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Inside the Uninsured

Inside the Uninsured

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Published by: sarahkliff on Aug 30, 2011
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09/06/2011

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 Contact: Patrick Clinton212-345-3013patrick.clinton@oliverwyman.com
Inside the Uninsured
 
Oliver Wyman’s new survey of Americans without health
insurance finds them ready to participate in healthcare reform,open to innovation, but extremely sensitive to price.
A principal goal of the Affordable Care Act of 2010 was to reduce the number of Americanswho lack health coverage. To do that, the law calls for the creation of regulated healthcareexchanges where the uninsured can purchase insurance, and a system of subsidies and penaltiesto encourage and assist them to buy.But will they? There have been estimates of the demographics and health status of the uninsured,but little real knowledge. We have known far too little about their attitudes, preferences, andneeds in regard to healthcare
 — 
factors that could have a great impact on how well the systemworks and how the exchanges should be designed and regulated.To find out, Oliver Wyman conducted what we believe to be the first major market survey of theconsumers most likely to purchase coverage in the under-65 healthcare exchanges in their firstfew years of operation.
1
Part of the project consisted of detailed surveys of about 800 currentlyuninsured individuals. We asked about their health status, their income, and their attitudestoward the health system. To discover how they would make buying decisions we presentedthem with a battery of choice scenarios, featuring realistic descriptions of the sort of products weexpect to see offered when the exchanges open in 2014. These fictional offerings carried
actuarially appropriate pricing, subsidies that reflected respondents’ actual income levels, and the
penalties consumers would actually pay if they chose not to buy.
2
They included a variety of coverage options, including some innovative ones, such as discounts for losing weight, optionsfor patient-centered medical homes, 24/7 access, Web-based doctor visits, and so forth.The results show a system that has better prospects of success than many had predicted
 — 
but alsosome serious challenges.(1)
The uninsured are ready to buy health coverage.
When asked to choose between buyinginsurance and paying a penalty, 76 percent of the uninsured in our sample elected to purchasecoverage.
1
The survey was an independent project, not conducted on behalf of any client.
2
For purposes of the survey, we priced premiums to match current actuarial reality. Because penalties are steeplydiscounted in the first year of the exchanges, we based our simulation on the full penalties of year three.
 
 August 28, 2011 Page 2
Let’s put that in context. We estimate that there are 51 million uninsured Americans. About 1
8million have incomes below 133 percent of the Federal Poverty Level; they would be eligible forMedicaid coverage under ACA and would not be purchasing insurance for themselves. If, as oursurvey suggests, 76 percent of the remaining 33 million uninsured purchase coverage, eitherthrough the exchanges or in the individual market, that would represent 25 million newly insuredAmericans, reducing the number of the uninsured by about half. Factor in uninsured people whowill enroll in Medicaid (about 11 million in the estimate of the Urban Institute), and the numberof the uninsured will be reduced from 51 million to about 15 million, or from 16.6 percent of thepopulation to about 5 percent.This suggests that ACA may in fact be able to meet its goal of substantially reducing the numberof the uninsured. But there are additional implications for healthcare. The most important, fromour perspective: The uninsured entering the healthcare market potentially represent a criticalmass of consumers that could help push insurers and healthcare providers toward lower costs andhigher quality. These 25 million newly insured Americans represent 8 percent of the population,a segment more than half the size of the Generation X segment (with 45 million). They willwield something on the order of $100 billion of purchasing power in the healthcare arena. Weexpect them to demand new products and services unavailable i
n today’s market, where
employers make most health insurance decisions.But there are hurdles. While our research shows that uninsured Americans overwhelmingly seevalue in coverage, few really understand their options or even what a regulated product exchange
is. “Consumers need to be educated,” says Terry Stone, a partner in Oliver Wyman’s Health &Life Sciences practice. “If that doesn’t happen, consumers will be slow to come to theexchanges, and there’s a good chance they will make uninformed choices when they get there.”
 (2)
The uninsured are acutely price sensitive.
In our survey one factor had a major impact onwhether consumers bought insurance or turned it down: cost, specifically the net cost of insurance premiums after subsidies, relative to family income.
 
The net cost of premiums after subsidies had a major impact on whether consumers boughtinsurance or turned it down. Because federal premium subsidies are lower for those with higherincomes, this means that middle-income consumers are less likely to purchase insurance than thelowest-income group. Only 18 percent of those with incomes between 100 percent and 133percent of the federal poverty level (or between $22,000 and $29,000 for a family of four, usingthe 2010 guidelines) said they would not buy insurance.
3
The figure rose to 28 percent for thosebetween 250 and 300 percent of FPL, and 34 percent for those between 300 and 400 percent of FPL. As disposable incomes rose past this point, consumers opted back into the market. For
3
As noted above, most of those with incomes between 100 percent and 133 percent of FPL will be eligible forMedicaid, and thus will not need to purchase insurance for themselves. But their buying preferences are stillsignificant, because individuals in this income range are expected to churn rapidly between eligibility and non-eligibility.
 
 August 28, 2011 Page 3
those earning more than 600 percent of FPL (about $130,000 for a family of four), the likelihoodto opt out dropped back down to 19 percentThis price sensitivity could work against ACA. Healthcare costs are rising two and a half timesfaster than the Consumer Price Index and the tax revenue that ultimately pays for governmentprograms. It will be difficult for the federal government to increase subsidies at the same pace asmedical trend
 — 
especially if the eligible uninsured numbers continue to grow through layoffsand continuing unemployment.
“In today’s political and economic climate, we can expect pressure to reduce subsidies,” saysStone. “If that happens we’re likely to see more people go without insurance— 
and unable topurchase coverage on their own. And the group most affected will not be the poorest, but middle-
income Americans.”
 (3)
The uninsured have different needs and preferences.
The world of employer-basedinsurance tends to be one-size-fits-all, but there is no reason why the exchanges need to take thatapproach. To find out what consumers actually want, we offered our respondents the opportunityto customize their coverage. We offered a series of $50-a-month upgrades to coverage or service,but also scenarios in which consumers would receive a $50-a-month discount for agreeing tochange how they accessed the healthcare care system or for embracing healthy lifestyle choices.Many found the deals attractive:
14% 14%33%37%
86% 86%67%63%
100%-133%133%-250%250%-350%>350%PurchaseNothingPurchaseSomething
Income as % of FPL
Source: Oliver Wyman Consumer Survey and Analysis
Likelihood to buy insurance by income level

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