Underinsured Americans: Cost to you

As the recession shrinks health care coverage for more households, experts warn of a double-whammy on all consumers.

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By Parija B. Kavilanz, CNNMoney.com senior writer

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NEW YORK (CNNMoney.com) -- Americans already shouldering the cost of millions of people without health insurance should brace for a double-whammy: a surge in the number of the "underinsured," or consumers who have some but not enough coverage.

The problem, according to health care industry experts, is that the government and those with employer-based plans will have to pick up the tab as more Americans are unable to pay their entire medical bill.

As the recession puts a bigger strain on consumers' wallets, many underinsured Americans either can't or won't pay the high deductibles and co-pays for treatment they receive in hospitals and emergency rooms.

By one estimate, 25 million Americans can't afford to cover the gap between what their insurance covers and their medical bills demand.

The issue shows the steep challenge faced by President Obama and other Washington leaders vowing to put the health care system on a course for long-term fiscal viability. On Thursday, the president is convening 150 experts, advocates and lawmakers for a "summit" to debate options.

Many people without adequate insurance are also delaying or forgoing medical care until it becomes an absolute emergency, said Dr. David Chin, managing partner of consulting firm PricewaterhouseCooper's Global Healthcare Research Institute.

By law, hospitals have to treat all emergency admissions regardless of insurance.

"If the underinsured can't pay the bills, the hospital either writes it off as bad debt or shifts the cost to its charity care program," said John Pickering, principal and consulting actuary with consulting firm Milliman Inc.

Increasingly, hospitals are shifting costs to "those who can pay," said Wynn Bailey, partner and health care expert with consulting firm AT Kearney. "That's the government, private insurers and the self-insured."

Bailey said hospitals are negotiating higher treatment rates with insurance companies to offset the bad debt.

In turn, commercial insurance providers are charging higher premiums to their clients, both businesses and individuals, to cover their cost increases. As businesses struggle with their employee health care costs, they are shifting a higher percentage of overall premiums to their workers, charging higher deductibles, or encouraging greater use of generic drugs.

"It's a vicious cycle," said Pickering.

Bailey said he wouldn't be surprised if people with employer-based health insurance have to pay 5% to 10% more for their coverage over the next year or two.

Not tracked by government

One reason the exponential growth in underinsured Americans hasn't made headlines is because this group isn't yet tracked by the government, explained Sara Collins, economist and assistant vice president with health policy research group The Commonwealth Fund.

"It's harder to define the underinsured," Collins said.

The Commonwealth Fund defines underinsured as those who incur high out-of-pocket costs - excluding premiums - relative to their income, despite having coverage all year.

Using that measure in consumer surveys, Collins' firm estimates that 25 million adults under age 65 were underinsured in 2007.

More importantly, Collins pointed out that the number of underinsured increased 60% from 2003 to 2007. That compares with a 5.1% increase in the number of uninsured Americans - to about 46 million - over the same period, according to the U.S. Census Bureau.

"The 25 million [number] can still be an underestimate," Collins said.

What's also troubling, she said, is that the ranks of the underinsured are spreading across income levels and have seen the most rapid increases lately in middle-income households earning between $40,000 to $60,000.

Obama's plans

Meanwhile, Obama has made health care reform a top priority, detailing a dramatic overhaul of the system in his budget outline last week.

Some of Obama's initiatives will provide short-term relief to both the uninsured and underinsured.

Specifically, the government will provide a 65% subsidy to businesses who continue Cobra premiums for laid off employees for a period of 9 months.

"But what happens after that period?" said Bailey. "Many people are wary about finding another job in a year in this economy."

Longer term, Obama last month extended the Children's Health Insurance Program Reauthorization Act which renews and expands health coverage by an additional 3 million children, to 11 million children.

Investments in health care technology will eliminate unnecessary costs and prevent duplicative care, Bailey said.

Also, in his budget, Obama proposed a 10-year health care reserve fund of $630 billion to "bring down costs and expand coverage."

Bailey has reservations.

That $630 billion "sounds like a lot of money. But total health care consumption this year is expected to be about $2 trillion," he said. "So is spending $63 billion a year enough to transform this gigantic beast?"

"Obama's proposals certainly are a start, but much more is needed," said Bailey. To top of page

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