Uninsured numbers rise after two years of decline

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October 2002

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Uninsured numbers rise after two years of decline
The number of uninsured Americans, which had fallen in 1999 and 2000, rose by about 1.4 million in 2001. New data and studies indicate the increase was due in large measure to the faltering economy, mounting health care costs, and the erosion of private health insurance coverage. The total number of uninsured Americans rose from 39.8 million in 2000 to 41.2 million in 2001, according to new findings from the Census Bureau.

In addition, preliminary data from the National Health Interview Survey, which is administered by the Centers for Disease Control and Prevention (CDC), indicate that the number of uninsured Americans continued to rise in 2002, as well.

"Several signs point to a significant increase in the ranks of the uninsured in 2002," said Leighton Ku, Senior Fellow at the Center on Budget and Policy Priorities. "The new CDC data show an increase in the percentage of Americans lacking health insurance during the first quarter of 2002, the period these data cover. In addition, unemployment has averaged 5.9 percent so far this year, well above its 4.8 percent average level in 2001. Health care costs have continued to grow sharply in 2002 and many states facing budget crises have begun cutting their Medicaid programs."

Ku added, "The fact that the number of people who were uninsured throughout the year rose 1.4 million in 2001, even though unemployment did not rise much until the final months of the year, does not bode well for 2002 and beyond. The increase in the ranks of the uninsured may be substantially larger this year and perhaps next year."

The main reason the number of Americans without health coverage grew was the erosion of employer-sponsored health coverage. The new Census data show that the proportion of Americans with employer-based coverage fell by one percentage point in 2001, to 62.6 percent.

Three key factors are pushing the number of people with private coverage lower. First, unemployment rates have climbed during the economic downturn, so a large number of newly jobless workers and their dependents have lost employer-sponsored coverage. Second, some smaller businesses are responding to soaring health care costs (which have risen 12.7 percent in the past year alone, according to one survey) by dropping health coverage for their workers. Third, many other businesses are passing along at least part of the increase in health care costs to their employees, which is likely to have made coverage unaffordable for some workers, particularly low-wage workers, and their dependents.

The number of people without insurance in 2001 would have been much higher had it not been for Medicaid and the State Children's Health Insurance Program (SCHIP), whose caseloads grew to offset much of the loss of private health insurance. However, the ability of these public programs to help fill the gaps in insurance coverage is faltering. Most states are struggling with budget deficits and are trying to hold down Medicaid spending, which is one of the two largest components of state budgets. (States pay a little less than half of all Medicaid costs, on average.) Eighteen states have already adopted or are planning cutbacks in Medicaid eligibility, according to a recent report from the Kaiser Commission on Medicaid and the Uninsured, and Oklahoma just approved major cutbacks that will largely eliminate its SCHIP program and end coverage for about 80,000 people.

"The evidence is overwhelming that [the state fiscal situation in] 2003 will be much worse than 2002 and that states will be forced to make huge spending cuts, particularly in Medicaid," the National Governors Association stated this week.

In addition, the Office of Management and Budget estimates that, under current federal policies, the number of children served by SCHIP will fall by 900,000 between 2003 and 2006 due to limits in federal funding for that program.

Before it adjourns, Congress can prevent the further erosion of health insurance coverage by providing state fiscal relief to states through a temporary increase in the federal matching rate for Medicaid and by bolstering federal SCHIP funding

Why the Number of Uninsured Americans Rose
The Census Bureau has stated that the loss of employer-sponsored health insurance coverage is "the principal cause of the overall decrease in health insurance coverage." There are three main reasons for the erosion of private health coverage that began in 2001 and may persist in 2002 and beyond:

* Unemployment Is Higher. Unemployment is much higher. The unemployment rate averaged 4.8 percent in 2001. During the first eight months of 2002, it averaged 5.9 percent, and the Congressional Budget Office forecasts that it will remain at about six percent until the second half of 2003.

Since the great majority of American workers and their dependents receive health coverage through the workplace, this increase in unemployment means a large number of workers and their dependents no longer have employer-sponsored insurance available to them. Research by noted economist Jonathan Gruber of the Massachusetts Institute of Technology has found that the number of uninsured individuals grows as the unemployment rate rises because many jobless workers lose private health coverage.

* Fewer Businesses Are Offering Health Coverage. A recent national survey of employers found that the average cost of private health insurance premiums climbed 12.7 percent between 2001 and 2002, driven by increases in prescription drug and hospital costs. In response, fewer small businesses are offering health insurance to their workers. The survey of employers found that the percentage of firms with fewer than 200 workers that are offering health coverage fell from 67 percent in 2000 to 61 percent in 2002.

* Job-Based Coverage Is Becoming Too Expensive for Many Workers. An increasing number of businesses are passing along health care cost increases to their workers. As a result, these workers are paying more out of their own pockets for employer-sponsored health coverage this year in the form of higher premiums, co-payments, and deductibles. The survey of employers found that a majority of larger firms (with 200 or more employees) increased employee cost-sharing in 2002, and three-quarters expect further increases in the next year.

A 2002 survey of working adults conducted by the Commonwealth Fund found that one-quarter of workers with job-based insurance said their health insurance premiums rose "some" or "a lot" during the past year. Among low-income workers, an even larger share—one-third—said their premiums rose substantially. Many workers also faced larger co-payments or deductibles and reductions in the scope of their health insurance benefits.

Consequently, employees, particularly low-wage workers, are finding health coverage for themselves and their dependents less affordable, and some are dropping their private insurance coverage.

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