Access to Health Care for the Uninsured in Rural and Frontier America

An Issue Paper Prepared by the National Rural Health Association -- May 1999


The number and percentage of Americans without health insurance continues to increase. Census Bureau figures released in September 1998 showed that 43.2 million Americans (16.1 percent of the population) now lack health insurance. Rural and frontier populations are more severely affected. Despite having a higher percentage-18 percent vs. 15 percent in urban areas-of people 65 and older who qualify for Medicare, rural America still has a 20 percent higher rate of uninsurance than its urban counterpart. This greater degree of uninsurance-and underinsurance-is a result of having a higher percentage of people who are self-employed, work for small businesses, do seasonal work, or fail to apply for Medicaid.

There is a great variation in the degree of uninsurance from state to state, with states in the Southwest and Southeast having the highest percentage of uninsured people. There is also a large disparity in the degree of uninsurance by ethnic group. Twelve percent of non-Hispanic whites are uninsured, compared with 21.5 percent of blacks and 34 percent of Hispanics (Bureau of the Census).

Providers are able to serve the uninsured on a pro bono basis to the extent that other revenues cover fixed costs and provide enough margin to absorb the extra costs of caring for nonpaying patients. When managed care plans reduce payments to providers, the cushion used to provide care to the uninsured and underinsured disappears. To date there has been less penetration of managed care in rural areas than in urban settings. But those rural providers who have contracted with managed care organizations have been subjected to cost reduction strategies such as steep discounting from fees.

Rural health care providers are in a different position from their urban counterparts in regard to serving the uninsured. Patients cannot be so easily turned away in the rural setting where the selection of providers is much more limited. Many rural regions of the country do not have safety net providers eligible for public grant dollars to help underwrite the costs of caring for the uninsured. Where rural providers-such as Rural Health Clinics-are able to receive cost-based payments (which include fixed costs), even that alternative is being threatened.

Policy issues and questions confronting the NRHA with respect to the uninsured and underinsured in rural and frontier areas can be divided into incremental or comprehensive approaches. Incremental strategies include such items as 1) defining and supporting new safety net providers; 2) obtaining new sources of funding care for the indigent, such as state monies; 3) providing new services, such as facilitating access to specialists; 4) working with new networks; 5) changing reimbursement formulas; and 6) increasing enrollment into existing and new insurance programs.

A comprehensive strategy for financing, such as universal coverage for all Americans, could contribute significantly toward solving access and financial problems for the uninsured-and lead to massive simplification of health care financing. However, even if universal coverage becomes a reality, other access issues (such as geographic, cultural and provider availability barriers) will still need to be addressed, especially in rural and frontier America.

The NRHA's recommendations to improve the status of the rural uninsured and underinsured, in summary, are:



Numbers of Uninsured and Underinsured
Despite so-called "incremental" attempts at health care reform after the failure of President Clinton's comprehensive health care plan in 1994, the number (and proportion) of Americans without health insurance has continued to grow. From 37 million uninsured in 1993, the number increased to 41.7 million in 1996. Census Bureau figures released in September 1998 estimate 43.2 million people were uninsured in 1997. The growth of managed care in the '90s, which some proponents hoped would create savings that would have allowed more coverage for the uninsured, has actually contributed to an increase in the numbers of the uninsured. At the same time, the number of Americans who are underinsured-estimated at 31 million in 1996, but likely many more-has increased dramatically.

America remains the only industrialized country in the world that does not offer health care coverage to all its citizens. Yet the United States spends 40 percent more (as a percentage of gross domestic product) and 75 percent more (on a per capita basis) than any other country on health care (Organisation for Economic Co-operation and Development, 1998). Our country now has the highest percentage of uninsured-16.1 percent in 1997-since the passage of Medicare and Medicaid in the '60s. This growth in the number and percentage of the uninsured is even more startling given that the late '90s have been a time of unparalleled economic prosperity for America.

Distribution of the Uninsured
The geographic and ethnic distribution of America's uninsured is uneven and varies widely. This unevenness correlates with multiple factors including employment patterns, poverty, the organization of medical care systems, and political differences among states. The state-by-state percentage of the uninsured in 1997 varies from lows of 7.5 percent in Hawaii and 7.9 percent in Wisconsin to highs of 24.5 percent in Texas and 24.4 percent in Arkansas. The southern states, both in the Southwest and Southeast, with a high percentage of poorer ethnic groups and unorganized labor, have a much higher percentage of uninsured.

Equally maldistributed is the percentage of uninsured by ethnic group. The 1997 Census Bureau figures show that 34 percent of Hispanics lacked insurance compared with 21.5 percent of blacks and 12 percent of non-Hispanic whites. Age discrepancies also are remarkable. There were 10.7 million uninsured children in 1997.

Characteristics of the Uninsured
The Kaiser Family Foundation 1998 monograph Uninsured in America documents that:

Trends Relating to Uninsurance and Underinsurance
Trends in the late '90s that have led to increasing numbers of uninsured include:

Recent "incremental" reforms, such as the Kennedy-Kassebaum Act, the Children's Health Insurance Program (CHIP) and a variety of state efforts, such as guaranteed issue insurance and portability, have so far done little to halt the increasing numbers of Americans without health insurance.



Data from a 1997 study by the Agency for Health Care Policy and Research indicate that the rate of uninsurance is more than 20 percent higher in rural areas than in urban areas (for 1996, 19.8 percent vs. 16.3 percent). While uninsured spells for all geographic areas are increasing, rural uninsured have longer periods without insurance. The factors contributing to this disparity include the higher percentage of self-employed people, small businesses and agricultural enterprises in rural areas.

Rural and frontier people often are employed only seasonally or in part-time work. Because of the nature of many rural economies, which are based on agriculture, mining, fishing or timber, rural employers are less likely to provide health insurance. Rural and frontier people also are more likely to be self-employed or to work for small businesses than their urban or suburban counterparts. Additionally, people who work for small businesses that do provide health insurance often make relatively larger contributions to insurance premiums, especially for dependents, and have higher co-pays than people employed in larger urban enterprises. Moreover, selling and servicing policies to small businesses and individuals is more labor intensive for insurance companies, which then pass these costs onto consumers through increased premiums.

People from rural or frontier areas also are less likely to enroll in Medicaid. They usually have less knowledge about the program and are less accessed by outreach programs and other social services.

Rural and frontier areas have a higher percentage of elderly people with Medicare coverage. This higher proportion slightly offsets the much higher proportion of working age people, ages 18 to 65, who lack insurance.

Case histories of the rural uninsured can help illustrate the real problem. Following are a few examples that illustrate the plight of the uninsured. These cases come from one day's practice in the fall of 1998 at a community health center in Idaho.



Managed care-or managed cost-has had much less impact on rural and frontier America than in urban areas. Although there have been some rural community-based experiments in managed care, the general wisdom in the early '90s was that a managed care organization required a certain critical population mass (originally pegged at 300,000) to be viable. Managed care also has been less prevalent in rural America because federal capitation rates for Medicare have been substantially lower in rural vs. urban areas.

There are examples of safety net providers, such as Community and Migrant Health Centers, that have had their insured patients taken away from them through the aggressive marketing efforts of health maintenance organizations (HMOs) and other managed care organizations. Some safety net providers have seen losses of patients when employers, trying to cut costs, have switched their employees to HMOs. The result has been a decrease in third-party revenues to offset the cost of uncompensated care for the uninsured. In some areas where there are Rural Health Clinics, their federally qualified health center (FQHC) status-and financial viability-has been threatened by Medicaid managed care plans that may not reimburse at FQHC rates. Yet managed care-as opposed to "managed cost"-has great potential to help the uninsured in rural communities, possibly by strengthening the role of primary care.

Managed care-or cost-as a whole has had little or no positive effect on the uninsured in the past few years. Two recent studies, one from the Center for Studying Health System Change and another from the Urban Institute, have shown an increased number of uninsured associated with a higher degree of Medicaid managed care or HMO penetration. Managed care-or cost-has often diverted attention, energy and resources away from the problems of the uninsured. With decreased reimbursement, health care providers, especially hospitals, are left with far fewer resources to cover the costs of caring for the uninsured.



Motivated to cut costs, both federal and state governments have been promoting the shift of Medicare and Medicaid beneficiaries to managed care. The Balanced Budget Act of 1997 created new options in the Medicare program, including preferred provider organizations (PPOs), medical savings accounts (MSAs), enhanced fee-for-service, and provider sponsored organizations (PSOs). The same legislation changed the calculation of payment for Medicare risk contracts, removed the requirement that Medicare HMOs include commercial enrollees and established access standards (Mueller, 1997). These changes in the Medicare program may encourage, in time, more widespread offering of-and subsequent enrollment into-managed care plans. The legislation also removed the requirement that states obtain a waiver before limiting the choice of Medicaid beneficiaries to a single HMO (Mueller, 1997).

There has been some turmoil in the transition of Medicare to managed care. On Jan. 1, 1999, managed care organizations dropped 440,000 Medicare enrollees from their plans. Rural populations were disproportionately affected, perhaps because of the lower capitation rates in rural areas. It is uncertain whether these abrupt changes negatively impacted continuity of care for the affected Medicare beneficiaries.

Meanwhile, welfare reform measures have resulted in a reduction of people on Medicaid and an increase in the uninsured. Even if a state's intent was to retain Medicaid for people dropped from the welfare rolls, many ex-welfare recipients failed to understand that they could temporarily continue on Medicaid. Additionally, there are 14 states, mostly poor and rural states, that provide no access for the "medically needy" under Medicaid.

Some states, such as Tennessee and Oregon, have experimented with the expansion of Medicaid managed care to cover the uninsured-with mixed results. Tennessee's TennCare expanded eligibility massively but ran into problems of access. Oregon's plan had grand objectives, did manage to increase employer coverage and fill gaps for many of the underinsured, but has problems of access, notably in rural areas. Currently, in at least 12 states, managed care organizations that previously sought Medicaid contracts are fleeing Medicaid because they are losing money.

Because of the problems discussed above and because of the more scattered populations and smaller number of providers in rural and frontier areas, these usually have been the last to be converted to Medicare and Medicaid managed care. For similar reasons, the effects of "incremental" programs to help the uninsured, such as the positive CHIP program, guaranteed issue insurance, or other provisions of the Kennedy-Kassebaum Act, are likely to reach rural and frontier residents last. There have already been examples of a state-based CHIP program being given to a managed care organization that has then proposed implementing the program in rural areas last-a clear disadvantage for rural children.



Rural and frontier providers are in a very different situation than their urban counterparts with regard to the uninsured. There can be no shifting of responsibility, especially in the smallest towns where there may be only one hospital and a handful of providers-or even a solo clinician. Providers in a small rural community usually do not have the option of refusing care to anyone.

While old-time rural clinicians tend to be more independent-minded and less likely to accept managed care, provider demographics are changing in rural America. Rural facilities are increasingly affiliating with larger entities, often networks or urban hospitals, and the close-knit ties of community may be changing. As health care increasingly becomes bigger business even in small communities, the uninsured may not be so welcome. With increasing managed care pressure to contain costs and increasing regulation as well as greater pressure to conform to quality assurance standards, rural hospitals and health care providers will find themselves with little margin to be squeezed and less willingness and ability to provide uncompensated care.



There are policy issues for the NRHA with regard to the uninsured and the underinsured in rural and frontier America. In certain ways, rural and frontier areas are different from the rest of America, but some of the policy questions apply to all Americans. Although comprehensive approaches have been generally avoided for political reasons since the failure of Clinton's plan in 1994, strategies for the NRHA to pursue could be either incremental or comprehensive.

Incremental Policy Strategies Specific to Rural and Frontier America
Numerous regulations, geographic definitions, special programs, special reimbursements and partial solutions by government and foundations have been tried in an attempt to improve access to care for rural and frontier Americans, seemingly with little success. The regulations are becoming increasingly complex-especially with the expansion of managed care and the increasing complexity of the new Medicare options. However, it may be possible to improve these incremental measures (e.g., CHIP) to increase their positive impacts. Even if universal coverage were enacted, it would still need to be decided how to improve infrastructure, distribute resources, design benefit packages, etc.

Some incremental policy strategies or questions that should be considered include the following.


Comprehensive Policy Strategies Specific to Rural and Frontier America
If Americans should decide that every U.S. resident should have health insurance and implement such a sweeping change, financing of health care would be greatly simplified. With a well-designed system, financial barriers for the uninsured and the underinsured would be eliminated. Rural and frontier populations would especially benefit because of their higher rate of poverty as well as the larger number of rural and frontier people who are self-employed, work for small businesses, or do seasonal work. However, there would still be many policy concerns beyond insurance status.

Some of these additional policy concerns that would affect rural and frontier people are mentioned in the "incremental" section above. Expressed as policy, global concerns beyond the issue of universality include the following.

Providing access to health care for the rural and frontier uninsured involves more than providing health insurance. But if it were possible to have a comprehensive system of health insurance covering every American, the savings gained from such a system-such as from lower administrative costs and the elimination of monies diverted to support insurance companies-could be used to help meet the special needs of rural and frontier and other underserved populations. However, even a patchwork system that provided universal coverage would be an improvement over the current system.




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