Health Insurance Rates & the Rise in Poverty
by Louie Doverspike
As healthcare costs rise, so does the strain on American families. The relationship between health insurance costs and finances has been noted in such diverse publications as the New York Times and Scientific American (see Resources). Rising healthcare costs can push families over the brink into financial insolvency and bankruptcy. While making a correlative relation between the recent rise in poverty and unemployment is difficult, there is little doubt that increases in health care costs, including rising insurance rates, are exacerbating financial difficulties in a number of American households.
One of the most important factors in the relationship between poverty and health care is the emergence of health insurance as an employer-provided benefit. While employers are not legally required to provide health insurance, the system has been dominant in America since World War II when the government instituted price controls to help the war effort. In response to the increased regulation, employers sought new ways to offer incentives to employees. One of these incentives was health insurance, which gave companies an edge in attracting employees. The system continued long after the end of the war and its increased regulation. It is only in the past decade that employers, burdened with the rising costs, have begun providing fewer employees health care coverage.
A new study conducted by Harvard University has confirmed a strong link between health insurance rates and bankruptcy, indicating the potent connection between health care issues and poverty. According to the study, a full 62 percent of personal bankruptcies are caused by medical costs. This remarkable number suggests that employer-based insurance, even with its rising costs, remains unable to cover more catastrophic health emergencies.
Even more remarkable from the Harvard University study is the fact that a full 78 percent of those who declared bankruptcy had health insurance coverage. This indicates the woeful state of the insurance industry's ability to provide comprehensive coverage. Rather than being an issue of no insurance, the study indicates that the majority of people suffering from health-based bankruptcy are affected by high rates and low coverage. While health insurance companies are stringently regulated, they still frequently deny coverage through contractual loopholes such as pre-existing conditions and by limiting the use of certain procedures.
In addition to the lack of insurance and reduced coverage, prices are rising on already existent benefits. From 2004 to 2009, health insurance rates grew by more than 10 percent every year. In 2008, the cost of employer-based health insurance rose 11 percent, which was more than five times the rate of inflation. The rise in costs easily outpaces the rise in wages, leading to an increasing large percentage of paychecks going toward paying insurance premiums.
As health insurance becomes more expensive for employers, they will likely be faced with two difficult options. The first is to get rid of health care coverage for their employees entirely. This will leave more employees either in the private market or uninsured, adding to the burden already straining emergency rooms around the country and leaving more people in bankruptcy and poverty. The other option will be to lay off employees who could otherwise be paid with the money set aside to pay for the increasingly expensive health insurance. Neither are particularly attractive options and will result in more uninsured and unemployed people.