Affordability It Is More Than Insurance

In 2010, Congress passed and former President Barack Obama signed into law the Affordable Care Act. Although this legislation has improved access to healthcare for millions, ironically, what constitutes “affordability” remains a vexing issue in healthcare. Although every person in the United States uses health services, what is paid, how these expenditures impact their financial security and exactly what affordability means are complicated.

Two Fundamental Flaws in U.S. Health Policy
1. Healthcare is treated as a discretionary expense, and accurate accounting for spending is inadequate. There are two line items in the U.S. Census Bureau’s biweekly Household Pulse Survey: “Healthcare” and “Health Insurance Premiums.” However, out-of-pocket payments for over-the-counter remedies, products and devices such as walkers and monitors, functional food required to treat certain conditions, or services like mindfulness and yoga that augment conventional treatments are not reported. Access to consistently structured data across private and public payers, federal and state programs, and local public health organizations is nonexistent. Thus, accounting for actual healthcare spending and its affordability to households is problematic. 

Studies by nonprofit organizations have shown a 2:1 relationship between insurance premiums and out-of-pocket costs not covered by an insurance plan. That burden hits low-income households hardest. Consider the following statistics. 

• In families with incomes equal to or below twice the federal poverty level, family payments for health insurance premiums and medical care, combined, average about 14% of family income (9% for insurance premiums, 5% for out-of-pocket payments), according to a brief produced by a partnership between the Peterson Center on Healthcare and KFF. And, payments can be 50% higher if a family member is in fair or poor health.
• In the first half of 2020, 43.4% of U.S. adults ages 19 to 64 were inadequately insured—a figure that remains unchanged from 2018, according to findings from the Commonwealth Fund Biennial Health Insurance Survey, 2020. People with incomes below 133% of the FPL ($16,971 for an individual and $34,846 for a family of four in 2020) reported uninsured rates that were three times higher than adults with incomes at 400% of the FPL or higher ($51,040 for an individual and $104,800 for a family of four). They also had underinsured rates that were two times as high as their higher-income counterparts. 

2. Health insurance does not make healthcare affordable to 40% of the population. Polls show that the public thinks having health insurance through an employer, Medicaid, Medicare or an individual policy is key to accessing the healthcare system. At the end of 2020, 89% of the U.S. population had insurance of some sort, but for many who have insurance and those without, healthcare is unaffordable. Consider the following:

• Health insurance premium costs have increased 28% faster than wages since 2010. Furthermore, that gap is increasing, according to KFF.
• Nearly half (43%) of U.S. adults are worried about not being able to pay their medical bills, and 54% say they are unable to pay for medical costs in the event of a serious illness or injury, according to Gallup, an analytics firm.
• More than one-third (34%) of U.S. adults say they have difficulty paying their usual household bills, and healthcare is not the bill they pay first, according to the U.S. Census Bureau. 

Health insurers and large employers have successfully shifted more financial responsibility to their enrollees and employees while increasing deductibles and co-pays, reducing what is covered and making healthcare affordability a household issue.

Emergent Public Policy on Healthcare Affordability
Three major dynamics will affect emergent healthcare policies targeting healthcare affordability: 

• Annual healthcare spending is expected to be 6% per year as medical inflation, labor costs and use increase.
• Federal policymakers will be under intense pressure to reduce government spending, including Medicare, Medicaid and the federal deficit, which has soared to $27 trillion.
• Hospitals, medical practices and post-acute providers will be in recovery mode: The pandemic, combined with shrinking reimbursement from payers, has decimated finances.

Under these circumstances, affordability might be a secondary concern in many organizations: Maximizing cash flow and reducing costs are necessary to keep doors open. However, affordability is equally important to long-term viability, especially as lawmakers increase regulatory attention.   
  
Today, healthcare policy focused on affordability is defined in the context of access to health insurance as framed in two key areas of the ACA:

• Affordability of employer-sponsored insurance: The Society of Actuaries recommended 9.5% as the affordability threshold for employer-sponsored insurance in 2010. In 2020, if an employer’s health plan cost more than 9.78% of the household’s adjusted gross income, it was considered unaffordable by the IRS and qualified individuals for premium tax credits to purchase coverage through state health marketplaces.
• Access to Medicaid coverage subsidies: Individuals are eligible for Medicaid coverage based on household income requirements that vary by state, but the ACA authorized expansion of Medicaid programs by guaranteeing 90% of expansion population costs would be paid by the federal government. Uninsured citizens earning up to 138% of the FPL were therefore eligible to access Medicaid coverage subsidies (in 2020, $16,971 for an individual, $34,846 for a family of four).

Furthermore, the ACA embodies the federal government’s primary affordability strategy. The Biden administration has promised to build on it and increase premium tax credits and subsidies for the insured, underinsured and low-income populations who cannot afford premiums. It is augmented by federal, state and local public health programs that apply income thresholds for eligibility for social services programs like the Supplemental Nutrition Assistance Program and others. 

The U.S. Supreme Court recently heard arguments in California v. Texas—a case that might result in the ACA being thrown out completely. Although unlikely, this result would force policymakers to pay immediate attention to insurance coverage and, specifically, the role subsidies would play in helping low-income households afford coverage.

Nevertheless, affordability is a bigger issue than insurance coverage, especially for hospitals, medical groups and long-term care providers that are on the front line of the affordability tsunami facing healthcare. It goes beyond bad debt protocols, charity care and community benefit contributions. 

The bottom line is this: Healthcare affordability is an issue that is not going away. Thus, it is essential that every healthcare organization have a formal strategy to address it. 

Operation Warp Speed has successfully produced vaccines to win the war against COVID-19 and provide hope for a return to normalcy. However, normalcy for growing numbers of Americans is constant fear of financial ruin because of a surprise medical bill, a denial by their insurer, or a growing gap between their household necessary costs and their income. 

As the United States recovers from the pandemic, it is likely that healthcare affordability will be the next major battle line. It is an issue we must confront.

Paul H. Keckley, PhD, is managing editor of The Keckley Report (pkeckley@paulkeckley.com).