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At the request of Congressman Charles Rangel, then Chairman of the Subcommittee on Health of the Committee on Ways and Means, the Congressional Budget Office (CBO) undertook an investigation of the problems of catastrophically expensive illness. This study, which examines catastrophic medical expenses in the non-elderly, non-poor, employed population, is the final product stemming from that effort. In keeping with CBO's mandate to provide objective analysis, this paper offers no recommendations.
Daniel Koretz of CBO's Human Resources and Community Development Division
prepared the report under the supervision of Nancy M. Gordon and Paul B.
Ginsburg. The Blue Cross-Blue Shield Federal Employees' Health
Benefit Plan supplied the data, and data management and computer programming
were provided by a group at the University of Colorado that included Cathleen
Patrick, Herbert Schlesinger, Emily Mumford, and Gene Glass. Special thanks
are due to James Hook of Blue Cross-Blue Shield, who patiently provided
a great deal of help and information, and to Cathleen Patrick, whose expertise
as a programmer was essential in handling the enormous volume of data and
whose analytical assistance contributed immeasurably to this report. Thanks
are also due to many others, including Reuben Snipper of CBO, Paul Eggers
of the Health Care Financing Administration, and Wendell Primus of the
staff of the Committee on Ways and Means for their helpful suggestions,
and to the staff of Blue Cross-Blue Shield for their support. Francis Pierce
edited the manuscript, and Rosetta Swann and Mary V. Braxton prepared the
many drafts.
Alice M. Rivlin
Director
December 1982
SUMMARY
CHAPTER I. INTRODUCTION
CHAPTER II. FAMILY MEDICAL EXPENSES IN A SINGLE YEAR
CHAPTER III. PATTERNS OF HIGH-COST ILLNESS OVER TWO OR MORE YEARS
CHAPTER IV. TRENDS IN EXPENDITURES FOR HIGH-COST ILLNESS
CHAPTER V. IMPLICATIONS FOR FEDERAL POLICY
APPENDIX A. DATA AND METHODS
APPENDIX B. ATTRITION AND ACCRETION
APPENDIX C. EXPENSES OF ATTRITION AND ACCRETION SAMPLES, INCLUDING MENTAL HEALTH CLAIMS
APPENDIX D. PROTECTION FROM CATASTROPHIC MEDICAL EXPENSES UNDER EXISTING EMPLOYEE INSURANCE PROGRAMS
APPENDIX E. WHO HAS HIGH MEDICAL EXPENSES? THE EFFECTS OF AGE AND SEX
APPENDIX F. THE EFFECTS OF USING INDIVIDUAL RATHER THAN FAMILY THRESHOLDS
APPENDIX G. HIGH-COST ILLNESSES THAT OVERLAP THE END OF A CALENDAR YEAR: THE EFFECTS OF ALTERNATIVE INSURANCE PROVISIONS
| TABLES | |
| 1. | PERCENT OF FAMILIES EXCEEDING VARIOUS LEVELS OF ANNUAL EXPENSE, PERCENT OF TOTAL MEDICAL EXPENDITURES ATTRIBUTABLE TO THEM, AND PERCENT OF EXPENSES ABOVE THE LEVELS |
| 2. | PERCENT OF FAMILIES IN WHICH ONE INDIVIDUAL ACCOUNTS FOR MORE THAN SPECIFIED PERCENTAGES OF TOTAL FAMILY EXPENSES, BY LEVEL OF EXPENSE |
| 3. | PERCENT OF HIGH-EXPENSE FAMILIES WITH ZERO, ONE, OR TWO OR MORE INDIVIDUALS EXCEEDING INDIVIDUAL THRESHOLDS, BY THRESHOLD |
| 4. | AVERAGE EXPENSES OF ALL FAMILIES AND OF FAMILIES EXCEEDING CATASTROPHIC THRESHOLDS, IN CATASTROPHIC AND SUBSEQUENT YEARS |
| 5. | PERCENT OF FAMILIES EXCEEDING THRESHOLDS IN FIRST SUBSEQUENT YEAR, BY LEVEL OF EXPENSE IN BASELINE YEAR |
| 6. | PERCENT OF FAMILIES EXCEEDING THRESHOLDS IN SECOND SUBSEQUENT YEAR, BY LEVEL OF EXPENSE IN BASELINE YEAR |
| 7. | AVERAGE EXPENSES OF ALL FAMILIES AND OF FAMILIES EXCEEDING CATASTROPHIC THRESHOLDS, IN CATASTROPHIC, PREVIOUS, AND SUBSEQUENT YEARS |
| 8. | PERCENT OF FAMILIES WITH ANNUAL EXPENSES ABOVE CATASTROPHIC THRESHOLDS DURING PERIODS OF ONE TO THREE YEARS |
| 9. | PERCENT OF TOTAL MEDICAL EXPENSES ATTRIBUTABLE TO FAMILIES WITH THE HIGHEST EXPENSES, 1974 AND 1978 |
| 10. | PERCENT OF FAMILIES EXCEEDING CATASTROPHIC THRESHOLDS, HOLDING DEMOGRAPHIC FACTORS CONSTANT |
| 11. | PERCENT OF FAMILIES EXCEEDING CATASTROPHIC THRESHOLDS, HOLDING MEDIAN FAMILY INCOME AND DEMOGRAPHIC FACTORS CONSTANT |
| 12. | EXPENSES ABOVE CATASTROPHIC THRESHOLDS AS PERCENT OF TOTAL EXPENSES, HOLDING AVERAGE MEDICAL EXPENSES AND DEMOGRAPHIC FACTORS CONSTANT |
| 13. | PERCENT OF FAMILIES EXCEEDING CATASTROPHIC THRESHOLDS, HOLDING AVERAGE MEDICAL EXPENSES AND DEMOGRAPHIC FACTORS CONSTANT |
| B-1. | ATTRITION IN 1978, BY REASON FOR LEAVING PLAN AND CALENDAR QUARTER |
| B-2. | ANNUAL MEDICAL EXPENSES OF FAMILIES LEAVING THE PLAN IN 1978 AND THOSE REMAINING |
| B-3. | DEMOGRAPHIC CHARACTERISTICS OF STABLE, ATTRITION, AND ACCRETION SAMPLES |
| B-4. | DIFFERENCES IN EXPENSES BETWEEN ATTRITION GROUPS AND STABLE SAMPLE, BEFORE AND AFTER DEMOGRAPHIC ADJUSTMENTS |
| B-5. | ACCRETION IN 1977, BY REASON FOR JOINING PLAN AND CALENDAR QUARTER |
| B-6. | ANNUAL MEDICAL EXPENSES OF FAMILIES JOINING THE PLAN IN 1977 AND THOSE IN FOR THE FULL YEAR |
| B-7. | DIFFERENCES IN EXPENSES BETWEEN ACCRETION GROUPS AND STABLE SAMPLE, BEFORE AND AFTER DEMOGRAPHIC ADJUSTMENT |
| B-8. | AVERAGE EXPENSES AND PERCENT OF FAMILIES EXCEEDING CATASTROPHIC THRESHOLDS IN ONE-YEAR, TWO-YEAR, AND THREE-YEAR SAMPLES |
| C-1. | ANNUAL MEDICAL EXPENSES, INCLUDING MENTAL HEALTH, OF FAMILIES LEAVING THE PLAN IN 1978 AND THOSE REMAINING |
| C-2. | DIFFERENCES IN EXPENSES, INCLUDING MENTAL HEALTH, BETWEEN ATTRITION GROUPS AND STABLE SAMPLE, BEFORE AND AFTER DEMOGRAPHIC ADJUSTMENTS |
| C-3. | ANNUAL MEDICAL EXPENSES, INCLUDING MENTAL HEALTH, OF FAMILIES JOINING THE PLAN IN 1977 AND THOSE IN FOR THE FULL YEAR |
| C-4. | DIFFERENCES IN EXPENSES, INCLUDING MENTAL HEALTH, BETWEEN ACCRETION GROUPS AND STABLE SAMPLE, BEFORE AND AFTER DEMOGRAPHIC ADJUSTMENT |
| D-1. | AVERAGE BENEFIT RATIO AT DIFFERENT LEVELS OF ANNUAL EXPENSE, PLANS OF PRIVATE, FOR-PROFIT EMPLOYERS |
| E-1. | PERCENT OF FAMILIES EXCEEDING THRESHOLDS OF ANNUAL EXPENSE, BY AGE OF CONTRACT HOLDER |
| E-2. | PROPORTION OF SELF-ONLY CONTRACTS EXCEEDING THRESHOLDS OF ANNUAL EXPENSE, BY SEX |
| F-1. | EFFECTS OF SUBSTITUTING INDIVIDUAL FOR FAMILY THRESHOLDS, BY LEVEL OF THRESHOLD |
| G-1. | FAMILIES EXCEEDING CATASTROPHIC THRESHOLDS WITHIN TWELVE CONSECUTIVE MONTHS OVER A TWO-YEAR PERIOD, WITH AND WITHOUT CALENDAR-YEAR CONSTRAINT |
| G-2. | HIGH-COST FAMILIES RECEIVING BENEFITS IN SUBSEQUENT YEAR, WITH AND WITHOUT ANNUAL CARRY-OVER PROVISION, BY THRESHOLD |
| G-3. | EFFECTS OF ANNUAL CARRY-OVER PROVISIONS ON BENEFITS AND COSTS |
| G-4. | PERCENT OF HIGH-COST FAMILIES EXCEEDING QUARTERLY CARRY-OVER LEVELS IN EACH QUARTER OF THE SUBSEQUENT YEAR, BY THRESHOLD AND CARRY-OVER LEVEL |
| G-5. | PERCENT OF HIGH-COST FAMILIES EXCEEDING ANNUAL AND QUARTERLY CARRY-OVER PROVISIONS, BY THRESHOLD AND CARRY-OVER LEVEL |
| G-6. | FAMILIES EXCEEDING THRESHOLD WITH AND WITHOUT EXTENSION OF THRESHOLD TO TWO CALENDAR YEARS |
| FIGURES | |
| 1. | DISTRIBUTION OF FAMILY MEDICAL EXPENSES: PERCENT OF FAMILIES WITH ANNUAL EXPENSES IN GIVEN INTERVALS |
| 2. | AVERAGE EXPENSES OF ALL FAMILIES, AND OF FAMILIES EXCEEDING CATASTROPHIC THRESHOLDS IN CATASTROPHIC AND SUBSEQUENT YEARS |
| 3. | ILLUSTRATIVE PERCENT INCREASES IN THE INCIDENCE OF HIGH-COST ILLNESS, USING UNINDEXED AND INDEXED $10,000 THRESHOLDS |
| 4. | PERCENT OF FAMILIES EXCEEDING CATASTROPHIC THRESHOLDS, HOLDING MEDIAN FAMILY INCOME AND DEMOGRAPHIC FACTORS CONSTANT, BY THRESHOLD |
| E-1. | ANNUAL EXPENSES BY AGE OF CONTRACT HOLDER |
| E-2. | EXPENSES BY AGE OF CONTRACT HEAD, CONTROLLING FOR SEX. FAMILY SIZE. AND REGION |
| E-3. | PERCENT OF FAMILIES EXCEEDING CATASTROPHIC THRESHOLDS IN 1978 BY AGE AND LEVEL OF CATASTROPHIC THRESHOLD |
| G-1. | PERCENT OF HIGH-COST FAMILIES EXCEEDING QUARTERLY CARRY-OVER LEVELS DURING SUBSEQUENT YEAR, BY THRESHOLD AND CARRY-OVER LEVEL |
Unusually expensive illnesses--often called "catastrophic illnesses"--have been of concern to the Congress for many years. When not fully covered by insurance, these illnesses can produce unmanageable financial burdens for affected families. They comprise a substantial portion of total medical expenditures and impose serious costs on those not directly affected (governments, employers paying health insurance premiums, providers of health care, and other families). A variety of bills considered by the Congress during the past several sessions have contained provisions relating to catastrophic illness.1
This report analyzes high-cost illness in the non-elderly, non-poor population--about 53 million families.2 The elderly and the poor were excluded because they are generally affected by different health programs and policies. The medical expenses included in the analysis were those conventionally covered by both private and public health insurance: inpatient acute-care hospital charges, surgical expenses, most outpatient care by physicians, prescription drugs, and very limited private nursing and home health care. Services used by some high-cost families--for example, long-term care in nursing homes or psychiatric hospitals--which are excluded both from coverage by most health insurance, were also excluded from this report.
Throughout the report, families are classified as "high-cost" if their annual medical expenses exceeded one of four "catastrophic thresholds." These thresholds were $3,000, $5,000, $10,000, and $20,000.3
This document is available in its entirety in PDF.
1. A large number of bills providing catastrophic health insurance coverage have been considered by the Congress. In addition, the recent consumer-choice bills--for example, H.R. 850, introduced by Congressman Gephardt and then-Congressman Stockman--include provisions that would increase private health insurance for catastrophic illness. Catastrophic illness has also been a legislative issue in a variety of. other contexts, such as some Medicare proposals and consideration of the medical expense tax deduction.
2. Because families, rather than individuals, are the focus of this report, it excluded some, but not all, unemployed individuals. Families containing no full-time employed individual were excluded from the analysis. On the other hand, unemployed or part-time employed individuals who were spouses or minor dependents of full-time employed individuals (with earnings above a minimum explained in Chapter I) were included.
3. Unless otherwise noted, both the thresholds and expenditures were expressed in 1982 dollars. In some cases, however, this was not practicable--for example, in examining historical trends.