The health insurance gamble

By Jennifer Gordon
Dallas Business Journal

Updated: 8:00 p.m. ET April 23, 2006
When Alvin Wirthlin started his patent-application business in Lucas a few years ago, the decision about purchasing health insurance came down to a risk vs. cost analysis.

Wirthlin, who decided to take the risk instead of pay the cost of insurance, is not alone.

A growing number of small business owners and full-time workers make up about 80% of the America's 46 million people without health insurance. The number of people without such insurance increased 11.2% from 2001 to 2004.

Though California beats Texas in absolute numbers, Texas ranks No. 1 for the highest percentage of its population lacking health insurance, with 25%, or one out of every four people, living without coverage. That translates into 5 million people without insurance in the Lone Star State, and an estimated 700,000 in Dallas County alone.

"That's not the kind of rate you want," said Joel Allison, president and CEO of Baylor Health Care System. "The uninsured is a major issue impacting health care."

Nationwide, 16% of the population is uninsured, according to an October 2005 report from the Employee Benefits Research Institute.

Like those people, Wirthlin decided to risk it and forego health insurance coverage for him, his wife and their five children. Paying $180 for two doctor's office visits a year made much more sense to him than paying $400 to $500 a month in premiums.

That logic worked until Wirthlin suffered a recent back injury. So far, he's paid $90 for an office visit and $600 for an MRI, which was about a 50% discount by the MRI provider when it learned Wirthlin was uninsured.

The bills to date have been low because of a close friend who is an orthopedic surgeon, but if surgery is needed Wirthlin is looking at a bill in the tens of thousands of dollars. Right now he's waiting to see whether he'll have the surgery, which doctors have told him he needs.

"I wish I could have known that there would have been a catastrophic event so I could plan for it," Wirthlin said. "It's just one of those risks you take. In our case the risk didn't work out, but we were lucky for four years."

Sobering statistics
Rolling the dice and foregoing insurance is something a growing number of middle-class people with incomes of $50,000 a year or greater are trying. That segment is the fastest-growing group among the nation's 46 million people without health insurance, health care officials said.

In 2003, 17% of the uninsured were families with incomes of more than $75,000. Another 16% of the uninsured had family incomes of $50,000 to $74,999, while 34% of the uninsured had incomes of less than $25,000, according to a recent Texas Hospital Association report.

Immigrants also make up a portion of the uninsured, though possibly not as much as many would think, based on anecdotal evidence from area health care providers. Individual hospitals can't ask patients whether they're in the country illegally, so it's tough to track. But a 2005 Kaiser Family Foundation report found that, between 2000 and 2003, the number of uninsured native citizens increased by 3.6 million, while the number of noncitizens increased by 1.2 million.

"All the hospitals are seeing that spill into their system," said David Cecero, president and CEO of JPS Health Network in Fort Worth.

Overall, the uninsured just don't have the ability to use the entire health care system -- meaning they can use the emergency rooms but often can't be seen by specialists, said Don Spies, director of health initiatives for District One of the Dallas County Commissioners Court and a former health care consultant. "They're hard-working people. They're salt-of-the-earth people."

The uninsured face a host of challenges including poorer health and high medical bills. Employers with uninsured workers typically have less-productive employees and more sick days, because they're distracted by undiagnosed medical conditions and don't recieve appropriate care, health care officials said.

Hidden tax
Also, employers who sponsor insurance coverage face a higher cost -- a hidden tax, if you will -- built into their premiums because of the cost of caring for the uninsured. That's because health care providers pass along the cost to insurance companies when rates are renegotiated, and that additional cost is in turn passed on to policyholders.

And those premiums haven't just been slowly creeping up in recent years, as any business owner who has received a rate quote can tell you.

Premiums increased an average of 9.2% in 2005, which is four times the increase in earnings of 2.7% and more than two times the rate of inflation, 3.5%, according to the 2005 Annual Employer Health Benefits Survey from the Kaiser Family Foundation and Health Research and Educational Trust. Premiums have increased 73% since 2000.

In addition, hospitals and other health care providers are increasingly saddled with more bad debt and uncompensated care, a trend that hospitals say can't continue indefinitely without destroying the system. Bad debt is any portion of the bill that can't be collected.

"As we've watched the evolution of the cost of health care, I think we've created for ourselves a very vicious cycle which,bottom line, in my view, will take the system down if not corrected," said Doug Hawthorne, a 36-year Texas Health Resources veteran and CEO of the Arlington-based system. "Today it is the coverage issue. And those who can pay are ultimately paying for those that can't."

For public hospitals like Parkland Memorial Hospital in Dallas, patients with traditional insurance make up such a small portion of their overall business that it's virtually impossible to charge insurers more to cover some of the cost of the uninsured patients, said Dr. Ron Anderson, president and CEO of Parkland Health & Hospital Sytem. "I have no place to shift it to, except the taxpayer."

Parkland previously saw 57% of annual hospital admissions for charity patients, but that percentage has decreased in recent years, he added.

"We now see more than we've ever seen before and increased in absolute numbers, but percentage-wise we're down to 47%, which means the work at Baylor has grown, the work at other hospitals has grown and at some point they're going to find it very, very difficult to continue to provide charity care at those levels," Anderson said.

'More critical'
Pretty much all Texas hospitals, not just the public hospitals, feel squeezed financially, said John Hawkins, vice president of government relations for the Texas Hospital Association. "It's becoming more critical now."

In 2004, Texas hospitals provided $9.2 billion worth of uncompensated care, which includes bad debt expenses, according to information from the Texas Hospital Association. That's compared with $3 billion in uncompensated care in 1993. On a national level, uncompensated care increased to $60 billion from $25 billion during the same time frame.

For 2006, JPS Health Network is approaching the $300 million mark for uncompensated care, up from $275 million in 2005 and $175 million in 2001, Cecero said.

For Methodist Health System, the cost of bad debt and charity care makes up 33% of the system's nongovernmental business, said Michael Schaefer, Methodist's executive vice president and chief financial officer. "That ought to give you a sense for how much more we have to charge people who have insurance to pay for those that don't have any insurance or have very poor insurance."

Overall, Methodist has seen a 10% increase in this type of care year-over-year since 2004, said Howard Chase, Methodist's president and CEO. "Not only is it continuing to go up in dollars, but the rate doesn't seem to be diminishing. It's already a major issue for us and if that trend continues, it becomes a bigger issue every year."

Mary Grealy, president of the Washington, D.C.-based Health Leadership Council, says everyone is paying.

"Everyone is affected by this, whether you're a provider of health care services or if you're an employer that offers health insurance to your employees," Grealy said. "We're all paying for it."

Medical City doesn't get many uninsured patients because of its location in a mostly affluent area. Last year, for-profit Medical City spent $50 million on uncompensated care, which is a double-digit increase over the past three years.

"The dot-com bubble burst had a huge and dramatic impact on us," explained Medical City CEO Britt Berrett, who said the layoffs and tougher financial situation hurt the hospital's bottom line as previously insured patients then had no coverage.

When it comes to charity cases, aside from caring for individuals who come to the emergency room, Medical City picks and chooses the patients who receive free care. Other hospitals also do this, but typically on the back end where bills are forgiven for some.

Ultimately, Berrett says he's not concerned about the uninsured who aren't offered health insurance or even those who are eligible for coverage but truly can't afford it. "I'm concerned about individuals who buy BMWs, but elect not to buy health insurance for themselves and their families," he said.

Individuals who make those choices also concern Parkland's Anderson. "In a fashion they create a free-rider system," he said.

In a way, he and others believe, hospital attitudes toward treating those who need care also contribute to the problem, ironically enough.

Says Anderson: "They know that our culture is such that we value human life so much so that we're going to take care of them. That's a problem in this country, and I think we're going to have to deal with this free-rider issue."

Unless everyone starts carrying insurance or more public funding becomes available, the system is set up for failure, Anderson said. "It's magical thinking to think we're going to be there if we have a third of the population uninsured and can't pay. No other industry could do that."

Hawthorne agreed, adding that he's concerned about the long-term viability of health care providers under the current system.

"When we add it all up and look at the economics, it's a crisis in the making and will in some way, at some point, begin to necessitate some stricter rationing of care and maybe even some levels of care, which this country certainly has not been in favor of," Hawthorne said. "It could be the straw that breaks the camel's back for delivery of health services in this country."