added to navigate physicians' clinical and economic relationships with managed care plans. In 1982, before managed care became the dominant delivery system, practices had, on average, two nonclinical employees per physician; today, the average is four to five per physician. These are extra employees who deal with the hassle factors that come with managed care contracts: long-unpaid claims, lost claims, inexplicable interpretations of the claims coding systems. Even today, these workers' job description includes begging the plans on behalf of patients for inpatient hospital stays and for other medical services the plans claim are overutilized. Hospitals, other institutions, and other health care practitioners tell much the same story about the parasitic, bureaucratic requirements that managed care organizations impose on them and their patients.

The Public Sector

The two primary government health care financing programs, Medicare and Medicaid, face significant financial problems, although Medicaid's are much more immediate. Texas physicians realize Medicaid and CHIP must become more effective, efficient, and accountable, but not at the expense of the programs themselves. They are vital to the health and well-being of the state's poor and low-income families and to the economic vitality of the state and local governments. Medicaid costs are growing more slowly than private health insurance, 6.9 percent versus 12.9 percent (Kaiser). But with 3 million Texans insured via the program, even modest cost growth is rightly worrisome to lawmakers.

Medicaid costs are driven by the same factors as health care costs generally: an older, sicker population, and better and more expensive medical technology and pharmaceuticals. Growing caseloads and the expense of caring for the elderly and patients with disabilities also boost Medicaid's price tag.

With strong backing from organized medicine, the 2005 Texas Legislature restored needed Medicaid benefits and services that lawmakers cut in 2003. These included coverage for vision, mental health, and podiatric services for the elderly and adults with disabilities. The legislature did not reinstate funding cut from physician and provider reimbursements, Medicaid-funded graduate medical education, or the medically needy program.

Next: Healthy Vision 2010: The Treatment

[14] U.S. Census August 2005, Robert Wood Johnson Foundation. Characteristics of the Uninsured: A View from the States; April 2005. Accessed October 2005 at http://www.rwjf.org/research/researchdetail.jsp?id=1882&ia=132 .
[15] Federal Reserve Bank of Dallas. Southwest Economy; November/December 2004.
[16] Hadley J, Cunningham PJ. Center for Studying Health System Change. Perception, Reality and Health Insurance: Uninsured as Likely as Insured to Perceive Need for Care But Half as Likely to Get Care. Issue Brief No. 100; October 2005.
[17] Dor.
[18] National Center for Health Statistics. National Hospital Ambulatory Medical Survey: 2000; April 2002.
[19] Factors Associated With Emergency Department Utilization for Nonurgent Pediatric Problems. Arch Fam Med. 2000; 9:1086-1092, p. 1088.
[20] Center for Public Policy Priorities and Methodist Healthcare Ministries. The Texas Health Care Primer; November 2003.
[21] Families USA. Paying a Premium: The Increased Cost of Care for the Uninsured; June 2005. Accessed October 2005 at http://www.familiesusa.org/assets/pdfs/
[22] Clifton GL, MD. The Implosion of Emergency Services in the Texas Gulf Coast. Save Our ERs. Accessed Oct. 17, 2005, at http://www.saveourers.org/crisis.html .
[23] Families USA.
[24] Kaiser Family Foundation.
[25] Weiss Ratings, Inc. News Release; Aug. 8, 2005.
[26] Britt.