Encyclopedia of Sociology Vol

Table 1

SOURCE: Adapted from *Levit et al. (1998); **Smith et al. (1998).

Kenkel (1993) found that health maintenance organizations (HMOs) reported that 18 percent of their revenues were used for overhead and profits, compared with traditional insurance plans (14 percent) and Medicare (only 3.5 percent).

Economic analysts argue that the slower spending during the latter part of the l990s reflected several factors. First, where employers sponsored health plans, there was a shift of many workers from indemnity health plans into managed care (Levit et al. 1998), where premiums may have been lower. Second, managed care was successful in negotiating discounts with providers because there was an excess capacity of providers. Growth in managed care enrollment was found to have only a small effect on the volume and intensity of services. Finally, the general and medical-specific inflation rates declined (Levit et al. 1998).

Ginsburg and Gabel (1998) argue that spending was down in the l990s because of a sharp decline in provider revenues and payrolls. They show that hospital and physician spending increases in l997 were less than the growth rate in the GDP (which was 2.8 percent in l997). Although there was a slight increase in payroll costs between l996 and l997 in hospitals, most of the growth was

due to increases in hours worked, and not in number of employees. At the same time, drug costs had increased by 11.5 percent, primarily because of increases in the use of drugs rather than the price (Ginsburg and Gabel 1998). Premiums for health insurance increased by only 3.3 percent between l997 and l998 (Ginsburg and Gabel 1998). The premium increases showed substantial profit margins in l992–l994, but lagged behind expenditures while profit margins in health plans dropped in l996–1997 (Ginsburg and Gabel 1998).

Health care spending increases are expected to continue because of the growing demand for medical services, continued economy-wide inflation, and medical price inflation. See Table 1. Most of the expenditure growth is expected to take place in the private sector, with lower spending in the public sector (Smith et al. 1998).

The high growth rate for health expenditures has had several consequences. First, the growth rate has dominated the attention of policy makers at all levels as they have attempted to struggle with cost containment. Most policy efforts have been directed toward reducing program utilization and expenditures. This focus on cost containment has

set the national political agenda, relegating issues of access to health care and the quality of care to a second level of consideration. This agenda is of great concern because the number of uninsured is increasing and the quality of health care urgently needs to be improved (Chassin et al. 1998). Moreover, the high expenditure rates continue to be used as a rationale by some policy makers for why the expansion of public programs and a national health insurance policy are not financially feasible in the United States.

Growth Through Consolidations, Mergers, and Acquisitions. Overall health expenditures are increasing in part because of the changing structure of health care financing and delivery systems. Kassirer (1996) documented the rapid trends in consolidation of the health care industry, creating larger corporations during the l990s. Srinivasan and colleagues (1998) reported that, in 1997 alone, there were 483 mergers and acquisitions involving health services companies totaling $27 billion and 33 mergers and acquisitions involving HMOs totaling $13 billion. The big winners in mergers and acquisitions are the corporate executives of these large organizations, the stockholders, the lawyers who broker the consolidations, and the health care consultants. The losers are the physicians and nurses who may lose income and even jobs. It is not clear that these mergers and acquisitions are resulting in any overall savings to the system or in improvements in the quality of care. Rather, they appear to be increasing profits and market power (Kassirer 1996).

Srinivasan and colleagues (1998) reported that the growth rate in for-profit health service companies and HMOs has increased rapidly in recent years. Between 1981 and 1997, for-profit HMOs grew from 12 to 62 percent of total HMO enrollees and from 18 to 75 percent of all health plans. Between l987 and l997, there were 210 offerings for health services companies valued at $6.7 billion and 23 HMO public offerings for $1.4 billion. Health services capitalization was $113 billion and HMO capitalization was $39 billion in l997, showing dramatic growth rates. Stock prices for health care industry firms generally outperformed the overall stock market over the decade. As these changes occurred, there were also many conversions of nonprofit health care organizations to forprofit status in order to obtain capital and survive in a highly competitive environment. In l997, there

were 81 conversion foundations with assets of $9 billion as a result of the conversions to for-profit status (Srinivasan et al. 1998).

Every year Forbes magazine lists the largest health care corporations in the United States and details their stock performance. Gallagher (1999) reported $10 billion in mergers and acquisitions in l998, including many in the HMO and long term care sectors. The managed care stocks were reportedly healthy in l998, climbing 15 percent over l997 (Gallagher 1999). HMO mergers and acquisitions were slower in 1998 than in the previous year. By comparison, hospital stocks were off 22 percent on average and long-term care providers were off 56 percent (Gallagher 1999).

What scholars and policy makers have generally thus far ignored are both the economic and the social costs of these changes in the structure of the health care system. The costs associated with mergers, consolidations, and profits are not identified in the analyses of health care costs (Levit et al. 1997). As long as the health industry is profitable, we can expect growth in the private profitmaking sector.

PRIVATE PAYERS

The payers of health services dominate the policy decision-making process in the United States. At the same time, the payers of health care have shifted over the past decade.

Private health insurance corporations dominate the health system because they have the lion’s share of the resources and power in the health industry. For instance, private health insurance firms earned $348 billion in premium income in l997 in the United States (Levit et al. 1998). See Table 2. Private health insurance companies include both the traditional indemnity insurance plans as well as managed care plans. The private health insurance industry—including managed care organizations—spent $34.5 billion (or 10 percent) of their premium income in l997 on administration and profits.

Light (1992) has documented many of the problems with private indemnity health insurance plans. These plans have practice medical underwriting that excludes individuals with medical problems (e.g., chronic diseases) or raises the premiums for such policies to levels where individuals

cannot afford to purchase them. There are indirect approaches to reducing risk, such as waiting periods, copayments, and payment ceilings, along with the exclusion of certain procedures, tests, or drugs. Light (1992) also documented the problems with inaccurate or manipulative premiums and discrimination, which includes policy churning (switching policies before the waiting period ends) within group underwriting for those individuals at high risk, renewal underwriting (increasing the costs for those with new medical conditions), and selective marketing. There are many techniques to deny or delay payment for services. All these practices have negative consequences for individuals and groups seeking insurance. These problems are the result of a health care system geared toward profit and cost containment and of ineffective regulation of health insurance companies at the state level, although states do vary in their regulatory activities.

In l996, Congress passed the Health Insurance Portability and Accountability Act (HIPAA). This legislation, sponsored by Senators Edward Kennedy and Nancy Kassebaum, was designed to address some of the problems with health insurance by making it easier for persons who have lost employ- er-provided insurance to qualify for other coverage. However, Kuttner (1999) concludes that HIPAA is of little help because there are no regulatory controls on insurance premiums and no subsidies for those persons who need the insurance because most have lost their jobs and the ability to

pay for the insurance. Similarly, the l985 Consolidated Omnibus Budget Reconciliation Act (COBRA) allowed people leaving employment to pay insurance premiums out of pocket for up to eighteen months to retain their coverage, but again, this is of little help for those without the resources to pay for the insurance (Kuttner 1999).

Managed care organizations (MCOs) had the most dramatic growth in health care in the l990s. As one study reported, ‘‘Managed care isn’t coming; it has arrived’’ (Jensen et al. 1997). In l995, 73 percent of insured U.S. workers received their coverage through an HMO, a preferred provider organization (PPO), or a point-of-service plan (POS) (Jensen et al. 1997, p. 126). See Table 3. HMOs are health plans that provide care from an established panel of providers to an enrolled population on a prepaid basis. PPOs are health plan arrangements where networks of providers agree to accept plan payment rates and utilization controls. POS plans are HMOs where members may self-refer outside the established network but are required to pay deductibles and other costs. This means that conventional, or fee-for-service (FFS), plans have experienced a precipitous decline in recent years. Between 1993 and 1995, the percentage of workers in conventional health plans dropped from 49 to 27 percent (22 percent), while significant growth occurred in HMOs (6 percent), PPOs (5 percent), and POSs (11 percent) (Jensen et al. 1997, p. 126). Eighty-five percent of the U.S. work force was covered by some type of managed care plan in l997 (Levit et al. 1997).

Percentage of Workers in Various

Types of Plans, 1993–1995

Table 3

SOURCE: Jenson et al. (1997).

There have been numerous studies of HMOs and their performance (Miller 1998; Miller and Luft, 1994, 1997). Davis and colleagues (1995) surveyed individuals in FFS plans in comparison to those in managed care. They found that many individuals (54 percent) had changed plans within the past three years. Of those who changed plans, 73 percent had done so involuntarily, either because of employment coverage changes or changes in jobs or moves. Of those persons in managed care who had changed plans, 41 percent also reporting having to change physicians involuntarily, compared with only 12 percent of enrollees in fee-for-service coverage.

Although most respondents were reasonably satisfied with their health insurance, those in managed care were more likely to rate their plan as ‘‘fair’’ or ‘‘poor’’ and were less like to rate their plan as ‘‘excellent.’’ Those individuals in managed care plans reported less access to specialty care, less availability of emergency care, more waiting times for appointments, and less overall plan satisfaction (Davis et al. 1995).

Other research on the quality of managed care services points to concerns for populations with particular health needs. Miller (1998) found mixed results for access to care in HMOs among enrollees with chronic conditions and diseases. He found enough negative results to raise serious concerns about access. Nelson and colleagues (1997) found less satisfaction with the amount of services received among enrollees who used HMO services. For populations with a variety of needs, the concerns are also mounting. For example, studies of elderly ill persons revealed that HMO enrollees report poor quality of care and lower utilization

than FFS enrollees (Clement et al. 1994; Shaughnessy et al. 1994). The problems that the elderly confront reveal spaces where government programs (i.e., Medicare) and private institutional practices (HMOs) need expanded coverage and improved coordination.

Between l989 and l995, the enrollment of Medicare beneficiaries in HMOs grew rapidly, so that HMOs covered about 10 percent of the total beneficiaries and the remaining persons received traditional FFS care (Welch, 1996). The Balanced Budget Act of l997 made a number of changes in the Medicare program, called Medicare+Choice, that were intended to expand Medicare beneficiaries’ options (Christensen l998). These included:

(1)PPOs, where networks of providers agree to accept plan payment rates and utilization controls;

(2)provider-sponsored organizations (PSOs), which are plans organized by affiliated health care providers; and (3) medical saving accounts (MSAs) established by enrollees to receive the Medicare amount that would be paid to an HMO. Enrollees must pay all costs out of the MSA that would be covered by Medicare as well as out-of-pocket expenses (Christensen 1998). Congress expected that the Balanced Budget Act would accelerate the growth in HMO enrollment to nearly 34 percent by 2005. In spite of these changes to implement this new program, growth may be slower than projected because some HMOs are unwilling to accept Medicare members because they consider Medicare rates to be too low. In l998, HMOs announced that they were dropping approximately 400,000 of their 6 million enrollees because they consider the rates too low (Pear 1998).

There are two advantages of HMO enrollment for Medicare beneficiaries. The first is that premium costs have generally been minimal and the second is that some HMOs include prescription drug coverage and other benefits not covered by Medicare. Recently, however, drug benefits for Medicare beneficiaries have been reduced or capped by a number of HMOs (Kuttner 1999).

HMOs have also dramatically captured the Medicaid enrollment in many states. President Bill Clinton streamlined the process that allowed states to have waivers of the federal regulations that provide mandatory enrollment of Medicaid beneficiaries in HMOs (Iglehart 1995). The expectation

was that HMOs would control Medicaid costs and encourage more coordinated forms of care by increasing the likelihood of having a primary care physician. The Kaiser Commission on the Future of Medicaid (1995) summarized 139 articles, books, and reports on Medicaid managed care and found mixed results. They found that the use of specialty services and emergency room care declined, but there was not a consistent increase or decrease in use of physicians’ services or hospital care. The issue of cost savings was mixed, and quality and satisfaction rates were considered to be comparable. On the other hand, Iglehart (1995) documented serious problems with the implementation of Medicaid managed care in some states, including Florida and Tennessee.

Pauly (1998) argues that for-profit health plans enjoy monopsony power in the health care market. And while a monopsony can result in lower provider premiums, it may also reduce benefits as the providers reduce their spending on care. Pauly concludes that traditional antitrust policies have not addressed the problem of monopsony or monopoly power.

Woolhandler and Himmelstein (1995) view the growth in HMOs as a transformation that not only places physicians at financial risk because of cost-containment practices but also pressures physicians to withhold needed care. These financial arrangements encourage physicians to collaborate in risk selection by seeking to avoid patients who may have high care needs. Mechanic and Schlesinger (1996) have argued that the impact of managed care has had a negative impact on patients’ trust of medical care and their physicians. The insurance industry and the managed care organizations hold great power and authority over the care provided to individuals and groups. They also have a great deal of influence over physicians, other health professionals, and health care workers. The current trends can have serious negative consequences for access and the health status of the population.

PUBLIC PAYERS

The two major public payers are Medicare and Medicaid, programs established in l965. Medicare pays for those individuals who are aged or disabled under Title 18 of the Social Security Act. Medicaid

is generally provided to persons age 65 and over who are entitled to Social Security and to individuals who are disabled for a period of at least 24 months. There were 38 million people eligible in l997. Medicaid, under Title 19 of the Social Security Act, is funded jointly by federal, state, and local governments. It provides coverage to those persons who are eligible for Supplemental Security Income, for low-income individuals who are aged, blind, or disabled. It also pays for recipients and their children under the Aid to Families with Dependent Children, which is now the Temporary Assistance for Needy Families program. The program provided assistance to 36 million persons in l996 (Waid 1998). There are other public payers, such as the Veterans’ Administration and local governments, that are not discussed here in detail.

Medicare. In l997, Medicare paid $214.6 billion for its 38.4 million aged and disabled enrollees (Levit et al. 1998). Medicare is the single largest public program, accounting for 20 percent of the nation’s health expenditures. See Table 2. The growth rates in Medicare spending declined from 12.2 percent in l994 to 7.2 percent in l997. This decline was the result of slower price inflation and policy changes. Physician payments were limited, and fraud and abuse detection programs were increased. Limits on payments and aggressive abuse detection programs are credited with decreasing home health care spending (Levit et al. 1998). Future declines in nursing home spending are expected because of the adoption of a prospective payment system that was implemented in l998.

In the 1980s and l990s, Medicare spending growth had been much lower than private health insurance annual growth rates. But in l997, Medicare spending growth rates were 5.8 percent compared with 3.8 percent for private health insurance (Levit et al. 1998). Unfortunately, this growth in spending has contributed to public policy attention on reducing spending for the Medicare program.

And although spending for Medicare has increased, the program pays for only a limited amount of health insurance for those who are aged and disabled. Data from the 1997 Current Population Survey indicate that Medicare beneficiaries paid 67 percent of their total expenditures. Private insurance paid for only 10 percent of the bills,

even though a large proportion of beneficiaries have private supplemental insurance. The remainder was paid out of pocket by beneficiaries (Carrasquillo et al. 1999).

When the Medicare, Medicaid, and other public programs are combined, their expenditures represent 46 percent of total national expenditures. Because this is such a large percentage of the total, the large increases in public spending per year contribute to the public policy focus on cost containment.

Medicaid. Medicaid is a program designed for the poor as a safety net. Medicaid spending was $159.9 billion in l997, or a 3.8 percent increase over the previous year (Levit et al. 1998). Other governmental expenditures for health care (federal, state, and local) totaled $132.7 billion. These public programs represented 27 percent of total U.S. expenditures. See Table 2. There was a rapid growth in Medicaid expenditures in the l988–1994 period, related to the growth in (1) the number of enrollees, (2) the spending per enrollee, and (3) increases in spending for hospitals with disproportionate shares of Medicaid patients. The spending slowed in the l994–1997 period because the number of Medicaid enrollees dropped during this period. The states also were allowed to have waivers to implement mandatory enrollment in managed care plans.

Congress passed welfare reform legislation in l996 that replaced the Aid to Families With Dependent Children (AFDC) with Temporary Assistance for Needy Families (TANF). This legislation broke the link between welfare and Medicaid eligibility, but states must continue to provide benefits to persons who met the eligibility requirements for Medicaid prior to the legislation. The law changed the definition of childhood disability under the Supplemental Security Income (SSI) program, curtailed benefits to legal immigrants, and banned Medicaid eligibility for qualified aliens admitted to the United States after the legislation. Some benefits were restored to legal immigrants under the Balanced Budget Act of l997 (Levit et al. 1998).

The passage of TANF means that welfare limits will gradually become effective in most states during l999, and millions of women will lose their eligibility for welfare benefits. Although states may

continue to offer Medicaid eligibility to those individuals who go off welfare and are working in lowincome jobs, many former welfare recipients are not informed of their eligibility for Medicaid services and thus have not retained their benefits. Those former welfare recipients who successfully obtain employment will generally be placed in relatively low-wage occupations that will probably not offer health insurance or job security. Overall, the legislation will result in a loss of health insurance for many women and children (Kuttner 1999).

In response to the health needs of children, Congress passed the Children’s Health Insurance Program (CHIP) as a part of the l997 Balanced Budget Act. This program provided states with $24 billion over five years to expand coverage of Medicaid for children or to establish a new children’s health insurance program. The new insurance program is complex and difficult for people to understand and gain access to. In l998, it was reported that the program was dramatically undersubscribed for a number of reasons across the country. California, for example, had enrolled only about 4 percent of the 580,000 children eligible for the program (Kuttner 1999). Some immigrants were reported to be concerned that enrollment of their children could affect their immigration status.

Several barriers restrict access to this program, particularly for immigrant populations. First, a large state bureaucracy and complicated application process have limited access to services. Second, eligibility coverage varies for children of different ages, so that one child may be covered while another is not in a single family. Many immigrant parents declined to participate in the program because they felt that providing health care for one child while not obtaining coverage for another was immoral (Altman 1998). Finally, eligibility for this program was initially tied to citizenship, which created access problems because, although their children were often documented and legal residents, undocumented immigrant parents declined to apply to the program for fear of deportation by immigration authorities (Korenbrot et al. 1999).

The Congressional Budget Office estimated that the Children’s Health Insurance Program and the Medicaid expansions could extend coverage to

2 million of the 10.6 million uninsured children in l997 (Kuttner 1999). It is uncertain if more than a fraction of this total will ever receive coverage.

CONSUMER POWER

Consumers have seen a drop in their out-of-pocket spending for medical care over the past two decades. In l980, out-of-pocket spending was 24 percent of the total expenditures in contrast with 17 percent of spending in l997 (Levit et al. 1998). The total out-of-pocket spending was $187.6 billion in l997. Out-of-pocket costs include premiums for insurance, copayments, and deductibles for services use, and direct costs for services not covered by insurance, such as outpatient drugs and long-term care. The reason that out-of-pocket spending is lower is that some consumers are also paying a lower proportion of their income on premiums for health insurance. Managed care plans generally had more limited copayments and deductibles than indemnity insurance, and more individuals were enrolled in managed care (Ginsburg and Gabel 1998). Out-of-pocket costs did, however, go up in l997 because some HMOs were reportedly increasing their copayment and deductible charges (Levit et al. 1998). Consumer spending for drugs increased as well.

Some studies have reported that 61 percent of the population has employment related coverage (AHCPR 1998; Levit et al. 1998). These estimates group individuals who have public and private employment together and tend to count anyone with private insurance even if that insurance is not the primary payer of health care. New data from the 1997 Current Population Survey showed that only 43 percent of the population had their health insurance paid for by private-sector employers, 34 percent have publicly funded insurance, 7 percent purchased their own insurance, and 16 percent were uninsured (Carrasquillo et al. 1999). Employers also contribute to the Medicare Hospital Insurance Trust Fund through Social Security payroll taxes, but these account for only a small amount of the total expenditures.

Carrasquillo and colleagues (1999) point out that the role of employers in paying for insurance has been exaggerated and, as a consequence, employers have played a dominant role in public policy discussions related to health insurance. For

example, President Clinton’s national health insurance plan proposed to link health insurance to that paid for by private employers, even though employers are not the major payers of insurance. Employers played a role, along with many other interest groups, in defeating the Clinton plan because of fears that their costs would be increased and they would lose control over their work force (Navarro 1995). At the same time, employers are given an estimated $100 billion in tax subsidies in order to cover the costs of employer-sponsored health insurance (Reinhardt 1997). The $100 billion in subsidies could be eliminated if a national health insurance plan were paid directly by the government.

TYPES OF UTILIZATION AND

EXPENDITURES

National expenditures for health care reveal how health resources are utilized and allocated to provide care in the United States. The patterns are not necessarily the way the public would allocate the resources. Instead, the expenditure patterns reflect historical decisions about how public and private dollars should be spent.

The patterns of expenditures changed rapidly in the latter half of the 1990s because of the growth in managed care. Managed care plans have instituted their own cost controls on the providers that they pay. The health industry has also been consolidating through a large number of mergers and acquisitions. These changes have resulted in fewer larger health care provider organizations.

Hospital Care. Hospital care has historically been and continues to be the largest component of health spending, accounting for 38 percent of total spending ($371 billion) in l997. See Table 1. The spending for inpatient care dropped considerably and marked increases occurred in outpatient services. This shift represents a restructuring to outpatient care, which is less costly. In the l990– l997 period, there was a 6-percent reduction in hospital admissions per capita and a 16-percent decline in inpatient days in community hospitals (American Healthcare Infosource 1998).

As result of the restructuring and downsizing, U.S. hospitals closed 88,000 beds (10 percent) and occupancy rates fell from 64.5 percent in l990 to 59.6 percent in l997 (Levit et al. 1998). Although

utilization fell and price increases were controlled, hospitals were able to keep profit margins high, since almost all their revenue is from third-party insurance (consumers paid directly for only 3 percent of hospital costs).

Physician Services. Costs of physicians’ services were $218 billion in l997, or 21 percent of total health services and supplies. Spending increases for physicians were associated with the increasing dominance of managed care organizations. The American Medical Association (AMA) reported that 92 percent of all physicians were in managed care, and these contracts accounted for 49 percent of their income (Levit et al. 1998). Physicians are also expected to pay for an increasing share of ancillary services under the capitated managed care contracts. Physicians have reacted to managed care cost controls by expanding the sizes of their practices to large group practices. These practices allow for greater leverage in negotiating contracts, economies of scale, and increases in capital. More research on the effects of the changing structure of medical practices on health care access, costs, and quality is needed.

Drugs and Medical Nondurables. Drugs and medical nondurables accounted for $108.9 billion in l997, or 10 percent of total national expenditures (Levit et al. 1998). Prescription drugs as a subset grew faster than other types of health care. These costs grew at 14.1 percent in l997 compared to 4.8 percent for health spending in 1989. Out-of- pocket drug costs were 51 percent of total payments in l989, later dropping to only 29 percent in l997, and the rest were paid by third parties. The switch to managed care has increased the amount of covered outpatient drugs with relatively low copayments (Levit et al. 1998). Thus, the growth in drug costs was associated with increases in the number of prescriptions—not price increases, as had been the case in the l980s (Levit et al. 1998).

The demand for drugs continues to increase. The Food and Drug Administration (FDA) approved fifty-three new drugs in l996 and thirtynine in l997—both record highs. These approvals, along with increased advertising efforts by pharmaceutical firms, may lead to increases in demand. Drug makers reported spending $21 billion on research and development in l998, compared with $8 billion in l990 (Herrera 1999). They also increased spending on advertising to $1.3 billion

in l998, having great successes with Viagra (for impotence), Claritin (for allergies), and Propecia (for baldness) (Herrera 1999).

Other Services. Nursing homes represented about 8 percent of total health service and supply expenditures in l997, and this is projected to decline to 7 percent in 2007. Other professional services were 4.6 percent of expenditures, home health care was 3 percent, dental services were 4.6 percent, and vision products and other durable medical equipment were only 1.4 percent in l996. These expenditures were expected to remain about the same percentage of the total over the next tenyear period (Smith et al. 1998). Governmental public health activities were estimated to be about $35.5 billion in l996, representing 3.4 percent of total U.S. health expenditures. Research expenditures were 1.6 percent of the total in l996, and construction was 1.4 percent of the total (Smith et al. 1998); these were also projected to remain the same over the next ten-year period.

LONG-TERM CARE IN THE UNITED

STATES

The only segment of the U.S. population whose cost of long-term care is fully covered is made up of those individuals below the poverty threshold who are enrolled in the state-run, federally supported Medicaid plans (Harrington et al. 1991). Many persons of moderate incomes needing longterm care are unable to afford the costs of longterm care services, which can be as much as $50,000 per year for nursing home care. If individuals ‘‘spend down’’ to the poverty threshold, they can become Medicaid eligible as a last resort (Wiener 1996). This not only constitutes a hardship to the patient but creates dependence on federal and state assistance, which would be unnecessary if the entire population were insured, with premiums derived from sources other than the government.

In contrast, the nonpoor elderly enrolled in Medicare are entitled only to a limited number of skilled nursing care days (up to 100 days) if medically required following hospitalization. With some exceptions, the rest of the population must either pay for care out of pocket or purchase private long-term care insurance (Levit et al. 1997).

In 1996, national estimates for long-term care spending were $125.5 billion (Levit et al. 1997). Of

the total expenditures, 30 percent ($38 billion) was for home health care (including hospitals and freestanding agencies) and 70 percent was for nursing home care ($87.5 billion; including hospital and freestanding facilities) (Levit et al. 1997). Home health expenditures are expected to double between l996 and 2007, while nursing homes are expected to grow by 50 percent during the same period (Smith et al. 1998).

Medicaid paid for 48 percent of all nursing home care and 14 percent of all home health care in 1996 (Levit et al. 1997). Medicare paid for 45 percent of home health care and 11 percent of nursing home care. Overall, the government paid 59 percent of home health costs and 61.5 percent of nursing home costs (Levit et al. 1997). Most of the burden for government spending is from general taxes used to pay for Medicaid and a combination of general taxes and payroll taxes that support the Medicare program.

Private health insurance paid only an estimated 5 percent of nursing home care and 10.6 percent of home health care expenditures in l996 (Levit et al. 1997). The remainder of the expenditures was paid directly out of pocket by those needing long-term care (31.5 percent for nursing home care and 19.5 percent for home health care) (Levit et al. 1997).

Private, voluntary long-term care insurance is not a viable approach to financing long-term care (Wiener 1994). Although private long-term care insurance has been available since the late l980s, only 4.5 million long-term care insurance policies had been sold by l994 (and not all of these policies were still in effect) (Cohen and Kumar 1997). Sold on an individual basis, private long-term care insurance is primarily attractive to persons whose health condition places them at high risk and makes them likely candidates for long-term care. Only about 10 to 20 percent of the elderly can afford to purchase long-term care insurance (Wiener 1994). Premiums for two policies purchased at age 65 were estimated to cost an average of $3,500 per year, which would be about 13 percent of a median elderly couple’s income (Consumer Reports 1997, p. 46). These models determined that private long-term care insurance is unlikely to have a significant impact on public spending for longterm care, even though such insurance is expected

to increase (Wiener and Illston 1994; Wiener et al. 1994).

A mandatory social insurance program for long-term care would have many advantages (Harrington et al. 1991). If everyone paid into the system, then individuals would have access to coverage when they are chronically ill or disabled without the humiliation of having to become poor (i.e., to ‘‘spend down’’) to receive services. The program might be more appealing if enrollees could have the advantage of paying in advance (prefunding) so that services would be available when needed. No stigma would be attached to receiving services, and such a program should have wide public support. The program could also reduce the access problems that are currently experienced by those who are in the Medicaid program. The financial risk would be spread across the entire population so that individual premium costs or taxes would be relatively low, in comparison to the costs of insurance purchased when individuals are older and at risk of needing longterm care.

Although many have argued that the United States cannot afford to adopt a public social insurance program, Germany mandated a social insurance program for long-term care in l995 (Geraedts et al. l999). This program was funded through a combination of public taxes and payroll taxes paid by employers and employees (.08 percent of wages for each or a total of 1.6 percent) (Geraedts et al. l999). During the first three years of this program, it maintained its financial solvency and expanded long-term care to the entire population who have disabilities. This example demonstrates that such public insurance programs, if paid for by the entire population, can ensure coverage at a reasonable cost. This approach avoids restricted access, the stigma, and the stress placed on those individuals needing long term care and their families who do not have sufficient funds to pay for them in the United States (Harrington et al. 1999).

THE UNINSURED AND THEIR HEALTH:

MICRO-LEVEL ISSUES

An estimated 43 million individuals in the United States have no private health care insurance (Kuttner 1999; U.S. Bureau of the Census 1998b). These individuals have no Medicare, Medicaid, or other public insurance coverage. The percent of

the population without insurance increased from 14.2 in l995, to 15.3 percent in l996, and to 16.1 percent in l997 (Kuttner 1999). This represents a steady increase in the number of uninsured since the l980s, when the Reagan administration first began cutbacks in public health expenditures. The U.S. Bureau of the Census (1998b) also estimated that about 71.5 million individuals lacked insurance for at least part of the year in l996.

The uninsured are primarily those who are poor and members of minority groups. Of those with incomes of less than $25,000, 24 percent had no health insurance compared with only 8 percent of those with incomes over $75,000 (Kuttner 1999). For those from minority groups, 50 percent of Hispanics and 37 percent of blacks had at least one month without insurance coverage compared to only 25 percent of whites (Kuttner 1999). Moreover, approximately one in three children had no health insurance for part of the year during l995 and l996 (Families USA 1997). The rate of children lacking insurance rose between l989 and l996 (U.S. Bureau of the Census 1998a). Lack of insurance for children was closely correlated with income. The group with the highest uninsured rate was young adults (38 percent, or twice the rate for other Americans), because many of them are dependent on their parents, who are working in lowwage jobs (AHCPR, 1998).

REASONS FOR THE GROWING NUMBERS

OF UNINSURED

There are many reasons why individuals do not have health insurance, but the primary one is that private health insurance rates are too high relative to the incomes of those who are poor. The costs of insurance would represent about 26 to 40 percent of incomes of those who are poor, so many of these individuals are unable to afford coverage (Kuttner 1999). Another major problem is that 44 percent of those individuals who lost their jobs in the l993–1995 period also lost their health insurance coverage.

The Medicaid program does not provide health insurance to all those individuals living below the U.S. poverty rate. State Medicaid programs are allowed to establish their own eligibility standards for those on welfare (TANF) in order to limit the number who can be served. The Census Bureau reported that 49 percent of people who were fully

employed but living below the poverty line had no Medicaid or private insurance, and this number increased to 52 percent in l996 (Kuttner 1999). Due to reductions in Medicaid coverage, the rate of poor children with insurance fell from 16.5 million to 15.5 million between l995 and l996 (U.S. Bureau of the Census 1998a). A U.S. General Accounting Office study (1996) found that nearly 3 million children who were eligible for Medicaid were not enrolled in the program because of inadequate outreach, fears by immigrants about immigration problems, and other barriers. Additionally, the combination of immigration reform and welfare reforms has produced a ‘‘chilling effect’’ on many immigrants and their health care providers (Korenbrot et al. 1999).

Another reason that health insurance coverage is eroding is the rising cost of health insurance premiums, especially for people who purchase individual premiums privately rather than through the job (Kuttner 1999). Kuttner (1999) also cites the trends toward temporary and part-time employment, where most workers do not have insurance. The rising costs of Medigap premiums for the elderly who are on Medicare is also a major problem. Finally, the trend away from community rating of insurance to individual and group ratings makes the costs substantially higher for individuals and some groups that have higher injury or illness rates. Employers are also reducing their supplemental health coverage for retirees (from 60 percent to only 40 percent of retirees in l995) (Kuttner 1999).

There has been a reduction in benefit coverage, particularly for pharmaceutical benefits. Many health plans are capping their outpatient drug benefits, although prescription drugs are the largest category of out-of-pocket costs for the elderly and the costs are increasing rapidly (Kuttner 1999). As noted earlier, drugs costs have been increasing rapidly (Levit et al. 1997) and many cannot afford to pay these costs. Many HMOs and insurance companies have been reducing drug benefits because of these cost increases. One study found that 84 percent of Medigap policies for the elderly had no drug coverage (McCormack et al. 1996). The result is that many elderly individuals are unable to afford drugs that are prescribed for them.

Another problem has been limited health insurance coverage for persons with mental health