[House Hearing, 106 Congress]
[From the U.S. Government Publishing Office]
UNINSURED AMERICANS
=======================================================================
HEARING
before the
SUBCOMMITTEE ON HEALTH
of the
COMMITTEE ON WAYS AND MEANS
HOUSE OF REPRESENTATIVES
ONE HUNDRED SIXTH CONGRESS
FIRST SESSION
__________
JUNE 15, 1999
__________
Serial 106-19
__________
Printed for the use of the Committee on Ways and Means
U.S. GOVERNMENT PRINTING OFFICE
59-402 CC WASHINGTON : 1999
COMMITTEE ON WAYS AND MEANS
BILL ARCHER, Texas, Chairman
PHILIP M. CRANE, Illinois CHARLES B. RANGEL, New York
BILL THOMAS, California FORTNEY PETE STARK, California
E. CLAY SHAW, Jr., Florida ROBERT T. MATSUI, California
NANCY L. JOHNSON, Connecticut WILLIAM J. COYNE, Pennsylvania
AMO HOUGHTON, New York SANDER M. LEVIN, Michigan
WALLY HERGER, California BENJAMIN L. CARDIN, Maryland
JIM McCRERY, Louisiana JIM McDERMOTT, Washington
DAVE CAMP, Michigan GERALD D. KLECZKA, Wisconsin
JIM RAMSTAD, Minnesota JOHN LEWIS, Georgia
JIM NUSSLE, Iowa RICHARD E. NEAL, Massachusetts
SAM JOHNSON, Texas MICHAEL R. McNULTY, New York
JENNIFER DUNN, Washington WILLIAM J. JEFFERSON, Louisiana
MAC COLLINS, Georgia JOHN S. TANNER, Tennessee
ROB PORTMAN, Ohio XAVIER BECERRA, California
PHILIP S. ENGLISH, Pennsylvania KAREN L. THURMAN, Florida
WES WATKINS, Oklahoma LLOYD DOGGETT, Texas
J.D. HAYWORTH, Arizona
JERRY WELLER, Illinois
KENNY HULSHOF, Missouri
SCOTT McINNIS, Colorado
RON LEWIS, Kentucky
MARK FOLEY, Florida
A.L. Singleton, Chief of Staff
Janice Mays, Minority Chief Counsel
______
Subcommittee on Health
BILL THOMAS, California, Chairman
NANCY L. JOHNSON, Connecticut FORTNEY PETE STARK, California
JIM McCRERY, Louisiana GERALD D. KLECZKA, Wisconsin
PHILIP M. CRANE, Illinois JOHN LEWIS, Georgia
SAM JOHNSON, Texas JIM McDERMOTT, Washington
DAVE CAMP, Michigan KAREN L. THURMAN, Florida
JIM RAMSTAD, Minnesota
PHILIP S. ENGLISH, Pennsylvania
Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public
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C O N T E N T S
__________
Page
Advisory of June 8, 1999, announcing the hearing................. 2
WITNESSES
Fronstin, Paul, Employee Benefit Research Institute.............. 7
Galen Institute, Grace-Marie Arnett.............................. 17
Holahan, John, Urban Institute................................... 30
Sheils, John, Lewin Group........................................ 24
SUBMISSIONS FOR THE RECORD
Commonwealth Fund, New York, NY, Janet Shikles, letter and
attachment..................................................... 71
National Association of Health Underwriters, Arlington, VA,
statement...................................................... 72
Private Citizen, St. Louis, MO, statement........................ 75
UNINSURED AMERICANS
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TUESDAY, JUNE 15, 1999
House of Representatives,
Committee on Ways and Means,
Subcommittee on Health,
Washington, DC.
The Subcommittee met, pursuant to notice, at 11:05 a.m., in
room 1100, Longworth House Office Building, Hon. Bill Thomas
(Chairman of the Subcommittee) presiding.
[The advisory announcing the hearing follows:]
ADVISORY
FROM THE
COMMITTEE
ON WAYS
AND
MEANS
SUBCOMMITTEE ON HEALTH
CONTACT: (202) 225-3943
FOR IMMEDIATE RELEASE
June 8, 1999
No. HL-6
Thomas Announces Hearing on
Uninsured Americans
Congressman Bill Thomas (R-CA), Chairman, Subcommittee on Health of
the Committee on Ways and Means, today announced that the Subcommittee
will hold a hearing on those individuals without health insurance. The
hearing will take place on Tuesday, June 15, 1999, in the main
Committee hearing room, 1100 Longworth House Office Building, beginning
at 11:00 a.m.
In view of the limited time available to hear witnesses, oral
testimony at this hearing will be from invited witnesses only. However,
any individual or organization not scheduled for an oral appearance may
submit a written statement for consideration by the Committee and for
inclusion in the printed record of the hearing.
BACKGROUND:
Health insurance coverage is among the most important contributors
to Americans' personal and financial security. Nonetheless, despite the
nation's strong and growing economy, today more Americans are uninsured
than at any other time in modern history. The latest studies indicate
that more than 43 million Americans have no health coverage whatsoever.
And this number is growing. Not only are Americans without insurance
exposed to the potential for catastrophic financial liabilities in the
event of illness, lack of insurance often discourages individuals from
seeking proper and timely treatments. The presence of such a large
number of uninsured patients in the health care system has also created
troubling distortions in the financing of care, resulting in
inefficient cross-subsidies and delivery trends.
Several recent changes to law have been aimed at addressing the
problem of the uninsured. In 1996, portability and guaranteed issue and
renewability requirements were established for all health insurers in
the Health Insurance Portability and Accountability Act (HIPAA) (P.L.
104-91). The HIPAA law ensures that those who currently have insurance
will be able to continue to gain access to coverage, even in the event
of a job change or disabling illness. The legislation also included
``medical savings accounts'' (MSAs). Medical savings accounts combine
less costly catastrophic health insurance coverage with tax-favored
savings accounts that are dedicated to paying routine medical costs. In
addition, these accounts offer individuals the ability to accumulate
savings that can be used for specific needs, like long-term care, later
in life.
Many other provisions in the tax code impact the financing of
private health insurance. The current deductions for employer-provided
health coverage and the individual exclusion, make employer-provided
insurance a tax-free benefit for American workers. In addition, the tax
code provides an individual deduction for health care costs in excess
of 7.5 percent of one's adjusted gross income.
In announcing the hearing, Chairman Thomas stated: ``Having access
to affordable health insurance is clearly one of the most important
patient protections of all. This hearing will help us better understand
why, despite our many efforts to address the uninsured, the problem
continues to persist.''
FOCUS OF THE HEARING:
The hearing will seek the input of several academicians, employers,
and policy experts in evaluating the characteristics of the uninsured,
and in determining what factors are behind the continuing rise in the
uninsured population, despite the country's continuing economic growth.
The Committee will consider potential solutions to address the problem
of the uninsured at a later hearing.
DETAILS FOR SUBMISSION OF WRITTEN COMMENTS:
Any person or organization wishing to submit a written statement
for the printed record of the hearing should submit six (6) single-
spaced copies of their statement, along with an IBM compatible 3.5-inch
diskette in WordPerfect 5.1 format, with their name, address, and
hearing date noted on a label, by the close of business, Tuesday, June
29, 1999 to A.L. Singleton, Chief of Staff, Committee on Ways and
Means, U.S. House of Representatives, 1102 Longworth House Office
Building, Washington, D.C. 20515. If those filing written statements
wish to have their statements distributed to the press and interested
public at the hearing, they may deliver 200 additional copies for this
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Chairman Thomas. The Subcommittee will come to order.
This morning's hearing I think is going to be useful to
Members in a number of ways as we begin looking at not just
health care packages, but tax packages as well, because the
American health care system has demonstrated a unique capacity
to deliver the highest quality medical care, but financing that
care remains a real challenge. In recent years, the private
sector is showing a remarkable ability to slow the growth and
then, seminally, in 1997, at which time it was in fact the old-
fashioned way of basically reducing providers, the Medicare
growth was slowed as well.
Still, when you look out a few years, as all of us who are
trying to deal with the issue do, look at the baby boom
generation, not just from a Medicare point of view, but from
technology driving health care costs, if not in the add-on of
technological devices, then the molecular capability of
designing new solutions through pharmaceuticals,
notwithstanding the fact that some of them are enormously
expensive.
Today the Subcommittee will examine the impact of rising
costs on the problem of the uninsured. The problem of the
uninsured is, I think, one of the clear evidences of the system
being fundamentally flawed. Despite record low unemployment,
there are a record number of Americans without health
insurance. According to various estimates, and some of our
witnesses will provide a better understanding of what some of
these numbers mean and whether or not we can have a comfort
level with them, but the normal number is 43 million Americans
without health insurance.
The concern is that the ranks of the uninsured are growing,
again, notwithstanding high employment. Of course, this fact
has consequences for millions of Americans who face a financial
catastrophe as well as health care concerns because I think you
will see there is a clear relationship in terms of, to a
certain degree, income, health, geography, and ethnic origin.
Much political debate in recent months has been devoted to
the issue of patient protections. Of course, the irony of that
is it is dealing with people who already have insurance and, in
fact, some of the so-called solutions may compound the problem
of the uninsured and we will hear some concerns about that as
well. As a matter of fact, we have had some Congressional
Budget Office testimony about increased regulation,
notwithstanding how well-intentioned it might be, leading to
higher costs, leading to more uninsured. And the question of
regulation and the uninsured needs to be better understood
before we move, in my opinion, additional legislation.
Of course, we are beginning to hear that on the horizon
there are, notwithstanding efforts to control costs, the
potential of increasing costs, which would be a clear pressure
just on the cost factor alone, of increasing the number of
uninsured. And for employers shifting additional costs over to
employees means, notwithstanding the fact that the employer
offers insurance, the employees choose not to avail themselves
of it. Some interesting statistics from our panel in that area
as well.
Today we are going to examine the problem of the uninsured.
This panel--and I fully understand some of your reluctance to
get in and talk about it because everybody's advocating a
solution, and one of the things that I have found is that there
are far more people, in my opinion, advocating a solution than
there are who really understand the interactions of some of
those solutions. And so one of the things I would like to do is
to, at least from the Health Subcommittee perspective, provide
an understanding of what the world of the uninsured looks like
so that when we begin to try to solve the problem, the
solutions, in fact, address the problem.
[The opening statement follows:]
Opening Statement of Hon. Bill Thomas, a Representative in Congress
from the State of California
The American health care system has demonstrated a unique
capacity to deliver the highest-quality medical care. Financing
that health care system, however, remains a challenging dilemma
for this country.
In recent years, the private sector has shown a remarkable
ability to slow the growth in health care spending. Similarly,
the Balanced Budget Act, passed by Congress in 1997, has helped
slow the growth in Medicare spending.
Still, there are ominous signs on the horizon. Medicare
remains unprepared for the oncoming retirement of the baby-boom
generation. And, for a number of reasons, the private sector
health care market is anticipating a return to double-digit
growth in health care costs. After five years of near-
stability, this will have a profound effect on millions of
Americans.
Today this Subcommittee will examine the impact of rising
costs on the problem of the uninsured. The problem of the
uninsured is the most glaring flaw in our health care system.
Despite record-low unemployment, there are a record number of
Americans without health insurance. According to various
estimates, there are forty-three million Americans without
health insurance. The ranks of the uninsured are growing at
nearly one million a year. This fact has great consequences for
millions of American families without health insurance who run
the risk of financial catastrophe.
Much political debate has, in recent months, been devoted
to the issue of ``patient protections.'' This involves the
perception that some health plans are not as responsive to
patient concerns as some critics would like. Critics of managed
care contend that the solution to these concerns is increased
regulation. However, the Congressional Budget Office (CBO) has
shown that increased regulation, however well-intentioned,
leads to higher costs and higher costs lead to more uninsured.
To those who would say increased regulation is the key, I
would respond that the best patient protection of all is access
to affordable health insurance coverage.
A return to explosive growth in health care spending will
push health insurance rates up even faster. Employers--who
provide health insurance to their employees--will be put in the
position of having to require employees to pick up more of the
costs for their policies. Employees in increasing numbers are
forgoing health insurance as they see it becoming ever more
expensive.
This Subcommittee will examine today the problem of the
uninsured. We will begin today by hearing from a panel of
experts who will help us understand the nature of the problem.
Studying the origins of the problem will provide us with a
lesson: adding costly regulation increases those without any
coverage. Studying the nature of the problem will also help us
develop more constructive, not counterproductive, solutions.
Chairman Thomas. And, with that, I would see if my
colleague from California, Mr. Stark, has any opening comments.
Mr. Stark. Mr. Chairman, I thank you for holding this
hearing on the problem of the uninsured. It should take about 5
minutes. If anybody in this room doesn't know that there are
somewhere between 40 and 45 million uninsured in this country,
then they are probably waiting for the movie ``To Fly,'' and
that is a few blocks down the street. You are in the wrong
room.
I would wish that this hearing would have been preceded--or
certainly followed up by--a markup of some bills to help the
uninsured. Frankly, I am sure we know enough about the problem.
We know we are the only industrialized nation in the world,
perhaps the only nation in the world, that has been unable to
provide insurance to all of its residents. We know that is a
disgrace. We evidently don't know what we are going to do about
it.
This morning 81 of us reintroduced the Medicare Early
Access Act which would let uninsured between 62 and 64 buy into
Medicare and the unemployed between 55 and 62 buy in. The bill
is fully financed. I would urge us to have moved to a markup of
that legislation, which would at least help 400,000 hard-to-
insure Americans.
Tomorrow, I will testify before our Subcommittee on a
proposal to provide refundable tax credits to buy guaranteed-
issue, community-rated group insurance policies. Unlike other
proposals, this bill will work because it reforms the insurance
market, something no other bill dares to do. The key will be
how to finance it. To end the national disgrace of uninsurance,
I propose using some of our surplus, plus a tax increase on
those employers who do not provide comparable insurance
coverage for their workers.
Another solution would be to dedicate the next minimum wage
increase to paying for workers' health insurance. Some cities
in California are already doing that.
Others of us, like Representative McDermott, have proposed
a single-payer system. Representative Kleczka is working on a
bill to help retirees who have been dropped by their companies.
I would urge a hearing on any or all of the solutions,
including the idea of just gradually lowering the Medicare age
of eligibility and gradually raising the payroll tax to pay for
lifetime universal coverage.
The witnesses have only been asked to discuss the problem.
I certainly hope that, if there is anything unique about the
problem of uninsured, they will suggest their preferences for a
solution. This problem has been around for a long time. I
gather the Republicans have just recognized it. And I certainly
hope that it won't take them more than 15 minutes to count the
40 million some-odd uninsured and let us get to the point where
we talk about solving the problem.
Thank you.
[The opening statements follow:]
Opening Statement of Hon. Fortney Pete Stark, a Representative in
Congress from the State of California
Mr. Chairman:
Thank you for holding this hearing on the problem of the
uninsured.
I hope it will be followed, soon, with mark-up of bills to
actually help the uninsured.
Frankly, I think we know enough about the problem.
We know we are the only major industrialized nation in the
world that has been unable to solve this problem--and we should
know that that is
a disgrace.
What are we going to do about it?
This morning, 81 of us re-introduced the Medicare Early
Access Act, which would let uninsured between 62 and 64 buy
into Medicare, and the unemployed between 55 and 62 buy-in. The
bill is fully financed by a package of Medicare anti-fraud
initiatives, and over time, this anti-fraud package actually
reduces Medicare's long-term deficits. I urge us to move to
mark-up of this legislation, which is estimated to help provide
400,000 hard-to-insure Americans with dependable care.
Tomorrow, I am testifying before the full Committee on a
proposal to provide refundable tax credits to buy guaranteed-
issue, community-rated, group insurance policies. Unlike other
proposals, this bill will work because it dares to reform the
insurance market. The key will be how to finance it. To end the
national disgrace of un-insurance, I propose using some of the
surplus plus a tax increase on those employers who do not
provide comparable insurance coverage for their workers.
Another solution would be to dedicate the next minimum wage
increase to paying for workers' health insurance.
Others of us, like Rep. McDermott, have proposed a single
payer type system. Rep. Kleczka is working on a bill to help
the retirees who have been dropped by their companies. I would
urge a hearing on any and all of these solutions, including the
idea of just gradually lowering the Medicare age of eligibility
and gradually raising the payroll tax rate to pay for life-
time, universal coverage.
Even though the witnesses have been asked only to discuss
``the problem'' of the uninsured, I hope that they will go
beyond that and indicate their preferences for a solution.
Opening Statement of Hon. Jim Ramstad, a Representative in Congress
from the State of Minnesota
Mr. Chairman, thank you for calling this important hearing
to learn more about individuals lacking health insurance in
America today.
As Congress focuses attention on mandating various benefits
within a health insurance plan, we must keep in mind the
importance of having health insurance in the first place. One
thing I am reminded whenever I meet with small employers in my
district is that ``patient protections'' mean nothing if you
can't afford health insurance coverage.
I am proud of this Committee's attention to this issue.
Legislation passed in 1996 under Chairman Thomas' leadership
created Medical Savings Accounts (MSAs). MSAs are the premier
example of affordable, patient-driven health care options and
have given thousands of uninsured individuals in this country
access to affordable, high quality health care. I am hopeful we
can remove the unnecessary restrictions surrounding these truly
patient-oriented plans soon for many of their colleagues who
still remain priced out of the health insurance market.
While Minnesota has done a fairly good job at increasing
access to health insurance, I know more work needs to be done
in my state and across the country. For example, I am hopeful
we, along with our colleagues on the full Committee, are able
to provide greater tax incentives for health care expenses. In
addition, we must review proposals to stem the rise in health
care costs, such as medical malpractice reform, increased
competition in the market and relief from burdensome government
rules and regulations.
I look forward to learning more from our witnesses about
the factors that contribute to the number of uninsured in
America today, as well as ways to significantly reduce those
numbers.
Chairman Thomas. The Chair recognizes some people may have
the answer, but for some of us, I appreciate Dr. Fronstin;
Grace-Marie Arnett; John Sheils, Lewin Group; and John Holahan
of the Health Policy Center. Any written testimony you may have
will be made a part of the record and during the time available
to you, you may address us in any way you see fit. We will
start with Dr. Fronstin and then move across the panel.
STATEMENT OF PAUL FRONSTIN, PH.D., SENIOR RESEARCH ASSOCIATE
AND DIRECTOR, HEALTH SECURITY AND QUALITY RESEARCH PROGRAM,
EMPLOYEE BENEFIT RESEARCH INSTITUTE
Mr. Fronstin. Thank you, Mr. Chairman.
Chairman Thomas. And I would just say that if, in fact, we
allot roughly 5 minutes each, tell the gentleman from
California, that would be about 20 minutes instead of the 15
that he felt was necessary.
Dr. Fronstin.
Mr. Fronstin. Thank you, Mr. Chairman. Mr. Chairman,
Members of the Subcommittee, my name is Paul Fronstin. I am
director of the Health Security and Quality Research Program at
the Employee Benefit Research Institute and I am pleased to
appear before you today to discuss uninsured Americans.
Between 1987 and 1997, the percentage of Americans without
health insurance coverage increased from just under 15 percent
to now over 18 percent and, as we have already heard, it is
about 43 million nonelderly Americans. When examining this
trend, it is important to recognize that the determinants
underlying it are different in the pre-1993 period than in the
post-1993 period. Prior to 1993, the uninsured was increasing
in large part because the percentage of Americans covered by an
employment-based plan was declining. The erosion of employment-
based health insurance was in large part due to rising health
care costs, resulting in small employers dropping insurance and
large employers shifting the costs of coverage onto workers.
Between 1993 and 1997, health insurance costs increased
modestly and health care costs were in line with overall
inflation. Low health care cost increases and the strong
economy did have an effect on employment-based coverage levels
and the uninsured during this period. Unlike the period prior
to 1993, between 1993 and 1997, the percentage of nonelderly
Americans covered by employment-based plans increased. The
period since 1993 is unique. It is likely the first time in
history that the U.S. population was experiencing an increase
in the uninsured population while the percentage of Americans
covered by an employment-based health plan was also increasing.
Researchers have yet to completely understand this trend, but
speculation has been offered.
The growth rate in the uninsured population has slowed
since 1993 and may also be attributable to modest health
insurance cost increases. Between 1987 and 1993, health
insurance costs increased an average of over 13.5 percent per
year. During this period, the uninsured increased an average of
2.6 percent per year. In contrast, between 1994 and 1997, when
health insurance costs increased an average of 2.9 percent per
year, the uninsured increased an average of 1.4 percent per
year.
When examining the uninsured, it is important to understand
that some uninsured workers are offered health insurance by
their employer while others are not. In 1996, 24 percent of
uninsured workers were offered health insurance by their
employer; an additional 5.1 percent could have received
coverage through a family member. With an effective access rate
of about 29 percent, it is likely that over 12.5 million of the
43.1 million uninsured do have access to an employment-based
health plan.
The proportion of the nonelderly population with and
without health insurance varies by geographic region. In 14
States, 20 percent or more of the population was uninsured in
1997. These States are in large part concentrated in the south
central and southwestern parts of the United States. Young
individuals are typically more likely to be uninsured than
older individuals. Many in this group may think that they do
not need health insurance because their probability of
encountering a high-cost medical event is very low.
The uninsured are concentrated disproportionately in low-
income families. Thirty-seven percent of individuals in
families with income just above the poverty line were uninsured
in 1997. This compares with only 8 percent uninsured among
individuals in families with income at 400 percent or more of
the poverty level.
Approximately 84 percent of the uninsured were members of
families with a working head of household in 1997. As a result,
it is just as important to understand the job characteristics
of uninsured workers as it is to understand the characteristics
of the uninsured in general. Workers employed in small firms
are more likely to be uninsured than workers employed in large
firms. As a result, over 60 percent of uninsured workers were
employed in firms with less than 100 employees or were self-
employed in 1997.
Finding solutions for reducing the level of the uninsured
is like trying to hit a moving target. While the
characteristics of the uninsured population do not vary much
from year to year, the people within that population do change.
A recent EBRI study found that most uninsured spells were
either very long or very short. Specifically, 37 percent of all
uninsured spells lasted 4 months or less while 33 percent
lasted 12 months or longer. Spells were more likely to last
longer than 4 months for the following groups: Hispanics,
individuals 25 years and older, the self-employed, workers not
employed in manufacturing or the public sector, and individuals
with long spells of unemployment.
This concludes my statement. I do appreciate the
opportunity to testify today. I would be happy to answer any
questions you have and I look forward to working with the
Subcommittee in the future if you have additional questions.
Thank you.
[The prepared statement follows:]
Statement of Paul Fronstin, Ph.D., Senior Research Associate and
Director, Health Security and Quality Research Program, Employee
Benefit Research Institute
Mr. Chairman, ranking member, and members of the Committee,
I am pleased to appear before you today to discuss uninsured
Americans. My name is Paul Fronstin. I am a senior research
associate and director of the Health Security and Quality
Research Program at the Employee Benefit Research Institute
(EBRI), a private, nonprofit, nonpartisan, public policy
research organization based here in Washington, DC. EBRI has
been committed, since its founding in 1978, to the accurate
statistical analysis of economic security issues. Through our
research we strive to contribute to the formulation of
effective and responsible health and retirement policies.
Consistent with our mission, we do not lobby or advocate
specific policy solutions.
Introduction
Between 1987 and 1997, the percentage of Americans without
health insurance coverage increased from 14.8 percent to 18.3
percent, and now comprises 43.1 million nonelderly Americans
(chart 1 & table 1). However, when examining this increase it
is important to recognize that the determinants underlying the
trend are different in the pre-1993 period than the post-1993
period. Prior to 1993, the uninsured was increasing in large
part because the percentage of Americans covered by an
employment-based health plan was declining. In 1987, 69.2
percent of the nonelderly Americans were covered by an
employment-based health plan (chart 2 and table 1). That was
down to 63.5 percent by 1993. The erosion of employment-based
health insurance was in large part due to rising health care
costs, resulting in small employers dropping insurance and
large employers shifting the cost of coverage onto workers.\1\
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\1\ The decline in coverage was also the result of declining real
income and structural changes in the economy, such as the movement of
workers from the manufacturing sector to the service sector, the
increased use of part-time workers, and the decline of unionization
(Fronstin and Snider, 1996/97).
[GRAPHIC] [TIFF OMITTED] T9402.001
[GRAPHIC] [TIFF OMITTED] T9402.002
[GRAPHIC] [TIFF OMITTED] T9402.003
Between 1993 and 1997, health insurance costs increased
modestly and health care costs were in line with overall
inflation. According to an annual survey by William M. Mercer,
health insurance costs declined in 1994, increased 2.1 percent
in 1995 and 2.5 percent in 1996, and barely increased in 1997.
Low health care cost increases and the strong economy had an
effect on employment-based coverage levels and the uninsured
during this period. Unlike the period prior to 1993, between
1993 and 1997 the percentage of nonelderly Americans covered by
an employment-based health plans increased from 63.5 percent to
64.2 percent. At the same time, the percentage of Americans
without health insurance coverage continued to increase, though
at a slower rate than experienced between 1987 and 1993.
The period since 1993 is unique. It is likely the first
time in history that the United States population was
experiencing an increase in the uninsured population while the
percentage of Americans covered by an employment-based health
plan was also increasing. Researchers have yet to completely
understand this trend, but speculation has been offered. It
appears that individuals leaving welfare (and Medicaid) because
of the strong economy and welfare reform are contributing to
both the increase in the uninsured and the increase in
employment-based coverage. As former welfare recipients get
jobs, some get jobs that offer health insurance while others
get jobs that do not offer health insurance.
The growth rate in the uninsured population has slowed
since 1993, and may also be attributable to modest health
insurance cost increases. Between 1987 and 1993, health
insurance costs increased an average of 13.6 percent per year,
according to chart 3. During this period the uninsured
increased an average of 2.6 percent per year. In contrast,
between 1994 and 1997, when health insurance costs increased an
average of 2.9 percent per year, the uninsured increased an
average of 1.4 percent per year. While the uninsured did not
decline, lower health insurance cost increases did result in a
slowing of the growth in the uninsured.
[GRAPHIC] [TIFF OMITTED] T9402.004
In formulating public policy for the uninsured population,
it is important to understand the characteristics of the
uninsured population. The remainder of this testimony presents
this information.
Data
The data in this testimony come from three sources: the
Current Population Survey (CPS) and the Survey of Income and
Program Participation (SIPP), both conducted by the U.S. Bureau
of the Census, and the 1996 Medical Expenditure Panel Survey
(MEPS), conducted by the Agency for Health Care Policy and
Research.
The CPS is conducted monthly, and health insurance status
is measured by a survey of 145,000 individuals conducted in
March of each year. The CPS has become the most widely used
source of data on the uninsured and is the source of the
estimate that 43.1 million nonelderly Americans were uninsured
in 1997. This is the survey that has been used to track the
uninsured since as far back as 1980. While the questionnaire
has been changed in various years to improve the accuracy of
the data, many researchers feel comfortable making adjustments
to the data that result in a consistent time series since 1987
(See Fronstin, 1998, for more details).
The MEPS also contains data on the uninsured, but is not
used as often by researchers as the CPS because it has been
conducted only intermittently since 1977 (previously under the
name National Medical Expenditure Survey), and because of the
smaller sample size. However, data was collected in MEPS that
is not collected in CPS. For example, MEPS asks workers if
their employer offers them health insurance coverage and about
health care utilization. Additional data on premiums, plan
design, health care expenditures, and source of payment are
expected to be released later this year.
SIPP contains data on the uninsured, but is not used as
often as CPS for a number of reasons, primarily because of the
time lag in obtaining SIPP data. The strength of using the SIPP
data for analysis of health insurance coverage is that it
allows researchers to track individuals for as long as 36
months. This allows researchers to conduct comprehensive
analyses on duration of insurance status, some of the results
of which are discussed below.
The Uninsured
When examining the uninsured, it is important to understand
that some uninsured workers are offered health insurance by
their employer while others are not. For example, a 1997 study
found that 24 percent of uninsured workers were offered health
insurance by their own employer, while an additional 5.1
percent could have received coverage through a family member
(Cooper and Schone, 1997). With an effective access rate of
29.1 percent, it is likely that over 12.5 million of the 43.1
million uninsured actually have access to an employment-based
health plan.
Access to Health Insurance--This same study found that
between 1987 and 1996 the percentage of workers offered an
employment-based health plan increased, but take-up rates were
down. The study found that while take-up rates declined across
all income groups, they were down the most for low-income
workers.
Geographic Region--The proportion of the nonelderly
population with and without health insurance varies by
geographic region. In 14 states, 20 percent or more of the
population was uninsured in 1997 (chart 4). These states are in
large part concentrated in the south central and southwestern
parts of the United States. Many of these states have a higher
concentration of minority groups, such as Hispanics, who are
less likely to be covered by health insurance. The higher
uninsured rates may be due in part to the fact that Hispanics
are more likely to be in low-income families than other races.
States with a low percentage of uninsured individuals include
Hawaii, Wisconsin, Minnesota, Vermont, and Pennsylvania.
[GRAPHIC] [TIFF OMITTED] T9402.005
Age--Young individuals are typically more likely to be
uninsured than older individuals (chart 5). This is apparent by
looking at the data in chart 6, which shows that the uninsured
population is disproportionately younger than the general
population. The high proportion of young adults without health
insurance may occur because they are no longer covered by a
family policy and may not have established themselves as
permanent members of the work force. Some young adults may also
have lost access to Medicaid, which covered them up through age
18 in some states. Many in this group may think that they do
not need health insurance because their probability of
encountering a high-cost medical event is very low.
[GRAPHIC] [TIFF OMITTED] T9402.006
[GRAPHIC] [TIFF OMITTED] T9402.007
Income--Income plays an important role in whether or not an
individual is uninsured. The uninsured are concentrated
disproportionately in low-income families. For example, 37
percent of individuals in families with income just above the
poverty line were uninsured in 1997 (chart 7). This compares
with 8 percent uninsured among individuals in families with
income at 400 percent of the poverty level or more.
[GRAPHIC] [TIFF OMITTED] T9402.008
Work Status
Approximately 84 percent of the uninsured were members of
families with a working head of household in 1997 (Fronstin,
1998). As a result, it is just as important to understand the
job characteristics of uninsured workers as it is to understand
the characteristics of the uninsured in general.
Firm size--Workers employed in small firms are more likely
to be uninsured than workers employed in large firms (chart 8).
As a result, the uninsured is more likely to be composed of
workers in small firms than the general working population. In
1997, over 60 percent of uninsured workers were employed in
firms with less than 100 employees or were self-employed (98
percent of the self-employed reported a firm size of less than
100 employees). According to chart 9, 12 percent of uninsured
workers were self-employed; 22 percent were in firms with less
than 10 workers, 13 percent were in firms with 10-24 workers;
and 14 percent were in firms with 25-99 workers.
[GRAPHIC] [TIFF OMITTED] T9402.009
[GRAPHIC] [TIFF OMITTED] T9402.010
Industry--Workers employed in the public sector or the
manufacturing sector were least likely to be uninsured (chart
10). Workers were more likely to be uninsured if they were
employed in agriculture, forestry, fishing, mining,
construction, wholesale and retail trade, or the personal
service sector.
[GRAPHIC] [TIFF OMITTED] T9402.011
Duration of Being Uninsured
Finding solutions for reducing the level of the uninsured
is like trying to hit a moving target. While the
characteristics of the uninsured population do not vary much
from year to year, the people within that population do change.
For example, a recent study by my colleague Craig Copeland at
the Employee Benefit Research Institute found that most
uninsured spells were either very short or very long (Copeland,
1998). Specifically, 37 percent of all uninsured spells lasted
four months or less, while 33 percent lasted 12 months or
longer (chart 11). Spells were more likely to last longer than
four months for the following groups:
Hispanics.
Individuals ages 25 and older.
The self-employed.
Workers not employed in manufacturing or the
public sector.
Individuals with long spells of unemployment.
[GRAPHIC] [TIFF OMITTED] T9402.012
Mr. Chairman, this concludes my statement. Thank you for
the opportunity to testify today. I would be happy to answer
any questions that you or members of the committee may have,
and invite you to call on EBRI in the future for additional
information.
References
Copeland, Craig. ``Characteristics of the Nonelderly with Selected
Sources of Health Insurance and Lengths of Uninsured Spells,'' EBRI
Issue Brief no. 198 (Washington, DC: Employee Benefit Research
Institute), June 1998.
Cooper, Philip F., and Barbara Steinberg Schone. ``More Offer,
Fewer Takers For Employment-Based Health Insurance: 1987 and 1996,''
Health Affairs 16(6), November-December 1997.
Fronstin, Paul. ``Sources of Health Insurance and Characteristics
of the Uninsured: Analysis of the March 1998 Current Population
Survey,'' EBRI Issue Brief no. 204 (Washington, DC: Employee Benefit
Research Institute), December 1998.
Fronstin, Paul, and Sarah C. Snider. ``An Examination of the
Decline in Employment-Based Health Insurance Between 1988 and 1993,''
Inquiry 33, Winter 1996/97: 317-325.
The views expressed in this statement are solely those of the
author and should not be attributed to the Employee Benefit
Research Institute (EBRI), its officers, trustees, sponsors, or
other staff. The Employee Benefit Research Institute is a
private, nonprofit, nonpartisan, public policy research
organization.
Chairman Thomas. Thank you, Dr. Fronstin. I think there
will be some questions about especially the very useful charts
that you have provided with your testimony.
Ms. Arnett.
STATEMENT OF GRACE-MARIE ARNETT, PRESIDENT, GALEN INSTITUTE,
ALEXANDRIA, VIRGINIA
Ms. Arnett. Thank you, Mr. Chairman and Members of the
Subcommittee, for the opportunity to testify today.
I am president of the Galen Institute. We are a not-for-
profit health and tax policy research organization based in
Alexandria, Virginia, working to promote a more-informed debate
over individual freedom, consumer choice, competition, and
diversity in the health sector.
It is frustrating to those of us in the policy community as
to all of you that, despite all of the thousands of hours of
effort on your part and those of State lawmakers and despite a
strong and sustained period of economic growth, that the number
and percentage of Americans without health insurance continue
to rise. At the State level, thousands of rules and regulations
have been passed with the intent of forcing insurers to offer
coverage that contained good benefits at reasonable costs and
with protections for policy holders. Additional insurance
regulation and mandates recently have been passed at the
Federal level, as you all know, and even more are being
debated. However, the data increasingly show that these laws
have the effect of increasing the cost of health insurance and
are, in fact, driving up the number of uninsured.
People who are on the tightest budgets must make the
hardest choices of deciding how to allocate their resources.
After paying the rent or mortgage or putting food on the table,
millions of Americans simply don't have enough money left to
buy health insurance. Some are faced with the difficult choice
between sending their children to good, safe schools or
providing the family with the security of health insurance.
We see, increasingly, the choices that Americans are
making. When asked by a Kaiser/Commonwealth Fund survey, the
majority of Americans polled cited cost as the reason for not
having health insurance. In fact, between 1988 and 1996, the
cost of health insurance increased by 111 percent, despite an
increase in the overall consumer price index of only 33
percent. After several years of leveling off, health insurance
costs are on the rise again and that certainly does not bode
well for the number of uninsured.
The GAO has concluded that continued erosion of health
insurance coverage is directly related to cost pressures. The
Congressional Budget Office estimates that every 1 percent
increase in the cost of health insurance, throws 200,000 more
people off the insurance rolls. The uninsured are
disproportionately young, minority, lower income, and either
work for smaller companies or are their dependents. For low-
income Hispanic families, 52 percent are uninsured.
The research that I have done, which is validated by
numerous other experts, has convinced me that there is a causal
connection. The growing burden of mandates and regulation in
the health sector leads to higher costs for health insurance,
which in turn, drives more people into the ranks of the
uninsured. I direct you and the other Members of the
Subcommittee to my testimony for a more detailed description of
the specific research.
For example, Gail Jensen of Wayne State University and
Michael Morrisey of the University of Alabama at Birmingham
found that as many as one in four of Americans lacks health
insurance because of benefit mandates. Yet the number of
mandates has increased 25-fold over the last quarter century.
Mandates and regulations don't show up on the Federal budget
ledger, but they do show up in the paychecks and loss of
coverage by individual workers. Mandates are not free. They are
paid for by workers and their dependents who receive lower
wages or lose coverage altogether.
Each mandate may increase costs by only 1 percentage or 2,
but others add much more. Each one of these benefit mandates
can be fully justified on its own merits. But cumulatively,
they are condemning more and more people to being without
health coverage. Small businesses and those attempting to
purchase health insurance on their own are most vulnerable to
these regulations because they do not have the opportunity to
escape through the protection of ERISA.
The Galen Institute last year conducted a study to
determine the effects of State efforts to regulate their health
insurance markets and shape coverage to help their citizens get
affordable health coverage. Using GAO studies, we determined
that between 1990 and 1994, 16 States were most aggressive in
passing laws regulating health insurance. By 1996, these 16
States were seeing their uninsured populations grow an average
of 8 times faster than the 34 States that passed less
comprehensive regulation. Before this blizzard of regulation,
the two groups had been virtually equal. We looked at many
other factors at these 16 States. The distinguishing
characteristic was the passage of these very aggressive
insurance regulations.
One of the biggest regulators was Kentucky. The Governor
said afterward, ``In spite of good intentions and noble
purposes, it didn't work. The entire cost of the system went
up.'' The findings by our study have been validated in part by
other studies, including the Urban Institute.
The fact that regulation has failed at the State level does
not mean Federal action is not needed, but in the battle over
patient protection legislation, the uninsured are being shoved
aside in favor of a small percentage of those who have health
insurance but are unhappy with it. And for the 43 million
Americans with no health insurance, the data strongly suggest
that patients rights legislation will hurt them by driving up
the costs of coverage and throwing more people off the
insurance rolls. I have provided a chart, Mr. Chairman, for the
discussion of this issue.
My time has run out. I would be happy, later on, to
describe the chart if you would like.
[The prepared statement follows:]
Statement of Grace-Marie Arnett, President, Galen Institute,
Alexandria, Virginia
Thank you, Mr. Chairman, and members of the committee for
inviting me to testify today as you address the challenge of
why, despite years of effort to try to reverse the trends, more
and more Americans are without health insurance.
My name is Grace-Marie Arnett, and I am president of the
Galen Institute, a not-for-profit health and tax policy
research organization based in Alexandria, Virginia. The Galen
Institute was founded in 1995 to promote a more informed public
debate over individual freedom, consumer choice, competition,
and diversity in the health sector. The Galen Institute also
facilitates the work of the Health Policy Consensus Group,
which is composed of nearly 20 health policy experts from the
major free-market think tanks, whose work I will discuss later
in my testimony.
For decades, policy makers at all levels of government have
been searching for ways to help Americans gain greater access
to affordable health care. You and your colleagues in
Washington and lawmakers in the states have spent untold
thousands of hours trying to achieve that goal.
It is frustrating to you and to virtually all Americans
that, despite these efforts and especially during a period of
strong and sustained economic growth, the number and percentage
of Americans without health insurance continues to rise. In
1987, there were 32 million Americans under age 65 without
health insurance at some point during the year. A decade later,
the number has risen to more than 43 million or 16.1%
uninsured.
At the state level, thousands of new rules and regulations
have been passed with the intent of forcing health insurers to
offer coverage that contained good benefits, at reasonable
costs, and with protections for policyholders. Some insurance
regulations and mandates recently have been passed at the
federal level, as you know, and even more are being debated.
However, the rule that governs the practice of medicine should
also govern lawmakers in addressing health reform issues:
First, do no harm.
The data show that these laws have the effect of increasing
the cost of health insurance and are driving up the number of
uninsured.
Insurance costs and the uninsured
People who are on the tightest budgets must make the
hardest choices in deciding how to allocate their resources.
After paying the rent or the mortgage and putting food on the
table, millions of Americans simply don't have enough money
left to buy health insurance. Some are faced with the choice
between sending their children to a good, safe school or
providing the family with the security of health insurance.
These are terribly difficult choices, but we see from the
numbers the choice that more and more Americans are making.
When asked by a Kaiser/Commonwealth Fund survey, the
majority of Americans cite cost as their reason for not having
health insurance.
Over the last decade, health insurance costs have increased
much faster than overall consumer prices. The General
Accounting Office reported in 1997 that the average annual
premium for employment-based family health insurance coverage
increased by 111%, from $2,530 in 1988 to $5,349 by 1996.
During this same period, overall consumer prices rose by
33%.\1\ Now, after several years of leveling off, health
insurance premiums are on the rise again. This does not bode
well for the uninsured.
---------------------------------------------------------------------------
\1\ U.S. General Accounting Office. ``Private Health Insurance.
Continued Erosion of Coverage Linked to Cost Pressures,'' GAO/HEHS-97-
122. July 1997. Washington, D.C.
---------------------------------------------------------------------------
The GAO concluded that the continued erosion of health
insurance coverage is directly linked to cost pressures.
The Congressional Budget Office estimates that every one
percent increase in the cost of health insurance throws 200,000
more Americans off the insurance rolls. The result: Those who
can least afford the inevitable premium increases will lose
their health insurance.
The uninsured are disproportionately young, minority, lower
income, and either work for small companies or are their
dependents.\2\ Hispanics and minorities are the most likely to
be uninsured. Among working-age Americans, 14% of whites, 24%
of blacks, and 38% of Hispanics are uninsured.\3\ The uninsured
numbers are even higher for lower-income minority group
members, reaching 52% for Hispanic families whose incomes are
below the federal poverty level.
---------------------------------------------------------------------------
\2\ Hall, Allyson G., Karen Scott Collins, and Sherry Glied,
``Employer-Sponsored Health Insurance: Implications for Minority
Workers.'' The Commonwealth Fund, February 1999. New York.
\3\ Commonwealth Fund analysis of 1997 Current Population Survey.
---------------------------------------------------------------------------
The research that I have done, which is validated by
numerous other experts, has convinced me that there is a causal
connection: the growing burden of mandates and regulation in
the health sector leads to higher costs for health insurance
which, in turn, drives more people into the ranks of the
uninsured.
Mandates and the uninsured
The link between insurance mandates and the uninsured has
been established by numerous researchers.
Using data from 1989 to 1994, Sloan and Conover
\4\ found that the higher the number of coverage requirements
placed on plans, the higher the probability that an individual
would be uninsured, and the lower the probability that people
would have any private health insurance coverage, including
group coverage. After more than 100,000 observations, they
conclusively demonstrated that the probability an individual
will be uninsured increases with each mandate imposed by
government.
---------------------------------------------------------------------------
\4\ Sloan, Frank A. and Christopher J. Conover, ``Effects of State
Reforms on Health Insurance Coverage of Adults,'' Inquiry. 35:280-293,
1998.
---------------------------------------------------------------------------
Gail A. Jensen of Wayne State University and
Michael Morrisey of the University of Alabama-Birmingham \5\
found that as many as one in four Americans lack health
insurance because of benefit mandates. Each additional mandate
significantly lowers the probability that a firm or an
individual will have health insurance.
---------------------------------------------------------------------------
\5\ Jensen, Gail A., Michael A. Morrisey. ``Mandated Benefit Laws
and Employer-Sponsored Health Insurance.'' Published by the Health
Insurance Association of America, January, 1999. Washington, D.C.
---------------------------------------------------------------------------
Professor William S. Custer of Georgia State
University \6\ found that state guaranteed issue requirements,
coupled with either community rating or rate bands in the small
group insurance market, increase the probability that a person
will be uninsured by nearly 29%. These laws hit small firms and
individuals purchasing insurance in the open market the
hardest.
---------------------------------------------------------------------------
\6\ Custer, William S. ``Health Insurance Coverage and the
Uninsured.'' Published by the Health Insurance Association of America,
December 1998. Washington, D.C.
---------------------------------------------------------------------------
The number of mandates has increased 25-fold over the last
quarter century, with more than 1,000 state mandated benefit
laws on the books today. Most are an attempt by lawmakers to
correct inefficiencies or inequitable practices in the market.
Unfortunately, they are having the unintended effect of
increasing the ranks of the uninsured.
Mandates and insurance regulations do not show up on the
federal budget ledger, but they do show up in the paychecks and
in loss of coverage by individual workers. Jensen and Morrisey
say, ``Mandates are not free. They are paid for by workers and
their dependents, who receive lower wages or lose coverage
altogether.''\7\
---------------------------------------------------------------------------
\7\ Jensen, Morrisey.
---------------------------------------------------------------------------
In a study, conducted in 1989 even before the explosion of
state mandated benefit laws in the 1990s, Acs et al found that
mandates significantly raised premium costs. Even then,
insurance was found to be 4 to 13 percent more expensive as a
direct result of benefit laws.\8\
---------------------------------------------------------------------------
\8\ Acs, Gregory, Colin Winterbottom, and Sheila Zedlewski,
``Employers' Payroll and Insurance Costs: Implications for Play or Pay
Employer Mandates,'' in Health Benefits and the Workforce. Washington,
D.C. U.S. Department of Labor, 1992.
---------------------------------------------------------------------------
Each mandates may increase costs only a percentage or two,
but others add much more. Every one of these benefit mandates
can be justified individually, and each has a constituency that
can and does argue passionately for its merit. But
cumulatively, they are condemning more and more people to being
without health coverage.
Hitting the most vulnerable the hardest
Small businesses and individuals attempting to purchase
health insurance are hit with the full force of these mandates
and insurance regulations. The small group and individual
insurance markets have become fragile and expensive as a
result. Most large companies avoid benefit mandates and state
insurance regulation laws because they are protected by ERISA,
the Employee Retirement Income Security Act of 1974 that allows
companies that self-insure to escape the reach of these state
insurance laws and regulations. Few small business can afford
to self insure and are therefore subject to all of the mandates
and regulations imposed by the states.
Surveys conducted by the National Federation of Independent
Business show that the great majority of small business owners
would like to offer health insurance, but say high costs make
it prohibitive. About 40% of businesses with fewer than 50
workers do not offer health insurance. A person working for a
company with fewer than 10 employees is three times more likely
to be without health insurance than someone working for a
company with more than 1,000 employees.
Even small companies that do offer insurance often must
make the choice between keeping their business going and
offering health benefits. Many walk the line--offering
insurance but requiring employees to pay a larger share of the
premiums. Unfortunately, an increasing number of people offered
health insurance through their jobs are declining coverage,
again citing costs as the primary reason.
For this and other reasons, the number of people with
private health insurance has been declining for nearly two
decades. Since 1980, the number of people with private health
insurance coverage obtained either through the workplace or
purchased individually has been declining, from 79.5% in 1980
to 70.5% in 1995.
State insurance regulations and the uninsured
The Galen Institute conducted a study last year,\9\ which
was published by The Heritage Foundation, to determine the
effect of state efforts to regulate their health insurance
markets and shape coverage to help their citizens get
affordable health insurance coverage.
---------------------------------------------------------------------------
\9\ Schriver, Melinda, and Grace-Marie Arnett. ``Uninsured Rates
Rise Dramatically in States with Strictest Health Insurance
Regulations,'' The Heritage Foundation, August, 1998, Washington, D.C.
---------------------------------------------------------------------------
Using GAO studies, we determined that between 1990 and
1994, 16 states were most aggressive in passing laws regulating
health insurance. By 1996, these 16 states were seeing their
uninsured populations grow an average of EIGHT times faster
than the 34 states that passed less comprehensive regulations.
Compare this to 1990, before the blizzard of health-care reform
legislation began, when the two groups of states had nearly
equal rates of growth in their uninsured populations.
Could the increase in the number of uninsured in these 16
states be caused by something other than regulation? Not
likely. The regulating states had employment and income
characteristics similar to the rest of the nation. Their only
distinguishing feature was the passage of these sweeping health
insurance regulations.
One of the biggest regulators was Kentucky. ``In spite of
good intentions and noble purpose, it didn't work ... The
entire cost of the system went up,'' Gov. Paul Patton said last
year. Kentucky citizens paid the price: 107,500 fewer citizens,
out of a population of 3.4 million, had health insurance in
1996 than in 1990. ``In my opinion, most of the general
assembly believes that we in Kentucky have experimented enough
for the time being,'' Patton said.
In addition to Kentucky, the other states that imposed the
most aggressive regulations were Idaho, Iowa, Louisiana, Maine,
Minnesota, New Hampshire, New Jersey, New Mexico, New York,
North Dakota, Ohio, Oregon, Utah, Vermont and Washington. Their
new laws included: mandates on insurers to sell policies to
anyone who applies and agrees to pay the premium--even if they
wait to buy insurance until they are already sick (guaranteed
issue); prohibitions on excluding coverage for some medical
conditions (pre-existing condition exclusions); and
requirements that insurers charge the same price to everyone in
a community, regardless of the differences in risk posed by
individuals (community rating); plus others.
The findings from our study have been validated in part by
other studies, including the Urban Institute.\10\
---------------------------------------------------------------------------
\10\ Marstellar, Jill A., Len M. Nichols, Adam Badawi, et al.
``Variations in the Uninsured: State and County Level Analyses.'' Urban
Institute, June 1998. Washington, D.C.
---------------------------------------------------------------------------
Recent federal legislation--the Health Insurance
Portability and Accountability Act of 1996 and the Balanced
Budget Act of 1997--have imposed at the federal level some of
the insurance rules that had been enacted by the states,
including guaranteed renewal and some of the most common
coverage mandates, making it difficult to do a differential
study now.
However even now, 11 of the 16 states we studied still has
a rising number of uninsured, and for all but two, the growth
in their insured populations is under 1%.
The fact that regulation has failed at the state level does
not mean federal action is unneeded. But in the battle over
Patient Protection legislation, the uninsured are being shoved
aside in favor of the small percentage of those who have health
insurance but are unhappy with it. Instead of helping the 43
million Americans with no health insurance, the data strongly
suggest that patients' rights legislation will hurt them by
driving up the cost of coverage and throwing even more people
off the insurance rolls.
More regulation is not the answer
The health sector is the most heavily regulated industry of
the American economy. In every other industry, Americans
recognize that regulation drives up prices, restricts
innovation, dries up competition, and forces businesses to
cater to regulators and not consumers. That is exactly what is
happening in the health sector.
These data show that American citizens are paying a high
price for the mistakes of well-intended but flawed legislation
that has backfired in its intent. A poll released last year by
the Charlton Research Company showed that 66% of respondents
said they thought health care is regulated enough. Only 25%
said more regulation was the answer, and the majority of them
changed their minds if the regulations would increase
government bureaucracy or health care costs.
A fresh approach to energize the free market
As costs and the number of uninsured continue to rise, a
different approach clearly is needed. In a forthcoming book,
entitled Empowering Health Care Consumers through Tax
Reform,\11\ the Health Policy Consensus Group explores the
intersection of health and tax policy for solutions. This group
of economists and other health policy advisers, business group
and union representatives, physicians, and political leaders
describes the distortions to the health care system caused by a
50-year-old provision in the tax code.
---------------------------------------------------------------------------
\11\ Arnett, Grace-Marie, Ed. Empowering Health Care Consumers
through Tax Reform, University of Michigan Press, Ann Arbor.
Forthcoming.
---------------------------------------------------------------------------
The central, structural defect impacting the market for
private health insurance is the discriminatory tax treatment of
health insurance. To begin to stem the flow of problems that
wind up on their doorsteps, legislators can begin by providing
broader access to health insurance through tax credits and
other fixed incentives for individuals.
In today's information age economy, an increasing number of
people work part-time, are contract workers, or are starting
their own businesses. These are the people who are
disproportionately likely to be uninsured because the system is
working against them.
The federal tax code heavily favors workers fortunate
enough to get their health insurance through the workplace.
That is because workers do not pay taxes on the part of their
compensation package that they receive in the form of health
benefits as long as their employer purchases the policy for
them. This generous subsidy, worth an estimated $111 billion a
year, is the cornerstone of the system in the United States
that ties private health insurance to the workplace.
However, this tax provision distorts the efficiency of the
health care market in a number of ways: (1) It restricts
employees' choices to the selection the employer offers; (2) It
undermines cost consciousness by hiding the true cost of
insurance and medical care from employees; (3) Because the full
cost of health insurance is not visible to employees, it
artificially supports increased demand for medical services and
more costly insurance; (4) As a result, inefficient health care
delivery is subsidized at the expense of efficient delivery;
(5) Cash wages are suppressed; (6) Many employees with job-
based coverage are frustrated because they have little choice
and control over their policies and their access to medical
services; (7) The self-employed, the unemployed, and those
whose employers do not offer health insurance are discriminated
against because they receive a much less generous subsidy, if
any at all, when they purchase health insurance on their own.
[GRAPHIC] [TIFF OMITTED] T9402.013
Trapped in the Galen Gap
The Galen logo is a conceptual depiction of a central
problem in the health sector that affects Americans under age
65. The vertical axis of the graph in the logo represents the
value of the taxpayer-supported health benefits a given
individual may receive. The horizontal axis represents the
individual's income.
Those with the very lowest incomes are most likely to
qualify for taxpayer-supported health programs, especially
Medicaid. But as an individual moves up the income scale, the
likelihood of qualifying for public programs to receive health
benefits drops off. Working Americans with incomes of less than
$25,000 are most likely to be uninsured and are caught in the
troth, which we call the ``Galen Gap.'' They earn too much to
qualify for public programs but are less likely to have the
good jobs that provide health insurance as a tax-free benefit.
As people move up the income scale, they are much more
likely to have both the good jobs and the higher incomes to
qualify for the generous tax subsidy for employment-based
health insurance, worth an estimated $111 billion this year.
John Sheils of the Lewin Group estimates that families
making less than $15,000 a year reap just $71 in tax benefits
from job-based health insurance while families making $100,000
or more get a $2,357 in tax break for the purchase of health
insurance.\12\ This is a highly regressive subsidy that drives
many of the problems involving cost and access in the health
sector today.
---------------------------------------------------------------------------
\12\ Sheils, John, and Paul Hogan. ``Cost of Tax-Exempt Health
Benefits in 1998,'' Health Affairs. March/April 1999. Volume 18, No. 2.
Bethesda, MD.
---------------------------------------------------------------------------
The great majority of the uninsured are in the ``Galen
Gap.'' Some have been trying to fill this gap from the left by
creating and expanding government programs, such as the $48
billion State Children's Health Insurance Program and working
to expand Medicare to middle-aged Americans.
We believe real solutions will come from exploring
solutions on the right side of the chart--by focusing on tax
policy. We believe that many more people would have access to
medical services and health insurance that would be more
affordable and more innovative if the tax treatment of health
insurance were reformed.
Federal legislators can begin building incentives for a
better system and also undo some of the damage done by federal
and state regulation by providing targeted tax credits to the
uninsured to purchase their own health insurance.
States can do their part by taking advantage of an
immediate opportunity to provide tax credits and vouchers for
uninsured children and their families through the Children's
Health Insurance Program.
There is a need to provide alternative grouping mechanisms
for individuals in purchasing health insurance to give them an
opportunity to take advantage of group rates. A number of
provisions are being debated today, such as HealthMarts and
Association Health Plans, designed to address the supply-side
of the equation.
Today, consumers are denied the choice of health plans best
suited to their needs when mandates force plans to provide an
array of benefits designed more to please lobbyists than
consumers. Mandates also drive up health care costs making
insurance more costly for individuals and families. Congress
would be well advised to put a moratorium on more mandates
until the cost and implications can be fully explored.
The results examined in these studies show that regulation
at the state and federal level is counterproductive in
responding to the challenge of increasing access to health
insurance in the individual and private health insurance
market. If health care access and affordability are genuine
goals, a far better approach would be to empower individuals
and families to make health care choices that suit their own
needs, restore the independence and integrity of the medical
profession, and force the health care industry and insurance
companies to compete for consumers' dollars. The health care
delivery system at all levels should be accountable directly to
the individuals and families being served.
Thank you for the opportunity to present this testimony,
and I would be happy to answer questions or provide additional
information.
Chairman Thomas. Thank you very much, Ms. Arnett.
Mr. Sheils.
STATEMENT OF JOHN SHEILS, VICE PRESIDENT, LEWIN GROUP, FALLS
CHURCH, VIRGINIA
Mr. Sheils. Thank you, Mr. Chairman. Mr. Stark is right, of
course. The number of uninsured is well-understood throughout
the country. But I think the characteristics of the uninsured
are not that well-understood and that is important because that
will have a bearing on the types of programs we need to put
together to address that population. Today I am going to
discuss the growth of the uninsured population, the
characteristics of the uninsured, and, interesting, will
identify some coverage opportunities that are currently being
declined by the uninsured.
On the next page of my testimony, figure one, we have data
on the uninsured going back to 1980. The number of uninsured
increased from about 24 million in 1980 to 43 million by 1997.
Over that period, the number of uninsured has grown at a rate
of about 1 million persons per year. At that rate, we project
the number of uninsured to reach 54 million by the year 2007.
The data used to develop the estimates I just showed you
are actually somewhat controversial. The Bureau of the Census
data that they use actually underreports the number of Medicaid
recipients by about 18 percent and those persons are
erroneously classified as uninsured. When you correct for that,
the number of uninsured comes down to about 38 million. In
addition, Congress has a health insurance program in the
pipeline right now with The Children's Health Initiative that
we believe would reduce the number of insured by something in
the neighborhood of 2.1 million children. If you account for
those two factors, the number of uninsured that we are working
with is closer to 36 million.
The important point here is that, while different people
have different opinions on what set of numbers of use, all of
those numbers show a continuing rise in the uninsured
population, something in the neighborhood of 1 million persons
per year.
The uninsured: What do there incomes look like? About 38.5
percent of the uninsured have incomes below 150 percent of the
poverty level. However, interestingly, we have 40.7 percent of
the population are in middle-income groups, ranging from
$20,000 to $50,000. The uninsured problem is fast becoming, has
become, a problem for the middle-class American. One of the
things we find here which is particularly disturbing, really,
is that there are about 7.1 million uninsured, about 20 percent
of the uninsured, are in families with incomes in excess of
$50,000. That is an income level where, arguable, some level of
insurance would be affordable.
We also estimate that, of the 36 million uninsured, about
4.8 million would be persons who are actually eligible for
either Medicaid or CHIP, the Children's Health Insurance
Program, who have decided not to enroll. And three-quarters of
these people will be children.
One of the most surprising figures in our work with this
new data that has become available is we estimate there are
about 10.2 million uninsured persons who have access to
employer-sponsored coverage but do not take it. There are about
3.4 million workers who have declined coverage at work and have
been left uninsured. They have about 2.8 million uninsured
dependents. In addition, there are about 4 million children in
families where the parent has taken the employer coverage
offered at their place of work, but they have declined the
family coverage option. Often that is because the employer will
say: I'll help you pay for the worker's insurance, but the
family is going to have pay for the full amount of family
coverage costs.
One of the apparent culprits in this is not just the rise
in health care costs, but, more importantly, the increasing
proportion of the premium that employers are asking employees
to pay for their coverage. For single coverage in 1991, a
worker would pay 13 percent of the premium cost as a deduction
from their paycheck. By 1996, it rose to 22 percent. That is
about doubling. Family coverage grew from about 23 percent of
the premium to about 31 percent of the premium. We found in a
later study that each 1 percent increase in the premium prices
paid, after adjusting for inflation, each 1 percent premium
increase resulted in a loss in coverage of about 300,000
persons. And that is expected to continue.
So, to summarize some of the most troubling findings, first
of all, the uninsured population is growing on an average of
about 1 million persons per year. About 13.4 percent of the
uninsured will actually be eligible for Medicaid or CHIP, but
will not enroll. And about 10.2 million of the uninsured could
take coverage through an employer plan, but have declined to
take that coverage, presumably because of affordability issues.
Finally, nearly 20 percent of the uninsured have family incomes
in excess of $50,000 per year, yet do not purchase health
insurance.
Thank you.
[The prepared statement follows:]
Statement of John Sheils, Vice President, Lewin Group, Falls Church,
Virginia
My name is John Sheils. I am a vice president with The
Lewin Group, a Washington-based consulting firm, specializing
in health care finance issues. Our firm has conducted numerous
studies of the financial impact of rising health care costs and
the growing uninsured population. We have also performed
financial analyses of various health care reform proposals for
several public and private organizations.
I am appearing today as an independent health policy
analyst. My testimony is my own and I am not appearing on
behalf of any individual or organization.
In my testimony, I discuss the continuing growth of the
uninsured population. I also discuss the characteristics of the
uninsured and identify coverage opportunities that are
currently being declined by many of the uninsured. At the
suggestion of your staff, my testimony is presented in a
bullet-point format with charts that is designed for easy
reference.
The Number of Insured Continues to Grow
The Bureau of the Census reports that 43.3 million
Americans were uninsured in 1997. This is equal to 16.1 percent of the
population.
The number of uninsured has steadily increased for the
past two decades. The number of uninsured increased from 24.5 million
persons in 1980 to 43.3 million persons in 1997 (Figure 1).
The number of uninsured has increased at a rate of roughly
10 million persons every decade. At this rate, the number of uninsured
reported by the Bureau of the Census will grow to about 54.0 million
persons by 2007, which will be equal to about 19.1 percent of the
population.
[GRAPHIC] [TIFF OMITTED] T9402.014
The Census Data Overstates the Number of Uninsured
About 18 percent of Medicaid recipients fail to
report that they are covered by the program in the Bureau of
Census data and are erroneously counted as uninsured.
Underreporting is most severe for children.
Correcting for this problem reduces the number of
uninsured in 1997 from 43.3 million to 38.1 million (Figure 2).
The Children's Health Insurance Program (CHIP)
created under the Balanced Budget Act of 1997 will cover 2.1
million uninsured children.
Accounting for both CHIP and underreporting
reduces the number of uninsured to 36.0 million persons, of
whom 6.3 million are children.
Even with these adjustments, however, the annual
increase in the number of uninsured is still expected to be
about 1.0 million persons over the next ten years.
Figure 2.--Estimate of the Number of Uninsured Persons in the US
(in thousands)
------------------------------------------------------------------------
Uninsured Persons
--------------------------------------
Total Children Adults
------------------------------------------------------------------------
Uninsured Persons as Reported in 43,329 11,211 32,118
1998 CPS \1\....................
Correction for Underreporting of (5,227) (2,865) (2,362)
Medicaid Coverage \2\...........
Expanded Eligibility under CHIP (2,071) (2,071) ...........
\3\.............................
--------------------------------------
Total Uninsured.............. 36,031 6,275 29,756
------------------------------------------------------------------------
\1\ Based upon Lewin Group analysis of the March 1998 Current Population
Survey (CPS) data, which reports insurance coverage data for 1997.
\2\ Adjustment required to correct for underreporting of Medicaid
coverage in the March CPS data. The CPS underreports Medicaid coverage
by about 18.2 percent.
\3\ Estimated number of children who ultimately will become covered
under the Children's Health Insurance Program (CHIP) established under
the Balanced Budget Act that is designed to extend coverage to persons
with incomes of up to 200 percent of the federal poverty level (FPL).
Source: Lewin Group estimates using the Medicaid Eligibility Simulation
Model (MedSim) and the March 1998 Current Population Survey (CPS)
data.
Many of the Uninsured are Young and Healthy Adults
About 17.4 percent of the uninsured are children
under age 19 (Figure 3).
About 42.7 percent of the uninsured are young
adults aged 19 to 34, even though this is the age group where
premiums for adults tend to be lowest.
About 8.9 percent (3.2 million) of the uninsured
are aged 55 and older where health costs and insurance premiums
can be four times greater than for an adult age 25.
Females are less likely than males to be uninsured
because many mothers and pregnant women qualify for coverage
under Medicaid.
[GRAPHIC] [TIFF OMITTED] T9402.016
The Uninsured are Found in All Income Groups
About 38.5 percent of the uninsured have incomes
below 150 percent of the federal poverty level (Figure 4).
However, about 26.6 percent of the uninsured have
incomes in excess of 300 percent of the FPL.
In fact, about 7.1 million of the uninsured (19.8
percent) are in families with incomes in excess of $50,000.
About 40.7 percent of the uninsured are in middle
income groups ranged from $20,000 to $50,000.
[GRAPHIC] [TIFF OMITTED] T9402.017
About 13.4 Percent of the Uninsured are Eligible for Either Medicaid or
CHIP
Even after CHIP is fully implemented, we estimate that 4.8
million of the uninsured (13.4 percent) will be eligible for either
Medicaid or CHIP.
Of these eligible but not enrolled persons, 3.4 million
will be children.
Figure 5.--Distribution of Uninsured Persons by Income
(in thousands)
------------------------------------------------------------------------
Uninsured Persons Eligible for Medicaid/
CHIP Who Do Not Enroll Number Percent
------------------------------------------------------------------------
Children under Age 19................... 3,445 9.6%
Adults Age 19-64........................ 1,146 3.2%
Elderly Age 65 and Over................. 236 0.6%
-------------------------------
Total................................. 4,827 13.4%
===============================
Total Uninsured....................... 36,031 100.0%
------------------------------------------------------------------------
Source: Lewin Group estimates based upon the 1998 Current Population
Survey (CPS) data corrected for underreporting and adjusted for the
expansion of children's coverage under CHIP using the Lewin Group
Medicaid Eligibility Simulation Model (MedSim).
About 10.2 Million Uninsured Have Access to Employer-Sponsored Coverage
But Do Not Take It
About 3.4 million uninsured persons are actually eligible
to participated in their employer's health plan.
These workers have about 2.8 million dependent spouses and
children that go uninsured.
There are another 4.0 million uninsured dependents of
workers who have taken coverage at work but have not elected the family
coverage option.
Overall, about 28.5 percent of the uninsured (10.2
million) have declined the employer coverage that is available to them.
Figure 6.--Distribution of Uninsured Persons by Access to Employer
Coverage in 1996 using the Medical Expenditures Panel Survey Data
------------------------------------------------------------------------
Uninsured with Access to Employer Number (in Percent of
Coverage thousands) Uninsured
------------------------------------------------------------------------
Workers Who Have Declined Employer 3,389 9.4%
Coverage /a/...........................
Dependents of Workers Who Have Declined 2,834 7.9%
Employer Coverage......................
Dependents of Covered Workers Who Have 4,023 11.2%
Declined Family Coverage...............
-------------------------------
Total Uninsured With Access to 10,246 28.5%
Employer Coverage....................
------------------------------------------------------------------------
/a/ The MEPS data report about 44.7 million uninsured person in the
first quarter of 1996. These data reflect an underreporting of
Medicaid enrollment of between 4.0 million and 5.0 million persons.
These data are not directly comparable with the CPS data. MEPS data
report the number of uninsured in the first quarter of the year while
the CPS reports the number of persons who were uninsured for all 12
months of the year.
Source: Lewin Group analysis of the 1996 Medical Expenditures Panel
Survey (MEPS) data.
Many of the Uninsured Work
About 76.2 percent of the uninsured are either
employed or are the dependent child or spouse of a worker some
time during the year (Figure 7).
However, many of these individuals work only part
time and for only part of the year.
If you look at the uninsured in any given month,
only 54.2 percent are working full time or are the dependent of
a full time worker. In any given month, about 45.8 percent have
no connection to employment.
[GRAPHIC] [TIFF OMITTED] T9402.020
Increases in the Employee Premium Contributions Seem To Be Part of the
Problem
The average percentage of the premium paid by the
worker for single coverage increased from 13.0 percent in 1991
to 22.0 percent in 1996 (Figure 8). For family coverage it
increased from 23.0 percent in 1991 to 31.2 percent in 1996.
A recent Lewin study showed that a 1.0 percent
real increase (i.e., inflation adjusted) in premium prices
results in 300,000 fewer persons taking employer coverage.\1\
---------------------------------------------------------------------------
\1\ Sheils, John, Hogan, Paul, and Manolov, Nikolay, ``Exploring
the Determinants of Employer Health Insurance Coverage,'' (Report to
the AFL-CIO) The Lewin Group, Washington, DC, January 20, 1998.
---------------------------------------------------------------------------
Recent survey data also indicates that the
percentage of individuals accepting the employer coverage
available to them declined from 88.3 percent in 1987 to 80.1
percent in 1996.\2\
---------------------------------------------------------------------------
\2\ Cooper, Philip and Steinberg-Schone, Barbara, ``More Offers,
Fewer Takers for Employment-Based Health Insurance: 1987 and 1996,''
Health Affairs, Nov-Dec 1997, 16(6): 142-9.
[GRAPHIC] [TIFF OMITTED] T9402.021
Troubling Findings
The uninsured population is growing by an average
of 1.0 million persons per year.
About 13.4 percent of the uninsured (4.8 million)
will actually be eligible for Medicaid or CHIP but will not
enroll.
About 10.2 million of the uninsured (28.5 percent)
could take coverage through an employer plan but have declined.
Nearly 20 percent of the uninsured have family
incomes in excess of $50,000 per year yet do not purchase
health insurance.
Chairman Thomas. Thank you very much, Mr. Sheils.
Mr. Holahan.
STATEMENT OF JOHN HOLAHAN, DIRECTOR, HEALTH POLICY CENTER,
URBAN INSTITUTE
Mr. Holahan. Thank you. Thank you for your invitation to
discuss the problem of the uninsured. I am the director of the
Health Policy Research Center at the Urban Institute.
This is a very large topic. I would like to make three
points and the first relates to differences in insurance
coverage between adults and children. In this country, we have
made a very large effort over the last 10 to 15 years to expand
coverage of children through Medicaid and, more recently,
through the Children's Health Insurance Program. The result is
that now children are more likely to be covered by Medicaid and
much less likely to be uninsured than adults.
Figure one in my testimony shows differences between adults
and children. The upper panel shows that the uninsured rates
for adults are 17 percent versus the 12 percent for children.
The lower panel looks at the population below 200 percent of
poverty. There the difference is a 37 percent versus 21
percent. Adults are also much less likely to have a usual
source of care and much more likely to be in fair or poor
health than children.
I would also point out that these differences are likely to
become greater. Children on Medicaid are less affected by
welfare reform and they will also benefit from CHIP. Adults
have fewer ways to stay on Medicaid after welfare reform and
are more likely to become uninsured. I would conclude that
these differences are likely to become greater.
The second point is about variations among States in
uninsured rates. I am going to talk about data from the
National Survey of American Families, a new survey that we have
done at the Urban Institute. The survey has large samples at
the State level for 13 States which allows us better estimates
at the State level than does the Current Population Survey. It
shows very large variations among States in private coverage,
particularly in employer-sponsored coverage, and these
variations in employer coverage strongly affect uninsured rates
among States.
I point you to figure two in the testimony, which shows
variations across States. Across the top are the percentage
uninsured; the middle bar, the percentage covered by public
programs; and the lower bar, population covered by private
coverage, principally employer-sponsored coverage. There you
can see that as employer-sponsored coverage goes down, the
percentage uninsured tends to go up. It varies from a high in
terms of private coverage from 84 percent in Wisconsin to 80
percent in Minnesota down to 58 percent in Mississippi to 56
percent in Texas. The corresponding uninsured rates are 5
percent in Minnesota and 6 percent in Wisconsin versus 19
percent in Mississippi and 21 percent in Texas.
This is not meant as a criticism of employers, but to point
out that States have a much bigger problem to deal with where
employer coverage is low. For example, if you look at that same
chart, you can see that 16 percent of the population covered
are not covered by private plans in Wisconsin versus 44 percent
in Texas, giving States like Texas and their localities a much
bigger problem to deal with than do others.
Figure four shows the same information for adults, that is,
adults between 18 and 64 years of age. There you can see the
pattern of variations in employer coverage as well as the
mirror image in terms of variations in the uninsured rate. The
coverage through private plans is 86 percent in Wisconsin down
to 66 percent in Texas and the uninsured rate varies from 10
percent in Wisconsin to 27 percent in Texas.
I then want to move on and make a couple of points about
recent insurance trends and this will sound a bit like what
Paul Fronstin just said. The number of Americans without health
insurance according to the Current Population Survey, has risen
from 34.9 million in 1989 to 43.1 in 1997. The key thing here
is that the reasons for the growth before and after 1984 have
changed. From 1989 to 1993, employer-sponsored coverage
declined primarily for dependents. Medicaid grew sharply
because of the expansions for children and pregnant women and
the recession. And the uninsured rate grew, but not as much as
it would have if it hadn't been for public sector growth.
Since 1994, employer-sponsored coverage grew significantly
for both workers and dependents. The decline in Medicaid
enrollment is probably the major reason for the increase in the
uninsured. There have also been declines in private nongroup
coverage for those below 200 percent of poverty. The uninsured
continued to rise, but not as much as it would have risen had
employer-sponsored coverage not continued to increase.
It is hard to know at this point whether this growth in the
last few years in employer-sponsored coverage is the reversal
of past trends--the product of a lower rate of growth in health
care costs coupled with a tight labor market. But if employer-
sponsored coverage turned around and started to fall at the
same time that Medicaid rates were falling, then you could see
a sharp increase in the uninsured.
Thank you very much.
[The prepared statement and attachments follow:]
Statement of John Holahan, Director, Health Policy Center, Urban
Institute
Thank you for the invitation to address the Committee about
the problem of the uninsured. In my testimony I will focus on
three aspects: differences between adults and children,
differences among states, and recent trends. There are three
major conclusions:
(1) The United States has made a large effort to expand
health insurance coverage of low-income children through the
Medicaid program. This has continued more recently with the
Children's Health Insurance Program. Largely as a result of
Medicaid, children are much less likely to be uninsured than
adults. Three-quarters of the uninsured in the United States
are adults, and 37 percent of adults with incomes less than 200
percent of the Federal Poverty Line (FPL) are uninsured.
(2) There are significant differences among states in the
likelihood of being uninsured. For both adults and children,
the proportion of a state's population that lacks health
insurance is inversely related to private coverage,
predominantly provided through employer-sponsored plans.
Medicaid and other state programs offset differences in private
coverage to some degree. However, the problems states face in
terms of the size of their uninsured populations depend largely
on the extent of employer coverage.
(3) The decline in employer-sponsored coverage over the
last 15 years has been well documented. This decline has
resulted in increases in the number of uninsured, despite
expansions of Medicaid. Since 1994, employer-sponsored coverage
has actually increased, particularly for dependents. The number
of uninsured has continued to increase, but now the major
reason has been a decline in Medicaid enrollment.
This testimony draws on research that we have conducted at
the Urban Institute. It relies on data collected through the
National Survey of America's Families (NSAF), a new survey that
provides information on over 100,000 children and non-aged
adults representing the noninstitutionalized civilian
population under age 65.\1\ The NSAF, conducted from February
to November 1997, was designed to provide both state
representative estimates in 13 states as well as reliable
national level estimates. The 13 states are Alabama,
California, Colorado, Florida, Massachusetts, Michigan,
Minnesota, Mississippi, New Jersey, New York, Texas,
Washington, and Wisconsin. The testimony also relies on
analysis of several years of Current Population Survey data.
Adults and children. Figure 1 provides data on rates of
uninsurance, health status, and usual sources of care.\2\ The
upper panel shows that adults are much more likely to be
uninsured than children; they are also more likely to be in
fair or poor health and to lack a usual source of care than
children. For families of all incomes, 17 percent of adults are
uninsured compared to 12 percent of children. Adults are also
three times more likely to lack a usual source of care (18
percent versus 6 percent) and more than twice as likely to be
in fair or poor health (12 percent versus 5 percent).
Both adults and children are worse off within low-income
families, but the relative differences between adults and
children are similar to those for all families. The lower panel
of Figure 1 shows that uninsurance rates were 21 percent for
low-income children and 37 percent for low-income adults.
Health status was worse for low-income adults--23 percent of
low-income adults were in fair or poor health versus 8 percent
of low-income children--and they were less likely to have a
usual source of care--27 percent of low-income adults versus 10
percent of children lacked a usual source of care. The finding
that low-income adults are less likely to have a usual source
of care is consistent with their being more likely to lack
health insurance, but somewhat inconsistent with the fact that
they are in poorer health.
Table 1 examines the insurance coverage of adults and
children in more detail. The data show that, for families of
all incomes, adults are slightly more likely than children to
have private coverage, 75 percent versus 69 percent. However,
they are much less likely to be covered through public programs
(primarily Medicaid), 8 percent versus 20 percent. This results
in a lower uninsurance rate for children than for adults.
Most of the differences between adults and children are
because of different insurance arrangements of those below 200
percent of the FPL. Low-income adults are only slightly more
likely to have private coverage than children, 44 percent
versus 40 percent. However, low-income children are far more
likely to have public coverage, 39 percent versus 20 percent,
because of the poverty-related Medicaid expansions and because
several states have other programs to subsidize health
insurance for low-income children. The result of the more
extensive public coverage of children is that the uninsurance
rates for low-income children are substantially below those of
low-income adults.
Variations among states in health insurance coverage:
Children. State differences in health insurance coverage of
children are shown in Figure 2. Private coverage (employer-
sponsored and privately purchased insurance) for children of
all incomes varies from a low of 56-58 percent (Mississippi,
Texas) to a high of 84 percent (Wisconsin). Public coverage
also varies from a high of 23-26 percent (California,
Mississippi, New York, Texas, and Washington) to a low of 10-15
percent (Colorado, Minnesota, New Jersey, and Wisconsin).
Public coverage is high where there are ambitious public
programs that provide coverage such as in California, New York,
and Washington. Public coverage is also high where there is a
large low-income population, such as Mississippi and Texas. The
high levels of public coverage in California and New York
reflect both broad coverage and large low-income populations.
In general, high levels of public coverage do not offset low
levels of private coverage, with the result that states such as
Mississippi and Texas have the highest uninsurance rates.
Because of their high rates of private coverage, states such as
Massachusetts, Michigan, Minnesota, and Wisconsin have the
lowest rates of uninsurance.
Data in Figure 3 show that public coverage has a greater
impact among lower-income children than among all children.
States with public programs that have had broad coverage
expansions, e.g., Massachusetts and Washington, or where
existing eligibility rules bring in large numbers of children
because there are so many low-income families, e.g., California
and New York, have the highest rates of public coverage. Public
coverage does more to offset low private coverage among low-
income children than for all children. For example, while New
York and Washington have below-average rates of private
coverage for low-income children, they have above-average rates
of public coverage, and as a result, have below-average rates
of uninsurance.
Public coverage, however, does not always offset low levels
of private coverage. For example, Texas and Mississippi both
have below-average levels of private coverage. Both have levels
of public coverage that are not significantly different from
the national average. As a result, they have uninsurance rates
of 32 and 28 percent, respectively, that are well above the
national average. Colorado has levels of private coverage of
low-income children similar to the national average, but public
coverage is considerably below average. The result is an
uninsurance rate that is significantly higher than the national
average. Finally, Massachusetts stands out as a state whose
private coverage is equal to the national average, but that
also has very high rates of public coverage. The result is one
of the lowest rates of uninsurance of low-income children in
the nation.
[GRAPHIC] [TIFF OMITTED] T9402.022
[GRAPHIC] [TIFF OMITTED] T9402.023
[GRAPHIC] [TIFF OMITTED] T9402.024
[GRAPHIC] [TIFF OMITTED] T9402.025
Some states with high rates of public coverage of low-
income children still end up with relatively low rates of
public coverage of children overall because they have
relatively small low-income populations--for example,
Massachusetts. The opposite is true for a state like Texas. For
example, Texas covers 39 percent of its low-income population
(less than Massachusetts, at 47 percent) but 23 percent of its
entire child population (versus 18 percent in Massachusetts).
Another interesting contrast is that of Minnesota and
Mississippi. Minnesota covers 41 percent of its low-income
population, but only 15 percent of its entire population.
Mississippi, in contrast, covers 36 percent of its low-income
population, about equal to the national average, but 24 percent
of its entire population.
This suggests that it is both public policy and the size of
the low-income population to which those policies are directed
that will affect the proportion of children in a state covered
by public programs. This explains why states such as Texas and
Mississippi cover a higher proportion of their children through
public programs than states such as Massachusetts and
Minnesota, typically regarded as states with very generous
policies.
Variations among states in health insurance coverage:
Adults. A similar picture emerges for adults. Figure 4 shows
that private coverage varies from 66-68 percent (California,
Florida, Mississippi, and Texas) to 82-86 percent
(Massachusetts, Michigan, Minnesota, and Wisconsin). Public
coverage varies from 10 to 12 percent in California,
Mississippi, and Washington to as low as 4 percent in Wisconsin
and 5 percent in New Jersey. Public coverage does less to
offset variations in private coverage among adults than among
children. Thus, states such as California, Florida,
Mississippi, and Texas have the highest rates of uninsurance
(21-27 percent), while states such as Massachusetts, Michigan,
Minnesota, and Wisconsin have the lowest rates of 9 to 11
percent. Because there is less variation in public coverage for
adults than for children, the variation in uninsurance rates
more closely tracks the variation in private coverage.
[GRAPHIC] [TIFF OMITTED] T9402.026
Public programs are, again, more important for low-income
nonelderly adults than for all nonelderly adults. Figure 5
shows that states such as Massachusetts, Minnesota, New York,
and Washington have the highest rates of coverage in public
programs. But again, this public coverage usually does not
offset the variations in private coverage. For example,
California and Texas had very low rates of private coverage, 35
and 36 percent, respectively. California's 22 percent of low-
income adults with public coverage and Texas's 14 percent did
not offset these low rates of private coverage. Consequently,
those states had higher-than-average uninsurance rates for low-
income adults; 43 percent in California and 50 percent in
Texas. In New York, a relatively high rate of public coverage,
27 percent, did offset the low rate of private coverage, giving
New York an uninsurance rate close to the national average. An
exception is Colorado, which had such a low rate of public
coverage, 14 percent, that it had an uninsurance rate
comparable to the national average despite having relatively
high rates of private coverage.
[GRAPHIC] [TIFF OMITTED] T9402.027
As was observed for children, some states typically thought
of as having very generous public programs actually have below-
average rates of public coverage for adults as a whole. For
example, Massachusetts, which had above-average coverage of the
low-income adult population, had slightly below-average
coverage of the adult population as a whole. This is because
Massachusetts has a relatively small low-income adult
population. At the other extreme, Mississippi and California,
which have about average coverage of the low-income adult
population, have above-average coverage of the adult population
as a whole because of their large low-income populations.
Why does the number of uninsured continue to grow? The
number of uninsured in the United States has continued to
increase, but for different reasons in the past few years
(1994-1997) than in the prior period (1989-1993). Table 2
provides information on coverage for all nonelderly and for
adults and children; Table 3 provides information on coverage
for individuals in households with incomes below 200 percent of
the FPL, between 200 and 399 percent of the FPL, and at or
above 400 percent of the FPL. The tables show the number of
individuals by type of coverage in 1989-93 and 1994-97, as well
the average annual growth rates.
The reason for the break between 1993 and 1994 is that
major changes were made to the Current Population Survey that
make comparisons of trends before and after inappropriate. The
years 1993-94 are an important breakpoint for other reasons as
well. About this time, the economy had emerged from the 1990-92
recession and began a long period of economic growth. In
addition, the Medicaid expansions to coverage children and
pregnant women had been phased in, and state welfare reform
efforts began to affect Medicaid enrollment.
Table 2 shows that the number of uninsured increased by 6.6
million (4.4 percent annually) between 1989 and 1993. The
number of uninsured children and adults increased by 1.3 and
5.3 million, respectively (2.7 and 5.1 percent annually). For
both children and adults, there were declines in employer-
sponsored coverage, particularly for dependents. The Medicaid
expansions partially offset the declines in employer-sponsored
coverage for both groups.
Table 2.--Health Insurance Coverage, 1989-1997 Nonelderly by Age Group
----------------------------------------------------------------------------------------------------------------
Millions Average Annual
---------------------------------------- Growth
Type of Coverage \1\ ---------------------
1989 1993 1994 1997 1989-93 1994-97
----------------------------------------------------------------------------------------------------------------
All Nonelderly: 215.7 228.0 229.9 236.2 1.4% 0.9%
Employer (own) \2\.............................. 71.3 72.2 75.1 77.4 0.3% 1.0%
Employer (other) \3\............................ 70.8 65.9 72.9 76.4 -1.8% 1.6%
Medicaid........................................ 15.1 22.9 23.0 21.1 10.9% -2.9%
Other Public \4\................................ 7.0 7.7 6.1 5.7 2.3% -2.6%
Other Private \5\............................... 16.5 17.9 13.2 12.6 2.0% -1.6%
Uninsured \6\................................... 34.9 41.5 39.6 43.1 4.4% 2.9%
Children: 0-18 67.9 73.2 74.0 75.5 1.9% 0.7%
Employer (own).................................. 0.2 0.4 0.6 0.4 23.8% -11.3%
Employer (other)................................ 42.4 41.0 44.3 46.6 -0.8% 1.7%
Medicaid........................................ 7.8 12.3 13.3 12.1 12.1% -3.1%
Other Public.................................... 2.8 3.5 1.7 1.5 6.0% -3.7%
Other Private................................... 3.6 3.5 3.3 3.2 -0.9% -1.5%
Uninsured....................................... 11.1 12.4 10.7 11.6 2.7% 2.8%
Adults: 19-64 147.8 154.9 155.9 160.7 1.2% 1.0%
Employer (own).................................. 71.1 71.8 74.5 77.0 0.2% 1.1%
Employer (other)................................ 28.5 24.9 28.6 29.8 -3.3% 1.3%
Medicaid........................................ 7.3 10.6 9.6 8.9 9.7% -2.5%
Other Public.................................... 4.2 4.1 4.4 4.1 -0.3% -2.2%
Other Private................................... 12.9 14.4 9.8 9.4 2.7% -1.6%
Uninsured....................................... 23.8 29.1 29.0 31.5 5.1% 2.9%
----------------------------------------------------------------------------------------------------------------
Source: Urban Institute, 1999. Based on data from March Current Population Surveys, 1990-1998.
Note: Excludes persons aged 65 and older and those in the Armed Forces.
Starting with the 1995 March CPS, significant changes were made to the questionnaire regarding health insurance
coverage, including changes in question order, the use of state-specific Medicaid program names, and the
addition of more detailed questions. In addition, the 1995 CPS reflects a change in the questionnaire's sample
framework. Therefore, it is recommended that data from 1994 and afterwards not be compared to data from
previous years in time-series analyses.
\1\ Although survey respondents can choose more than one type of health insurance coverage, individuals were
assigned one type of coverage, following a hierarchy as listed.
\2\ Insurance through an individual's own employer group health plan
\3\ Primary coverage through another worker's employer group health plan (i.e., spouse or parent's plan).
\4\ Coverage from other non-Medicaid government insurance programs (i.e., Civilian Health and Medical Program of
the Uniformed Services [CHAMPUS], Medicare, etc.).
\5\ Coverage through a private insurance plan, but not as part of an employer-provided benefit (i.e.,
individually purchased nongroup coverage).
\6\ Uninsured is the residual category. An individual is classified as uninsured if he or she did not report any
of the previous types of insurance coverage over the course of the year. Those with Indian Health Services as
their only source of insurance are considered uninsured.
During the 1994-1997 period, the number of nonelderly
uninsured increased by 3.5 million (2.9 percent annually),
while the number of uninsured children and adults increased by
0.9 and 2.6 million, respectively (2.8 and 2.9 percent
annually). But the increases in the uninsured in the latter
period occurred for different reasons. First, there was a drop
in Medicaid of about 1.9 million people (1.2 million children
and 0.7 million adults, or 3.1 and 2.5 percent annually,
respectively). There were also decreases in other public
coverage of 0.4 million; this was due principally to reductions
in military-related coverage (e.g., CHAMPUS, Veterans'
Administration) presumably due to military downsizing. There
was also a reduction of 0.6 million in other private coverage,
possibly reflecting the increased cost of health insurance in
the private nongroup market.
These reductions in Medicaid, other public and other
private coverage would have resulted in even greater increases
in the uninsured had it not been for increases in employer-
sponsored coverage. The number of adults covered through their
own employers increased by about 2.5 million or by 1.1 percent
annually, while the number of dependent children covered
increased by 2.3 million or 1.7 percent annually and the number
of dependent adults increased by 1.2 million or 1.3 percent
annually. Thus, unlike the previous period, the increase in
employer coverage kept the number of uninsured from increasing
by more than it otherwise would have.
Table 3 provides similar data, disaggregated by income
category. For those below 200 percent of the FPL, there was a
large increase in Medicaid enrollment (7.4 million or 10.7
percent annually) between 1989 and 1993. There were also
smaller increases in employer-sponsored coverage as well as
other public and other private coverage. But because of a large
increase in size of the population below 200 percent of the
FPL, the number of uninsured increased by 3.8 million (3.6
percent annually).
Between 1994 and 1997, there were large reductions in
Medicaid enrollment (about 2.0 million), in other public
coverage (0.4 million), and in private nongroup coverage (1.1
million). Because of these declines, the number of uninsured
increased by 1.3 million. The increases would have been larger
had it not been for the strong economy reducing the number of
people below 200 percent of the FPL.
Table 3.--Health Insurance Coverage, 1989-1997 Nonelderly by Income
----------------------------------------------------------------------------------------------------------------
Millions Average Annual
---------------------------------------- Growth
Type of Coverage \1\ -------------------
1989 1993 1994 1997 1989-93 1994-97
----------------------------------------------------------------------------------------------------------------
All Nonelderly: 215.7 228.0 229.9 236.2 1.4% 0.9%
Employer (own) \2\................................ 71.3 72.2 75.1 77.4 0.3% 1.0%
Employer (other) \3\.............................. 70.8 65.9 72.9 76.4 -1.8% 1.6%
Medicaid.......................................... 15.1 22.9 23.0 21.1 10.9% -2.9%
Other Public \4\.................................. 7.0 7.7 6.1 5.7 2.3% -2.6%
Other Private \5\................................. 16.5 17.9 13.2 12.6 2.0% -1.6%
Uninsured \6\..................................... 34.9 41.5 39.6 43.1 4.4% 2.9%
Less than 200%: 74.4 88.2 87.6 85.1 4.3% -1.0%
Employer (own).................................... 10.2 11.6 12.4 12.1 3.4% -0.9%
Employer (other).................................. 14.3 13.9 16.1 16.0 -0.8% -0.1%
Medicaid.......................................... 14.5 21.9 21.8 19.8 10.7% -3.1%
Other Public...................................... 4.0 4.9 3.5 3.1 5.3% -4.6%
Other Private..................................... 6.8 7.6 6.0 4.9 2.7% -6.2%
Uninsured......................................... 24.5 28.3 27.8 29.1 3.6% 1.6%
200 to 399%: 72.2 71.9 71.6 73.0 -0.1% 0.6%
Employer (own).................................... 27.1 27.5 27.5 27.4 0.4% -0.2%
Employer (other).................................. 30.0 27.0 28.7 29.3 -2.6% 0.7%
Medicaid.......................................... 0.5 0.9 0.9 1.0 17.8% 1.1%
Other Public...................................... 1.9 1.7 1.7 1.7 -2.7% -1.7%
Other Private..................................... 5.3 5.5 4.1 4.0 1.0% -0.7%
Uninsured......................................... 7.4 9.2 8.6 9.7 5.5% 4.1%
400 and over: 69.1 68.0 70.7 78.1 -0.4% 3.4%
Employer (own).................................... 34.0 33.0 35.2 38.0 -0.8% 2.6%
Employer(other)................................... 26.5 25.0 28.1 31.1 -1.4% 3.4%
Medicaid.......................................... 0.1 0.1 0.2 0.3 6.1% 3.0%
Other Public...................................... 1.1 1.0 0.8 0.9 -0.9% 3.3%
Other Private..................................... 4.4 4.8 3.1 3.6 1.9% 5.2%
Uninsured......................................... 3.0 4.0 3.2 4.3 7.7% 9.7%
----------------------------------------------------------------------------------------------------------------
Source: Urban Institute, 1999. Based on data from March Current Population Surveys, 1990-1998.
Note: Excludes persons aged 65 and older and those in the Armed Forces.
Starting with the 1995 March CPS, significant changes were made to the questionnaire regarding health insurance
coverage, including changes in question order, the use of state-specific Medicaid program names, and the
addition of more detailed questions. In addition, the 1995 CPS reflects a change in the questionnaire's sample
framework. Therefore, it is recommended that data from 1994 and afterwards not be compared to data from
previous years in time-series analyses.
\1\ Although survey respondents can choose more than one type of health insurance coverage, individuals were
assigned one type of coverage, following a hierarchy as listed.
\2\ Employer (own) coverage includes insurance through an individual's own employer group health plan.
\3\ Employer (other) is primary coverage through another worker's employer group health plan (i.e., spouse or
parent's plan)
\4\ Other Public is coverage from other non-Medicaid government insurance programs (i.e., Civilian Health and
Medical Program of the Uniformed Services [CHAMPUS], Medicare, etc.).
\5\ Other Private is coverage through a private insurance plan, but not as part of an employer-provided benefit
(i.e., individually purchased nongroup coverage).
\6\ Uninsured is the residual category. An individual is classified as uninsured if he or she did not report any
of the previous types of insurance coverage over the course of the year. Those with Indian Health Services as
their only source of insurance are considered uninsured.
For those at the other end of the income distribution,
i.e., 400 percent of the FPL and over, Medicaid and other
public programs are relatively unimportant. This income group
experienced a reduction in employer-sponsored coverage between
1989 and 1993, and as a result the number of uninsured
increased by 1.0 million, or 7.7 percent annually. Between 1994
and 1997 the number of uninsured continued to increase, again
by 1.1 million or 9.7 percent annually. In this period there
were significant increases in employer-sponsored coverage and
in nongroup coverage, but these were not sufficient to match
the substantial population growth in this income range.
In sum, these results mean that between 1994 and 1997 low-
income populations were adversely affected by significant
reductions in Medicaid (2.0 million) and not helped by the
increase in employer coverage. They also experienced
substantial drops in private nongroup coverage. The number of
uninsured among families with incomes below 200 percent of
poverty increased by 1.3 million. Had it not been for a decline
of 2.5 million in the total number of people below 200 percent
of the FPL, the increase in the number of low-income people who
were uninsured would have been much higher. For higher-income
adults and children, the increases in employer coverage and in
private nongroup coverage were substantial, but not sufficient
to keep up with the growth in the number of higher-income
adults and children, resulting in an increased in the uninsured
of 1.1 million, or 9.7 percent annually.
ENDNOTES
\1\ Stephen Zuckerman, Niall Brennan, John Holahan, Genevieve
Kenney, and Shruti Rajan, ``Snapshots of America's Families: Variations
in Health Care Across States,'' Washington, DC: The Urban Institute
(Assessing the New Federalism), February 1999.
\2\ The information presented in this testimony shows a lower
percentage of children and non-elderly adults being uninsured than
reported in the Current Population Survey. There are two fundamental
reasons for the differences between the two surveys and their measures
of insurance coverage. The first reason is that the NSAF measures
insurance coverage at the time of the survey, whereas the CPS asks
about coverage during the previous calendar year. The second reason for
the difference is that the CPS asks a series of questions about
insurance coverage and then assumes that any person not designated as
being covered through any type of health is uninsured. The NSAF uses a
series of questions similar in wording and sequence to the CPS, but
adds a question that verifies whether people who appear not to have
coverage are, in fact, uninsured. A substantial number of people who
are initially designated as uninsured change to being insured as a
result of the verification question. A detailed discussion of this
issues is presented in Zuckerman, et al. (1999).
The views expressed in this statement are solely those of the
author and should not be attributed to the Urban Institute, its
trustees or its funders.
Chairman Thomas. Thank you very much. I think everyone
agrees that at least, notwithstanding Dr. Fronstin's suggested
adjustments to the 43 million where there may be some
overcounts--I believe it was your testimony; it is somewhere
between--oh, no, it was Mr. Sheils--it is somewhere between 38
and 43 million.
But when we begin to address the group in terms of
potential public policy response, there are just a couple of
percentages that jumped out at me. For example, somebody had a
chart which showed that 19.8 percent over $50,000 were
uninsured. And at some point, you begin asking yourself the
question are these people comfortable, depending upon how many
are in the higher income brackets, being, in essence, self-
insured, that they don't think the purchase of insurance, as
they see it, as an economic value worth spending the money? Or
what is it that clearly creates a decision on someone who is
making maybe even $100,000 a year not to have health insurance?
Those questions and the pursuit of that I think would be
fundamentally different than when you say 13.4 percent of those
who are eligible for Medicaid or CHIP are not now covered by a
program in which they are eligible to be covered. Why aren't
those people--why don't we have an outreach program? And, if we
do, why is it not successful? It just seems to me, in
addressing the question of insured, there are two fundamentally
different approaches to two different groups.
And if you have got more than 11 percent who have chosen
not to take the health coverage and, notwithstanding the fact
that their employer offers it, then that is another group that
we could deal with, perhaps, in a slightly different way.
That kind of a profile leads me to the question, I guess,
that my friend from California thinks we already have the
answer to, is there a single thing that would have the biggest
impact on the uninsured? If we could do one thing or if were
going to try to prioritize, in terms of public policy, where
would we get the best return on our investment of trying to
reduce the number of uninsured? Notwithstanding the fact that
apparently there are some who, whatever we would do, would
probably not be interested unless it was a mandated program to
require them to carry health insurance because it appears not
to be a financially driven decision. What is it that would be
the one thing that we could do that would have the greatest
impact? Any of the panelists.
Ms. Arnett. Mr. Chairman----
Mr. Fronstin. Can I just clarify one thing about the income
estimates?
Chairman Thomas. Surely.
Mr. Fronstin. I think when you are looking at a person who
reports they are in a family that has an income of $50,000--
say, $50,000, $60,000--my guess is you could easily find that a
lot of those people are in two-worker families. Each worker is
maybe making half that amount, $25,000 or $30,000. And they are
less likely to be offered coverage to begin with because of the
job they have, not because of the family income, when you look
at it in aggregate.
Chairman Thomas. I think that is a fair enough statement.
And let us remove a significant percentage of those. I think
when you begin whittling it down, you are still going to find
what it would be, I think, a surprising percentage, even if it
is only 5 or 6 percent, of people who are counted in the groups
of the uninsured who would meet an income profile significantly
different than most people just a priori thinking what the
uninsured look like.
Mr. Fronstin. True.
Chairman Thomas. Thank you.
Mr. Fronstin. And, in terms of where you would have the
biggest effects, if you take the uninsured pie, 43 million, and
start dividing it up, you really have 2 major groups. Workers
in small firms and their dependents account for about 60
percent, and that includes self-employed, 98 percent of which
work for small firms. And my definition of small firms is 100
or fewer than 100 employees. That is over half.
The other large piece of that pie is children. We are
talking about 25 percent of the uninsured. While there is now a
CHIP, that will have some impact on that population. If the
estimate is that only 2 million children will be covered under
that program, that still leaves 8 or 9 million children
uninsured.
I think that is where you will have the biggest effect. I
don't think you are going to have a big effect with the near-
elderly, the 55- to 64-year-olds. There are about 3 million
uninsured in that population. If, by chance, we got every
single one of them covered, whether it be a Medicare Program or
something else, you still have 40 million people uninsured. It
won't have a big effect on the total picture, but it will
certainly have an effect for that population.
Chairman Thomas. Well, if we are concerned about access to
and affordability of health insurance, based on what you just
said, it sounds to me like trying to help buy down the cost of
participation would be a major factor in picking up that single
largest group that you identified.
Mr. Fronstin. Cost is the major reason, but also, when you
are looking at small employers, it is not just cost. Small
employers are typically more concerned about running the day-
to-day operation of their business than they are about going
out and searching for health insurance, even at a reasonable
cost. And a lot of small employers would like to do that, but
they just don't have the time; they don't have the staff or the
resources.
Ms. Arnett. Mr. Chairman, I believe that the direct
correlation between rising costs and the rising number of
uninsured shows that an important step is to provide resources
to help people to purchase health insurance. I think that is
why there has been so much interest in the individual tax
credit proposals Mr. McDermott has introduced. I know you and
Mr. McCrery are working on a tax credit proposal. I know Mrs.
Johnson has expressed interest and others as well in
individually based tax credits. This idea has strong support in
the market-based policy community.
My colleague, Mark Pauly, a professor of health economics
from the Wharton School, is doing an analysis now which is not
yet published but will soon be. His research shows that if
Congress were to provide a tax credit worth half the value of a
decent health insurance policy, that the number of uninsured
workers would fall by half, which is really a significant
number. The costs numbers may be unaffordable, but I think it
points in the right direction. The chart on my right shows
where the problem really is. If people are of very low income,
they very likely qualify for public programs. As they move up
the income scale, they fall out of public programs but yet
don't make enough to qualify for the generous taxpayer support
for employment-based health insurance.
If something can be done to help people in the $20,000 to
$40,000 income range who are not eligible for public programs
and don't qualify for or benefit from the employment-based
exclusion, that would help enormously.
Chairman Thomas. Does anyone else want to comment?
Mr. Sheils. Yes. I just wanted to make a point that we have
looked at tax credits. Tax credits are interesting. There are a
lot of nice ideas there and there are a lot of things where you
can get lost.
One idea is to assist workers who have employer-based
coverage in buying that coverage, giving them a tax credit, for
example, for them to purchase some of that coverage. They are
basically adding the employer's contribution to their own, or
to the tax credit, and they can purchase it. The problem with
that is that if you made the credit generally available to all
workers, you would find that about three-quarters of the money
that you were going to spend is going to go to people who
already have insurance.
Chairman Thomas. Exactly, or higher.
Mr. Sheils. That is true. Also it is important not to leave
out the nonworker category. This is a group of people who often
are not working because they can't work. Some measure of
disability, for example, is an example. We would not want--I am
not sure we would want to focus a credit just on, say, the
workers. The nonworker group probably deserves its attention as
well.
We have looked at some of these proposals where a tax
credit was provided generally to all individuals for up to half
of the premium. We saw the number of uninsured would be reduced
by between 8 and 10 million persons. That would be a very big
drop in the number of uninsured. It wouldn't be quite as much
as half of the uninsured, but it would be quite significant.
Chairman Thomas. Mr. Holahan.
Mr. Holahan. Yes. Could I just make a point? A couple of
points. One is that the numbers of people who would take up
insurance with a 50-percent subsidy sound a bit high to me. I
would like to know more about where that came from. Because I
think, even for low-income people, subsidies closer to 100
percent result in participation rates in the 50- to 60-percent
range. And as subsidies decline as incomes go up, you would see
lower takeup rates.
Which goes to a related point that it is just remarkable,
not just for low-income people, but for high-income people, why
people don't value health insurance more than they do. You hear
people say I won't need it or I'm healthy, but the point about
insurance is to have it in those rare times when you really do
have a very costly episode. I think a lot of education has to
go on at all income levels to make people understand what
insurance is all about because it is not just low-income people
that don't take advantage of subsidies.
Chairman Thomas. And, before I call on my colleague, that
leads to what I think is one of the other concerns and this
Subcommittee doesn't have as much of a jurisdictional
opportunity as we would like in fully discussing the issue.
Because it doesn't make sense to talk about health insurance
just for the workers and it doesn't make any sense to have a
tax credit structured, in my opinion, the way it is, through
the employers for those workers.
But your statement, Mr. Holahan, addresses the fact that it
doesn't make a whole lot of sense to me either to have the
cheapest group insurance concept go to the group that can get
up every morning and go to work and get a tax benefit as well
and the most expensive insurance, those who can't work and who
have the biggest problems in the individual market. The whole
concept of the way we deal with insurance and package it
available to people and its relationship to the Tax Code, in my
opinion, is all flawed. And that when you begin looking at how
you want to solve the problem, it rapidly gets beyond simply
putting some money out there for people to buy a product, in my
opinion.
The gentleman from California.
Mr. Stark. Thank you, Mr. Chairman. Ms. Arnett, I was
curious and did a little research. This guy Galen was quite a
fellow. He was involved in socialized medicine all of his
career as a physician. He was a doctor to a bunch of emperors
and gladiators. He was nutty as a fruitcake. As one biographer
put it, he made critical errors that remained unchallenged for
1,400 years--sort of like the Republican Party. He became the
ultimate medical authority for the ascendant Christian church
and now the guiding light of the Bob Jones' medical school, Bob
Jones' University.
But, aside from that, your testimony does need some
correcting, no matter who Galen is. You testified that surveys
conducted by the NFIB show that the majority of small business
owners would like to offer health insurance, but the costs make
it prohibitive. That is not correct. An NFIB survey--and I will
ask consent to put this in the record----
Chairman Thomas. Without objection.
[The information follows:]
[GRAPHIC] [TIFF OMITTED] T9402.028
Mr. Stark [continuing]. Done by the NFIB shows that to be
inaccurate. The question was: Should employers be required to
offer health insurance without having to pay the premiums?
Sixty percent to seventy percent of the employers said no, even
at no cost to them. What you are really finding is the NFIB's
members wouldn't offer health insurance if it was free. I think
you should review your testimony there.
And in your testimony, you cite other sources that did
studies for lobbying groups. You cite the Urban Institute study
in support of your position. Well, we called Len Nichols, the
author of the report, and he disagreed. He said that the great
preponderance of independent academic research shows that, on
balance, insurance reform has not affected coverage. Some
helps, some hurts. But, in general, it has helped people who
need insurance get it and caused some people who didn't
particularly need it to drop the coverage. Not a bad social
outcome, as the Urban Institute researcher, Mr. Nichols, said.
You should take that reference out of your speeches because
they don't stand with you on that issue.
We have also heard some of the questions of the problem of
people who don't sign up for insurance. And I suspect that, if
insurance is mandated or made generally available through a tax
credit or some other source, that many uninsured will not
choose to sign up. I don't believe they choose not to, I think
a lot of them are unaware. The outreach programs are bad. There
is a whole host of problems. For example, the CHIP doesn't work
very well. But, when they get to an emergency room, I would be
willing to bet you that 90 out of 100 hospitals don't let them
get past the admissions desk if they qualify for some sort of
coverage.
So that, for the hospital or indeed the physician to be
paid, at the point of entry into the care system, these people
who would be eligible under any kind of a program that we might
come up with. They will will almost be required to sign up at
the point of admission. Those are the people who obviously need
the coverage and we might save a little money by not covering
them until they need it. I think that is not a good solution
because arguably they should get treated before they get to an
emergency room.
But the issue, it still seems, is that if we had everybody
in this country covered, all the questions of who are the
uninsured would be moot. There wouldn't be any. There aren't
any in Canada. You guys, if this was the only research you did,
would be out of business if you lived in Canada. I like you
all, but I would like to put you all out of business on this
topic as soon as we can. Thank you, Mr. Chairman.
Mr. Sheils. I am ready for retirement anyway.
Mr. Stark. I tell you, if we get universal health coverage,
I will join you.
Chairman Thomas. The gentlewoman from Connecticut. Are you
leaving us as well? They are all leaving if they can get
universal coverage, so it is really tempting to shift the
topic. The gentlewoman from Connecticut.
Mrs. Johnson of Connecticut. I have to stay to be sure they
don't. [Laughter.]
First of all, that was a very interesting figure that my
colleague from California quoted about the small business
community's reluctance to provide health insurance even if they
don't have to pay the premium. It is very interesting that in
1998, Hay Huggins' survey found that the overhead costs for
firms with fewer than 10 employees were 35 percent compared to
12 percent compared to 12 percent for companies with over 500.
It isn't just the premiums.
We found this in the Pension Reform Initiative, too. Only
half of America's working people have even an option to pension
plans because the administrative costs are so large for small
companies that they can't afford to get into the business.
The administrative costs are an issue and increasingly, and
particularly, I might add, under my colleagues from the other
side of the aisle's Patient Protection Act, those very
employers would be exposed to malpractice suits. That is
another issue.
But they have every reason to be afraid that if they get
into this, government regulation will cost them far outside the
premiums in a way that many would not be able to survive.
I want to ask a different question, though. Of this 36
million figure, do any of you have--can you give us better
guidance on how many of these people are uninsured for, say,
less than 6 months? You know, how much of this problem is a
transition problem and how much of it is a small business
problem? And what insight can you give us as to that third of
the companies with more than 500 employees that don't provide
health insurance?
Mr. Sheils. Well, I have a slide in here that I think will
be helpful to you. It is on the number of individuals who are
uninsured who are working. If you look at them on an average
monthly basis--this would be on figure seven--on an average
monthly basis, in any given month, about 37.9 percent of the
uninsured are working full time and they have, about 16.3
percent, have dependents. So, together, the number of people
who are connected to employment while uninsured, on a given
month, will come to about 55 percent of the uninsured.
About 46 percent of the uninsured are what we call
nonworkers. They are not working at the time and they are not a
dependent of a worker. And those individuals, to address that
population, you would have to have a fairly substantial program
directed at nonworkers. Very often people look at these data
and they say, well, a lot of the uninsured in the CPS were
working. Seventy-five percent were either working or were the
dependents. But, in fact, a lot of them were just working part
of the year. When you look at it on an average monthly basis,
in a given month, as you have asked your question, the problem
is really split about 50-50 between workers and nonworkers.
Mrs. Johnson of Connecticut. And, in terms of the larger
firms that don't provide insurance, my understanding is that
two-thirds of the firms with over 500 employees provide
insurance, some kind of health insurance, and one-third don't.
What do you know about the one-third that don't? Because that
certainly is a big enough pool.
Mr. Sheils. I am more familiar with the figure of, I think,
25 percent. Seventy-five percent were offering it. But some of
those firms are very large firms who are providing services. An
example there is there is a major grocery chain that is now
expanding throughout the country. It uses nonunion labor. There
are no benefits to speak of. And those firms are coming in and
crowding out some of those smaller chain stores in some areas
where, in effect, you have coverage already. Some of this has
to do with new phases in marketing with some of these firms,
too. New ways to come in and introduce, frankly, cheaper labor
into the marketplace to gain market share.
It is really a labor market issue out there. If the
employer feels they have to offer insurance to get people
signed up and working for them, they will offer it. If they
don't, if the workers, low-wage workers in particular, they are
probably more interested in the wages, first, rather than the
health benefits themselves. It varies across individuals. But a
lot depends on what the individual is looking for, the people
in the labor force, are looking for in the way of employment.
Mrs. Johnson of Connecticut. And then, last, each of you
have said a number of different things about what the impact
would be of tax deductions and tax credits. First of all, I
personally think it is a matter of fairness. We subsidize the
access to insurance for everyone who gets it through employers.
I think it is grossly unfair not to provide equal subsidies for
those who don't.
In my bill that I am putting in this week, it has very rich
subsidies because I am trying to make it comparable to the
subsidy--not the tax benefit to the individual, which is far
lower, if it were converted into wages--but to the access to
effectively free health insurance with copays that employees
get through employers. And Ms. Arnett did quote some research
that is in process, but I would appreciate your help in the
coming days and any thoughts that you might have.
But if you gave a tax credit to the low-income people and a
deduction to high-income people, which my bill does, equal to
the benefit that people who work for employers and get health
insurance through their employers, the impact would be as great
on their lives as through employment, then I think we would
have a much greater impact on including the uninsured or
bringing the uninsured into the insured group. I would be
interested in your thoughts on that.
My time has expired, but if you will get back to me on
that, I would appreciate it.
[The following was subsequently received:]
Tax Credit Issues
The current tax code is often criticized as contributing to
the uninsured population.\1\ As a result, proposals to expand
health insurance coverage through a tax credit have been
receiving increased attention lately. The tax credits proposals
for health insurance, which come in all shapes and sizes would
either enhance the current employment-based health insurance
system or put it at risk.
---------------------------------------------------------------------------
\1\ It can also be argued that the uninsured would be much higher
if workers were not allowed to exclude any portion of health benefits
from income, or if employers were not able to deduct health benefit
expenses as a business expense.
---------------------------------------------------------------------------
One possibility is to replace the current tax exclusion
with a tax credit for all persons with health insurance.
Several members of Congress have been discussing replacing the
employer deduction for health insurance with an individual tax
credit. If the tax credit were refundable, all persons with the
same health insurance coverage who claim the credit would get
the same tax credit. Another possibility is to leave the tax
exclusion unchanged for individuals who get insurance through
employment and add a refundable tax credit solely for
individuals who do not qualify for employment-based health
insurance. For example, recent proposals by some members of
Congress would create refundable tax credits that would only be
available to individuals who are not eligible for an
employment-based health plan. Specifically, one such proposal
would provide an $800 credit per individual and a $400 credit
per child, up to an annual maximum of $2,400 per family, for
those without access to an employment-based plan. Another would
provide a partially refundable tax credit worth up to 30
percent of the cost of a health plan for low-income
individuals. These proposals are intended to leave the
employment-based health insurance system intact, as they are
targeted to individuals who are less likely to be covered by an
employment-based health plan or ineligible for one.
However, the movement to individual-based tax credits for
any source of health insurance coverage may mean the end of the
existing employment-based health insurance system. This has
potentially enormous public policy implications, since the vast
majority of Americans get their health insurance coverage
through employers. Such a change may also have political
implications, as public opinion currently may not support such
a fundamental change in the U.S. health insurance system, as
discussed later.
Different proposals for adding a tax credit would likely
have different outcomes. For example, some proposals intend to
preserve the employment-based health insurance system, while
others intend to replace it. Hence, a number of issues need to
be considered in any debate over changing the tax treatment of
health insurance coverage. Some of these issues are discussed
below.
Rep. Thomas and others have argued that health insurance
should be completely de-linked from employment and advocate
changing the tax code to move away from the employment-based
system. In general, this argument holds that the major role
played by employers in health insurance fundamentally distorts
the economics of the health care market place. Specifically, we
should completely replace the current health insurance-related
tax code with an individual tax credit. Employers would not be
able to deduct the cost of workers' health insurance as a
business expense; instead, they would be expected to give
workers a cash payment to obtain health insurance on their own.
Advocates of this approach envision a private system of
universal access to health insurance.
But the assumption that employers would continue to provide
the same contribution to their workers' health plan may be
questionable. Employers might choose to eliminate their
contribution to health benefits and instead pay workers a
higher (taxable) wage. Also, limiting the employer deduction
would directly affect only those employers that pay federal
income tax; it would not, for instance affect state and local
governments or nonprofit institutions. However, these
organizations would be indirectly affected, as they would be
competing for the same pool of workers in the labor market and
it is likely that these employers would follow the behavior of
employers that are subject to federal income tax.
Proposals for limited tax credits presumably would have
less of an effect on the employment-based system than a
``pure'' individual tax credit. First, under a system where
only persons not eligible for employment-based coverage would
be able to take the tax credit, some employers might use this
as an incentive to terminate health benefits. However, as long
as workers continue to demand health benefits and unemployment
continues to remain low due to a growing economy, and employers
have to compete for scarce labor resources, employers may be
reluctant to reduce health benefits. Given the same approach,
in an economic recession it would be relatively easy for
employers to terminate health benefits, especially if workers
could get a tax credit when purchasing health insurance on
their own.
A tax credit with aimed at low income individuals would
have a much smaller effect on the employment-based system.
Under one recently-introduced bill, only single persons earning
less than $25,000 and married persons earning less than $40,000
would qualify for the tax credit. Since low-income individuals
are least likely to have employment-based health insurance to
begin with, the proposal would not be expected to have much
impact on employment-based health plans. Under this proposal,
persons eligible for the tax credit would be able to claim 30
percent of the cost of health insurance.
Another recently introduced proposal would create a tax
credit available to persons with employment-based coverage, but
the amount that could be claimed under the tax credit would be
much smaller for individuals who are eligible for an
employment-based health plan. For example, individuals not
eligible for an employment-based health plan could take a tax
credit of up to $1,200, while eligible individuals could only
take a $400 credit. While the tax credit is targeted toward
individuals who are not eligible for an employment-based health
plan, employers might still terminate a plan because
individuals could then claim the tax credit if they purchased
health insurance on their own. In other words, the credit could
create an incentive for employers to drop coverage.
Additional Market Reforms--Proposals to change the tax
treatment of health insurance in the past were generally
combined with insurance market reform. These reforms usually
included some type of ``community rating,'' whereby all
individuals who wished to enroll in a health plan were charged
the same premium regardless of employment, family or health
status. In essence, the goal of past proposals was to limit
insurers' ability to charge different premiums to groups on the
basis of risk, thereby allowing less healthy individuals to buy
insurance at the premium that reflects the community's average
risk. Some, but not all, current proposals include provisions
that would allow smaller entities to band together to purchase
health insurance at favorable rates, but in general they allow
the market to determine premiums.
Another issue to consider is how employers would distribute
funds if they were to eliminate health benefits in favor of
higher wages. Health insurance is generally more costly for
older individuals than for younger ones, since older people
tend to have more health problems. This was reflected in a
recent advertisement for a health plan in a local Washington,
DC, newspaper, which showed premiums for a 30-year-old ranging
from $71 to $86 per month, while premiums for a 60-year-old
ranged from $225 to $254 per month. If individuals are charged
different premiums because of their age in the nongroup market,
employers would face a number of issues in deciding how much
money to give workers to buy insurance on their own. For
example, would a 25-year-old worker get the same pay raise as a
50-year-old worker, or would the 50-year-old receive a higher
pay raise because of the higher expected premium when premiums
are not determined by average community risk? With an average
premium in the above advertisement being $163, 60-year-old
workers would not receive enough money to purchase health
insurance on their own if the distribution were based on a
community rate. This might result in older workers becoming
underinsured and younger workers overinsured.
How employers ultimately distribute the funds would partly
depend on how flexible employers could be under any final
legislation. For example, employers might be required to
``community rate'' the distribution, i.e., to divide the
distribution equally among all workers. All workers would get
the same distribution regardless of age, although single
workers might get a lower distribution than married workers if
the plan subsidized family coverage.
If all workers received an equal distribution level, it is
likely that older workers would not be able to purchase health
insurance on their own solely with the funds distributed from
their employer. Under the assumption that insurance carriers
operating in the individual market are allowed to age-rate the
premium, older individuals would likely pay higher premiums
than younger ones. In addition, unhealthy individuals could pay
more than those in good health. And, if insurers set premiums
using experience rating, there might be added pressure on
employers to ``cash-out'' the benefit plan based on an
actuarial (age-based) formula instead of a community-rated
basis.
A question also arises concerning how the tax credit would
be distributed. Current proposals set the credit either on a
per-person basis or as a fixed percentage of the premium, and
some proposals limit eligibility for the credit to individuals
in low-income families. It is also possible to vary the tax
credit by health status and/or age. The need to vary the tax
credit by age and health status, and the subsequent effects of
varying the tax credit, are highly dependent on whether
premiums are community-rated or experience-rated.\2\ If
Congress continues to allow health insurance premiums to be
experienced-rated, older and unhealthy individuals will likely
pay more for insurance than younger healthy individuals. Under
an experience-rated system, policymakers would ultimately have
to decide whether to vary the tax credit by age and health
status to address the issue of affordability.
---------------------------------------------------------------------------
\2\ The value of the tax credit is also affected by geographic
region, as health care costs and health insurance premiums vary by
geographic region. Policymakers will also need to determine whether the
value of the tax credit should be higher in high-cost regions, though
they could simply set it at a fixed percent of the health insurance
premium.
---------------------------------------------------------------------------
The Uninsured
One of the concerns over changing the tax treatment of
employment-based health insurance is that the change would
erode (and potentially destroy) the employment-based system. As
mentioned above, a tax credit may induce individuals to
purchase health insurance on their own or it may make it harder
for vulnerable populations to continue coverage. This has
different implications for various segments of the insured and
uninsured populations. For example, if only young healthy
people choose to opt out of their employment-based plans,
premiums would increase for individuals remaining in employer
plans, while they would decline for individuals who opt out.
This might have the unintended side effect of reducing coverage
among individuals who remain in the employment-based system if
the cost of employment-based health insurance is less
affordable, ultimately increasing the uninsured population.
The current tax treatment of employment-based health
insurance has been shown to be regressive. However, removing
(or simply changing) the tax subsidy might not increase social
welfare, as discussed in Custer (1999). The assertion that the
tax treatment of employment-based health insurance distorts the
market for health insurance, thereby creating an inefficient
allocation of resources, is based on the assumption that the
tax preference is the only reason the market for health care
services is inefficient. If other factors, such as inefficient
and over regulated individual markets, prevent the health care
system from performing optimally, the ``theory of second best''
suggests that changing the tax preference might not increase
social welfare. Custer (1999) found that removing the tax
preference for employment-based health insurance would have a
larger effect on individuals in families with at least one
family member in fair or poor health than on families in which
all members are in good health or better. Specifically, he
found that if the tax preference for employment-based health
insurance were eliminated, employment-based coverage would
decline 17 percent for individuals in healthy families and 34
percent for individuals in unhealthy families.\3\ Similarly,
Monheit, Nichols, and Selden (1995/96) found that the
employment-based system and its tax treatment act to transfer
income from individuals in good health to those in poor health.
Essentially, the tax treatment of employment-based health
insurance acts to promote participation in health plans among
low-risk individuals, which ultimately assists the pooling of
risk.
---------------------------------------------------------------------------
\3\ Custer (1999) found that the percentage of individuals in
healthy families with employment-based health insurance would decline
from 70 percent to 58 percent. The percentage of individuals in
unhealthy families with employment-based coverage would fall from 47
percent to 31 percent.
---------------------------------------------------------------------------
Changing the tax treatment of employment-based health
benefits might affect the overall level of the uninsured.
Custer (1999), for example, found that removing the tax subsidy
would reduce the number of individuals covered by an
employment-based health plan by more than 20 million. While he
finds that 3.5 million individuals would purchase coverage in
the individual market, many others would not, resulting in a
substantial net increase in the uninsured. Even if the tax
treatment were changed so that anyone purchasing health
insurance qualified for a tax credit, affordability would
continue to be an issue for low-income workers.
Even repackaging the tax credit might affect the level of
the uninsured. Thorpe (1999) found that introducing a tax
credit would reduce the level of the uninsured, but the
reduction would depend in large part on the level of the tax
credit. Specifically, he found that a tax credit of $400 would
result in 18 percent of single uninsured workers with incomes
at 150 percent of poverty to participate in a health plan. At a
tax credit of $800, their participation would rise to 22
percent. As mentioned above, some proposals set the tax credit
at $500 for a single person. In order to achieve a take-up rate
of 75 percent, Thorpe (1999) determined that the tax credit
would need to be set at $2,800 for a single low-income
uninsured worker.
While some members of the uninsured population would gain
coverage under a tax credit system, others in the employment-
based system might drop coverage, leading to a net change in
the level of the uninsured that could be positive or negative.
Attempting to model this net increase, Cox and Topoleski (1999)
found that the uninsured would increase between 0.2 million and
24 million people, depending on the generosity of the tax
credit and the parameters used to determine eligibility for the
tax credit.
Conclusion
There are trade-offs involved in providing individual tax
credits to those who might have access to health insurance
through the workplace. In some cases, employers could be given
the incentive to drop coverage, in the knowledge that their
employees could purchase it for themselves. In other scenarios,
enough individuals would leave the employment-based system to
destabilize it, resulting in even more distorted insurance
markets and causing the number of uninsured to rise.
If the goal is increased coverage, the structure of the
health insurance marketplace cannot be ignored. As many
policymakers have recognized, changes in the tax code designed
to facilitate the purchase of individual health insurance will
almost certainly have to go hand in hand with insurance market
reforms. Here, there are profound questions regarding the
proper Federal role in the process. In essence, none of the
changes discussed above can or should take place in a
``vacuum.''
References
Cox, Donald F., and Christopher Topoleski. ``Individual Choice
Initiatives: Analysis of a Hypothetical Model Act.'' Paper presented at
the Employee Benefit Research Institute--Education and Research Fund
(EBRI-RF) policy forum, ``Severing the Link Between Health Insurance
and Employment: What Happens if Employers Stop Offering Health
Benefits?'' Washington, DC, May 5, 1999.
Custer, William S. ``The Tax Preference for Employment-Based Health
Insurance Coverage.'' Paper presented at the Employee Benefit Research
Institute--Education and Research Fund (EBRI-ERF) policy forum,
``Severing the Link Between Health Insurance and Employment: What
Happens if Employers Stop Offering Health Benefits?'' Washington, DC,
May 5, 1999.
Monheit, Alan C., Len M. Nichols, and Thomas M. Selden. ``How Are
Net Health Insurance Benefits Distributed in the Employment-Related
Market?'' Inquiry (Winter 1995/96): 379-391.
Thorpe, Kenneth E. ``Changing the Tax Treatment of Health
Insurance: Impacts on the Insured and Uninsured.'' Paper presented at
the Employee Benefit Research Institute--Education and Research Fund
(EBRI-ERF) policy forum, ``Severing the Link Between Health Insurance
and Employment: What Happens if Employers Stop Offering Health
Benefits?'' Washington, DC, May 5, 1999.
Chairman Thomas. Yes, I would very much like it if you
would respond in writing to that question because we are going
to be facing those questions very soon. The gentleman from
Pennsylvania wishes to inquire?
Mr. English. Yes. Thank you, Mr. Chairman. Mr. Sheils, in
your testimony I think you have said some provocative things,
but I particularly wanted to explore and amplify on the
question that Congress is going to have to grapple in any
health care reform legislation.
It is specifically, in your view, how close and how direct
is the relationship between the increases in the cost of health
insurance and the increases in the uninsured rate? How close is
that relationship? How predictable is an increase in the
uninsured rate, following an increase in costs? And I am
curious, given that CBO has informed Congress that perhaps a 1-
percent increase in insurance rates might yield a 200,000
increase in the number of uninsured nationwide, does that
figure seem realistic to you? Does it seem low? Does it seem
high? And how does that conform with your research?
Mr. Sheils. Well, thank you for asking that question. We
did do a study where we tried to examine the determinants of
insurance coverage; why are people losing coverage? We looked
at demographics. We looked at the shift to the services sector.
We have looked at the shift from full-time to part-time
employment. Looked at the availability of Medicaid. And we
tried to build a comprehensive model that measures all of this
in there while, in addition, adding in price, the price that
workers are paying for insurance.
The analysis showed that about 75 percent of the loss in
coverage that we had experienced since 1989 was attributable to
the increasing price of insurance. Our estimate--this was an
independent estimate. It had nothing to do with CBO's work and
I don't think theirs had anything to do with ours--our estimate
indicates that a 1-percent increase in the premiums paid for
health insurance has been associated with an increase in the
uninsured of about 300,000 persons. Now I believe CBO's number
is 200,000. I know there was another time they did an estimate
where a 1-percent increase was going to result in something
like a 400,000-person loss of coverage.
That is not an enormous number. It is three Sugar Bowls
full of people, but it is not an enormous number, as some
people had postulated. But it is a very--I think it is a very
solid relationship at this point. It is very simple. You raise
the price of anything, fewer people are going buy it. Fewer
people can afford it.
Mr. English. Well, I think----
Chairman Thomas. Will the gentleman yield briefly on that?
Mr. English. Absolutely.
Chairman Thomas. Now were you able, then, to extrapolate
beyond that? Is that an arithmetic increase? That is, if it is
a 2-percent increase, you would lose between 400,000; 600,000;
or 800,000? It tends to just move up arithmetically?
Mr. Sheils. Roughly, yes.
Chairman Thomas. Roughly. OK. Thank you. I thank the
gentleman.
Mr. English. Well, that is extremely useful research as we
go forward. I am curious, in your testimony, you focused on the
number of workers, the percentage of the uninsured who were in
fact workers who declined employer coverage. Now we know that
some people who are young consider themselves immortal so they
don't need that sort of stuff. But I am curious if you can give
us any greater detail with regard to the motivation of the
workers who declined employer coverage? Can you give us any
insight into why that statistic is so large?
Mr. Sheils. Research actually was done on this where we
looked at the cost of insurance to those workers and it
indicated that price was a major factor, the price of the
family coverage. But you can get insurance for these people,
say $50,000, you can get insurance with a catastrophic cap for
many of these people--and they tend to be younger. I know of
one woman with a child who is getting it for $100 a month. That
is what it is costing her. Now it is catastrophic insurance.
She has to spend several thousand dollars out-of-pocket before
it kicks in, but the person was able to get insurance.
I can't tell you what the psychology is. I remember I had a
painter come in and do my house. He had a great truck. I think
he was making around $50,000, but he just did not believe in
health insurance. We didn't see eye-to-eye on that and we
didn't see eye-to-eye on the paint job, either.
Mr. English. One last question. How much of this could be
driven by part-time workers who are actually eligible for a
medical card and who, unbeknownst to anyone, actually are
eligible for benefits and utilizing public benefits, but who
might not show up in the survey?
Mr. Sheils. Well, there are people who are using--I am not
sure I understand the question. I know there are lots of
uninsured people who are using publicly funded clinics and that
kind of thing.
Mr. English. Surely. I guess, did your survey factor out
people who were actually on public programs, in terms of
workers who declined employer coverage?
Mr. Sheils. That is right. We sorted out those people who--
oh, I see. How many of those 10 million who also have access to
public coverage?
Mr. English. Right. Exactly.
Mr. Sheils. Some of them, presumably, could have qualified
for public coverage. But the point is they are uninsured. They
haven't enrolled in that either.
Mr. English. OK. Thank you very much. This has been most
informative.
Mr. Sheils. Thank you.
Chairman Thomas. I thank the gentleman. Does the
gentlewoman from Florida wish to inquire?
Mrs. Thurman. Yes, I would. Thank you, Mr. Chairman.
Overwhelmingly, the one thing I hear from everybody on this
panel is that it is the cost of insurance which is causing the
problem. With that is associated what has happened with the
cost of health care increases. Ms. Arnett, you mentioned in
your testimony that you had looked at 16 States on the mandates
issue. When you compared the increases in mandates suggesting
that those mandates were also the cause of the increase of the
health care insurance costs, did you look at the States where
those mandates had not and what the difference was between
those percentages of increases?
Ms. Arnett. Yes, Mrs. Thurman. In the 16 States sample,
there were some States that were very--that already had very
high rates of uninsured and some States that had very low rates
of uninsured. The study didn't include only States with high
uninsured rates. And we did look at the impact of regulation
across the board, things such as guaranteed issue, guaranteed
renewal, portability, a range of issues that had been
identified by the GAO. And the 16----
Mrs. Thurman. And those were things that increased the
costs?
Ms. Arnett. Well, we did not do a cost analysis. We tried
to, but it was very difficult to do that as a think tank.
Insurance companies just don't give out complex and proprietary
pricing information to outside organizations. It is very
difficult to equate it with costs. That is why we looked at
uninsured rates, which is something collected by the Census
Bureau where we could get an objective analysis based upon the
same data set across all States.
Mrs. Thurman. I think the thing that concerns me,
particularly when it comes to things like portability or
existing diseases, which, you know, that we have tried to
cover----
Ms. Arnett. Preexisting conditions, right.
Mrs. Thurman. The other issue is, though, I think we have
all been told over the years that more people that are
uninsured and don't have health care is also creating the cost
of insurance or health care to this country. I feel like I am
just going around in this vicious circle. And I am not sure
what the answers are, Mr. Chairman, other than the fact, I have
to say, that I think the idea is that the more people we get
insured--and this is a question--does that help us bring down
health care costs?
Ms. Arnett. I think, overall, that is exactly right. The
data certainly show that. But the question is why people are
losing private health insurance coverage. In the States that
are regulating the small group and individual markets, where
the impact of these regulations hits hardest, that is where you
see the coverage fall off. That is one important reason why the
percentage of those with private coverage has fallen from 79.5
percent in 1980 to 70.5 percent now.
Mrs. Thurman. But then I would go back and suggest
sometimes government is not all bad in this case, then. The
issue here is--and maybe any one of you can respond to this--
would be what Mr. Stark has suggested and we are looking at. It
may only be 400,000 people that you look at from age 55 to 64.
It may be only 10 million children that you are looking at
below. But you are still providing coverage and, as you provide
that coverage, it should, by testimony and everything else we
have heard, should drive down some of the cost associated both
with insurance and health care coverage. Would you all agree
with that?
Mr. Fronstin. I think it was more likely to be true in the
past when it was much easier for providers to cost-shift onto
people that had insurance, but with managed care squeezing out
a lot of that ability, I don't see that relationship being as
strong as it used to be.
Mrs. Thurman. Now we are just cost-shifting it to a whole
lot of other folks that don't have insurance or who might have
but are still paying for certain pharmaceutical assistance,
whatever. Go ahead, Mr. Sheils, I am sorry.
Mr. Sheils. I am not sure. It has long been held that
getting everyone insured would somehow reduce the cost. We
always shown an increase in cost.
Mrs. Thurman. If everybody is insured?
Mr. Sheils. Yes. And it depends on how you do it. If you do
it with a system of proper incentives, you can save some money.
But we are getting to the point where we are talking about many
tens of millions of people here. It is hard to imagine that
giving them coverage would result in a net reduction of costs.
Mrs. Thurman. When you say incentives, I just was looking
at a CRS report here that talks about all the tax incentives
that might be available to folks. And one that I looked at was
the self-employed deduction. We have the individual private
market policies. We have the cafeteria plans. We have the MSAs.
Over and over and over, we have lots of insurance incentives
for people to buy.
Here is a question. Under the self-employed deduction part,
of that group, how many are insured that already have an
incentive built into the law? Do we know?
Mr. Sheils. It is not on us. Well, in our filing cabinets,
I am sure. I just don't have the numbers with me.
Mrs. Thurman. I think we should look at the programs that
we already have available as to who has signed up for those and
find out where the best incentive has been instead of just
saying, arbitrarily, oh, just do a tax credit. That will take
care of the problem.
Mr. Fronstin. It is not that simple just to look at the
self-employed to see whether or not they are covered.
Mrs. Thurman. Farmers----
Mr. Fronstin. Because a lot of them are covered--it is
about a 50-50 split between coverage in your own name through
your own business and coverage from a spouse. And that just
makes it very difficult to do any kind of analysis. You know,
when you introduce family incentives and those loosening the
constraint of where you can get coverage from.
Chairman Thomas. I thank the gentlewoman.
Mr. Holahan. I was----
Mrs. Thurman. Can Mr. Holahan?
Chairman Thomas. Go ahead.
Mrs. Thurman. Thank you.
Chairman Thomas. It is just that we have got a vote on.
Mrs. Thurman. I know.
Chairman Thomas. And it is going to be tough. I would
exercise the option and recognize the gentleman from Louisiana.
Mr. McCrery. Thank you, Mr. Chairman. I begin by saying
that there are others of us on this Subcommittee who think we
have the answers too. Mr. Stark is not the only one who thinks
he has the answers. There are plenty of answers to go around. I
think it is useful to examine some of the forces that are
driving the uninsured to be uninsured. And so, to that extent,
I appreciate the panel's testimony.
And, also, in defense of my good friends, the small
business people in America, some of whom joined the NFIB and
are polled by the NFIB and that poll was cited by my friend
from California, I think it is probably an accurate result, but
it is not surprising for the very reason stated by the panel.
Mr. Fronstin, particularly, he said that small employers don't
generally have the time to go out and seek health insurance for
their employees, negotiate with various providers of insurance.
Or at least they don't think they have the time and they don't
want to take the time.
It is not the cost, necessarily, that is the problem, not
the cost of the insurance. It is the cost to the employer. It
is the cost to the small business person who has to take his
time, which is a cost, to go out and get that insurance. That
is not a surprising statistic. It is perfectly reasonable.
I would like to know from the panel if any of you know what
percentage of the insured who receive a subsidy for their
insurance--or, I am sorry, who do not receive a subsidy for
their health insurance? What, of the total universe of insured
people, some get a subsidy through government, direct
government insurance, Medicaid, Medicare. Some get a subsidy
through the Tax Code, through getting it through their
employer. And then there is that group that doesn't get any
subsidy at all, mainly in the individual market.
Do you know what percentage of the total universe of
insured is represented by those who get no subsidy?
Mr. Holahan. About 5 percent.
Mr. McCrery. About 5 percent?
Mr. Holahan. Of the nonelderly population, about 5 percent
have nongroup coverage. I think that is your question.
Mr. McCrery. Is that generally what you have found, the
other panelists?
Mr. Sheils. Well, there is a group out there that doesn't
have an association with an employer that has employer
coverage. And I think we are looking at something--I will check
this out, but I think it was in the neighborhood of 40 percent
of those people were taking that coverage. But those people are
also much lower income. That is a large part of why they did
not get the coverage. For those who weren't associated with
employment, there was a slightly higher percentage of persons
who had coverage. But these, again, are people who had no
subsidies whatsoever from the government. They were simply--no
association with employment.
Mr. McCrery. Right. But can you give me how--what slice of
the uninsured pie is represented by those people who get no
subsidy? Mr. Holahan says 5 percent.
Mr. Holahan. It is 5 percent of all the nonelderly. It is
hard to understand----
Mr. McCrery. Is it a small percentage?
Mr. Sheils. I think I know what you are looking for. I can
try and find the number and then get back to you.
Ms. Arnett. The percentage of the insured or the uninsured?
Mr. McCrery. No, the insured. Now you have got a pie here
that is made up of all of the insured people in the country.
What slice of that pie is made up of people who get no subsidy?
It is a fairly simple question. If you don't know the answer,
that is fine. Just tell me.
Mr. Holahan. It is 5 percent.
Ms. Arnett. Right. I would think 5 percent, too.
Mr. Holahan. It is about 5 percent who have private,
nongroup coverage, who are not getting a subsidy. I think that
is your question.
Ms. Arnett. Right.
Mr. Fronstin. But you are including in that, in your
question, you are defining subsidy as including the tax
exclusion?
Mr. McCrery. Surely. That is a subsidy.
Mr. Fronstin. OK.
Mr. McCrery. Right? That chart over there shows the
distribution of that subsidy. And it is a very graphic--it is a
very good chart. It shows that people in this country who make
a lot of money, defined by the Democrats as about $40,000 a
year, Republicans a little higher, get a pretty big subsidy
from the government. They are subsidized. People who make
$25,000; $30,000; $35,000 don't get much. In fact, a lot of
them don't get any subsidy. Most of them don't get any subsidy.
I think that chart is worth taking a look at for Members of
this Subcommittee. Do we want, if we have dollars to spend to
subsidize health insurance in this country--which I question
outright--but if we are going to do it, if we are going to
subsidize health insurance, why are we subsidizing people who
have the wherewithal to buy it for themselves to begin with?
Why aren't we subsidizing the people who need the help? Now we
do at the very low end, with Medicaid, but then we get into
private health care, we are subsidizing the top earners in the
country. It doesn't make much sense to me.
If you subsidize something, you get more of it. Any of you
economists? That is generally true, isn't it? If you subsidize
something, you get more of it. OK. We have subsidized health
insurance. We got a lot of health insurance. Also if you
subsidize something, if the cost goes down----
Chairman Thomas. If the gentleman would suspend. If the
gentleman would suspend.
Mr. McCrery. I am on a roll, Mr. Chairman.
Chairman Thomas. I understand that, but we have got a vote
on and it sounds like we want to come back. And I am going to
ask the panel----
Mr. McCrery. I would love to.
Chairman Thomas. Do you want to come back? Then let us
recess and come back, because I know two Members want to
inquire and there may be some followups. I apologize to the
panel. We will be back after two votes. The Subcommittee stands
in recess.
[Recess.]
Chairman Thomas. If the panelists will return to their
designated seating area.
And the Chair apologizes to the gentleman from Louisiana--
if he can rewind his roll.
Mr. McCrery. Mr. Chairman, I appreciate that although I
have to say, in fairness, the red light had come on. My time
had expired. If you would give me another round, I would be
glad to defer to my--is that OK? OK.
Chairman Thomas. Well, the Chair believes that he will
allow you to go ahead.
Mr. McCrery. Well, I appreciate that very much on the part
of the Chairman and the gentleman from Washington. We were
talking about subsidizing health care. And over the time we
were voting, from two different sources, we discovered that the
percentage of the pie that is accounted for by people who
receive no subsidy is about 5 percent. It is a very small
percentage of the insured pie that is bought by people who get
no subsidy. And that is no wonder, is it? If your car were
subsidized, you would probably buy a car a lot sooner than you
would if it were not subsidized.
And then I was going to make the point that if you
subsidize something, you get more of it. Just, in the
marketplace, if you subsidize some product, you are going to
get more people buying that product. Just stands to reason. And
that gets me to the point of why costs have risen in the health
care marketplace. You have all pointed out that costs are a
problem and increasing costs account, at least in part, for the
growth in the number of uninsured in this country, but why are
costs increasing?
I think one reason costs have increased is because we
subsidize the costs. If you don't have to pay the full price of
it in the marketplace, you are going to get a lot more of it.
And I think that is true for health care just as it is for food
or shelter or anything else.
And so, you know, I think we have got to get at the causes
of this and if you hide the true cost of something, you are
going to get more of that product. And I think that is what we
have been doing in health care for far too long, we have been
hiding the true costs of health care through subsidizing
through Medicare, Medicaid, the employer, the work place. And
so what can we do about that? Well, there are a lot of things
and I have got all the answers but I will save those until I
have a discussion with my friend from California.
But one question I would like to ask the panel is can we
have an efficient health care system without universal
coverage? Isn't our health care system right now terribly
inefficient? It is convoluted. We have got government-paid
health care up here for the elderly. We have got government-
paid health care down here for the poor. And then we have got
this private health care marketplace that looks like a
Byzantine mess. Group markets and individual markets and big
groups and small groups and moderate groups and it is not very
efficient, is it?
Mr. Sheils. The efficiency of the system is that there are
things we like about our system because of the different types
of insurance you can pick and choose. That is choice. Americans
value that. But it contributes to inefficiency and makes things
very, very cumbersome to operate. We stay away----
Mr. McCrery. Well, you say that we have choice, but if I am
working for a small business and my employer doesn't provide
insurance for me, what choice do I have? If I am living in
Alexandria, Louisiana.
Mr. Sheils. If you have the money to buy the insurance, you
can go out and buy it. If not----
Mr. McCrery. I can buy what insurance?
Mr. Sheils. You can usually buy--you can buy catastrophic
insurance very often from individual----
Mr. McCrery. In what market do I have to purchase that
insurance?
Mr. Sheils. Well, I just earlier cited an example of at
least one case where that happened. I am not trying to say
that----
Mr. McCrery. Yes, I have got to the individual market. I
can't get the same advantage that my neighbor has working for
GM. I don't have much choice at all in the marketplace.
I hear what you are saying and we love choice, but I am
just wondering if--a lot of people in our society don't have
much choice when it comes to health care and that is part of
the problem. That is why they are uninsured because, number
one, they have got to go to the individual market, which is
higher cost than the group market. Number two, they get no
subsidy from the government for purchasing, so they are at a
distinct disadvantage to their neighbor, who does get a
subsidy. It is no wonder that they don't buy it. It is not a
good deal. It is a bad deal.
Mr. Sheils. Well, I think there is a simple truth about the
uninsured population that perhaps wasn't explored very much in
recent years. But the uninsured are composed of two groups of
people: People who want insurance but can't get it and people
that can get it who don't want to buy it. There was an
interview in 1994 in Money Magazine. They were interviewing all
the various stakeholders in health insurance and asking what
they were afraid of. Go to employers: Well, what are you afraid
of? The government: What are you afraid of? And then they went
to uninsured people. And the most often cited thing that they
were afraid of is that they would have to start paying a
premium.
Mr. McCrery. Surely.
Mr. Sheils. Some people just don't feel it is worth buying
in.
Mr. McCrery. That is right. And, in fact, a lot of those
people who don't feel like it is worth buying in are young and
healthy and they have got other priorities. And that is swell,
except if you think of health care as something that people
require and that everybody ought to contribute to in our
society. They ain't contributing anything, are they? And so
they do contribute to the inefficiency in the system. Go ahead,
Ms. Arnett.
Ms. Arnett. That is exactly right. Because it is
inefficient to have so many healthy young people not
participating in the insurance pools. By not participating,
they wind up causing everybody else who is in the pool to pay
higher prices. And when the costs are so invisible, as you so
well point out they are, then everybody thinks everybody else
is paying for the cost of their health insurance, and it drives
up the cost further for everyone. And we wind up in this spiral
that we are in right now.
One of my colleagues on the consensus group said,
concerning this trough, when you are in a hole, you want to
stop digging. And one of the things that I think that is really
important is to look at what has been causing the problem and
see if we can stop digging and start filling up the trough.
Mr. McCrery. Thank you, Mr. Chairman.
Chairman Thomas. Certainly. The gentleman from Washington I
know wants to inquire.
Mr. McDermott. I want to congratulate the Chairman for
having our annual socialism versus capitalism discussion on
health care. But rather than get into that fight, I liked the
line of questioning Mr. McCrery was going down.
In fact, he stole my first question, which was: Is there an
acceptable level of uninsured in a society? We have an
acceptable level of unemployment, 4 percent or something. You
know, I don't know. Everybody says we are going to have full
employment. What they really mean is there will only be 4
percent that we are counting that are not employed. How about
insurance? You are all policy wonks so you don't have to think
about the things we do. Is there an acceptable level of
uninsured in a society, say 10 percent? Or 5 percent? Or do you
think that it ought to be at zero?
Mr. Fronstin. I am afraid that we haven't even reached
that, the acceptable level. If you think about it, if
unemployment doubled, if it was at 10 percent or 8 percent as
opposed to 4 percent, it would be on the front page of every
newspaper. The uninsured being at 17 or 18 percent is barely
making page 25 in most newspapers. We may not have even reached
that level to trigger, you know, national interest in this
issue.
Mr. Sheils. I have been waiting to get that question asked
to me for about 12 years now. I think it is quite possible that
there is an acceptable level of uninsured persons. I think
there are a lot of complaints about our current health care
system and many ways in which we want to improve it, but,
arguably we are getting along. We are getting along. Most
people have insurance. Most of those people who are uninsured,
who get care when they sick, signed up for Medicaid when they
go to the hospital.
Unfortunately, what the big problem here is that people
aren't getting their primary and preventive care, which is very
important to preventing illnesses. But I was just going over an
example during the break. Back in 1993, I was asked to look at
the number of health reform proposals and figure out what it
would cost to provide the premium subsidies and so on. The
cheapest plan anyone ever gave me to cost out was in the
neighborhood of about $60 billion. Uncompensated care----
Mr. McDermott. Sixty billion dollars?
Mr. Sheils. Sixty billion dollars. The Federal Government
would have to come up with $60 billion to provide subsidies--I
am sorry?
Chairman Thomas. Over 5 years or 10 years?
Mr. Sheils. One. One year. Now my point is that we were
spending $60 billion in Federal money to wipe out a $22 billion
problem. You could look at it that way. It is more complicated
than that. I don't want to get into trouble for this, but if
you take the position that people who are not insured are
freeloaders and you are sick and tired of paying for them
through cost-shifts and whatever might be happening, the odd
thing is that if you go to universal coverage, you are talking
about a program that is actually going to cost the government
more and, since there is only one place to get that $60 billion
and that is from people who have money. They are going to have
to pay in money so that we can help other people have
insurance. There is no other way to do it. And you might find
that the individuals who are most concerned about the
freeloading in the end would find that they are paying much
more to finance this program to make sure that everybody has
coverage.
It is very remarkable to me that during the health reform
debate we did not see more support coming from the uninsured.
We did not see great marches on Washington demanding health
coverage. We have had those, the poor person's march in 1965 I
think it was. But we didn't see it.
Mr. McDermott. You are really agreeing with Dr. Fronstin
that we have not reached a level where it is a real problem. We
are having this discussion and we have these hearings
periodically and go around and around. People put in bills. But
from an economic standpoint, it really doesn't make any sense
to even worry about those 16 percent who are uninsured. On an
individual basis, yes, maybe, but not as a policy for the
society. Is that what I am hearing you are saying? $60 billion
versus $22 billion and so why worry about it?
Mr. Sheils. I think the level of uninsured is too high. I
think that we may have----
Mr. McDermott. On an economic basis, do you think that?
Mr. Sheils. Yes.
Mr. McDermott. Or are you just talking socially, as a good
public policy?
Mr. Sheils. A bit of both.
Mr. McDermott. A bit of both. The reason I raise this
question is because I listened to Mrs. Johnson and she was
talking about a subsidy and I am probably the only guy up here
who has actually had an experience with doing that in the State
of Washington. We created the Washington basic health plan and
had a sliding fee scale for people up to 200 percent of
poverty. And the problem we ran into was the legislature's
unwillingness to provide enough money to cover everybody who
came forward saying they wanted into the Washington basic
health plan. And we had 70,000; 80,000 people on a waiting list
at one point.
And I am not sure what level of subsidy--I haven't looked
at her particular legislation--but what kind of--and I also
hear the insurance companies now talking about the fact that we
ought to have some kind of subsidy for the people at $20,000 up
to $50,000, somewhere in there. If we would subsidize they
would buy. Have you looked--has anybody looked at the figures
as to what we are talking about and what that would mean, in a
realistic world?
And ours was voluntary. That is the other thing. And at
some point we have to come to grips with the question Mr.
McCrery asked about mandatory versus voluntary. And I don't
know.
But tell me about the subsidy question.
Mr. Holahan. Could I just respond to that? Yes, I think for
this to work, in terms of expanding coverage significantly, the
subsidies have to be pretty generous. People do not respond to
subsidies unless they are. And we are seeing that in a lot of
places, including the State of Washington. Even though costs
went above what the State was willing to pay, participation
rates went down as people were required to pay more, went down.
The other point is the whole issue of selection or adverse
selection. It is very likely that the people you are going to
get covered are going to be sicker than average. They will be
the ones that will take advantage of the credit, and that is
good, because it means you are kind of targeting on the people
who probably need it the most, but the cost per covered person
is going to be high. To go further and make the subsidies more
generous, you will be bringing in healthier people, and the
cost per new person would be lower. But I think the whole issue
of selection is something that you will have to really grapple
with.
Mr. Sheils. We did a simulation of this on the tax credits.
We looked at the $2,400 tax credit for all families, less for
single individuals, everybody, and it brought it maybe 6.6
million people; 6.6 million out of 40 million uninsured,
however you are measuring it. We did it again where we cranked
it up to something like 80 percent of the premium.
Mr. McDermott. Eighty percent?
Mr. Sheils. Yes, just for fun, and we got something like 10
or 11 million. And we are basing it, basically, on the study I
mentioned earlier where we look at the extent to which a change
in the price of insurance changes the likelihood that somebody
would buy coverage. Basically, a 1-percent increase in the cost
of insurance--in this case, via the tax credit--should result
in something in the neighborhood of a 300,000-person increase
in the number of people with insurance.
Mr. McDermott. Could I just stop you on that. On the basis
of that figure, you are anticipating, next year, 3 million more
people, since most people are talking about a 10-percent
increase in price. You expect another 3 percent will be
uninsured at the end of the next fiscal year?
Mr. Sheils. Yes. You would see quite a few more people
uninsured if the cost went up that much. I don't think they are
going to go up 10 percent, but I think a lot of people----
Mr. McDermott. At the FEHBP, they are already talking 10
percent, and Calpers is talking----
Mr. Sheils. I know, but I also know that brokers are going
to their clients now with those figures, and they also always
have in their briefcase some other policies to sell them that
are more restrictive, more managed care, something like that.
So, what happens is employers see the picture, and they say,
``Whoa, no way,'' and a lot of them will respond by asking for
less costly health plans, and I know the brokers are going out
prepared for that.
Mr. McDermott. Let me, then, come back to this question of
mandatory versus voluntary. Can we ever deal with this problem
if we don't make it mandatory?
Mr. Holahan. I think you could partially deal with it. I
think depending on----
Mr. McDermott. Well, we are partially dealing with it now.
Mr. Holahan. No, but you can even more so. The more you
subsidize, the more people you will bring in, and they will
tend to be, on balance, healthier people. But to get the
universal coverage, in my view, you are going to need to have a
mandate, and, in my opinion, it would be on individuals. That
is the only way that you can get there. You will do a lot of
good with the tax credit approach.
Mr. McDermott. So, the subsidy program would basically be,
in your mind, then, a kind of a high-risk pool, a national
high-risk pool?
Mr. Holahan. Well, it will have somewhat the same effect.
The high-risk pools really get extremely get high risks.
Mr. McDermott. Yes, but----
Mr. Holahan. But, you would have a broader mix of risk than
they tend to, but it would--I think that is what would happen.
Mr. McDermott. One of the problems we found in our subsidy
program was that you had to be sure you, we believe, don't lock
people in; it is month by month. So, if a woman gets pregnant;
she joins the program; goes for 9 months, has the baby and then
drops out. So, we had lots of those kinds of problems too,
because we did not have a mandatory 1-year or some kind of
lock-in where we actually had some stability in the program. We
found lots of problems with the subsidy program through our
experience with that over this, and I am not sure--I come to
mandatory coverage not because I have some kind of preconceived
ideology but because of experience with trying to coax people
in. It hasn't worked. We are now trying to coax people in with
a tax incentive, and I would like to hear what you think about
the 30-percent level. Some people have put it at 50 percent;
some have put it at 100 percent. What is going to be the
difference in effect between the 30-percent tax credit and the
100-percent tax credit?
Mr. Sheils. It is fascinating. It is really fascinating,
because even Medicaid is a program which is free. You have to
fill out forms, and it is time consuming, but it is free, and,
people who--we get something like 60 to 65 percent
participation rates in that program in cases where you are not
also providing cash assistance. Just for health insurance,
maybe closer to 60 percent of the people are actually signing
up; 40 percent don't sign up.
One of the reasons for that is that I think it is
understood that if you get sick and you go into the hospital,
you are going to be cared for. That responsibility is there to
care for you when you get sick. Interestingly, there is no
corresponding responsibility on the rest of society to pay for
that or for that individual to contribute, but it seems to me
that if you go to a 100-percent tax credit--I am mixing points
here; I apologize--but if you go to a 100-percent tax credit,
you might get 60 percent of the uninsured to sign up at the
very most, and if you do a 30-percent credit--I have done some
of these numbers--you will only get 3 or 4 million uninsured,
as I recall. I don't have those numbers in front of me, but you
really don't have that much impact on the number of uninsured,
and for low-income people, a 30-percent credit, you might as
well be asking them to pay the whole premium. If you are very
low income, 30 percent of a $4,500 premium is just too much,
and that is the main problem.
Mr. McDermott. I thank the Chairman for his generosity----
Chairman Thomas. Oh, no, we are going to get back to you. I
think the gentleman from Louisiana wants another round, and I
want to just take some of your points and bring them back to a
draft and ask the questions in a slightly different way.
There are some self-correcting factors, as Mr. Stark
indicated, that on the Medicaid, if you eventually need some
medical attention, you will tend to be picked up in the system,
and I don't know how long it has been if that has been done
that you wind up counted as not being in the system again if
you don't go back through it, because I have a hard time
dealing with that 13.4 percent never bumping into the health
care system at some point and getting picked up or if they in
fact are all virginal folk who have never been to a hospital or
an emergency room and they are just out there. So, when you
look at some of these numbers, it is kind of difficult to have
as complete a comfort level as you would like.
Just briefly, in terms of Mr. Holahan's chart, I want to
ask it this way: the question--this is figure number four, to
help insurance coverage of adults 18 to 64 years of age by
State, and it pulls together a number of factors implicitly in
the way the chart is set up. Part of the debate that we go
through is from a tax committee point of view, we are talking
about subsidizing the current insurance product in the market
versus maybe changing the insurance product in the market and
then subsidizing, and the frustration is that if you try to
subsidize current insurance products in market, you are going
to get the kind of numbers that you indicated where you spend
an awful lot of money and get a 6-percent increase in those
people who probably would have the highest propensity to be
captured if you changed the insurance product and market in the
first place of their own dollars, if you could create an
attractive product, which is the most frustrating part. So, we
are spending money, in my opinion, not very wisely.
But the thing that I wanted to ask you about, chart 4, in
looking at, Mr. Holahan, some of Mr. Sheils' and Mr. Fronstin's
statistics, they obviously, in my opinion, show up on here,
and--tell me if I am not correct--and is this the kind of a
guide, maybe, that if we wanted to have maximum impact on the
uninsured that we could begin to follow? When you look at the
lower States--Florida, California, Mississippi, Texas--you
obviously have the ethnic and racial minority inclusion. You
also happen to have States that have a very high agricultural
component and, except for Mississippi, a high population that
would deal in a low-income employment on services, and all of
those, then, would impact as compared to, notwithstanding the
fact that Wisconsin and Minnesota are agricultural States, the
kind of agriculture would be more yeoman farmer, family support
structure, and high-dollar value as opposed to some of the row-
crop activity and fewer ethnic and racial minorities.
So, what about beginning to--if you are going to subsidize
the current insurance market and product instead of changing
that market, wouldn't you want to try to target some of those
subsidies to those profiles of folks, and would you get, for
example, a better percentage of the dollars invested in helping
if you in fact try to figure out how to deal with specific
groups, whether they be ethnic, low income, agriculturally
related?
One of the things we have tried to do is where employers
of--an employee may have multiple employers in the agricultural
work, try to create an ability to pull together all those
employers in multiple employee arrangements that could exercise
some of the ERISA benefits. That would be one way of getting at
that kind of a group. Would that produce better percentages of
the dollars spent or should we really just spend time on
insurance, the market, the product, and make fundamental
changes in that, because I think, in part, that is what the
gentleman from Washington is talking about as well? The Tax
Code does not afford as many remedies, ultimately, as other
areas of law change. Is that a fair statement, and where do we
get the best bang for our buck in terms of investing?
Mr. Holahan. Well, you have covered a lot of ground. I
think that it would be hard to figure out how to design
subsidies that would get at racial and ethnic groups without
others.
Chairman Thomas. You could get at that short handed by
employment, couldn't you, to a very great extent?
Mr. Holahan. But I thought that you were suggesting we
already do that very well which may explain some of the
geographic differences.
Chairman Thomas. No, I think that is why we don't get at it
very well; that, in fact, you have the high unemployment in
those States that tend to have heavy agriculture, low income--
--
Mr. Holahan. More services.
Chairman Thomas [continuing]. And services which produce
that 27 percent of unemployed, and that if we target it,
agricultural work, in a way to organize the opportunities to
present insurance differently.
Mr. Holahan. I see what you are saying. And that seems to
be that it would clearly improve upon the situation that is
there now, to a degree.
Chairman Thomas. Yes, but in marginal increments. You are
just subsidizing at 80 to 100 percent on the credit, which eats
up enormous amounts of money, and we get a bump of 10 to 12
percent from a particular group.
Mr. Holahan. But by organizing those pools, when you are
going from, lets us say, the administrative cost load of say 30
to 40 percent down to 10 to 15 percent, it is still a--let us
say, it is a 20-percent reduction in price. You are still not
going to pick up a lot from that.
Chairman Thomas. Yes.
Ms. Arnett. Mr. Chairman, Americans expect that health
insurance to be associated with the workplace. Many of the 43
million are uninsured because they are between jobs and are
temporarily without health insurance. Many are really just kind
of in a waiting pattern. More and more people find themselves
moving from job to job, are much more mobile, and also starting
their own companies. Many work for small businesses that are
not yet able to afford to provide health insurance but
eventually will. But it also is partly the mindset of the
American people that they are just waiting until they get job-
based coverage because that is where they expect to get health
insurance. In a culture in which people think of health
insurance as something they own, control, and keep some
continuity, then I think individually based tax subsidies could
change the equation.
Chairman Thomas. OK. The gentleman from Mississippi--from
Louisiana. I don't know why I am trying to put you in
Mississippi.
Mr. McCrery. That is all right, Mr. Chairman. We love our
neighbors in Mississippi.
Ms. Arnett, you talked about the effect of regulation on
cost, and you also noted a study that you did comparing growth
rates on the uninsured in some 16 States that you defined to be
highly prescriptive in terms of insurance regulation. Can you
expound upon that?
Ms. Arnett. Actually, we looked at two studies that the GAO
had done and identified 16 States that had passed a majority of
insurance regulations in the GAO studies. States passed these
regulations to try to increase access to health insurance for
those citizens through guaranteed renewal, guaranteed issue,
community rating, portability, and other fair standard kinds of
insurance regulations. The thing that surprised us is the
unintended consequences that, in their genuine effort to try to
use the tools that they had in passing laws and regulations,
that their efforts appear to have backfired. The first year
after all of those regulations were in effect, those 16 States
wound up with uninsured rates rising 8 times faster than the
other States that had not passed this package of insurance
regulations. But it is very difficult now to do a differential
study, because some of these provisions have been passed
federally. The majority of those States still continue to have
rising rates of uninsured. Despite genuine efforts to try to
solve the problem by dictating to the market, that is not
working, and this suggests to us that other solutions might be
very well worth considering.
Mr. McCrery. When you say that the number of uninsured or
percentage of uninsured went up in these States, can you give
us reasons why? You seem to be trying to make the connection
between State regulation and the level of uninsured, but did
the State regulation drive out insurers from the marketplace,
whereby----
Ms. Arnett. In many States--that is true, yes. In Kentucky,
for example, I think they wound up with just a handful of
insurers left, because they couldn't afford to provide health
insurance. Some companies that want to provide health insurance
in every market have found that those 16 States are the ones in
which it is most difficult to provide affordable health
insurance. They wind up staying in and only people who know
they are going to use expensive health insurance wind up being
in the pool, and you wind up with----
Mr. McCrery. Why would an insurance company leave, say,
Kentucky?
Ms. Arnett. Because the regulations made the insurance so
expensive that----
Mr. McCrery. But aren't they in the insurance business?
What else are they going to do?
Ms. Arnett. Go to another State.
Mr. McCrery. Ah, they can go to another State.
Ms. Arnett. But, unfortunately, people can't, as you well
point out.
Mr. McCrery. They can sell their products in other States,
because those other States don't have similar regulations.
If we had a Federal regulation, though, that imposed
nationwide, say, community ratings or guaranteed issue, would
the effects be the same?
Ms. Arnett. I would think so.
Mr. McCrery. You would think so?
Ms. Arnett. I would expect so, because community ratings--
--
Mr. McCrery. You mean, there are not going to be any
insurance companies left if we have a nationwide----
Ms. Arnett. You would be moving toward a single payer
system if you did that, ultimately, because the community
rating is essentially a form a price control. Price controls
have not worked for 4,000 years.
Mr. McCrery. I don't think community rating is a price
control. It is a price gathering mechanism, but it is not a
price control.
Mr. Sheils. I think----
Mr. McCrery. Mr. Sheils.
Mr. Sheils [continuing]. I think questions of regulation
are more complicated than that. If you have regulations that
drive up the cost, then, basically, the insurance industry, we
expect some part of it to survive, and they will sell
insurance, but it will be very high rates, and it will be kind
of a boutique business. There won't be as many people covered
under it as you might have had historically. We did see a lot
of commercial insurance companies leave the State of New York
after some of their more recent regulations.
It is true that the grass is greener in other States where
regulations concern, and firms will move. The thing about
regulation in general is that all regulation probably generates
some additional cost for consumers. You are forcing the
insurers to do something they don't want to do. Why don't they
want to do it? Because it is going to cost them money, and when
that happens, your premiums go up.
Mr. McCrery. That is true with respect to most regulation,
but I would submit that it is not true with community rating,
because community rating is merely a method of assessing the
cost of the group or the pool, and if you put everybody in the
pool, as you do in community rating, then all insurance
companies are on a level playingfield, if you have some risk
adjustment mechanism that is there to compensate for one
company getting more--a greater share of the bad risk.
Mr. Sheils. Can I respond to that, though?
Mr. McCrery. Surely.
Mr. Sheils. When you do community rating, one of the things
that you are doing is leveling out the premium so that sicker
people who were facing maybe $5,000 a year premiums, now they
get it for $2,500. You are going to attract all those people
into the market, but those people who are getting insurance for
$100 a month--young people who are pretty healthy--those people
are now going to be discouraged from buying insurance. So, you
will change the composition of your insurance pool for sicker
people, and that, in theory, can give you higher premium rates
right there, which can lead to a loss of coverage.
Mr. McCrery. Surely. Absent a mandate, you would be
absolutely correct.
Mr. Sheils. Right, yes.
Mr. McCrery. I was getting to that, but my point is, it is
not a cost to the insurance, though. The insurance company,
their costs don't rise if you have community rating. Their
costs rise if you mandate that they provide a certain type of
health care coverage that they don't want to provide to
everybody or they rise if you make insurance companies fill out
all kinds of forms to prove that they are doing this, that, or
the other, but they don't rise under community rating. They
already have to rate--in fact, it might even reduce their
costs, their administrative costs, if they don't have to
medically underwrite all of their policyholders. So, I was just
making that point.
But you are right, if we don't make other reforms and if we
don't mandate coverage, community rating would drive the cost
up, because eventually you would have the health folks just
saying, ``Well, it is not worth it. I will just pay out of my
pocket.'' That is not a bad idea. Maybe we should do that.
[Laughter.]
Anyway, I will defer to my friend from Washington. Thank
you all very much.
Chairman Thomas. I thank the gentleman. Do you want to
inquire again?
Mr. McDermott. Yes, as long as you will let us question
these people and keep them from their lunch. Thank you.
We talk about regulation, and I guess I would like to hear
your thinking about how it works, because I was in the State
legislature when we put on two specific regulations from the
State legislative level. One was the mandatory coverage of
mental health care, and the second one was the mandatory
coverage for breast reconstruction for those women who had had
a breast removed due to cancer, and, clearly, that was done
because--it wasn't because the legislature didn't have anything
else to do on Wednesday. It was because there was public demand
over this issue, so we responded to it.
Since I have been in Congress, we have gone through the
same thing with HMOs where we have decided that a woman who has
a baby should have the right to stay in a hospital overnight if
she and her doctor think so, and so we passed a law here that
said that. We regulated it from that level.
Is it your view that those regulations are best done up
here as the public comes to us and demands that there be this
change in coverage or is it better at the State level or is it
just bad to do it at all? We should let the market take care of
it totally and let people look at insurance policies and say,
``Well, this covers breast reconstruction, and I might--''
since, in women, that is that major form of cancer, the number
one cancer--``that I might have one, so I ought to buy a policy
that has reconstruction in it, right?'' Is that the individual
shopping that you are thinking about? Is that the best way to
handle it; just leave the marketplace alone?
Mr. Sheils. The problem with regulation, as I said earlier,
is that it is going to involve additional cost. That doesn't
mean it is a bad thing, and I really want to hit that. It
doesn't mean it is a bad thing to do. We have regulations with
automobiles. We can't even find a car without seatbelts in it.
You have got to buy a car with seatbelts in it. We decided that
is the way it is going to be done. The concern is that some of
these regulations have the potential to really rob from the
market lower cost alternatives to health insurance. Some of
these provisions--and I think that Congress is actually not
looking at anything that I would consider disastrously
expensive at this point based on my read of what is around.
There are some things that could be done which would be
enormously expensive. Those things could generate a great deal
of additional cost, and you would probably see a significant
number of persons lose coverage.
There are other things that people are talking about doing
there which cost one-tenth of 1 percent of premium and two-
thousandths of a premium here and there. Those things often
involve things like information, making information available
to people, having an appeals process, and so. Those things are
things that are much less expensive and may actually be
beneficial systemwide. But the concern that--since we are here
to talk about the uninsured--the concern with regulation on
what health plans should or shouldn't do always does carry with
it the potential for some higher cost and the potential that
that will result in some loss of coverage. We have to balance
that. We have to say, ``Well, everybody should have this basic
protection with regard to breast reconstruction; everybody
should have that, and that is all there is to it, and it is
going to cost us more, but that is a choice that we may feel is
appropriate. It is this whole business of trying to balance the
two, and there is really no quantitative way of doing it. We
can't say one is better than the other on the basis of some
calculus you do somewhere.
Mr. McDermott. And our choice, then, is either to make
those regulations ourselves as Congress people or let the
market do it and see what happens.
Mr. Sheils. Yes, I think Congress would have to do a lot of
this, if you felt that there was something that had to be done
in regulating, because States have no power over self-funded
plans with ERISA and all. Since this is something we should
have, Congress would have to do it, but not quite let the
market do it so it would die, but there is this concern that if
you regulate insurance into something that is substantially
more costly to individuals, you are really robbing people of
the opportunity to buy a lower cost health plan.
Mr. McDermott. My problem with this--we also went through
the big health care reform proposal in the State of Washington,
and we ran up against ERISA, and it seems to me, because of
ERISA, you have to do it at the national level. I don't see how
you can do otherwise. The insurance commissioner in the State
of Washington covers about 40 percent of what goes on. The
other 60 percent is behind the ERISA shield, and the insurance
commissioner has absolutely nothing to say about it, and the
legislature has nothing to say about it. So, it seems to me
that all the regulation, ultimately, has to be done up here, as
long as we allow ERISA to stand. Is that a fair estimate?
Mr. Holahan. Yes.
Ms. Arnett. The problem with that approach, though, Dr.
McDermott, is the line really never ends of how many mandates
the Congress would wind up having to put on, because whenever
you are sick, what you need is what you need then. If there is
not a mandate for that, people with similar problems will get
together and ask Congress for it. With new technology, that
line would continually grow longer, and I just don't see that
there is ever an end to it.
Mr. Holahan. There is a natural end to it, because it
increases costs, which has consequence. It doesn't go on
forever.
Mr. McDermott. Well, thank you. You have helped us a great
deal to understand what we don't know.
Chairman Thomas. One of the concerns, of course, that I
have is, if we come back to reality, and we are looking at the
uninsured unwilling to pay whatever the costs are, either
mandated or because they have choices and that is simply not as
high a priority as we might place on it that they choose not
to, is to continue to support a tax structure which allows
employers and employees to partially negotiate what would
otherwise have been a wage for fringe benefits which are in
essence free, and when a fringe benefit equals a wage in terms
of its economic impact, you would get some discipline.
It just seems to me it would be a different world if we
were willing to talk about a basic fundamental package that was
covered with the tax provision, whatever it may be, and that
all of those items that we think are desirable but not
essential and especially effect only a portion of the
population would be an aftertax add-on that would be available
to individuals, that you have then at least a degree of self-
regulation--choose it if you want to--but that we from a
society are providing a basic package universally at a cost we
can afford.
Of course, what you have to do is unravel U.S. history in
health care areas since World War II and attempt to impose, for
example, a cap on the tax credit. This Subcommittee, in the
early eighties, attempted to do that and failed by two votes
only of capping that credit, and I just am often amazed at how
if the income tax structure was as disproportionately
distributed as the health care tax credit is, some of our
colleagues would be extremely upset of the regressive structure
of that tax benefit. It, in fact, is true, and I would hope
that they would be outraged by the regressive nature of the tax
credit, but, unfortunately, there are some folks who are
receiving a significant portion of that largesse who are in
political alignment with some of those folks who would be upset
if it were income, and that is why when you look for solutions
that may in fact readily be arrived at from a structural point
of view, the politics of it get very, very difficult.
And for those who remained, I am in awe of Mr. Stark who
knows the solution and simply waiting for the markup to deliver
it. Some of us think it is slightly more difficult than that,
and I want to thank this panel for helping us continue to
indicate that it isn't as simple as some folks may think it is.
The Subcommittee stands adjourned.
[Whereupon, at 1:22 p.m., the hearing was adjourned.]
[Submissions for the record follow:]
The Commonwealth Fund
One East 75th Street
New York, New York 10021-2692
June 15, 1999
The Honorable Bill Thomas
Chair
Ways & Means Subcommittee on Health
U.S. House of Representatives
Washington, DC 20515
The Honorable Pete Stark
Ranking Member
Ways & Means Subcommittee on Health
U.S. House of Representatives
Washington, DC 20515
Dear Congressmen:
The Commonwealth Fund's Task Force on the Future of Health
Insurance for Working Americans applauds you and the Subcommittee for
holding today's hearing on Uninsured Americans. It is critical that the
issue of health coverage for the uninsured is again brought to the
attention of Congress and the American public. The Task Force looks
forward to working with you and other members of the subcommittee as
this issue moves ahead in the coming months and years.
The Task Force is a new national expert panel created by The
Commonwealth Fund, a New York-based foundation. The Task Force will
carry out and fund cutting-edge research on solutions to the problem of
working Americans who lack health insurance coverage. The 15-member
panel will be chaired by James J. Mongan, M.D., President of
Massachusetts General Hospital.
The non-partisan expert task force--made up of individuals who are
nationally recognized for their contributions to business, government,
public policy, economics and/or medicine--will not advocate for
specific solutions to the growing problem of working Americans who lack
health care coverage. Instead, the panel will seek to accomplish the
following two goals:
1) Put the debate over expanding health insurance coverage back on
the national policy agenda, and
2) Make significant progress toward reducing the number of
uninsured Americans and improving the quality of health insurance for
working families.
The Task Force will provide constructive analyses on a wide range
of incremental ``workable solutions'' that have the potential for
broad-based, bipartisan political support. Panel members and staff will
endeavor to assist public policy makers working on the issue of health
coverage for working Americans through the dissemination of thoughtful,
fact-based analysis of policy proposals and costs.
As you well know, federal legislative proposals to address problems
with the employer-based health insurance system are needed, in part
because:
43.1 million non-elderly Americans lacked health insurance
in 1997
4 of 5 uninsured Americans in 1995 came from a family with
at least one full time worker
Working poor adults are twice as likely to be uninsured as
are unemployed adults
To address the current problems with the job-based health insurance
system, the Task Force will consider workable solutions including:
refundable tax credits or other tax subsidies for the purchase of
health coverage; expansion to working families of subsidized health
coverage programs including Medicaid and the state Children's Health
Insurance Program (CHIP); programs to allow the working uninsured to
buy-in to existing state and federal employee health plans; and
creation of a Medicare buy-in for older, uninsured workers. The Task
Force will also be reviewing, performing and commissioning research on
a variety of other workable solutions.
The Commonwealth Fund is a philanthropic foundation established in
1918 with the mission of enhancing the common good. The Fund currently
carries out this charge through its efforts to help Americans live
healthy and productive lives and to assist specific groups with serious
and neglected problems. The Fund's four national program areas are
improving health care services, bettering the health of minority
Americans, advancing the well-being of elderly people, and developing
the capacities of children and young people.
For more information please contact me, or John Budetti from the
Task Force staff at (301) 913-0500. Or send information to 4800
Montgomery Lane, Suite 400, Bethesda, MD, 20814.
Sincerely,
Janet Shikles
Executive Director
Task Force on the Future of Health
Insurance for Working Americans
Statement of National Association of Health Underwriters, Arlington,
Virginia
The Statement of National Association of Health
Underwriters is an association of insurance professionals
involved in the sale and service of health insurance, long-term
care insurance, and related products, serving the insurance
needs of over 100 million Americans. We have almost 16,000
members around the country. We appreciate this opportunity to
present our comments regarding the rising number of uninsured
Americans. NAHU has had a refundable Health Tax Credit proposal
to address the problem of the uninsured for more than a decade,
and is pleased to have this opportunity to present the key
components of that proposal to the members of the subcommittee.
The NAHU Health Credit will provide a real solution to the
problem of the uninsured in America by addressing
affordability--the most basic component of access to health
care.
Why Do We Need the Health Credit?
The current estimate on the number of uninsured in this
country is more than 43 million people. That number represents
an increase from a few years ago, despite numerous state and
federal efforts to improve access. Over half of the 43 million
uninsured Americans are the working poor or near poor, many of
whom already have access to health insurance through an
employer-based plan. Since employers already provide access to
health plans and pay a significant portion of the premiums for
many Americans, why do we have so many uninsured? The problem
isn't access--it's affordability. They just can't pay for it.
This inability to pay has many causes. As we know, the
United States government gives a tax break to people covered
under their employer's health insurance plan. Health insurance
premiums paid by an employer are not subject to income tax,
even though many people consider employer-paid health insurance
to be a part of compensation. Although this tax break has
provided an excellent incentive for many people to become
insured, it has also inadvertently created another problem--
lack of tax equity. When an employer pays $100 in tax-free
health insurance premiums for an employee in a 30% tax bracket,
it's worth $30 to that employee. To another employee in a 15%
tax bracket, it would be worth $15, and for the low-income
employee with no tax liability or the person who is self-
employed or otherwise has no employer-sponsored plan available,
the tax break is worth nothing. Increased deductibility of
health plan premiums for the self-employed has helped and will
help more as deductibility levels are increased. But it does
nothing for the bulk of the uninsured--the working poor with no
or very low tax liability.
People with no tax liability don't benefit from a deduction
for two reasons. First, if they owe no taxes, there is nothing
to deduct the premiums from, even if the deduction were
available without the requirement that a person itemize.
Second, and probably more important for the working poor, a
deduction or even a credit which is only available at the end
of the year might as well not be available at all, because if
they can't get to it when their monthly premiums are due, they
can't pay their premiums. That's why they are uninsured now.
NAHU's tax credit is a refundable, advanceable credit,
which means that people with no tax liability can get the
credit monthly, when their premiums are due. This type of
credit, advanced monthly and administered through the insurance
company or the employer, would be simple to understand and
almost impossible to abuse, since the insurance company or
employer would certify that coverage was purchased. Such a
credit would also enhance the effectiveness of COBRA's access
mechanism by providing a means to pay COBRA premiums when
people change jobs. Early retirees would be provided with the
dollars that they needed to purchase a policy. And small
employers who currently can't afford to provide a health
insurance plan, would, with the combination of the contribution
they are able to provide and dollars provided to employees
through the health credit, be able to offer a group health plan
to workers.
Would the Health Credit disrupt the employer-based system?
Absolutely not! We have specifically designed the Health Credit
to be useable in an employer-based system. Most people are
happy with the employer-based system, according to a recent
survey by the Employee Benefits Research Institute. By allowing
a credit to be available to all Americans, including those who
obtain their health insurance through the employer-based
system, we allow families to be insured together, which many
employees prefer. Since most employers do not contribute
towards dependent health insurance premiums, a credit which is
not available through a plan where an employer pays part of the
premiums would not satisfy the desire of most employees to have
their entire family insured under one plan. Those who will
benefit the most are the lower income employees, the working
poor and ``near-poor'' whose employers at best pay a portion of
the employee premium and none of the dependent premium--people
who cannot now afford to come up with ``their share'' of health
insurance premiums.
NAHU spent a considerable amount of time selecting the
dollar amount of the credit, taking great care to make the
credit low enough so that it would not provide an incentive for
employers to discontinue their financial contributions toward
plans, and high enough to provide a meaningful incentive for
people without access to an employer-sponsored plan. The amount
of the credit is simply not large enough to cause an employer
to stop providing coverage for employees. In addition, if an
employee wants to use the credit ``outside'' of his or her
employer's plan, they also leave behind the employer's
financial contribution towards coverage. Very few employees
would choose to use their credit on its own in the individual
market when they could easily combine it with an employer's
contribution to purchase in their employer's plan.
With the recent decline in employer-provided health
insurance along with the increase in group rates resulting from
guaranteed issue, the number of uninsured is likely to increase
further. Many other people have only minimal health insurance
coverage. The lack of insurance not only limits the
availability of health care to these people, but also, when
pro-bono medical care is provided, results in a cost shift that
raises insurance premiums for everybody else. The problem of
the uninsured thus remains a major national problem that must
be addressed.
NAHU believes that all Americans should have access to
affordable health insurance, and offers the Health Credit as an
activist, innovative way to achieve insurance coverage through
the competitive private sector.
What the NAHU Health Credit Accomplishes
The Health Credit will ensure that all Americans,
regardless of income, have a basic level of resources to
purchase health insurance.
It creates a fair system that will enable everyone
to obtain insurance protection, thus in essence achieving
universal coverage, but through incentives rather than
mandates.
It focuses on achieving insurance security through
the private, free enterprise system rather than through
government programs.
It retains the employer-based system of health
insurance, including the ability to treat employer paid
premiums as tax deductible business expenses, but for the first
time equalizes the tax breaks for those who must out of
necessity obtain insurance outside the employer-based system.
If employers do not provide health insurance, the
employees will be able to use the tax credit to help finance
insurance coverage. Where employers provide only a fraction of
the cost, employees can use the credit to help pay their share
of the premium.
The unemployed will have the credit available to
help with the cost of insurance between jobs.
Early retirees will be able to use the credit
until they are eligible for Medicare.
Self-employed individuals may elect to maintain
their current tax treatment of health insurance premiums
whereby premiums are deductible as a business expense and not
reportable as personal income, or, they may elect to receive
the Health Credit. If they opt for the Health Credit, they will
receive the same business deduction for health plan premiums as
under the current system. They will report the entire premium
as unearned income on their personal return but no self-
employment tax will be paid on the health plan premium.
Accordingly, self-employed individuals will be treated exactly
like corporate employees.
The same credit will be available regardless of
whether a person is employed or unemployed, thus encouraging
movement into the work force and removing the present incentive
to stay on welfare in order to avoid losing Medicaid.
The Health Credit, by being available only for the
purchase of private sector insurance, will allow a shift of
low-income individuals from the very costly Medicaid program
into private insurance plans.
Eligible Population
All American citizens would be eligible for the Health
Credit except those in the Medicare program and participants in
the military health plan, both of which have unique
characteristics. There could conceivably be ways to apply the
Credit to these groups, and NAHU would not be opposed to that
if effective, financially supported, ways are found. NAHU
believes that the Credit should not go to non-citizens because
of their questionable tax status and the complexity of
administering the Credit in such cases.
Size of the Health Credit
The amount of the Credit will be $800 per adult and $400
per child (under 18) to annual maximum of $2,400 per family. A
two-parent family of four would therefore receive a total
credit of $2400 annually. The Credit is a flat credit that will
be the same for all eligible persons, regardless of income.
The amount of the Credit will periodically change to
reflect increases or decreases in the cost of living, as
reflected by the medical Consumer Price Index (CPI). Changes
will occur in $50 increments, in order to insure simplicity.
Consequently, the Credit will be adjusted only when cumulative
yearly CPI percentage changes exceed the level necessary to
produce the $50 change.
Financing the Cost of the Health Credit
The primary source of funding results from a change in the
tax law providing that the employer share of health insurance
premiums (or the COBRA cost equivalent in the case of self-
insured companies) will be considered as unearned income to the
employee, thus subject to income taxation. The Health Credit
will in most cases, however, offset whatever the employee pays
in the way of extra income taxes, as well as part or most of
the cost, depending on the amount, of any premiums paid by the
employee.
Because the vast majority of people will gain rather than
lose under the Credit, the revenue loss to the federal
government from the Credit is substantially more than the
additional revenue resulting from the increase in taxable
income. Other funding for the Credit comes from expense
reductions in the cost of coverage for Medicaid recipients who
move from Medicaid and the Children's Health Insurance Program
to the private sector, as well as a reduction in provider tax
deductions for uncompensated care.
Administering the Health Credit
One of the major advantages of the Health Credit is that it
is a flat credit, the same for everybody, and therefore easy to
administer. No bureaucratic calculations will be needed to
determine the amount of the Credit based on a person's income
level, percentage of poverty, changing economic circumstances,
etc. It is one size fits all, with virtually everybody being
eligible. The result is not only less administrative cost, but
also less likelihood of fraud resulting from people trying to
``game'' the system. There is nothing to ``game.''
With regard to the payment of the Health Credit, the
Department of the Treasury will have primary responsibility for
overall administration. The Credit, while owned by the
individual, will not be paid directly to the individual, but
will be transmitted to an insurance company, employer, or other
organization maintaining the individual's insurance account.
The Credit may be used only for the payment of private
insurance premiums, and may not exceed the total cost of the
premiums. The Credit may also be deposited in a third-party
administered medical savings account that includes catastrophic
insurance coverage. Only health plans eligible as creditable
coverage under the Health Insurance Portability and
Accountability Act of 1996 (HIPAA) will be eligible for Credit
payment.
The Treasury will maintain a computerized record of the
amount of eligible Credit for each individual, or family,
updated on a monthly basis. The Credit will be determined on a
monthly prorated basis, in order to ensure the continuing
availability of Credit funds throughout the year, particularly
in cases of job change, and to help protect against fraud.
In cases of employer-provided insurance, the Health Credit
allocation can be handled as part of the regular withholding
process. The Credit would be shown as a specific line item on
the pay stub. Federal income taxes withheld by the employer on
behalf of employees would be reduced by the amount of the
Credit before being sent to the government. The employer's
share of the insurance premium would be considered as
additional unearned income to the employee, on which income
taxes (but not social security taxes) would be paid. The
employer would withhold these taxes at the regular marginal
withholding rate for that employee.
How the Health Credit Works
If a health insurance policy provided by the employer has a
total monthly premium of $400, with the employer paying 50%
($200) and the employee 50% ($200), the employee would, under
the Health Credit plan, pay a federal income tax on the $200
employer share of the premium which, as unearned income, in the
15% tax bracket, would amount to $30 a month. If the employee
has a family of four, the monthly Health Credit of $200 ($2400
annually) would fully cover the increased taxes, and most of
the balance of the insurance premium.
The net effect would be that the employee in this example,
instead of paying a $200 monthly premium, would in essence pay
only a $30 premium under the Health Credit plan. If the
employee is in the 28% marginal tax bracket, the extra monthly
tax would be $56, leaving $144 under the Credit, after payment
of the tax, to go toward the employee's insurance premium. Even
in the top 39% bracket, with an increased tax of $78, this
employee would come out ahead.
In another example, if the employer pays no portion of
health insurance premiums, the employee would have available
the entire $200 credit per month to offset what he or she has
to pay for insurance elsewhere.
If the employee or anyone else does not choose to purchase
insurance, they would not receive the Credit. The amount of the
credit if insurance is purchased is the lesser of the premium
paid or the maximum eligible credit. There is a strong
incentive, in other words, to purchase insurance and in an
amount at least up to the level of the Credit. Most people
would not want to give up something from the government without
getting anything in return.
Impact of the Health Credit on the Individual
The Health Credit is a fair credit in that it is the same
for everybody. Everyone is treated equally. At the same time,
those in low-income categories receive a greater proportional
benefit than those in high-income categories. A $2400 Credit
for a family earning $15,000 represents a 16% increase in
income, whereas such a Credit for a family in the $100,000
income category is just a 2.4% increase. Likewise, if in these
two cases both families receive the same insurance policy 100%
paid for by the employer, in the first case the tax for the
family on the employer-paid premium would likely be zero or 15%
at the most, while the tax for the latter family would be at
least 28%. In most income categories, people will come out
ahead under the Health Credit compared to where they are today.
At the end of the year, if an individual determines that s/
he would have been better off under the current tax exemption
system, s/he may amend his or her tax return and take the value
of the current exemption instead of the Health Credit. Those
who have a Section 125 Plan through their employer can still
take advantage of their employer's Section 125 Plan for FICA
savings and for other, non-health insurance premiums and
benefits.
Impact of the Health Credit on the Employer
Under the Health Credit, the employer would retain the
business tax deduction for whatever the employer provides in
the way of health insurance or other health care coverage.
Furthermore, employer-paid premiums that will be treated as
unearned, taxable income for the employee will not be subject
to the FICA tax for the employee or employer, nor will they be
treated as additional payroll income and thus subject to
various state payroll taxes, such as unemployment, workers'
compensation, etc. So the firm will have the same incentive it
has now to finance the cost of insurance.
Health Economic Impact of the Health Credit
A tax credit for the purchase of insurance will make it
possible for many more people to obtain insurance. By doing so,
it would help to lower the per capita cost of insurance. It
would do so in two ways: by reducing the amount of
uncompensated care that is offset through cost shifting to
private sector insurance plans, and by substantially increasing
the insurance base, spreading the cost over a wider number of
people. The credit will also encourage insurance companies to
write policies more geared to the size of the credit, thus
offering more options and making it possible for low income
families to obtain coverage without paying much more than the
credits available.
Summary
NAHU's Health Credit represents a simple and realistic way
to extend private health insurance coverage to the uninsured
and underinsured. It will help many other Americans with the
cost of their existing insurance coverage. Unlike some tax
credit proposals, the NAHU credit strengthens the employer-
based health insurance system. It is fair and is easy to
administer. It is a private sector solution to a difficult
problem. It gives people the tools to make their own decisions.
With all the talk today of Patient Protections, we seem to
have forgotten the most important protection of all--the
ability to afford coverage. Access and choice can't exist
without the dollars required to buy a health plan. It's time
now for Congress to step up to the plate and reshape the
current tax system to benefit all Americans in the form of real
access to health care --the dollars to pay for it.
Statement of Private Citizen, St. Louis, Missouri
The passage of the Health Insurance Portability and
Accountability Act is a commendable step in improving access to
health insurance and reducing job lock. While improving access
to insurance, it does nothing to ensure affordable rates, if an
individual must switch to individual insurance, after having
developed a health condition under an individual plan. Further
reform is needed to ensure that responsible citizens who carry
health insurance will be able to retain affordable coverage
over the long term if they should become ill.
This proposal is divided into the following sections:
Problems with the Current System of Health Insurance
The Core Reform Proposal
Cost Issues Related to the Core Proposal
Other Comments about the Core Proposal
Additional Reforms Needed
Cost Issues Related to the Additional Reforms
Problems with the Current System of Health Insurance:
Portability Problems
--The Health Insurance Portability and Accountability Act
(HIPAA) does nothing to ensure affordable rates, if an
individual must switch to individual insurance, after having
developed a health condition. Individuals may be exposed to
extremely high premiums.
Other Problems Concerning Individual Insurance
--If an individual becomes ill under an individual policy,
their rates can be raised or their policy canceled.
--Insurance companies should not be allowed to move
individual policy holders from one internal risk group to
another so that they can increase individual premiums on some
groups of their policy holders due to claims. I have heard from
some insurance agents that this practice may occur under some
policies without the knowledge of policy holders.
--When one insurance company takes over another insurance
company, the individual policy holders need to be protected
from behind the scenes risk class manipulations, and other
detrimental changes to their policy.
--Insurance companies have sometimes deliberately failed to
send a renewal notice to sick policy holders, hoping they would
forget to renew their policy.
--There should be a guarantee that parents can obtain
insurance for a child born with health problems or birth
defects. Or at least, considering the principle that one
ordinarily buys insurance prior to the risk, parents should be
about to buy the insurance for the child during pregnancy
without health considerations.
Problems Concerning Group Insurance
--HIPAA provides protections for employer group policies
and not other types of groups, such as alumni associations,
professional and trade organizations, etc.
--HIPAA does not prevent an insurer from raising the
premium on a group due to claims from its members.
--When an employer self-insures health of its employees,
the employer should be subject to any regulations that would
effect insurance companies offering a similar policy, including
any applicable consumer protections and liability, if the plan
is of HMO style. The ERISA provisions that release employers
and their HMO's from liability can harm the employee.
Problems Concerning Leaving an Employer Group
--The current guaranteed ability for employees to convert
their existing group policy to an individual policy on leaving
the company is often too expensive, and sometimes reduces the
coverages, if the original policy had riders for some of its
coverages.
--A group policy may not always continue its riders when
used under COBRA. Riders such as prescription drug coverage
should continue.
--COBRA places a responsibility on the employer to continue
insurance, but the insurance company is not required to carry
COBRA customers, sometimes leaving an employer to his own
devices to determine how to provide the ex-employee with
insurance. If the employer cannot meet the responsibility, the
ex-employee patient may be unable to use HIPAA to get an
individual policy because he did not do COBRA first. This
places both the employer and patient in an unfair bind.
Insurance companies have delayed the application process of
HIPAA applicants to cause them to run out their 63 day
eligibility period, in order to avoid covering them.
Other Problems
--Coverage disputes with HMO's need to involve an
independent third party in the appeals hearing.
--The problems regarding health insurance stem partly from
the federal income tax code, which encouraged the practice of
associating health insurance with employment. The tax code is
inconsistent in that employer health insurance is tax free,
while individuals who buy their own insurance pay taxes on
income used for this purpose, except if they are self employed,
then there is partial tax deductibility.
--Many insurance companies and agents refuse to send a
sample insurance policy. This makes shopping for all types of
insurance more difficult.
The Core Reform Proposal:
The following provisions would solve what I believe are
some of the worst problems of the health insurance system:
--To make health insurance more portable (e.g. to better
allow transitions to situations of self employment, jobs that
don't offer health insurance, or leaving the workforce), a
person who developed a condition while under a health insurance
policy (group or individual) would be able to move to a new
individual policy and pay the same rate and be underwritten in
the same class or group of policies as a healthy person of the
same age, sex, and smoking status, in addition to avoiding the
delay for coverage of pre-existing condition.
--A person would retain this protection through multiple
policy changes over a lifetime, as the insurance industry
offerings evolve. This protection is important if a person has
individual insurance and loses it or becomes dissatisfied
because the insurance company ceases service in the area, goes
bankrupt, discontinues or changes the product an unsatisfactory
manner, is merged or taken over by another insurance company,
or the individual cannot afford the premium and needs a lower
cost plan whether offered by the original insurer or a
competitor.
--These protections would apply whenever an individual does
not have a break in coverage longer than 63 days since their
prior period of insurance coverage. To prevent this time limit
from being wasted by stonewalling insurance companies, the 63
days should be counted backward from the date of application
for new insurance, and insurance companies must process
applications in a timely manner.
--These insurance protections should apply to allow insured
young adults to transfer from a parent's health insurance plan
to their own insurance, regardless of health and for Senior
Citizens to transfer between Medicare Supplement policies and
HMO's and vice versa.
--For those who have had a gap exceeding 63 days, insurance
companies would be free to use a separate risk group and higher
prices, based on health history, in order to protect the system
from people who wait until they are sick to purchase insurance.
--The use of standard risk class for these insurance
transfers may imply some minimal protection, even if the law to
allow them is later repealed, as any individual policy obtained
by these guidelines would be an ordinary individual policy,
rather than a separate product or risk class, as now created by
HIPAA, which could be priced or discontinued separately.
--Insurance companies would not be allowed to move
individual policy holders from one risk group to another so
that they can increase individual premiums on some persons.
Individual premiums should be based solely on age, sex, smoking
status, geographic location (a broad-brush division of the
state into several areas), and health history (only if
individual has had a gap in coverage of 63 days or longer
immediately prior to the application date). Individual
experience rating should be prohibited, to prevent rate
increases resulting from a decline of health during coverage.
--The guaranteed acceptance into a group policy for a new
employer would be extended to all groups that a person is a
member of for which health insurance is sold (Alumni
associations, professional and trade organizations, etc.). For
example, if an Alumni association offers group health insurance
to graduates of a particular school or university, it would
have to take all graduates of that school and not impose delays
or higher premiums for pre-existing conditions (subject to the
63 day gap rule).
--Insurance companies would not be allowed to raise the
premium on a group policy due to change in health of existing
members.
Cost Issues Related to the Core Proposal:
--The approach of providing total portability only when an
individual has prior coverage is superior to a simple total ban
on health history questions and pre-existing condition
considerations, as it requires a person to have had insurance
to receive the protections, thus protecting the system against
abuse by people waiting to get insurance until they are sick.
--Imposing this protection only in cases where the person
had prior coverage should minimize any resulting increase in
the cost of individual health insurance, as the total cost
borne by the industry in claims should not be strongly impacted
if a chronically ill person moves from one policy to another,
as that person would not move now if he could not get
satisfactory coverage. (It may be necessary to require that the
policies be similar, to prevent a dramatic, abusive upgrade in
coverage at standard prices after a person becomes ill. It
would also be necessary to allow transfer to a slightly better
policy sometimes, to prevent a long term erosion toward
inferior coverage for people who become chronically ill for
decades and go through several insurers.)
--A reinsurance pool could be used by insurance companies
to protect themselves from the risk of a disproportionate
number of transfers of sick persons to their policies, but this
pool should be invisible to the consumer.
--Due to the provision against raising group premiums,
there may be some small increases in the cost of group
insurance for the more healthy groups that would take place
instead of sharp increases in the cost of group insurance for
groups that have one or more unhealthy members. This is a good
thing, as it make insurance do what it was intended to do--
spread the risk.
--The Core Proposal will require no public funds other than
those used to monitor insurance companies and enforce the
rules.
Other Comments about the Core Proposal:
--These protections would help responsible self employed
and small business owners/employees who have maintained health
insurance, as they could obtain individual insurance at an
affordable price.
--The COBRA problems would disappear, as COBRA would fall
into disuse due to the new better options.
Additional Reforms Needed:
The following provisions would make a more complete reform,
but are outside what I consider to the be core proposal:
--For the poor, Medicaid should be considered a qualifying
insurance for purposes of allowing purchase an individual
policy when a period of poverty ends.
--There should be a guarantee that parents can obtain
insurance for a child born with health problems or birth
defects. Or at least, considering the principle that one
ordinarily buys insurance prior to the risk, parents should be
about to buy the insurance for the child during pregnancy
without health considerations.
--One should be able to purchase health insurance in a
standard risk class upon reaching adulthood, regardless of
whether the parents maintained insurance during childhood, e.g.
to not hold the young adult responsible for mistakes of his or
her parents.
--Many insurance companies and agents refuse to send a
sample insurance policy. The text of all insurance policies of
all types should be a part of the public record to aid shoppers
for insurance. The text of policies can be shown on the World
Wide Web (WWW) at minimal cost to the public and/or insurance
companies may be required to make the sample policies available
at their cost.
--The inconsistent tax treatment of health insurance
premiums should be corrected to reduce this unfairness in the
tax code. Regulations regarding the deductibility of health
insurance premiums should not vary depending on whether
premiums are paid by employer, employee, self-employed
individual, or non worker. But it would be dangerous to
implement the tax change without the other reforms, as some
employers would drop insurance, and many sick people would then
have inadequate protection.
--Lifetime policy dollar limits should be prohibited, or at
least required to be indexed for inflation using a health care
index, or perhaps insurance companies should provide a choice
of several indexed dollar limits, much as a policy buyer
chooses a deductible. Perhaps a minimum dollar limit should be
considered.
--When an employer self-insures health of its employees,
the employer should be subject to any regulations that would
effect insurance companies offering a similar policy, including
applicable HMO consumer protections, if the plan is of HMO
style.
--When one insurance company takes over another insurance
company, policyholders of the old company should have the
option of keeping the original terms of their policy.
--Insurance companies should be required to send bills and
renewal notices to all policy holders in a timely manner. They
should provide the option to the policy holder to have their
bills sent by certified mail return receipt requested for an
extra billing fee equal to the additional postage. If a policy
holder chooses this option, then the insurance company shall be
forbidden to cancel the policy for nonpayment of premium for at
least 30 days after the day the bill is sent, or 30 days after
the renewal date, whichever is later, and then only if they
have the card back that the bill was received. This provides
the customer the option to make it the insurance company's
legal obligation to remind them of their premiums via a bill
and to ensure that the bill must be received. If certified mail
billing is not chosen, cancellation should not occur before 30
days after the renewal date.
Cost Issues Related to the Additional Reforms:
--The provisions for children and transition to adulthood
may require public funds or the cost may be spread out in
higher premiums for everyone or higher premiums for child and
young adult policies.
--If sample policies are to be shown on a government
operated web site, there would be some costs for web
development services to create and maintain the site.
--The tax provision may have a cost, or may raise revenue,
depending on whether all premiums are made deductible,
partially deductible, or taxable.
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