The University of Michigan
555 South Forest Street
Ann Arbor, MI 48104-2531
Michael Chernew, Ph.D.
Michael Chernew is Professor at the University of Michigan in the departments of Health Management and Policy, Internal Medicine, and Economics. Chernew, who is also co-director of the Robert Wood Johnson Foundation's Scholars in Health Policy Research program at the University of Michigan, focuses his research on assessing the impact of managed care on the health care marketplace and on health care cost growth. He recently co-authored a paper. "Increasing Health Insurance Costs and the Decline in Insurance Coverage," for ERIU.
Q: Can you highlight for me the conundrum between prosperous economic times and the continued decrease in health insurance coverage?
A: People think of prosperity as a time when more people have jobs and would potentially expect insurance rates to rise and uninsurance rates to fall. The 1990s was as about as a prosperous time as we've had, but we didn't see a big decline in rates of uninusrance. If the economy isn't generating more coverage when it is doing really well, it really raises concerns about what will happen when the economy is not doing so well. Moreover, much of the discussion about the problem of the uninsured focusing on what's going on in a point in time and doesn't put the issue in the broader context of rising health care costs. It's extremely important for the policymakers and others to understand that debates about the health care system and coverage are occurring in an environment with phenomenal pressure for health care costs growth. That has ramification for how one views potential policy remedies because the policy remedies not only need to look good when they are adopted but how such remedies will look five, ten years from now.
Q: At what rate have per capita medical costs been rising since the beginning
of the current decade?
A: Per capita health care costs probably have been rising 7-plus percent. Premiums have even been up in the double digits. In the last few years, even when you take out inflation and even when you take out population growth you end up with a number higher than 3 percent, which is what we use for the high end estimation. The Office of the Actuary at the Centers for Medicare and Medicaid Services uses the 1 percent number for long-term cost projections of health care cost growth. The historical number going back 50 years or so would be closer to 2 percent or a little more. I bet over the next 10 years you won't see health care cost growth go as fast as you have in the last five years. You're just not going to see double-digit premium increases 10 years in a row. Some of that is going to be because of changes in insurance policies and such. I do think you'll see about 3 percent, because it is a reasonable number.
Q: So as you demonstrate, coverage declines when medical costs and health insurance premiums go up. Do what's the driver here? Did employers dump offers of health insurance? Did they essentially push more of the increased premiums onto workers, who in turn said I can't afford it and will go without? Or is it something else?
A: Our research doesn't speak directly to that. In the 1990s it was workers turning down coverage because they were asked to pay a greater share of the premiums. When employers raise the amount individuals have to pay out of pocket, there will be some subset of individuals who will opt not to participate in their employer's plan. I'm sure there are some employers who decide not to offer coverage as well, but I haven't looked at that in particular, but people are responsive to the amount of money they have to pay.
Q: You found that that the average health insurance premium increased by $818 between 1990 and 1999. Is that employer coverage only?
A: It's just employers and it's adjusted for a whole bunch of things. So that particular number is trying to hold things about the insurance policy and the benefits package constant. For example, if you look at people's actual premiums, you'd find that people's premiums rose by a somewhat smaller amount because people were trying to substitute with less generous plans. The 1990s were a period of relatively low health care growth. I don't find that number particularly remarkable. I think one would find a potentially higher number if one looked at it over different time periods, such as the first five years of this decade. It's misleading to look at it in terms of dollar increases for the premium as opposed to percentage increases.
Q: How many of these women remain uninsured? Why?
A: We do have substantial proportions that do remain uninsured.
Q: What is the takeaway for policymakers?
A: There are two messages. First, efforts to subsidize coverage so people can buy it will be difficult to maintain in the long run because they'll either become less effective or more expensive. I think any remedy you pick to deal with the uninsured is going to be viewed differently in the context of rising health care costs. With Medicaid, for example, the costs keep rising. I'm not opposed to expanding coverage, but, like entitlement programs, one of the challenges is that it is easy to lose control of the trajectory of spending. That is particularly true in health care, because the spending trajectories have been very steep. Secondly, we need to focus more attention on health care financing and developing systems to ensure we get value for the dollar. Spending more in health care is not inherently bad. We get a lot of services for what we spend and we want people to be healthy. With that said, we do want to make sure that the money we are spending is giving us value. And it's not clear that all the money we are spending is giving us enough value to justify that dollars being spent. Thinking about insurance design issues is fundamentally important. I am skeptical that a whole range of things will slow health care cost growth, but I do think with work we might be able to increase the value of the dollars spent.
Back to top
Funded by The Robert Wood Johnson Foundation, ERIU is
a five-year program shedding new light on the causes and consequences
lack of coverage, and the crucial role that health insurance plays in
shaping the U.S. labor market. The Foundation does not endorse the findings
of this or other independent research projects.