A new report by the U.S. Department of Health and Human Services on the employer-sponsored insurance market indicates that the industry is “riddled with holes,” according to its secretary.

Among the findings of the report, entitled “Insurance Insecurity,” are that one in six Americans with employer-sponsored insurance in 2006 lost that coverage by 2008 and when moving to the individual market, must pay a great deal more, bolstering the Obama Administration’s call for a public insurance option and health insurance exchange for individuals and small businesses.

The report found that a family buying insurance on the individual market pays nearly 60% more in out-of-pocket expenses, such as deductibles and co-pays, than a family that has employer-sponsored coverage. Additionally, 75% of individuals looking for coverage on the individual market never bought a plan, with 61% of that group citing premium cost as the primary reason.

Speaking at the University of Chicago the day the report was released, Sept. 10, HHS Secretary Kathleen Sebelius said, “Our health insurance system is broken – for the insured, for the uninsured, for all of us,” echoing the president’s call for reform by the end of the year.

Kathleen Sebelius

Sebelius said those one in six Americans who lost their job-based coverage are “thrown into the individual insurance market, which today is kind of like a frontier town in the Wild West” as there are “almost no rules about what insurance companies can do.”

“They can decide not to cover you because they say you have a pre-existing condition…or because you have a dangerous job like being a window cleaner or a volunteer firefighter,” she said. “They can sell you coverage but then take it away when you get sick if they find an error in your paperwork. In California, there was one company that gave its employees five star job ratings for finding ways to cancel sick people’s insurance.”

Sebelius said her report shows “how our insurance system, which can feel so solid when you have coverage, is actually riddled with holes.”

She echoed President Barack Obama’s call to Congress Sept. 9 for new rules on insurance companies, including making it illegal to cut coverage or discriminate due to a pre-existing condition, and approving a health insurance exchange to increase choice and to for “higher quality, more efficient care” to slow rising costs.

“[On Sept. 9], we heard from President Obama about why we need health insurance reform,” Sebelius said.  “‘I still believe we can do great things and meet history’s test,’ he said. I agree. It’s easy to say, ‘we’ll pass and let the next generation fix this problem,’ but that’s not the American way.”