Soaring Premiums -> Surging Underinsured

Drew Altman, Ph.D., president and CEO of the Kaiser Family Foundation, writes an excellent piece describing the serious erosion of health insurance benefits. Those who bought their own health insurance, from 2004 to 2007, still paid 52 percent of their health expenses, on average, out of their own pocket.

How is this possible? Through a clever insurance marketing tool the insurance industry refers to as a "buy-down." If insurance premiums get pushed up fast enough, the rational response of consumers is to beg for relief. Insurers commonly suggest that the increase can be mitigated or even eliminated by switching to a policy with higher deductibles or greater cost sharing, which provides less protection for the consumer. As a result, we have a surging number of Americans who are underinsured, many unknowingly. These people are a serious illness or accident away from a financial shock when they find the insurance they have been paying for provides far less protection than they need.

Imagine a family of four earning $70,000, and carrying individual coverage with a $3,500 deductible, 20 percent coinsurance to $6,000, and $40 office visit co-pay. If, in the midst of a snowstorm, their car slid into a bridge abutment, causing serious injuries to two family members, the family could be liable for two deductibles of $3,500 each, plus two out-of-pocket maximum's of $6,000 each, representing a total hit to the family budget of $19,000. How many families could come up with an amount equal to more than 27 percent of their annual income within 30 days of insurance making its payments to doctors and hospitals? And, in addition to these costs, these two individuals would be liable for $40 office visit co-pays each time they needed to see one of several physicians throughout the course of their recovery, even though they met their deductible and out-of-pocket maximum for the year. All of this is further exacerbated by the fact that the primary wage earner (or all wage earners) could be out-of-work while they recover. Not everyone has a ready supply of sick-leave that will ensure income continues uninterrupted during an extended convalescence. So, imagine having a debt of $19,000, coupled with a six week absence from work, and the pay that goes with it. Now that $19,000 debt represents almost 31 percent of the $61,923 this family would earn for 46 weeks of work.