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S. HRG. 111–453 

ADDRESSING UNDERINSURANCE IN NATIONAL 

HEALTH REFORM 

HEARING 

OF THE

COMMITTEE ON HEALTH, EDUCATION, 

LABOR, AND PENSIONS 

UNITED STATES SENATE 

ONE HUNDRED ELEVENTH CONGRESS 

FIRST SESSION 

ON

EXAMINING ADDRESSING UNDERINSURANCE IN NATIONAL 

HEALTH REFORM 

FEBRUARY 24, 2009 

Printed for the use of the Committee on Health, Education, Labor, and Pensions 

( 

Available via the World Wide Web: http://www.gpoaccess.gov/congress/senate 

COMMITTEE ON HEALTH, EDUCATION, LABOR, AND PENSIONS 

EDWARD M. KENNEDY, Massachusetts, Chairman 

CHRISTOPHER J. DODD, Connecticut 

TOM HARKIN, Iowa 

BARBARA A. MIKULSKI, Maryland 

JEFF BINGAMAN, New Mexico 

PATTY MURRAY, Washington 

JACK REED, Rhode Island 

BERNARD SANDERS (I), Vermont 

SHERROD BROWN, Ohio 

ROBERT P. CASEY, JR., Pennsylvania 

KAY R. HAGAN, North Carolina 

JEFF MERKLEY, Oregon 

MICHAEL B. ENZI, Wyoming 

JUDD GREGG, New Hampshire 

LAMAR ALEXANDER, Tennessee 

RICHARD BURR, North Carolina 

JOHNNY ISAKSON, Georgia 

JOHN MCCAIN, ARIZONA

ORRIN G. HATCH, Utah 

LISA MURKOWSKI, Alaska 

TOM COBURN, M.D., Oklahoma 

PAT ROBERTS, Kansas 

J. MICHAEL MYERS, Staff Director and Chief Counsel 

FRANK MACCHIAROLA, Republican Staff Director and Chief Counsel 

(II) 

C O N T E N T S 

STATEMENTS 

TUESDAY, FEBRUARY 24, 2009 

Page 

Bingaman, Hon. Jeff, a U.S. Senator from the State of New Mexico, opening 

statement .............................................................................................................. 1 

Enzi, Hon. Michael B., a U.S. Senator from the State of Wyoming, opening 

statement .............................................................................................................. 2 

Schoen, Cathy, MS, Senior Vice President, The Commonwealth Fund, New 

York, NY ............................................................................................................... 4 

Prepared statement .......................................................................................... 6 

Shearer, Gail, MS, Director of Health Policy Analysis, Consumers Union, 

Washington, DC ................................................................................................... 29 

Prepared statement .......................................................................................... 31 

Rowland, Diane, D.Sc., Executive Vice President, The Henry J. Kaiser Family 

Foundation and Executive Director, The Kaiser Commission on Medicaid 

and the Uninsured, Washington, DC ................................................................. 38 

Prepared statement .......................................................................................... 41 

Turner, Grace-Marie, President, Galen Institute, Alexandria, VA ..................... 58 

Prepared statement .......................................................................................... 60 

Casey, Hon. Robert P., Jr., a U.S. Senator from the State of Pennsylvania ...... 68 

Alexander, Hon. Lamar, a U.S. Senator from the State of Tennessee ................ 70 

Hagan, Hon. Kay R., a U.S. Senator from the State of North Carolina ............. 72 

Hatch, Hon. Orrin G., a U.S. Senator from the State of Utah ............................ 73 

Burr, Hon. Richard, a U.S. Senator from the State of North Carolina, prepared statement ................................................................................................... 76 

Coburn, Hon. Tom, a U.S. Senator from the State of Oklahoma ........................ 79 

ADDITIONAL MATERIAL 

Statements, articles, publications, letters, etc.: 

Senator Brown, prepared statement ............................................................... 82 

(III) 

(1) 

ADDRESSING UNDERINSURANCE IN 

NATIONAL HEALTH REFORM 

TUESDAY, FEBRUARY 24, 2009 

U.S. SENATE, 

COMMITTEE ON HEALTH, EDUCATION, LABOR, AND PENSIONS, 

Washington, DC. 

The committee met, pursuant to notice, at 10:00 a.m. in Room 

SD–430, Dirksen Senate Office Building, Hon. Jeff Bingaman, presiding. 

Present: Senator Bingaman, Casey, Hagan, Enzi, Alexander, 

Burr, Hatch, and Coburn. 

OPENING STATEMENT OF SENATOR BINGAMAN

Senator BINGAMAN. OK. Why don’t we go ahead and get started. 

Senator Hatch is here and I’m told that Senator Enzi may be able 

to be here. But it’s not clear at this point. 

I thank everyone for coming. As everyone knows there’s a great 

desire on the part of the Obama administration and the Congress 

to develop comprehensive health reform legislation this year. The 

legislation is intended to focus on expanding health insurance coverage to all Americans and improving the quality of our health care 

system and controlling the costs of health care. 

As part of developing this legislation, Senator Kennedy has 

asked me to lead efforts here on our committee to develop some of 

the coverage proposals. And I’m very glad to do that. As we all 

know there are 45 to 47 million Americans currently uninsured. 

This number is expected to grow as the economic difficulties continue. The case for expansion of health care coverage is highlighted 

by the report that was released yesterday by the Institute of Medicine entitled, ‘‘America’s Uninsured Crisis—The Consequences of 

Health and Health Care.’’ The report notes that there is a compelling case for action, that health insurance matters and that expanding health care coverage for all Americans is essential. 

Today’s hearing, however, is focused on an even more complex 

problem. And that is the problem of underinsurance. Underinsurance is the term used to describe the problems that many Americans with health insurance may face in meeting their health care 

expenses. Some experts define underinsurance as an insured individual whose family medical expenditures total 10 percent or more 

of their income or whose health plan includes deductibles greater 

than 5 percent of their income. 

This first coverage hearing is on the issue of underinsurance because it’s a subject that’s often ignored in health coverage discusVerDate Nov 24 2008 12:55 Jun 09, 2010 Jkt 035165 PO 00000 Frm 00005 Fmt 6633 Sfmt 6633 S:\DOCS\47761.TXT DENISE
2 

sions. But it does impact a very large segment of the American 

population. These are hard working Americans who pay every 

month for health insurance benefits. However, when they or their 

children become ill and rely on those benefits they discover that 

the coverage either is not comprehensive or they end up having a 

very significant out-of-pocket cost that they did not anticipate. 

Underinsurance occurs because health insurance plans may have 

significant cost sharing requirements. It occurs because certain 

conditions or treatments may be excluded from coverage often as 

pre-existing conditions. This is particularly problematic in the individual insurance market. 

And finally plans may have overall limits on benefits that fall far 

short of an enrollee’s needs such as a cap on the total number of 

days an enrollee may stay in a hospital or aggregate lifetime limits 

on the total payments that may be made for a particular service. 

In the end these insured individuals may be left with thousands 

upon thousands of dollars in health care expenses. Of course extending a very rich benefit package to everyone may lead to over 

utilization of unnecessary health care which could then, of course, 

further drive up cost. The question of the right balance between 

underinsurance which can lead to individual financial risk or 

avoidance of needed health care and the resulting poor health outcomes that come from that and over insurance which can drive up 

health care costs is a difficult one, but one that obviously needs to 

be addressed if we’re going to enact comprehensive health care. 

Let me stop with that. I see Senator Enzi is here. Let me call 

on him for any comments that he’s got. Then of course we’ll hear 

from the witnesses and hopefully have some questions for them. 

Senator Enzi, thank you for being here. 

OPENING STATEMENT OF SENATOR ENZI

Senator ENZI. Thank you, Mr. Chairman, for holding this hearing 

today on health insurance and the issue of the underinsured. I look 

forward to working with members of the HELP Committee and all 

members of the Senate to exact meaningful health care reform legislation this year. That was a challenge we were given at the White 

House Economic Summit yesterday. 

All of the speakers mentioned that health care is one of the main 

economic factors that we have to deal with and should be a priority. We do have a task force that’s working on that which is a 

couple of people from each of the committees that are affected. And 

you’d be surprised how many committees are affected by it. 

This, of course, is the committee of jurisdiction for the health 

care. I appreciate all the hearings that we’ve been having in this 

committee. I have been assured that whatever product any task 

force comes up with will come through regular process which 

means through this committee. And that always results in a better 

product. 

This committee has gone from being one of the most contentious 

committees to being one of the most productive committees. I think 

it’s because of the work that we do in committees. I do miss the 

days of roundtables, however. And hope that we’ll go back to 

roundtables. 

3 

Hearings have a different meaning in the Senate. Because of the 

way that they’re set up, we bring in people to make specific points. 

Whereas in the roundtables we bring in people that have—15 or 20 

people—that have actually been involved in solving the issue and 

they have an interchange between themselves as well as stating 

what they’ve done. That’s helped us a number of times in bills that 

we’ve drafted. I hope that we’ll add some of those to the repertoire. 

We all emphasize and empathize with the stories that we’ll hear 

in today’s testimony about patients who could not afford their 

health care. We all support protecting individuals and families 

from catastrophic health care costs. At the same time we need to 

be careful that in trying to solve this problem we don’t make matters worse. 

We know that while having the best of intentions many past 

health care reform efforts to protect consumers have actually increased costs and caused many of these same consumers to lose 

their health insurance. The single greatest challenge in reforming 

our health care system is rapidly escalating costs. Last Friday USA 

Today reported that many individuals who purchased their own 

health insurance faced double digit premium increases in 2008 

with some plan premiums increasing by 20, 30 and in one case 56 

percent. 

These increases aren’t sustainable. And we don’t address the 

problem that is driving this cost growth more and more. Americans 

will lose their health insurance if we continue that. 

We also know that when consumers bear some of the costs of 

their health care, total spending is reduced. It’s common sense that 

we’re more vigilant with our own money than if someone else is 

paying the bill. And this is especially true in health policy. 

Going all the way back to the Rand Study in the 1970s, we know 

that reasonable cost sharing reduces spending without adversely 

impacting the quality of care. Anyone needing further proof of this, 

look no further than our recent experience with health savings accounts. Health savings accounts require consumers to pay for more 

routine services. And as a result health savings accounts have seen 

premium increases that have been dramatically lower than other 

types of insurance. 

There are many factors that impact an individual’s decision to 

purchase health insurance. Certainly cost plays an important role. 

But plan design and personal preference play a role too. 

A 25-year-old male and a 55-year-old female have different 

health needs. And would probably have very different ideas of what 

they’re willing to pay for health insurance. We need a private 

health insurance market that can deliver choices of high quality 

products to all types of people. Not a one-size-that-fits-all federally 

determined solution. 

While we all agree that patients should be protected against catastrophic costs, we should not adopt reforms that limit consumer’s 

choices or try to develop the Federal one-size-fits-all approach to 

cost sharing. I believe the most important thing Congress can do 

to increase access to affordable, high quality health insurance is to 

create an environment that forces private health insurance companies to innovate on ways to better control costs and compete for our 

business. 

4 

I think that’s one of the messages that the President delivered 

yesterday as well—that we do have to work with public and private 

companies and get the costs under control. It’s the costs that are 

driving us crazy and that are forcing, particularly small businesses, 

out of the market. 

Mr. Chairman, I thank you again for bringing us together today. 

I look forward to hearing the testimony of our witnesses and the 

question and answer period. 

The CHAIRMAN. Alright. Why don’t we go ahead? We have four 

excellent witnesses today. Let me introduce them, if they’ll just 

come forward. 

Cathy Schoen is the Senior Vice President with the Commonwealth Fund in New York. 

Gail Shearer is the Director of Health Policy Analysis with the 

Consumers Union. 

Diane Rowland is the Executive Vice President with the Henry 

J. Kaiser Family Foundation and Executive Director of the Kaiser 

Commission on Medicaid and the Uninsured. 

And Grace-Marie Turner is the President of Galen Institute in 

Alexandria. 

So thank you all very much for being here. Why don’t we start 

with you, Ms. Schoen if you would go ahead and give us the main 

points we need to understand that you’d like to make. We’ll hear 

from all witnesses and then have some questions. 

STATEMENT OF CATHY SCHOEN, MS, SENIOR VICE 

PRESIDENT, THE COMMONWEALTH FUND, NEW YORK, NY 

Ms. SCHOEN. Thank you, Mr. Chairman and committee members 

for the invitation to testify on the underinsured and implications 

for national reform. Rising health care costs and stagnating cuts 

have fueled steep erosion in insurance coverage across the Nation. 

In addition to steady increases in the number of uninsured we’re 

seeing a surge in the number of adults who are underinsured, poorly protected in the event of illness although they’re insured all year 

long. 

Current trends are saddling individuals and their families with 

medical debt that can last for years and putting their health at 

risk. Insurance reforms are central to improving health system performance. But the way we design these reforms is critical both for 

assuring access, addressing cost concerns and addressing quality 

concerns. 

In my remarks and prepared testimony I will briefly summarize 

trends, discuss consequences and then discuss some design principles as you look toward insurance reform. 

First on trends. As we know the number of uninsured are up 

dramatically from 2000 to 2007. They’re projected to increase to 61 

million people by the end of the next decade. This doesn’t count the 

people who churn in and out of coverage and our uninsured for 

part of the year. 

We’ve seen a surge in the number underinsured. Our study published last year in Health Affairs estimates 25 million adults were 

underinsured as of 2007. This is a 60-percent increase since 2003. 

We define the underinsured as adults who spent a high share of 

their income, 10 percent of their income, or more on medical care 

5 

expenses not counting premiums or 5 percent if they are low income. We also use deductibles alone of 5 percent of annual income 

for one person in the definition. This erosion is moving up the income scale. 

There was a tripling in the percent of underinsured among 

adults in the middle-income range. In total an estimated 42 percent 

of all adults under 65 are now uninsured or underinsured. This 

was before the current, severe recession. 

Compared to those with more adequate coverage we find underinsured and uninsured adults are much more likely to go without 

needed care because of costs, not following up on recommended 

care, not filling prescriptions for medication, not seeing doctors 

when sick. About half the underinsured and two-thirds of the uninsured reported this going without care because of cost. Half of both 

groups also confront financial stress including long-term medical 

debt. 

Indeed the experiences of these two groups are increasingly similar. It’s getting hard to tell an insured, underinsured, and an uninsured person from each other. The share of adults under 65 going 

without care because of cost is affecting the chronically ill as well. 

In our 2007 study we found those with chronic illnesses were not 

filling medications for their chronic diseases. With both the uninsured and underinsured highly likely to go to the hospital and go 

to the emergency room as a consequence. 

In our 2008 international study of eight countries, the United 

States stands out with half of all chronically ill adults. This is all, 

not just the under 65 going without care because of costs. We stand 

alone. And this rate was high for the insured as well as the underinsured. 

As was mentioned in your opening remarks this is because of an 

ongoing erosion in the content of insurance limits on benefits, higher deductibles. We know from the Rand Study that part of this is 

an incentive to reduce unnecessary care. But Rand as well as more 

recent studies found people are just about as likely to cut back on 

essential and effective care as discretionary care, particularly those 

with low incomes and chronically ill. 

More recently, studies who have focused on medications have 

found that people cut back on essential medications unless the benefit package is designed around value benefits. And this has led to 

higher hospitalizations, emergency room and even spikes in death. 

We’re following behind other countries on preventing preventable 

deaths amenable to health care before age 75. We are now 19 out 

of 19 countries. Our rates of death came down slightly while other 

countries moved more rapidly. Our health is at risk. 

I won’t cite you the statistics on financial stress other than to say 

we are seeing as of 2007, 72 million adults facing bad debt, longterm debt, bill collectors, going without basic necessities to pay for 

bills. This is up dramatically from 2005. The rates among the middle income group now look like the low-income group did in 2001. 

This stress has all occurred before the current severe recession. 

As you turn to implications for insurance reform it’s important 

to remember that design matters. It matters for the twin goals of 

health insurance, timely access to essential care and financial protection. But it also matters for providing a foundation for payment 

6 

and system reforms to address the current cost dilemmas and 

value dilemmas we face in this country. 

The fractured insurance system we have makes it very difficult 

to design coherent payment policies. We all go in different directions. It erodes incentives to invest for the long-term. The multiple 

benefit designs churning in and out of coverage drive up insurance 

administrative costs as well as driving down and eroding incentives 

for the long-term. 

I’ve provided a list of design principles in my testimony. And I’ll 

only list them briefly here, but would be happy to discuss them as 

you turn to how to design insurance for the twin goals of access 

and financial protection. We urgently need these reforms. 

We need to start discussing a minimum benefit floor. This was 

a discussion in Massachusetts about putting a floor under insurance so that we don’t have insurance surprises where insurance 

fails us with an emphasis on value benefits covering essential care 

as well as catastrophic cost. 

We need to provide income-related premium assistance to make 

sure that that coverage is affordable. Pay particular attention to 

low-income individuals both for cost sharing and financial protection. Design of benefits should restrict the number of benefit variations both to make choice possible and to avoid risk selection. We 

need to have new mechanisms that allow people to keep their insurance as well as have choices as situations change. 

I’ll end my testimony just to urge you that this is an urgent problem. If we do insurance reform, payment reform and system reforms, we have an opportunity to put the Nation on a much different track. A report released last week by the Commonwealth 

Fund’s Commission on a high performance health system shows 

that we would be able to improve access, outcomes and costs, but 

we need to act soon. Thank you. 

[The prepared statement of Ms. Schoen follows:] 

PREPARED STATEMENT OF CATHY SCHOEN, MS 

EXECUTIVE SUMMARY—INSURANCE DESIGN MATTERS: UNDERINSURED TRENDS, 

HEALTH AND FINANCIAL RISKS, AND PRINCIPLES FOR REFORM

Thank you, Mr. Chairman, for the invitation to testify on the underinsured and 

the implications for national health reform. Rapidly rising health care costs and 

stagnant incomes have fueled steep erosion in insurance coverage across the Nation. 

In addition to steady increases in the number of people uninsured during the year, 

we are seeing a surge in the number of adults and families who are ‘‘underinsured’’—those who are poorly protected in the event of illness although they are 

insured all year long. In the midst of a severe recession, current trends are saddling 

individuals with medical debt that can last for years. Although employer coverage 

remains the mainstay and primary source of insurance for working families, rising 

costs are stressing private businesses and public employers, leading to shifts of significant financial risk back onto families or drops in coverage. As a nation, we urgently need health reform to provide a more secure foundation for the future. 

Insurance reform is essential and central to improving national health system 

performance. Design matters. To provide a more secure foundation, coverage reforms must be designed to facilitate the two primary goals of health insurance—increasing access to care and providing financial protection. Insurance reforms are 

also key for providing a strong base for payment and other system changes that are 

needed to sustain coverage over time and improve the performance and value we 

get in return for our Nation’s unparalleled expenditure on health. Moreover, insurance reforms could focus competition on better outcomes and added value. My remarks this morning and prepared testimony present recent trends, summarize studVerDate Nov 24 2008 12:55 Jun 09, 2010 Jkt 035165 PO 00000 Frm 00010 Fmt 6633 Sfmt 6621 S:\DOCS\47761.TXT DENISE
7 

ies regarding the consequences of inadequate coverage and gaps, and discuss design 

principles with the potential to move our system in new, more positive directions. 

EROSION IN COVERAGE: RISING NUMBER UNDERINSURED AND UNINSURED

• From 2000 to 2007, a time of relatively low unemployment, the number of uninsured increased by 7 million. The number of uninsured is projected to reach 61 million over the next decade, assuming recovery from the current recession. And these 

estimates do not count all of those who lose coverage for at least part of the year. 

• From 2003 to 2007, the number of adults who were insured all year but were 

underinsured increased by 60 percent. Based on those who incur high out-of-pocket 

costs relative to their income not counting premiums despite having coverage all 

year, an estimated 25 million adults under age 65 were underinsured in 2007. 

• Erosion in benefits is moving up the income scale. The percent underinsured 

nearly tripled among adults with annual incomes in the middle-income range. Although low-income adults are most at risk, more than one of four adults with incomes above 200 percent of poverty were either underinsured or uninsured in 2007. 

In total, 42 percent of all adults were in one of these two insurance groups. 

• The underinsured were more likely to report limits on benefits, gaps in benefits, 

and higher deductibles than those without high costs relative to their income. At 

the same time, underinsured adults devoted a high share of their income to premiums. 

ACCESS, QUALITY, AND HEALTH AT RISK: CONSEQUENCES OF INADEQUATE INSURANCE

• Compared to adults with more adequate coverage, underinsured and uninsured 

adults were far more likely to go without needed care because of costs—over half 

of the underinsured and two thirds of the uninsured went without recommended 

treatment, follow-up care, medications or did not see a doctor when sick. Half of 

both groups faced financial stress, including medical debt. Indeed, experiences were 

often similar. 

• Providing evidence of the breadth of coverage erosion, the share of adults under 

age 65 who went without needed care because of costs increased sharply from 2001 

to 2007, rising from 29 percent to 45 percent. Rates were up across all income 

groups. Although typically insured all year, middle-income adults reported the 

steepest increases, jumping from 24 to 43 percent. 

• Among adults with chronic diseases, half of the underinsured and more than 

60 percent of the uninsured skipped medications for their conditions because of cost. 

Both groups were at higher risk of going to the emergency room or hospital than 

chronically ill adults who were insured all year and not underinsured. 

• In the 2008 Commonwealth Fund eight-nation survey of adults with chronic 

conditions, the United States stands alone with half of all adults forgoing medications, not following up on recommended care or not going to a doctor when sick. 

Rates were high for the insured as well as the uninsured. 

• These experiences reflect an ongoing insurance design shift away from pooling 

risk through premiums towards higher deductibles, limits, and cost-sharing. 

• Although the design shift in part aims at incentives to avoid unnecessary care, 

studies repeatedly find that reductions are about equally likely to occur for effective 

as more discretionary care. Moreover, foregone care is most likely among those with 

low-incomes. 

• Recent studies focused on medications find that caps and cost-sharing that do 

not take the value of care into account lead to adverse health outcomes, including 

complications from chronic disease, increased hospitalization, and spikes in deaths. 

• A study of low-income Medicaid beneficiaries found that interruptions in coverage lead to increases in hospital admissions for ambulatory care-sensitive (potentially preventable) conditions. Yet, we fail to design such programs for continuity. 

• Poor access undermines quality and effective care. The United States is falling 

behind other countries in reducing deaths from conditions amenable to health care. 

As of 2003, we ranked last among 19 industrialized nations. Although the U.S. mortality rates declined marginally (4 percent), other countries improved much faster 

(16 percent). 

FINANCIAL STRESS AND ECONOMIC INSECURITY

The sharp increase in the number of adults finding it difficult to pay medical bills 

or in debt is perhaps the most visible consequence of the deterioration in insurance 

coverage. 

• In 2007, 41 percent of adults—72 million people—said they had problems paying their medical bills, faced bill collectors, or were in debt for medical care, up from 

8 

34 percent or 58 million in 2005. The majority reported having insurance at the 

time these bills were incurred. • The increase occurred across all income groups, though rates were highest 

among low- and moderate-income families. Underinsured or uninsured adults were 

most at risk. • Among those reporting difficulty paying bills or debt, 29 percent were unable 

to pay for necessities because of medical bills, 39 percent had used up their savings, 

30 percent took on credit card debt, and 10 percent added mortgages against their 

home. 

It is important to remember that this stress occurred during a time of relatively 

low unemployment, well before the current severe recession. 

MOVING IN NEW DIRECTIONS: INSURANCE AND HEALTH SYSTEM REFORM

Extending affordable insurance to all and doing so in a way that ensures access 

and provides financial protection is critical to moving in a more positive direction. 

Coverage expansion and insurance reform are essential to addressing rising costs 

as well as concerns about wide variations in quality and health care delivery system 

performance. Fractured insurance makes it difficult to develop coherent payment 

policies that could align incentives with better outcomes and prudent use of resources. Unstable coverage, complex benefit variations, and fragmented markets 

also increase administrative costs and erode incentives to invest in population 

health for the long term. 

Attention to insurance design is essential to provide affordable coverage for all in 

a manner that ensures access to health care and financial protection. Needed reforms include: 

• Setting a minimum floor and standard for health insurance with benefits designed to support access to effective care and protection when sick or injured. • Providing income-related premiums to assure coverage is affordable. • Establishing lower cost-sharing and ceilings on out-of-pocket expenses for lowincome families. • Limiting the range of variation to facilitate choice and discourage risk segmentation. This would also facilitate the publication of useful comparisons. • Ensuring access and renewal and prohibiting premium variations based on 

health risks. Coupled with risk-adjusted premiums, such insurance market reforms 

would focus competition on outcomes and added value. • Structuring insurance choices through a national insurance exchange to help individuals and families choose coverage and stay continually insured. 

The design of insurance reforms should also aim to provide a more secure foundation for payment and system reforms. Without a comprehensive approach to improve 

the quality and cost performance of the U.S. health system, coverage expansions 

will be difficult to sustain. 

A recent report by the Commonwealth Fund Commission on a High Performance 

Health System illustrates the potential of an integrated set of strategies. The analysis indicates reforms to provide affordable, adequate coverage for all, align incentives with value, and invest in essential information systems and public health 

measures have the potential to achieve better access for all, improve health outcomes and reduce projected growth in national spending by $3 trillion through 2020 

(11 years) if reforms begin in 2010. National spending would continue to increase 

but at a much slower rate. 

Although politically difficult, there is an urgent need to move in a new direction. 

Wide public concern and stress on private business and the public sector make it 

increasingly clear that we cannot afford to maintain the status quo. Each year we 

wait, the problems grow worse. The Nation needs national leadership and publicprivate sector collaboration to forge consensus to move in positive directions. Insurance coverage reform, coupled with payment and delivery system changes, have the 

potential to bend the curve of our Nation’s spending on health and put the Nation 

on a path to high performance. The time has come to act. 

Thank you for the opportunity to testify. This hearing could not be more timely. 

Thank you, Mr. Chairman, for the invitation to testify on the underinsured and 

the implications for national health reform. Rapidly rising health care costs and 

stagnant incomes have fueled steep erosion in insurance coverage across the Nation. 

In addition to steady increases in the number of people uninsured during the year, 

we are seeing a surge in the number of adults and families who are ‘‘underinsured’’—these are adults who are poorly protected in the event of illness although 

insured all year long. Efforts to moderate premium increases have led to higher 

9 

1 C. DeNavas-Walt, B.D. Proctor, J.C. Smith, Income, Poverty and Health Insurance Coverage 

in the United States: 2007, U.S. Census Bureau, August 2008. 2 J.L. Kriss, S.R. Collins, B. Mahato, E. Gould, and C. Schoen, Rite of Passage? Why Young 

Adults Become Uninsured and How New Policies Can Help, 2008 Update (New York: The Commonwealth Fund) May 2008. 

deductibles, increased cost-sharing, and limits or caps on benefits. Shifting the costs 

onto individuals and their families away from pooling risk through premiums is 

threatening the health and economic security of the Nation. In the midst of a severe 

recession, current trends are saddling vulnerable families with medical debt that 

can last for years. Although employer coverage remains the mainstay and primary 

source of insurance for workers and their families, rising costs are stressing private 

businesses and public employers. The United States is already by far the most expensive health system in the world, and we are rapidly widening the gap. As a nation, we urgently need health reform, starting with insurance to provide a more secure foundation for the future. 

Coverage reform is essential. Yet, the way it is designed matters critically for facilitating access and providing financial protection when sick—the primary goals of 

health insurance. Insurance reforms are also key for providing a strong base for 

payment and other system reforms that would enable us to sustain coverage over 

time by improving the performance and value we get in return for our already high 

investment in the health system. Moreover, insurance reforms could focus competition on better outcomes and added value. 

In my remarks and prepared testimony, I present recent studies on the trends 

and consequences of the rising number of underinsured and then discuss insurance 

benefit design principles to move in a new direction with national health reform. 

In the discussion of trends, it is important to remember that all of these studies 

were conducted during a period of relatively low unemployment. Thus, they vastly 

understate the urgent need for reform to secure the Nation’s health and economic 

well-being. 

STEEP EROSION IN COVERAGE: RISING NUMBERS UNINSURED AND UNDERINSURED

Well before the current severe recession, coverage has been eroding for the under65 population. The number uninsured increased by 7 million people from 2000 to 

2007, reaching 47 million—in a period of relatively low unemployment (Exhibit 1).1

The increase was concentrated among working-age adults. With a few exceptions, 

the time-trend map of uninsured adults by State shows a loss in coverage across 

the country (Exhibit 2). Children’s coverage—the only bright spot—improved thanks 

to expansions to low-income families through the Children’s Health Insurance Program (CHIP). Still, 8 million children remain uninsured, and many do not have continuous coverage. Our fractured insurance system and complex eligibility rules result in millions of adults and children moving in and out of coverage from job loss, 

shifts in employment, or other changes in income or family relationships. Even 

growing a year older, as in a 19th birthday, makes a difference.2 Those at risk of 

churning in and out of coverage as well as remaining uninsured for long periods are 

likely to experience considerable access problems and financial stress. 

10 

3S.R. Collins, J.L. Kriss, M.M. Doty, and S.D. Rustgi, Losing Ground: How the Loss of Adequate Health Insurance is Burdening Working Families: Findings from the Commonwealth Fund 

Biennial Health Insurance Surveys, 2001–2007 (New York: The Commonwealth Fund) August 

2008. 

All projections indicate that without national policy action to stem the tide, the 

number of people who are uninsured at any moment in time will continue to increase rapidly. Assuming we recover from the current recession, projections estimate 

61 million will be uninsured by 2020 (Exhibit 1). These uninsured estimates do not 

count all the people who lose coverage for a period of time during the year: as of 

2007, almost 30 percent of adults under age 65 were uninsured for some time during 

the year.3

Millions more are ‘‘underinsured’’—insured all year yet facing such high cost-sharing relative to income that they lack adequate financial protection when sick or injured. In our recent study of underinsured trends from 2003 to 2007, we defined 

adults as underinsured if they had insurance all year and had out-of-pocket exVerDate Nov 24 2008 12:55 Jun 09, 2010 Jkt 035165 PO 00000 Frm 00014 Fmt 6633 Sfmt 6621 S:\DOCS\47761.TXT DENISE

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11 

4 C. Schoen, S.R. Collins, J.L. Kriss, and M.M. Doty, ‘‘How Many are Underinsured? Trends 

Among U.S. Adults, 2003 and 2007,’’ Health Affairs Web Exclusive (June 10, 2008):w298–w309. 5 A financial definition of the underinsured builds on the seminal work of Pamela Farley 

Short. For early studies, see: P.F. Short and J. Banthin, ‘‘New Estimates of the Underinsured 

Younger than Sixty-five Years,’’ Journal of the American Medical Association 1995, 274 

(16):1302–1306 and P.J. Farley, ‘‘Who Are the Underinsured?’’ Milbank Quarterly 1985, 63 (3): 

476–503. 6 J.C. Cantor, C. Schoen, D. Belloff, S.K.H. How, and D. McCarthy, Aiming Higher: Results 

from a State Scorecard on Health System Performance (New York: The Commonwealth Fund) 

June 2007. See page 23. 

penses for medical care of 10 percent or more of their annual income or 5 percent 

if low income (under 200 percent of poverty) or whose deductible alone was 5 percent or more of income.4 Notably, this definition will miss those with inadequate 

coverage who were healthy during the year—in other words, the estimate is likely 

to be conservative.5

Using this financial definition of the underinsured, as of 2007, 25 million adults 

ages 19 to 64 were underinsured—a 60 percent increase from 2003 (Exhibit 3). Adding underinsured adults to those uninsured when surveyed or uninsured earlier in 

the year, more than 75 million—two of five adults—were either underinsured or uninsured during 2007, a sharp increase since 2003. Low-income adults are the most 

likely to be underinsured or uninsured, yet middle- and higher-income families experienced the most rapid deterioration in protection (Exhibit 4). The percent underinsured nearly tripled for adults in families with incomes of 200 percent of poverty 

or more (annual family incomes of $40,000 or higher). As of 2007, more than one 

of four adults (27 percent) with incomes placing them solidly into the middle class 

was either underinsured or uninsured. Overall, lower-income adults have been hardest hit: nearly three-fourths (72 percent) uninsured or underinsured. These lowincome adults rarely have health insurance benefits through their jobs yet by working have incomes that make them ineligible for public safety net insurance programs in most States.6


47761-23.eps
12 

ACCESS AND HEALTH AT RISK: CONSEQUENCES OF INADEQUATE INSURANCE AND GAPS

The core goals of health insurance are to provide timely and affordable access to 

care and to protect against the costs of illnesses and injuries. The ongoing deterioration of benefits undermines both goals as benefit designs increasingly shift costs 

onto the budgets of individuals and families when sick. 

According to the same Commonwealth Fund 2007 study, one-fourth of underinsured adults reported deductibles of $1,000 or more compared to 8 percent of insured adults not classified as underinsured. More than 40 percent of underinsured 

adults paid 5 percent and one-fifth spent 10 percent or more of their income for 

their insurance. Premiums are up but people are getting less coverage in return: 

compared to those with more adequate coverage, underinsured adults were less likely to have prescription benefits and more likely to have limits on the amount a plan 

would pay or on the number of visits allowed. 

Given higher cost-sharing and thinner insurance benefits, the underinsured as 

well as those uninsured are at very high risk of going without needed care because 

of costs. Controlling for income, health, and other demographic differences, more 

than half of underinsured and over two-thirds of uninsured adults went without recommended medications, follow-up care or treatment, or did not see a doctor when 

sick because of costs during the year (Exhibit 5). Underinsured rates of foregone 

care were often similar to rates reported by the uninsured, and cost-related access 

concerns were typically two to three times higher than reported by adults with more 

adequate coverage. 


47761-24.eps
13 

7M.E. Chernew, A.B. Rosen, and A.M. Fendrick, ‘‘Value-Based Insurance Design,’’ Health Affairs, March/April 2007 26(2):w195–w203; M.E. Chernew, T. B. Gibson, K. Yu-Isenberg, et al., 

‘‘Effects of Increased Patient Cost Sharing on Socioeconomic Disparities in Health Care,’’ Journal of General Internal Medicine, Aug. 2008 (8):1131–1136; D.P. Goldman, G.F. Joyce, J.J. 

Continued 

As a whole, the share of non-elderly adults who went without care because of 

costs increased from 29 to 45 percent between 2001 and 2007. Rates increased 

across all income groups, yet moderate- and middle-income adults experienced the 

more rapid increases (Exhibit 6). While most were insured all year, adults with incomes between $40,000 and $60,000 went without needed care due to costs at rates 

similar to those reported by low-income adults in 2001. This shift up the income 

scale further reflects the thinning of benefits. 

Multiple studies provide evidence that exposure to costs have negative effects on 

access to care for those with chronic conditions, undermining efforts to manage conditions and prevent complications.7 In the Commonwealth Fund 2007 survey, we foVerDate Nov 24 2008 12:55 Jun 09, 2010 Jkt 035165 PO 00000 Frm 00017 Fmt 6633 Sfmt 6621 S:\DOCS\47761.TXT DENISE

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14 

Escarce, et al., ‘‘Pharmacy Benefits and Use of Drugs by the Chronically Ill,’’ Journal of the 

American Medical Association 291, no. 19 (2004): 2344–2350; M.D. Wong, R. Andersen, C.D. 

Sherbourne, et al., ‘‘Effects of Cost Sharing on Care Seeking and Health Status: Results from 

the Medical Outcomes Study,’’ American Journal of Public Health 91, no. 11 (2001): 1889–1894; 

Jonathan Gruber, The Role of Consumer Copayments for Health Care: Lessons from the RAND 

Health Insurance Experiment and Beyond (Washington, DC:Kaiser Family Foundation) October 

2006. 8M.F. Newton, C.C. Keirns, R. Cunningham, et al., ‘‘Uninsured Adults Presenting to U.S. 

Emergency Departments: Assumptions vs. Data,’’ Journal of the American Medical Association, 

Oct. 2008 300(16):1914–24. 9K.N. Lohr, R.H. Brook, C.J. Kamberg,et al., ‘‘Use of medical care in the Rand Health Insurance Experiment. Diagnosis- and service-specific analyses in a randomized controlled trial,’’ 

Medical Care, Sept. 1986 24 (9 Suppl):S1–87; K. Davis, Will Consumer-Directed Health Care Improve System Performance? (New York: The Commonwealth Fund) August 2004. 10 J. Gruber, The Role of Consumer Copayments for Health Care: Lessons from the RAND 

Health Insurance Experiment and Beyond (Washington, DC: Kaiser Family Foundation) October 

2006. 

cused on adults with any of four chronic conditions: high blood pressure, heart disease, diabetes, or asthma/other chronic lung conditions. Among these chronically ill 

adults, nearly half of underinsured adults and over 60 percent of those uninsured 

skipped doses or did not fill prescriptions for their chronic conditions (Exhibit 7). 

Lack of access to preventive, primary care, and ongoing care contributes to increased reliance on hospital emergency care (ER) or hospitalization. One third of 

underinsured chronically ill adults in the study went to the ER or were admitted 

to a hospital. Rates were similar to those reported by uninsured adults. Recent studies indicate over-crowding of ERs is a result of more insured as well as uninsured 

people turning to this safety net.8

Patient-reported experiences are consistent with and confirm a rich array of studies that find that cost-sharing, unless designed with a focus on value, can result in 

the insured foregoing essential and effective care, especially when costs are high relative to incomes. Those with low or modest incomes are particularly at risk. Early 

on the RAND health insurance experiment pointed to the need to design benefits 

carefully to encourage effective care.9 This seminal study found that cost-sharing reduced the likelihood of receiving highly effective care as well as more discretionary 

care (Exhibit 8). Access for low-income children and adults was particularly sensitive despite the fact that the RAND design capped financial exposure relative to 

income. Among those with chronic disease and low incomes, RAND found delayed 

or foregone care had adverse health effects.10


47761-27.eps
15 

11 R. Tamblyn, R. Laprise, J.A. Hanley, et al., ‘‘Adverse Events Associated with Prescription 

Drug Cost-Sharing Among Poor and Elderly Persons,’’ Journal of the American Medical Association, Jan. 2001 285(4):421–29. 12 J. Hsu, M. Price, J. Huang, et al., ‘‘Unintended Consequences of Caps on Medicare Drug 

Benefits,’’ New England Journal of Medicine, June 1, 2006 354(22):2349–59. 13See also, S.R. Collins, et al., A Roadmap to Health Insurance for All: Principles for Reform 

(New York: The Commonwealth Fund) October 2008. 

Recent studies reach the same conclusion, pointing to the importance of benefit 

designs that encourage effective and preventive care, including essential medications. A Canadian study assessing the impact of increased cost-shares for medications among the elderly and low-income, found a steep reduction in use of essential 

medications and a sharp increase in adverse events (complications and deaths) as 

well as increased use of the emergency department (Exhibit 9).11 In the United 

States, Hsu and colleagues at Kaiser Permanente found that placing a limit on 

pharmacy benefits led to patients skipping their blood pressure and other essential 

medications (Exhibit 10). Consequences included poorer adherence to drug therapy 

and worse control of blood pressure, lipid levels, and glucose levels.12 The study also 

found a spike in mortality. Moreover, cost savings from capping benefits were offset 

by increases in the costs of hospitalization and emergency room use.13


47761-28.eps
16 

14The Commonwealth Fund Commission on a High Performance Health System, Why Not the 

Best? Results from the National Scorecard on U.S. Health System Performance, 2008 (New York: 

The Commonwealth Fund) July 2008. 

Preventive measures can avoid or delay the onset of many conditions. Nationally, 

we see broad evidence of failure to intervene early or provide preventive care—with 

gaps in coverage contributing to poor quality care. Adults in the United States receive the recommended screenings and preventive care for their age groups only half 

the time.14 Those uninsured for any time during the year are the least likely to receive preventive care but rates are also low among the insured (Exhibit 11). The 

underinsured and uninsured often delay or postpone care or go without essential 

medications and preventive care that could help prevent complications of chronic 

conditions. Only 63 percent of uninsured adults with diabetes had their illness 

under control compared with 81 percent of insured adults with diabetes. In addition, 


47761-29.eps 47761-30.eps
17 

15 J.M. McWilliams, E. Meara, A.M. Zaslavsky, and J.Z. Ayanian, ‘‘Use of Health Services by 

Previously Uninsured Medicare Beneficiaries,’’ New England Journal of Medicine, July 2007 

357(2):143–53. 16M.E. Chernew, A.B. Rosen, and A.M. Fendrick, ‘‘Value-Based Insurance Design,’’ Health Affairs March/April 2007 26(2):w195–w203. 17 C. Schoen, R. Osborn, S.K.H. How, M.M. Doty, and J. Peugh, ‘‘In Chronic Condition: Experiences of Patients with Complex Health Care Needs, in Eight Countries, 2008,’’ Health Affairs 

Web Exclusive (Nov. 13, 2008):w1–w16. 18 I. Durand-Zaleski, ‘‘The Health System in France,’’ Eurohealth 14, no. 1 (2008): 3–4; R. 

Busse, ‘‘The Health System in Germany,’’ Eurohealth 14, no. 1 (2008): 5–6.N. 

uninsured adults reported their high blood pressure was under control at half the 

rates reported by insured adults. 

Gaps in coverage increase risks of complications over the longer-term as well. 

McWilliams and colleagues found that among adults with chronic conditions, previously uninsured adults who acquired Medicare coverage at age 65 reported significantly greater increases in the number of doctor visits and hospitalizations and in 

total medical expenditures than did previously insured adults, with the difference 

persisting through age 70.15

The leading chronic diseases—diabetes, asthma, congestive heart failure, coronary 

artery disease and depression—account for a disproportionate share of potentially 

preventable complications, severe acute conditions, and related co-morbidities. With 

early interventions to prevent the onset of disease or deterioration in health, the 

United States could substantially lower health risks and help people lead healthier, 

longer, and productive lives. Yet, current health insurance design incentives often 

run counter to goals of chronic care management and preventive care and incentives 

for physicians to improve.16

Compared to other countries, we are losing ground. In a 2008 eight-country survey that focused on chronically ill adults with recent care experiences, U.S. chronically ill adults are far more likely to go without needed care because of costs than 

do their counterparts in other countries.17 More than half of chronically ill U.S. 

adults did not see a doctor when they were sick or did not adhere to and follow up 

on recommended care (Exhibit 12). The U.S. rate is double to five times higher than 

rates of foregone care in seven other countries. U.S. rates were high for both insured 

and uninsured adults. In contrast to the United States, the other seven countries 

have a minimum benefit floor that is comprehensive. Two countries—Germany and 

France—have special provisions that cap total out-of-pocket spending relative to income for those with chronic conditions. Germany has a general provision that caps 

expenses at 2 percent and lower rate of 1 percent for the chronically ill or disabled. 

France lowers prescription costs for essential medications and covers care in full for 

those with serious and chronic diseases.18


47761-31.eps
18 

19David Tuller, ‘‘Overshadowed, Kidney Disease Takes a Growing Toll,’’ New York Times, 

Nov. 18, 2008. 

Those with chronic disease or acute conditions often end up admitted or readmitted to hospitals, with surgery or expensive procedures for preventable complications, such as amputations or kidney dialysis for diabetics. Too often instead 

of acting early to stop the onset of or complications associated with diabetes, we 

build dialysis centers and, for Medicare patients, cover the costs of treating endstage renal disease.19

Complications of chronic disease often result in potentially preventable hospitalizations, particularly in low-income communities with reduced access to primary care. As illustrated in the Commonwealth Fund National Scorecard, hospital 

admissions for ambulatory care-sensitive conditions, such as diabetes, asthma and 

heart failure, are three to five times higher in low-income communities than in 

higher income areas (Exhibit 13). 


47761-32.eps 47761-33.eps
19 

20 A. Bindman, A. Chattopadhyay and G. Auerback, ‘‘Interruptions in Medicaid Coverage and 

Risks for Hospitalization for Ambulatory Sensitive Conditions,’’ Annals of Internal Medicine, 

Dec. 2008 149(12):854–60. 

A recent study by Bindman and colleagues underscores the importance of continuous as well as adequate coverage. The study found that interruptions in Medicaid 

coverage were associated with sharply higher rates of hospitalization for conditions 

that could have been treated in a much less expensive setting or prevented (Exhibit 

14).20 The probability of hospitalization for ambulatory-care sensitive conditions (e.g. 

asthma, diabetes, hypertension, pneumonia, ruptured appendix) was eight times 

higher for those with interrupted coverage—and four times higher after controlling 

for demographics. In this study of California Medicaid beneficiaries, 62 percent experienced an interruption in coverage during the study period between 1998 and 

2002—the average duration of interruption was 25 months. Most became uninsured 

when they lost Medicaid. 

Our failure to provide adequate coverage and ensure access as well as lack of emphasis and value for primary and preventive care undermines the health of the Nation. Despite spending far more of our national resources on the health system, the 

United States is failing to keep pace with other countries in reducing deaths from 

conditions that are potentially preventable with early access to timely and effective 

care. From 1997/1998 to 2002/2003 the United States fell to last place behind 18 

other high-income countries on mortality amenable to health care before age 75 (Exhibit 15). This provides a sensitive measure of potentially preventable deaths, including children dying from infections and respiratory diseases before age 14, diabetic deaths before age 50, appendicitis, and screenable cancers. Although the U.S. 

rates declined by 4 percent, other country rates improved much faster with an average decline in mortality of 16 percent. The difference between the U.S. rate and the 

lowest rate countries amounts to 100,000 potentially preventable deaths per year. 


47761-34.eps
20 

21S.R. Collins, J.L. Kriss, M.M. Doty, and S.D. Rustgi, Losing Ground: How the Loss of Adequate Health Insurance is Burdening Working Families: Findings from the Commonwealth Fund 

Biennial Health Insurance Surveys, 2001–2007 (New York: The Commonwealth Fund) August 

2008. 

FINANCIAL STRESS AND ECONOMIC INSECURITY

The financial and economic consequences of having inadequate insurance or being 

uninsured are immediate and often long-lived as medical debt accumulates. In our 

2007 survey, 72 million adults ages 19–64 (41 percent) faced problems paying their 

medical bills or were paying medical debt over time—an increase from 58 million 

(34 percent) in 2005 (Exhibit 16). The majority of adults (60 percent) with bill problems or debt had insurance at the time the healthcare expenses were incurred.21

This increase occurred across all income groups but especially among families with 

low and moderate incomes: more than half of adults with incomes under $40,000 

reported problems with medical bills in 2007 (Exhibit 17). Adults with gaps in 

health insurance coverage or those underinsured were most at risk of having problems with medical bills: three of five reported any one medical bill problem or accrued medical debt, more than double the rate of those who had adequate insurance 

all year. 


47761-35.eps
21 

Of the estimated 50 million adults who were paying off medical debt in 2007, 

many were carrying substantial debt loads that had accrued over time. One-quarter 

of adults with medical debt were carrying $4,000 or more in debt and 12 percent 

had $8,000 or more. More than one-third (37 percent) of adults with medical debt 

were carrying overdue bills from care received more than 1 year ago. 

In the face of mounting medical bills and debt, many adults are making stark 

trade-offs in their spending and saving priorities. Among adults who reported financial stress or accumulated debt in 2007, nearly one third (29 percent) said they had 

been unable to pay for basic necessities like food, heat, or rent because of medical 

bills; 39 percent had used all their savings; 30 percent had taken on credit card 

debt; and 10 percent had taken out a mortgage against their home. Such actions 

were especially high among people who had spent any time uninsured or those 

underinsured. Nearly half of adults who had spent any time uninsured and reported 

medical bill problems had used all their savings to pay for their medical bills and 

two of five were unable to pay for food, heat, or rent. Underinsured adults made 

similar trade-offs: 46 percent said they had used all their savings, 33 percent took 


47761-36.eps 47761-37.eps
22 

22 J.R. Gabel and J.D. Pickreign, Risky Business: When Mom and Pop Buy Health Insurance 

for Their Employees (New York: The Commonwealth Fund) April 2004. 23G. Claxton, J. Gabel, B. DiJulio, et al., ‘‘Health Benefits in 2008: Premiums Moderately 

Higher, While Enrollment in Consumer-Directed Plans Rises In Small Firms,’’ Health Affairs 

Web Exclusive (Sept. 24, 2008):w492–w502. 24T. Buchmueller, S.A. Glied, A. Royalty, K. Swartz, ‘‘Cost and Coverage Implications of the 

McCain Plan to Restructure Health Insurance,’’ Health Affairs Web Exclusive (Sept. 16, 

2008):w472–w481. 25The Commonwealth Fund Commission on a High Performance Health System, The Path to 

a High Performance U.S. Health System: A 2020 Vision and the Policies to Pave the Way (New 

York: The Commonwealth Fund) February 2009. 2020 estimates from the Lewin Group. International comparisons from OECD. 

on credit card debt, and 29 percent were unable to pay for basic life necessities. In 

short, underinsured and uninsured adults are going without care and living with 

the financial stress of medical bills. The United States is unique among industrialized countries: it is possible to be insured all year yet face bankruptcy or exhaust 

savings for retirement or college if you get sick. 

To date, much of the erosion in more comprehensive coverage, including benefit 

limits has occurred in the small group and individual market. Although there has 

been a broad trend toward higher cost-sharing, including higher deductibles and copayments for medications and other care, employees of small businesses have been 

particularly hard hit. Without the leverage and risk pool of large firms, small businesses tend to pay the same premiums or more for less comprehensive coverage.22

As employers try to ‘‘buy down’’ the cost of premiums to hold onto coverage, average 

deductibles for single coverage in PPO plans for small firms have quadrupled since 

2000 (Exhibit 18).23 Similarly, those insured through the individual market tend to 

pay more and get less due to much higher administrative costs (including underwriting and marketing) and restrictions in benefits. Coverage equivalent to employer plans in the individual market—if available—is estimated to cost at least an 

additional $2,000.24 Plans in the individual market and small firm market are also 

more likely to place restrictions on benefits, including caps on the amounts plans 

will pay. 

MOVING IN NEW DIRECTIONS: INSURANCE AND SYSTEM REFORMS

Extending affordable insurance to all and doing so in a way that ensures access 

and provides financial protection is critical to moving in a more positive direction. 

The United States leads the world on health care spending: at an expected 17 percent of gross domestic product (GDP) in 2009, we are an outlier and spending per 

person is double or more what other countries spend. With current trends, the share 

of GDP spent on health care is projected to increase to 21 percent by 2020, at the 

same time millions more will lose basic access to care.25


47761-38.eps
23 

26S.H. Zuvekas and J.W. Cohen, ‘‘Prescription Drugs and the Changing Concentration of 

Health Care Expenditures,’’ Health Affairs Jan/Feb 2007 26(1):249–257. 27The Commonwealth Fund Commission on a High Performance Health System, The Path to 

a High Performance U.S. Health System: A 2020 Vision and the Policies to Pave the Way (New 

York: The Commonwealth Fund) February 2009. 28The Commonwealth Fund Commission on a High Performance Health System, Why Not the 

Best? Results from the National Scorecard on U.S. Health System Performance, 2008 (New York: 

The Commonwealth Fund) July 2008. 

Insurance reform is essential to address rising costs as well as growing concerns 

about wide variations in quality and health care delivery system performance. In 

addition to access concerns, the fractured insurance makes it difficult to develop coherent payment policies that could align incentives with better outcomes and more 

prudent use of resources. Further, insurance markets do not align incentives to reward added value—better outcomes as well as efficient use of resources. 

Discontinuous coverage increases administrative costs and erodes incentives to invest in population health and disease prevention for the long term. Further, competing private insurance plans can often gain at the margin by using benefit designs 

that segment patients by health risk or deny or limit coverage and care to the sickest. For instance, by limiting benefits for chemotherapy without regard to effective 

care or cost-sharing, insurance companies can lower premiums. Ten percent of the 

sickest share of the population account for 64 percent of total national spending 

each year—the healthiest half account for only 3 percent (Exhibit 19).26 With such 

highly concentrated expenditures, there is a strong financial incentive to appeal to 

the healthier half of the population—even a small increase or decrease in the share 

of the sickest 10 percent enrolled with an insurer makes a difference. It is in no 

health plan’s interest to advertise for the best outcomes for chronic conditions and 

in all plans’ interests to appeal to young, healthier adults. Currently, we have no 

mechanism to counteract this market incentive. 

The complexity and fragmentation of the current insurance system adds cost without value. Net costs of private insurance administration, including underwriting, 

marketing, claims payment, and profit margins have grown faster than total health 

spending for the past decade—more than doubling from 2000 to 2008 (Exhibit 20).27

The United States leads the world in the proportion of national health expenditures 

spent on insurance administration, and the Nation could save $102 billion annually 

if it did as well as the best countries.28


47761-39.eps
24 

29 C. Schoen, R. Osborn, M.M. Doty, et al., ‘‘Toward Higher-Performance Health Systems: 

Adults’ Health Care Experiences in Seven Countries, 2007,’’ Health Affairs Web Exclusive (October 31, 2007):w717–w734; S.K.H. How, A. Shih, J. Lau, and C. Schoen, Public Views on U.S. 

Health System Organization: A Call for New Directions (New York: The Commonwealth Fund) 

August 2008. 30The Lewin Group technical report, The Path to a High Performance U.S. Health System: 

Technical Documentation, February 2009. See page 14. 31 E. O’Brien and J. Hoadley, Medicare Advantage: Options for Standardizing Benefits and Information to Improve Consumer Choice (New York: The Commonwealth Fund) April 2008. 

Moreover, these costs do not include the internal costs to providers of multiple reporting forms, formularies, prices or payment methods for the same care, and benefit designs. Insurance complexity requires additional staff and consumes physician 

time that could otherwise be devoted to patient care. In Commonwealth Fund international and national surveys, U.S. patients stand out for reports of time spent on 

insurance-related paper work or disputes.29

Multiple variations in benefits, underwriting, and marketing costs all drive up 

costs of insurance administration. These costs are particularly high as a share of 

premiums in the small group and individual market, consuming 22 to as much as 

40 percent of premiums.30

Complex variations in benefits also undermine meaningful choice and open the 

door to potential market segmentation based on health risks. Even within the current Medicare Advantage program, the wide variation in benefit designs makes it 

difficult to make an informed choice on anything but premium rates and whether 

your current doctor is in the network (Exhibit 21). Plans vary on multiple dimensions and the extent of the variation is often not evident until one enrolls or experiences a serious illness.31


47761-40.eps
25 

32 R.E. Leu, F.F.H. Rutten, W. Brouwer, et al., The Swiss and Dutch Health Insurance Systems: Universal Coverage and Regulated Competitive Insurance Markets, The Commonwealth 

Fund, January 2009. 33 Jon Gabel e-mail and memo to Commonwealth Fund, January 30, 2009. 34 Jon Kingsdale, Executive Director, Commonwealth Health Insurance Connector Authority, 

presentation at AcademyHealth National Health Policy Conference, ‘‘Massachusetts Health Care 

Reform Results So Far and Looking Ahead,’’ February 2, 2009. 35S.K. Long, The Impact of Health Reform on Underinsurance in Massachusetts: Do the Insured Have Adequate Protection? (Washington, DC: The Urban Institute) October 2008. 

As evidence of the potential to reduce overhead costs with reforms, private insurers in other countries with multi-payer systems, including the Netherlands and 

Switzerland, for example, are able to provide coverage with only 5 percent of premiums allocated to plan overhead and the rest for benefits.32 In these countries, relatively little is spent on marketing, benefits are more standardized and comparable, 

and underwriting health risks (i.e., premium variations based on health) is prohibited. Similarly, the standard option offered to Federal employees through the Federal Employee Health Benefits Program (FEHBP) operates for about 5 percent of 

claims.33

Among States, Massachusetts efforts to achieve coverage for all have succeeded 

in insuring all but 2 percent of the population.34 Rates for underinsured have also 

declined.35

Massachusetts has also shown that consolidating risk, changing market competitive rules, and organizing an insurance connector with an easy web-based choice of 

plans, with review of premiums for reasonableness, can improve benefits and lower 

premiums. Benefits have improved and premiums costs have come down following 

reforms. For example, a typical uninsured 37-year-old male faced a monthly premium of $335 pre-reform, compared with $184 post-reform, with a $2,000 deductible 

instead of a $5,000 deductible pre-reform. To provide choices but simplify decisionmaking, Massachusetts has offered three tiers of benefits—labeled gold, silver, and 

bronze—with actuarially equivalent policies within each tier. The Web site fully discloses the plan features and variations as well as premiums. 

INSURANCE DESIGN PRINCIPLES

Insurance market reforms—including minimum requirements on insurers to cover 

everyone, the sick and healthy alike, at the same premium—could ensure the availability of coverage across the United States. Organizing a national insurance 

exchange that builds on the experience of Massachusetts and other countries could 

enhance choice and continuity, focus competition on better outcomes, and provide 

a mechanism to broadly pool risk. All these elements provide a foundation for broader health system reforms. 


47761-41.eps
26 

36M.E. Chernew, T.B. Gibson, K. Yu-Isenberg, et al., ‘‘Effects of Increased Patient Cost Sharing on Socioeconomic Disparities in Health Care,’’ Journal of General Internal Medicine, Aug. 

2008 (8):1131–1136. 

There are several key principles to insurance and benefit design if reforms seek 

to expand coverage and aim to improve access, provide financial protection, and 

focus insurance market competition on better outcomes (Exhibit 22). 

• Establish a minimum benefit level. The goals of access and financial protection 

should guide this minimum. A minimum is necessary to avoid driving coverage even 

lower and will be necessary for any reform requiring everyone to have insurance. 

It sets the standard for minimum ‘‘creditable’’ coverage. 

• Minimum design. To assure access and provide protection a minimum should: 

• Be broad in scope, including essential acute care. 

• Prohibit disease-specific or service-specific limits: otherwise, patients can ‘‘run 

out’’ of critical care (such as effective medication or cancer treatment) and opportunities for risk segmentation remain. 

• If deductibles are included, exempt preventive care and essential care for 

chronic conditions. Primary and preventive care should either be covered in 

full or with minimal copayment to encourage and support providing the right 

care and to align incentives with efforts to hold clinicians accountable for care 

outcomes. 

• Set lifetime limits high or eliminate altogether and standardize to facilitate 

comparisons. 

• Establish annual out-of-pocket maximums, including deductibles and copayments or coinsurance. 

• Low-income protection. Reduce cost-sharing and limit total out-of-pocket exposure for low-income individuals and families. At or near poverty, families are already spending most or all of their income on basic essentials such as food and 

housing. Therefore, they are particularly sensitive to costs, including costs for preventive and chronic care.36 Expansion of the Medicaid/SCHIP program to adults and 

higher incomes, with sliding scale premiums and modest cost-sharing (as in Massachusetts), is one potential approach. Given advances in electronic claims, it would 

also be possible to limit total out-of-pocket exposure as a share of income. 

• Limit the range of variation in benefit designs. More standardized benefits, including actuarial bands within limit ranges (e.g., same scope of benefits and total 

out-of-pocket protection but variations in deductible or cost-sharing) help facilitate 

choice and encourage risk pooling. Review should limit designs without clear rationale based on effectiveness and appropriateness of care. 

• Premiums for the standard plan should be affordable, with income-related premium assistance for premium costs in excess of a given threshold of income. Such 


47761-42.eps
27 

37The Commonwealth Fund Commission on a High Performance Health System, A High Performance Health System for the United States: An Ambitious Agenda for the Next President (New 

York: The Commonwealth Fund) November 2007. 38The Commonwealth Fund Commission on a High Performance Health System, The Path to 

a High Performance U.S. Health System: A 2020 Vision and the Policies to Pave the Way (New 

York: The Commonwealth Fund) February 2009. 

provisions could include sliding-scale premiums or tax credits that vary with income. 

• Public comparisons of choices. Standardization plus web-based posting should 

make it easy to compare information on benefits, expected out-of-pocket costs, physician and other provider networks, and premiums. 

• Insurance market reforms to ensure access, avoid premium variations based on 

health risks, and focus competition on outcomes. In the context of coverage for all, 

ground rules should require that insurers cover everyone (guaranteed issue and renewal) and charge the same premium regardless of health status of enrollee (community rating or age bands). If there is an insurance exchange, these provisions 

should apply to plans sold through the connector and those sold outside the connector. Such provisions would lower underwriting and marketing costs. 

• Risk adjustment of premiums. Premiums should be risk-adjusted to reduce incentives to avoid risk and to provide incentives to promote positive outcomes, including better outcomes for those with complex or chronic conditions. 

• Competition based on value added. The goal of the various insurance market 

reforms, including an exchange, should be a market where plans and care systems 

that achieve better health outcomes with more prudent use of resources do well and 

those that do not lose money and market share. Insurers should compete on the 

basis of the added value they bring by fostering quality and efficiency in the delivery of health care, and efficiency in administrative costs. 

• Structure insurance choices and make it easy to enroll and stay insured through 

a national insurance exchange or ‘‘connector.’’ 

Insurance reforms that extend coverage to all, set a minimum benefit floor, limit 

the range of variation, and eliminate underwriting would reduce complexity, ensure 

access, improve continuity, and lower administrative costs. Such reforms will require a significant increase in the role of the public sector to provide a framework 

and oversight for market competition and to provide financing to make coverage affordable relative to incomes. 

IMPROVING ACCESS, QUALITY, AND SLOWING COST GROWTH

Although insurance reforms are essential, health reforms will need to combine insurance with payment and system reforms to achieve the triple goals of improving 

access for all, achieving better quality (health outcomes), and slowing the growth 

of health spending. Indeed, unless reforms also seek to improve the value of care 

and the performance of the care system, efforts to expand coverage will be difficult 

to sustain. At the same time, efforts to provide affordable insurance to all and reform the insurance market could provide a stronger foundation for payment and system reforms. 

In its 2007 call for more comprehensive reform, the Commonwealth Fund Commission on a High Performance Health System identified five core strategies for improving on all three dimensions of system performance and fostering care system 

innovations.37 These include: 

• Ensuring affordable coverage for all. 

• Aligning incentives with value and effective cost control. 

• Fostering accountable, accessible, patient-centered and coordinated care. 

• Aiming high to improve quality, health outcomes: investing in information systems and efforts to promote health and disease prevention. 

• Accountable leadership and collaboration to set and achieve national goals. 

To examine what could be possible with an integrated set of insurance, payment, 

and system reforms, the Commission recently issued a report entitled, The Path to 

a High Performance U.S. Health System: A 2020 Vision and the Policies to Pave the 

Way. The Path report provides a set of recommendations in each strategic area and 

assesses the potential impact from 2010 to 2020 using policies that illustrate recommended actions. 

Central to the Commission strategic recommendations is the creation of a national 

insurance exchange that offers a choice of private plans and a new public plan, with 

associated insurance market reforms and provisions to make coverage affordable.38

Insurance recommendations include: 

28 

• Establish a health insurance exchange that offers an enhanced choice of private 

plans and a new public plan. This new public plan would offer comprehensive benefits with incentives for disease prevention and payment methods that reward results. It would build on Medicare’s claims administrative structure and national provider networks. The exchange and new public plan would be open to all, including 

large employers. 

• Require individuals to have coverage and employers to offer coverage or contribute to a trust fund for insurance, sharing responsibility to pay for insurance for 

all. 

• Provide income-related premium assistance to make coverage affordable. 

• Expand eligibility for and improve payment under Medicaid and the Children’s 

Health Insurance Program to improve affordability and access. Eliminate Medicare’s 

2-year waiting period for the disabled. 

• Set a minimum benefit standard to ensure access and adequate protection from 

the financial burden of obtaining needed health care. 

• Reform health insurance markets to improve insurance efficiency, access, and 

affordability by prohibiting premium variation based on health and guaranteeing 

offer and renewal of coverage to all, regardless of health status. 

Building on this foundation, an integrated set of polices would change the way 

the Nation pays for care and would invest in system reforms and health initiatives. 

Payment reforms include: enhanced value for primary care and new payment methods to support better care coordination and management of chronic disease (often 

called ‘‘patient-centered medical home’’); moving away from fee-for-service to more 

‘‘bundled’’ payment for care; and correcting price signals to align payment levels 

with more efficient care. Together the set of payment reforms aim to reward efficiency (high quality and prudent use of resources) and penalize waste and ineffective care by stimulating and supporting a more effective and efficient delivery system. System reforms include investing in and expanding effective use of health information technology and networks (HIT with information exchanges), providing 

better information on comparativeness effectiveness and using this information to 

guide benefit and pricing policies, and all-population data with benchmarks of top 

performance. 

The analysis of the potential impact indicates that it would be possible to extend 

affordable insurance to everyone, improve quality, and substantially slow the rate 

of growth of national spending by a cumulative $3 trillion by 2020 assuming reforms 

begin in 2010. Although spending would slow compared with projected trends, it 

would still go up each year (Exhibits 23 and 24). 


47761-43.eps
29 

Many of the Commission recommendations would be politically difficult to 

achieve. They depend on building the political will and consensus that the Nation 

can no longer afford to continue on the current path. Changes will require new leadership roles and collaboration across public and private sectors. Effective payment 

reforms will require time to develop and implement and flexibility to innovate as 

the Nation learns. Information systems require investment and time to yield maximum returns through adoption and use. 

With the current severe recession, there is broad public support for fundamental 

reform. The United State’s continued failure to protect its population when sick is 

undermining national health and economic security. Wide public concern and stress 

on businesses and public sectors make it increasingly clear that we cannot afford 

to maintain the status quo. Each year we wait, the problems grow worse. There is 

an urgent need for leadership and policy action to force consensus to move in a positive direction. 

Thank you for the opportunity to testify on these critical issues. 

Senator BINGAMAN. Thank you very much. 

Ms. Shearer, please go right ahead. 

STATEMENT OF GAIL SHEARER, MS, DIRECTOR OF HEALTH 

POLICY ANALYSIS, CONSUMERS UNION, WASHINGTON, DC 

Ms. SHEARER. Thank you, Mr. Chairman, members of the committee. Thank you very much for the invitation to testify on this 

important issue of the underinsured. The key break downs of the 

health coverage marketplace that have fueled the growth in the 

underinsured include the increase in high deductible coverage, annual caps in coverage, lifetime benefit limits, limited benefits, preexisting condition exclusions, higher co-pays, out of network 

charges, bare bones policies and a flawed individual health insurance market. 

During 2008, Consumers Union sent a bus around the country to 

find out what was happening to real people and their healthcare. 

More than 4,000 people told us their healthcare stories. In my written statement I have presented profiles of several of these people 

that we encountered. Each tells in its own way that we are all at 

risk of being underinsured. 


47761-44.eps
30 

Kim, in Minneapolis came to the end of her 18 months of Cobra 

coverage and then found that her individual policy had a glaring 

loop hole. A condition that she not file any claims for counseling 

for 2 years. She had been in grief counseling following her husband’s suicide. 

Charles, in Georgia discovered that the doctor’s office on one floor 

of the insurance company’s network was covered, but on the second 

floor where biopsies are done, was not part of the network. Finding 

an in network surgeon for his prostate cancer proves so challenging 

that he said, ‘‘It’s not the cancer that’s going to kill me, it’s the insurance company.’’ 

Bea from North Carolina was laid off from her county social 

worker job and could only afford catastrophic coverage which did 

not cover her preexisting condition including her arthritis. She told 

us, ‘‘I quickly realized that the American dream of owning your 

own business is only for the young and the healthy.’’ 

Solving the problems faced by the underinsured will require fundamental reforms of our health care system. It’s relatively easy to 

review the situation of the individual’s plights and conclude that 

deductibles should be lower, benefits should be more comprehensive, networks should provide appropriate services and caps and 

annual or lifetime benefits should be prohibited, for example. But 

the underlying problem is that health care costs are high as a percentage of GDP and continue to grow at a rate faster than the rate 

of other goods and services. 

This differential growth rate translates to higher premiums, 

higher co-payments and higher burdens on individuals and families. As long as the growth in health care costs continues unabated, 

we will struggle as a nation to address the very difficult challenge 

of coming up with how to best pay for health care and relieve the 

burden on the underinsured. 

Consumers Union believes that the problems faced by the underinsured can best be addressed by health reforms that provide for 

broad-risk pooling with comprehensive quality coverage for all. A 

health care system that allows pre-existing condition exclusions, 

caps and benefits and underwriting can not address the underlying 

problems. A key building block that will make this kind of affordable coverage is increased comparative effectiveness research. Congress took an important step by including funding for expanded 

comparative effectiveness research in the Stimulus bill. 

Consumers Union has developed a program, Consumer Reports 

Best Buy Drugs, that demonstrates why this type of research is so 

important. Our reports show that individuals can often save between $1,000 and $2,000 a year simply by switching from a high 

priced drug to a best buy drug that is equally safe and effective. 

The reality is that in this country and in this economy, just about 

all of us are at risk of being underinsured. 

The cause might be a pink slip, a major accident, a birth defect, 

a serious illness such as cancer, pregnancy or being eligible only for 

a limited, loop hole laden, individual policy. The real issue is the 

growth of health care costs at a rate much higher than GDP 

growth and the responses of payers who increase deductibles and 

decrease coverage. The problem of the underinsured must be addressed in the context of overall system reform that helps moves 

31 

to a system that rewards prevention, bases decision on evidence 

and is committed to getting better value for our health care dollar 

whether the dollar comes from taxpayers, consumers or employers. 

Mr. Chairman and members of the committee, the growing problem of the uninsured and underinsured cries out for your prompt 

attention. Thank you very much for considering our views. 

[The prepared statement of Ms. Shearer follows:] 

PREPARED STATEMENT OF GAIL SHEARER, MS 

EXECUTIVE SUMMARY

The reality is that in this country—and in this economy—just about all of us are 

at risk of being underinsured. The cause might be a pink slip, a major accident, a 

birth defect, serious illness such as cancer, pregnancy, or being eligible only for a 

limited, loophole-laden individual policy. 

While the definition of the ‘‘underinsured’’ varies, quantitative definitions used by 

the government tend to focus on the percent of adults between 19 and 64 whose outof-pocket health care expenses (excluding premiums) are 10 percent or more of family income. The ranks of the underinsured have grown. The Commonwealth Fund 

estimates that 42 percent of U.S. adults were uninsured or underinsured in 2007. 

You can be sure that with the recent loss of millions of jobs, and unaffordability 

of COBRA premiums, these numbers will rise dramatically in 2008 and 2009. 

Research by the Consumer Reports National Research Center used a series of 

questions to determine the percent who were underinsured based on answers to 

questions such as whether they considered their deductible too high, and whether 

they felt adequately covered for costs of surgery, doctors visits, and catastrophic 

medical conditions. We found that 41 percent of the adult population sampled lacked 

adequate health coverage. Nine percent of the underinsured (by our survey) took extraordinary measures to pay medical bills, including dipping into IRAs, 401(k)s or 

pension funds, selling cars, trucks or boats, or taking on home equity or second 

mortgage loans. 

Underinsurance is a problem for two key reasons: Inadequate coverage results in 

the financial burden of uncovered health care. In our survey, for example, 30 percent of the underinsured had out-of-pocket costs of $3,000 or more for the previous 

12 months. Underinsurance can lead to medical debt and even bankruptcy. The second problem posed by underinsurance is delayed or denied health care and poorer 

health outcomes, caused by the financial barrier to care. 

The key breakdowns of the health coverage marketplace that have fueled the 

growth in the underinsured included the increase in high deductible coverage, annual caps in coverage, lifetime benefit limits, limited benefits, pre-existing condition 

exclusions, higher co-pays, out-of-network charges, barebones policies, and a flawed 

individual health insurance market. 

Fundamental reforms of our health care system are needed to solve the problem 

of the underinsured. A necessary building block will be expanded research of comparative effectiveness so that we increase the knowledge base for making treatment 

and coverage decisions. It will be necessary to cut the growth of health care costs 

and get better value for our health care dollar in order to be able to afford the coverage improvements and expansions necessary to eliminate the risk of being underinsured. Moving from the ranks of the uninsured to the insured does not guarantee 

protection against the financial hardship that illness can bring, as demonstrated by 

the plight of the underinsured. We look forward to working with you to address this 

problem that threatens families with financial crises just when they are battling 

health care challenges. 

Mr. Chairman, members of the committee, thank you for the invitation to testify 

on the issue of the underinsured. This growing problem creates financial hardship 

and results in barriers to getting needed health care. Being underinsured in America means both pocketbook and healthcare hardship. Fortunately, there is increased 

awareness that we can’t assume that a simple measure of the uninsured neatly 

sums up the health care status of our Nation. The growing population of underinsured demonstrates clearly that moving from the ranks of the uninsured to the 

insured alone does not guarantee protection against the financial hardship that illness can bring. We commend you for holding this hearing to help keep attention 

focused on this crucial element of the health care problem. 

32 

1 Consumers Union, the nonprofit publisher of Consumer Reports, is an expert, independent 

organization whose mission is to work for a fair, just, and safe marketplace for all consumers 

and to empower consumers to protect themselves. To achieve this mission, we test, inform, and 

protect. To maintain our independence and impartiality, Consumers Union accepts no outside 

advertising, no free test samples, and has no agenda other than the interests of consumers. Consumers Union supports itself through the sale of our information products and services, individual contributions, and a few noncommercial grants. 2Pamela Farley Short and Jessica S. Banthin. 1995. New Estimates of the Underinsured 

Younger than 65 Years. JAMA. 274: 1302–1306. 3 Jessica Banthin. AHRQ, Out-of-Pocket Burdens for Health Care, Insured, Uninsured and 

Underinsured. September 23, 2008. 4 Cathy Schoen, et al., How Many are Underinsured? Trends Among U.S. Adults, 2003 And 

2007, Health Tracking, Health Affairs—Web Exclusive, June 10, 2008. See also: Jessica S. 

Banthin and Didem Bernard, Changes in Financial Burdens for Health Care—National Estimates for the Population Younger than 65 Years, 1996 to 2003, JAMA, December 13, 2006. 5 Health Care Experiences of the American Public: May 2007 Survey, Consumer Reports National Research Center Survey Research Report. 6 Are You Really Covered? Why 4 in 10 Americans can’t depend on their health insurance, Consumer Reports, September 2007. 

Consumers Union1 is the independent, non-profit publisher of Consumer Reports, with circulation of about 7 million (Consumer Reports plus ConsumerReports.org 

subscribers). We regularly poll our readership and the public about key consumer 

issues, and the high cost of health care consistently ranks among their top concerns. 

My statement includes information about a survey that we conducted about the 

problem of the underinsured. 

After reviewing the latest numbers that show a recent growth in the ranks of the 

underinsured, my testimony will show how being inadequately insured can place 

tremendous health and financial burdens on families. I will provide an overview of 

the basic causes of becoming underinsured, present some profiles of the faces of the 

underinsured, and will provide some comments about finding a solution to this problem. 

THE UNDERINSURED: THE NUMBERS

Estimates of the underinsured vary based on the underlying data source, the 

methodology, and the definition. Early estimates of the underinsured used focused 

on risk of incurring out-of-pocket costs (not including premiums) exceeding 10 percent of income.2 Government estimates are based on the percent of adults between 

19 and 64 whose out-of-pocket expenses are 10 percent or more of family income, 

sometimes adjusting to a lower percent for low-income individuals.3 A recent Commonwealth Fund estimate shows a 60 percent growth in underinsured between 2003 

and 2007, with an estimated 25.2 million individuals underinsured in 2007. The 

Commonwealth Fund estimates that 42 percent of U.S. adults were uninsured or 

underinsured in 2007.4

CONSUMER REPORTS NATIONAL RESEARCH CENTER SURVEY RESEARCH REPORT 5

The Consumer Reports National Research Center conducted a nationally representative survey of 2,905 respondents between the ages of 18 and 64 in May 2007. 

The findings were reported in the September 2007 issue of Consumer Reports.6 We 

found that 16 percent of the adult population under 65 was uninsured. We also 

found that 29 percent of those surveyed who had health insurance at the time of 

our survey were underinsured. Combined with the uninsured, the CR survey found 

that 41 percent of the population sampled lacked adequate health coverage. 

Nine percent of underinsured in our survey took extraordinary measures to pay 

medical bills—including dipping into IRAs, 401(k)s, or pension funds, selling cars, 

trucks or boats, selling off stocks and bonds, taking on home equity or second mortgage loans, selling homes, or declaring bankruptcy. Three percent reported taking 

on home equity or second mortgage loans, selling homes, or declaring bankruptcy. 

While 65 percent of the adequately-insured felt well prepared for unexpected future 

medical expenses, only 37 percent of the underinsured expressed such confidence. 

The underinsured were defined by Consumer Reports based on responses to individual survey items. Respondents were categorized as underinsured if they were insured and complained in our survey about two or more of the following aspects of 

their plans: 

• It does not adequately cover prescription drug costs; • It does not adequately cover the costs of doctors’ visits; • It does not adequately cover the costs of medical tests; • It does not adequately cover the costs of surgery or other medical procedures; • It does not provide enough coverage for catastrophic medical conditions; 

33 

7Sara Collins, et al., Losing Ground: How the Loss of Adequate Health Insurance is Burdening 

Working Families, The Commonwealth Fund, August 2008, p. 10. 8Michelle M. Doty, et al., Seeing Red: The Growing Burden of Medical Bills and Debt Faced 

by U.S. Families, Issue Brief, the Commonwealth fund, August 2008. 9The Commonwealth Fund Biennial Health Insurance Survey (2007), Chart pack, Figure 15. 

• The deductible is too high. 

Table 1 shows the percent of underinsured reporting various types of dissatisfaction. Table 2 shows the relative financial impact on the underinsured compared with 

the insured. 

Table 1.—Dissatisfaction with Insurance: Consumer Reports National Research Center Survey 

Percent of respondents who are underinsured expressing dissatisfaction with these aspects of their insurance: In 

Percent 

Deductible is too high ................................................................................................................................................. 70 

Does not adequately cover the costs of medical tests ............................................................................................... 67 

Does not adequately cover prescription drug costs .................................................................................................... 63 

Does not adequately cover the costs of surgery or other medical procedures .......................................................... 58 

Does not adequately cover the costs of doctors’ visits .............................................................................................. 53 

Does not provide enough coverage for catastrophic medical conditions ................................................................... 51 

Table 2.—Financial Impact of Being Underinsured Consumer Reports National 

Research Center Survey 

Underinsured 

[In percent] 

Adequately 

insured 

[In percent] 

Compared with adequately insured, the underinsured in our survey were: 

Twice as likely to spend $3,000 out-of-pocket for medical expenses in the past 12 months 30 16 

Four times as likely to have dug deep into their savings to pay for medical expenses ......... 33 9 

Twice as likely to have charged at least some of their medical bills to credit cards ............ 29 11 

Three times as likely as adequately-insured to have outstanding unpaid bills owed to doctors or hospitals .................................................................................................................... 27 8 

WHY IS UNDERINSURANCE A PROBLEM?

There are two serious health system problems that result from the growing numbers of the underinsured—the financial burden resulting from uncovered health 

costs and the health care burden caused by delayed or denied care. 

Financial burden of uncovered health care. Health care is expensive. When 

needed health care must be paid out-of-pocket, the burden on those who are sick 

can add tremendously to the burden of fighting illness. The burden falls hardest on 

those with the least resources to weather the extra burden of illness—those with 

low and moderate income. Our survey found the underinsured were much more likely to face out-of-pocket costs of $3,000 for the previous 12 months (30 percent vs. 

16 percent of the adequately insured). 

Medical debt has increased recently, even before the financial crisis of 2008. 

Forty-nine million adults (28 percent of the adult population) reported carrying 

medical debt in 2007, an increase from 21 percent in 2005.7 Not surprisingly, underinsured adults, who have less comprehensive health care coverage, are more likely 

than the insured to face medical bill and medical debt problems. Some of the key 

factors were inadequate drug and dental coverage, high premiums as percent of income, out-of-network charges, and benefit gaps.8

The Commonwealth Fund study 9 found that the underinsured, 82 percent of 

which were insured at the time they were provided medical care, face other burdens 

from high medical bills. 

• 29 percent are unable to pay for basic necessities such as food, heat or rent; 

• 46 percent used up all of their savings; 

• 12 percent took out a mortgage against their home or took out a loan; 

• 33 percent took on credit card debt. 

As a nation, the current financial crisis has been a cogent reminder of the downside of carrying too much debt. Medical costs contribute substantially to debt. Sixty 

percent of underinsured or uninsured adults reported medical bill problems or debt 

in the Commonwealth Fund Biennial Health Insurance Survey (2007). This study 

34 

10Michelle M. Doty, et al., Seeing Red: The Growing Burden of Medical Bills and Debt Faced 

by U.S. Families, Issue Brief, The Commonwealth Fund, August 2008. 11David U. Himmelstein, Elizabeth Warren, Deborah Thorne and Steffie Woolhandler, Illness 

and Injury as Contributors to Bankruptcy, Health Affairs, February 2, 2005. 12 Cathy Schoen, et al., Insured but not Protected: How Many Adults are Underinsured?, Health Affairs Web Exclusive, June 14, 2005, p. 295. 13Kaiser/Cancer, p. 8. 14Kaiser/Cancer, p. 9. 15P. 5, Employer Health Benefits, 2008 Summary of Findings, The Kaiser Family Foundation 

and Health Research & Education Trust. 16Kaiser p. 11. 17 Employer Health Benefits 2008, Kaiser Family Foundation and Health Research and Educational Trust, p. 141. 

showed that 62 percent of those with medical debt had insurance at the time of 

their medical incident.10 Clearly, health insurance is not providing the financial protection that it is meant to. 

Medical expenses of the underinsured are a major contributing factor toward 

bankruptcy. Researchers at Harvard Medical School and Harvard Law School conducted interviews with families who filed for bankruptcy in 2001. About half said 

that medical costs contributed to the bankruptcy. Three quarters of those whose 

bankruptcies were related to health care expenses had insurance when the illness 

began.11

Barrier to getting needed health care. Being underinsured translates into delayed or foregone medical care, and this can result in people getting sicker and even 

death. Commonwealth Fund research found that the underinsured are more likely 

not to fill a prescription, to skip a test or treatment, to not visit the doctor for a 

medical problem and to forego needed specialist care.12

High deductibles and co-pays can result in delayed care or foregone care. The recent Kaiser Family Foundation/American Cancer Society report tells the story of a 

prostate cancer survivor whose health insurance has a $3,750 deductible. He cuts 

back on screening to every other year, instead of every year, because of the burden 

of the $250 test.13

DIFFERENT ROUTES TO BEING UNDERINSURED

High out-of-pocket health care costs can lead to financial burden and to consumers being underinsured in a number of ways. Some of the most common causes 

of being underinsured are high deductibles, caps on annual or lifetime benefits, limited benefits, pre-existing condition exclusions, co-pays, network restrictions, 

barebones policies, and limited individual health insurance policies. 

Increase in high deductible coverage. One route to being underinsured is 

high deductible health insurance. Many consumers who lack employer-based coverage can not afford comprehensive coverage and resort to a high deductible policy 

in the individual market. Tax policy that favors health savings accounts has fueled 

the growth of high deductible coverage. Many employers are offering high deductible 

coverage. If a family earning $50,000 faces a $5,000 deductible, even a minor illness 

can cause them to fall into the ranks of the underinsured. 

Average deductibles are on the rise. In the individual market, 67 percent of cov- erage has deductibles of $1,000 or above.14 The Kaiser Family Foundation/Health 

Research & Education Trust annual Employer Health Benefits report showed an increase in high deductible health plans offered by employers from 7 percent in 2006 

to 13 percent in 2008.15

Annual caps in coverage. Many policies have annual caps in coverage. A serious illness—such as a brain injury or cancer—can lead to reaching the cap in coverage. High costs of cancer treatment, for example, can quickly lead to using up a 

$100,000 benefit. The Kaiser/ACS report tells the story of a breast cancer patient 

with employer-sponsored coverage with a $100,000 annual limit. Having to face a 

medical debt of $30,000 while battling cancer created major stress.16

Lifetime caps in benefits. Many policies also have lifetime caps in benefits. 

Again, with a serious illness, these caps can be reached. 

Limited benefits. Policies limit benefits in other ways, such as excluding emergency room coverage and excluding prescription drugs. Individual insurance plans 

are more likely to have limited benefits, in part to keep premiums low and in part 

because of the concern about adverse selection in this market. Even employer plans 

often limit benefits. For example, 55 percent of covered workers in small firms (3 

to 199 workers) have limited mental health benefits, e.g., limits of 20 or fewer outpatient mental health visits per year.17

Pre-existing condition exclusions. Many people have gaps in coverage that result in pre-existing condition exclusions when they join a new employer and new 

35 

18Karyn Schwartz and Gary Claxton, Kaiser Family Foundation and Kristi Martin and 

Christy Schmidt, American Cancer Society, Spending to Survive: Cancer Patients Confront Holes 

in the Health Insurance System, February 5. 2009. 1. 19Sebastian Schneeweiss et al., The Effect of Medicare Part D Coverage On Drug Use and Cost 

Sharing Among Seniors Without Prior Drug Benefits, Health Affairs—Web Exclusive, February 

1, 2009. 20 Judith Solomon, New Georgia and Florida Health Plans Unlikely to Reduce Ranks of Uninsured, Center on Budget and Policy Priorities, July 1, 2008. 21 Bare-Bones Health Plans: Is Something Better than Nothing? Reform Matters, National 

Women’s Law Center. 22Sherry Glied, et al., Bare-Bones Health Plans: ‘‘Are They Worth the Money,’’ Issue Brief, The 

Commonwealth Fund, May 2002. 23 Income, Poverty and Health Insurance Coverage in the United States, U.S. Census Bureau, 

2007, p. 61. 24More stories are available at prescriptionforchange.org. 

health plan. Individual health insurance policies often have such exclusions. For 

someone with a pre-existing condition such as cancer or pregnancy, the resulting 

out-of-pocket costs can be very large. 

Copays. A recent report by the Kaiser Family Foundation and the American Cancer Society told the story of cancer patients whose deductibles, combined with copays for doctor visits, outpatient visits and prescription drugs led to high medical 

bills, in some cases exceeding $100,000 despite having health insurance coverage.18

The Medicare Part D doughnut hole is an example of a ‘‘copay’’ that is designed into 

the benefit. New research shows that the doughnut hole results in Medicare beneficiaries not getting the drugs that they need in order to treat chronic conditions.19

Out-of-network charges. When serious or chronic illness strikes, or when emergencies occur, consumers may find that they need to seek care from an out-of-network provider. In some cases, they may discover after their own careful planning 

that while their surgeon is in network, other doctors (e.g., radiologists or anesthesiologists) are out-of-network. This can result in large uncovered costs. This can be 

a problem also if a job change leads to a different network, if physicians switch out 

of a network, or if an insurer drops a provider. 

Bare-bones policies. All payers of health care are struggling with the high cost 

and rate of increase of health care costs. Unfortunately, States are allowing ‘‘barebones’’ policies which technically move people from the ranks of the uninsured—but 

leave them being underinsured. For example, the ‘‘Cover Florida’’ plan (which became law in May 2008) allows policies that do not cover hospital or emergency room 

care. While the premium may be low, the absence of this basic coverage exposes any 

purchasers to the risk of facing high out-of-pocket costs.20 Other exclusions in barebones policies can be mental health, maternity services, cancer care, substance 

abuse treatment, and prescription drugs.21 Bare-bones policies with limited benefits 

impose special risks on low-wage consumers who are most likely to have out-of-pocket costs that exceed 10 percent of income.22

Individual health insurance market. While even employer-sponsored health 

insurance plans often have limits that result in underinsurance, the individual insurance market, a residual market that covers just 9 percent of the population, has 

far more problems that can result in being underinsured.23 Unlike employer policies, in most States companies that sell individual coverage can pick and choose who 

they cover. Through underwriting, in many cases insurers can deny coverage. They 

can attach riders, for example covering all body systems except the system where 

there might be a pre-existing condition. Benefits can be skimpy, excluding for example pregnancy or prescription drugs. 

FACES OF THE UNDERINSURED

During 2008, Consumers Union sent a bus around the country to find out what 

is happening to real people. More than 4,000 people told us their stories.24 Below 

are some examples of our stories about real people who are underinsured. 

Pre-Existing Condition Exclusion in Individual Policy 

Kim—Minneapolis, MN. Kim’s husband was having a difficult time sleeping so he 

saw his doctor who sent him home with a 3-week sample pack of anti-depressants. 

Her husband had no previous history of depression, but 5 weeks later he took his 

own life. After her husband’s death, Kim saw a therapist for grief counseling. Kim 

ended up leaving her job in advertising to devote her time to drug safety advocacy 

and do freelance work. She paid for 18 months of COBRA coverage and then 

shopped around for an individual health plan. Since she had no serious health 

issues in her past, she expected her coverage would be affordable. But the insurer 

she had received coverage through previously refused to issue her an individual polVerDate Nov 24 2008 12:55 Jun 09, 2010 Jkt 035165 PO 00000 Frm 00039 Fmt 6633 Sfmt 6621 S:\DOCS\47761.TXT DENISE
36 

25http://link.brightcove.com/services/link/bcpid1544602725/bclid1551048399/bctid1797029 

791. 

26http://link.brightcove.com/services/link/bcpid1544602725/bclid1551048397/bctid1780555 

026. 

27http://link.brightcove.com/services/link/bcpid1460683554/bctid1701199083. 28http://link.brightcove.com/services/link/bcpid1460683554/bctid1676207968. 29http://link.brightcove.com/services/link/bcpid1460683554/bctid1674044182. 30http://link.brightcove.com/services/link/bcpid1460683554/bctid1662507287. 31http://link.brightcove.com/services/link/bcpid1460683554/bctid1648122600. 

icy because they said that her participation in grief counseling was an indication 

of possible mental illness. Kim was able to get coverage through a second insurer 

but only on the condition that she would not file any claims for counseling for 2 

years.25

Limited Benefits That Exclude Emergency Room Visit 

Phuonglon—Denver, CO. While Phuonglon was traveling out-of-state, she had a 

small seizure and was brought to a hospital emergency room for treatment. When 

she returned home, she reviewed her health insurance policy and it appeared that 

she was covered for the ER visit. But then she started to receive bills for care that 

was not covered by her policy. At times, it was really difficult for her because she 

had not budgeted for these expenses. The experience opened her eyes to how easily 

people can go bankrupt by unforeseen medical expenses.26

High-Deductible Health Insurance That Creates Financial Barrier to Care 

Gina—St. Joseph, MO. Gina and her husband own their own delivery company 

and have purchased an individual health insurance policy for their family. Gina recently had a miscarriage and decided not to seek medical treatment because they 

have a high $3,500 deductible and she couldn’t afford to see the doctor. When Gina 

gave birth to her son a few years ago, the insurance company refused to pay for 

her C-section because they maintained it was elective (even though her son was 

born breeched). She had to fight with the insurance company to get them to pay 

for these medical costs. In the meantime, the insurance company sent their bill to 

collections. The insurance company eventually paid 6 months after Gina had paid 

her full deductible.27

Out-of-Network Provider for Emergency Transportation 

John—Pelham, AL. This 23-year-old young father had an accident on a four wheel 

vehicle in a rural area. When the ambulance arrived, the EMT decided he needed 

to be taken to the hospital by helicopter. John spent 3 days in the hospital recovering from his injuries and left with a $9,000 bill because his insurance company 

said the ambulance and helicopter were not preferred providers.28

Cancer Patient Faced Delayed Care Because of ‘‘Out-of-Network’’ Issues 

Charles—Alma, GA. Charles (‘‘Buddy’’) was diagnosed with prostate cancer but 

his insurance company denied payment for the services from the doctor who diagnosed him. While the doctor’s office on the first floor is part of his insurance company’s network, the second floor where biopsies are done is not part of the network. 

When Charles needed surgery he had a very difficult time finding doctors that belonged to his insurer’s network who could perform the surgery in hospitals that 

were also part of the network. It was only after his State legislator intervened on 

his behalf that Charles was able to resolve his issues with his insurance company. 

‘‘It’s not the cancer that is going to kill me, it’s the insurance company.’’ 29

Limited Benefits Don’t Cover Needs of Disabled and Result in Medical Debt 

Sandra—Portland, ME. Sandra is disabled with chronic fatigue syndrome and 

needs a scooter to get around. At first, her insurance company decided to only provide partial payment for her scooter and then later said it would only pay for a 

manual wheelchair. Sandra had to provide further documentation from her doctor 

that she couldn’t use a wheelchair. The appeals process with her insurance company 

took more than 1 year. Sandra continues to incur major out-of-pocket medical expenses, including $25,000 last year.30

Self-Employed, Can Only Afford Individual Coverage With Limited Benefits 

Bea—Charlotte, NC. After she was laid off from her county social worker job, Bea 

opened her own practice but has struggled to afford adequate health insurance. She 

can only afford catastrophic coverage which does not cover her pre-existing conditions, including her arthritis. I quickly realized that the American dream of owning 

your business is only for the young and healthy.’’ 31

37 

32http://link.brightcove.com/services/link/bcpid1460683554/bctid1640102888. 33http://link.brightcove.com/services/link/bcpid1460683554/bctid1607328839. 34http://link.brightcove.com/services/link/bcpid1544602725/bclid1540999549/bctid1549643 

949. 

35http://link.brightcove.com/services/link/bcpid1544602725/bclid1540999549/bctid1561157 

743. 

Catastrophic Insurance Policy did not Cover $25,000 of Care for Cancer Patient Who 

Incurred Medical Debt 

Molly—Nashville, TN. After being diagnosed with uterine cancer last year, Molly 

had to undergo three surgeries and 6 months of chemotherapy and was unable to 

work for about 8 months. Her insurance policy covered catastrophic medical expenses, but she still had about $25,000 in out-of-pocket medical expenses for the 

care she received. Her friends were able to help her pay many of her bills, but she 

was left with about $12,000 in unpaid medical debt and a damaged credit record. 

The stress of my illness was enough for me to deal with, but then seeing all the 

bills I had to pay was just too much for me to handle,’’ Molly says.32

Limited Benefits of Individual Policy: Policy Does not Cover Pregnancy Expenses 

Tina—Pittsburgh, PA. When Tina was pregnant a couple of years ago she found 

out that her individual health insurance policy did not cover any of her maternity 

expenses. She developed reclaims and diabetes during her pregnancy and none of 

the care she required for these conditions was covered. Tina faced the prospect of 

having to pay nearly $50,000 in pregnancy-related expenses out-of-pocket. Fortunately, a local journalist took up her cause and contacted the insurance company. 

Her insurer agreed to cover her expenses through her son’s 1-month appointment. 

Her policy was then cancelled but now her husband has a new job that provides 

coverage for her family.33

Limited Benefits Result in Delayed Care 

Tom—Hutchinson, MN. Tom and his wife own their own pottery studio and have 

paid for their own health insurance over the years. About 5 years ago, Tom developed a debilitating hip condition. The pain got so bad that his doctor recommended 

that he undergo hip replacement surgery. Under his insurance policy, Tom would 

have had to pay $10,000 for the surgery, which he could not afford. He ended up 

putting off his surgery for 3 years until he qualified for Medicare. Two days after 

he turned 65, Tom had his surgery and his costs under Medicare were just one-third 

of what he would have paid under his individual insurance plan. Delaying the procedure had its own cost: his muscles atrophied considerably and it took him longer 

to recover from his surgery.34

Out-of-Network Doctor Care in Emergency and Inadequate Network for Hospital 

Emergency Room Care 

Andrea—Murphy, TX. Andrea’s son was having difficulty breathing shortly after 

he was born and was rushed to the hospital’s Neo-Natal Intensive Care Unit (NICU) 

for treatment. Two days later he was doing fine and was discharged to go home. 

Andrea was then informed by her insurance company that the Doctor who treated 

her son in the NICU was not part of the insurer’s network. Less than half of the 

$1,145 NICU bill was covered by her plan even though he needed emergency care. 

When she had to bring her son back a second time to the ER, she was charged $600 

for his care. Andrea discovered that there are no hospital emergency rooms in Texas 

that will take her insurance. Her family spends $7,000 annually on health insurance.35

TOWARD THE SOLUTIONS

Solving the problems faced by the underinsured will require fundamental reforms 

of our health care system. It is relatively easy to review the situation of the individuals’ plights that are profiled above and conclude that deductibles should be lower, 

benefits should be more comprehensive, networks should provide appropriate access, 

and caps in annual or lifetime benefits should be prohibited, for example. But the 

underlying problem is that health care costs are high as a percent of GDP and continue to grow at a rate faster than the rate of other goods and services. This differential growth rate translates to higher premiums, higher co-payments, and higher burdens on individuals and families. As long as this growth in health care costs 

continues unabated, we will struggle as a nation to address the very difficult challenge of coming up with how to best pay for health care. 

Consumers Union believes that the problems faced by the underinsured can best 

be addressed by health reforms that provide for broad risk pooling, with comprehenVerDate Nov 24 2008 12:55 Jun 09, 2010 Jkt 035165 PO 00000 Frm 00041 Fmt 6633 Sfmt 6621 S:\DOCS\47761.TXT DENISE
38 

36 Julie Donohue, Michael A. Fischer, Haiden A. Huskamp, and Joel S. Weissman, Potential 

Savings from an Evidence-Based Consumer-Oriented Public Education Campaign on Prescription Drugs, Health Services Research, November 2008. 37We note that we strongly support assuring the research address the needs of individuals 

of various races, ethnicity, age and sex. In addition, there should be an exceptions process that 

is timely and appropriate. 

sive, quality coverage for all. A health care system that allows for pre-existing condition exclusions, caps in benefits, and underwriting can not address the underlying 

problems. Another element of reform must be payment reform that increases the 

chance that appropriate treatment is provided—not too much treatment, not too little treatment. 

A key building block that will make this kind of coverage affordable is increased 

comparative effectiveness research. Congress took an important step by including 

funding for expanded comparative effectiveness research in the stimulus bill. 

Consumers Union developed a program—Consumer Reports Best Buy Drugs—that 

demonstrates why this type of research is so important. We have translated the unbiased systematic reviews—comparative effectiveness studies—for 21 categories of 

drugs. The source of our studies are reviews prepared by the Drug Effectiveness Review Project, which is based at Oregon Health and Science University. Our reports 

show that individuals can often save between $1,000 and $2,000 a year simply by 

switching from a high-priced drug to a best buy drug that is equally safe and effective. A simulation study of potential savings of switching from high priced drugs to 

best buy drugs in four categories of drugs used for heart conditions resulted in potential annual nationwide savings of $2.7 billion, 8 percent of drug expenditures for 

those four categories.36

Our project has demonstrated that health care outcome is not compromised when 

value is taken into account in making drug choices. We commend Congress for including this important provision in the stimulus bill and urge you to work toward 

reforms in the future that create a system where coverage decisions can be based 

on the results of such unbiased research.37

Health insurance coverage should assure that consumers do not face financial barriers to getting needed health care. Coverage should be comprehensive so that needed health care does not result in financial burdens such as debt and hardship. 

The reality is that in this country—and in this economy—just about all of us are 

at risk of becoming underinsured. The cause might be a pink slip, a major accident, 

a birth defect, serious illness such as cancer, pregnancy, or being eligible only for 

a limited, loophole-laden individual policy. The issue for your consideration is not 

whether the count of the underinsured is 15 million or 25 million. The real issue 

is the growth of health care costs, at a rate much higher than GDP, and the responses of payers to increase deductibles and decrease coverage. The problem of the 

underinsured must be addressed in the context of overall system reform that helps 

move to a system that rewards prevention, bases decisions on evidence, and is committed to getting better value for our health care dollar, whether that dollar comes 

from taxpayers, consumers, or employers. 

Mr. Chairman, members of the committee, the growing problem of the uninsured 

and underinsured cries out for your prompt attention. We look forward to working 

with you to shape solutions that will assure that the United States rises to the challenge of transforming our health care system so that we are no longer at risk of 

facing financial hardship or financial barriers to care just when we need care the 

most. Thank you for considering our views. 

Senator BINGAMAN. Thank you very much. 

Ms. Rowland, go right ahead. 

STATEMENT OF DIANE ROWLAND, D.SC., EXECUTIVE VICE 

PRESIDENT, THE HENRY J. DAISER FAMILY FOUNDATION 

AND EXECUTIVE DIRECTOR, THE KAISER COMMISSION ON 

MEDICAID AND THE UNINSURED, WASHINGTON, DC 

Ms. ROWLAND. Thank you, Mr. Chairman and members of the 

committee. My statement today will focus on why health insurance 

in the scope of coverage matters for family’s health, well-being and 

financial security. We know from the experience of the uninsured 

that health insurance helps to improve access to basic, primary and 

39 

preventive care and lowers the likelihood of postponing or foregoing 

needed care and medications due to costs. 

It also helps to promote more stable health care arrangements 

that can provide for ongoing medical care. Having insurance is 

clearly better than being uninsured. But the scope of health insurance coverage varies widely across plans. 

Families face increasing health insurance premiums plus higher 

deductibles and more cost sharing when they seek care and increasing financial burden for families especially in these tough economic times. How well health insurance protects families from 

large medical bills is one measure of the adequacy of health insurance. In surveys we have done, 3 in 10 adults reported problems 

paying their medical bills. And they had health insurance to help 

them. 

These families reported that they had to make difficult choices 

including limiting paying for other necessities such as food, heat or 

housing, using savings or borrowing money and considering filing 

for bankruptcy. Such cost considerations lead to skipped medical 

tests and failure to follow through on needed treatment. Insured 

families facing health spending that exceeds 10 percent of after-tax 

income can be considered as underinsured and that the coverage 

they have is insufficient to protect them from the financial toll of 

health spending. 

In interviews we’ve held with diverse working families across the 

United States in the spring of 2008, we found families with health 

insurance were often struggling to afford the combination of premiums, co-pays, deductibles and cost for services not covered by 

their plan with these costs rising far faster than their paychecks. 

One of the clearest examples of the holes in health coverage is the 

experience of families where cancer has taken a toll. In a report we 

just issued with the American Cancer Society, we profile some of 

the cancer patients who have fallen through the cracks in our private health insurance system and have resulted in substantial 

medical debts and detriment to their health and well-being. 

Most families with cancer have private health insurance. But 

many face high health care costs that alter their care. Five percent 

of the uninsured said that they had delayed or decided not to get 

care due to costs as cancer victims putting their life and survival 

at risk due to their costs not being covered by insurance. 

These experiences document the challenges families face today 

even those with private health insurance coverage when seeking 

medical care. High levels of cost sharing and caps on covered benefits can compromise the level of protection health insurance provides and lead to both reduced access to needed care and serious 

financial burdens and medical debt. As consideration of health reform moves forward it will be important to assess both the scope 

of coverage provided and the level of financial assistance offered 

against a substantial medical cost, especially for those with chronic 

and serious illness and those with limited income. 

As you move forward I would like to share with you now the 

voice of one of the interviews we conducted in Wichita, KS, an individual struggling with medical bills who was telling us at his kitchen table about health care costs and the impact on him. So with 

40 

that I’ll end my statement by turning to the video from Ron Gaston. Thank you. 

[Video presentation.] 

Mr. GASTON. Those add up and then when you have other blood 

tests. 

FEMALE SPEAKER ON VIDEO. Ron Gaston had his life mapped out 

and then he got sick. 

Mr. GASTON. I was going to work 5 more years. Then I was going 

to retire and let Medicare and all of that stuff take care of it. 

Maybe even pick up a little supplemental insurance to cover what 

it doesn’t care. A lot of people do. But, man, this is going to wipe 

us out. 

FEMALE SPEAKER ON VIDEO. Like most working Americans, Ron 

gets coverage through his employer, in this case a local paper supplier in Wichita. But he’s like many Americans in another way too. 

Mr. GASTON. You only pay a $15 co-pay. And those add up. And 

you have another blood test and stuff, a total of $125. 

FEMALE VOICE ON VIDEO. The annual deductible for Ron and his 

ailing wife has skyrocketed to almost $4,800 a year. Premiums 

have doubled to $1,200 a year. All the while his income, $30,000 

annually has remained fairly static. 

The Gastons couldn’t squeeze anything more out of their family 

budget. And that’s why Ron delayed seeing the doctor. 

Mr. GASTON. I didn’t have any problems. I mean, I just told them 

all, my wife and my daughter said, ‘‘Hey, you need to go get a 

physical.’’ I said, ‘‘No, I don’t. I feel just fine.’’ 

And then, gosh, a year and a half ago I got up one morning and 

my stomach hurt so bad. I was like screaming in pain. I couldn’t 

walk, couldn’t sit, couldn’t lay down. 

Female voice on video. A mass was discovered on his kidney. But 

even then Ron waited another 6 months to get treatment. 

Mr. GASTON. He said, ‘‘You have cancer.’’ I said, ‘‘Wow.’’ I said, 

‘‘What is this going to cost me?’’ 

FEMALE VOICE ON VIDEO. Finally surgery revealed it was not cancer. Still Ron ended up with $15,000 in out-of-pocket medical expenses, debt that he is now paying off in $10 or $15 increments to 

various providers. Years ago when his wife was sick, Ron dipped 

into his retirement savings to pay off medical debt. But he is too 

close to retirement now to do that again. 

Mr. GASTON. I wake up at night. How am I going to pay this? 

What am I going to do?—Lifting heavy boxes. What will I do? What 

am I going to do for a second job anyhow? 

FEMALE VOICE ON VIDEO. A postscript. Since our interview Ron 

was laid off from his job of 27 years. He hopes he will be able to 

find a new job with health benefits. 

Ron and his wife won’t qualify for Medicaid and they are several 

years away from qualifying for Medicare. The life Ron had mapped 

out now seems a distant hope. 

Ms. ROWLAND. I think Ron’s story reflects some of the challenges 

you face in crafting health care reform. I think the people like Ron 

are waiting for this Congress to help bring them some of the protection they need. Thank you. 

[The prepared statement of Ms. Rowland follows:] 

41 

PREPARED STATEMENT OF DIANE ROWLAND, D.SC. 

SUMMARY

• Health insurance helps to improve access to basic primary and preventive care 

and lowers the likelihood of postponing or foregoing needed care and medications 

due to costs by promoting more stable health care arrangements. • While having insurance is clearly better than being uninsured, the scope of 

health insurance coverage varies widely across plans. Families face increasing 

health insurance premiums plus higher deductibles and more cost-sharing when 

they seek care resulting in a growing financial burden for families. • How well health insurance is working to protect families from large medical 

bills is one measure of the adequacy of health insurance. Among the insured nonelderly population, 3 in 10 adults in October 2008 reported problems paying medical 

bills (compared, however, to 60 percent of the uninsured). Families are often forced 

to make difficult choices, including limiting paying for other necessities such as food, 

heat, or housing; using savings or borrowing money; and considering filing for bankruptcy; cost considerations lead to skipped medical tests and failure to follow 

through on needed treatment. • Interviews held with diverse working families across the United States in the 

spring of 2008 showed families with health insurance often struggled to afford the 

combination of premiums, copays, deductibles, and costs for services not covered by 

their plan, with these costs rising faster than their paychecks. • Insured families facing health spending that exceeds 10 percent of after-tax income can be considered as ‘‘underinsured’’ in that the coverage they have is insufficient to protect them from the financial toll of health spending. By 2004, researchers 

estimated that 45.4 million non-elderly people met this definition of underinsured 

compared to 39.5 million people in similar circumstances in 2001. • One of the clearest examples of the holes in health care coverage is the experience of families where cancer has taken a toll. Most have private health insurance, 

but many face high health care costs that alter their care—5 percent of the insured 

(and 27 percent of the uninsured) said they had delayed or decided not to get care 

due to costs, putting their life and survival at risk due to costs not covered by insurance. • These experiences document the challenges families face today—even those 

with private health insurance coverage—when seeking medical care. High levels of 

cost-sharing and caps on covered benefits can compromise the level of protection 

health insurance provides and lead to both reduced access to needed care and serious financial burdens and medical debt. As consideration of health reform moves 

forward, it will be important to assess both the scope of coverage provided and the 

level of financial assistance offered against the substantial medical costs especially 

for those with chronic and serious illness. 

Mr. Chairman and members of the committee, thank you for the opportunity to 

be with you today to discuss the status of health insurance coverage in America and 

the gaps and limits to coverage that leave millions of Americans poorly protected 

when confronting illness. I am Diane Rowland, Executive Vice President of the Kaiser Family Foundation, and Executive Director of the Foundation’s Kaiser Commission on Medicaid and the Uninsured. I am also an adjunct professor of Health Policy 

and Management at the Bloomberg School of Public Health at The Johns Hopkins 

University. 

My statement today will focus on why health insurance and the scope of coverage 

matters for a family’s health, well-being, and financial security. The evidence is 

clear and strong showing that being without health insurance affects the health care 

people receive and leaves the uninsured with diminished access to health services 

and poorer health than their insured counterparts. The consequences of inadequate 

insurance for the many ‘‘underinsured’’ Americans are less well-documented, but 

both affordability and adequacy of coverage are major challenges to be addressed 

in reforming our health care system. 

HEALTH INSURANCE MATTERS

Health insurance is a key link to receiving health care when needed. Having coverage helps to improve access to basic primary and preventive care and lowers the 

likelihood of postponing or foregoing needed care and medications due to costs. It 

helps to promote more stable health care arrangements leading to early detection 

and preventive care. The uninsured use fewer preventive and screening services, are 

sicker when diagnosed, receive fewer therapeutic services, have higher mortality 

42 

and disability rates, and lower annual earnings because of poorer health than those 

with health insurance (Figures 1 and 2).1 The uninsured are less likely to have a 

usual source of care and be connected to the health care system for ongoing preventive and primary care. They are also at greater risk of being hospitalized for preventable conditions and less likely to receive critical screening services that could 

lead to early detection and better treatment options for cancer (Figures 3 and 4).2 3

On all measures, those with health insurance have better access to care than the 

uninsured. 


47761-1.eps
43 


47761-2.eps 47761-3.eps
44 

While having insurance is clearly better than being uninsured, the scope of health 

insurance coverage varies widely across plans and can result in costs and limits that 

leave some of the insured ill-equipped to afford the care they or a family member 

needs. Rising health care costs for families have continued to outpace increases in 

salaries and wages over the last decade, greatly increasing the financial burden for 

health care for families. In the past decade premiums for employer-sponsored group 

coverage have more than doubled, with a cumulative growth rate of 119 percent, 

compared to only a 34 percent growth in worker’s earnings (Figure 5).4


47761-4.eps
45 

Today, families face not only increasing health insurance premiums, but also pay 

higher deductibles and more cost-sharing when they seek care. In 2006, 10 percent 

of workers with employer-sponsored health insurance were enrolled in a plan with 

a general deductible of $1,000 or more for single coverage; 2 years later in 2008, 

18 percent of such workers and over a third of covered workers in small firms (defined as under 200 workers) had high deductibles (Figure 6).5 Both the premium 

workers pay for coverage and their out-of-pocket costs are increasingly a financial 

burden for families. From 2003 to 2007, the share of non-elderly people in families 

with medical bill problems increased from 14 to 18 percent for insured families (Figure 7).6 Out-of-pocket costs have been climbing as cost-sharing, deductibles, and limits on covered benefits grow. 


47761-5.eps
46 

PROBLEMS PAYING MEDICAL BILLS

How well health insurance is working to protect families from large medical bills 

is one measure of the adequacy of health insurance. Millions of Americans—both insured and uninsured—worry about their ability to obtain and pay for health care. 


47761-6.eps 47761-7.eps
47 

The uninsured are more likely to be worried about their ability to afford the health 

care services and medications they need than those with insurance. Yet, among the 

insured non-elderly population, one in four adults say they are very worried about 

their ability to afford needed care and over a third of the insured are very worried 

about having to pay more for health care or health insurance (Figure 8).7

Their concerns too often cause them to cut back on care due to cost—with many 

of the insured putting off or postponing needed health care (34 percent), skipping 

a recommended medical visit or treatment (30 percent), not filling prescriptions (27 

percent) or skipping doses and cutting pills (21 percent) due to cost (Figure 9). Failure to get needed care can lead to adverse health outcomes and the need for more 

intensive and often costly care.8


47761-8.eps
48 

In our October 2008 survey, almost one in three adults (32 percent) reported that 

their family had problems paying medical bills in the past year and nearly one in 

five (19 percent) reported that these bills had a major impact on their family. Even 

among the insured non-elderly population, 3 in 10 adults reported problems paying 

medical bills with almost one in five of those with problems (17 percent) reporting 

that these bills are having a major impact on their families. As expected, the uninsured non-elderly population has had a particularly hard time in paying medical 

bills with three out of five (60 percent) reporting that they have had problems paying medical bills in the past year and over two out of five with problems (43 percent) 

reporting that these medical bills have had a major impact on their family (Figure 

10). Most notably, those over 65 with Medicare coverage are less likely to report 

problems with medical bills.9


47761-9.eps
49 

Medical bills can severely impact a family’s ability to pay for household necessities. Individuals in families with problems paying medical bills are often forced to 

make difficult sacrifices, including limiting paying for other necessities such as food, 

heat, or housing; using savings or borrowing money; and even considering filing for 

bankruptcy. Over the last 5 years, among non-elderly insured adults, 21 percent reported they had been contacted by a collection agency, 15 percent said they had 

used all or most of their savings, and 3 percent reported they had declared bankruptcy because of medical bills (Figure 11).10 Again, the uninsured faced even greater challenges. 


47761-10.eps
50 

LOOKING AT HOW HEALTH CARE COSTS IMPACT FAMILY BUDGETS

In order to understand more about the circumstances and the financial and health 

care challenges facing low- and middle-income working families, the Kaiser Family 

Foundation interviewed the heads of household in 27 diverse working families 

across the United States in the spring of 2008 to learn more about their ability to 

pay for health care. Our study found that health care costs are indeed a strain on 

family budgets, even for families with insurance coverage. In numerous cases, families had monthly health care bills totaling hundreds of dollars—a significant share 

of their earnings. 

A case from our family interviews highlights how medical bills can mount and 

leave a family struggling with medical debt. Ron, 59, and his wife from Wichita, KS 

have had significant health problems and struggle to pay their bills on a monthly 

income of $1,815—or about $30,000 a year. She suffers from congestive heart failure 

and diabetes and he was diagnosed with diverticulitis. Subsequently, a sonogram 

and CAT scans revealed a mass on his kidney, raising concern that he had cancer 

and resulting in surgery. Although Ron has worked for the same company for 26 

years and at the time of our interview had health insurance through his job, health 

care costs had taken a toll on his family finances. A $4,750 deductible; $90 a month 

in copays for his wife’s six prescription medications for diabetes, heart disease and 

glaucoma; and unexpected and costly medical needs for himself and his wife have 

meant very high out-of-pocket costs and substantial medical debt for previous hospital and doctor care. Facing aggressive collection, Ron borrowed money from his 

401(k) plan to pay thousands of dollars owed for a hospitalization 6 years ago when 

his wife got pneumonia and currently is paying $25 a month to reduce the $1,800 

medical debt. Ron’s experience demonstrates the financial consequences of limits on 

what insurance covers and the impact of health bills on the overall financial wellbeing of a family. Unfortunately for Ron and his wife, life has gotten even more precarious: in December of 2008, Ron was laid off from his job of 27 years.11

Families with health insurance, like Ron, in our study often struggled to afford 

the combination of premiums, copays, deductibles, and costs for services not covered 

by their plan, with these costs rising faster than their paychecks. Frequently, private insurance did not cover dental and vision care, and dental care, in particular, 

had saddled families with large expenses. Some insured families, despite having 

coverage, avoided using services because they could not afford the out-of-pocket 

costs. Costs often mounted up quickly, especially when a member of a family had 


47761-11.eps
51 

ongoing needs for chronic care or prescription drugs. Even in generally healthy families, one-time health crises like a broken arm or hospitalization resulted in large, 

sometimes staggering, bills. Families without insurance were still worse off, having 

to pay all their medical bills out-of-pocket. 

Our interviews found both insured and uninsured families had substantial unpaid 

bills for medical care—some owed tens of thousands of dollars. Most families with 

medical debt were trying to pay it off in small amounts like $5 or $25 or $50, month 

by month or when they could; they were unsure how they would manage to pay it 

all back. The couple above had begun to use retirement savings to pay down their 

medical debts; another family had considered filing for bankruptcy. Beyond the burden of the medical debt itself, the debt also prevented those who were relatively new 

to the workforce from getting established financially, and compromised families’ 

credit and ability to borrow and save, jeopardizing their hopes and plans for the future—for example, to purchase a home, or retire. Iris, who is only 23, has severe 

back pain from a car accident, asthma, and severe allergies, but relies on over-thecounter medications and an old asthma pump. She has $7,500 of medical debt she 

cannot afford and is already concerned that the debt from her medical conditions 

at a young age will hurt her credit, which may prevent her from buying a house 

or a car in the future. 

Families especially turn to cost-cutting measures when health care costs and medical debt have already strained their family resources. Families with private insurance and medical debt were three times as likely to skip tests as those with private 

insurance and no medical debt and in fact behave more comparably to the uninsured in how they access the health care system (Figure 12). Most notably, over a 

quarter of both privately insured individuals with medical debt (28 percent) and uninsured individuals (29 percent) postponed care due to cost compared to only 6 percent of the privately insured without medical debt.12 The inadequate coverage and 

financial burdens for health care are leaving families to make choices based on their 

pocketbook rather than their health care needs. 

FINANCIAL BURDEN FOR HEALTH CARE

The share of family after-tax income going to pay for health care services is a 

measure of the adequacy of health insurance protection. Analysis by researchers at 

the U.S. Department of Health and Human Services documents the increase in outof-pocket burdens and health spending relative to income for families from 2001 to 

2004 (Figures 13 and 14). Health care costs for a family’s share of premiums, costVerDate Nov 24 2008 12:55 Jun 09, 2010 Jkt 035165 PO 00000 Frm 00055 Fmt 6633 Sfmt 6621 S:\DOCS\47761.TXT DENISE

47761-12.eps
52 

sharing, and out-of-pocket spending that exceed 10 percent of after-tax income are 

considered a high financial burden. Families facing health spending at this level can 

be considered as ‘‘underinsured’’ in that the coverage they have is insufficient to protect them from the financial toll of health spending. It appears that the number of 

families falling into this group is growing. By 2004, the researchers estimated that 

45.4 million non-elderly people lived in families with health care costs greater than 

10 percent of their after-tax income compared to 39.5 million people in similar circumstances in 2001.13


47761-13.eps
53 

The nature of one’s health insurance is a critical component of determining 

whether a family faces high expenditures for health care. Public insurance through 

Medicaid for low-income families offers the broadest protection with low cost-sharing 

and comprehensive benefits. Employer-based coverage varies widely, but offers coverage that protects the majority from high costs. However, in 2004, nearly one in 

five (17 percent) families with coverage through their employer faced substantial 

out-of-pocket costs exceeding 10 percent of income. 

The least protection and greatest burden was among those purchasing non-group 

private insurance with over half of these families (53 percent) encountering health 

spending in excess of 10 percent of their after-tax income. Those in the non-group 

market pay the full share of the premium and generally have benefits that are less 

generous with higher deductibles and more cost-sharing than in coverage available 

through employer-based group policies. On average, their out-of-pocket costs for premiums are more than twice as high as that paid by persons with job-based group 

coverage, and their out-of-pocket spending for health services is almost 50 percent 

greater. 

Most notably those with the fewest financial resources as well as the greatest 

health needs face the greatest health care burdens. In 2004 over half (54 percent) 

of the non-elderly in families with incomes below the poverty level and more than 

a third (37 percent) of the near-poor faced spending that exceeded 10 percent of 

after-tax income compared to 1 in 10 from families with incomes over 400 percent 

of poverty (roughly $88,000 for a family of four today) (Figure 14). One in three nonelderly people in fair or poor health or with a disability are dealing with medical 

costs above 10 percent of their incomes. Persons with chronic conditions are at an 

even greater risk—almost 40 percent of non-elderly diabetics and over half (56 percent) of families affected by stroke fall into the high costs burden group (Figure 

15).14


47761-14.eps
54 

Again, in our interviews of families, we found that out-of-pocket costs can be steep 

even for families with private coverage. Families that had private coverage through 

their jobs or had purchased it on their own, in several cases, faced copays, 

deductibles, and out-of-pocket costs for care not covered by the insurer that posed 

a severe financial strain. While copays for prescription drugs and doctor visits were 

often nominal on a unit basis, families who had ongoing or multiple needs were confronted with large cumulative costs. Deductibles reaching as high as $6,000 exposed 

some families to medical costs their budgets could not absorb, resulting in large 

medical debts. When private insurers limited coverage, as for mental health care or 

prescription drugs, or excluded particular services, such as dental care, families— 

although insured—were uninsured for this care, and like the uninsured, avoided 

seeking care due to cost. 

CANCER: A HIGH COST DIAGNOSIS

One of the fears that many American families have is that the illness of a family 

member and the desire to provide the fullest and best treatment will lead to financial ruin. When someone we hold dear is ill, being able to provide treatment and 

hopefully a cure is paramount, but unfortunately today even those with health insurance may face devastating medical bills that both compromise treatment and sap 

financial resources. One of the clearest examples of the holes in health care coverage 

is the experience of families where cancer has taken a toll. 

The majority of cancer patients under age 65 have private health insurance. Yet, 

despite having private health insurance some face high health care costs that can 

put both their treatment and physical and financial well-being at risk. In our 2006 

Kaiser/Harvard/USA Today survey of households affected by cancer in 2006, 13 percent of people who said the person with cancer was insured (and 45 percent of those 

who were uninsured at some point during cancer treatment) reported that the cost 

of cancer care was a major burden on their family (Figure 16). Among those with 

insurance, nearly a quarter reported the plan paid less than expected for a medical 

bill for their family member and 1 in 10 reached the limit the plan would pay for 

cancer treatment (Figure 17). 


47761-15.eps
55 

As a result, nearly a quarter of those with insurance reported that as a result 

of the financial cost of dealing with cancer they had used up all or most of their 

savings and 1 in 10 turned to relatives for help. Although those without insurance 

faced significantly more challenges, 7 percent of people who said the person with 

cancer was insured reported being unable to pay for basic necessities and 3 percent 

said they needed to declare bankruptcy (Figure 18). 


47761-16.eps 47761-17.eps
56 

Cost considerations not only affected financial stability for the family but in some 

cases compromised treatment for the cancer—5 percent of the insured and 27 percent of the uninsured said they had delayed or decided not to get care due to costs 

(Figure 19). These are people who stopped or postponed treatment for a deadly disease, putting their life and survival at risk due to costs not covered by insurance.15

Our recent report conducted jointly with the American Cancer Society profiles the 

situations faced by 20 cancer patients who had called in to the American Cancer 


47761-18.eps 47761-19.eps
57 

Society Health Insurance Assistance Service. Their stories show that even with private insurance a diagnosis of cancer can lead to large medical debts, filing for personal bankruptcy, and going without potentially lifesaving treatments and point out 

the shortcomings of their private health insurance coverage. Even when cancer patients have relatively comprehensive coverage through their private health insurance coverage, the sizeable costs from co-payments, deductibles, and co-insurance 

can easily mount up.16

One of the profiled patients, Keith Blessington, has been in and out of the hospital since he was diagnosed with stomach cancer. When his COBRA ran out his 

only option was to join a high-risk pool that includes a monthly premium of $1,100, 

a $1,000 deductible, and 20 percent cost-sharing. Keith has already gone through 

his 401K, has not paid his mortgage for a few months, and is borrowing money from 

a credit card to pay for care for his ailing mother and his various medical bills. As 

Keith mentions in his own words, 

‘‘[W]hen you have medical problems, a lot of people think it’s just their doctor 

and the hospital. But that is not the case. There are so many outside groups 

that you get bills from . . . you could have five different doctors bills for one 

treatment that you had and you don’t even know who the four others are. But, 

they touch base and they submit a bill and you don’t know for sure if they will 

accept your insurance until they actually submit.’’ 

Keith is now $60,000 in debt and that figure climbs an additional $6,000 every 

month. 

In addition to the cost-sharing and deductibles, many patients find maximum caps 

on their benefits or that their policy does not pay for treatments recommended by 

their doctor. Among our profiled patients, some faced a cap of $250 for coverage of 

radiation and $10,000 for outpatient costs—amounts easily exceeded in the course 

of treatment for many cancers. For example, Debra Gauvin, 52, diagnosed with 

stage II breast cancer had employer-sponsored insurance that covered 80 percent of 

her lumpectomy. However, she quickly met the $20,000 annual maximum on her insurance plan, which left her responsible for her treatment costs. She currently owes 

$18,000 for surgery and chemotherapy. Although she was able to receive a 61 percent discount for the radiation she still needs, the remaining costs of the radiation 

treatment were too significant of a financial burden for Debra so she decided to 

postpone her radiation until 2009, when her insurance would help cover the costs.17

Such cost considerations can both compromise treatment objectives and health outcomes. 

IMPLICATIONS FOR HEALTH REFORM

These experiences document the challenges families face today—even those with 

private health insurance coverage—when seeking medical care. High levels of costsharing and caps on covered benefits can compromise the level of protection health 

insurance provides and lead to both reduced access to needed care and serious financial burdens and medical debt. As our family budget study shows for low- and 

moderate-income people, especially those with chronic health problems, even modest 

levels of cost-sharing can mount up, impeding access to care and resulting in financial burdens. Likewise, as the cancer patient profiles demonstrate, those with serious illnesses can have their care and outcomes jeopardized by limits and gaps in 

coverage even when they have health insurance. 

In the struggle to bring affordable health insurance coverage to all Americans, 

budget constraints and the high cost of health insurance will undoubtedly put pressure on policymakers to limit the scope of coverage and impose substantial costsharing to hold down Federal costs. Cost concerns, however, need to be balanced 

against the expectation that health reform will bring improved coverage and lower 

health spending for families. As consideration of health reform moves forward, it 

will be important to assess both the scope of coverage provided and the level of financial assistance offered against substantial medical costs especially for those with 

chronic and serious illness. 

Thank you for your consideration. 

REFERENCES

1. Kaiser Commission on Medicaid and the Uninsured, ‘‘The Uninsured: A Primer,’’ October 2008. 

2. Kozak LJ, Hall MJ, and MF Owings. 2001. ‘‘Trends in Avoidable Hospitalizations, 1980–1998,’’ Health Affairs, 20(2):225–232. 

58 

3. Ward E, Halpern M, Schrag N, Cokkinides V, DeSantis C, Bandi P, Siegel R, 

Stewart A and A Jemal. 2008. ‘‘Association of Insurance with Cancer Care Utilization and Outcomes.’’ A Cancer Journal for Clinicians, 58:9–31. 

4. Employer Health Benefits 2008 Annual Survey, Kaiser Family Foundation and 

Health Research & Educational Trust (HRET), September 2008. 

5. Ibid. 

6. Cunningham PJ. ‘‘Trade-Offs Getting Tougher: Problems Paying Medical Bills 

Increase for U.S. Families, 2003–2007,’’ Center for Studying Health System Change, #21, Sept. 2008. 

7. Kaiser Health Tracking Poll: Election 2008, ‘‘October Tracking,’’ (conducted October 8–13, 2008). 

8. Ibid. 

9. Ibid. 

10. Kaiser Health Tracking Poll: Election 2008, ‘‘Economic Problems Facing Families’’ (conducted April 3–13, 2008). 

11. Paradise J, Schwartz T, Perry M, and J Cummings, ‘‘Snapshots from the 

Kitchen Table: Family Budgets and Health Care’’ Kaiser Commission on Medicaid 

and the Uninsured and Lake Research Partners, February 2009. 

12. Hoffman C, Rowland D and E Hamel, ‘‘Medical Debt and Access to Health 

Care,’’ Kaiser Family Foundation, September 2005. 

13. Banthin J, Cunningham P, and DM Bernard, 2008. ‘‘Financial burden of 

health care, 2001–2004,’’ Health Affairs, 27(1):188–195. 

14. Banthin J and DM Bernard. 2007, ‘‘Changes in Financial Burdens for Health 

Care.’’ Journal of the American Medical Association, 296(22): 2712–2719. 

15. USA Today/Kaiser Family Foundation/Harvard School of Public Health National Survey of Households Affected by Cancer (conducted Aug 1–Sept 14, 2006). 

16. Schwartz K, Claxton G, Martin K, and C Schmidt, ‘‘Spending to Survive: Cancer Patients Confront Holes in the Health Insurance System,’’ Kaiser Family Foundation and American Cancer Society, February 2009. 

17. Ibid. 

Senator BINGAMAN. Thank you very much. 

Ms. Turner, why don’t you go right ahead? 

STATEMENT OF GRACE-MARIE TURNER, PRESIDENT, 

GALEN INSTITUTE, ALEXANDRIA, VA 

Ms. TURNER. Thank you, Senator. I am grateful to Senator Kennedy and to Ranking Member Enzi for inviting me to testify. And 

thank you to Senator Bingaman for chairing this hearing today. As 

a native of the land of enchantment it’s a special privilege to be 

here today. 

I want to thank the committee and your dedicated staff for the 

incredibly hard work you are doing to bring the issue of health reform to the forefront of the national debate. I founded the Galen 

Institute in 1995 because I believe that this issue is so important. 

And we focus exclusively on health reform. 

As today’s witnesses and many other experts have shown, the 

growing number of Americans, even those with insurance, are facing health costs that put serious financial pressure on them, especially during the Nation’s economic crisis. But solving this problem 

must be integrated with other considerations, especially the cost of 

health insurance and the likelihood of causing other distortions inside and outside the health sector. If the government were to require all Americans to have comprehensive health insurance that 

protects them against all but routine medical expenditures, the requirement would lead to higher cost for health insurance. 

The full cost of employment-based health insurance is often hidden from workers. But the consequences are not. Economists have 

demonstrated that an increase in health insurance premiums results in lower wages and lost jobs for workers and increases the 

ranks of the uninsured. 

59 

Large and small companies as well as families must balance 

spending on health insurance with other needs. A number of employers have found that creative benefit designs that engage employees as partners in managing health cost allow them to continue 

providing health insurance and to continue to contain costs for both 

the company and employees. Maintaining this flexibility in benefit 

design is crucial to keeping health insurance affordable and therefore to keeping as many people as possible insured. 

In my testimony I describe the positive results of several companies in increasing access to health insurance for their workers and 

containing costs. Deloitte Center for Health Solutions found, for example, that the cost of consumer directed health plans increased by 

only 2.6 percent in 2006, about a third the rate of increase in the 

cost of traditional insurance plans. 

Some innovative benefit designs give people and companies a 

way to couple spending accounts with affordable health insurance. 

The account is used to pay for routine health expenditures such as 

doctor’s visits. The high deductible insurance covers larger medical 

costs, especially hospitalizations, surgeries and cancer care. 

Many also cover preventive care. And several surveys have 

shown that the use of preventive care actually increases with the 

use of these consumer-directed plans. Health savings accounts in 

particular also have stop loss provisions that protect policy holders 

against major medical costs. They are statutory requirements that allow only $5,000 in out- of-pocket expenditures for individuals and $10,000 for families. 

While that may seem like a lot, much of that can be funded 

through savings in the policy accounts as well as protecting them 

against $100,000, $200,000, even larger medical bills. A growing 

number of people are choosing to buy this type of policy to protect 

them against large medical expenditures. 

President Obama has said many times during the campaign if 

you’ve got health care already then you can keep it, if you’re satisfied with it. A government-mandated benefits package with lower 

deductibles would rob tens of millions of Americans of this choice. 

Expanding access to health plans like Medicare and Medicaid is 

not a solution since they also often fail to meet the test of providing 

comprehensive coverage and access to care. Medicare has limits on 

hospital care and many other gaps in coverage that force seniors 

to seek additional insurance through retiree health plans, through 

Medigap plans or by selecting Medicare advantage plans that provide them access to more comprehensive coverage than traditional 

Medicare pays. Medicaid pays physicians so little that recipients 

often have to go to hospital emergency rooms because they can’t 

find a private physician just to seek routine care. 

Making sure that everyone has health insurance to protect 

against large medical bills is a wise and worthwhile policy goal. 

Then we can focus on how to provide access to routine and preventive care, especially focusing on those with the greatest needs and 

the most limited resources. Otherwise we could find that the ranks 

of the uninsured have grown through an effort to make health insurance more generous for a dwindling few. 

Thank you very much. I look forward to your questions. 

[The prepared statement of Ms. Turner follows:] 

60 

PREPARED STATEMENT OF GRACE-MARIE TURNER

EXECUTIVE SUMMARY

There is little debate about the need to make sure that all Americans have the 

security of insurance that protects them from medical bills they can’t afford and 

that provides them access to the care they need. But no part of the health sector, 

and no one goal, can be considered in isolation from the impact it will have on other 

goals and aspects of health care and coverage. That is particularly true when considering the issue of the underinsured and of requiring more generous, more comprehensive coverage. Solving this problem must be integrated with other considerations, especially the risks of driving up costs and causing other adverse consequences. 

If the government were to require all Americans to have comprehensive insurance 

that protects them against all but routine medical expenses, the requirement would 

lead to higher costs for health insurance. The full cost of employment-based health 

insurance is often hidden from workers, but the consequences are not. Economists 

have demonstrated that an increase in health insurance premiums results in lower 

wages and lost jobs for workers and increases the ranks of the uninsured. 

Expanding access to public plans such as Medicare and Medicaid is not a solution. 

These programs have defined benefit packages, but they also often fail to meet the 

test of providing comprehensive coverage and access to care. 

Large and small companies as well as families must balance spending on health 

insurance with other needs. A number of employers have found that creative benefit 

designs that engage employees as partners in managing costs allow them to continue providing coverage and to contain costs for both the company and employees, 

often while also providing access to preventive care and wellness programs. Maintaining this flexibility in benefit design is crucial to keeping health insurance affordable. 

President Obama said many times during the campaign, ‘‘If you’ve got health care 

already, and probably the majority of you do, then you can keep your plan if you 

are satisfied with it.’’ A government-mandated benefits package would rob tens of 

millions of Americans of this choice. 

There is no question that health costs create financial hardship for millions of 

Americans. Making sure that everyone has health insurance to protect against large 

medical bills would seem to be a wise and worthwhile policy goal. Then we can focus 

on how to provide access to routine and preventive care, especially focusing on helping those with the greatest needs and most limited resources. Otherwise, we could 

find that the ranks of the uninsured have grown through an effort to make health 

insurance more generous for a dwindling few. 

ADDRESSING UNDERINSURANCE IN NATIONAL HEALTH REFORM

I am most grateful to Chairman Kennedy and Ranking Member Enzi for inviting 

me to testify this morning before your committee on ‘‘Addressing Underinsurance 

in National Health Reform.’’ And thank you, Mr. Bingaman, for chairing this hearing today. As a native of the Land of Enchantment, it is a special privilege to speak 

here today. 

I also want to thank the committee and your dedicated staff for the incredibly 

hard work you are doing to bring the issue of health reform to the forefront of the 

national debate. I founded the Galen Institute in 1995 as a research organization 

devoted to the study of health reform because I believe that making progress on this 

issue is so crucial to our Nation’s future. We focus at the Galen Institute on policy 

initiatives to expand coverage to the uninsured and provide incentives to achieve 

more affordable care and coverage. 

I would like to focus on several issues involving the underinsured as they pertain 

to the larger goal of providing health insurance to all. 

There is little or no debate about the need, in a country as wealthy and compassionate as ours, to make sure that all Americans have the security of coverage that 

protects them from medical bills they can’t afford and that provides them access to 

the care they need. But no part of the health sector, and no one goal, can be considered in isolation from the impact it will have on other goals and other aspects of 

health care and coverage. That is particularly true when considering the issue of 

the underinsured. 

As Catherine Schoen and many other experts have shown, a growing number of 

Americans, even those with insurance, are facing health costs that put serious financial pressure on them, especially at a time when the financial security of tens 

61 

if not hundreds of millions of Americans are threatened by the Nation’s economic 

crisis. 

But solving this problem must be integrated with other considerations, especially 

the cost of health insurance and the likelihood of causing other distortions inside 

and outside the health sector. 

In my testimony, I will make two key points: (1) Flexibility in benefits is crucial 

in keeping health insurance affordable. (2) If the government were to require all 

Americans to have comprehensive insurance that protects them against all but routine medical costs, the requirement would lead to higher costs for insurance, resulting in lower wages and lost jobs for workers and in increasing the number of uninsured. 

FLEXIBILITY IN INSURANCE

Ms. Schoen defines in her writings in Health Affairs1 and elsewhere that those 

who are insured are considered underinsured ‘‘if they experienced at least one of 

three indicators of financial exposure relative to income: (1) out-of-pocket medical 

expenses for care amounted to 10 percent of income or more; (2) among low-income 

adults (below 200 percent of the Federal poverty level), medical expenses amounted 

to at least 5 percent of income; or (3) deductibles equaled or exceeded 5 percent of 

income.’’ 

This third provision would mean that if a family with an income of $60,000 a year 

had purchased a health insurance policy with a $3,000 deductible, they would be 

considered underinsured, even if they chose that option—as they very well might 

do in order to save on insurance premiums and make sure they are protected 

against major medical expenses. 

A growing number of people are struggling to pay for health care and health insurance. Millions of them are choosing to buy a more affordable, higher-deductible 

policy, yet under this definition, they would be considered underinsured. 

This gets to the fundamental definition of health insurance: Should it provide financial protection against major medical bills or protect against most expenditures 

on health care? 

The policy debate in Washington and State capitals around the country often is 

confused by what we mean by ‘‘insurance.’’ In other sectors of the economy, insurance means protection against costs that people could not afford to pay without considerable financial difficulty, if at all. That is why we buy automobile insurance to 

protect us against collision, injury, and loss of our vehicle, or homeowner’s insurance 

to protect against the risk of fire, theft, or other serious and expensive damage. 

But with health insurance, we start with the premise that it should protect us 

against exposure to all but minimal costs, with copayments for doctors’ visits of $15 

or $20 and $5 or $10 for prescription drugs. The rest of the costs of the office visits 

or medicine are run through insurance, driving up the cost of the coverage. In the 

trade-off, accessing care for more serious illnesses may be more difficult and people 

may be exposed to expensive copayments for larger medical bills. 

Returning to the true meaning of insurance would help reduce this problem. Making sure that everyone has health insurance to protect against large medical bills 

would seem to me to be a wise and worthwhile policy goal. Then we can focus on 

how to provide access to routine and preventive care, especially focusing on helping 

those with the greatest needs and most limited resources. 

The two stories of Wal-Mart and General Motors tell the much larger picture of 

the opportunities and challenges facing health policymakers today. 

Wal-Mart reported last week that all but 5.5 percent of its employees now have 

health insurance, compared with a nationwide uninsured rate of 18 percent. The 

Washington Post reported in a February 13, 2009, article 2 that an important tool 

that Wal-Mart has used to reduce its uninsured numbers is flexibility in its benefit 

offerings. ‘‘Employees said they wanted more choices, especially low-cost emergency 

coverage options. Wal-Mart responded with a menu of deductibles, co-payments and 

maximum out-of-pocket costs. It teamed up with the Internet site WebMD to simplify enrollment, created electronic health records and expanded its $4 generic drug 

plan from the 350 medications available to customers to more than 2,000 for employees,’’ the Post reported. ‘‘Many workers have chosen low-premium, high-deductible plans that analysts say provide less coverage for preventive and primary care. 

The company tries to mitigate that with an upfront credit of between $100 and $500 

that can be used on any medical expense.’’ And for major surgeries and other major 

medical treatments, Wal-Mart negotiates with providers to get the best prices on 

high-quality care. For example, the company has teamed up with the Mayo Clinic 

to provide care for employees needing transplant surgery. 

62 

There are hundreds of stories like this from around the country as employers seek 

to find the best care at the most affordable prices so they can continue to provide 

their employees with health insurance.3 Flexibility in health benefit offerings helps 

employers achieve those goals. 

One tool is Health Savings Accounts (HSAs) that permit individuals to combine 

health insurance with a tax-free health spending and savings account. The account 

is used to pay for routine health expenses, such as doctors’ visits, for services not 

covered by insurance, and to create a cushion to pay premiums in lean economic 

times. The high-deductible insurance policy covers larger medical expenses, especially hospitalization and surgeries. Federal law also allows the insurance contract 

to cover preventive care, such as cancer screenings, mammograms, and prostate 

tests. Several surveys have shown the use of preventive care actually increases with 

these plans.4 And HSAs do have a built-in stop-loss that protects policyholders 

against major medical costs. 

Target offers its employees a range of health insurance choices. One HSA option 

costs them as little as $20 a month, and Target contributes $400 a year to health 

spending accounts for individuals and $800 for families.5 John Mulligan, Target’s 

vice president for pay and benefits, says, ‘‘These plans engage our team members 

in a decisionmaking process that gives them greater ownership and control of their 

health care dollars.’’ The company offers its 360,000 employees Decision Guides to 

help them compare prices and quality and to estimate their costs, plus access to 

wellness programs, a nurse hotline, and other support tools.6

Whole Foods’ CEO John Mackey toured the country talking to employees about 

health benefits options. Afterward, employees voted to switch to new account-based 

health plans with higher-deductible insurance coverage, Health Reimbursement Arrangements (HRA). Whole Foods puts up to $1,800 a year into a spending account 

for each employee, with Mackey pointing out that this is not charity but part of the 

employee’s compensation package. If they don’t spend the money on medical care, 

it rolls over and the company adds more the next year. Some workers have as much 

as $8,000 in their accounts. Whole Foods saves money and still covers 100 percent 

of its employees’ health insurance premiums.7

Companies that have introduced health plans with new incentives for consumers 

to be engaged as partners in managing health costs generally have seen lower-thanaverage health cost increases. Annual premium increases for employment-based coverage averaged about 6 percent for the last 3 years, down from double digits earlier 

in the decade.8

The most impressive results have come from consumer-directed plans such as 

HSAs and HRAs. Deloitte’s Center for Health Solutions found that the cost of consumer-directed health plans (CDHPs) increased by only 2.6 percent in 2006 among 

the 152 major companies it surveyed. This is about a third the rate of increase for 

traditional plans.9


47761-20.eps
63 

The fact that these employers are able to manage costs through flexibility in 

structuring health benefits gives them more control over costs and makes it more 

likely they will be able to continue offering coverage. 

Contrast that with General Motors and the other major automobile manufacturers. High health costs associated with extremely generous health benefit packages 

are major factors in the companies’ severe financial distress. 

Nonetheless, there are discussions in the health policy debate about a proposal 

from President Obama and others that all plans participating in his proposed 

Health Exchange would have to provide insurance equivalent to the generous and 

comprehensive BlueCross BlueShield Standard Option Plan. 

Rather than a mandate that could cause more employers to drop coverage, continued flexibility in benefits will allow individuals and employers more choices in shaping their health benefit packages to fit their needs and their budgets and is likely 

to lead to more people having insurance than if government were to direct all plans 

to meet a high benefits threshold. 

CHALLENGES IN PUBLIC PLANS

Employers and private insurers are not the only ones struggling with the tradeoffs between costs and benefits. Public plans such as Medicare and Medicaid have 

defined benefit packages, but they also often fail to meet the test of providing access 

to comprehensive coverage. Expanding access to public programs is not a solution. 

Medicare, for example, was the last major health plan in the country to offer a 

prescription drug benefit, long after private plans recognized that this was an essential part of quality medical coverage. Medicare also has limits on hospital care and 

other gaps in coverage that force seniors to seek additional insurance through retiree health plans, private Medigap plans, or by selecting Medicare Advantage plans 

that offer more benefits and more comprehensive coverage than traditional Medicare. Many Medicare patients also are having a difficult time finding a physician 

as payment rates fail to keep pace with providers’ costs. 

Medicaid also looks like a generous benefits package on paper, but when I served 

on the Medicaid Commission (2005–2006), we heard dozens of testimonies about the 

problems recipients have in actually accessing care. In many States, Medicaid pays 

physicians so little that they cannot afford to see Medicaid patients, forcing patients 

to go to hospital emergency rooms to seek even routine care. And seniors who are 

dually-eligible for Medicare and Medicaid often face the greatest difficulties as they 

are switched from one program to another depending upon where their care is being 

delivered. This often results in loss of medical records, duplicative tests, over- or 

under-treatment with prescription drugs, and a serious lack of coordination among 

the many medical professionals providing them care. My colleague Robert Helms of 

the American Enterprise Institute and I offered a recommendation, which was 

adopted by the Commission, calling for more State flexibility in coordinating care 

for dual eligibles.10

Therefore, I believe the evidence supports the need for greater flexibility in benefit 

structures for both public and private health plans, not in rigid benefit structures, 

to provide greater access to coverage. 

COST IS THE ISSUE

In decades of opinion surveys about health care, the cost of care and coverage is 

inevitably at the top of the list of concerns. If health coverage is to be more generous, someone must pay. 

Professor Mark Pauly of the University of Pennsylvania’s Wharton School has 

done extensive research on employment-based health insurance,11 and he concludes 

that workers ultimately pay for their insurance through lost wages and sometimes 

through lost jobs. 

The Kaiser Family Foundation reported in its latest employer benefits survey 12

that the average cost of an individual policy offered through the workplace is 

$4,704, with the worker contributing $721 and the firm, $3,983. The average jobbased family policy costs $12,680, and the worker’s contribution is significantly 

higher, at $3,354 (a large reason that many employees decline the family coverage), 

with the employer paying $9,325. 

Tax law provisions shield health insurance from income and payroll taxes. While 

health insurance is part of the compensation package of workers, this provision 

means that the full cost of employment-based health insurance is most often hidden 

from workers. However, rising health costs are a major factor in depressing worker 

take-home pay. 

64 

If Washington were to direct all employers and consumers to obtain comprehensive health coverage, workers ultimately would pay in lower wages and even lost 

jobs. 

Economist Katherine Baicker and others have demonstrated that an increase in 

health insurance premiums also increases the ranks of the uninsured and the unemployed.13 ‘‘Understanding the relationship between health insurance costs and labor 

markets is of growing policy importance,’’ write the authors. ‘‘Together [our] estimates demonstrate that the labor market effects of rising health insurance are far 

from neutral.’’ 

They suggest that the cost of employer mandates is likely to be passed on to workers in the form of lower wages. They also suggest that if some groups of workers 

are exempt from an employer mandate, such as part-time workers or employees in 

small firms, then employers may increase their reliance on these workers, undermining the goal of the mandate.14

The authors conclude that ‘‘rising health insurance premiums will place an increasing burden on workers and increase the ranks of both the uninsured and the 

unemployed.’’ 

It is important to recognize that requiring health insurance packages to be more 

generous than they are today will have other consequences. In order to provide the 

opportunity for balance between pay and insurance, it is essential that employers 

and health insurers continue to have flexibility in trying to keep costs down through 

benefit design. Otherwise, we could find that the ranks of the uninsured have grown 

through an effort to make health insurance more generous for a dwindling number 

of insured workers. 

And at the micro level, individuals and families must balance their need for access to needed medical care and protection against large medical bills with other 

demands on their resources, including food, housing, transportation, training and 

education. 

Having a health insurance policy with a $1,000 or $2,000 deductible may seem 

high until a family is faced with $50,000 to $100,000 or more in medical bills that 

they cannot pay. 

President Obama said during the second presidential debate, Oct. 7, 2008,15 and 

many times during the campaign, ‘‘If you’ve got health care already, and probably 

the majority of you do, then you can keep your plan if you are satisfied with it.’’ 

A government-mandated benefits package would rob tens of millions of Americans 

of this choice. 

CONCLUSION

There are many, many problems to be addressed in health reform in the United 

States. The need for protection against major medical expenses is high among them. 

But the goals of health reform cannot be considered apart from their cost. I am concerned about focusing on the issue of underinsurance in isolation from the costs, resource limitations, and complexities of our health sector. A requirement from Washington that all policies must be generous and comprehensive could lead to other distortions, including loss of jobs, wages, and insurance. In addition, there are serious 

medical workforce issues which also must be considered. If people are to be able to 

obtain care, we must address these shortages, especially the need for more primary 

care physicians. Finally, the Federal and State governments need to find more creative ways to reduce their health expenditures so these growing costs do not crowd 

out other needed functions of government. 

Thank you for the opportunity to testify before you today. I look forward to your 

questions. 

ENDNOTES

1. Cathy Schoen, Sara R. Collins, Jennifer L. Kriss, and Michelle M. Doty, ‘‘How 

Many Are Underinsured? Trends Among U.S. Adults, 2003 And 2007,’’ Health Affairs, June 10, 2008, at http://content.healthaffairs.org/cgi/reprint/hlthaff.27 

.4.w298v1. 

2. Ceci Connolly, ‘‘At Wal-Mart, a Health-Care Turnaround,’’ The Washington 

Post, February 13, 2009, at http://www.washingtonpost.com/wp-dyn/content/article/2009/02/12/AR2009021204096lpf.html. 

3. Grace-Marie Turner, ‘‘The Value of Innovation in Health Care,’’ Galen Institute, 

January 13, 2009, at http://www.galen.org/component,8/action,showlcontent/ 

id,13/categorylid,2/bloglid,1145/type,33/. 

4. ‘‘Chronically Ill Continue Receiving Needed Care When Enrolled in a Consumer-Driven Health Plan,’’ UnitedHealth Group, April 23, 2007, at http:// 

65 

www.unitedhealthgroup.com/news/rel2007/QualityloflCarelSummaryl0407 

.pdf. 

5. ‘‘Target Offers Employees Health Savings, Reimbursement Accounts, Plans to 

Eliminate Traditional Health Plans, USA,’’ Medical News Today, May 18, 2006, at 

http://www.medicalnewstoday.com/articles/43453.php. 

6. ‘‘Thought Leaders: John Mulligan, Vice President, Pay & Benefits, Target Corporation,’’ hub Magazine, Summer 2008, at http://www.hubmagazine.net/printer.php?ID=180. 

7. ‘‘Whole Foods Market Benefits,’’ Whole Foods Market, at http:// 

www.wholefoodsmarket.com/careers/benefitslus.php. 

8. Total U.S. health benefit cost rose by 6.1 percent in 2007. ‘‘Mercer National 

Survey of Employer-Sponsored Health Plans,’’ Mercer LLC, November 19, 2007, at 

http://www.mercer.com/summary.jhtml?idContent=1287790. 

9. ‘‘Reducing Corporate Health Care Costs: 2006 Survey,’’ Human Capital Practice 

of Deloitte Consulting LLP and the Deloitte Center for Health Solutions, 2006, 

at http://www.deloitte.com/dtt/cda/doc/content/uslchslredlcorlhealcostsl 

0106.pdf. 

10. Grace-Marie Turner and Robert B. Helms, ‘‘Medicaid Advantage: A Medical 

Home for Dual-Eligible Beneficiaries,’’ March 30, 2007, at http://www.galen.org/ 

fileuploads/MedicaidAdvantage.pdf. 

11. Mark V. Pauly, Health Benefits at Work: An Economic and Political Analysis 

of Employment-Based Health Insurance, University of Michigan Press, 1999. 

12. Gary Claxton, Jon R. Gabel, Bianca DiJulio, Jeremy Pickreign, Heidi 

Whitmore, Benjamin Finder, Marian Jarlenski, Samantha Hawkins, ‘‘Health Benefits in 2008.’’ Health Affairs, September 24, 2008 at http://content.healthaffairs.org/ 

cgi/reprint/ 

hlthaff.27.6.w492v1? ijkey=yYSZwPeyQ0oyU&keytype=ref &siteid=healthaff. 

13. Katherine Baicker and Amitabh Chandra, ‘‘The Effect of Malpractice Liability 

on the Delivery of Health Care,’’ NBER Working Paper Series, Working Paper 

10709, August 2004, at http://www.dartmouth.edu/?kbaicker/BaickerChandra 

MedMal.pdf. 

14. Katherine Baicker and Amitabh Chandra. ‘‘The Labor Market Effects Of Rising Health Insurance Premiums,’’ Journal of Labor Economics, 2006, v24(3,Jul), 

609-634, at http://www.nber.org/papers/w11160. 

15. Barack Obama in the second presidential debate, October 7, 2008, at http:// 

www.cnn.com/2008/POLITICS/10/07/presidential.debate.transcript/. 

Senator BINGAMAN. Thank you all for your good testimony. Let 

me start with a couple of questions. 

Ms. Schoen, in your view it’s important to establish a minimum 

benefit level, as I understand it in your insurance design principles. I just heard Ms. Turner say that would be a big mistake to 

have a government-mandated benefit level. You also made reference to Massachusetts. Could you describe what they’ve done in 

Massachusetts on this issue of establishing a minimum benefit 

level and how it’s worked? 

Ms. SCHOEN. Yes, thank you for the question. I think the emphasis on minimum is important. Ms. Turner talked about HSAs setting a standard of $5,000 out-of-pocket as the maximum. We’re 

talking about putting a minimum and to—that would be credible 

insurance. 

In fact, if you think of requiring people to have insurance or if 

you think if using a tax credit to buy insurance you need to define 

what would qualify. What Massachusetts did is took the decision 

on what exactly those benefits should be and said this is a very difficult issue. We want multiple stakeholders to be part of that decision. 

There were general principles on access and financial protection. 

Then a group after the legislature acted came together and looked 

at various benefit designs on thinking about what the minimum 

would be. You could be more generous, but you couldn’t go below. 

66 

They came up with several standards. Benefits should be very 

broad in scope. You shouldn’t have an insurance package which 

simply doesn’t cover something that you need. 

There should be financial protection. There should be a point at 

which the plan starts picking up out-of-pocket costs above a certain 

level. There was a discussion on how high that threshold should be 

and worrying about lifetime limits. 

When you talk to actuaries right now it’s very difficult to compare plans. One says 500,000. Another says a million. It costs pennies to put some of these lifetime maximums in them. Evening it 

out makes it possible to compare. 

So what Massachusetts did was put a floor under it in their connector which makes it very easy to compare. They have a bronze, 

silver and gold set of benefit designs. But they’re not rigid. There’s 

quite a bit of variation within actuarial equivalents. So they said 

we want principles of access and protection. 

The other thing that was important was they looked at essential 

care. Preventive care is out from underneath the deductible to encourage primary care. Some of the designs we’ve seen private companies use that say if we have essential medications like insulin, 

you don’t want to discourage use of it, so that went into the consideration. 

That was the effort. It did in fact rule out some of the insurance 

that was being sold on the market. There were policies with artificial limits, didn’t cover days of hospital, didn’t cover doctors, didn’t 

cover drugs. Those are no longer considered credible insurance. 

There is a floor when you’re buying insurance that’s protective. 

Senator BINGAMAN. So, if I understand correctly, the system that 

was adopted in Massachusetts under Governor Romney, provided 

that everybody has to get coverage. And it provided that everyone, 

every insurance company that sold coverage in Massachusetts had 

to meet that minimum benefit level that was established by this 

board. 

Ms. SCHOEN. I actually live in western Massachusetts. The requirement is on me to show I have an insurance policy that meets 

the standard. All the carriers send us very simple letters to say, 

we were insured. And we were insured on a package that meets the 

standard. 

We could do this through the tax code, the Federal tax code for 

exemptions could say this meets the standards. 

Senator BINGAMAN. Let me ask Ms. Turner. What is wrong with 

that kind of approach as you see it? 

Ms. TURNER. Actually, the Federal Employee Health Benefit Plan 

has very comprehensive coverage. But it is even less specific in 

what coverage. It has to make sure the doctor visits are covered, 

that hospitalization is covered, emergency room care is covered. 

But within that parameter there is even more flexibility and benefit design. And competition among the market, in the marketplace, can actually lead to the companies being forced to provide 

more comprehensive coverage because people aren’t going to want 

to buy a policy that doesn’t cover cancer care. 

Senator BINGAMAN. Well let me just ask, though, is it in the 

public’s interest to encourage competition between insurers as to 

whether or not they’re going to cover a particular ailment that peoVerDate Nov 24 2008 12:55 Jun 09, 2010 Jkt 035165 PO 00000 Frm 00070 Fmt 6633 Sfmt 6601 S:\DOCS\47761.TXT DENISE
67 

ple come up with? If there’s a general consensus, as I guess there 

is in Massachusetts, that a particular ailment is common enough 

that it ought to be covered. 

Why would we want to allow or encourage insurance companies 

to compete on the basis on whether they cover it or not? Why is 

that a good thing for the public? 

Ms. TURNER. There are 1,900 mandates of what policies must 

cover in the States now. And there’s evidence that that is driving 

up the cost of health insurance by as much as 30, and in some 

States even 50 percent. 

Senator BINGAMAN. Is this in Massachusetts? 

Ms. TURNER. Cost is a huge issue with the Massachusetts plan. 

Specific mandates and the problem that I believe members would 

have in specifying what needs to be covered and what isn’t. Everybody needs something. And if you wind up deciding what’s going 

to be covered and what’s not then what is going to be left out. 

It’s very difficult to leave anything out because in a political 

world, you know, you really don’t want to leave anyone out. So, the 

question is what’s covered? It’s much better to do this, I believe, 

on an actuarial basis and to make sure people are covered and that 

there are dollar thresholds rather than benefit design thresholds 

because there’s really no end to the number of benefits that can 

and should be covered by policies. 

Senator BINGAMAN. I’ve used my time. 

Senator Enzi. 

Senator ENZI. Thank you, Mr. Chairman. I appreciate the tremendous testimony and charts, that are now a part of the record, 

from you. It was very helpful. 

One of the things I always think about with health insurance is 

that when I buy my car insurance I know that I’m not paying for 

the oil changes or the tire replacement. When I buy my health insurance I am buying the change of oil and maybe the tire replacement. And I know that drives up the cost because there’s a profit 

that’s built into that part of it. 

Minimum benefit level seems to leave enough flexibility to do 

just about anything that we want to do until we start putting in 

the details of what that minimum benefit level is. I’ve done some 

looking in the preventive care, that we all emphasize, is covered by 

a lot of insurance, but only used by 25 percent of the people that 

have it. What are we going to do to drive up the usage if they’re 

paying for it, when they’re not using it? 

In the area of competition, I’ve been watching that a little bit. 

I do see some benefits to competition in the health insurance market. I know you don’t have to look any further than the Medicare 

Part D. 

Seniors are getting the drugs they need. The program has 85 

percent satisfaction rate. And it costs 37 percent less than originally expected. 

One of the reasons for that is we have a lot more companies 

vying for it than we ever anticipated. Pre-Part D in Wyoming there 

were two firms providing prescription drug coverage. Now there are 

48. And yes that does make it difficult for our seniors to make the 

comparisons. 

68 

We did some programs that make that a little bit easier. But 

that’s what happens with choice. But we have found that one of the 

reasons for the 85 percent satisfaction rate is because they can 

choose something that they actually like. 

I’ll ask Ms. Turner, based on Part D experience, what kind of 

market reforms can be made to increase that competition? How do 

we get it increased? 

Ms. TURNER. I do think that Part D is a really wonderful example of how market competition can not only drive broad choice, but 

also get costs down. That the Part D benefit is coming in at 40 percent under expected expenditures at this point. Seniors have done 

it. You know, they’ve been offered a range of plans and seniors 

have picked the plans that provide the best care and the best coverage for the drugs and the services that they need at the best 

price. 

So the companies have been forced to provide not only comprehensive coverage, but also affordable coverage or they’re going 

to be left out of the market. I think that model is something that 

not only could work in other public programs, but it’s a model that 

could, I think, be utilized in other parts of the economy as well, 

health sector. Thank you. 

Senator ENZI. Thank you. I do think that the current tax treatment of health insurance is unfair. The Federal Government subsidizes the health insurance premiums for those who get health insurance through their job. The highest tax subsidies go to the people with the highest incomes and the most generous plans. 

Replacing the current tax exemption with a tax deduction, a tax 

credit or a combination of the two would make insurance more affordable for the uninsured and those who are shopping on the individual market. I know that with my time, I don’t have time for all 

of you to answer that question right now. Thank you, Mr. Chairman. 

Senator BINGAMAN. Thank you very much. Let me call on Senator Casey at this point. 

SENATOR CASEY

Senator CASEY. Thank you very much. I want to thank each of 

you for your testimony today. You’ve highlighted a problem that I 

think persists across the country. 

I know, like a lot of States, in Pennsylvania we have a lot of the 

challenges that you’ve outlined today, a growing number of uninsured and underinsured. I’m told that if the national number is 

more than one in four of the uninsured or underinsured of incomes 

greater than 200 percent of poverty, that in our State that number 

is actually 36 percent. So we have in many ways a larger challenge. 

I wanted to highlight a letter that our office received from a constituent and see if there’s a reaction you have in terms of how we 

can meet this challenge. A woman from Berks County, PA from the 

eastern side of our State, Trisha Urban wrote to us. And I’m summarizing what she wrote. 

Her 30-year-old husband died of a heart attack the day after she 

delivered her first child. Her husband had a child heart defect and 

missed his doctor’s visit because their health insurance had been 

69 

dropped and their medical bills were over $100,000. As you can tell 

from the brief information, his death may have been preventable. 

She wrote to us offering to testify. She wanted us to share her 

story with Members of Congress. Medical bills currently may soon 

take the family’s home. 

What do we say to an American with that story, an American 

family in light of the challenge we face overall? Any of you want 

to take a stab at that? I know it’s a tough question. It’s overly 

broad. But I wanted to get your reaction. 

Ms. Rowland. 

Ms. ROWLAND. I think all the stories that we have from our cancer study, of profiles of cancer individuals as well as our kitchen 

table snapshots that we released today really reveal that Americans are struggling with these health care bills. I think the thing 

that we have to focus on is that when people have cost concerns 

they delay care even when it’s really important to get it. To have 

up-front and comprehensive care that provides for preventive services and gets the cancer victim in when they’re there at stage one 

instead of stage three, that allows the family that you’re talking 

about to know that they should be in a medical home and a good 

treatment setting to get ongoing monitoring for this heart condition 

would be an important part of any health care reform. 

As you look at the principles for health care reform, I think it’s 

both the benefits that are being offered, the level of financial protection and gearing so that families at the lower end of the income 

spectrum don’t have too great a burden. So it really is doing costadjusted cost sharing. If you’re going to put cost sharing in, remember $5,000 for a family earning $30,000 is very different than 

$5,000 for a family earning $150,000. 

Senator CASEY. Ms. Shearer. 

Ms. SHEARER. It’s hard to add to that answer. But I think that 

the most important thing is that Members of Congress and members of the Administration redouble their efforts and their commitment to solving this problem. You know, as the Chairman mentioned this came up at the summit yesterday. It’s going to be discussed at another summit next week. 

I think that the message that we’re all hearing is that people 

were hurting before. But as of October people are hurting, you 

know, the level of hurt has just expanded exponentially. And I 

think that this really cries out for this Congress, this Administration to just redouble their efforts and pass some legislation to relieve this suffering. 

Ms. TURNER. Can I also say, in my written testimony talk about 

Wal-Mart. The Washington Post had an article last Friday on some 

of Wal-Mart’s benefit design, really trying to get more of its employees covered. And they actually have a benefits package that 

would have been enormously helpful to the urban family. 

They, for less than $50 a month, have a package that covers preventive care. The company puts $500 into an account to make sure 

that people don’t miss on routine doctor visits. But then it covers 

everything over a certain threshold. So they would absolutely not 

have been exposed to $100,000 or anything even remotely close to 

that. 

70 

What I think we need is a package that provides access to routine care, but that doesn’t skimp on the larger end of the extraordinarily important medical services that really can be a difference 

between life and death for someone. 

Senator CASEY. I know we’re almost out of time, but Ms. Schoen, 

anything that you wanted to add? 

Ms. SCHOEN. I think just to underscore what’s been said. 

Senator CASEY. Fifteen seconds. 

Ms. SCHOEN. I think it’s vitally urgent. And we’re often penny 

wise and pound foolish. Medicaid is now paying for cancer deaths. 

We wait until the tumor is at stage four, then you spend down. 

We are not saving money by the way we’ve designed our benefits. 

We are in fact, incurring adverse outcomes. 

We’re hurting people’s health. So I think this is part of a larger 

issue. We need to get control of the way that we pay as well as our 

insurance system. 

Senator CASEY. I know we’re out of time. But I guess the other 

scenario is people that actually have coverage may not go for treatment. They may not engage in any kind of preventive strategy. So 

that’s a whole other set of questions. 

I’m out of time. Thank you very much. 

Senator BINGAMAN. Senator Alexander. 

SENATOR ALEXANDER

Senator ALEXANDER. Thank you, Mr. Chairman. And thank each 

of you for coming. Very interesting testimony. 

I attended the Health Summit yesterday that President Obama 

held which I appreciated. I think all of us there want to work with 

him, and there’s a consensus in the room that we need to have a 

solution where every American has access to health insurance. 

There seems to be a broad consensus, that while harder to implement, that that included a significant involvement by the private 

sector. We’ll see how that works as we go, but we have that objective. 

But the focus of the meeting was not how do we deal with the 

uninsured, it was how do we control health care costs. That was 

the purpose of the meeting. And the testimony that the President 

wanted to present to us which we’ve heard before is that if we don’t 

do something about controlling the growth of health care costs 

we’re going to bankrupt the country. 

Today, 45 percent of our Gross Domestic Product is the amount 

of our debt. On the course we’re going according to testimony yesterday, it would be two to three hundred times the amount of our 

debt. So everyone also agreed that, we need to control the growth 

of costs. 

So my question is, how do we reconcile making sure that every 

American is insured, which is also our goal on the Republican side 

and also the goal on the Democratic side, with controlling health 

care costs. I was intrigued with Ms. Turner’s comment about the 

definition of insurance. And wonder if others on the panel agree 

with it. 

I mean, your suggestion is that the definition of insurance might 

be to provide financial protection for major medical bills rather 

than protect against most expenditures on health care. Or as SenVerDate Nov 24 2008 12:55 Jun 09, 2010 Jkt 035165 PO 00000 Frm 00074 Fmt 6633 Sfmt 6601 S:\DOCS\47761.TXT DENISE
71 

ator Enzi put it, that insurance might be for the catastrophe or the 

serious medical problem and that there might be a different attitude toward the oil changes or the tire changes. So my question— 

and Senator Bingaman asked the question well—what would be 

the public interest in allowing competition for that? 

Well, maybe the question might be, that the answer might be 

controlling all costs—which we have to do. Is it not a possible solution or maybe this is what you all recommend any way that we 

have a minimum benefit for these major expenses? And that we encourage competition for everything else. 

Is that practical? Would that control cost? And does that differ 

significantly than the way Massachusetts did it? Ms. Turner, then 

maybe Ms. Schoen, your comment on that. 

Ms. TURNER. Thank you, Senator. I absolutely agree that the debate gets confused—thinking about routine costs and major medical expenditures and putting them into the same package. 

Whole Foods, another example, decided that it wanted to move 

to one of these account-based plans. It said we can save on insurance costs if we move the deductible up to say, $2,000. But we’re 

going to put $1,800 into an account to make sure people have 

money to see the doctor to get routine care, to get the medicines 

they need. But anything above $2,000 is going to be covered by the 

insurance policy. 

Whole Foods pays 100 percent of the premium for the insurance. 

So, if you have that kind of a partnership in which you’re really 

working with employees to help them monitor their own use of the 

system, but give them the resources to access routine care. And 

they’re going to know more what that is than somebody at the 

health and human services. Then they also are protected against 

the larger costs. 

But I would strongly encourage that it be a dollar threshold and 

not a benefits package because we just can’t know what everyone 

is going to need. 

Senator ALEXANDER. Now Ms. Schoen, what’s wrong with that? 

Ms. SCHOEN. I think for starters we need to look at where our 

spending is. We absolutely need caps, out-of-pocket protection. But 

if 50 percent of the healthiest people in the United States stopped 

going all together, just didn’t use a single service, it counts for only 

3 percent of the spending dollars. 

Almost all of our national spending is among sicker patients, 

chronically ill and acute care. So, we want to address that longterm cost curve—it’s not at this front end, it’s at the high end. The 

same cost we’re trying to protect people against. 

We are going to have to do payment reform. We have a set of 

incentives that reward doing more with our volume rather than our 

outcomes and more prudent use of resources. A hospital that does 

extremely well taking care of someone and prevents a readmission stands to lose money compared to—and does handoffs to 

primary care, stands to lose money over time because of volume of 

services in the hospital goes down. 

I think we need to couple insurance reform with protecting patients and families. Thinking of those front-end costs around preventive care with positive incentives, a lot of the company examples are actually saying, how can we encourage and provide incenVerDate Nov 24 2008 12:55 Jun 09, 2010 Jkt 035165 PO 00000 Frm 00075 Fmt 6633 Sfmt 6601 S:\DOCS\47761.TXT DENISE
72 

tives to get preventive care, particularly for diabetics and chronically ill to engage them. And then say what is happening in the 

insurance system that we are not paying differently. 

The private sector has a lot of flexibility. But when you look 

closely they have no leverage. They are a very small share of the 

sicker population in any of their cities. We don’t have coherent payment policies. Everyone is paying differently. We have layers and 

layers of cost, administrative cost, at insurance companies and hospitals. 

I absolutely agree that costs are essential. And I think insurance, 

if designed well, will provide you a platform to start thinking much 

more creatively about the way we pay for care. 

Senator ALEXANDER. Thank you, Mr. Chairman. 

Senator BINGAMAN. Thank you. 

Senator Hagan. 

SENATOR HAGAN

Senator HAGAN. Thank you, Mr. Chairman. I think this is a very 

good meeting that you’ve put together. And I thank the panelists. 

Just listening to the questions and the discussions, I think what 

you were just talking about, Ms. Schoen? 

Ms. SCHOEN. It’s actually pronounced Shane. Pronounced Shane, 

if you think of the cowboy movie. 

Senator HAGAN. Shane. 

Ms. SCHOEN. But beyond that, it doesn’t look like that. 

Senator HAGAN. It just seems like we’re reiterating the need for 

the health information technology system so that we can, No. 1, 

have records available. And then be able to analyze the data from 

individual chronic diseases to individual institutions and across the 

country to see. Obviously we want the best outcome. But we also 

have got to have a better control on cost of health care in this country. 

I was going to ask a question having to do with the risk segmentation. We’re talking about a survey that showed that a number of adults in the United States are either uninsured or underinsured, either 41 or 42 percent which seems like an extremely 

high number. But I was just wondering about the breakdown of 

that, whether it is because there are not affordable options for 

health insurance for individuals or if it had to do with the young 

and healthy adults who feel like there’s just no need at that point 

in their life to actually be covered. 

Ms. Schoen, could you address that and anybody else? 

Ms. SCHOEN. In the study that we did the underinsured were 

predominately low and modest incomes. So what you’re seeing is an 

affordability. It’s a mixture of young, middle-aged and older trying 

to figure out how to get a premium within an affordable range and 

then often having the packages available to them. 

This would include people working for the small business market 

which often have very high deductibles, extraordinarily high and 

they’ve been going up or the individual insurance market. I want 

to stress Diane Rowland’s testimony and Gail’s also have it in, that 

it’s not just the deductibles. But people are running into what I call 

insurance surprises. 

73 

There was a cap on total amount of radiation covered. No follow 

up care for cancer fully covered. It’s something you wouldn’t even 

know about until you get in that situation. That’s where you get 

the risk segmentation. 

There are prescription policies that don’t exist at all that restrict 

insulin use. It’s a subtle signal on who we want and who we don’t. 

There are a lot of opportunities for risk segmentation that are quite 

subtle. 

It’s both this benefit limitation not covering it all or literally running out. My drugs are covered up until x dollars. And then I’m 

on my own. 

It’s this whole mix that people find themselves in the underinsured world. 

Ms. ROWLAND. We’ve talked a little bit about mandated benefits. 

Well one of the mandated benefits in many States is mental health 

care. So that there are a lot of services that you would want to 

have as part of a package that are not just routine, but that can 

be very important for certain groups. 

I think the real test of the adequacy of a health insurance plan 

is how well it covers someone with ongoing chronic illness. That’s 

one of the places where if we can provide better early care and better coordinated care, we may actually save on the hospitalization 

side and be able to afford some of the other preventive services we 

need. 

Ms. SHEARER. If I could just add to that one other problem that 

people have. Everybody doesn’t have access to a wonderful employer based policy. Now State regulation varies. 

But most people are in States where they will apply for an individual policy. If they have any pre-existing health conditions, if 

they’ve had a gap in coverage, they’re probably going to end up either without a policy or with a policy filled with gaps that the gaps 

are designed around their needs. So it’s a major part of the problem. 

Ms. TURNER. I do think, that again argues that the thresholds 

for protection really do need to be dollar-denominated rather than 

sort of having a game. OK, we’re going to cover what regulations 

say we must and then not cover other things. 

I think that making sure people are protected financially is really the important consideration. Then doctors and patients can be 

more and have a greater role in making decisions about what care 

they need. 

Senator HAGAN. Thank you, Mr. Chairman. 

Senator BINGAMAN. I believe Senator Hatch was the first one at 

the hearing. So we should probably let him ask his questions at 

this point. Thank you. 

SENATOR HATCH

Senator HATCH. Well thank you, Mr. Chairman. Welcome. We 

appreciate all of you being here and trying to help us with these 

very, very difficult issues and questions. 

Let me go to you first, Ms. Shearer. In your testimony you stated, 

74 

‘‘A necessary building block will be expanded research of 

comparative effectiveness so that we increase the knowledge 

base from making treatment and coverage decision. It would be 

better to cut the growth of health care costs and get better 

value for our health care dollar in order to be able to afford the 

coverage improvements and expansions necessary to eliminate 

the risk of being underinsured.’’ 

Now I agree with the value and merits of doing comparative effectiveness studies, however only in terms of looking at clinical effectiveness and not for making treatment and coverage decisions 

based on costs. There’s too much variability from patient to patient 

that directly affects the treatment outcomes. Therefore such decisions should be left up to the physician and patient who are most 

knowledgeable in their situation. 

In fact, using comparative effectiveness to make broad-based coverage decisions has the potential to add unnecessary costs to the 

system. So my question is, do you agree that we should focus our 

comparative effectiveness efforts to ensure patient choice and protect medical innovation? 

Ms. SHEARER. Well I think that the main focus is appropriately 

un-clinical research where there’s a real need. But I’d like to tell 

you a few little stories about why I think that there is potential 

to save a lot of money through this kind of research. We have a 

program called Consumer Reports Best Buy Drugs where we identify alternative drugs that are equally effective and safe and less 

expensive. 

Our researchers have found in looking at four categories of drugs 

for heart use, ace inhibitors, high blood pressure drugs and statins 

that if people switched from drugs that are more expensive to 

drugs that provide better value with no impact on health benefit, 

the potential savings are $2.7 billion a year which is about 8 percent of the drug spending. So we think that even if the studies 

don’t include cost there is the possibility for other groups, such as 

ours, to look at the data and find ways to bring these effectiveness 

results to the point of being able to help the system save money. 

If you look at what happened at the drug effectiveness review 

project based in Oregon, they did not include Vioxx. Most of the 

States did not include Vioxx on their preferred drug list because of 

the comparative effectiveness research. That yielded tremendous 

benefits in terms of health care and cost. 

So it’s hard to make a blanket statement. I think there’s a lot 

of potential for getting better value from this kind of research. 

Senator HATCH. Well thank you. 

Ms. Turner, in your testimony you make a point to state the 

flexibility in benefits is crucial to maintaining affordability. 

Now last week Wal-Mart reported that almost 95 percent of its 

employees now have health care coverage due to a menu of coverage options with a variety of out-of-pocket costs and deductibles 

that meet each individual’s unique needs. I don’t know whether 

you’ve been asked this question or not because I had to be over on 

the floor. But what would be the impact on health care coverage, 

wages and jobs in these tough economic conditions if this flexibility 

is not preserved? 

75 

Ms. TURNER. That’s really the crucial point, Senator Hatch, that 

companies are doing so much. It’s under the radar really because 

it’s not—— 

Senator HATCH. You talk about Fresh Foods. I mean, my gosh, 

people I understand love their approach. 

Ms. TURNER. They do. And Wal-Mart for example takes very seriously not only helping people with routine costs. But also they’re 

negotiating—they’re working with the Mayo Clinic if somebody 

needs transplant surgery. So they’re using their negotiating power 

to make sure that the large bills are covered and that they’re getting the best deal and the best care as well on the small bills. 

The flexibility of employers and the motivation of employers to 

make sure that their employees are getting the preventive and 

wellness care they need, as well as making sure they’re getting the 

best care on the high end is crucial. I just think it would be such 

a shame to lose the incentive of employers to really look at health 

costs across the board and still make sure that their employees are 

healthy. 

Senator HATCH. Well my colleagues on the other side hate health 

savings accounts even though they’re working amazingly well on 

some of these companies. I guess it’s because they think it’s a Republican idea. But I don’t think Republicans can take sole credit 

for that. I think it works. 

Ms. TURNER. That’s right. 

Senator HATCH. Do I have time to ask one more question, Mr. 

Chairman? 

Senator BINGAMAN. Sure, go right ahead. 

Senator HATCH. Well let me ask one of Ms. Schoen. Your testimony recommends setting a minimum floor and standard for 

health insurance benefits. Having served in the U.S. Senate now 

in my 33d year, I can safely predict that every decent provider 

group out there will assert that their condition and service must 

be part of the minimum benefit package. 

I mean, I guarantee you, they’re going to want everything under 

the sun. And the end result will be a package that will be far from 

‘‘minimum’’ in its form. 

Now this in turn will raise the cost of coverage for millions of 

Americans and result in even greater numbers of uninsured and 

underinsured. Now how do you propose to address that challenge? 

And should we focus on actual value rather than defining benefits? 

Ms. SCHOEN. I think focusing on value is incredibly important. 

The point I made in the testimony and I briefly mentioned what 

Massachusetts had done is thinking when we’re talking about 

broad and scope it’s not to limit for this disease or capping you. If 

you have cancer you’re going to get no more than this, certain circumstances making it much more transparent. 

To even cap the total amount of expenditures as has been suggested you have to say which expenditures would count toward 

that cap. So I think there are ways of looking at the interaction 

with premiums. Massachusetts went through a very interesting exercise where people looked at the implication of premiums for different decisions. Went broad and scope in terms of we’re not limiting it to people with only certain diseases will get coverage and 

others will be excluded. 

76 

You won’t have a surprise that if you need essential care—and 

we’re talking about doctors, drugs, and hospitals when I’m talking 

about essentials. Because there were policies being sold that had 

no drug coverage and no physician coverage, literally none. They had $100 a day toward a hospital. So saying there’s the 

floor. Then you can be more generous above it. And it’s what most 

companies do. 

When you look at the kind of floor that Massachusetts put in it 

was not below what any large company currently offers. So it was 

a reasonable package. Because you do—actually people do understand there’s an implication for their premiums. I mean, they’re 

thinking in terms of, I want affordable health care. And I also have 

to have affordable insurance. 

Senator HATCH. My time is up. Thank you, Mr. Chairman. 

Senator BINGAMAN. Senator Burr. 

Senator BURR. Thank you, Mr. Chairman. If we haven’t asked 

unanimous consent for our opening statements to be part of the 

record, may I ask that? 

Senator BINGAMAN. We’ll include any statement anyone wants to 

include in the record. 

Senator BURR. Thank you, Mr. Chairman. 

PREPARED STATEMENT OF SENATOR BURR

Mr. Chairman, thank you for holding this hearing today. I want 

to thank our witnesses for joining us as well. 

Mr. Chairman, this is a timely, if somewhat narrowly focused 

hearing on an important aspect of health care reform. I understand 

that President Obama will be making some remarks to that point 

tonight and I look forward to hearing his thoughts. As I said at 

Senator Daschle’s confirmation hearing, our goal should be to ensure affordable, high-quality health care coverage for all Americans. I believe that by addressing affordability, we can cure much 

of what ails our health care system. 

American families are straining against an uncertain economic 

situation that is compounded by a health care system that is expensive and doesn’t always deliver value where we need it. Because 

health care can be expensive, people tend to forgo needed medical 

treatment, especially so when our health insurance falls short of 

our needs. 

What frustrates Americans about this situation is that we spend 

trillions of dollars on health care in this country, yet many feel like 

their coverage is inadequate if they have it. Americans currently 

spend around $2 trillion on health care annually (16 percent of 

GDP). By 2013, that number is expected to double to $4 trillion (21 

percent of GDP). This spending trend is not projected to reduce the 

number of uninsured or underinsured. 

I believe that before we can embark on the search of a solution, 

we need to understand why health care costs so much in this country. I am hopeful that our witnesses can articulate this for us 

today. In my view, we spend a lot of money on health care in this 

country, but we don’t always buy value. 

The government though isn’t always a good judge of value. In our 

discussion today, we need to be careful about what constitutes 

‘‘adequate’’ coverage. Mandating adequate coverage has not been 

77 

especially effective, when looked at holistically. Ideally, benefits 

mandates may ensure that people have adequate coverage, but that 

can be a moving target. I believe that experience with mandates 

has been a mixed bag and in some cases mandates create a costly 

barrier too high for many low-income Americans. 

In the 110th Congress, Senator Coburn and I introduced the Universal Health Care Choice and Access Act. This bill contained several solutions to our health care problems—solutions that are 

mindful about what works in our current system. Whatever we do 

about the cost or availability of health care I think we should commit to not up-end what actually does work. Americans have the 

highest standard of care anywhere in the world, unfortunately the 

delivery and financing of that care breaks down from time to time. 

Our system is an engine of innovation that produces the advancements that extend life, defeat chronic diseases, and make minor 

health nuisances more livable. These are things we shouldn’t take 

for granted. We should work to protect this country’s crucible of 

medical innovation—but we can only do that by addressing the 

costly burden borne by American health care consumers. 

Senator BURR. Mr. Chairman, I think most of us agree that one 

of the tasks before us is to make sure that we provide the resources 

in some way, shape or form so that every American can access coverage. And when I say access coverage, my hope is that we’ll end 

up allowing them to construct what best meets their income, their 

health conditions, their age. Clearly this is going to be difficult, as 

we’ve seen, to try to achieve a consensus package. 

Ms. Schoen, let me ask you, how do Americans rank in terms of 

out-of-pocket cost compared to counterparts in Canada and Europe? 

Ms. SCHOEN. If you do the actual dollars? Very high. The only 

country that’s up there with us is Switzerland in terms of dollars. 

Senator BURR. But from out-of-pocket costs of the individual? 

Ms. SCHOEN. Out-of-pocket costs. If you look at it as a percent 

of our national spending it doesn’t look as high. 

Senator BURR. I’m looking at the report that the Organization of 

Economic Cooperation and Development did where the out-of-pocket cost of the United States is 13 percent. 

Ms. SCHOEN. Right. 

Senator BURR. In the UK it is 13 percent. 

Ms. SCHOEN. That’s why I want to just try and make the distinction between the percent and the actual dollars. The UK currently 

spends about 8 percent of their national income on health care. 

We’re at over 17 percent. 

So when you take our 13 percent and multiply it times our 

$8,000 to $9,000 per person, the dollars are very high. That’s the 

dilemma we’ve been in. Even when we protect people with insurance, their actual out-of-pocket costs relative to their wages are 

going up rapidly. 

Senator BURR. The out-of-pocket cost for somebody in the UK is 

in fact, not 13 percent because they’re being taxed a large amount 

to contribute to the cost of the government program. Yet on top of 

the government program they’ve still got 13 percent. In the case of 

Switzerland, 31 percent. In the case of Belgium, 22 percent. In the 

case of Poland, 28 percent. 

78 

As a percentage and not taking into account any of the other 

countries that I’m looking at, that we’re comparing—— 

Ms. SCHOEN. I agree with you on the percents. I would be happy 

to give you the actual per person because what we’re seeing is we 

have a very expensive health care system. We spend four times as 

much on insurance administration costs. 

Senator BURR. A lion’s share because we have allowed the benefit 

package to be dictated and with very little choice on the part of 

consumers. Consumers have a voice in many of the cases as to how 

the construction of the project goes. 

I am 53 years old. My wife has told me we’re not going to have 

any more children. But I can’t buy a government program under 

FEHBP that doesn’t have maternity. 

I’m not going to use it. I know it. And I know I pay for it. But 

I can’t buy a plan without it. And the reality is that that’s frustrating for a lot of Americans. 

What’s the out-of-pocket cost for Medicare beneficiaries? 

Ms. SCHOEN. It depends on whether they’ve bought a supplemental policy or they have Medicare only. It can be extremely high. 

Senator BURR. The average though is 20 percent, isn’t it? 

Ms. SCHOEN. Again, it absolutely depends. And Diane may have 

more recent figures. When you take the Medicare only, the basic 

package people are very highly exposed. Most seniors have bought 

supplemental policies. So they limited their out-of-pocket. 

Senator BURR. Let me turn to Ms. Rowland, if I can. From the 

perspective of adequate benefits, do you believe our government 

health coverage—and I’m specifically referring to FEHBP—program provides an adequate benefit? 

Ms. ROWLAND. The FEHBP program clearly covers a full range. 

So I would qualify that as an adequate benefit package. 

Senator BURR. Now under FEHBP we have a lot of different 

plans we can choose from. Some are high deductibles. But you’re 

confident in the way that you’ve stated it, that adequate is that 

there’s an entity that looked at it and if a member of FEHBP 

chooses to have the high deductible verses to have the thing that 

covers first dollar that that’s adequate. That the consumer, me, the 

Federal employee, have made that choice. 

Ms. ROWLAND. Yes. And in the end someone who incurs their 

high level of say, cancer treatment, may find that that policy leaves 

them with a substantial financial burden. But the benefit began as 

a standard benefit. 

I would also point out that there’s been a lot of discussion here 

about competition and Medicare Part D. But Medicare Part D does 

define what the benefit is so that it’s not just an undefined benefit. 

Senator BURR. It does define the benefit. But it defines it in the 

loosest terms. A minimum that must be met and for any senior 

then they can choose a plan that has a more exhaustive coverage 

that happens to, in the case of Ms. Schoen—or excuse me, Ms. 

Shearer talked about equivalent drugs. 

If, in fact, a particular plan doesn’t carry the drug you and your 

physician have decided is best suited for you, then you can choose 

another plan that might substitute that heart medication and 

might cover that particular drug. But the individual at the end of 

79 

the day chooses from those competitive bid plans which one best 

suits their needs and their income. 

Ms. ROWLAND. Correct. But the benefit there is providing a service benefit, not just a dollar cap on spending for prescription drugs, 

which is my point. That it does have a definition of benefits which 

is similar to what we’ve talked about for general health insurance. 

Senator BURR. I thank the Chair. 

Senator BINGAMAN. Senator Coburn, you’re the last one up. The 

vote has started. So go right ahead. 

SENATOR COBURN

Senator COBURN. Thank you. I’m sorry I missed most of your testimony. I did read it last night. It was my bed partner for a good 

portion of the evening. 

Let me just see if any of you disagree with the following. Does 

anybody disagree that preventive care outside of the deductible 

ought to be something that’s important? 

OK. 

Does anybody disagree that there’s a tremendous advantage to 

the medical home model? 

Does anybody disagree there needs to be payment reform? 

Does anybody disagree that the insurance products that are out 

there today are only less than two-thirds of the money that is actually paid for the insurance goes for either preventive care or treatment? 

I’m asking the questions because the problem isn’t access. The 

problem is cost. There’s no transparency in the market. 

You all, through your testimony and every other thing with the 

solutions that we’re offering, the No. 1 problem is cost. So without 

transparency, without real markets, one of the reasons our costs 

are out of control is that there is no competition. Now we heard a 

moment ago about caps on all of these. 

Medicare has got all sorts of caps. When people run out it’s on 

them. So we’re not going to have a cap-less system. We can’t afford 

Medicare the way we have it today. 

We need payment reform. I would absolutely agree with that. 

But we can’t also deny the fact that Medicare has got caps, much 

more so than Medicaid does. 

I’m interested, Ms. Schoen in the numbers in Massachusetts. I’m 

just going to ask if this is accurate or not. It may not be. But is 

it not true that the cost estimate that went up for the per year increase last year for the Massachusetts plan was 10 percent? 

Ms. SCHOEN. I actually can’t speak exactly to the cost estimate 

because the most recent numbers that John Kingsdale presented 

last week indicate rates are coming in quite low this year. They’ve 

actually had some reductions, particularly for the low-income they 

were very—— 

Senator COBURN. I mean last year their cost increase, on average, was up 10 percent for their care plan. 

Ms. SCHOEN. For some of the plans, but not all. And they’ve been 

coming down. They’re modified. 

The other thing they found is when they consolidated their individual small group market and brought the healthy lives in, they 

had a dramatic decrease in the premiums with an improvement in 

80 

benefit policies. So bringing risk pools back together have been a 

big benefit. 

Senator COBURN. I’m not against the risk pool concept. But it is 

true that the average family policy in Massachusetts is $16,897. 

And the rest of the country, it’s $5,799, so 31⁄2 times greater for a 

mandated set of benefits. 

I want to talk for a minute with each of you about comparative 

effectiveness because the thing that I worry about is comparative 

effectiveness and there’s no question we can do it on drugs and all 

sorts aside. The thing that often times isn’t considered as a practicing physician is, I try to put people on generics. But side effects 

are a significant complication. 

So some nongeneric drugs actually work better, even though 

they’re much more because the patient will take the medicine. You 

know, I can give them another drug which costs a whole lot less. 

But if they don’t take it I’m not helping them. 

The thing that worries me about comparative effectiveness as a 

physician that’s practiced 25 years or so is the art of medicine is 

totally ignored, totally ignored in comparative effectiveness. And 

what we see in England is the art is out. But we don’t have the 

art of medicine practice because they’ve used comparative effectiveness based on cost. 

I wonder if you all could address for me or at least assuage some 

of my concerns about using comparative effectiveness. And how you 

could use what I think is about 40 percent of the practice of medicine is art and 60 percent is science. Are my concerns legitimate? 

I guess that’s what I’d ask. 

Ms. TURNER. We actually invited an expert of the National Institute for Clinical Excellence in the UK to come over and talk with 

us about it. There are huge concerns, particularly about people who 

are outside the very center—20, 30, 40 percent of patients being 

able to access the medicines they needed because it is a gigantic 

political issue then to get those drugs covered. Many people wind 

up not actually having access to the care they need. 

The National Institute for Clinical Excellence research shows it 

actually is driving up cost in the system. We can talk about some 

of the reasons for that later. But it’s even when they use cost in 

the equation, it’s still not helping to contain cost. And it does interfere with the practice of medicine, absolutely. 

Senator COBURN. Other comments? 

Ms. SHEARER. Let me just talk a little bit about what we have 

found. We have found that by providing information we can open 

conversations between physicians and patients. Right now often 

physicians are not aware that their patient is getting to the drug 

store and not able to pick up their medicine because they can’t afford it. 

We believe that the power of information is tremendous. We also 

believe that we need to have a process, ultimately, that provides 

for the exceptions. And maybe it’s a question of step therapy or a 

protocol where we don’t necessarily start with the most expensive. 

This Nation can’t afford to keep starting with the most expensive 

treatment. 

81 

Hopefully we can find a way to work toward a model where we 

get better value and we achieve the information and the communication and ultimately save money. 

Senator COBURN. Is it your assumption that we start with the 

most expensive initially? 

Ms. SHEARER. In many cases we do. 

Senator COBURN. I’m sorry. I have not seen that in any of the 

practice of medicine that I’ve been exposed to. I think probably 

what you’re referring to is that we’ve had such great benefit from 

sub specialization. And then we use sub specialists for primary 

care. 

Example, you strain your back. You come to me. The first thing 

I do is not order an MRI. I put you on muscle relaxers, pain relaxer, bed rest and do a good clinical exam. 

If you go to an orthopedist or a neurosurgeon, the first thing they 

order is an MRI. So, you know, we have to sort some of that out. 

But the benefits of sub specialization have markedly given us 

greater health care. But also significantly raise the cost because we 

don’t have the differentiation. 

Could I continue for 1 more minute? 

Senator BINGAMAN. Sure. I think I may go over and vote. Why 

don’t you just conclude the hearing. 

Senator COBURN. Alright. I will. Thank you very much. 

Senator BINGAMAN. Thank you all. Let me thank all the witnesses. Thank you. 

Senator COBURN. My biggest worry, we’ve all talked about health 

IT and how it can help us. We just spent a ton of money on that 

in the Stimulus package which won’t be spent until after 2011, any 

of it. But health IT isn’t going to help us any time until we have 

interoperability where the health IT can talk to everybody. 

So that the pharmacist can e-mail back that the patient didn’t 

pick up the prescription. In other words so we have the connection. 

We have the warning set up so that we can all talk. 

Let me thank each of you. You know every American is interested in this, no matter what it is. But I’ll tell you one thing they’re 

interested in more, is that they want to know that they get to 

choose who is going to care for them. And they want to be involved 

in the decisionmaking. 

That should be the rail that we run up against that we should 

not violate as we move toward this. And with that I will adjourn 

our hearing. Thank you. 

[Additional material follows.] 

82 

ADDITIONAL MATERIAL 

PREPARED STATEMENT OF SENATOR BROWN

Last week, the U.S. Department of Labor reported that there are 

currently 11.6 million unemployed Americans and that the unemployment rate has risen to 7.6 percent. Over the past year, the 

number of unemployed persons has increased by 4.1 million and 

the unemployment rate has risen by 2.7 percentage points. In a 

country that provides health coverage predominantly through employment, an economic decline not only causes jobs to disappear, it 

causes health coverage to disappear. 

Much-needed and deserved attention has been devoted to the 

problem of uninsured Americans. In fact, the Institute of Medicine 

(IOM) will be releasing a report today, entitled, ‘‘America’s Uninsured Crisis: Consequences for Health and Health Care.’’ As Congress, policymakers, and experts continue to discuss and consider 

potential solutions to the crisis of uninsurance, it is imperative that 

we also examine the crisis of underinsurance—the ways that inadequate health insurance affects American families and contributes 

to the deterioration of our health care system. 

Approximately 46 million Americans are uninsured. An additional 25 million Americans are underinsured—living with health 

insurance that does not adequately protect them from catastrophic 

health care expenses. Underinsured individuals are generally defined as adults between 19 and 64, whose out-of-pocket health care 

expenses, excluding premiums, are 10 percent or more of family income. It is estimated that 42 percent of U.S. adults were uninsured 

or underinsured in 2007. 

It is important to note that this definition, while extremely useful, is actually incomplete. Other populations, including children in 

underinsured families and seniors who lack coverage to supplement 

Medicare, also face significant challenges in our health care system. I believe that Chairman Bingaman has rightly chosen to focus 

on one population at a time; however, we would do well to remember that underinsurance is common to every age group in all but 

the wealthiest segment of our society. 

It is not a niche issue; it is a national issue. 

Inadequate health coverage leaves Americans exposed to significant financial risk. Underinsurance can quickly undercut the financial stability of middle class families and turn financial stability 

into financial ruin. 

Consumers Union found that 30 percent of the underinsured had 

out-of-pocket costs of $3,000 or more for a single year and a Health 

Affairs study found that one quarter of underinsured people have 

deductibles of $1,000 or more. Other Americans have coverage with 

lifetime caps on coverage that cut off support to individuals with 

cancer and other catastrophic conditions. A Commonwealth Fund 

survey found that 46 percent of the underinsured report being contacted by collection agencies for medical bills. 

Those are the financial implications. The health care implications 

are even more alarming. According to a Health Affairs study, 53 

percent of the underinsured forgo needed medical care—they may 

not fill their prescriptions, they may delay care or forgo a screening 

test. They may avoid health care until the lack of it catches up to 

83 

them, whether that means the need for more expensive treatments 

or a diagnosis that at one time was neutral and is now life threatening. 

Underinsurance has not just hurt individuals financially; it has 

harmed them physically—sometimes irreversibly. 

I would like to tell you the story of Denny and Debbie Byers from 

Columbus, OH. Denny worked construction for 34 years before he 

and his wife Debbie, a bank teller, retired and tried to purchase 

health insurance through the private market. While Denny was 

able to secure private health insurance, Debbie was unable to find 

coverage due to pre-existing allergies and asthma. 

However, Denny quickly found out that his newly purchased 

health insurance did not cover his usual doctor’s visits, nor did his 

insurance cover his two high blood pressure medications or his migraine medication. Denny has since chosen to pay out-of-pocket for 

generic versions of the blood pressure medications, but cannot afford the $30 per pill price-tag associated with the migraine drug, 

for which there is no generic. 

Denny has insurance that doesn’t cover the care he needs. That’s 

not coverage; it’s a crock. 

It’s not enough to fight for affordable coverage, we must fight for 

real coverage. Coverage that provides financial protection for what 

people need, regardless of their current health status, regardless of 

their past health care needs, regardless of their income, regardless 

of their age. 

Health insurance shouldn’t be a vehicle for punishing the sick 

and rewarding the healthy. 

It shouldn’t be a hammer that beats health care costs down by 

arbitrarily denying care to those who need it. 

Health insurance shouldn’t be used to bring down costs; logic and 

knowledge and research and health system accountability and information technology and reasonable expectations should be used 

to bring down health care costs. 

We need a health care system that provides the right care, at the 

right time, at the right level, and we need health insurance that 

covers it. 

We don’t need health insurers who cherry pick or health insurance that shortchanges its enrollees. 

Underinsurance is a promise half-fulfilled, and when it comes to 

the health of our children, our parents, and ourselves—when it 

comes to the health of Denny and Debbie Byers of Columbus, OH— 

half-way is not good enough. 

Thank you for holding this hearing, Mr. Chairman. I look forward to hearing from our witnesses. 

[Whereupon, at 11:27 p.m. the hearing was adjourned.] 

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