Private Health Insurance: Estimates of Individuals with Pre-Existing Conditions Range from 36 Million to 122 Million
Released: 2012-04-26T00:00:00

Letter

Background

Individuals who buy coverage directly from a health insurer are often denied coverage due to a pre-existing condition. We previously reported that in the first quarter of 2010, 19 percent of applicants in the individual market were denied enrollment and a quarter of insurers had denial rates of 40 percent or higher. Similarly, a study by America’s Health Insurance Plans reported that in 2008, 15 percent of individual insurance applications for adults age 18 through 64 that went through medical underwriting were denied coverage.conducted by insurers to assess an applicant’s health status and other risk factors to determine whether and on what terms to offer coverage to applicants.

Medical underwriting is the process The Health Insurance Portability and Accountability Act of 1996 (HIPAA) established consumer protections on access, portability, and renewability With respect to individuals leaving group of health insurance coverage. coverage and applying for coverage in the individual market, HIPAA prohibited health insurers from denying coverage to or imposing any pre- existing condition exclusion on individuals who have had at least 18 months of prior creditable coverage with no break of more than 63 days; have exhausted any available continuation coverage; are uninsured and are not eligible for other group coverage, Medicare, did not lose group coverage because of the nonpayment of premiums or fraud.

See Pub. L. No. 104-191, Title I, 110 Stat. 1936, 1939 et. seq. applicants but offer coverage at a premium that is higher than the standard rate based on the presence of a pre-existing condition. A medical condition reported by an individual is considered a pre-existing condition by the insurer if it exists at the time the individual applies for coverage or if an individual was treated for or diagnosed with the condition in the past.

States, which have the responsibility for regulating private insurance, have in some instances required protections for individuals with pre- existing conditions. State protections include the following:

Guaranteed issue requirements prohibit the denial of coverage to individuals based on pre-existing conditions. In some states, all products must be guaranteed issue, while in other states guaranteed issue requirements are only applicable to some products or to some individuals, for instance individuals with 12 months of continuous coverage, or to some standard products, such as a basic health plan.

An insurer of last resort law requires one insurer in the state to issue products to individuals regardless of pre-existing conditions.

Rating restrictions prohibit insurers in the individual market from adjusting an individual’s health insurance premiums based on an individual’s health status.

Two types of rating restrictions are pure community rating and adjusted community rating. Under the former, insurers may not adjust premiums due to health status, age, or gender; under the latter, they may adjust premiums according to characteristics such as gender or age, depending on the state.

Rate bands limit the extent to which premiums can vary based on an individual’s health status, for example, to a certain percentage of the average premium.

Limitations on the number of years a health insurer can look back at an individual’s health history when making its determination as to whether and at what price to offer coverage.

High-risk health insurance pools that provide coverage to individuals whose health status, including the presence of pre-existing conditions, limits their access to coverage in the private individual health insurance market. High-risk insurance pools—typically publicly subsidized, state-run nonprofit associations—often contract with a private health insurer to administer the pool and offer a range of health plan options.

Until 2014, PPACA requires that individuals who have pre-existing conditions and have been uninsured for 6 months be offered the opportunity to enroll in a temporary national high-risk pool program, known as the Pre-Existing Condition Insurance Plan (PCIP). PCIP will close at the end of 2013, which is when PPACA will begin to require insurers to accept every individual who applies for coverage, regardless of factors related to health status. States were given the option of running their own PCIP with federal funding, or allowing the Department of Health and Human Services (HHS) to administer the PCIP in their state. Twenty- seven states elected to administer a PCIP for their residents, while 23 states and the District of Columbia opted to allow HHS to administer their PCIPs. Despite similar goals, PCIP and state high-risk pools are separate entities and differ from one another in certain ways.

Beginning in 2014, PPACA prohibits insurers in the private individual market from denying coverage, charging higher-than-average premiums, or restricting coverage to individuals based on the individual’s health status. PPACA will, therefore, make guaranteed issue and adjusted community rating national requirements.

Hypertension, Mental Health Disorders, and Diabetes Were the Most Commonly Reported Conditions among Adults, with Average Annual Expenditures for Cancer Nearly $9,000

Hypertension was the most commonly reported medical condition among adults during 2009 that could result in a health insurer denying coverage, requiring higher-than-average premiums, or restricting coverage with an exclusionary rider. Our analysis of MEPS data found that about 33.2 million adults age 19-64 years old, or about 18 percent, reported hypertension in 2009. Individuals with hypertension reported average annual expenditures of $650 related to treating the condition, though the maximum expenditures reported were $61,540. (See table 2.) Mental health disorders and diabetes were the second and third most commonly reported medical conditions by adults age 19-64 years old. About 19.0 million adults, or 10.3 percent, reported mental health disorders, and about 11.9 million adults, or about 6.4 percent, reported diabetes. Average annual expenditures for these conditions were $1,757 for mental health disorders and $1,782 for diabetes. Cancer was the condition with the highest average annual treatment expenditures, nearly $9,000 per adult. Individuals may have multiple medical conditions, which would increase their total expenditures.

The number of adults reporting specific conditions in any given year does not include all adults who may have had that condition in the past. For instance, there are many individuals who may have had cancer in the past who would not report cancer in a given year. Therefore, the number of adults who have ever had cancer is higher than the approximately 4.2 million reporting cancer in 2009. About 11 million adults, or 6.0 percent, reported ever being told by a health professional that they had cancer. Health insurers commonly look at both current medical conditions and conditions an individual was treated for or diagnosed with in the past when making a decision whether and at what price to offer health insurance coverage.

Between 36 and 122 Million Adults in 2009 Reported Pre-Existing Conditions, Depending on the Conditions Included in the Estimates

Depending on the list of conditions used to define pre-existing conditions in each of five estimates, we found that between 36 million and 122 million adults (age 19-64) reported having medical conditions in 2009 that could result in a health insurer denying coverage, requiring higher- than-average premiums, or restricting coverage with an exclusionary rider (see fig. 1). This represents from 20 to 66 percent of the adult population, with a midpoint estimate of 32 percent.

The differences among the estimates can be attributed to the number and type of conditions included in the different lists of pre-existing conditions. For example, estimate 1, which is the lowest estimate, includes adults reporting that they had ever been told they had 1 or more of 8 conditions. All 8 conditions were designated as priority conditions by AHRQ because of the conditions’ prevalence, expense, or relevance to policy.Estimate 3, the midpoint estimate, includes any individual who had one of over 60 conditions commonly used to determine eligibility in state high- risk pools. Estimate 5, the highest estimate, includes any individual reporting they had experienced any condition considered chronic during 2009. The list of chronic conditions used for this estimate included 417 separate conditions. See appendix I for information on the list of conditions included in each estimate.

Pre-Existing Conditions Are Common across States and Demographic Groups, but Prevalence Is Higher for Certain Populations

The number of adults with pre-existing conditions varies by state, but most individuals with pre-existing conditions live in states that report not having insurance protections similar to PPACA. Certain groups had higher rates of pre-existing conditions than others, including women, whites, and those with public insurance. Compared to others, adults with pre-existing conditions spend thousands of dollars more annually on health care, but pre-existing conditions are common across all family income levels.

The Number of Adults with Pre-Existing Conditions Varies by State, but Most Adults with Pre-Existing Conditions Live in States That Report Not Having Insurance Protections Similar to PPACA

We found that the percentage of adults with pre-existing conditions varies among states. We analyzed data from the 35 states where MEPS generated a reliable estimate. Our low estimate (estimate 1) ranged from 17 percent in New York and New Jersey to 25 percent in Ohio. For the midpoint estimate (estimate 3), the range was from 27 percent in Florida to 47 percent in Kentucky. For the high estimate (estimate 5), the range was from 58 percent in Georgia to 75 percent in Kentucky and Massachusetts. (See table 3). For population estimates for the 35 states, see appendix II.

We estimate that 88-89 percent of adults with pre-existing conditions live in states without insurance protections similar to the PPACA provisions, which will become effective in 2014. We classified states as having protections similar to PPACA if the state reported having (1) a guaranteed issue requirement for some or all products in the individual insurance market and (2) pure or adjusted community rating. The only five states reporting such protections are Maine, Massachusetts, New Jersey, New York, and Vermont.

While the majority of states do not offer protections similar to what will be required nationally in 2014, many states do offer some protection to individuals with pre-existing conditions. Insurance department officials in 12 states reported having a guaranteed issue requirement for some or all products in the individual insurance market. Eight states reported either pure or adjusted community rating requirements. Appendix III shows the various state protections for individuals with pre-existing conditions in the 50 states and the District of Columbia.

Pre-Existing Conditions Are More Common Among Women, Whites, and Those with Public Insurance

Regardless of the list of conditions used to generate the estimates, we found that more women reported a pre-existing condition than men. Based on the different definitions of pre-existing conditions we used, from 21 to 72 percent of women reported a pre-existing condition in 2009. From 18 to 59 percent of men reported a pre-existing condition. The midpoint estimate for women and men was 37 percent and 28 percent, respectively. (See fig. 2.)

We found that the prevalence of pre-existing conditions among adults increases with age (see fig. 3). In the 55- to 64-year-old age group, from 43 (low estimate) to 84 percent (high estimate) of adults reported a pre- existing condition that would cause an insurance company to deny coverage, offer coverage at a higher-than-average rate, or restrict coverage. In contrast, from 6 percent (low estimate) to 45 percent (high estimate) of 19-24 year olds (the youngest age group) reported a pre- existing condition. The midpoint estimate for 55-64 year olds was 48 percent, as compared to a midpoint estimate of 19 percent for 19-24 year olds.

Asian and Pacific Islanders and Hispanics have the lowest reported rates of pre-existing conditions in each estimate, significantly lower than the rate seen across all adults. For example, for the midpoint estimate, 15 percent of Asian and Pacific Islanders reported a pre-existing condition, compared to 32 percent of all adults. In two of three estimates (the low and high estimates), white adults are slightly more likely to report a pre-existing condition than the adult population as a whole. This difference was statistically significant, but the difference was not statistically significant for the midpoint estimate. (See table 4.)

Compared to individuals with other types of insurance coverage, uninsured adults and those with private individual insurance have the lowest reported rates of pre-existing conditions (see fig. 4). The lower reporting of pre-existing conditions among the uninsured, in part, may reflect the fact that they are less likely than the insured to receive timely preventive care and some common health problems such as hypertension and diabetes often go undetected without routine checkups. In addition, the uninsured are also less likely to have regular preventive care, including cancer screenings. The lower reporting of pre-existing conditions among those with private individual insurance may be a reflection of the fact that insurers try to limit the number of people with pre-existing conditions that they accept into their plan.protections for individuals with pre-existing conditions exist in employer- The greatest sponsored group insurance and public insurance programs, which are the groups that reported the highest rates of pre-existing conditions. As noted previously, group insurance plans are not allowed to deny insurance coverage or increase an individual’s premiums based on health status. Such protections may encourage individuals in employer group coverage or government insurance to maintain their coverage should they be diagnosed with certain medical conditions. We recently reported that research has consistently found that after a health diagnosis, workers with employer-sponsored coverage were less likely to leave a job or reduce their hours compared to workers who did not rely on their employer for health coverage.

Adults with pre-existing conditions, on average, spend thousands of dollars more for all health care—between $1,504 and $4,844 more per year—than other adults. Based on the set of conditions included in estimate 1, which included the smallest number of individuals with pre- existing conditions, average annual health care expenditures were $8,535 in 2009, compared to $3,691 for all adults (see fig. 5). The average expenditures for the midpoint estimate (estimate 3) were $7,296 and the average expenditures for the high estimate (estimate 5) were $5,195. Average medical expenditures among those with pre-existing conditions decreased as the number of people in the estimate reporting a pre- existing condition increased. As more individuals are included in the estimate, it is likely that the average severity of the medical conditions decreases, thus decreasing the average expenditure estimate.

The distribution of adults across income groups, whether measured by total family income or income as a share of the federal poverty level, is similar, regardless of pre-existing condition status (see tables 5 and 6). We found that the average annual family income for adults with pre- existing conditions was between $64,000 and $71,000, as compared to the average family income of all adults, which is about $69,000.

Agency Comments

We provided a draft of this report to HHS for comment, but in its written response HHS said that it had no substantive or technical comments. HHS noted that PPACA provided individuals with pre-existing conditions new protections, including the opportunity to enroll in the Pre-existing Condition Insurance Plan and the prohibition on insurers limiting or denying insurance coverage because of a pre-existing condition beginning in 2014. HHS’s letter is included as appendix IV.

As agreed with your offices, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. At that time, we will send copies to the Secretary of Health and Human Services, the Administrator of the Centers for Medicare & Medicaid Services, and other interested parties. In addition, the report will be available at no charge on the GAO website at http://www.gao.gov.

If you or your staff have any questions about this report, please contact me at (202) 512-7114 or dickenj@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix V.

Appendix I: Scope and Methodology

To answer all of our research objectives, we (1) identified different sets of medical conditions that researchers have used to define the conditions that would cause an insurance company to deny health insurance coverage, offer coverage at higher-than-average premiums, or restrict health insurance coverage; and (2) analyzed data from the 2009 Medical Expenditure Panel Survey (MEPS). We chose the MEPS because it is nationally representative of the civilian, noninstitutionalized population, provides information on medical conditions, medical expenditures, and demographics, and has been used by other researchers to answer similar research objectives. We limited our analysis to adults, defined as individuals age 19 to 64, and we excluded approximately 2.7 million adults continuously enrolled in Medicare in all 12 months of 2009. Based on Medicare eligibility rules, all of these individuals would have a medical condition.

Identifying Pre-Existing Conditions

We identified four previous studies that used different lists of pre-existing conditions to develop five estimates of the number of individuals with pre- existing conditions or the number of individuals potentially eligible for high-risk pools. Because high-risk pools are designed for individuals who cannot obtain insurance in the private individual market because of a pre- existing condition, estimates of individuals potentially eligible for high-risk pools can serve as a proxy for individuals with pre-existing conditions. Each of the previous studies looked at different populations, used different years of data, and, in one case, a different source of data. We assigned each condition list an estimate number from 1 to 5 in order to more readily identify which set of conditions was associated with each estimate.Pollack is referred to as estimate 1.

For example, the condition list in the study authored by Harold Estimate 1 is based on the condition list in Harold Pollack’s article “High- Risk Pools for the Sick and Uninsured Under Health Reform: Too Little and Thus Too Late,” in the Journal of General Internal Medicine (published online on September 2, 2010). Pollack considered individuals to be plausible high-risk pool participants if they had ever been told they had emphysema, diabetes, stroke, cancer, congestive heart failure, heart disease, angina, or heart attack.

Estimate 2 is described below with the information on estimate 4 because both estimates came from the same study. Additionally, estimate 2 is based on the methodology used in estimate 3.

Estimate 3 is based on the condition list in the Families USA report “Health Reform: Help for Americans with Pre-Existing Conditions,” published in May 2010. According to a methodology developed by researchers from The Lewin Group, individuals were identified as having a pre-existing condition if they reported, in the previous year, one of 67 conditions most commonly included in lists for determining high-risk pool eligibility across all the states with high-risk pools. The conditions were: acquired immune deficiency syndrome (AIDS), alcohol/drug abuse/chemical dependency, Alzheimer’s disease, angina pectoris, anorexia nervosa, aplastic anemia, aortic aneurysm, arteriosclerosis obliterans, artificial heart valve/heart valve replacement, ascites, brain tumor, cancer (except skin), cancer (metastatic), cardiomyopathy/primary cardiomyopathy, cerebral palsy/palsy, chronic obstructive pulmonary disease (COPD), chronic pancreatitis, cirrhosis of the liver, congestive heart failure, coronary artery disease, coronary insufficiency, coronary occlusion, Crohn’s disease, cystic fibrosis, dermatomyositis, diabetes, emphysema/pulmonary emphysema, Friedreich’s disease/ataxia, hemophilia, hepatitis, HIV positive, Hodgkin’s disease, Huntington’s chorea/disease, hydrocephalus, intermittent claudication, kidney failure/kidney disease with dialysis/renal failure, lead poisoning with cerebral involvement, leukemia, Lou Gehrig’s disease/amytrophic lateral sclerosis/ALS, lupus erythematosus disseminate/lupus, major organ transplant, malignant tumor, mood and psychotic disorders (including depression, schizophrenia, and bipolar disorder), motor or sensory aphasia, multiple or disseminated sclerosis, muscular atrophy or dystrophy, myasthenia gravis, myocardial infarction (heart attack), myotonia, obesity, paraplegia or quadriplegia, Parkinson’s disease, peripheral arteriosclerosis, polyarteritis, polycystic kidney, postero-lateral sclerosis, rheumatoid arthritis, sickle cell anemia/sickle cell disease, silicosis, splenic anemia/True Banti’s Syndrome/Banti’s disease, Still’s disease, stroke, syringomyelia (spina bifida or myelomeningocele), tabes dorsalis, thalassemia (Cooley’s or Mediterranean anemia), ulcerative colitis, and Wilson’s disease.

Estimates 2 and 4 were based on the two condition lists in the Department of Health and Human Services’ (HHS) report “At Risk: Pre- Existing Conditions Could Affect 1 in 2 Americans: 129 Million People Could Be Denied Affordable Coverage Without Health Reform” (Washington, D.C.: January 2011). This report included two estimates of individuals with pre-existing conditions. Estimate 2 replicated the methodology developed by The Lewin Group for the Families USA study with two exceptions. First, obesity was not included in the list of conditions that would cause a denial because HHS researchers did not find obesity on the condition lists used by state high-risk pools. Second, HHS included individuals who reported that they had ever been diagnosed with the following conditions: coronary heart disease, myocardial infarction, other heart disease, angina pectoris, stroke, emphysema, cancer, and diabetes. HHS’s second estimate, estimate 4, included the same conditions as its first estimate with additional conditions added based on a review of the underwriting guidelines of seven health insurers. In addition to the conditions included in estimate 2, estimate 4 included individuals reporting arthritis, asthma, high cholesterol, hypertension, or obesity, as well as those who had ever been diagnosed with arthritis, asthma, high cholesterol, or hypertension. Estimate 4 also includes individuals reporting neurotic and related disorders, stress and adjustment disorders, conduct disorders, and emotional disturbances.

Estimate 5 was based on the methodology used in the GAO report Health Insurance: Enrollment, Benefits, Funding, and Other Characteristics of State High-Risk Health Insurance Pools, GAO-09-730R (Washington, D.C.: July 22, 2009). This report used the Healthcare Cost and Utilization Project’s Chronic Condition Indicator to identify chronic conditions in the 2006 MEPS, which were assumed to make a person medically uninsurable and therefore potentially eligible for a state high- risk pool. The Chronic Condition Indicator categorizes all International Classification of Diseases, Ninth Edition, Clinical Modification (ICD-9-CM) codes as chronic or not chronic. A chronic condition is defined as a condition that lasts 12 months or longer and meets one or both of the following tests: (a) it places limitations on self-care, independent living, and social interactions; and (b) it results in the need for ongoing intervention with medical products, services, and special equipment. Individuals reporting any condition considered chronic were included in this estimate. We used the three-digit ICD-9-CM codes for medical conditions. Of 1,019 three-digit ICD-9-CM codes, the Chronic Condition Indicator categorized 417 as chronic.

To standardize the estimates from the different sources, we applied the conditions identified by each study to the same population (19 to 64 year olds not enrolled in Medicare) and the same year and source of data (the 2009 MEPS) to construct estimates 1 through 5.

Identifying the Most Common Medical Conditions and Estimating Treatment Costs

To estimate the number of adults (age 19 to 64) with medical conditions that would cause an insurance company to restrict or deny insurance coverage and the average expenditures related to these conditions, we analyzed MEPS data on medical conditions and expenditures. We reported data only for those medical conditions included in at least one of the condition lists used for estimates 1 through 5. MEPS respondents report medical conditions identified as the reason for a medical event, the reason for a disability day, or as something that is “bothering” the respondent during the reference year (in this case, 2009). To protect respondent privacy, we only reported estimates based on sample sizes of 100 or more.

We defined expenditures as payments from all sources for hospital inpatient care, ambulatory care provided in offices and hospital outpatient departments, care provided in emergency departments, and the purchase of prescribed medications. We did not include expenditures for dental expenses or other medical expenses, such as durable and nondurable supplies, medical equipment, eyeglasses, and ambulance services because these items could not be linked to specific conditions. We also excluded expenses for home health care. We classified expenditures with a condition if a visit, stay, or medication purchase was cited as being related to the specific condition.

Demographic and Geographic Profile of Adults with Pre-Existing Conditions

To describe the demographic and geographic profile of adults with pre- existing conditions we focused on the low, midpoint, and high estimates of adults with pre-existing conditions, which we call estimates 1, 3, and 5, respectively. We provided state estimates for the 35 states with sufficient sample size in the MEPS data to reliably report an estimate. We did not have large enough sample sizes to generate state-level estimates of the number of adults with pre-existing conditions in Alaska, Delaware, Idaho, Maine, Montana, Nebraska, Nevada, New Hampshire, New Mexico, North Dakota, Rhode Island, South Dakota, Vermont, West Virginia, Wyoming, and the District of Columbia.

To estimate the number of individuals living in states with insurance protections similar to those that will be offered under PPACA in 2014, we surveyed state insurance department officials in September 2011, asking them to confirm or correct information on guaranteed issue requirements and rating restrictions previously reported by the Kaiser Family Foundation’s statehealthfacts.org website.confirm information on guaranteed issue requirements and rating restrictions in place as of September 2011. We received responses from all states and the District of Columbia. Based on those responses, we used MEPS’s state-based estimates of adults age 19 to 64 with pre- existing conditions to identify the number of individuals living in states reporting a guaranteed issue requirement for at least some policies and either pure community rating or adjusted community rating—insurance We asked the state officials to protections similar to those that will be offered under PPACA in 2014. Guaranteed issue requirements prohibit the denial of coverage to individuals based on pre-existing conditions. In some states, all products must be guaranteed issue, while in other states guaranteed issue requirements are only applicable to some individuals, for instance those with 12 months of continuous coverage, or some standard product, such as a basic health plan. Under pure community rating, insurers may not adjust premiums based on health status, age, or gender. Under adjusted community rating, insurers may not adjust premiums based on health status, but may adjust premiums based on characteristics such as gender or age, depending on the state.

Study Limitations and Data Reliability

There are limitations to our analysis. First, each insurance company separately determines which medical conditions will result in a denial, limitation in coverage, or an increase in premiums. An individual who may be denied by one insurer could obtain coverage from another. Therefore, the population of individuals who would be denied by an insurer, offered restricted coverage, or offered coverage at higher-than-average premiums actually varies by each health insurer. Second, our estimates could overstate the adult population with pre-existing conditions because of the way in which conditions are aggregated in the MEPS database. To protect survey participant confidentiality, five-digit ICD-9-CM codes are truncated into a three-digit code, which means that individuals reporting other related conditions may also be captured.

To determine the reliability of the MEPS data, we reviewed related documentation, compared our estimates to other published results, and spoke with an official from the Agency for Healthcare Research and Quality, which is the federal agency responsible for MEPS. We determined that the MEPS data were sufficiently reliable for the purposes of our engagement. The 2009 data are the most recently available for MEPS. We conducted this performance audit in accordance with generally accepted government auditing standards from July 2011 through March 2012. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings based on our audit objectives.

Appendix II: Number of Adults (Age 19-64) with Pre-Existing Conditions in States, Low, Midpoint, and High Estimate, 2009

Low: estimate 1

Low: estimate 1

Appendix III: State Protections for Individuals with Pre-Existing Conditions, as of September 2011

Guaranteed issue No

State Ohio

Appendix IV: Comments from the Department of Health and Human Services

Appendix V: GAO Contact and Staff Acknowledgments

GAO Contact

Staff Acknowledgments:

In addition to the contact named above, Walter Ochinko, Assistant Director; Lori Achman; George Bogart; Sean DeBlieck; Giselle Hicks; and Laurie Pachter made key contributions to this report.