America's Looming Health Care Disaster

Nov. 24, 2008— -- Last year at this time, health coverage may well have been among the last things on Terri Rushing's mind.

Her husband, David, was 55 years old and working for Champion Homes in McKenzie, Tenn. It was a job he had held for nearly a decade and a half. He had a good Blue Cross and Blue Shield health care plan through his employer, and it was also affordable. Terri Rushing said that she and her husband paid less than $200 in premiums each month.

"We never worried because we always had insurance," she said. "My husband has worked all of his life. We've always had health care; we've never had to worry about not having it."

But on Feb. 7, everything changed. Rushing said her husband went to work as usual, only to find that state troopers blocked his way. The factory had burned to the ground. And with the loss of the plant came the loss of the job David Rushing had worked for the past 14 years.

It is a story that is becoming more common as the country weathers the worst economic downturn in decades. And health policy experts say it may not be long before all Americans feel the impact of what is shaping up to be a national health care disaster.

Today, Terri Rushing's job as an office worker affords her a catastrophic health coverage plan that only kicks in once she is hospitalized. David Rushing, an insulin-dependent diabetic, was able to maintain his health coverage through the health program known as COBRA. But even though it covers only him, the plan costs nearly $400 per month -- twice what they were paying before.

As difficult as the situation is, eligibility for the COBRA program expires after 18 months.

"The COBRA is just going to last until the first of September of next year," she said. "After that, we have no way to pay."

The only way for the family to enjoy the same health coverage they had before would be for David Rushing to find another job that offers similar health coverage benefits as his old position. But now at age 56, and living in a community with two other major plant closings in recent months, David's job prospects are grim.

Terri Rushing has started to shop around for health plans she and her husband can afford.

"I did call several plans when we found out that we were going to start paying for COBRA, basically because we could not afford coverage for both of us," she said. "I was told over and over again that we couldn't qualify."

And she has encountered little sympathy. In one conversation with a health insurance company she contacted, she explained to the customer service representative her difficult situation.

"I asked him, 'So, basically, what you're telling me is that we have a choice between having a house payment and having health insurance.' And he says, 'It sounds like you have a problem.'

"That's it. That's all."

No Longer an Isolated Story

While the number of Americans in a situation like the Rushings' grows, solutions remain elusive.

"There is a huge, looming problem about what to do with people who are unemployed," said Dr. David Nash, dean of the Jefferson School of Health Policy and Population Health in Philadelphia. "The short answer, regretfully, is that there is no good answer for these people."

According to the Bureau of Labor Statistics of the U.S. Department of Labor, the unemployment rate rose to 6.5 percent in October, with the number of unemployed people increasing to 10.1 million. Since last year, unemployment rolls have increased by 2.8 million.

And more bad news arrived last week: the number of newly laid-off workers is officially at a 16-year high.

As these workers face the loss of their employer-provided health insurance, about 1 in 5 looks to COBRA (an acronym for the Consolidated Omnibus Budget Reconciliation Act of 1986) for help, according to statistics from Kaiser Permanente. Through COBRA, a laid-off worker can maintain the same insurance coverage he or she had through their previous employer, but at a cost. Specifically, they must pay the portion of their premiums that they had been responsible for, plus the portion that their employers previously paid -- as well as an extra 2 percent of this combined premium.

The increases are a bitter pill to swallow for someone who has just lost a job and likely has less money to spread around. And the small relief provided is only temporary. Those who cannot find another option within 18 months face a new scramble for coverage once this window expires.

"Unfortunately, the COBRA legislation guarantees laid-off workers the right to continue coverage at their own expense, but does not make that coverage affordable," said Dr. David Himmelstein, associate professor of medicine at Harvard Medical School and co-founder of Physicians for a National Health Program.

"Under COBRA, health insurers may charge higher premiums to sick individuals, so anyone with a chronic condition who really needs insurance will face astronomical premiums," he added. "As a result, the vast majority are likely to become uninsured quite quickly."

"The cost for coverage, coupled with no or substantially reduced [income], may force additional steps to secure cash flow, including mortgage leveraging, credit card and family borrowing, to the extent it is even available," said Jay Wolfson, associate vice president of Health Law, Policy and Safety at the University of South Florida. "And then, without new employment -- perhaps even before COBRA expires -- there is no reservoir for cash, and the cascade of additional economic difficulties may create a deadly flood."

Uwe Reinhardt, professor of economics and public affairs at Princeton University, has studied the U.S. health care system for the past two decades. He agreed that if the economic picture gets much worse, many families could be heading for disaster.

"If this recession gets any deeper and lasts several years, many Americans may lose whatever savings they have, should they or their family members get sick," Reinhardt said.

Will Everyone Be Caught in the Collapse?

But the problems may not be limited to the growing ranks of unemployed. Nash said that even if you have a secure job with a good health care plan, there is still reason to worry. The massive uptick in job losses, he said, are setting into motion a domino effect within the health care system.

The first domino falls when those who lose their jobs seek assistance through COBRA. If they can afford it, they will remain under their old policy and still pay premiums. But if they cannot, they will join the ranks of the uninsured.

For every person who becomes uninsured, health insurance companies lose revenue from monthly premiums. The situation worsens 18 months later, when those who opted for COBRA but have not yet been able to find a new employer-based plan, become ineligible for coverage. The insurance companies will take yet another hit.

"Insurance carriers, even the not-for-profit Blue Cross plans, are going to suffer mightily as layoffs accrue," Nash noted.

And this hit from lost revenue gets passed on to employers, who, in turn, pass it on to existing policyholders.

"Many employers have faced double-digit increases in the costs of their share of health benefits this year, and that is going to continue," Wolfson said. "In response, many employers elect to shift or eliminate cost burdens associated with health benefits to employees."

Nash calls this additional cost burden on the average family "catastrophic."

"The average family of four with private health insurance in the U.S. already spends $10,000 a year [for health insurance coverage]," he said. "That's in addition to what their employers provide. ... It's staggering."

For such a family, an increase in premiums or a decrease in employer support could mean thousands of dollars more per year -- even if none of the wage earners in the family suffer a layoff.

For the health industry, the outlook may be even bleaker, at least in the short term. Nash said the signs of the U.S. medical system's imminent catastrophe are already being seen. Along with postponement and cancellation of elective surgeries and an increase in bad medical debt, more people are experiencing decreased access to medical services. Likewise, more people are unable to afford their medication.

Unpaid health care bills are the single leading cause of personal bankruptcy in the United States. A surge in this statistic, combined with unemployment and bad medical debt, could be enough to capsize some major players in the health care industry, Nash said -- an industry that contributes 17 percent of the country's GDP.

"Nobody ever thought of this toxic byproduct of health insurance being tied to the work place," Nash said. "This is a really dreadful knockout punch that you are not hearing anybody in positions of authority talk about.

"Very soon you can predict that the American Hospital Association will be at the White House looking for the same kind of handouts that we're giving the auto industry."

'There Is Not a Silver Lining'

Most health policy experts said that, while the future of the American health care system remains uncertain, what is clear is that a change is needed.

"As someone who grew up in Germany and lived for some years in Canada and got used to portable, life-cycle health insurance, I have always been amazed that Americans preferred the ephemeral health insurance that comes with the job at a particular firm and is lost with losing that job." Reinhardt said. "Now, the foolishness of that preference is becoming clear to many middle-class Americans who spent their life denigrating 'government' health insurance.

"Frankly, I find it hard to muster much sympathy for people who are waking up only now."

"There is not a silver lining," Nash said. "What's coming home to roost here is the historical accident of having private health care insurance tied to the place of employment. There is no way out if it is tied to the source of where you work."

Some options still exist for those who need health care coverage, but still need to make ends meet after a layoff.

"One is a high-deductible plan, or a limited-benefits plan," said Merrill Matthews, executive director of the Alexandria, Va.-based Council for Affordable Health Insurance. "In addition, there are what's known as 'bridge' or 'gap' policies. These are very easy to get, with usually only one page to fill out and they will cover you immediately, assuming you don't have AIDS or a life-threatening heart condition."

"To be very clear: these aren't comprehensive policies," he added. "But they can be a good option for someone with limited means who needs some coverage."

Nash said families should also plan to see health care spending encroach into other areas of the family budget.

"I would urge families to have an emergency health care cash fund available, and I would tell them to think very carefully about what they're spending for Christmas," he said. "I know retailers don't want to hear that, but 18 months from now, there are people who are going to regret very much that Christmas spending."

But for some, like the Rushings, frugal living proved to be no sanctuary.

"We don't live extravagantly," Terri Rushing said. "We have a three-bedroom, two-bath house. We don't drive fancy cars; we drive older cars."

Now, she and her husband have used the money in his 401(k) to keep up with their costs of living. David received his second to last unemployment check Thursday.

"As far as surviving, we're looking at the possibility of losing our home," Terri Rushing said. "It just feels like our lives have been turned upside down and put in a paper bag, and now we're waiting for someone to come by and shake us out."

Her advice for others who find themselves on the brink of a personal health care disaster is brief.

"Expect nothing. Prepare for everything. And pray," she said.

Scott Mayerowitz contributed to this report.