[House Hearing, 108 Congress]
[From the U.S. Government Publishing Office]
THE HEALTH INSURANCE CERTIFICATE ACT OF 2003
=======================================================================
HEARING
before the
SUBCOMMITTEE ON HEALTH
of the
COMMITTEE ON ENERGY AND COMMERCE
HOUSE OF REPRESENTATIVES
ONE HUNDRED EIGHTH CONGRESS
FIRST SESSION
on
H.R. 2698
__________
JULY 17, 2003
__________
Serial No. 108-44
__________
Printed for the use of the Committee on Energy and Commerce
Available via the World Wide Web: http://www.access.gpo.gov/congress/
house
__________
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COMMITTEE ON ENERGY AND COMMERCE
W.J. ``BILLY'' TAUZIN, Louisiana, Chairman
MICHAEL BILIRAKIS, Florida JOHN D. DINGELL, Michigan
JOE BARTON, Texas Ranking Member
FRED UPTON, Michigan HENRY A. WAXMAN, California
CLIFF STEARNS, Florida EDWARD J. MARKEY, Massachusetts
PAUL E. GILLMOR, Ohio RALPH M. HALL, Texas
JAMES C. GREENWOOD, Pennsylvania RICK BOUCHER, Virginia
CHRISTOPHER COX, California EDOLPHUS TOWNS, New York
NATHAN DEAL, Georgia FRANK PALLONE, Jr., New Jersey
RICHARD BURR, North Carolina SHERROD BROWN, Ohio
Vice Chairman BART GORDON, Tennessee
ED WHITFIELD, Kentucky PETER DEUTSCH, Florida
CHARLIE NORWOOD, Georgia BOBBY L. RUSH, Illinois
BARBARA CUBIN, Wyoming ANNA G. ESHOO, California
JOHN SHIMKUS, Illinois BART STUPAK, Michigan
HEATHER WILSON, New Mexico ELIOT L. ENGEL, New York
JOHN B. SHADEGG, Arizona ALBERT R. WYNN, Maryland
CHARLES W. ``CHIP'' PICKERING, GENE GREEN, Texas
Mississippi KAREN McCARTHY, Missouri
VITO FOSSELLA, New York TED STRICKLAND, Ohio
ROY BLUNT, Missouri DIANA DeGETTE, Colorado
STEVE BUYER, Indiana LOIS CAPPS, California
GEORGE RADANOVICH, California MICHAEL F. DOYLE, Pennsylvania
CHARLES F. BASS, New Hampshire CHRISTOPHER JOHN, Louisiana
JOSEPH R. PITTS, Pennsylvania JIM DAVIS, Florida
MARY BONO, California THOMAS H. ALLEN, Maine
GREG WALDEN, Oregon JANICE D. SCHAKOWSKY, Illinois
LEE TERRY, Nebraska HILDA L. SOLIS, California
ERNIE FLETCHER, Kentucky
MIKE FERGUSON, New Jersey
MIKE ROGERS, Michigan
DARRELL E. ISSA, California
C.L. ``BUTCH'' OTTER, Idaho
Dan R. Brouillette, Staff Director
James D. Barnette, General Counsel
Reid P.F. Stuntz, Minority Staff Director and Chief Counsel
______
Subcommittee on Health
MICHAEL BILIRAKIS, Florida, Chairman
JOE BARTON, Texas SHERROD BROWN, Ohio
FRED UPTON, Michigan Ranking Member
JAMES C. GREENWOOD, Pennsylvania HENRY A. WAXMAN, California
NATHAN DEAL, Georgia RALPH M. HALL, Texas
RICHARD BURR, North Carolina EDOLPHUS TOWNS, New York
ED WHITFIELD, Kentucky FRANK PALLONE, Jr., New Jersey
CHARLIE NORWOOD, Georgia ANNA G. ESHOO, California
Vice Chairman BART STUPAK, Michigan
BARBARA CUBIN, Wyoming ELIOT L. ENGEL, New York
HEATHER WILSON, New Mexico GENE GREEN, Texas
JOHN B. SHADEGG, Arizona TED STRICKLAND, Ohio
CHARLES W. ``CHIP'' PICKERING, LOIS CAPPS, California
Mississippi BART GORDON, Tennessee
STEVE BUYER, Indiana DIANA DeGETTE, Colorado
JOSEPH R. PITTS, Pennsylvania CHRISTOPHER JOHN, Louisiana
ERNIE FLETCHER, Kentucky JOHN D. DINGELL, Michigan,
MIKE FERGUSON, New Jersey (Ex Officio)
MIKE ROGERS, Michigan
W.J. ``BILLY'' TAUZIN, Louisiana
(Ex Officio)
(ii)
C O N T E N T S
__________
Page
Testimony of:
Greenstein, Robert, Executive Director, Center on Budget and
Policy Priorities.......................................... 32
Nelson, John C., President-elect and Executive Committee
Member, American Medical Association....................... 19
Shea, Gerald M., Assistant to the President for Government
Affairs, American Federation of Labor and Congress of
Industrial Organizations................................... 24
Spitznagel, Dede, Executive Vice President, Healthcare
Leadership Council, on behalf of Coalition for Affordable
Health Coverage............................................ 28
Young, Donald A., President, Health Insurance Association of
America.................................................... 12
Material submitted for the record by:
Nelson, John C., President-elect and Executive Committee
Member, American Medical Association, response for the
record..................................................... 60
Shea, Gerald M., Assistant to the President for Government
Affairs, American Federation of Labor and Congress of
Industrial Organizations, response for the record.......... 65
Spitznagel, Dede, Executive Vice President, Healthcare
Leadership Council, on behalf of Coalition for Affordable
Health Coverage, response for the record................... 66
Young, Donald A., President, Health Insurance Association of
America, response for the record........................... 71
(iii)
THE HEALTH INSURANCE CERTIFICATE ACT OF 2003
----------
THURSDAY, JULY 17, 2003
House of Representatives,
Committee on Energy and Commerce,
Subcommittee on Health,
Washington, DC.
The subcommittee met, pursuant to notice, at 1:10 p.m., in
room 2123, Rayburn House Office Building, Hon. Michael
Bilirakis (chairman) presiding.
Members present: Representatives Bilirakis, Norwood,
Fletcher, Brown, Waxman, Towns, Pallone, Eshoo, Strickland,
Capps, and Dingell (ex officio).
Staff present: Nandan Kenkeremath, majority counsel; Yong
Choe, legislative clerk; Jeremy Allen, health policy
coordinator; Amy Hall, minority professional staff member; and
Bridgett Taylor, minority professional staff member.
Mr. Bilirakis. Good afternoon. And I now call this hearing
of the Health Subcommittee to order.
I would like to first thank our panel of witnesses who are
joining us today. I am sure your insight will help us better
understand the problem of the uninsured and how legislation
like H.R. 2698 can help reduce the number of individuals
without health insurance.
We all know the numerous problems that not having health
insurance can cause. The uninsured tend not to access care as
regularly, and when they do, they often do so in an inefficient
manner such as through a hospital emergency room. What comes
for individuals who didn't buy health insurance tends to be
worse than they would be for individuals with health insurance.
Section 405 of the Congressional Budget Resolution for
fiscal year 2004 included a $50 billion reserve fund over 10
years to be used to help provide health insurance to the
uninsured. While $50 billion is not enough to guarantee health
insurance coverage for the tens of millions of Americans
without health insurance coverage, it is still, I am sure we
would all agree, a significant sum of money and one we could do
a lot of good with. There are many reasons why people find it
difficult to buy health insurance either through their employer
or on the individual market. And I am sure we will explore some
of those causes today. I hope some of the discussion today
centers on a May 2003 report by the CBO, Congressional Budget
Office, that sheds some new light on the dynamics of the
uninsured population.
Notably, CBO found that the majority of the uninsured are
young, uninsured for only part of a given year and are either
working or have a family member that works at least part-time
or for part of the year. The premise behind H.R. 2698 is to
help as many of these people as possible buy health insurance
by providing subsidies to low-income individuals and families
to help them with the cost of their insurance premiums.
Under the bill as currently drafted, individuals with
incomes under $13,000 are eligible for a $1,000 health
certificate which would gradually phaseout at $18,000. Families
with incomes up to $25,000 would be eligible for a subsidy of
$2,750 which would phaseout at $34,000. Under limited
circumstances, eligible individuals would be able to use their
certificate to help pay for their premiums associated with
their employer-sponsored health insurance coverage.
H.R. 2698 also extends the authorization for funding first
made available through the Trade Act of 2002 for State high-
risk pools. And I would like to thank the gentleman from New
York, Mr. Towns, for his good work in this area. High-risk
pools help serve a small but expensive segment of the
population, those people with high-risk conditions that cause
them to be turned down for other forms of health insurance.
Individuals who purchase insurance through a high-risk pool
have access to a comprehensive health insurance product. While
their premiums are higher than what they might pay were it not
for their high-risk conditions, premiums are capped usually at
no more than 150 percent of what a comparable plan might cost
in an individual market.
This design structure means that by definition, high-risk
pools lose money and need to be subsidized in order to
function. Up until last year, States usually funded their high-
risk pools through assessments on insurance carriers or through
other State funding mechanisms. Now, many States will be
eligible for Federal funding to help them establish new high-
risk pools or to expand their ability to enroll new individuals
into existing programs.
I make no claim that the bill before us is perfect or that
it is in its final form or even that it must be the vehicle to
help solve this problem, but it does say that this committee
cares that so many Americans might not have adequate access to
needed health care, and that hopefully, we can work together to
try to solve this problem. That is why I opted to have a
legislative hearing in this subject, so we can better
understand the strengths and weaknesses of this approach and to
hear of other possible approaches. I happen to think that this
is a good bill and will help a lot of people buy health
insurance that could not otherwise afford it. But again--and
that this legislation will help the individual insurance
markets function better, but again, I don't say this concept is
the only way to go. I am open to whatever good ideas people
might have to improve this legislation or to consider new
ideas.
And with that, I yield to the gentleman from Ohio for an
opening statement. The gentleman is recognized.
Mr. Brown. I thank the chairman very much and welcome to
our witnesses.
I appreciate the chairman's interest in covering the
uninsured. There is clearly interest on this side in making
major steps in covering the uninsured. There are no easy
answers to this problem. And I commend both the chairman and
Mr. Towns for taking the initiative in developing a new
coverage strategy for our consideration. I hope we will have
the opportunity to hold additional hearings to consider other
measures focusing on the uninsured.
H.R. 2461 is one of several coverage measures under the
jurisdiction of this committee. Other bills, including ranking
member Dingell's Family Care Act, offer viable options for
expanding access to coverage. As Congress considers proposals
like this bill and the President's tax credit approach that
would subsidize the purchase of individual insurance policies,
it would also be useful for the committee to address the
notorious shortcomings of the individual insurance market.
Barriers to access in the nongroup market are part of the
problem. While it will be difficult to reform this market in a
way that both protects individuals from discrimination and
protects insurers from adverse selection, those reforms are
absolutely necessary before it can reasonably expect the
insurance market to be part of the solution. Today's hearing
provides the subcommittee an opportunity to begin the
discussion, and, as I said, I commend the chairman on his work
in this critical area.
One of the Nation's longest running and most profound
mistakes is our complacency about insurance access gaps. More
than half the personal bankruptcies in this country result from
catastrophic medical expenses. Coverage gaps are a drag on our
Nation's potential. They compromise our public health goals,
our families, our productivity, our collective prosperity. The
chairman has offered a solution featuring insurance vouchers
and appropriately targeting the largest group of uninsured
Americans, low-income individuals and families.
Unfortunately, subsidies like this one hold little
potential for reducing the number of uninsured. In fact, some
think this could make the uninsured problem worse. The first
problem is substitution. Most of the dollars invested in these
vouchers would go toward reducing the cost of health insurance
for individuals who are already insured. The bill's $49 billion
investment health insurance certificates could reduce the
number of uninsured by 1.2 million or about 3 percent as Mr.
Greenstein said. That return simply doesn't justify the
investment. The second problem is the proposal relies on
individual coverage. The nongroup market is largely unregulated
and notoriously inefficient and enormously expensive. In many
States, nongroup premiums vary dramatically based on age and
medical history. Insurers can refuse to cover some people
entirely and can apply preexisting condition exclusions. While
every individual who receives a voucher would have to
supplement it to buy insurance, older less healthy individuals
would have to pay far more than the voucher to get the
coverage, if coverage is even offered to them. Older and less
healthy individuals should be our first priority, particularly
when our resources--according to Republican budget plans in
large part because of a tax cut that has gone overwhelmingly to
the wealthiest Americans--when resources are so limited. This
proposal leaves them behind.
A related problem is the impact on group coverage both
private and public. Because of the economies of scale and the
broad pooling of risks, group coverage is inherently more cost-
efficient and stable than individual insurance. That holds true
whether you are comparing employer-sponsored health plans to
individual insurance, whether you are comparing Medicaid and
SCHIP to individual insurance, whether you are comparing
Medicaid to individual insurance, also known as
Medicare+Choice. Administrative costs for Medicare and Medicaid
are significantly under 5 percent. Administrative costs for
group insurance plans are generally in the 12 to 15 percent
range. Administrative costs for individual coverage can hit as
high as 40 percent. If this bill were enacted, some employers
would likely refrain from sponsoring health insurance. Others
would drop the plans they sponsor now. Some States may even cut
back on Medicaid and SCHIP.
This effect would likely be limited because the bill is
modest in scope and relies on the appropriations process, and
therein lies the fourth problem. If these subsidies come and
go, so could health insurance access. Uncertainty about
vouchers would undercut the ability of individuals and families
to budget appropriately for future coverage needs. The last
thing we want is for these subsidies to provoke substitution of
individual coverage for public or private group coverage then
have the subsidies disappear. It is my belief that building on
successful group insurance models, Medicaid and SCHIP for
instance, would better serve beneficiaries and taxpayers than
the individual subsidy approach. It appears the dollars set
aside in the budget resolution can be used to expand Medicaid
and SCHIP, and, obviously, it is within our committee's
jurisdiction to do so.
I appreciate, Mr. Chairman, your active involvement in the
uninsured issue. I look forward to the discussion today. Hope
we can have a wide-ranging discussion of various plans and
yield back my time.
Mr. Bilirakis. I thank the gentleman.
Mr. Dingell, ranking member of the full committee for an
opening statement.
Mr. Dingell. Mr. Chairman, I thank you for your courtesy in
recognizing me.
I want to thank you, also, for holding the hearing today. I
believe that the importance of this issue and the many
different approaches to address it require a hearing so we can
begin to reduce not only the number of uninsured but also to
reduce the number of questions associated with how we should
best do that. I commend you for putting forward the Health
Insurance Certificate Act, which attempts to address the
problems of the uninsured.
There is $50 billion available in fiscal year 2004 Budget
Resolution for the uninsured, and I believe we should not let
this opportunity go to waste. I do have some serious concerns
about the legislation, however, as it is constructed. In
particular, I worry that this approach does not get the most
bang for the buck. In other words, it does not cover many of
the uninsured for the amount it spends. As we hear from the
witnesses today, estimates indicate that 89 percent of those
who receive the certificate under this model will already have
coverage. Thus for the $50 billion spent, it would reach only
about 1.28 million individuals who previously did not have
coverage. This is something like the average cost of $39,000
per newly insured person.
I am concerned about who will be able to receive coverage
under the Health Insurance Certificate Act and what kind of
coverage it would be. There is nothing in this bill that
guarantees any individual who gets a certificate will be able
to use it or even that the coverage would provide the benefits
needed. I fear that this legislation will wind up giving
Federal dollars, primarily, to young, healthy individuals,
leaving families and individuals who are older or in less-than-
perfect health, the population most in need of assistance, I
would note, out in the cold.
It is no surprise that my friends in the insurance industry
would line up behind such a proposal. They do not want people
with high risks in their health insurance plans. And if you
look at the health plans of this country, most of them make
their money not by the service they provide or by the
efficiencies that they achieve, but rather by risk avoidance. I
am sure that they will certainly take Federal funding to cure
the healthy. I hope that we will see it differently and that we
will provide assurances that the care goes to those most in
need.
As a Nation it is our job to take care of all who are in
need, not just to permit cream skimming and the care for the
easiest, cheapest and the best who are seeking that service. I
believe that a better approach would be one that builds off the
existing system of public programs and employer coverage.
Public programs already have an infrastructure in place and
proven experience in serving not just the healthy, but also the
most health-challenged and vulnerable individuals. Public
programs also guarantee coverage to all who are eligible,
coverage that is comprehensible, affordable and meets the very
needs of families, and we know that they are cost effective.
We must also work to reinforce the existing system of
employer coverage. We should not be setting up a system for
healthy, low-cost individuals to flee to individual market
policies leaving employers with the highest risks and spiraling
costs. There are many employers out there who provide decent
coverage for their workers and who want to continue to do so.
There are also many who would like to but have serious
difficulties in doing so. We need to shore up these employers.
But unfortunately, the legislation before us does not do so
and, in fact, may do some harm.
Any successful program will have to combine positive
elements from a variety of approaches. Unfortunately, H.R. 2698
does need work in order to provide those kinds of approaches.
It leaves those with the greatest health care on the outside
looking in. I hope we can explore additional approaches to
covering the uninsured in this committee before we act.
I look forward to hearing from today's witnesses. And I
particularly welcome Mr. Jerry Shea from the AFL-CIO and Robert
Greenstein who is the Executive Director of the Center on the
Budget. Gentlemen, thank you for being with us, and thank you
Mr. Chairman.
Mr. Bilirakis. And I thank the gentleman.
Dr. Fletcher?
Mr. Fletcher. Thank you, Mr. Chairman, and thank you for
holding this hearing and for your work on helping extend
insurance and health care coverage for the uninsured.
When you look at the differences between morbidity and
mortality and the number of studies, some in the older-age
population, across the board you see a substantial increase in
morbidity and mortality, particularly, even hospitalized
patients that have no insurance versus those who have no
insurance. We commend your effort, Mr. Chairman, on working
toward providing more insurance and decreasing the number of
uninsured.
Reducing the number of uninsured in my State and the Nation
is a large priority for me, and I am sure, as well, all of us.
I am reminded that my bill, H.R. 660 the Small Business Health
Fairness Act, that recently passed the House, if enacted and
passed through the Senate, will go a long way toward helping
small businesses provide their employees with health care
coverage. It now makes sense that we turn our attention to
workers and their families, providing them with the helping
hand to purchase insurance coverage that they can barely afford
now or even worse, go without all together.
In addition to helping those who have no insurance, I am
pleased to see that this bill helps employees who currently
have some health care coverage, giving those individuals the
proper incentives and assistance to keep their current coverage
because as we look across the market and across the Nation, we
see an increasing number of uninsured because it becomes more
and more difficult for individuals to even afford their share
of the health care offered them. Overlooking this critical
policy point would punish those who are already making
sacrifices to purchase coverage for themselves and their
families. I am pleased to see that the bill recognizes the
importance of States high-risk pools and, accordingly, provides
additional funding for those unable to purchase health care
coverage in the traditional private market. We know that
uninsured Americans face poor medical outcomes and in turn
higher mortality, as I mentioned. A lack of coverage will also
lead to less efficient use of health care services and
facilities.
Those who may express concerns with the bill's cost need to
understand that the uninsured often must seek care in the most
costly settings, for example, the emergency room. And other
unreimbursed costs that are absorbed by our hospitals and
physicians are by necessity shifted to paying patients, raising
health care costs for everyone. I look forward to the
discussion on this important legislation and know there will be
some good ideas presented about how we might improve this
legislation.
And again I want to thank the chairman who put forth a good
bill, and I commend him on his efforts.
Mr. Bilirakis. I thank the gentleman.
Mr. Pallone for an opening statement?
Mr. Pallone. Thank you, Mr. Chairman, for holding this
hearing on what I consider an important issue, the uninsured.
The country's woeful situation of the lack of access for health
care coverage, which according to a recent IOM report reached
75 million uninsured Americans at any point during the year, is
a problem that is not going away, especially in the light of
our deeply troubled economy.
I know that the subcommittee is primarily evaluating 2698
today, and I just wanted to say that I'm afraid evaluating one
proposal or focusing on what happens to piggyback off what the
President requested, is really a nonstarter, in my opinion,
when addressing the complex and tremendous crisis of both the
uninsured and our flawed health insurance market.
In looking at H.R. 2698, I find that this means-tested
program that provides subsidies to low- and low-middle-income
families is inadequate, and I think derisive. It seems to me
the problem of the uninsured is not fully addressed since the
amount of subsidies being offered would never provide enough
assistance to purchase skimpy coverage, let alone comprehensive
coverage. Moreover, the bill is set up to provide subsidies to
those who are already paying for health insurance coverage in
some cases. And I am all for providing help to those who are
underinsured, but if we are spending $50 billion over the next
10 years, and we are planning on trying the help the uninsured,
then I think we need to evaluate some meaningful way to provide
comprehensive, affordable coverage to those millions and
millions of Americans who currently have no health insurance at
all.
In addition to this bill today, we should be looking at a
number of proposals. For example, if everyone likes tax credits
so much, then we should consider tax credits that can be used
toward purchasing employer-based health insurance that
guarantees a basic package of benefits, or tax credits for
hard-pressed small businesses to offer health insurance to
their employees. I am in favor and have both introduced in the
past and plan to reintroduce employer-mandate legislation that
requires businesses of 50 employees and above to offer health
insurance to their employees. Any of these types of initiatives
that ensure a strong and stable system of employer-based health
insurance should be discussed today if we intend to have a real
discussion about providing health care protections to uninsured
populations.
In addition, it is our responsibility to evaluate the
expansion of government programs that have been successful in
providing coverage to certain vulnerable pockets of population,
such as the parents of children eligible for CHIP or the near-
elderly population age 55 to 65.
I know that we need to deal with the problem with the
uninsured, and I know it is a crisis, but I just have to say,
Mr. Chairman, States are broke. Employers are shifting
burdensome insurance costs to their employees, and I think we
need to get away from this health certificate idea, the tax
credits proposed by the President, because I don't really think
they are a viable option, and there are a lot of other options
that are viable that should be considered instead.
Thank you Mr. Chairman.
Mr. Bilirakis. The Chair thanks the gentleman.
Mr. Towns, for an opening statement.
Mr. Towns. Thank you very much, Mr. Chairman.
I would like to begin by thanking you for holding this
hearing. Health insurance safety nets help a small but critical
segment of our population and their importance cannot be
overlooked, and I want to thank you----
Mr. Bilirakis. Would the gentleman please continue. I would
announce since we have been rudely interrupted, there are a
series of six votes. And shortly thereafter, we are going to go
into the joint meeting with Prime Minister Tony Blair. So right
after the six votes, we will come back and do the best that we
possibly can.
Mr. Towns. Thank you, Mr. Chairman.
Even in the world's greatest health care system, sick
people are often unable to access affordable health insurance.
According to Communicating for Agriculture, 1 percent of our
population has been deemed medically uninsurable. They cannot
qualify for standard health insurance coverage because of
preexisting health conditions, which makes it difficult to find
affordable health insurance.
Health insurance safety nets are special programs created
by State legislatures to provide needed coverage for people who
are medically uninsurable. The way they work is fairly simple.
The programs operate as State-created, nonprofit associations
overseen by a board of directors which often include industry,
consumer and State insurance department representatives. The
board contracts with an established insurance company to
collect premiums, pay claims and administer the program on a
day-to-day basis. Currently 30 States have safety net plans,
and approximately 153,000 people were covered by these plans
last year. Safety net plans do not take the place of Medicare,
Medicaid or any other State or Federal health care programs.
They are largely temporary measures used to fill gaps in
coverage; the average length of enrollment in such programs is
approximately 30 months. Last year Congress recognized the
value of health insurance safety nets and appropriated $100
million for State-based programs.
H.R. 1110, the State High-Risk Pool Funding Extension Act,
currently with 41 cosponsors, extends initial Federal funding
for an additional 5 years, thus allowing States to continue
providing affordable health care to the population with the
greatest need, including individuals with severe illnesses such
as Parkinson's disease, diabetes and cancer.
This legislation also makes funds available for States
without health insurance safety net plans to put such programs
in place. As an original cosponsor, I am pleased that language
extending the high-risk pool was included as part of H.R. 2698.
I look forward to the testimony of the witnesses today. I
would like to conclude by saying although this might not be a
perfect bill, it is a giant step and I am happy that we are
moving in the right direction.
Thank you very much, Mr. Chairman, and I yield back on that
note.
Mr. Bilirakis. The Chair thanks the gentleman.
Let us see who is next, Ms. Capps.
Ms. Capps. Do we still have the option----
Mr. Bilirakis. Yes.
Mr. Bilirakis. Mr. Waxman.
Mr. Waxman. Thank you very much, Mr. Chairman. I am pleased
you called this hearing, and I know we have a very
distinguished panel that at some point is going to be able to
tell us their views on this legislation and the problem
generally of 41 million uninsured in this country.
It is a disgrace, it is shameful, but this isn't the first
time we have said this. We've been saying that statement for
almost 30 years. And what we have are so many millions of
people in this country without insurance. So if we are going to
do something about the problem, we ought to look to see what we
can do with very limited money and make sure we spend it wisely
and also make sure we don't make the problem worse by
encouraging employers to drop coverage.
My colleagues have said there are other alternatives. I
want to repeat that there are other alternatives. We ought to
make sure that we protect the coverage of public programs like
Medicaid and SCHIP. And we should look at other ideas as well
like the Family Care Act offered by Mr. Dingell. Another idea
would be to buy into Medicare for spouses or persons who lose
their jobs and eliminate the Medicare 2-year waiting period for
disabled people.
Today, however, we are looking at only one option and that
option has some problems with it. In my view, that option is
subject to the vagaries of the appropriations process. And if
we rely on an approach where we are looking for appropriations
each year, we are starting out with a flat amount that is
inadequate to purchase reasonable coverage and in future years
we can expect that it is going to be further lagging behind the
obvious increase in health care costs, which also is an
approach that could well result in employers dropping group
coverage and public programs being scaled back with the
unfortunate effect of making the problem worse instead of
better. It relies on the individual insurance market, which is
already notorious for failure to provide assured and affordable
coverage for people with or are likely to have health problems,
and, by all estimates, is not very effective in reducing the
number of the uninsured. But my point is not to be so critical
of this one approach per se, but to point out that this
subcommittee must surely provide equal attention to other
approaches to covering the uninsured, which at least, in my
view, are much more likely to make a meaningful contribution to
addressing the problem. Shouldn't we owe the 41 million
Americans without health insurance no less?
Mr. Chairman, I look forward to the testimony of the
witnesses at some point today. Perhaps we ought to ask Prime
Minister Blair not just to tell us of his ideas on intelligence
and the Iraq nuclear weapons. Maybe we ought to get some of his
ideas on health care. At least they cover all their people,
which may not be the best approach for us, but they are doing
something we haven't done. And that only shows in a glaring way
how we have failed to treat all Americans with the dignity that
they deserve.
Mr. Bilirakis. The Chair thanks the gentleman for his
comments.
Ms. Eshoo for an opening statement. And then we will break
for approximately an hour. I can only guess how long that will
take. I apologize.
Ms. Eshoo. Good afternoon, Mr. Chairman, and thank you for
having this hearing. And a warm welcome to the very
distinguished panelists that are here to testify before us.
It has been stated that over 40 million Americans are
without health insurance at any given time in our country.
Given that we are the wealthiest Nation on the face of this
earth, I think that that is a black eye for a great Nation.
So I look forward to what we are going to discuss today in
the examination of at least one solution that is out there, and
maybe meld some ideas that members would have in order to make
this legislation stronger and better, and really serve people
well. The committee, I think, should pause before we actually
shape a solution here, because I think we need to, after
looking at the legislation--and I have met with the chairman
and his staff on this, because I think we have the collective
obligation to do something about this, but I think we need to
take a step back and examine the fundamentals of the problem.
Who are the uninsured? What are their demographics? In
order to best help people, we need to tailor a bill that will
provide solutions that really fit their life circumstances. How
are we going to ensure that any solution we provide, such as
the health certificates that the chairman is proposing, won't
diminish the coverage already provided by employers. We have to
be careful to supplement current insurance options and not
supplant them. I think it is very important that we determine
whether the benefit being proposed is workable. Health
certificates provide individuals with a specific amount of
money to purchase insurance. In a way, it reminds me of Section
8 certificates at home. When people finally get that
certificate, in an area where housing is a real premium in my
district and certainly in the bay area, there is not housing to
be found, even though you have the certificate in your hand. So
how stable is the insurance market that this plan is reliant
upon? We have to examine that.
I also think we should take into consideration what already
is in place in our country. There is $50 billion, with a B, on
the table. It is not enough to cover some of the 40 plus
million in our country. How can we best, really get the best
bang for the buck and use the $50 billion and optimize it?
So I don't know the answers to these questions, to all of
them. I have some ideas about them. I do have a commitment to
helping the uninsured. I really don't know how parents can wake
up in the morning and know that if something happens or already
has happened to their children that they don't have coverage.
It is an undignified situation. We can do so much better in our
country. We do have collective intellect here, in the private
sector, and with those that are testifying here today to help
shed some light on this issue. So I look forward to gaining
even more knowledge today. I think as much as each one of us
thinks we know, we could learn more.
I thank the chairman for raising the issue and for the
witnesses who are here today.
Mr. Bilirakis. And I thank the gentlelady for her comments.
I have heard some of them before, and I certainly agree with a
large number of them.
[Additional statements submitted for the record follow:]
Prepared Statement of Hon. W.J. ``Billy'' Tauzin, Chairman, Committee
on Energy and Commerce
Thank you Mr. Chairman: I want to commend you for holding this
hearing and thank Chairman Bilirakis, Mr. Towns, Mr. Walden, and Mr.
Fletcher for sponsoring H.R. 2698, the Health Insurance Certificate Act
of 2003.
We are embarking on a bipartisan effort to assist uninsured
Americans. Unfortunately, the problem of the uninsured in America has
been a persistent one. For a few years, the strong economy and low
health care cost inflation seemed to make a dent in the problem of the
uninsured. Now I fear that rising health care costs and a weaker
economy jeopardize these gains. Employers, and particularly small
businesses, face increasing pressures, which make provision of health
insurance benefits difficult. We need to ease some of their pressures
and ensure that the numbers of the uninsured always continue to
decline.
H.R. 2698, the Health Insurance Certificate Act of 2003, is an
income-related program designed to reduce the number of uninsured
Americans by providing subsidies to low and low-middle income families
for the purchase of health insurance coverage. In some cases, the bill
will simply reduce the financial burden of those who have already been
paying for health insurance coverage--a modest, but meaningful step.
The bill also incorporates provisions of H.R. 1110, the State High Risk
Pool Funding Extension Act of 2003. These provisions will help those
who have historically had difficulty procuring coverage in the
individual market.
Our legislation is a step in the right direction in addressing the
plight of the uninsured. As you all know, the uninsured often have less
access to care than those who are insured. They are more likely to
delay obtaining care and frequently receive their health care services
in a more costly emergency room setting. In addition, providers of
health care are often uncompensated for the care that they provide to
uninsured individuals. As a result, they often shift the cost of that
care to other private and public payers.
This bill emphasizes a number of important values and marries smart
policy with new resources. These values include individual choice of
insurance plans, portability, a strengthening of private sector
insurance mechanisms, and accountability. I know the bill won't solve
all the problems of the uninsured but it will make a difference.
Let me stress: today's hearing is meant for us to explore this
issue carefully. I remain open to good ideas and suggested ways to
improve this legislation. However, the amount of money we can spend to
address this problem this year is set by the budget agreement. So let's
work within those parameters to produce the best bill possible.
I would like to thank all of today's witnesses for lending us their
expertise on this matter. This issue may be one of the most important
health care matters that we consider this Congress. It would be a shame
if we didn't find a way to legislate some solutions to this pressing
problem.
Mr. Bilirakis. Well, we are going to break now. And again,
I apologize in advance, but probably an hour or so. Give you a
chance to grab a bite to eat or whatever.
[Brief recess.]
Mr. Bilirakis. Our panel today consists of Dr. Donald A.
Young, President of Health Insurance Association of America;
Dr. John C. Nelson, President-Elect and Executive Committee
Member of the American Medical Association; Mr. Gerald M. Shea,
Assistant to the President for Government Affairs, American
Federation of Labor and Congress of Industrial Organizations,
better known as AFL-CIO; Ms. Dede Spitznagel, Executive Vice
President of Healthcare Leadership Council on behalf of the
Coalition for Affordable Health Coverage; and Mr. Robert
Greenstein, Executive Director of the Center on Budget Policy
Priorities.
Mr. Shea is not back yet. Well, all right. Well, gentlemen
your written statements are a part of the record, and I
apologize very much for not only the delay, but not having more
members here. But that is the way it is up here. They just come
and go. It is a very busy place. Your written statements are a
part of the record, and we hope--what in the world is going on
now?
I believe that is recess subject to the call of the Chair.
And I will place the clock at 5 minutes, but if you are on the
roll or something of that nature, I will certainly allow you
some lead time.
Dr. Young--again thanks to all of you for being here and
your understanding and patience.
Please proceed sir.
STATEMENTS OF DONALD A. YOUNG, PRESIDENT, HEALTH INSURANCE
ASSOCIATION OF AMERICA; JOHN C. NELSON, PRESIDENT-ELECT AND
EXECUTIVE COMMITTEE MEMBER, AMERICAN MEDICAL ASSOCIATION;
GERALD M. SHEA, ASSISTANT TO THE PRESIDENT FOR GOVERNMENT
AFFAIRS, AMERICAN FEDERATION OF LABOR AND CONGRESS OF
INDUSTRIAL ORGANIZATIONS; DEDE SPITZNAGEL, EXECUTIVE VICE
PRESIDENT, HEALTHCARE LEADERSHIP COUNCIL, ON BEHALF OF
COALITION FOR AFFORDABLE HEALTH COVERAGE; AND ROBERT
GREENSTEIN, EXECUTIVE DIRECTOR, CENTER ON BUDGET AND POLICY
PRIORITIES
Mr. Young. Chairman Bilirakis and members of the committee,
HIA appreciates this opportunity to discuss your efforts to
make health insurance coverage more affordable for low-income
Americans.
In 1998 HIA Board of Directors formally adopted a
comprehensive set of public policy recommendations, known as
InsureUSA, to expand access to affordable health insurance
coverage for all Americans. This initiative became a key
legislative priority for our association. A summary of the
InsureUSA proposal is attached to my testimony.
As the proposed Health Insurance Certificate Act of 2003
recognizes, the best way to reduce the number of the uninsured
is to start with low-income individuals and their families.
Over half of the uninsured live in families with incomes less
than two times the Federal poverty level. Low-income
individuals are less likely than others to have access to
employer-sponsored health benefits, and when they are offered
coverage at work, are more likely to turn it down. When asked,
they consistently cite the cost as the primary reason for
declining coverage. To make health care coverage affordable for
all Americans, we must provide a meaningful subsidy to those
who do not have the income to buy it on their own.
I am pleased to support H.R. 2698. This proposed
legislation is consistent with HIA's InsureUSA proposal, which
calls for providing direct financial subsidies through
certificates, vouchers or refundable tax credits to the working
poor to help them buy into the same private health insurance
programs serving their neighbors and coworkers. We are
particularly pleased that the subsidies may be applied toward
the purchase of employer-subsidized coverage. Roughly one out
of every five nonelderly uninsured individuals has been offered
employment-based coverage but turned it down. Where employer-
subsidized coverage is available helping uninsured individuals
take advantage of it is a common sense way of expanding
coverage. Requiring health insurance certificates to be used
toward the purchase of plans that meet the Health Insurance
Portability and Accountability Act of 1996 definition of
credible coverage will ensure that the coverage obtained will
be a primary health plan and not a limited-benefit hospital
indemnity or other supplemental plan. Eligible individuals
offered health benefits at work will be able to apply their
certificate toward their employer's health plan without placing
complex and burdensome requirements on employers. Other
eligible individuals will be able to shop for the coverage that
best meets their needs and the needs of their families just
like any other consumer.
We are pleased to see that this proposal includes
additional Federal funding for State-sponsored high-risk pools.
Well-managed high-risk pools have proven to be an effective
mechanism for ensuring access to health insurance coverage for
individuals with serious medical conditions and do so without
disrupting the private individual health insurance market on
which millions of other consumers depend.
We welcome your efforts to help low-income Americans more
easily afford private health insurance coverage. We strongly
support the proposed Federal financial assistance for State
high-risk pools. We would welcome the opportunity to work with
you and your staffs in this effort and in future efforts to
address the needs of the uninsured.
Thank you, Mr. Chairman.
[The prepared statement of Donald A. Young follows:]
Prepared Statement of Donald A. Young, President, Health Insurance
Association of America
introduction
Chairman Bilirakis and members of the committee, HIAA appreciates
this opportunity to discuss your efforts to make health insurance
coverage more affordable for low-income Americans. HIAA is the nation's
most prominent trade association representing the private health care
system. Our nearly 300 members provide health, long-term care, dental,
disability, and supplemental coverage to more than 100 million
Americans. Our members also provide stop-loss coverage to employers
sponsoring self-funded health benefit plans, and reinsurance coverage
to other health insurers. In addition, we are the nation's premier
provider of self-study courses on health insurance and managed care.
HIAA has long been concerned about the growing number of uninsured
Americans; we believe this is one of the most important health policy
challenges facing the nation. The nature of this challenge is well
understood. Research consistently demonstrates that the primary reason
more than 41 million Americans lack health insurance coverage is that
they simply cannot afford it. Any meaningful expansion of coverage
must, of necessity, address the underlying issue of affordability. For
most of the uninsured, for whom limited income is the primary barrier
to coverage, this means someone else must help pay for the coverage
they need. Of course, while we are focusing right now on the needs of
the uninsured, it is important to remember that cost is an issue for
everyone--anything we can do to help control the rising cost of health
care will ultimately make health insurance more affordable for
everyone.
Back in 1998, HIAA established a task force of experts from member
companies to develop a new association policy on how best to extend
health insurance coverage to more uninsured Americans. This task force
developed a comprehensive set of public policy recommendations, known
as InsureUSA, for guaranteeing access to affordable health insurance
coverage to all Americans. The HIAA Board of Directors formally adopted
InsureUSA in May of 1999. This initiative became a key legislative
priority for our association, and we actively promoted it in the media
and in a variety of public policy forums.
Early in 2002, HIAA formed a new Task Force on the Uninsured to
review HIAA policy on the uninsured and make any adjustments necessary
to reflect changes in the environment since 1999. We were pleased to
find that the original InsureUSA proposal had stood the test of time
quite well; only relatively minor fine-tuning was needed. The
refinements proposed by the new task force were accepted, and HIAA's
commitment to this issue, were reaffirmed by the Board of Directors in
October of last year. A summary of the InsureUSA proposal is attached.
As the proposed ``Health Insurance Certificate Act of 2003''
recognizes, the best place to start reducing the number of uninsured is
with low-income individuals and their families. The greatest number of
the uninsured fall within this population segment, and they are also
the ones who need help the most. Over half the non-elderly uninsured
live in families with incomes below two times the federal poverty
level. Low-income individuals are less likely than others to have
access to employer-sponsored health benefits, and when they are offered
coverage at work, are more likely to turn it down. When asked, they
consistently cite cost as the primary reason for declining coverage.
Low-income families face many competing financial demands. All too
often, there simply isn't enough income left over to pay for health
insurance. If we are ever to make significant headway towards making
health care coverage affordable for all Americans, we must provide a
meaningful subsidy to those who do not have the income to buy it on
their own.
details of the proposal
I am pleased to support H.R. 2698 as it is broadly consistent with
HIAA's InsureUSA proposal. HIAA strongly supports federal financial
assistance for the working poor to help them buy the health insurance
coverage they need. A key component of InsureUSA calls for providing
direct financial subsidies (i.e., certificates/vouchers or refundable
tax credits) to the working poor to help them buy into the same private
health insurance programs serving their neighbors and coworkers.
We are particularly pleased to note that the subsidies provided by
H.R. 2698 may be applied towards the purchase of employer-subsidized
coverage. This feature, which is also part of InsureUSA, is vital.
Roughly one out of every five non-elderly uninsured individuals has
been offered employment-based coverage, but turned it down;1
where employer-subsidized coverage is available, helping uninsured
individuals take advantage of it is a common-sense way of expanding
coverage. It is also very important to avoid undermining the
employment-based health insurance system; after all, almost nine out of
every ten Americans with private health insurance is covered through
that system. The employment-based health coverage--currently covering
more than 160 million non-elderly Americans--is the most efficient
mechanism for covering workers and their families, and should remain a
key component of our health insurance system.
---------------------------------------------------------------------------
\1\ Peter J. Cunningham, Elizabeth Schaefer, and Christopher Hogan,
Who Declines Employer-Sponsored Health Insurance and is Uninsured?
Center for Studying Health System Change, Issue Brief Number 22,
October 1999.
---------------------------------------------------------------------------
While including individuals offered coverage at work within the
scope of the subsidy might seem expensive to some, we believe it to be
a valuable long-term investment. For those who are currently uninsured,
helping pay for the employee's share of the premium will almost always
be less expensive than providing public coverage. Allowing the subsidy
to help other low-income workers, who have already made the decision to
participate in employer-sponsored coverage, is no waste of federal
resources; by helping those workers who are least able to deal with the
ever-rising cost of coverage, it is a common-sense way to help
stabilize the system and forestall further erosion of coverage. As you
continue to refine the proposal, we would encourage you to make every
effort to avoid inadvertently undermining the efforts employers are
making to provide health benefits to workers and their families.
Allowing health insurance certificates to be used towards the
purchase of plans that meet the Health Insurance Portability and
Accountability Act of 1996 (HIPAA) definition of ``creditable
coverage'' strikes an appropriate balance, allowing for consumer choice
and flexibility, while still ensuring that the funds will go towards
the purchase of primary health coverage. Eligible individuals offered
health benefits at work will be able apply their certificate towards
that health plan--the same health plan used by their higher-wage
coworkers--without placing complex and burdensome requirements on
employers. Other eligible individuals will be able to shop for the
coverage that best meets their needs and the needs of their families--
just like any other consumer. At the same time, the HIPAA requirements
will ensure that the coverage obtained will be a primary health plan,
and not a limited benefit, hospital indemnity, specified illness or
other supplemental benefit policy.
We are also pleased to see that this proposal includes additional
federal funding for state-sponsored high-risk pools--an additional $35
million for fiscal year 2004, and $75 million annually for fiscal years
2005 through 2009. Well-managed high-risk pools have proven to be an
effective mechanism for ensuring access to health insurance coverage
for individuals with serious medical conditions, and do so without
disrupting the private, individual health insurance market on which
millions of other consumers depend. Federal support for these risk
pools is another key element of InsureUSA.
potential refinements
Eligibility for the H.R. 2698 certificates is limited to
individuals who are not eligible for public coverage--for instance,
low-income singles or childless couples who are not elderly or
disabled. We would suggest that you consider expanding eligibility to
include all those who are not enrolled in public programs. As it
stands, individuals or families who qualify for Medicaid or S-CHIP but
who, for whatever reason, have chosen not to enroll are not eligible
for a health insurance certificate. However, many eligible individuals
may not enroll in public programs such as Medicaid and S-CHIP due to a
perceived stigma. Providing the certificate as an alternative has the
potential to help some of these individuals who cannot be reached--or
simply do not wish to be served--through public programs. Since the
value of the certificates is significantly less than the value of
Medicaid or S-CHIP, those who elect the certificates would actually be
choosing a coverage option involving lower federal expenditures.
H.R. 2698 also applies an asset test; it bases eligibility not just
on income, but on how much an individual owns as well. Asset testing is
important when providing Medicaid coverage to seniors, where retirees
who need long-term care services and have significant assets might
otherwise be tempted to limit their income to qualify for Medicaid
coverage while still preserving their assets. Individuals in a long-
term care facility present a special case regarding income. Once the
monthly facility fee is paid for room and board, they have relatively
few out-of-pocket expenses, and can afford to minimize their realized
income. Fewer non-elderly individuals will combine very low incomes
with significant assets. We would urge you to consider carefully
whether such an asset test is cost-effective with a much younger
population. Administering an asset test will complicate the program,
and may well cost more than it saves.
You may also want to consider whether the size of the subsidy, when
used in the individual market, should vary by age. Health care needs
and in turn, the cost of health care coverage, rise significantly with
age. A fixed certificate amount will constitute a proportionately
larger subsidy for younger individuals, and cover a smaller percentage
of the cost of coverage for older individuals. There may be some
justification for providing an additional incentive to young adults,
because they are more likely to be uninsured than any other demographic
group. Nonetheless, given the rapid increase in costs with age, we
believe it may be appropriate for the dollar value of any certificate
or credit to increase as well. Balancing the need younger adults have
for additional encouragement to buy coverage against the needs of older
adults facing larger premiums makes for a difficult trade-off--
particularly during a time of limited budgets.
conclusion
We welcome your efforts to help low-income Americans pay for the
health insurance coverage they need. HIAA strongly supports direct
federal financial assistance for the working poor to help them buy the
health insurance coverage they need We believe that subsidizing the
cost of private coverage is the most appropriate way to expand coverage
for the working poor, and that this must be done in a way that does not
undermine the employment-based system of coverage on which over 160
million non-elderly Americans depend. We also strongly support federal
financial assistance for state high-risk pools, which provide a vital
safety net for individuals with serious health conditions.
We would welcome the opportunity to work with Members and their
staffs in this effort, and in future efforts to address the needs of
the uninsured.
______
InsureUSA
covering america's uninsured
Covering the Uninsured: HIAA's InsureUSA Proposal
Tens of millions of Americans still lack health insurance. To solve
this enormous problem, Congress must act to help these Americans afford
the health care coverage that they, and their families, need. HIAA's
InsureUSA proposal (www.insureusa.org) offers a series of practical
initiatives that would provide coverage for most of the nation's
uninsured.
The time is ripe for action. The number of uninsured Americans grew
steadily during most of the 1990's. While there was a two-year hiatus
at the peak of the economic expansion, this was a brief pause in a
steady trend that had lasted more than a decade. The growth in the
uninsured has resumed with the current economic downturn. According to
the U.S. Census Bureau, over 41 million Americans have no health
insurance coverage.
To increase coverage, health insurance must be more affordable for
more Americans. The main reason that Americans are uninsured is because
they cannot afford health insurance coverage. Many well-intentioned
attempts at insurance market reform have had the effect of increasing
the cost of coverage and increasing the net number of individuals
without health insurance. Reforms, therefore, should both reduce the
costs of health insurance and provide financial support for those who
otherwise cannot afford coverage.
Multifaceted problem requires multifaceted approach. While
affordability is the primary reason people lack health coverage, the
uninsured have many faces. Rather than advocating a singular approach
to insuring more Americans, we are advocating a 5-point program
designed to attack the underlying reasons that people are uninsured.
A strong, vibrant private health insurance market should remain a
cornerstone of our health care system. Expanded coverage must be
achieved through means that do not threaten the coverage of other
Americans or damage the existing private market. Competitive markets
remain the most efficient and responsive mechanisms to provide
consumers with coverage. Regulations that stifle innovation,
flexibility and responsiveness to consumers should be strongly
discouraged. For example, nothing in the proposal should be interpreted
as favoring public coverage over private or as requiring health
insurers to operate in markets in which they have chosen not to.
Reforms should make health coverage more affordable within the
context of the employment-based private health care system, rather than
destroying it. Nine in every 10 Americans with private health coverage
get their health insurance through their employer. While the percentage
of Americans with employment-based health coverage has declined
somewhat in the wake of the recent economic slowdown, steady increases
in coverage during most of the 1990s demonstrate the strength and
resiliency of this system.
The new initiative should be financed with broad-based funds.
Rather than recommending specific sources to finance this series of
initiatives on the uninsured, HIAA recommends that funding decisions be
left to state and federal policymakers. Policymakers should be
encouraged to finance these proposals with broad-based funding sources.
For instance, stable, on-going funding is critical to the success of
any risk pool. Policymakers should consider general revenues, as well
as state funds related to health (such as tobacco-related recoveries)
as possible financing sources.
key elements of insureusa
The InsureUSA proposal has 5 key components:
Extending the safety-net for Americans living below the federal
poverty level
Giving the working poor the help they need to buy their own coverage
Guaranteeing access to coverage for uninsurable individuals through
broad-based funding for state high risk pools
Encouraging greater coverage for individuals and small businesses
through enhanced tax incentives
Extending and enhancing Archer Medical Savings Accounts (MSAs)
i. covering very low-income individuals
Conceptual approach: Extend the current social safety net
obligation currently fulfilled by Medicaid to include all adults below
100% of the federal poverty level, regardless of family structure.
Medicaid, the joint state-federal program designed to provide health
insurance coverage to low-income Americans, does not extend coverage to
all poor people. For example, married couples without children and men
are generally not eligible for Medicaid coverage unless they are
disabled. A government-sponsored program is proposed based on the
assumption that individuals with family incomes below 100% of the
federal poverty level have at best a tenuous connection with the work
force (only 17.5% of non-elderly Americans in this income range have
employment-based coverage).
Target population: Individuals and families with incomes below 100%
of the federal poverty level who are not eligible for other federal or
state subsidized health insurance coverage such as, but not limited to,
Medicaid, Medicare or the Children's Health Insurance Program (S-CHIP).
Key elements of the proposal:
Expansion of public program to provide health insurance to all
individuals with incomes below 100% of poverty.
Funding and structuring program are both fundamentally government
responsibilities.
Joint federal/state funding and program structure would be based on
the S-CHIP program.
States would be given significant flexibility with regard to
coverage, benefits and program structure, as in the current
Health Insurance Flexibility and Accountability (HIFA)
demonstration initiative.
States would be encouraged to use program funds to subsidize coverage
under private employer-sponsored health plans for poor
individuals eligible for such plans.
ii. covering the working poor
Conceptual approach: Subsidize the cost of private health insurance
coverage for the near poor and working poor. Subsidized private
coverage is proposed because this population segment largely consists
of low-income working individuals who in many cases have access to
employer-sponsored coverage (45% of non-elderly Americans with family
incomes between 100-200% of the federal poverty level have employment-
based coverage) and it is neither necessary nor desirable to replace
private coverage with a government-sponsored program. The subsidy
should be large enough to make coverage substantially more affordable
for low-income individuals, but should not be so large as to encourage
over-insurance. Because the cost of coverage varies significantly by
age, family size and geographic location, it is critical to provide a
subsidy that is equitable for individuals in different situations.
Target population: Individuals and families with incomes between
100% and 200% of the federal poverty level who are not eligible for
current subsidy programs (e.g., Medicaid, Medicare or S-CHIP).
Key elements of the proposal:
A refundable tax credit or direct federal voucher provided to
individuals with incomes between 100% and 200% of poverty based
on taxable income.
If eligible individuals have access to an employer-sponsored plan,
the credit or voucher would be used for the employee
contribution.
If no employer-sponsored plan is available, then the credit or
voucher may be used towards any coverage meeting the Health
Insurance Portability and Accountability Act (HIPAA) definition
of ``creditable coverage'' for which the individual is
eligible.
If a tax credit is used:
It should be equal to 60-75% of the premium. A percentage of
premium credit allows for variations in cost by age, family
size and location.
The credit should be refundable, in order to help low-income
taxpayers.
Ways to make the credit advancable should be explored.
If a voucher is used:
The voucher amount should be based on an objective measure of the
cost of providing health benefits, and should represent
roughly 60-75% of the cost of coverage (e.g., equal to 75%
of the national average Federal Employee Health Benefit
Plan (FEHBP) premium).
The voucher should be adjusted for geographic and demographic
variations in cost.
The voucher should be redeemable by health plans for actual
premiums up to the full face-amount and electronic
assignment of vouchers and transfer of funds would be
encouraged to facilitate administration.
iii. guaranteeing access to coverage for uninsurable individuals
through state high-risk pools
Conceptual approach: Authorize broad-based federal funding to
encourage states to guarantee uninsurable individuals (those who would
not qualify for private, medically underwritten individual policies)
access to coverage through high-risk pools. While some states have
chosen to implement other mechanisms to guarantee access to coverage,
guaranteeing access to coverage through high-risk pools should be the
preferred approach. Financing for high-risk pools at both the state and
federal levels should be provided through broad-based funding.
Target population: Individuals who may be able to afford to pay a
meaningful premium, or have a voucher or other subsidy available to pay
a premium, but who do not qualify for private coverage due to health
status.
Key elements of the proposal:
Provide federal seed money to states without high-risk pools for
start-up costs (program design and administration, initial
reserves, outreach, etc.).
Provide federal block grants for all states to defray administrative
costs of high-risk pools.
Provide 50-50 federal matching funds for the underwriting losses of
pools (claims minus premiums). However, if a pool sets premiums
below 150% of a standard private market rate, the match will be
calculated as if the premiums were set at 150% of standard.
To receive funds, state pools must have lifetime maximum benefits of
no less than $1 million, and meet NAIC model high-risk pool
standards.
Federal reinsurance program for qualifying state high-risk pools will
cover 75% of claims over $1 million for an individual pool
enrollee (indexed to medical CPI).
The Secretary of Health and Human Services (HHS) will establish pools
in states if the state has not sponsored a pool (federal funds
will be matched by withholding appropriate federal matching
funds in such states).
Any new state or federal funding for this program must be stable and
broadly-based.
States should replace guaranteed issue and community rating
requirements in the individual health insurance market with
guarantee access through high-risk pools
iv. encouraging greater coverage for individuals and small businesses
through enhanced tax incentives
Conceptual approach: Provide a variety of additional tax subsidies,
in conjunction with targeted consumer education, to encourage more
individuals and employers to purchase private health insurance.
Target population: The self-employed, small businesses, and
individuals without access to employer-sponsored health insurance
coverage.
Key elements of the proposal (employer market):
Small employer tax credit (could be phased-in beginning with smallest
employers). To be eligible for the credit, a small employer
must have an average payroll below the median for all small
firms.
40% credit for employers with fewer than 10 employees
25% credit for employers with 10-25 employees
15% credit for employers with 26-50 employees
Allow employee contributions for health insurance to be excluded from
taxable income (even if not made through a section 125
cafeteria plan)
Key elements of the proposal (individual market):
Allow all individuals, not just the self-employed, to deduct the full
cost of health insurance premiums.
Undertake a variety of consumer education and outreach activities on
the importance of having and maintaining health insurance.
v. encouraging increased coverage and providing more options for
consumers by extending and enhancing archer medical savings accounts
(msas)
Conceptual approach: Encourage more individuals and employers to
purchase health insurance and save for future medical expenses by
extending and enhancing Archer Medical Savings Accounts (MSAs).
Increase the number of Americans who are given the option of
establishing an MSA, and enhance the program to better meet the needs
of the average American consumer.
Target population: Individuals and business of all sizes.
Key elements of the proposal (Medical Savings Accounts):
Make MSAs more attractive by simplifying rules
Extend eligibility to large employers
Extend eligibility to all individuals--not just the self-employed
Eliminate sunset provision
Allow both employee and employer contributions to MSA account
Allow cafeteria plans to offer MSAs
Allow imbedded individual deductibles with family deductible cap
Increase the deduction allowed for MSA contributions to 100% of
the deductible amount under the qualifying high deductible
insurance policy
Increase the range of allowable deductibles and out-of-pocket
limits (Lower limits are important to allow MSA holders' to
limit their liability as they accumulate funds for medical
expenses, and higher limits are important for policyholders
who have accumulated, or expect to accumulate, significant
funds in their MSAs).
Make it easier for PPOs and other network plans to offer MSA
products
Preempt state benefit mandates to the extent that they would
require a qualified high-deductible health plan to provide
coverage below the level of the deductible. If this is not
acceptable, then qualified high deductible health plans
should be allowed to provide low-deductible or first-dollar
coverage when necessary to comply with a state benefit
mandate.
cost and access to affordable coverage
InsureUSA, through a combination of targeted subsidies for low-
income individuals, federal matching funds for risk pools for
individuals with serious medical conditions, and enhanced tax
incentives to encourage the purchase of health insurance, addresses the
need to ensure access to coverage to all Americans. But meaningful
efforts must also be taken to reduce the cost of health care and make
health insurance coverage more affordable. Costs must be addressed in
three broad ways. First, regulatory burdens that increase the cost of
coverage must be reduced. Second, individuals must take greater
responsibility for ensuring that the health care they receive is paid
for, and thus for ensuring that they have the health care coverage they
need to fulfill that responsibility. Third, individuals must become
more careful consumers of health care through increased control over
and an increased financial interest in health care purchasing
decisions.
Mr. Bilirakis. Thank you so much, sir.
Dr. Nelson.
STATEMENT OF JOHN C. NELSON
Mr. Nelson. Thank you, Mr. Chairman.
What an honor it is to be here on behalf of the American
Medical Association physicians dedicated to the health of
America to participate in this discussion on the crisis of the
uninsured in America.
I also would like to thank you, Mr. Towns, for your
leadership on the issue of the introduction of H.R. 2698.
My name is John C. Nelson MD. I am the President-Elect of
the American Medical Association, and I am a practicing
obstetrician and gynecologist in Salt Lake City. We appreciate
the opportunity to be here.
That 41.2 million Americans lack insurance in 2001 is a
problem, a major public health problem. As that number of
uninsured climbs, the health care costs will continue to rise,
which makes the problem of the uninsured--means it will get
worse. The American Medical Association believes it is time to
rethink health insurance, since a real human price is paid when
individuals are uninsured.
First, the lack of health insurance has a direct-risk
effect on the health of those uninsured; not having health
insurance itself is a health risk. The uninsured receive less
preventive care, they are diagnosed more often in the advanced
stages of diseases, and they tend to seek care less often when
they do have it. I think of a 22-year-old young woman who died
of cervical cancer, a preventable disease, because she could
not afford to have a pap smear.
Second, individuals who lack health insurance forego the
needed medical care, so they are sicker when they get it. As a
result, physicians who are already overburdened by increased
liability premiums and decreased reimbursement are the ones
forced to bear even higher costs to care about these Americans.
In our State, we have a program called the Health Access Plan,
or through the Utah Medical Association, we sign up to take
care of those individuals within our specialty. I have the
privilege of caring for some of these wonderful people. While
not long ago, one was from Somalia, another from the Sudan, yet
another from Bosnia people who don't have the ability to get
the care that others would have. Perhaps most importantly,
individuals in poor health are less likely to work at their
fullest capacity, which is a drain on the engine of America's
productivity. This means lost time, skills lost, people not
being able to do what they should do because they are
concerned.
To solve these problems, the AMA has long advocated that
every American should have health insurance, and we propose
reform that would dramatically increase the number of folks who
are insured through a series of things which may start very
well with H.R. 2698. We appreciate that positive step and think
it is something that ought to be looked at. The AMA supports
the use of health care certificates to reduce the number of the
uninsured, our most vulnerable--those who don't have insurance
are the most vulnerable--to assist individuals and their
families to purchase health insurance.
Any certificate system must ensure that the lower-income
Americans have the health insurance first. They get the
vouchers or the certificates first. This means that the dollar
value has got to be sufficient so that the care that they
purchase is meaningful and affordable. H.R. 2698 would apply to
individuals purchasing health insurance on the individual
markets, but because some are uninsurable, perhaps we have to
find a different way to take care of those folks, people with
diabetes or some preexisting condition.
The AMA believes these individuals require targeted
policies to subsidize their coverage and ensure that insurance
markets allow affordable premiums for the general population.
The concern is we have too many that are really sick and are
really high-risk, that it costs so much to insure those that it
increases the premium for everybody thereby making insurance
not available even for those who otherwise could have afforded
it. Therefore, we are very concerned that insurance pools
should be encouraged by exempting them from selective State
regulations regarding mandated benefits, premium taxes and
small group rating laws. State and Federal patient protection
laws have got to be safeguarded.
In addition, the AMA believes individuals should be able to
buy into State employee purchasing pools or the FEHBP.
Further, appropriate market regulations should be pursued,
greater uniformity across markets, modified community rating,
guaranteed renewability, subsidization of high-risk individuals
and the like through general tax revenues is a sounder approach
than increasing premium taxes. We maintain that the ultimate
solution to solving this problem of the uninsured is to
encourage individual ownership and personal choice of
affordable health insurance. This is America. One size does not
fit all. We relish the idea of choice.
The cornerstone of our proposal is a plan of individual tax
credits for the purchase of health insurance that is
refundable, advancible and inverse income-related. We shared
with the Congress, a publication further detailing this
proposal. And if it is appropriate, Mr. Chair, I would submit
this for the record.
Mr. Bilirakis. Without objection.
[The material is available at http//www.ama-assn.org/ama1/
pub/upload/mm/363/expandinghealthinsur.pdf]
Mr. Nelson. We would ask the subcommittee to include in the
record and having done that, simply want you to know the
American Medical Association representing almost 300,000
physicians stands ready, willing, able, motivated and excited
to participate in helping take care of this glaring public
health problem.
Thank you very much for the opportunity to participate.
[The prepared statement of John C. Nelson follows:]
Prepared Statement of John C. Nelson on Behalf of the American Medical
Association
Mr. Chairman and members of the Subcommittee, my name is John C.
Nelson, MD, President-Elect of the American Medical Association (AMA).
I am a practicing obstetrician in Salt Lake City. On behalf of the
Association and its physician and student members, I thank you for the
opportunity to share our views with the Subcommittee regarding the
critical issue of reducing the number of individuals who lack health
insurance. We especially thank this Subcommittee for holding this
hearing, continuing to focus attention on the national health crisis of
the uninsured, and working with the Administration and others on
legislative solutions.
the problem
According to the most recent Census Bureau figures released in
September 2002, a staggering 41.2 million Americans lacked health
insurance at some time in 2001. Data show that almost 1.5 million
Americans became uninsured in 2001, due primarily to job loss. As these
numbers remain high, health care costs continue to rise and the problem
of the uninsured will likely worsen. The Center for Studying Health
System Change reported that health care costs rose 9.6 percent in 2002.
From 2001 to 2002, premiums for employer-sponsored coverage rose 12.7
percent, the largest increase since 1990.
Most of the uninsured are employed--78 percent are full time
workers and 84 percent are in families headed by a worker. Only two-
thirds of non-elderly Americans (those aged 64 and younger) are covered
for medical expenses by an employer benefit plan. Thus, it is time to
rethink health insurance since the problem of the uninsured involves
several facets of our society, including health consequences to
individuals, costs to the health care system, and lack of employee
productivity.
Health Consequences Affecting Individuals
Lacking health insurance has a direct effect on the health of those
uninsured. The uninsured receive less preventive care, are diagnosed at
more advanced disease stages, and once diagnosed, tend to receive less
therapeutic care and have higher mortality rates. For instance,
uninsured women with breast cancer are twice as likely to die of cancer
as women who have health insurance. Uninsured men are nearly twice as
likely to be diagnosed at a later, and potentially more deadly, stage
for colon cancer as men with health insurance. Uninsured individuals
brought to the emergency room with severe injuries, are equally likely
to be admitted to the Intensive Care Unit (ICU) when compared to
privately insured individuals. Once admitted to the ICU, the uninsured,
however, are less likely to undergo an operative procedure and are
twice as likely not to survive their stay as those with health
insurance benefits.
Costs to the Health Care System
Studies have also demonstrated that individuals who lack health
insurance forego needed medical care and are sicker when they do seek
care. They visit emergency rooms and are admitted to hospitals in
disproportionate amounts, raising medical care costs which are then
passed on to an already overburdened system. As a result, the already
overburdened health care system is forced to bear even higher costs to
care for these Americans. In 2001, total uncompensated care was an
estimated $35 billion. The primary source of funding for uncompensated
care is the government, which spent an estimated $30.5 billion for care
on the uninsured, two-thirds of which are federal dollars.
Employee Productivity & Absenteeism Affected by Lack of Health
Insurance
Individuals in poor health are less likely to work to their fullest
capacity. Thus, health status is one of the many factors that determine
the quantity (working time) and quality (productivity) of employees in
the workplace. Uninsured individuals often put off receiving needed
medical care. At the worksite, this translates into lost time, skills
and productivity--through absenteeism or reduced efficiencies--that
cost businesses money.
Poor health conditions affect one's ability to work and are costly
to employers. Common conditions, such as migraine headaches, low back
pain, diabetes, allergies, and depression, dominate health-related lost
labor time. Although employees may go to work with these and similar
conditions, costs of their performance can be substantially reduced.
For instance, estimates indicate that depression costs U.S. employers
$24 billion annually in lost productive work time.
solutions
The AMA has long advocated for a health care system in which every
American has health insurance. We propose health care finance reform
which would dramatically increase the number of Americans with health
insurance coverage while putting patients first in choosing an
insurance package that best meets their needs. We suggest using health
care vouchers or certificates (that are sufficient to cover a large
cost of health insurance), fostering the development of new health
insurance marts, implementing the appropriate insurance market
regulation, offering refundable health care tax credits for
individuals, promoting the individual selection and ownership of
coverage, and developing defined contributions from employers.
Offer Health Insurance Certificates
Just last week, Chairman Bilirakis and Representative Towns
introduced H.R. 2698, the ``Health Insurance Certificate Act,'' which
would seek to reduce the number of uninsured Americans by providing
subsidies to low and low-middle income families for the purchase of
health insurance coverage. In some cases, the certificates would reduce
the financial burden of those who have already been paying for health
insurance through either the individual market or their employer.
Additionally, this legislation would adjust the value of the
certificate based on an individual's or family's income.
The AMA supports the use of health care certificates to reduce the
number of the uninsured and to assist individuals and families with
their purchase of health insurance. This legislation takes an important
step in accomplishing these critical goals. We believe that any health
certificate system must ensure that lower income Americans would
benefit from these certificates. Accordingly, the dollar value of
certificates, such as those in this legislation, must be large enough
to ensure that health insurance is affordable for most people. The
certificates must at least be sufficient to cover a substantial portion
of the premium costs for individuals in the low-income categories.
As previously mentioned, this legislation would apply to
individuals purchasing health insurance on the individual market and to
others who obtain health benefits through their employer-base insurance
(group market). Due to their health status, some individuals are
considered ``uninsurable'' when purchasing health insurance on the
individual market. Such individuals require special, targeted policies
in order to both subsidize their coverage and ensure that insurance
markets allow affordable premiums for the general population. It is the
AMA's preference to finance risk-related subsidies through general tax
revenues rather than through premium surcharges, because premium
surcharges have the unintended consequences of driving low-risk
individuals out of the market, particularly low-income, low-risk
individuals.
Foster the Development of New Health Insurance Markets
The AMA supports the development of new health insurance markets
that offer a wide range of affordable coverage options. We believe that
empowering people with tax credits, health insurance vouchers, and
freedom of choice would dramatically transform today's health insurance
markets. The new system would make health plans more responsive to
patients, rein in premiums and health care costs, and stimulate the
development of new forms of health insurance that better meet the wide
range of needs of individuals and families. The influx of average-risk
people into the individual health insurance market would prompt
insurers to replace costly medical underwriting practices with
simplified, automated ones. This would make coverage more affordable,
particularly for those with pre-existing or chronic conditions.
The AMA also supports alternative means of pooling risk along the
lines of existing prototypes, such as small group purchasing alliances
and Internet-based health insurance vendors. To achieve this goal, the
AMA supports federal legislation enabling the formation of ``Health
Insurance Marts'' by affinity groups that could include coalitions of
small employers, unions, trade associations, voluntary health insurance
cooperatives, chambers of commerce and other community organizations.
Alternative insurance pools should be encouraged by exempting them
from selected state regulations regarding mandated benefits, premium
taxes, and small group rating laws, while safeguarding state and
federal patient protection laws. In addition, the AMA believes that
individuals should be allowed to ``buy in'' to state employee
purchasing pools or the Federal Employees Health Benefits Plan
(FEHBP).Implement Appropriate Market Regulation 1
---------------------------------------------------------------------------
\1\ See Appendix A for AMA's principles for health insurance market
regulation.
---------------------------------------------------------------------------
The AMA recognizes that in order for markets to function properly,
it is important to establish fair ground rules. Neither free-market
mechanisms, nor market regulations alone would fully meet the needs of
those with chronic illness or conditions that are expensive to treat.
The large number of existing state and federal health insurance market
regulations has created problems. Regulations intended to protect high-
risk individuals have actually driven up premiums and lead to a
disproportionate number of young, healthy individuals to be without
coverage. The combination of guaranteed issue, strict community rating,
and extensive benefit mandates has had unintended effects on costs,
coverage, and choice.
The AMA believes that greater uniformity across markets, modified
community rating, guaranteed renewability, and subsidization of high-
risk individuals through general tax revenues is a sounder approach
than community rating or premium taxes. Such a regulatory environment
would provide assistance to high-risk individuals without unduly
driving up health insurance premiums for the remaining population;
would provide individuals with incentives to be continuously insured;
and would enable private market innovation, such as medical savings
accounts (MSAs), consumer-driven health care plans, defined
contribution health benefits, and new forms of coverage.
Protecting Vulnerable Populations
Vulnerable populations must also be protected. One way to protect
some of those populations would be by intensifying outreach efforts to
ensure that the five million children and adults who are currently
eligible are enrolled in Medicaid and the State Children's Health
Insurance Program (SCHIP).
Establish Tax Credits
The ultimate solution to solving the problem of the uninsured is to
encourage individual ownership and selection of health insurance, as
well as expand coverage to low-income workers who currently cannot
afford coverage. The cornerstone of AMA's proposed plan is a system of
individual tax credits for the purchase of health insurance that are
refundable and income-related. The AMA would replace the current
business tax deduction and employee exclusion for health insurance with
a tax credit for the purchase of health insurance.
The current tax exclusion must first be converted to a tax credit
for those who purchase health coverage, whether or not they receive
health benefits from their employer. The tax credits should be
inversely related to income; that is, larger credits should be
available to families and individuals in the lower tax brackets. The
size of the tax credits should also be large enough to ensure that
health insurance is affordable for most people. The credits must at
least be sufficient to cover a substantial portion of the premium costs
for individuals in the low-income categories. In addition, the tax
credits should be ``refundable'' so those who do not earn enough to owe
taxes can still claim a credit.The current tax exclusion is inequitable
because it provides a higher subsidy for those with higher incomes.
Moreover, a large portion of the 41.2 million uninsured Americans are
low-income wage earners who are not eligible for Medicaid. Under the
AMA plan, the tax subsidy would be redirected toward those who need it
most. Furthermore, compared to a tax credit that does not vary with
income, a sliding scale tax credit reduces the federal spending
necessary to expand coverage.
We have previously shared with the Congress an AMA publication
further detailing our proposal to increase the number of Americans with
health insurance entitled, ``Expanding Health Insurance: The AMA
Proposal for Reform.'' I have a copy here and ask the Subcommittee to
include it in the record of this hearing. We hope that it proves
helpful as you consider this subject.
Thank you again for the opportunity to testify and provide our
suggestions for reducing the number of the uninsured. The AMA offers
this Subcommittee and the Administration our assistance in advancing
solutions to this critical issue.
APPENDIX A
The American Medical Association (AMA) supports the following
principles for health insurance market regulation:
1. There should be greater national uniformity of market regulation
across health insurance markets, regardless of type of sub-
market (e.g., large group, small group, and individual),
geographic location, or type of health plan.
2. State variation in market regulation is permissible so long as
states demonstrate that departures from national regulations
would not drive up the number of uninsured, and so long as
variations do not unduly hamper the development of multi-state
group purchasing alliances, or create adverse selection.
3. Risk-related subsidies such as subsidies for high-risk pools,
reinsurance, and risk adjustment should be financed through
general tax revenues rather than through strict community
rating or premium surcharges.
4. Strict community rating should be replaced with modified community
rating, risk bands, or risk corridors. Although some degree of
age rating is acceptable, an individual's genetic information
should not be used to determine his or her premium.
5. Insured individuals should be protected by guaranteed renewability.
6. Guaranteed renewability regulations and multi-year contracts may
include provisions allowing insurers to single out individuals
for rate changes or other incentives related to changes in
controllable lifestyle choices.
7. Guaranteed issue regulations should be rescinded.
8. Insured individuals wishing to switch plans should be subject to a
lesser degree of risk rating and pre-existing conditions
limitations than individuals who are newly seeking coverage.
9. The regulatory environment should enable rather than impede private
market innovation in product development and purchasing
arrangements. Specifically:
(a) Legislative and regulatory barriers to the formation and
operation of group purchasing alliances should, in general,
be removed.
(b) Benefit mandates should be minimized to allow markets to
determine benefit packages and permit a wide choice of
coverage options.
(c) Any legislative and regulatory barriers to the development of
multi-year insurance contracts should be identified and
removed.
Mr. Bilirakis. Thank you very much Dr. Nelson.
Mr. Shea, you are on.
STATEMENT OF GERALD M. SHEA
Mr. Shea. My name is Gerry Shea. I am Assistant to the
President of the AFL-CIO, where I manage government affairs,
including health policy matters. And also, for the information
of the committee, I represent the AFL-CIO in unions around the
country in various health policy discussions such as the
National Quality Forum, the Joint Commission on Accreditation,
the Institute of Medicine and in past years on the MedPAC
board. You have my written submission, and I wanted to
supplement that with some additional comments here.
First, let me commend you for, in my view, seizing the
opportunity that is provided by the Budget Resolution in
beginning this debate. And our hope is it will be a full and
robust debate about various ways to do that, and I commend you
for the legislation you have submitted to begin that process.
I, likewise, am pleased to be joining such distinguished
colleagues on this board, many of whom I know. And I would just
make the point that, even though we may differ on policy, I
think at the moment, we are more together on our values and our
principles about what needs to be done to address this problem
of uninsured than we are divided, even though we may have
significant differences.
The worst rate of inflation in health care in American
history has produced yet another crisis in the backbone of our
coverage, that is employment-based coverage. While unions are
proud of the fact that we're able to advance coverage for some
low-wage workers in particular industries, for the most part,
we are playing totally a defensive game in trying to hold on to
coverage that was negotiated years ago. And I want to say that
as much as we are rightfully--we are all rightfully concerned
about the 47 million who are currently uninsured. I would
suggest to the committee that you bear in mind, as I think you
already do, that just behind those 47 million, there are at
least that number, or maybe many more, who are in serious risk
of losing their existing coverage.
I will turn to the specifics of the bill that the chairman
has introduced in a minute, but let me make a more general
comment. Based on our experience, there is no solution to the
coverage issue unless we can address the cost problem in
American health care. We simply have an unsustainable situation
in terms of the cost and the care that we get for that. And I
would go one step further and say I don't believe, based on my
experience, that there is any addressing successfully the cost
issue without first addressing quality in the system.
Now, thankfully there are substantial steps being taken in
that direction, in the private sector among businesses, in the
health professions and within the government. I would
particularly call to your attention the CMS activities and
Secretary Thompson's outspoken leadership in terms of setting
up information systems and providing information on reliable
quality measures that are widely accepted as being important.
And from the point of view of purchasers, my own view and
experience in this, we want to start buying quality care and
buying only the best quality care. We need more information and
infrastructure to do that, but that is something that we hold
as an important goal and one that, I believe, will lead us on
the road to solving, long-term, the cost problems.
In terms of the specific legislation, let me say that
first, I appreciate the fact that this legislation addresses
the employment-based situation by providing subsidies for
existing employment-based coverage.
I fear, however, and I should say first, and we are happy
to accept the offer that has been made by my staff to talk
about this at great length and to explore this and getting to
potential areas of agreement. I fear, however, that in the
present situation, this may not be the most efficient or
effective use of the $50 billion over time that is available in
terms of making any really substantial progress, in terms of
adding to reducing the number of uninsured.
And I fear as well, as my written testimony indicates, that
there may be unintended consequences here of actually
undermining the employment-based area and that is probably the
subject on which we could be most helpful. I would note that as
with many members of the committee and others in town, we have
spent a lot of time in the last 2 years, really dating back to
the tragedy of September 11, 2001, looking at whether a tax
vehicle could be configured to subsidize coverage. And I think
in those discussions after many months of work, there were some
very interesting ideas raised and some progress made. But I
think if the phrase ``the devil is in the details'' ever
applied to any area, it is in the health care field, as you
know well, and therefore, you have to be very careful about how
to structure this. And I think, as my written submission
indicates, there are a number of issues that would need to be
explored further.
Thank you, Mr. Chairman.
[The prepared statement of Gerald M. Shea follows:]
Prepared Statement of Gerald M. Shea, Assistant to the President for
Government Affairs, American Federation of Labor and Congress of
Industrial Organizations
Thank you for the opportunity to present the views of the AFL-CIO,
a federation of 66 national and international unions representing 13
million active workers and 3.2 million retired members. We are pleased
to offer testimony on H.R. 2698, the Health Insurance Certificate Act
of 2003.
The AFL-CIO believes a full debate on how to best use the money
allotted in the budget resolution can and should make a constructive
addition to the current nationwide debate over the vexing problems of
health care costs and coverage.
Employment based coverage is the backbone of our country's health
care system. Nine out of ten insured in America receive their coverage
through an employer. That represents 153 million active U.S. workers
and their dependents and 19 million retirees, including over 5 million
early retirees who don't yet qualify for Medicare. The AFL-CIO unions
negotiate benefits for 40 million covered lives. Employers and unions
that sponsor health plans use the purchasing power of pools of workers
to negotiate for better prices and better quality, providing uniform
coverage to all employees regardless of income or health status.
Until Congress enacts universal coverage that is financed
equitably, any proposal considered in Congress must bolster--not
undermine--this significant and successful segment of our health care
system. Although a laudable initial attempt to use the $50 billion set
aside in the budget for the uninsured, H.R. 2698 would seem to fail
that critical test.
As drafted, H.R. 2698 could lead to several outcomes that would
undermine employer-based coverage. First, employers may eliminate their
coverage with the expectation that their workers will have the benefit
of the federal subsidy. Second, employers may reduce the level of
subsidy they provide for employees' coverage. Finally, employers may
see their costs rise as younger, healthier workers opt out of the
employer plan for a less comprehensive plan in the non-group market,
leaving behind older, sicker workers in the employer plan
When employers eliminate coverage, workers either go without
coverage or purchase inferior coverage that shifts substantially more
cost onto the enrollee. Those who seek coverage in the non-group market
are subject to vigorous medical underwriting, designed to separate the
healthy from the sick. As a result, many cannot obtain coverage that is
either affordable or adequate, and only those who are young and in good
health can purchase a policy.1
---------------------------------------------------------------------------
\1\ See for example, Karen Pollitz, Richard Sorian, and Kathy
Thomas, ``How Accessibly is Individual Health Insurance for Consumers
in Less-Than-Perfect Health?'' The Henry J. Kaiser Family Foundation,
June 2001.
---------------------------------------------------------------------------
That coverage, though, is far less comprehensive than group-based
coverage, particularly employer-sponsored coverage. One study of
coverage in the non-group market has found that half of people buying
individual policies are covered for just 30 percent of their health
care costs.2 A similar study has found that individual
policies that can be purchased for $1000 are often not available. Where
they are available, coverage is woefully inadequate--sometimes
requiring enrollees to meet a deductible of as much as
$5000.3 It's important to note that only the premium can be
offset by the health certificate. The substantial cost sharing required
by the policy must be borne entirely by the enrollee.
---------------------------------------------------------------------------
\2\ Jonathan Gabel, ``Individual Insurance: How much financial
protection does it porovide?'' Health Affairs, April 17, 2002.
\3\ Families USA, ``A 10-Foot Rope for a 40-Foot Hole: Tax Credits
for the Uninsured, 2002 Update''
---------------------------------------------------------------------------
For those who cannot pass the vigorous medical underwriting, 30
states now have high-risk pools. However, premiums for these pools are
typically very high and coverage often requires significant enrollee
cost sharing or excludes coverage for pre-existing conditions. One
study done of 29 high-risk pools in 1999 found premiums averaged 168
percent of the standard market rate, but can go as high as 200 percent
(in 8 states) and even 250 percent (in Florida). In dollar terms, this
represents a significant cost--particularly for older individuals. In
fact, in most states, the average premium--$3038--was high relative to
ability to pay, and certainly significantly more than the value of the
health certificate in H.R. 2698.4
---------------------------------------------------------------------------
\4\ L. Achman and D. Chollet, ``Insuring the Uninsurable: An
Overview of State High-Risk Health Insurance Pools'' Commonwealth Fund,
August 2001
---------------------------------------------------------------------------
Secondly, H.R. 2698 makes a distinction between employer plans with
50 percent or more of the premium paid by the employer and those plans
with the employer contributing less than 50 percent. If an individual
is enrolled in a plan in which the employer contributes 50 percent or
more, they are only entitled to the group coverage subsidy. However, if
the employer contributes less than 50 percent, the individual is
entitled to either the group coverage subsidy or the subsidy for non-
group coverage. The difference between the two is that the group
subsidy is valued at 40 percent of the non-group subsidy. This could
provide an incentive for employers to reduce the level of their
subsidy, since their employees would have two certificate options, one
of which would be more valuable than is available to them in the
employer's plan.
Another possible outcome of H.R. 2698 is that young and healthy
workers may choose to opt out of the employer plan and use the federal
subsidy to purchase a less comprehensive plan in the non-group market.
This option--and the incentive of a greater federal subsidy if workers
choose non-group coverage on their own--will segment the risk in the
employer's pool, leaving the older and sicker workers in the employer's
plan. The employer's costs will rise, driving up premiums and further
threatening affordability for the employer and the workers who must
contribute to the cost of their coverage. After several years of
double-digit premium increases and more predicted for next year,
embarking on such a policy is, in our view, shortsighted and unwise.
Finally, I would like to comment on Congress' most recent
experience with federal subsidies for individuals to purchase health
insurance, and one with which the AFL-CIO has been very much involved.
The Trade Adjustment Assistance Act passed last year included a new
health care tax credit for workers who lose their jobs as a result of
U.S. trade policy and retirees whose pensions have been taken over by
the Pension Benefit Guarantee Corporation. As you know, the tax credit
subsidizes 65 percent of an individual's health care premiums and
beginning in August, will be made available to workers at the time they
purchase coverage. After much negotiation, the law requires the health
coverage through the state-based options to include four consumer
protections: guaranteed offer of coverage, no exclusions for coverage
of pre-existing conditions, and premiums and benefits comparable to
other insured individuals. However, we are very concerned that the
law's restrictions on who qualifies for those consumer protections will
prove to be a significant hurdle for the older workers and retirees
this new tax credit purports to help.5
---------------------------------------------------------------------------
\5\ Under the TAA law passed last year, these four consumer
protections are only available to those individuals who have three
months of prior coverage at the time ``they seek to enroll'' in state-
based coverage. While the language is ambiguous and could be
interpreted differently, the Administration has said individuals must
have the prior creditable coverage at the time they are found eligible
for the tax credit--many months after they were separated from
employment and likely even longer for PBGC beneficiaries. It is highly
unlikely that laid-off workers and retirees will have coverage at that
point in time. Using this narrow interpretation of the test of prior
coverage, none of the market protections would apply, yet without these
protections, no retiree aged 55 to 65 and very few laid-off workers
will get coverage.
---------------------------------------------------------------------------
In addition, the House has already passed language that would
severely undermine those consumer protections, slipping the provisions
into an unrelated and otherwise popular bill, the Taxpayer Protection
and IRS Responsibility Act (H.R. 1528). Unfortunately, this bill would
further weaken another important protection. H.R. 2698 would increase
and extend the funding for high-risk pools and at the same time,
eliminate a number of important requirements: that high-risk pools can
set their premiums at no more than 150 percent of the standard market
rate and must offer two or more plans in order to qualify for the
federal funds. Instead, H.R. 2698 only requires states to adhere to the
NAIC model, which recommends states set premiums as high as 200 percent
of the standard market rate. Eliminating this requirement is a blow not
only to health care consumers but to the taxpayers who will be helping
fund even more expensive coverage.
Another feature of H.R. 2698 that departs significantly from the
TAA health care tax credit, and one which we oppose, is the capped
value of the certificate. Setting the value of the subsidy at a fixed
dollar rather than a percent of the premium discriminates against
consumers based on their health status and where they live. The TAA
program rightly recognizes that by providing a 65 percent federal
subsidy, older workers and those with significant health care needs are
more likely to find affordable coverage.
In conclusion, we welcome the debate on this important matter and
appreciate the committee's work on developing a proposal for the $50
billion available for the uninsured. Without a doubt, both the rising
number of uninsured and the importance the public has placed on this
problem have made it a subject that demands the attention and
commitment of all of us. However, we are concerned that the bill before
the committee, H.R. 2698, fails to meet the AFL-CIO's primary test for
health care policy: to strengthen and not undermine an already-fragile
employment based system upon which most Americans depend for
comprehensive, affordable health coverage. We would like to continue
this dialogue and be very much involved in your discussions as they go
forward.
Thank you.
Mr. Bilirakis. Thank you very much, Mr. Shea.
Ms. Spitznagel.
STATEMENT OF DEDE SPITZNAGEL
Ms. Spitznagel. Mr. Chairman, members of the subcommittee,
I am Dede Spitznagel, Executive Vice President of the Health
Care Leadership Council, and I am here testifying today on
behalf of the Coalition for Affordable Health Coverage. Thank
you very much for this opportunity.
It is a privilege to appear in support of bipartisan
legislation H.R. 2698 that will make private health insurance
more affordable for lower-income workers and their families.
The CHC is made up of 17 organizations sharing a common goal of
making private health insurance more acceptable and affordable
for the approximately 15 percent of Americans who are currently
without coverage. Our members are health providers, employers,
both large and small, insurers, pharmaceutical companies and
consumers. My own organization, the, Health Care Leadership
Council, is comprised of chief executives of the Nation's most
respected health care companies and institutions. This
coalition was formed 3 years ago in recognition of the critical
nature of this issue.
In the United States today, there are millions of uninsured
people who skip preventive care and end up with poor, and often
more expensive, health outcomes. Emergency rooms become primary
care clinics. We have a status quo that doesn't work well for
patients, for health care providers, or for communities, or for
taxpayers. All Americans will benefit when we provide the
uninsured with increased access to private health coverage. In
my testimony, I want to focus on how the chairman's and Mr.
Towns's bill, the Health Insurance Certificate Act of 2003,
moves us significantly toward that goal.
First, let us start by looking at the nature of the
uninsured problem. A recent CBO study found that almost 60
million people go without health coverage for at least part of
the year. But the number of people who are uninsured for a year
or more is actually between 21 and 31 million, this group,
people who tend to have low incomes who are not eligible for
Medicaid, is exactly the population that H.R. 2698 wisely
targets. There is a very important facet to this legislation
that deserves highlighting. The bill provides a subsidy for
those who do not have access to employer-sponsored health
insurance. It also provides a lesser subsidy to those with
access to employer-sponsored coverage. This is critical in
reaching many of the uninsured. Many low-wage earners work for
small employers who can provide only a minimal contribution
toward coverage. Also, low-wage earners may not owe income
taxes, and, therefore, may not benefit from the tax free status
of the premium contributions made by their employers. For these
working Americans, even a small subsidy can be just enough to
help afford coverage.
In terms of affordability, one has to ask the question just
how helpful will $1,000 for individuals or $2,750 for families
be in purchasing health insurance in the nongroup market. We
believe these dollars will provide a very meaningful helping
hand.
Let us look at the actual prices of health coverage today
to determine the impact of these subsidies. According to the
Nation's largest online brokerage, the average premium cost for
individuals in 2002 was $2,011 per year, and it was about
$4,188 for a family of three. This is the price for a
comprehensive policy, the kind of health plan relied upon by
most insured Americans. So using these figures, we see that if
the chairman's bill becomes law, individuals could have an out-
of-pocket expense of about $1,011 per year or about $85 per
month, and families could have a premium expense of $1,938 per
year or about $162 per month. The chairman's bill would pay, on
average, 52 percent of the cost of health insurance. This is a
tremendous boost for families that otherwise would have no
assistance whatsoever. It is also important to note that H.R.
2698 provides $75 million in annual funding for high-risk
pools, which would serve as a safety net for those who may have
health conditions that prevent them from obtaining health
insurance coverage. Through these pools, individuals with
serious health conditions can gain access to affordable, high-
quality insurance coverage.
The Coalition for Affordable Health Coverage believes that
measures like H.R. 2698 are not only the right thing to do,
they are also fiscally responsible. Last year our health care
providers and facilities spent $35 billion to treat the
uninsured. Not only does this affect the cost and availability
of health care for all Americans, but our society and our
economy are lessened when millions suffer from poor health and
are less able to contribute in the workplace and in the
classroom.
According to a recent report by the Institute of Medicine,
the potential economic value to be gained if all Americans were
to have health coverage is estimated at between $65 and $130
billion per year. So we commend the subcommittee for this
hearing, and we applaud and support this legislation. You are
addressing the population that needs your attention. Congress
is moving toward the passage of a Medicare bill that will
provide better health care to the elderly. Money has also been
added to Medicaid to address the needs of those at the lowest
level of poverty. This bill addresses the needs of the working
poor, those who do not have the higher-wage jobs that bring
with them more health coverage options. We are committed to
supporting your efforts, and we thank you very much.
In addition, Mr. Chairman, I just wanted to mention,
coincidentally, you have sitting here four members of the
Robert Wood Johnson Initiative on covering the uninsured. And
together, the four of us signed a letter on March 31, 2003 and
sent it to all of the budget conferees, asking that the $50
billion in the Budget Resolution be maintained in the Budget
Resolution. Now, we did get the $50 billion, and we just have
to work together to create solutions.
Mr. Bilirakis. Would you like to put that in the record?
Without objection that will be the case.
[The prepared statement of Dede Spitznagel follows:]
Prepared Statement of Dede Spitznagel, CAHC Board Member, Executive
Vice President, Healthcare Leadership Council
Mr. Chairman and Members of the Subcommittee: The Coalition for
Affordable Health Coverage appreciates the opportunity to appear in
support of H.R. 2698, The Health Insurance Certificate Act of 2003, a
bipartisan bill to make private health insurance more affordable for
lower income workers and their families.
I serve as a Board member of the Coalition, a three-year-old group
of 17 organizations who share a common goal of making private health
insurance more accessible and affordable for workers and the 15% of
Americans who currently have no coverage.
The members of CAHC include provider groups like the American
Medical Association, the American Osteopathic Association, and the
American College of Cardiologists. Our employer groups represent the
spectrum, from large manufacturers to micro businesses. Members include
the U. S. Chamber of Commerce, the National Association of
Manufacturers and the National Association for the Self-Employed. The
insurance sector participates in the Coalition with members like the
National Association of Health Underwriters, Fortis Health, Aetna, and
UnitedGroup Health. Pharmaceutical companies include Bayer,
GlaxoSmithKline, and Wyeth. Consumers, such as farmers and self-
employed individuals, are represented by the American Campaign for
Consumer Choice and Lower Health Costs. My own organization, the
Healthcare Leadership Council, represents the CEOs of more than 40
companies and organizations involved in all sectors of the healthcare
industry.
Our diverse membership speaks with one voice when it comes to the
uninsured: we support bills like H.R. 2698 that will help the uninsured
afford private health coverage. Last year, the Coalition worked to see
the creation of a health care tax credit on the Trade Adjustment and
Assistance Act. This year, the Coalition worked with the Congressional
budget committees and the leadership of both houses to include the $50
billion reserve fund for the uninsured in the 2004 Congressional Budget
Resolution. Now, we appreciate the opportunity to share our views on a
bill that will provide real help for the uninsured.
The Chairman's bill provides a certificate to low-income
individuals and families that can be used to help pay for the cost of
health insurance premiums. Who will benefit from this certificate and
what do we know about them? These questions are important to answer,
because understanding the people you are trying to assist is essential
in crafting a solution that really works.
First, we know that those who are uninsured are clustered more
heavily in the southeastern and southwestern states. They are
disproportionately minority, and hardest hit is the Hispanic community
where 35% are uninsured as compared with 12% of Caucasians.
Members of this subcommittee represent states that have the highest
rates of uninsured in the entire country. If you look at the chart over
to my (left/right), you may find your state listed if its uninsured
rates are higher than the national average of 14.8%. For example,
Representatives Barton, Hall, and Green will note that their state,
Texas, has more uninsured residents than any other state: almost 1 out
of 4 people in Texas are uninsured. Representatives Wilson, Waxman,
Eshoo, Capps, and John are from states that rank second, third and
fourth in the nation: New Mexico, California, and Louisiana. The two
sponsors of the H.R. 2698 hail from states that are grappling with
large uninsured populations. The Chairman's state, Florida, has the 7th
highest number of uninsured, at 18%; and Representative Towns, also an
original cosponsor, represents New York, which has the 16th highest
rate of uninsured in the country.
I am certain you all know how these large populations of uninsured
residents affect your states. Not only do the uninsured skip
preventative care and end up with poorer and often more expensive
health outcomes, their narrow choices cost communities more. Charitable
physicians, community clinics, and public hospitals strive to be the
safety net, and emergency rooms become primary care clinics. But none
of this works very well for the patient, the community, the taxpayer,
or the health care worker. We pay for this substandard system of care
with higher taxes and premiums. All of us--and most especially the
uninsured--would benefit from increased access to private health
insurance. The Chairman's bill provides an effective way for this to
occur.
A recent study by the Congressional Budget Office found that almost
60 million people go without health insurance for at least part of the
year. Yet, when looked at closely, the study is actually very
encouraging for policy makers who want to help the uninsured but are
contending with tough fiscal realities. It turns out that many of the
60 million are without coverage for only a few months, often because
they are between jobs. The number of people who are uninsured for a
year or more is actually between 21 and 31 million. This latter group
is the one for whom the Chairman's legislation could make a significant
difference, because those who are uninsured for longer periods of time
tend to have low incomes, but not low enough to qualify for Medicaid.
This is just the group that H.R. 2698 wisely targets. If you look
at the ``pie chart'' I have displayed, it shows the income levels of
those who are uninsured. As you can see, about 40% of the uninsured
earn less than 150% of the poverty level. The income limits in the
Chairman's bill are at about 143% of the poverty level. This means that
the bill could benefit about 60% of those who are uninsured.
The legislation provides a subsidy for those without access to
employer sponsored health insurance, and it would also provide a
partial subsidy to those with access to employer sponsored health
insurance coverage. Many low-wage earners work for small employers who
can provide only a minimal contribution towards coverage. Also, low
wage earners may not owe income taxes and therefore may not benefit
from the tax-free status of the premium contributions made by their
employers. For these individuals and families, it is often a choice
between health insurance and other essential living expenses. Even a
small subsidy could be just enough to help them afford coverage.
Providing $400 to an individual or $1100 to a family to help them
pay their portion of the employer premium will equalize the value of
the certificate for those with and those without a tax-exempt employer
offer. And it rewards people who have chosen to do the right thing. In
addition, an employee premium subsidy helps small employers maintain
coverage for the group as a whole, as most small group health plans
require a minimum percentage of employees to participate in the plan,
or the coverage won't be issued.
Questions have been raised as to how much ``bang for our buck' can
be gained from a subsidy that may result in employers dropping or
reducing health care coverage for their workers. CAHC has serious
reservations about the methodologies used in assuming displacement or
``crowd out'' of employer coverage. Health insurance is a very
important benefit sought by workers in lieu of wages. And employers
care deeply about the health and well being of their employees,
particularly in small businesses where the business owner works
alongside employees and knows their families and personal situations.
Offering health coverage helps employers compete for and retain
employees, and it keeps their workforces healthy, at work, and back at
work sooner following an illness.
In addition, under H.R. 2698, employers have a large disincentive
to reduce or discontinue their contributions toward health coverage
since the subsidy is targeted only to the low-income portion of their
workforce.
Further, a look at previous experiments where employers were
offered government wage or childcare subsidies demonstrates that
employers do not necessarily reduce their overall contribution in the
presence of a subsidy. For example, a Florida study looking at the
effects of welfare reform on the earnings of the working poor found
that increases in funding for child care subsidies led to an overall
increase in the earnings of the working poor.
The question will naturally arise as to just how helpful $1000
(individual) or $2750 (family) would be in purchasing health insurance
in the non-group market. We believe that it can be very helpful. It is
not the intent of the Chairman that this bill pay for 100% of anyone's
premium cost and create a new federal entitlement program. People are
naturally better stewards when they have something invested. So, how
much of a personal investment are we talking about?
Figures from the largest national online brokerage show that the
average premium cost for individuals in 2002 was $2,011 per year and
$4,188 for families of three. Between 80% and 90% of these policies
would be considered ``comprehensive'' in coverage, so we are talking
about the kind of policies that most insured Americans might enjoy.
These figures indicate that--with the assistance of the Chairman's
bill--individuals will have an out-of-pocket expense of $1,011 per
year, or about $85 per month. Families would have a premium expense of
$1,938 per year, or about $162 per month. The Chairman's bill pays--on
average--about 52% of the cost of health insurance. This is a
tremendous boost for families that, otherwise, would have no
assistance. In addition, these out-of-pocket expenses could be slightly
less since over 60% of the uninsured are under the age of 35,
presumably a less expensive group to cover, resulting in lower
premiums.
Wisely, the Health Insurance Certificate Act provides $75 million
in funding each year from 2004 through 2009 for state high-risk pools.
As you know, high-risk insurance pools exist in 30 states and serve as
a ``safety net'' for those who may have health conditions that prevent
them from obtaining health insurance coverage. Although the number of
individuals with serious health conditions is small, the cost of their
health care can be tremendously high. High-risk pools provide a source
of affordable high-quality health insurance coverage for those without
access to employer sponsored plans. In states where high-risk pools are
the safety net for individuals with health conditions, both healthy and
unhealthy individuals enjoy lower health insurance rates than in states
that require mandatory guaranteed issue coverage for everyone.
CBO examined survey data describing the reasons people give for
being uninsured. More than 60 percent said that ``cost'' and ``lack of
access to employment-based coverage'' were their reason(s) for being
uninsured. Yet, only about 4 percent of responders cited poor health as
a reason for going without health insurance. Although this group is
small, we can presume that they are likely to be high users of public
health care and so it is important to ensure that they have a viable
alternative. By supporting the creation and providing assistance with
the ongoing funding of high-risk pools, H.R. 2698 recognizes the need
for a viable ``safety net'' for this sicker population.
There may be an additional concern among some about spending $50
billion this year on the uninsured, given the country's tight fiscal
situation. To those, I would like to refer to the very substantial cost
this country already incurs for uncompensated care. Last year, the
nation's health care providers and facilities spent $35 billion to
treat the uninsured. In its recent report, Hidden Costs, Value Lost,
Uninsurance in America, the Institute of Medicine notes that when
people lack health insurance, the cost to society is substantial. The
report further notes:
The economic vitality of the country is diminished by
productivity lost as a result of the poorer health and
premature death or disability of uninsured workers. The
potential economic value to be gained in better health outcomes
from continuous coverage for all Americans is estimated to be
between $65 billion and $130 billion each year.
Finally, I would like to commend this Committee for their concern
about the working poor. This legislation is timely, and it has the
potential to addresses a significant number of the uninsured
population.
This year, Congress will likely create new and expanded health
benefits for the elderly in the Medicare Reform bill. For the very
poor, we have Medicaid, to which Congress added money this year. But
one group is conspicuously missing: the so-called ``working poor'' who
do not have the higher wage jobs that allow more coverage options. This
group needs affordable access to health insurance. Both Republicans and
Democrats have made helping the uninsured a theme in Presidential
campaigns. The Health Insurance Certificate Act puts policy to those
words. I hope the Committee will move this forward and the Coalition,
representing so many and such diverse organizations, is committed to
supporting your efforts.
For further information on the Coalition for Affordable Health
Insurance, please contact: Laura Clay Trueman, Executive Director, 1615
L Street, NW, Suite 650, Telephone (202) 626-8573, Fax (202) 626-8593,
Email: [email protected]
Uninsured By State Ranking & Subcommittee Members
----------------------------------------------------------------------------------------------------------------
% of
State Rank Uninsured Subcommittee Member
----------------------------------------------------------------------------------------------------------------
Texas........................................... 1 24% Rep. Barton
Rep. Hall
Rep. Green
New Mexico...................................... 2 21% Rep. Wilson
California...................................... 3 20% Rep. Waxman
Rep. Eshoo
Rep. Capps
Louisiana....................................... 4 19% Rep. John
Arizona......................................... 6 18% Rep. Shadegg
Florida......................................... 7 18% Rep. Bilirakis
Georgia......................................... 8 17% Rep. Norwood
Rep. Deal
Mississippi..................................... 9 16% Rep. Pickering
Wyoming......................................... 13 16% Rep. Cubin
Colorado........................................ 15 16% Rep. DeGette
New York........................................ 16 16% Rep. Towns
Rep. Engel
----------------------------------------------------------------------------------------------------------------
All of other states represented on the Subcommittee fall under the national average on uninsured, which is
14.8%.
Mr. Bilirakis. Mr. Greenstein.
STATEMENT OF ROBERT GREENSTEIN
Mr. Greenstein. Thank you very much, Mr. Chairman.
Few priorities should rank higher than reducing the ranks
of the uninsured. And I join my fellow panelists in
congratulating you for taking this matter on and attempting to
fashion a new approach toward addressing this issue.
Having said that, I do have some significant concerns about
H.R. 2698. Principally around the issue that I believe the
reduction in the ranks of the uninsured, what it would achieve
would be modest and not what one would want to get for $50
billion. I also have a concern that it may encourage some
States to scale back Medicaid and SCHIP coverage to shift
financial responsibility to the Federal Government, which would
pick up 100 percent of the cost of the health certificates.
Let me turn to the issue of how effective it would be in
reducing the ranks of the uninsured. One of the Nation's
leading experts on these issues is Professor Jonathan Gruber at
MIT. In recent days, he has conducted an informal analysis of a
proposal very similar to H.R. 2698. His projection is that
close to 90 percent of the expected health certificate
participants would be people who are already insured and that
only 1.3 million of the uninsured would gain coverage. By the
way, in doing the assumption, he essentially treated this as a
mandatory program. If the Appropriations Committee didn't
appropriate the full amount you intend, it would be even less
than the 1.3. His findings are consistent with prior research,
and the reason is that he finds that the vast majority of
participants would either be people who are already in
employer-based coverage paying an employees share of the
premium who would get a subsidy for the premium they are
already paying or already purchasing coverage in the individual
market and would get a subsidy for that. Of particular concern
is that older and sicker workers who are not insured would have
difficulty making--getting insurance with the health
certificate because for those people going into the individual
market, even a $2,750 subsidy falls well below what they will
be charged, if they are able to secure coverage at all. And it
is very often the case for older and sicker people that, in
fact, they can't purchase comprehensive coverage in the
individual market. Yet, they are the people that need the
comprehensive coverage the most.
I am also concerned for low- and moderate-income people
that the subsidies involved, the $2,750, would be insufficient
to enable them to cover--to purchase family coverage,
comprehensive coverage in the individual market. According to
the GAO, the mid-range premiums for family insurance in the
individual market was about $7,300 in 1998. The prior panel
quoted a much lower figure, but I think the problem with the
figure that was quoted is it reflects the costs for policies
currently being purchased in the individual market. The
individual market, at present, is primarily used by people who
are healthier than average, and this doesn't reflect the prices
that are quoted to less healthy people who then end up not
buying coverage in the individual market because they conclude
they can't afford it.
Of particular concern, if I understand the bill correctly,
is that the subsidy amounts, the health certificate subsidy
amounts are fixed, that they don't rise from year to year. But,
with health care premiums rising at often double-digits rates,
then as the years go by the subsidies would cover a smaller and
smaller percentage of the cost of the premium.
With regard to low-income employees, the biggest issue here
are those for whom the employer does not offer coverage as
distinguished from those where the employer does offer and they
can't afford it. This could help for those where the employer
offers and they can't afford it, might make some modest gains
in coverage there; not a big effect in those cases there where
the employer is not offering to begin with.
A note of concern on the Medicaid and SCHIP side, and a
final issue, I will note, which I just had difficulty in
reading the bill, is understanding the administrative
structure. There really isn't an administrative structure laid
out for who determines the eligibility, whether you meet the
asset and the income limits. Is it the States? Is the Federal
Government? If it is the States, do they get the administrative
costs covered for determining the subsidies? The administrative
structure is not really laid out in the bill.
A final concern is on the one hand your bill is careful to
target the subsidies to a group with low income and low assets,
and because of that targeting, the risk of employers dropping
coverage in response to the health certificates is small. I am
concerned, however, that if an approach like this got enacted,
and future Congresses significantly increased the income and
asset limit, this approach would then pose a significantly
larger risk of employer dropping.
So where does this all lead me? I think where it leads me,
Mr. Chairman, is to concluding that there is an alternative
type of approach that I think would be more efficient and
effective with the $50 billion in reducing the ranks of the
uninsured. And that would really be building on the SCHIP
program that was enacted on a bipartisan basis in 1997. I am
specifically thinking of the bipartisan Family Care proposal
here, the notion of increasing Federal allotments to States in
the SCHIP program, one could provide the bulk of the $50
billion in increased allotments, SCHIP allotments to States,
and then allowing the States to cover the parents in
particular, or first the parents of children whom SCHIP already
covers.
As you may know, the Medicaid income limit for parents in
the median State today, is only about 70 percent of the poverty
line. We did see that when SCHIP was set up, States
significantly expanded coverage for low-income children. We
have had major progress in reducing uninsurance among low- and
moderate-income children. And by broadening SCHIP and covering
parents, we could make substantially further progress.
I would also note that, in my view, the very first claim
perhaps, within the $50 billion, this would just be a small
piece of it, is making sure that we don't go backwards on
SCHIP. As you know, Federal SCHIP funding went down a billion a
year starting in 2002. So far that hasn't been a problem,
because there were unspent SCHIP funds from the earlier years,
and you and your colleagues very fortunately have passed and
hopefully before you go home, will reach agreement on a
temporary fix by having the expired SCHIP funds continue. But
that only takes us through about the end of 2004, and our
projections, using the CMS SCHIP expenditure model, the HHS
expenditure model, is that without some additional funds in
SCHIP, that between now and 2007, the number of low-income
children insured through SCHIP will go down 370,000, as the
unspent funds from the earlier years run out, and the effect of
the billion dollar a year funding cut works it way through the
system.
Surely, we should not let the progress made on a bipartisan
basis covering children in SCHIP go backwards. Now, let me just
finally say that we do have evidence that the approach of
covering parents, through a SCHIP-type approach is very
efficient. Secretary Thompson, when he was the Governor in
Wisconsin, he pioneered something called Badger Care. He
expanded coverage, he and the legislature expanded coverage to
parents up to 185 percent of the poverty line. Studies indicate
that fewer than 10 percent of those who came on had previously
been insured.
Other studies find similar results for other parent
expansions through the public program route. Again, this is a
big contrast with the estimates Professor Gruber has come up
with for the Health Certificate bill.
Medicaid and SCHIP, the family care-type approach, also has
the benefit that there would be no problem for the older and
sicker people, they wouldn't have to go into the individual by
themselves.
Mr. Bilirakis. Please summarize.
Mr. Greenstein. They get the basic comprehensive coverage.
So just to conclude, if we look at the three key goals of
reducing the ranks of the uninsured, avoiding adverse side
effects in employer or public coverage, and making sure the
sicker people can get adequate coverage, I think that the
family care-type of approach, building on the SCHIP block grant
would be a more effective use of the $50 billion, trying to
achieve the same goal that you are trying to achieve in your
bill.
Thank you.
[The prepared statement of Robert Greenstein follows:]
Prepared Statement of Robert Greenstein, Executive Director, Center on
Budget and Policy Priorities
I appreciate the invitation to testify today. I am Robert
Greenstein, Executive Director of the Center on Budget and Policy
Priorities, a non-profit policy institute that conducts research and
analysis on fiscal policy and on programs and policies affecting low-
and moderate-income families. The Center does not hold (and has never
received) a grant or contract from any federal agency.
My testimony today focuses on evaluating approaches for expanding
coverage to the 41 million Americans currently without health
insurance, particularly the Health Insurance Certificate Act of 2003
(H.R. 2698), which is the subject of this afternoon's hearing. The
problem of the uninsured is likely to worsen, at least in the short
term. During the current economic downturn, some families are at risk
of losing their jobs and their health insurance. In addition, facing
the worse budget crises since World War II, states are struggling to
maintain their Medicaid and State Children's Health Insurance Program
(SCHIP) coverage.
Initiatives to cover more of the uninsured are needed. While the
goal of the Health Insurance Certificate Act of 2003 is very laudable,
I believe the legislation has some serious shortcomings. The proposal
is unlikely to help reduce the ranks of the uninsured by an amount
commensurate with the expenditure of $50 billion. The proposal also
could encourage some states to scale back existing coverage under
Medicaid and SCHIP to shift financial responsibility from the states to
the federal government.
Furthermore, if eligibility for the health certificates is
substantially expanded over time and the program is more adequately
funded, the health certificate proposal could weaken the traditional
employer-based health insurance system through which the vast majority
of Americans obtain their health insurance and could thereby cause some
workers' current access to affordable and comprehensive health
insurance to be placed at risk.
Employer-based coverage and public programs such as Medicaid and
SCHIP are the twin pillars of the health insurance system in the United
States. In 2001, the latest year for which data are available, 162
million non-elderly individuals obtained their health insurance through
an employer.1 (By comparison, only 16.4 million obtained
private health insurance coverage through the individual market.) In
2003, about 50 million non-elderly individuals and families receive
coverage through Medicaid or SCHIP. Initiatives to expand coverage
should build on these pillars of health insurance in the United States,
rather than risk weakening them.
---------------------------------------------------------------------------
\1\ Paul Fronstin, Sources of Coverage and Characteristics of the
Uninsured: Analysis of the March 2002 Current Population Survey, Issue
Brief no. 252, Employee Benefit Research Institute, December 2002.
---------------------------------------------------------------------------
To address the problem of the uninsured without weakening existing
coverage, a better alternative would be a carefully designed expansion
of public programs such as Medicaid and SCHIP. Under the ``FamilyCare''
proposal, additional federal funding would be provided to states, at
their option, to expand Medicaid and SCHIP to more parents in working
families. Research shows that expanding coverage to parents so parents
and children can be covered by the same public program produces the
additional benefits of an increase in enrollment among eligible-but-
uninsured children in these programs and an increase in utilization of
necessary health care services by children. Such a proposal would
strengthen public programs that have a proven ability to provide
affordable, comprehensive health insurance to millions of low- and
moderate-income families. It also would be a much more efficient use of
$50 billion--substantially more of the uninsured would gain insurance,
and far less of the money would ``leak'' to subsidizing people who
already are insured. Another sound alternative could involve tax
incentives for more small employers to offer health insurance to their
workers.
evaluating approaches to expanding coverage to the uninsured
In this testimony, I use several principles in evaluating proposals
to reduce the ranks of the uninsured.
A proposal should do no harm to the existing health insurance system
through which the vast majority of families obtain their health
coverage.
Any proposal to expand coverage to the uninsured should not weaken
the ability of the existing employer-based health insurance system and
public programs like Medicaid and SCHIP to continue to offer
affordable, comprehensive coverage to millions of Americans. If a
proposal has the inadvertent effect of encouraging employers or states
to scale back health insurance coverage, any gains in new coverage
could be offset in substantial part or in whole by resulting losses in
existing coverage (or by a lessening of the affordability or quality of
existing coverage).
An example of a policy that could have an adverse effect is the
health tax legislation to establish Health Savings Security Accounts
(HSSAs). This legislation was passed by the House three weeks ago and
included as part of the Medicare prescription drug bill and is
intended, at least in part, to help cover the uninsured.2
HSSAs would likely have the effect, however, of encouraging employers
to move away from traditional health insurance plans--which include low
deductibles and modest copayments and provide comprehensive benefit
coverage--to less comprehensive, high-deductible insurance, where
employees bear a greater proportion of health care costs. Low-income,
older and sicker workers could be disproportionately affected and have
reduced access to necessary health care services.
---------------------------------------------------------------------------
\2\ For an analysis of these accounts, see Edwin Park, Joel
Friedman and Andrew Lee, Health Savings Security Accounts: A Costly Tax
Cut that Could Weaken Employer-Based Health Insurance, Center on Budget
and Policy Priorities, revised July 8, 2003.
---------------------------------------------------------------------------
A proposal should be well-targeted to maximize the number of uninsured
individuals and families gaining health care coverage.
The overwhelming majority of the assistance provided under any
coverage proposal should go to families currently without health
insurance. For example, a proposal could be targeted to low-income
families that are least able to afford health insurance. Such families
are also most likely to work in small firms, which offer health
coverage to their workforces at a substantially lower rate than do
larger firms. A proposal would not meet this test if most participants
either already had insurance through employer-based coverage (and
would, under the health certification bill, start to receive a subsidy
for employee premiums they already are paying) or merely shifted their
existing insurance arrangements (for example, by moving from employer-
based coverage to the individual market).
A proposal should provide accessible, affordable, and comprehensive
health coverage to uninsured families.
Any proposal to expand health insurance coverage should ensure that
uninsured families eligible for the new assistance actually have access
to health insurance. Families with older or sicker members should not
be excluded from obtaining coverage because of their poorer health
status, as is often the case in the individual market. To assure
access, a proposal should make health insurance affordable. Modest
assistance that still requires a low-income family to pay a prohibitive
proportion of its gross income is unlikely to be very successful in
encouraging the purchase of health insurance coverage.
Research has found that uninsured individuals and families are less
likely to have regular access to health care services and that this can
lead to poorer health outcomes.3 Research has also shown
that if individuals with insurance have a less comprehensive policy,
with higher deductibles, substantial copayments and a narrow array of
covered benefits, their access to needed health care services may be
limited (albeit less so than if they have no insurance at
all).4
---------------------------------------------------------------------------
\3\ See, for example, Institute of Medicine, Health Insurance is a
Family Affair, September 2002; Jack Hadley, Sicker and Poorer: the
Consequences of Being Uninsured, Kaiser Family Foundation, May 2002.
\4\ Elisabeth Simantov, Cathy Schoen and Stephanie Bruegman, Market
Failure? Individual Insurance Markets for Older Americans, Health
Affairs July/August 2001.
---------------------------------------------------------------------------
description of h.r. 2698, the ``health insurance certificate act of
2003
I turn now to the ``Health Insurance Certificate Act of 2003''
(H.R. 2698), the focus of today's hearing. The bill would establish a
new program to provide subsidies to individuals and families for the
purchase of health insurance. Under the bill, individuals under the age
of 65 who are not eligible for public health insurance coverage and
meet certain income and assets requirements could participate.
Eligible individuals and families would receive a ``health
certificate'' from the Secretary of Health and Human Services to help
purchase health insurance. To use the health certificate, participants
would provide the certificate to a health insurance issuer. The issuer
would subsequently receive a direct payment from the HHS Secretary
equal to the value of the subsidy for which the individual or family is
eligible. The certificates could be applied to health insurance in the
individual market (including coverage obtained through a high-risk
pool), COBRA coverage provided through a former employer, or the
employee's share of the premium for health insurance offered through
his or her job.
For the purchase of health insurance in the individual market, the
annual subsidy would be up to $1,000 for individuals and up to $2,750
for two-parent families with children, with the full subsidy being
available only to individuals with incomes of less than $13,000 per
year and families with incomes below $25,000. The subsidy would phase
down as income rose above these levels and phase out entirely when
income exceeded $18,000 for individuals and $34,000 for a two-parent
family of four.
The health certificate also could be used to pay for an employee's
share of the premium cost of employer-based coverage, so long as the
employer subsidizes at least 50 percent of the cost of health
insurance. This provision is intended to assist uninsured employees who
are offered insurance through their job but cannot currently afford
their share of the premium. The annual subsidy for employer-based
coverage would be limited to $400 for individuals and $1,100 for
families of four. The subsidy for employer-based coverage would phase
down by income at a somewhat faster rate than the individual market
subsidy, phasing out entirely when income exceeded $16,000 for
individuals and $33,000 for families.
In no case could the value of the annual subsidy exceed 70 percent
of the premium cost of either individual market or employer-based
coverage. The subsidy amounts would not be indexed for inflation. In
addition, the asset limits in determining eligibility would be set at
$12,500 for individuals and $20,000 for families. These asset limits,
as well, would not be indexed for inflation.
The health certificates program would not be a mandatory program.
It would be funded solely on a discretionary basis under the annual
appropriations process. The bill authorizes total appropriations of up
to $28.5 billion between fiscal years 2004 and 2008 (no year-by-year
authorization levels are provided) and up to about $50 billion over ten
years. The number of certificates available each year to eligible
individuals and families would be subject to the availability of
appropriated funds. The bill would allow up to $75 million of the
appropriated funds each year to be used to extend and increase modestly
the existing funding for state high-risk pools.
evaluation of the health certificate act of 2003
The health certificates are highly unlikely to be a cost-effective and
well-targeted approach to reduce the ranks of the uninsured,
since the large majority of those who would use the subsidy
already have insurance.
The goal of the health certificates bill--to target assistance to
low-income families--is laudable. These are the families most likely to
be uninsured, least likely to have access to health insurance through
their employment, and least able to purchase health insurance on their
own.
There is serious question, however, about the bill's effectiveness
and efficiency in achieving this goal. Professor Jonathan Gruber of
M.I.T., an expert in analyzing the effects of coverage proposals on the
uninsured, has conducted an informal analysis of a proposal similar to
the health certificates bill.5 He projects that about nearly
90 percent of expected health certificate participants would previously
have had health insurance. This is because the vast majority of
participants are expected to be people who either are already insured
through employer-based coverage--and could start getting a subsidy for
the employee premiums they are already paying--or are already
purchasing individual-market coverage on their own.
---------------------------------------------------------------------------
\5\ In his analysis, Professor Gruber assumes the subsidy is
provided as a refundable tax credit at a cost of $4.2 billion in the
first year. Factoring in health care inflation, the approach Professor
Gruber modeled could be more costly than would be allowed under the
discretionary funding limit of $50 billion over 10 years set in the
health certificate bill. The informal analysis Professor Gruber
conducted found that 1.38 million previously uninsured individuals
would gain coverage out of an estimated total participation of 12
million people. Thus, only 11.5 percent of participants would
previously have been uninsured. A small number of individuals
previously enrolled in employer-based coverage are projected to become
uninsured, reducing the net gain in coverage to 1.28 million people.
---------------------------------------------------------------------------
This analysis is consistent with prior research conducted both by
Professor Gruber and by the Kaiser Family Foundation, which found that
under similar coverage proposals using refundable tax credits rather
than direct subsidies--such as the health tax credit the Administration
has proposed--more than two-thirds of participants would be people who
already were insured.6 As a result, only a relatively modest
share of the benefits of the health certificate subsidy likely would go
to reducing the ranks of the uninsured. A larger share of the subsidy
costs would go to provide people who already are insured with financial
assistance.
---------------------------------------------------------------------------
\6\ Jonathan Gruber, Written Testimony before the Subcommittee on
Health, House Ways and Means Committee, February 13, 2002; Judith
Feder, Cori Uccello, and Ellen O'Brien, The Difference Different
Approaches Make: Comparing Proposals to Expand Health Insurance, Kaiser
Family Foundation, October 1999. The Administration's own estimates of
its tax credit proposal from last year, issued by the Treasury
Department, indicate that nearly two-thirds of tax-credit recipients
would have already had health insurance. Testimony of Mark McClellan
before the Senate Health, Education, Labor and Pensions Committee,
March 12, 2002. For analysis of the Administration's tax credit
proposal, see Edwin Park, Administration's Proposed Tax Credit for the
Purchase of Health Insurance Could Weaken Employer-Based Health
Insurance, Center on Budget and Policy Priorities, revised April 22,
2003.
---------------------------------------------------------------------------
Older and sicker individuals not eligible for employer-based coverage
would likely be unable to secure adequate health insurance in
the individual market without paying exorbitant amounts.
The individual market is generally unregulated. Under the health
certificate proposal, a family containing older or sick members could
find itself excluded from coverage in the individual market or charged
premiums that are unaffordable, even with a $2,750 subsidy. The
individual market generally permits individual medical
``underwriting''--that is, insurers can vary premiums based on age and
medical history and can deny coverage entirely. The health certificate
bill does not include any reforms of the individual market.
According to a study by the Commonwealth Fund, only 16 states
require that insurers offer a plan to most applicants in the individual
market, and this does not necessarily mean an affordable
plan.7 Another Commonwealth Fund study found that among
adults aged 19-64 who sought coverage in the individual market and who
were in poorer health or suffered from chronic conditions, 62 percent
found it very difficult or impossible to find a plan they could afford
that provided the coverage they needed.8
---------------------------------------------------------------------------
\7\ Lori Achman and Deborah Chollet, Insuring the Uninsurable: An
Overview of State High-Risk Health Insurance Pools, The Commonwealth
Fund, August 2001.
\8\ Lisa Duchon and Cathy Schoen, Experiences of Working-Age Adults
in the Individual Market, The Commonwealth Fund, December 2001.
---------------------------------------------------------------------------
A Kaiser Family Foundation study examined the response that
hypothetical families and individuals applying for coverage in the
individual health insurance market would meet; the hypothetical
applicants were structured to test the medical underwriting process
through 60 applications in eight geographic markets. The study found
that older and sicker people, even those with relatively mild
conditions, are often unable to obtain comprehensive coverage in the
individual market.9
---------------------------------------------------------------------------
\9\ Karen Pollitz, Richard Sorian and Kathy Thomas, How Accessible
is Individual Health Insurance for Consumers in Less-than-Perfect
Health?, Kaiser Family Foundation, June 2001. See also Karen Pollitz
and Larry Levitt, Explaining the Findings of a Study About Medical
Underwriting in the Individual Market, Kaiser Family Foundation, May
2002.
---------------------------------------------------------------------------
Alternatively, such a family could be offered a plan that is
affordable but does not provide coverage for a variety of significant
medical conditions. Many plans in the individual market do not offer
comprehensive coverage. They may require high deductibles, impose
significant cost-sharing, and provide limited benefits. Many individual
market plans require deductibles of $1,000 or more--on average,
deductibles are set at $1,550 in the individual market. Individual
market plans also often do not cover the broad range of benefits
available in comprehensive employer-based coverage. Plans available in
the individual market may not cover preventive benefits or mental
health services, for example, and may place stringent limitations on
prescription drug coverage. A recent study by the Commonwealth Fund
found that individual market plans rarely include maternity
benefits.10 On average, individual market plans cover 63
percent of medical costs, as compared to 75 percent under group
insurance plans. Half of people buying individual policies are covered
for only 30 percent of their health care bills.11
---------------------------------------------------------------------------
\10\ Sara Collins, Stephanie Berkson and Deirdre Downey, Health
Insurance Tax Credits: Will They Work for Women, The Commonwealth Fund,
December 2002.
\11\ Jon Gabel, Kelly Dhont, Heidi Whitmore and Jeremy Pickreign,
Individual Insurance: How Much Financial Protection Does It Provide,
Health Affairs (Web Exclusive), April 17, 2002.
---------------------------------------------------------------------------
People enrolled in individual insurance may delay treatment because
of potential out-of-pocket costs or because benefits are not covered.
One study found that older individuals with individual coverage are
twice as likely as those with employer-based coverage to fail to see a
doctor when a medical problem has developed or to skip medical tests or
follow-up treatment.12 Another study concluded that so-
called ``bare-bone'' health plans, comparable to some of those found in
the individual market, could leave low-wage individuals and families
with catastrophic health care costs well in excess of their annual
income.13
---------------------------------------------------------------------------
\12\ Simantov, Schoen and Bruegman.
\13\ Sherry Glied, Cathi Callahan, James Mays and Jennifer Edwards,
Bare-Bones Health Plans: Are They Worth the Money, The Commonwealth
Fund, May 2002.
---------------------------------------------------------------------------
The health certificates would be of inadequate size to make health
insurance in the individual market affordable for many low- and
moderate-income families.
Comprehensive health insurance can be expensive. According to the
General Accounting Office, the mid-range premium for family insurance
in the individual market exceeded $7,300 in 1998. Even without
factoring in the increases in health insurance premium costs since
1998, a family of four with income of $25,000 that receives a $2,750
subsidy would have to expend 18 percent or more of its gross income to
purchase insurance at this price.
A Commonwealth Fund study examined premiums for individual health
insurance policies that provide coverage comparable to what employer-
based insurance typically provides. The study looked at premium costs
in 17 cities for policies for a single healthy adult aged 55. It found
the median annual premium for these policies to be approximately
$6,100.14 Thus, with a subsidy of $1,000, a 55 year-old with
income of $15,000 would have to pay $5,100 ``more than one-third of his
or her gross income--to obtain such insurance. A less healthy person
generally would have to pay still more, if he or she were not excluded
entirely from the individual market. Moreover, in some high-cost
geographic areas, premiums could consume even larger percentages of
family income. For example, premiums for a healthy 55 year-old were
more than $9,500 in the Los Angeles-Long Beach, California
area.15 The subsidy would reduce that cost only to $8,500.
---------------------------------------------------------------------------
\14\ Jon Gabel, Kelly Dhont and Jeremy Pickreign, Are Tax Credits
Alone the Solution to Affordable Health Insurance, The Commonwealth
Fund, May 2002.
\15\ Gabel, Dhont and Pickreign. See also Collins, Berkson and
Downey, which found that individual market premiums for women varied
significantly across geographic areas.
---------------------------------------------------------------------------
Studies indicate that premium costs of these magnitudes are well
beyond what most low-income families can afford. One study determined
that premiums set at or above five percent of income discouraged most
low-income families from enrolling in health insurance.16
---------------------------------------------------------------------------
\16\ Leighton Ku and Teresa Coughlin, Use of Sliding Scale Premiums
in Subsidized Insurance Programs, Urban Institute, March 1, 1997.
---------------------------------------------------------------------------
Finally, the value of the health certificate subsidy is likely to
erode significantly over time. Under the bill, the subsidy amounts
available under the health certificate program are not adjusted
annually. Insurance premiums could rise at double-digit rates from year
to year while the subsidy remained frozen.17
---------------------------------------------------------------------------
\17\ The average cost of employer-based health insurance increased
12.7 percent between 2001 and 2002. Kaiser Family Foundation and Health
Research and Educational Trust, Employer Health Benefits: 2002 Annual
Survey, September 2002.
---------------------------------------------------------------------------
The health certificates are likely to encourage only modest increases
in participation in employer-based coverage by low-income
workers.
Allowing the health certificates to be used by employees to pay for
their contribution to the cost of health insurance is likely to
increase participation in employer-based health insurance only
modestly. This is because most uninsured low-income workers are
uninsured not because they cannot afford employee premiums but because
their employer does not offer them coverage.18 Only 40
percent of low-wage workers earning less than $7 per hour were offered
health insurance through their employer, as compared to 96 percent of
higher-wage workers earning at least $15 per hour.19 In
another analysis, the Commonwealth Fund looked at low-wage workers
employed by small businesses with fewer than 25 workers. In 2001, only
36 percent of small-business employees who earned less than $10 per
hour were offered health insurance coverage, as compared to 67 percent
of small business employees earning more than $15 per hour. The
Commonwealth Fund study found that as a result, 37 percent of workers
earning less than $10 per hour in small businesses were
uninsured.20
---------------------------------------------------------------------------
\18\ Leonard Burman, Cori E. Uccello, Laura L. Wheaton and Deborah
Kobes, Tax Incentives for Health Insurance, Urban-Brookings Tax Policy
Center, May 2003.
\19\ Diane Rowland, Written Testimony before the Subcommittee on
Health, House Committee on Energy and Commerce, February 28, 2002.
\20\ Sara R. Collins, Cathy Schoen, Diane Colasanto and Deirdre A.
Downey, On the Edge: Low-Wage Workers and Their Health Insurance
Coverage: Findings from the Commonwealth Fund 2001 Health Insurance
Survey, the Commonwealth Fund, April 2003.
---------------------------------------------------------------------------
Moreover, for those uninsured workers with access to employer-based
coverage, the health certificate subsidies may encourage firms--
particularly small firms with large numbers of low-wage workers--to
lower their premium contributions in response.21 As a
result, the bill could end up substituting substantial new public
dollars for existing employer contributions. While the health
certificate bill requires that employers must subsidize at least 50
percent of health insurance coverage for an employee to qualify for
assistance, employers could reduce the health insurance premium
contribution they are currently providing so long as they do not reduce
it below 50 percent. As a result, such firms may shift a greater
proportion of the premium costs of health insurance to their employees,
knowing their workers can use the health certificate to help offset
those costs. Such an outcome is most likely to occur among very small
employers with substantial numbers of low-income workers who already
pay for a smaller proportion of the costs of health insurance, rather
than among larger firms and firms with substantial numbers of higher-
income workers.
---------------------------------------------------------------------------
\21\ Burman, Uccello, Wheaton and Kobes.
---------------------------------------------------------------------------
Establishment of the health certificates could encourage some states to
scale back Medicaid and SCHIP coverage for families with
children.
Facing severe budget deficits, some states have recently scaled
back eligibility for working parents and children under Medicaid and
SCHIP. (The state fiscal relief package included in the recently
enacted tax bill is likely to avert or reduce the magnitude of some
pending reductions.)
The health certificate subsidy is targeted to the same low-income
individuals and families who currently are served or could be served by
those public programs. For families of four, income eligibility for the
full certificate subsidy would be capped at $25,000 per year. This
equals 136 percent of the poverty line. Forty states now provide
Medicaid or SCHIP coverage to children in families with incomes up to
200 percent of the poverty line. While many states have been less
generous with eligibility for working parents in such families--income
eligibility for parents in the median state was only 69 percent of the
poverty line in 2001--some 20 states including the District of Columbia
covered working parents up to 100 percent of the poverty line or
higher.22
---------------------------------------------------------------------------
\22\ Several states including Connecticut, Missouri and New Jersey
have recently reduced eligibility for parents due to their budget
deficits. Other states such as Arizona, Illinois and New York have
expanded eligibility since 2001.
---------------------------------------------------------------------------
Because the health certificate subsidy would be targeted in part at
the same low-income adults and children served by these public
programs, it could give states facing budget pressures an inducement to
reduce Medicaid and SCHIP coverage. States could decide that some
beneficiaries should instead use the health certificates to purchase
health insurance in the individual market. After all, unlike public
programs such as Medicaid and SCHIP that require states to contribute a
portion of the costs, the health certificate would be fully funded by
the federal government. As a result, beneficiaries who now have access
to affordable and comprehensive public coverage through Medicaid or
SCHIP could be placed into the individual market and become uninsured
or face much higher out-of-pocket costs and significantly reduced
benefits.
Access to the health certificates would be substantially limited by
significant administrative hurdles.
The health certificate bill does not indicate how it would resolve
several administrative obstacles in implementing the health certificate
program. For example, the bill limits eligibility by imposing income
and asset limits. While the bill states that the Secretary of Health
and Human Services is responsible for developing a methodology for
calculating income and assets, it does not delineate how eligible
individuals and families would apply and who would make the eligibility
determinations. States already conduct eligibility determinations for
programs like Medicaid and SCHIP, but there is no requirement in the
bill that states process health certificate applications or that states
receive additional federal funding to do so. If the federal government
is to determine eligibility for the health certificates, it would have
to establish a new bureaucracy to administer it.
Moreover, the bill states that a health insurance issuer may
receive payment directly from the Secretary of Health and Human
Services equal to the value of the subsidy when an individual or family
presents a health certificate to the issuer. This is intended to ensure
timely advance payment of the subsidy so that individuals do not have
to pay the premiums first themselves--which is likely to be impractical
considering the families' low incomes--and wait to receive the subsidy
from the federal government. There are no provisions, however, that
describe the structure and procedures through which these advance
payments would be made. For example, one unresolved issue is how the
federal government will identify and reimburse individual insurers and
employers providing coverage to individuals and families eligible for
the health certificate.
The health certificate program would not have mandatory funding and
would be subject to the vagaries of the annual appropriations
process.
Under the health certificate bill, no mandatory funding is provided
for the program. The bill only includes an authorization for funding to
be provided through the annual appropriations process, with a limit of
just under $28.5 billion for the next five years as a whole and a limit
of just under $50 billion over the 10-year budget window. The number of
certificates provided would be subject to the amount of discretionary
funding actually made available each year.
Since no funds or only a small amount of funds could be
appropriated for the program, there is no guarantee that a significant
number of individuals and families would receive a health certificate
subsidy to purchase health insurance. Alternatively, adequate funding
could be provided in the program's first few years, but funding could
subsequently be reduced as appropriators struggled to fit within
stringent appropriation caps.
On the other hand, if the program receives substantial funding
increases over time, use of the health certificate program is likely to
be significantly more widespread. That would result in more families
receiving the certificates. It would, however, also increase the risks
that the certificates would pose to the employer-based health insurance
system and public programs.
If expanded substantially over time to families at higher income
levels, the availability of the health certificates could lead
some employers to cease providing health insurance coverage to
their workers and could induce many new employers not to offer
coverage.
Analysts from M.I.T., the Kaiser Family Foundation, and the Urban
Institute have found that enactment of a subsidy for the purchase of
health insurance (done through the tax code as a refundable credit)
would encourage some firms not to offer health insurance coverage to
their employees because the firms would know their workers could now
get a subsidy to purchase coverage in the individual
market.23 This is not likely to be the case under the health
certificate program: the restrictive income and asset limits would
mitigate that risk.24 In examining tax credits, the Urban-
Brookings Tax Policy Center found that if eligibility for such credits
is limited to families with low-incomes, fewer employers will drop
coverage since the credits would be unavailable to many of their
workers. The availability of partial subsidies for employer-based
coverage also should somewhat reduce the likelihood that firms would
drop coverage.25
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\23\ Burman, Uccello, Wheaton and Kobes; Jonathan Gruber, Tax
Subsidies for Health Insurance: Evaluating the Cost and Benefits,
National Bureau of Economic Research, February 2000; Judith Feder, Cori
Uccello, and Ellen O'Brien, The Difference Different Approaches Make:
Comparing Proposals to Expand Health Insurance, Kaiser Family
Foundation, October 1999; Leonard E. Burman and Amelia Gruber, First Do
No Harm: Designing Tax Incentives for Health Insurance, National Tax
Journal, May 2001; and Linda Blumberg, Health Insurance Tax Credits:
Potential for Expanding Coverage, Urban Institute, August 2001. The
Administration also acknowledges that some tax credits could have this
adverse effect on employer-based coverage. Council of Economic
Advisers, Health Insurance Tax Credits, February 13, 2002.
\24\ Professor Gruber expects little or no employer dropping under
the health certificate bill because of the restrictive income and asset
limits.
\25\ Burman, Uccello, Wheaton and Kobes.
---------------------------------------------------------------------------
As a result, the magnitude of the risks the health certificate bill
could pose to the employer-based health insurance system would be
limited. If over time, however, the health certificate income and asset
limits were lifted to increase eligibility and funding were increased
substantially, the program could end up weakening employer-based health
insurance coverage and encouraging a substantial number of employers to
drop their health insurance coverage (or not to offer coverage in the
first place).
Substituting the purchase of health insurance in the individual
market for group coverage through an employer would seriously
disadvantage older and less healthy workers. As discussed above, in
most states, insurers can vary premiums for health insurance policies
offered in the individual market on the basis of age and medical
history and can refuse to cover people entirely. Many older and less
healthy workers would generally have to pay far more than the amount
that the subsidy would provide to secure coverage in the individual
market or would not be able to obtain coverage at all because of their
health status.
If expanded substantially over time, the health certificates could
institute an ``adverse selection'' cycle.
Some young, healthy low-income workers whose employers do offer
coverage but require their employees to pay a substantial share of the
premium would be able to opt out of employer-based coverage and instead
use their health certificate subsidies to purchase insurance in the
individual market.
The movement of substantial numbers of workers from employer-based
coverage to the individual market is not likely, however, because of
the restrictive income and asset eligibility requirements. Relatively
few workers in these income ranges have access to employer-based
coverage. In addition, the availability of a partial subsidy for
employer-based coverage could offset some of the incentives to leave
employer-based coverage for those low-income workers participating in
such coverage. (However, because the health certificate program
provides a greater subsidy for the purchase of health insurance in the
individual market then for employer-based coverage, it may still
encourage some young, healthy employees to leave employer-based
coverage for the individual market.26)
---------------------------------------------------------------------------
\26\ Burman, Uccello, Wheaton and Kobes.
---------------------------------------------------------------------------
The health certificate proposal, however, could be expanded in
subsequent years through Congressional action to remove these income
and asset limitations. Such a move could make it attractive for more
young and healthy employees to opt out of employer-based coverage and
shift to the individual market. If these young and healthy workers opt
out of employer coverage, however, the pool of workers remaining in
employer plans would become older and sicker, on average. That would
drive up the average premium costs for employer-based insurance and
further raise the amounts that the employees remaining in these plans
must pay for insurance.
This phenomenon--known as ``adverse selection''--could then induce
yet additional younger, healthier workers to abandon employer-based
coverage and use their subsidies in the individual market instead,
since the departure of the first wave of younger, healthier employees
would have caused premiums for employer-based coverage to rise. In this
way, a vicious cycle could be set in motion. The increase in premiums
for employer-based coverage that ultimately could occur could induce
some employers either to cease offering health insurance or to increase
substantially the amounts their employees must pay for insurance. The
end result could be that a substantial number of older and less healthy
individuals could eventually lose their employer-based coverage and
become uninsured or underinsured or have to pay very large amounts for
decent coverage.
Intensifying the risk that many firms might not offer coverage is
the recent return of a high rate of inflation in health care costs,
which are now rising at double-digit rates. As a result, fewer firms,
especially small businesses, are offering health insurance coverage to
their employees. Institution of an expanded health certificate subsidy
with substantially higher income and asset limits could provide a
further incentive for some employers, especially small businesses
seeking to cut costs, to drop or not to institute coverage for their
workforce.
more effective approaches to coverage of the uninsured
FamilyCare
A more effective and efficient alternative that would avoid the
principal pitfalls of the health certificate approach is to expand
public programs like Medicaid and the State Children's Health Insurance
Program (SCHIP). Public programs are a proven approach to reduce the
ranks of the uninsured. For example, according to the Centers for
Disease Control and Prevention, the percentage of low-income children
who are uninsured fell by about one-third, from 23 percent in 1997
(when SCHIP was established) to 16 percent by 2002, in large part
because of public programs.27
---------------------------------------------------------------------------
\27\ Centers for Disease Control and Prevention, National Center
for Health Statistics, ``Early Release of Selected Estimates Based on
Data from the 2002 National Health Interview Survey,'' June 2003.
---------------------------------------------------------------------------
The effective safety net role of Medicaid and SCHIP has also been
highlighted during the current economic downturn as families have lost
their jobs and their health insurance. According to other CDC data
released last year, the number of children who were uninsured would
have been two million higher and the number of uninsured adults would
have been one million higher in the first quarter of 2002 (as compared
to 2001) but for increased Medicaid and SCHIP enrollment picking up the
slack.28
---------------------------------------------------------------------------
\28\ Leighton Ku, The Number of Americans without Health Insurance
Rose in 2001 and Appears to be Continuing to Rise in 2002, Center on
Budget and Policy Priorities, revised October 8, 2002.
---------------------------------------------------------------------------
One public program expansion proposal that would be particularly
effective in addressing the problem of the uninsured is the bipartisan
``FamilyCare'' legislation, introduced in the last Congress, that would
provide $50 billion in new SCHIP funds to assist states, at their
option, in expanding Medicaid and SCHIP coverage to the low-income
parents of children eligible for those programs.
In 2001, some 34.5 percent of parents--about 6.6 million--in
families with incomes below 200 percent of the poverty line ($36,800
for a family of four) were uninsured. This is partly the result of
limited coverage within the Medicaid program; in 2001, the Medicaid
income eligibility level for parents in the median state was only 69
percent of the federal poverty line (about $12,700 for a family of
four). Just as SCHIP facilitated coverage expansions for low-income
children, additional federal SCHIP funds could be provided for states
to expand Medicaid and SCHIP coverage to low-income working parents.
A number of states such as Arizona, Illinois, New Jersey, Rhode
Island, and Wisconsin have expanded SCHIP (or are in process of
implementing such an expansion) to provide comprehensive coverage to
parents, as well as other adults. However, the long-term ability of
states to continue to expand coverage is threatened by a lack of
adequate federal SCHIP funding. The Balanced Budget Act of 1997
instituted a 26 percent reduction in federal SCHIP funding for the
fiscal years 2002, 2003 and 2004--a reduction of over $1 billion each
year. In addition, the SCHIP redistribution system suffers from timing
and targeting problems. Some states have federal funds they will never
use, while other states face the prospect of having to cut their
programs sharply in the future years because their federal SCHIP
allotments will be insufficient. As a result, even with the likely
passage in coming days of bipartisan legislation to extend the life of
$2.6 billion in expired or expiring SCHIP funds, a number of states are
projected to have insufficient funding to sustain their existing
programs over the next few years.
Greater SCHIP funding provided under the FamilyCare approach would
not only address funding shortfalls for existing SCHIP coverage of
children but would provide additional resources for expansions to their
parents. If history is any guide, when states are given new flexibility
to expand coverage and sufficient additional funding, they will take up
the option and expand coverage, in many cases substantially. Examples
include the significant increase in children's coverage after SCHIP was
created and a number of Medicaid expansions for parents following
enactment of welfare reform in 1996, which gave states more options in
this area.
The FamilyCare proposal benefits from a number of advantages over
other approaches to cover the uninsured:
It would not encourage many individuals to drop employer-based
coverage, nor would it significantly induce employers no longer
to offer health insurance to their workers, especially as
compared to the likely effects of other approaches. Research
has found that a relatively modest percentage of the additional
individuals covered through public expansions previously had
employer-based coverage.29 For example, an
examination of Minnesota's Medicaid expansion to adults and
children found that only seven percent of enrollees gave up
private insurance (both employer-based and individual market)
to join the program, of which fewer than half previously
participated in employer-based coverage. In Wisconsin, which
expanded coverage to parents up to 185 percent of the poverty
line through its BadgerCare program, only 6 percent of the
25,000 families screened had access to employer-based coverage
prior to enrolling in the SCHIP program. Other studies
estimating the effects of public program expansion proposals
project that only 30 percent of participants would have
previously had insurance.30 By comparison, as
discussed above, Professor Jonathan Gruber estimates that
nearly 90 percent of participants in the health certificate
bill would previously have had health insurance.
---------------------------------------------------------------------------
\29\ Lisa Dubay, Expansions in Public Health Insurance and Crowd-
Out: What the Evidence Says, Kaiser Family Foundation, October 1999;
Kathleen Call et al., Who Is Still Uninsured in Minnesota? Lessons from
State Reform Efforts, Journal of the American Medical Association,
October 8, 1997, p.1191-95; Leighton Ku, Marilyn Ellwood et al., The
Evolution of Medicaid Managed Care Systems and Eligibility Expansions,
Health Care Financing Review, Winter 2000; Jeremy Alberga, Wisconsin's
BadgerCare Program Offers Innovative Approach to Family Coverage,
Robert Wood Johnson Foundation, January 2001; Amy Lutzky and Ian Hill,
Has the Jury Reached a Verdict? States' Early Experiences with Crowd-
Out Under SCHIP, Urban Institute, June 2001; and Richard Kronick and
Todd Gilmer, Insuring Low-Income Adults: Does Public Coverage Crowd-Out
Private?, Health Affairs, January/February 2002.
\30\ Feder, Uccello and O'Brien; Judith Feder, Written Testimony
before the Subcommittee on Health, House Committee on Energy and
Commerce, February 28, 2002
---------------------------------------------------------------------------
The coverage provided under Medicaid and SCHIP is accessible and
affordable to the low-income populations served. Unlike the
individual health insurance market, public programs are open to
any eligible individual irrespective of age or medical history.
In addition, both the Medicaid and SCHIP programs have limits
on premiums, deductibles and cost-sharing to ensure that
participating families and individuals can afford out-of-pocket
costs. Research shows that premiums and cost-sharing above
minimal levels deter participation or use of necessary care
among low-income families.31 Medicaid generally
requires no premiums and nominal copayments and exempts
vulnerable populations such as children and pregnant women from
any cost-sharing. SCHIP families are protected from cost-
sharing that exceeds 5 percent of family income.
---------------------------------------------------------------------------
\31\ Judith Feder, Larry Levitt, Ellen O'Brien and Diane Rowland,
Covering the Low-Income Uninsured: The Case for Expanding Public
Programs, Health Affairs, January/February 2001.
---------------------------------------------------------------------------
Medicaid and SCHIP coverage also provides comprehensive benefits that
meet the needs of older and sicker families and individuals.
Both programs establish federal benefit standards that are
intended to provide comprehensive health insurance coverage.
Under Medicaid, states must provide certain minimum benefits
such as hospital, physician coverage and nursing home care, as
well as preventive, acute-care and long-term care benefits that
meet the special needs of children, people with disabilities
and people with chronic illnesses. Under SCHIP, state programs
must generally provide a benefits package that is equivalent to
a basic benchmarks, such as the Blue Cross-Blue Shield Standard
Option under the Federal Employees Benefits Health Plan
(FEBHP).
Expanded coverage of low-income parents under Medicaid and SCHIP
would also have the added benefit of increasing coverage of
children who currently are eligible for, but not enrolled in,
the Medicaid or SCHIP programs. Many low-income children who
are eligible for these programs remain unenrolled and
uninsured.32 Research has found that extending
health insurance to low-income parents under the same public
program so that the entire family can be covered under a single
joint policy boosts enrollment of children and use of necessary
services by children. In states that have expanded publicly
funded coverage to include working parents, enrollment rates
among children are significantly higher.33
---------------------------------------------------------------------------
\32\ See, for example, Lisa Dubay, Ian Hill and Genevieve Kenney,
Five Things Everyone Should Know about SCHIP, Urban Institute, October
1, 2002.
\33\ Institute of Medicine, Health Insurance is a Family Affair,
September 2002; Leighton Ku and Matthew Broaddus, The Importance of
Family-Based Insurance Expansions: New Research Findings about State
Health Reforms, Center on Budget and Policy Priorities, September 2000;
Jeanne Lambrew, Health Insurance: A Family Affair, The Commonwealth
Fund, May 2001; Lisa Dubay and Genevieve Kenney, Covering Parents
Through Medicaid and SCHIP: Potential Benefits to Low-Income Parents
and Children; Kaiser Family Foundation, October 2001; Elizabeth
Gifford, Robert Weech-Maldonado and Pamela Farley Short, Encouraging
Preventive Health Services for Young Children: The Effect of Expanding
Coverage to Parents, Pennsylvania State University, presentation at the
Academy for Health Services Research and Health Policy Conference,
Atlanta, June 12, 2001.
---------------------------------------------------------------------------
Finally, Medicaid and SCHIP already have a working administrative
structure in place; there would be no need to establish a new
bureaucracy to implement the FamilyCare expansion. In fact,
since SCHIP has been established, states have simplified and
streamlined enrollment procedures for eligible families. States
know how to determine income eligibility for Medicaid and SCHIP
coverage and how to facilitate families' enrollment in health
insurance plans. States have existing contracts with providers
and managed care plans; expansion participants would receive
their comprehensive benefits through existing coverage
arrangements that the state has already established. In many
cases, families would already be familiar with the Medicaid or
SCHIP managed care plans, doctors and hospitals because their
children already participate in those programs.
Small Employer Tax Credits
Another approach to the problem of the uninsured that could be
considered, possibly in conjunction with FamilyCare, would be to
provide additional subsidies to small businesses to offer health
insurance coverage to their workers. As discussed above, small
employers especially those with large numbers of low-income workers,
are less likely to provide health insurance to their workforces.
The federal government could provide a tax credit to small
businesses (say for firms with fewer than 50 workers) that offer health
insurance benefits, with the value of the credit equaling a percentage
of the employer's premium costs. The credit would be available both to
employers currently providing such coverage and to businesses not
currently offering health benefits. According to a Kaiser Family
Foundation survey of small businesses, 89 percent of small business
executives supported offering tax credits to employers to help them
purchase health insurance for their employees.34
---------------------------------------------------------------------------
\34\ Kaiser Family Foundation, National Survey of Small Businesses,
April 2002.
---------------------------------------------------------------------------
To maintain a relatively modest cost and target the credit to the
most vulnerable small businesses that are least able to offer coverage,
the credit could be designed to provide the greatest subsidy to the
smallest firms and the firms with substantial numbers of low-wage
workers. Professor Jonathan Gruber of M.I.T. has suggested the design
of such a credit. While the credit would be available to all firms with
fewer than 50 workers, the subsidy would be largest for the smallest
firms (say firms with fewer than 10 workers or some higher level), with
the value of the credit slowly phasing out by firm size. In addition,
the credit would be targeted at firms with a high percentage of low-
wage workers. The value of the credit would be largest for firms whose
average wage is less than some annual earnings benchmark or hourly wage
level, with the credit slowly phasing out above that level. In other
words, the credit would phase out along two dimensions: firm size and
wage level.
This design has the benefit of targeting the greatest subsidy to
the small businesses that most need it while still providing some
financial assistance to all small businesses offering health insurance
that have fewer than 50 workers. Most importantly, the credit would not
disrupt--and would build on--the current employer-based health
insurance system. It would assist the relatively few small employers
with large numbers of low-income workers that currently offer
traditional coverage so they can continue to afford such coverage,
while also encouraging other firms to begin offering coverage. It would
not produce the adverse selection risks likely to result from tax
credits and subsidies for health insurance in the individual market,
which could lead to significant increases in premium costs for
traditional group health insurance coverage and thus could place older
and sicker workers at risk of becoming underinsured or uninsured.
According to a Kaiser Family Foundation survey, 61 percent of small
business executives believe employees would be better off in employer-
based coverage than on their own in the individual market, and 74
percent thought it would be harder for employees to meet their health
insurance needs if they got sick if the employees were in the
individual market rather than in employer-based coverage. A tax credit
to small businesses would meet these preferences and concerns.
conclusion
In evaluating proposals to covering more of the uninsured, three
principles should govern. A proposal should do no harm to the health
insurance system through which the vast majority of families obtain
their health insurance. A proposal should be well-targeted to maximize
the number of uninsured individuals and families gaining health
coverage. And a proposal should provide accessible, affordable and
comprehensive health insurance coverage to uninsured families.
Carefully designed expansions of Medicaid and SCHIP, as well as
certain tax incentives for more small employers to offer health
insurance coverage, would satisfy these principles.
Mr. Bilirakis. Thank you, sir.
Well, a few months ago, must have been maybe the middle of
last year, I visited virtually every Chamber of Commerce. I
made this statement publicly at least once in my District. And
where it used to be you would attend the Chambers and, you
know, find out what their problems are and things of that
nature, it was always things like infrastructure, et cetera,
well, this time it was health insurance. And I mean
resoundingly, across the board. Every one of them. So there is
no question about the problem.
There is a problem there for the uninsured. There is a
problem there for the employers. There is a problem.
I have very unrehearsed questions. We have laws that
require you to be able to--if you have a driver's license, you
have got to have automobile insurance. And I don't know of any
cases, there may be some, but I don't know of any cases where
the premiums are subsidized by government or any form of
government. But I guess somehow people needing a car or needing
transportation manage to raise the money to pay for those
policies, and they are pretty darn high.
I guess the question might be, is that something we should
consider doing? Mandating health insurance, that everybody have
health insurance, every family have health insurance? When I
use the word mandating, you know there is more than one way you
can mandate something or encourage it, if you will. Any of you?
Any thoughts? Dr. Young?
Mr. Young. Well, I think there are several questions that
it raises. All of the answers to which have impacts that need
to be considered. Mandating who? The individual. If you mandate
the individual, how are you going to enforce it? And what would
the financial impact be on very low-income that were mandated
to a premium that they simply couldn't afford? But the same is
true if you were to do it for business now, particularly small
businesses. Now, large businesses virtually all offer
insurance. But, if you have a mom and pop business with two or
three employees, they are struggling to do the right thing, and
they are offering insurance, but they are having a hard time.
And you mandate on them, what is that going to do to the
business, and what is that then going to do to our economy? So
I think it is a question that can be raised and discussed, but
it--the answer to it has implications that have to be probed
and understood.
They could be significantly negative implications. I think
the better approach is the one that you are taking, and that
is, providing financial assistance, hopefully, over time
additional financial assistance, letting people buy into it.
Their employer pays them, they pay some, the subsidy pays some,
it is combined, shared funding.
I think they that will get you to where you want to go and
maintain the health of our economy.
Mr. Bilirakis. Very briefly, any further comments? I only
have 5 minutes, so it is going to have to be brief.
Mr. Nelson. The American Medical Association thinks there
is a better way to do it. Incentives would work better than a
mandate. It is a carrot or a stick. In this case, a carrot or a
club. We prefer the carrot.
Mr. Shea. I warned the chairman that there would be a few
policy differences here. I don't think we are going to solve
this problem unless we have everybody included. And however we
determine is the best basis for the system, my own current
thinking is, we have an employment-based system, we need to
build on that.
I think we are going to have to have everybody included one
way or the other. Now, as Dr. Young points out, this is going
to require some significant subsidies for small employers.
Mr. Bilirakis. Everybody included, meaning the full 41
million or whatever the figure is uninsured?
Mr. Shea. And all of the employers, if we are going to have
an employment-based system they need to be participating.
Ms. Spitznagel. I agree with all of those comments. We have
a system now that has a lot of problems. The No. 1 problem is
affordability. A lot of people want to purchase insurance. It
is not that they have the affordability and they can't and they
just don't want to, they would like to purchase it. There are
more devils in the details that Dr. Young had mentioned, in
addition to what Dr. Young mentioned, including the issue of
having to define, for instance, what they would be mandated to
purchase.
And that could become very controversial, and it could lock
a lot of people out of the coverage system and make the idea of
an individual mandate very prohibitively expensive if we
settled on a requirement that this mandate be applied toward a
very rich Cadillac insurance plan.
Mr. Greenstein. I was going to say, the key is
accessibility and affordability. If we really found the way,
which we are a long way away from today, of making health care
accessible and affordable to everyone in the country, one could
then consider an individual mandate.
But, one would have to solve the problem of making it
accessible and affordable to older and sicker people as well as
the younger and healthier people. That is really the tough
problem. If we get over that hurdle, we might not need an
individual mandate or we might be able to do one, but we are a
long ways from there now.
Mr. Bilirakis. How many--of all of the people that are in
the category of uninsured, do you know, we just keep referring
to uninsured, insured, uninsured. And uninsured is significant.
But I guess my biggest concern is, are people getting adequate
proper health care in this wealthiest country in the history of
the world?
How many of these people are getting what we might call
adequate or close to adequate health care? Do we know?
Mr. Young. On average across the pool of the uninsured, the
spending on their behalf is about 50 percent of what the
spending would be for a fully insured individual. A large share
of that is spending that occurs in the hospital and occurs at a
time of an emergency, or occurs at a catastrophic kind of an
event.
What they are not getting are the preventative services,
the routine services, a child with asthma is not getting the
drugs that prevents the asthma attack that leads to the
hospital stay. So they are consuming a substantial amount of
resources, but they are the wrong kinds of resources.
You need to do the others that prevent those kinds of
hospital stays as well.
Mr. Bilirakis. Any other further comments?
Mr. Nelson. It was referred to that about $35 billion is
spent each year to care for those who are uninsured when they
finally do get to the system. How much could one prevent with
that $35 billion? A pap smear, the clinical preventative
services, prenatal care, and pneumococcal vaccines and diabetic
medic screening and so on. The cost would be astronomically
saved. We are spending at the wrong end. It is not efficient.
Mr. Bilirakis. Are you saying that we should focus on
whatever the few dollars, heck, to say $50 billion is few, it
is kind of crazy, but that is the way it is up here. Are you
saying that we should be focusing those dollars maybe toward
something like that?
Mr. Nelson. Yes, sir. I think they are the most cost-
effective things that we can do. To be honest with you, the
most cost-effective thing we do in health care, prenatal care.
Moms who come in and keep their visits have larger babies,
healthier babies, fewer cesarian sections, and cost less.
There is a lot of evidence of this, Mr. Chairman. This is a
good place where this bill might be able to focus.
Mr. Bilirakis. So we shouldn't be concerned then
necessarily about insurance, if you will, but----
Mr. Nelson. They still have to have access. So the coverage
by the insurance would be a way to make us to do that.
Mr. Shea. Mr. Chairman, I would just add that the work of
this committee and others in Congress on patient safety
legislation, which hopefully we will see realized this year is
an element in this whole troubling picture, because, we know
from the Institute of Medicine studies that we waste huge
amounts of money on unnecessary care in this country.
As I was saying before, we just need better quality
standards. The simple truth of the matter is, we pay the same
whether it is great care, mediocre care, or dangerous care. We
have to stop doing that. If we stop doing that, there is going
to be a lot of money available for doing other things.
Mr. Bilirakis. Well, my time is up. But I would sure like
to spend more time on that subject.
The Chair now recognizes the gentlelady from California for
8 minutes because she waived her opening statement.
Ms. Capps. Thank you, Mr. Chairman.
I think you set off a series of questions in a very
interesting way. And I think it was George W. Bush's
predecessor who had the same request, that everybody have
health insurance. But, the question of affordability and
accessibility is a big question.
Mr. Greenstein, I want to ask you some questions to allow
you to give a fuller answer. But you didn't get to respond to
this last series. This amount of money in this bill, a thousand
dollars for a policy, how much of that could be used in the
ways that Dr. Nelson would like it to be used? I mean, because
that actually is our goal.
Mr. Greenstein. Well, I think it is complicated. Surely the
preventative services are key. Something particular like
prenatal services, you want to make sure, though, if you are
doing, as Dr. Nelson just said. If you have a prenatal
screening and you find a problem, the person needs the
insurance to be able to get the problem dealt with.
So you can't really separate the prenatal from the adequate
follow-up coverage for the problems you then find.
Ms. Capps. Just to follow up on that just for a minute, Dr.
Young. I nodded all of the way through yours. I am a public
health nurse. I agree with you that the best kind of coverage
is not necessarily the high end. And that those preventative
dollars go such a long way. Your comment on preventative
services to people, I think, is telling about why many of us
are concerned, actually, about this health certificate, just in
this one area.
And now I want to talk about what these tax credits or
health certificates can help people do, and the drawbacks that
it might have. Now, turning to those with basic health problems
such as diabetes, some of those people would find health
insurance policies in the individual market expensive, and some
people, such as cancer survivors, may not even find an insurer
who is willing to issue them a policy, though part of this, but
only $75 million would go into the high-risk pools. That is not
going to go far in this country for that topic.
But, even so, proponents of this approach argue it is
better than nothing. They argue that vouchers are bound to help
some people. I think also, though, and this is what I want to
get at, there maybe a counter argument that such an approach
could do more harm than good. And here, Mr. Greenstein, I want
to ask you to elaborate on how a certificate or tax credit
approach might actually undermine the system that we have
today. For example, could it cause some to lose their coverage
or raise costs for employers? And how would employer coverage
perhaps be affected under a Health Certificate Act?
Mr. Greenstein. Under this particular bill, the income
limits and the asset limits are drawn very tightly. So a few
employers would likely drop coverage as a result of the
availability of the health certificates. Perhaps the only
potential would be employers whose workforce is almost entirely
a low-income workforce. But if you take a different kind of a
approach, or a variant of the approach, I should say, like the
Tax Credit Proposal in the President's budget, which has higher
income limits, and is broader in terms of who could be covered.
Under that approach, there have been a number of analyses,
I think Professor Gruber and others that have done that do
find, they believe, there would be significant effects on
employer coverage. Employers could reason that people could get
these tax credits, so that these employers, especially smaller
ones, deciding whether to offer coverage or not, it is more of
an inducement not to offer coverage.
Another concern is that if you have a credit, another
improvement in this bill over the President's proposal is this
allows the certificates to be used toward the employer
purchase. But, if you have a situation where an employee is
faced with paying 30, 40, 50 percent of an employer premium
cost, and the employer is, of course, pooling sicker workers
and less sick workers, if you have a young healthy worker, that
person with one of these tax credits might say, it is to my
advantage to go purchase my own coverage in the private market.
Then, if the younger, healthier workers withdraw from the
employer coverage, the employer is left with a pool of older
and sicker workers, and therefore, the average cost for the
comprehensive coverage the employer offers goes up. So under a
number of those kinds of approaches, you--what you can have are
winners and losers, and the younger healthier workers can be
the winners, and the older sicker workers can be the losers. I
think we should avoid approaches in which older and sicker
workers are the losers. And one of my principal concerns about
this bill is simply that it could start us down that path, as I
said in my testimony, if future Congresses came back through,
if you enact the Health Certificate bill, and raised the--let's
let more of the uninsured get these health certificates. Then
you would start to have more of a potential eroding of
employer-based coverage.
Ms. Capps. Thank you. So this is a delicate balance you are
talking about. Isn't it also possible that even those who
currently have coverage and find themselves getting assistance
through this certificate may find that they themselves are no
better off, because their employer could just reduce their
subsidy equal to the new certificate? Could you comment briefly
on that? Because I want to ask you one more question.
Mr. Greenstein. As I understand the bill, for the employee
to use the certificate toward the employee share of an employer
premium, the employer would have to pay at least 50 percent of
the premium cost. There could lead some employers--again, I am
only talking about those where the workforces are almost
entirely low-income workers.
But, for those employers, if the employer now pays 60
percent or 65 percent, the employer could reason, well, I can
reduce to it 50, and the employees are going to make up the
difference through the health certificate.
Ms. Capps. Finally, it is a related topic. The recently
passed Medicare legislation has a provision, the Health Savings
Security Accounts. What effect do you--what effect do you think
they would have on employer-sponsored coverage? This is not
what we have are having the hearing on today, but it is so
closely related that I wonder if you can comment on legislation
that has just recently been passed in the House.
Mr. Greenstein. I am much more concerned about the impact
of that than 2698. Again, 2698 has some features, as I
mentioned, that if one stuck with them. I don't think it would
do that much good in terms of covering that many more people.
But, I don't think it would cause that much harm in terms of
inducing a lot of employers to drop.
The provision the House recently passed has the Health
Savings Security Accounts, but to use them the policies have to
be relatively high, deductible policies, at least a thousand
dollar deductible for family coverage.
The Joint Tax Committee estimates that over time, a
majority of the employers in the country would move in that
direction, so that you would have employers moving to higher
deductible, and potentially less comprehensive coverage. It is
true that employers could offer two options, a more
comprehensive low deductible, and a less comprehensive higher
deductible. But then you would get the adverse selection of the
younger healthier workers moving to the higher deductible
policies, and the average premium costs for the comprehensive
policies might become prohibitive at that point.
So it is, again, this winners and losers thing. I think
under that approach, there is a very high risk of significant
losses for older and sicker workers occurring.
Ms. Capps. That was perfectly timed, wasn't it, Dr.
Norwood. Thank you very much.
Mr. Norwood [presiding]. very well done. Mr. Towns, you
beat me here considerably. Why don't you go next. You are now
recognized for 5 minutes.
Mr. Towns. Thank you very much.
First of all, I want to thank all of you for being here.
The chairman and I drafted this bill recognizing that it was
not and is not perfect. We wanted to hold this hearing to have
the opportunity to hear from you so that we might fix some of
the things that need to be fixed, recognizing the fact that we
are talking about a budget resolution of $50 billion.
Let me just go down the line, and ask each of you, what you
would suggest that we fix at this point. What is not in the
bill that should be? What is in there that should be taken out?
I'll start with you, Dr. Young. If it is perfect in your
opinion, please indicate that fact.
Mr. Young. We can always argue for more money in it. We can
always argue for particularly a continued strengthening of the
risk pools, which we think are an important component. But, we
think this is a very good start, modest as it is dollar-wise.
And for those people who will find it of value, it will be of
great value to them.
So I believe that you have made a very good start.
Mr. Towns. Thank you.
Mr. Nelson. Let's make sure it is aimed for those who need
it the most, those who are not able to get health insurance
now. And figure out whatever mechanisms it is to get it there.
Let's make sure it is not so bureaucratically heavy, there is a
lot of time and money and expense in the administration of the
program. Let's make sure that the dollars which are so precious
do get to the people that need them the most.
Let's emphasize preventative care, clinical preventative
services. Let's make sure that patients have the opportunity to
get the care they need early, because it is going to cost less
in the long run.
Mr. Towns. Thank you.
Mr. Shea. I think on balance the committee would be better
served, or the country would be better served by using this
money in a different kind of vehicle, as I said. But I don't
mean to disparage the notion here or the design structure
entirely at all.
However, sensing as I do, how fragile employment-based
coverage is, and the problems that Mr. Greenstein points out as
potential, and I would say, I agree with his analysis, but
thinking he may be underestimating the potential problems in
this, I think this is more appropriate for an experiment or a
pilot than a full-blown program.
And that is something that might be worth further
exploring. One specific point. Unlike what happened in the
Trade Adjustment Assistance Act, this is a capped benefit
dollar amount. And it really, if it is going to be done, we
think in a fair way to people, it needs to be done as a
percentage of the premium as opposed to a capped dollar amount.
Ms. Spitznagel. Our coalition is very sympathetic to having
to be subject to the constraints of $50 billion. So we think
that the bill is very good in regard to the fact that it had to
stay within $50 billion.
In a perfect world, if there were more money available,
there are some things that we would like to see changed. We
would like to see the asset tests be eliminated, because we
think that especially for this low-income population, it is
very important that it be as easy as possible for people to
enroll in these programs. And we see that as just one barrier
that will divert their interest in this.
Perhaps some geographic adjustment for higher cost areas
and age adjustment for older-aged workers. But also, increased
subsidies for the risk pools, because the risk pools are a
very, very important part of this system in keeping the
premiums down, for those that are purchasing coverage in the
individual market.
Mr. Greenstein. Well, the $50 billion available in the
budget resolution, like Gerry Shea, I probably wouldn't go this
route. Because I think for $50 billion, one can make much more
progress than one makes under this route given that most of the
people who will get a subsidy, use the certificate, are people
who are already insured.
And most of the people who aren't insured who will gain
insurance with the certificates would tend to be the healthier
workers. So I would refocus the $50 billion, as I indicated in
my testimony, more on expanding. I would build on the twin
pillars that we now have, employer coverage and public program
coverage.
I particularly would expand the SCHIP block grant and let
it cover parents. I would think perhaps about some kind of a
targeted tax credit or other subsidy for small employers to
make it more affordable for them to offer coverage. But I don't
think I would want to put the bulk of the money into putting
more people into trying to buy coverage in the unregulated
individual market, because of the difficulties that poses for
older and sicker workers.
If one were, nevertheless pursuing this approach, I think
the two most important changes to make would probably be one
just mentioned by Gerry Shea, to have a fixed dollar
certificate amount, that it is the same 5 years from now, even
though health care costs are rising at double digit levels,
wouldn't do that much. The percentage approach as opposed to a
dollar approach would address that.
The second thing is, I would do it as a mandatory, even a
capped mandatory program like SCHIP is, rather than a
discretionary program. I don't think there is any assurance
that after the first year, any of this money would ever be
appropriated. The appropriators would have to find room within
the appropriations caps.
Mr. Norwood. Thank you very much.
Mr. Towns. I'd like to ask another question and I would
appreciate if each one of you would answer this in writing.
Given that some Americans are considered uninsurable, if we do
not promote the approach before us today, what options do we
have to insure these individuals?
Mr. Norwood. If you ladies and gentlemen will submit that
to the committee, we will be happy to get that to you, Mr.
Towns, and distributed.
Ms. Eshoo, you are now recognized for 5 minutes.
Ms. Eshoo. Thank you, Mr. Chairman. And thank you to each
one of the panelists for the important testimony today, and for
the answers that you have given to the questions that have
already been posed.
I would liked to ask the--the four that are to the left of
Mr. Greenstein, if you agree with what he just recommended, in
terms of shaping or reshaping what we have in front of us,
given the amount of dollars that are available?
Because, you know, in terms of pillars or a foundation, we
all agree that this is a black eye for our country. It is how
we do it. Now, we have some money. We have the opportunity. And
yet, I think if we get off on the wrong foot here, that we are
going to blow a unique opportunity to make optimum use of the
dollars. So can you react just quickly to what Mr. Greenstein
said?
Mr. Young. I don't agree. As I understand his point, it is
that the subsidy will go to a number of people that now have
coverage. As I look at it, these people are very low-income
people. They are struggling to pay their share of the premium.
And in many cases their employer is doing the same.
This raises to me an important issue of public policy, and
of equity, equity of treatment of all citizens who are in very
similar circumstances. As he would not give it to people who
are trying to do the right thing and struggling, and give it to
another group who has made the decision not to do it, and they
are identical circumstances. So I do not agree with him.
Mr. Nelson. The American Medical Association thinks there
is a better way to do it as well, by having advanceable tax
credits available for both the employee and the employer. For
some places, whether there is something like SCHIP that work,
we should build on it. In our State it works very well. In
other States it does not. If something is working, let's use
it. Let's look at some new ways. There is a point here that has
not been brought out that needs to be underlined.
When we talk about the uninsured, some of these are people
who are uninsured for only part of the year, that big number we
talk about. It is as important to keep people insured, as to
get those who are not insured again.
A lot of those folks that we are supposedly going to be
double covering, wouldn't have the continuity of the care.
Let's make sure that we don't forget them as well. So we would
have a little bit different approach.
Mr. Shea. I think the issue really here is what can you do
given the amount of money on the table, as I understand the
question you posed. I think Dr. Young makes a very important
policy point. But, I don't think--I can't agree with him in
this context of $50 billion. I think if you have got $50
billion, what you want to do with the stated goal is to
increase coverage, there are better ways and more efficient
ways to do it.
I think this approach is one that is definitely worth
exploring. But, to do it as a nationwide program is going to
cost a lot more money. That is why I raised, in answer to
Congressman Towns's question, this is kind of thing which if a
State wanted to step forward and say, we would like to
experiment with this in a pilot, would be an interesting way,
although even in that context there is some design issues.
Ms. Spitznagel. We are very concerned about the idea of
using this money to expand the income eligibility levels of
SCHIP and Medicaid. There is strong evidence now that
participation in means-tested programs is reduced as income
rises. That has been found in the SLIMBY population, and in the
QMB population, and it has been found in the higher-income
populations that are eligible for SCHIP.
That is part of the reason why one-third to one-half of
those eligible for Medicaid and SCHIP simply are not enrolled.
They would be prefer to be receiving insurance in their
workplace with their colleagues.
Ms. Eshoo. That is a very interesting thing that you just
stated. I mean, I follow this very, very closely in my
Congressional District, especially an San Mateo County where I
was on the Board of Supervisors for 10 years, chaired our
hospital board of directors, was directly involved with these
populations.
I have never heard that, about that. Is it from a study?
Ms. Spitznagel. Yes. I do have a study. I would be glad to
submit that to you. There are a couple of studies, actually.
And again, looking at the SLIMBY and QMB populations, they are
at the higher of the low-income levels, and there are very low
enrollment rates in those groups.
That data is readily available. I will be glad to get that
to you. In addition, we believe that it is very important that
private coverage be offered, because of the choice and
portability that is available for those that are in this
population.
Ms. Eshoo. I am going to need to ask you to stop there,
because I only have 28 seconds left. I would like to ask Bob
Greenstein something.
One of the troubling aspects of the legislation to me that,
as it was being drafted, and that I have pointed out, is that
we need to be targeted--we need to know whom we are targeting.
And I don't really know whether we understand full well here
what the profile of the uninsured population is.
I mean, some people talk about college students who don't
want to pay for any insurance. Some say that they are mandated
to by the college or university that they go to.
Are there more males than females? Are there more families
less than singles. Are there more that are insured by their
employers but not be able to take full advantage of it maybe
for their families but only for themselves because they can't
afford it.
What specific policies does the insurance industry have for
poor people today? How competitive are those prices? When you
look at the legislation, do you think that those are salient
points? And do you think that we can cover them better with the
dollars that are on the table?
Mr. Greenstein. Well, I do think that we can. If I could
relate this to the comment that previous panelist just
mentioned. You know, SLIMBY and QMB are not the appropriate
comparison here. Those are simple a buy-in to the Medicare
premiums and deductibles that the Federal Government mandated
States to offer through Medicaid. The States did not feel that
was an appropriate State role, many of them have never really
implemented it properly, often haven't done outreach and so
forth.
What we do have, is we have coverage in most States, up to
about twice the poverty line through Medicaid and SCHIP for
children. And we have coverage in the median state, only up to
70 percent of the poverty line, for those children's parents.
We have extensive research now, a long body of research that
finds, that where the parents can get in the public program,
whether it be SCHIP or Medicaid, the same program as their
children, in a single plan, that that significantly increases
enrollment by the children who are already eligible, and
significantly increases utilization of necessary health care
services by the children.
Now, we can debate what to do for people between 200 and
300 and 400 percent of the poverty line. But I think it should
be a no brainer that we should cover the parents together
with--the low-income parents together with their children
through these public programs. That is where I would put the
$50 billion.
Mr. Norwood. Thank you, Ms. Eshoo.
Ms. Eshoo. I wanted to thank the panelists for their
answers.
Mr. Norwood. I also thank all of you for attending today.
Obviously, this is a very interesting discussion. And we have
$50 billion over 10 years. And we are--all of us want to get
more people under some type of health care coverage. So my
question to you that I would be very grateful for, in writing,
because we just are going to run out of time here is: What is
your program? If you don't like what we are doing here, why
don't you tell us what you would do with $50 billion over 10
years, to get more people covered under health care.
Mr. Young, real quick. I am curious if you have given this
any thought, or in fact any of you: Do individual subsidies
work in a health insurance market that basically today is
geared to group pooling arrangements?
Mr. Young. Yes, they would.
Mr. Norwood. How would this fit?
Mr. Young. Yes, they would. About 10 percent of today get
their insurance through the individual market, not through the
group market. There have been a lot of studies that have looked
at this. There have been some things thrown out today that are
based on some studies that were very poorly designed.
My members sell the individual market. And we know that it
works. Let me just give you a couple of statistics. We recently
did a survey. We had 700,000 people, 1.3 million lives. The
average premium was $2,000 for the individual, and was $4,000
for a family. There is an affordable product.
Mr. Norwood. May I interrupt as we go here? Are you telling
me that the individual health care plans are competitive with
group plans in terms of cost?
Mr. Young. Yes, they are. But when do you the comparison,
you also have to look at the nature of the benefit package. The
ones I am talking about today are real full health insurance
coverage. All policies will differ in terms of where they are
out of pocket. But, are they competitive? Yes. Are they
affordable? Yes.
Mr. Norwood. So you think the subsidy will work in a market
where people will have to go buy individual policies, through
we are trying to help them with some cash in which to buy that
policy, where 70 percent, is that right, I think of the Nation
is insured under a group pooling arrangement.
Mr. Young. Yes.
Mr. Norwood. So you think this will work?
Mr. Young. Yes. Ninety percent of the market, according to
our survey, applied for insurance. And those who completed the
application got the insurance. That other 10 percent is why we
are so strongly supportive of the risk pools. That will deal
with the people that have cancer, the people that have severe
diabetes.
Mr. Norwood. Well, I am glad you ended on risk pools. I
want to go there just a minute.
Dr. Nelson, in the last hearing that this subcommittee held
on the topic of the uninsured, in which one of the witnesses
here stated that in the last few years, the effects of
guaranteed issue and community rating having made health
insurance more unaffordable for small employers and
individuals.
You also raised these issues in your written testimony, and
state that the guaranteed issue and strict community rating has
unintended outcomes. And I would like to give you a minute to
explain that, if you would.
Mr. Nelson. Yes, sir, thank you. What happens is when these
are put together, the guaranteed issue and the mandates and so
forth, it gets very, very sick people, with very high risk,
lots of cost, thereby increasing the premium for everyone.
That can have the unintended and undesirable consequence of
forcing the less sick, the healthier and the younger out,
because their premiums have gone up. So it kinds of works
backwards. We are not sure that is the way to do it.
Mr. Norwood. So are you suggesting, then, that perhaps
those that are sicker, and would be related higher, a better
solution to that would be to utilize risk pools for them?
Mr. Nelson. Yes, sir. Something like that.
Mr. Norwood. I got questions all over the place up here.
Mr. Greenstein, my understanding is that Medicaid or SCHIP
requires a State match, obviously it does. And you yourself
noted that States are struggling to maintain their Medicaid or
SCHIP programs. Are you aware, or maybe you haven't had time,
but are you aware of any States that are willing to expand
their Medicaid or SCHIP program at this particular time to
cover the target population that we are trying to cover under
H.R. 2698?
Mr. Greenstein. Actually, Illinois just instituted an
expansion on July 1st. I believe there is some expansion going
on in Pennsylvania, and the State of Maine, just enacted a
universal health coverage plan.
To be sure, in the midst of the current State fiscal
crisis, it will be more difficult to get States to do this. I
think as the economy recovers, and State budget situations
improve, States would be more ready to do it.
The other quick point I would make is, if we were going to
provide something closer to 100 percent Federal funding for
something, rather than doing it for these health certificates,
what I would rather do, and you take a step in this direction
in the House Prescription Drug bill, is you essentially
Federalize the prescription drug costs for the dual eligibles;
the Senate doesn't, you do. Your bill is better than the Senate
in that area.
Mr. Norwood. Oh, in a lot of places.
Mr. Greenstein. I disagree on some of the others, but in
that area I think it is. And if we can Federalize a larger
share of the cost of the dual eligibles, then we free up room
in State budgets to cover people like more of the parents
through a Medicare SCHIP approach. I think that is the route to
go.
Mr. Norwood. I see my time has expired. Mr. Strickland, I
think you are next on your side. You are recognized for 5
minutes.
Mr. Strickland. I want to thank you, sir. I have a question
I want to direct toward Mr. Shea.
Mr. Shea, in your testimony, you briefly mentioned concerns
with the implementation of the consumer protections in the
Trade Act, in particular as the Bush Administration is
interpreting the law, many of the protections Congress passed
to ensure individuals can get decent coverage would not apply,
as I understand it.
Could you please elaborate on the problems with how the
Trade Act is being implemented, and what it may mean for
consumers?
Mr. Shea. Congressman, I said earlier that a number of us,
maybe a lot of us in this room, spent a lot of time trying to
develop an effective and workable tax vehicle to subsidize
coverage, primarily for the unemployed when we first looked at
this in the wake of the September 11, 2001 tragedy.
And we came up with a design which was an assignable,
advanceable credit, which applied primarily to group coverage
but would also apply to individual market coverage. And that
didn't get enacted at the time, but was the model for the
action under the TAA, and it has several design elements that
are--we think make it superior to design in this.
I have explained before that it is a percentage of premium
not a capped dollar amount. But what you refer to is another
dimension of this issue, which frankly has made some of us who
participated in the earlier discussions much more shy about
going down this road again, which is--we have a TAA benefit,
which while it is due to do into effect next month, does not
look like it is going to benefit many of the people it was
intended to.
And part of the problem is, it is a result of the
interpretation of the administration of admittedly ambiguous
language, but their interpretation has minimized the number of
people who would be eligible, because they have defined a
certain phrase to mean that you have to have credible health
insurance coverage just prior to your applying for the benefit,
which means in many cases, months and months and years, after
people had run out of coverage, I offer to use some of the
bankrupt manufacturing corporations, in the heartland of the
country as an example of that.
Mr. Norwood. Mr. Strickland, if you would yield. I am going
to stop you not exactly on time, because the Prime Minister is
going to be on the floor in 15 minutes, and we need to get
there.
Mr. Strickland. Absolutely. Thank you. Thank you very much,
Mr. Chairman. I would like to address a question quickly to
those who of you on the panel who are in favor of the bill. The
expenditure of $50 billion appears to be inadequate to provide
sufficient subsidy for the uninsured.
But the implementation of this program, the bureaucratic
costs and the like, will no doubt reduce that figure. Are there
any estimates as to how the implementation process, the setting
up the process, the establishing of the needed bureaucratic
functions and so on, reduce the original expenditure, and by
how much?
Mr. Young. I am not aware of any estimates that have looked
at it. From our perspective on the insurance side, we think it
can be made to work quite readily. But on the implementation
government side, I don't have any data.
Mr. Nelson. Congressman, I don't know the answer in
dollars. But I have a pager that floats when I drop it in the
toilet, been run over by my car, been damaged but still works.
We ought to have the ability to do this. Your point is well
taken.
Mr. Strickland. Mr. Chairman, given the fact that we are
needing to move on to get to Mr. Blair, and I don't want to
dominate the time, I will yield back whatever time I have.
Mr. Norwood. I ask that the record be open for 30 days for
responses to any questions by the members that they may submit
in writing. And without objection, that is so ordered.
Mr. Waxman, you are now recognized.
Mr. Waxman. Thank you very much, Mr. Chairman.
I want to ask Mr. Greenstein some questions. We are all
concerned about the numbers of uninsured Americans. And I would
like to ask you about the Medicaid and the SCHIP program in
terms of their contributions to covering people who would
otherwise be uninsured, and what the impact would be if we
don't help the States to avoid cutbacks in coverage, to what
might happen to the ranks of the uninsured if we put a cap on
the Federal contribution to Medicaid as advocates of turning
Medicaid into a block grant program have proposed.
And, three, what the effectiveness would be of reducing the
uninsured in this country if we built on Medicaid and SCHIP and
spent our money there.
Mr. Greenstein. Well, I think as I have been indicating
throughout the hearing, I would concentrate on building on
Medicaid and SCHIP. But, we can just look, for example, at the
SCHIP's expansions after its enactment in 1997, and how
successful it has been in reducing the number of uninsured
children, and we can also look at these States that have
expanded parent expansions, primarily in Medicaid, and a few
cases with SCHIP waivers, using SCHIP funds in recent years.
Any they have made major progress in reducing the ranks of
the uninsured. We pool everybody's risk through group coverage.
By contrast in the individual market, the healthier people may
be able to go buy policies, and the less healthy cannot, which
as I would say, why I think the figures other panelists have
used of 2,000 for individual coverage and 4,000 for family
coverage in the individual market are not really directly
relevant.
Those are the average premiums for those healthier than
average people, who are the people who have succeeded in buying
coverage in the individual market. But we need to be able to
have programs that cover the less healthy as well as the more
healthy. We need to pool risk. We need group coverage.
That is what both Medicaid and SCHIP and employer-based
coverage do. I am very fearful of the effect that a block grant
approach would have. It would pose significant difficulties
during economic downturns, when more people lose employer-based
covering and qualify for public coverage. It would pose
significant difficulties if we have epidemics that were not
foreseen, or we have medical breakthroughs that save lives but
raise costs.
And we need to be able to have a structure that can cover
these people and not run out of money halfway through the year
because none of us in either the public or the private sector
have been very good at predicting in advance, the percentage
increase from year to year in health care costs.
Mr. Waxman. Is it safe to say you think that we would get
more bang for our buck if we put it into shoring up these
programs, either by the Federal Government helping the States
with more of the costs or expanding eligibility than we would
if we put it into a--they don't call it voucher, what do they
call it, certificate program?
Mr. Greenstein. Single main point of my testimony, yes. As
I note in the testimony, estimates by Professor Gruber at MIT
are that close to 90 percent of those who would use the health
certificate subsidies are people who are already insured.
By contrast, if you look at, for example, Medicaid parent
expansions of recent years, the estimates range from 6 to 30
percent in terms of the percentage of people who are already
insured, meaning 70 to 94 percent in terms of those who were
previously uninsured who gain coverage.
So both in terms of helping sicker people, but also just in
terms of the efficiency, we have very little crowdout that we
found or adverse effect in terms of employer coverage. And we
don't discriminate in favor of the healthier people, rather
than as we distinguish from the less healthy when we expand a
public program like Medicaid or SCHIP.
By contrast the certificate approach almost inherently
results in a lot of leakage in terms of people who are already
covered. It is inherently much easier for people who are
healthier and whose premium costs would be lower to use the
certificate to buy coverage, than for people who are sicker and
whose premium costs in the individual market would, therefore,
buy much higher to buy coverage.
Mr. Waxman. Would it be fair to say that had I been able to
be here for the testimony, and if I had read your statement in
advance, I would have had no need to ask you the questions I
asked, except for the fact that it is good to have these issues
clearly on the record in case anyone has any doubt about the
points that you made?
Mr. Greenstein. The only other thing I would add, which is
really not in my testimony, and I am sure you know this, is
regardless of one's view on things like the Health Certificate
bill, I think there is a general bipartisan sense that SCHIP
has made a lot of progress in covering children.
As you know, we are at risk of going backwards. Beyond the
bipartisan bill that will hopefully be enacted next week, if
that is all we do, we lose 370,000 kids by 2007, because of
inadequate Federal SCHIP funding.
It only costs a few billion dollars to fix that. That is
the very first thing we ought to do out of the $50 billion. We
shouldn't go backwards in progress we have already made on a
bipartisan basis in covering low-income kids.
Mr. Norwood. Thank you very much, Mr. Waxman. I thank all
of the panelists immensely. We have talked about a lot of
written questions that we would be very grateful for you to try
to answer within the 30 days.
Thank everyone, and this hearing is now closed.
[Whereupon, at 3:50 p.m., the subcommittee was adjourned.]
[Additional material submitted for the record follows:]
Response for the Record of the American Medical Association
Mr. Chairman and members of the Subcommittee, my name is John C.
Nelson, MD, President-Elect of the American Medical Association (AMA).
As you know, I testified before this Subcommittee on July 17, 2003. I
am happy to provide the Subcommittee with the AMA's responses to the
Subcommittee's follow-up questions.
QUESTION NO. 1: What is Congress' role in helping physicians help
the uninsured?
Congress can assist physicians with providing healthcare to all
Americans by establishing advanceable and refundable tax credits that
are of a size inversely related to income (see attached AMA Policies H-
165.920 and H-165.865). The tax credit must be large enough to ensure
that health insurance is affordable. We believe that any federal
spending on health care benefits should include a provision for tax
credits (see attached AMA Policy H-165.861).
We recently established specific policy that Congress could use to
better prepare the health insurance market for viable individual health
insurance. These provisions were included as Appendix A of our written
testimony that has been submitted to the Subcommittee. We are attaching
these provisions to our written answers.
The AMA also supports the use of health care certificates to reduce
the number of the uninsured and to assist individuals and families with
their purchase of health insurance. Chairman Bilirakis' legislation,
H.R. 2698, the ``Health Insurance Certificate Act,'' which would seek
to reduce the number of uninsured Americans by providing subsidies to
low and low-middle income families for the purchase of health insurance
coverage takes an important step in accomplishing these critical goals.
We believe that any health certificate system must ensure that lower
income Americans would benefit from these certificates. Accordingly,
the dollar value of certificates must be large enough to ensure that
health insurance is affordable for most people. The certificates must
at least be sufficient to cover a substantial portion of the premium
costs for individuals in the low-income categories.
QUESTION NO. 2: Can you please explain how the uninsured population
impacts doctors, hospitals, and other segments of the health system?
Uncompensated care to uninsured individuals is a strain on the
entire health system. Physicians in particular, are compassionate
professionals, who have great concern for unmet patient needs. Unlike
hospitals, physicians receive no subsidy to account for uncompensated
care they voluntarily provide to the uninsured. In fact, during 2001,
64 percent of physicians provided charity care to patients. This
resulted in 7.6 hours per week of charity care, which was 16.1 percent
of their total patient care hours.
Studies have demonstrated that individuals who lack health
insurance forego needed medical care and are sicker when they do seek
care. They visit emergency rooms and are admitted to hospitals in
disproportionate amounts, raising medical care costs which are then
passed on to an already overburdened system. As a result, the already
overburdened health care system is forced to bear even higher costs to
care for these Americans. In 2001, total uncompensated care was an
estimated $35 billion.
QUESTION NO. 3: Can you please elaborate on why the AMA opposes
benefit mandates?
Giving patients individual choice and enhancing consumerism (smart
shopping) assists in keeping health insurance costs in check. The AMA
supports mandates that are designed as patient protection measures. AMA
Policy H-185.964 specifically states that we ``oppose new health
benefit mandates unrelated to patient protections, which jeopardize
coverage to currently insured populations. (CMS Rep. 2, A-99).''
QUESTION NO. 4: Do you have any comments regarding the provision of
H.R. 2698 that deals with high-risk pools?
Provisions in H.R. 2698 refer to following the NAIC Model Health
Plan for Uninsurable Individuals. At this time, we are in the process
of reviewing the model law.
The AMA supports access to health care for the uninsured through
state-run high-risk pools (AMA Policy H-165.979; H-165-995). Recently,
through AMA's Council on Medical Services (CMS) Report 7 (A-03), the
AMA determined that risk subsidies should be financed through general
revenues (will become AMA Policy H-165.856). However, the Association
has considered the questions, but not yet determined, whether it is
better to use reinsurance and typical risk adjustment (payment to
plans) or whether direct subsidies to high-risk individuals should be
used, which would allow such individuals to purchase their more costly
coverage from among the choices that everyone else has.
QUESTION NO. 5: In your oral testimony you argued that greater
access to preventive medicine would be highly effective in driving down
health insurance costs. How would H.R. 2698 help increase access to
preventive medicine?
As previously discussed, H.R. 2698 would offer health care
certificates to certain individuals. As long as the dollar value of
certificates are large enough to ensure that health insurance is
affordable for most people and at least sufficient to cover a
substantial portion of the premium costs for individuals in the low-
income categories, then such certificates could increase access to
preventive medicine.
By assisting individuals with their purchase of health insurance,
the certificates could allow individuals to chose plans that provide
preventive services, such as annual examinations, blood work, and
laboratory test that could assist in the diagnosis of health problems
in their early stages. By diagnosing problems early-on, an individual
can receive needed treatment and prevent complications from occurring
and stop the further development of the disease.
An example of preventive care working for patients is prenatal care
for pregnant women. Women who receive such care have fewer
complications, less cesarean sections, and larger babies, which
benefits both the mother and child. Preventive care also has been shown
to work in the following areas:
Immunizations (especially the pneumococcal vaccine for the elderly
population)
Smoking cessation
Weight loss
Stress relief
Ensuring one is properly taking prescribed medications (such as
medication for hypertension and diabetes)
General patient education
key policies articulating ama proposal for the uninsured
H-165.861 Use of Federal Surpluses for Uninsured Americans
AMA policy is that a portion of any increases in federal health
care benefit spending be used to provide refundable tax credits,
inversely related to income, for the purchase of health insurance to
uninsured Americans, and that this be communicated to the President of
the United States and to the Congress. (Res. 129, A-01; Modified: CMS
Rep. 10, A-02)
H-165.920 Individual Health Insurance
Our AMA: (1) affirms its support for pluralism of health care
delivery systems and financing mechanisms in obtaining universal
coverage and access to health care services;
(2) recognizes incremental levels of coverage for different groups
of the uninsured, consistent with finite resources, as a necessary
interim step toward universal access;
(3) actively supports the principle of the individual's right to
select his/her health insurance plan and actively support ways in which
the concept of individually selected and individually owned health
insurance can be appropriately integrated, in a complementary position,
into the Association's position on achieving universal coverage and
access to health care services. To do this, the AMA will:
(a) Support legislation that would provide the employer with the
same tax treatment for payment of health expense coverage whether the
employer provides the coverage for the employee or whether the employer
provides a financial contribution to the employee to purchase
individually selected and individually owned health expense coverage,
including the exemption of both employer and employee contributions
toward the individually owned insurance from FICA (Social Security and
Medicare) and federal and state unemployment taxes;
(b) Support the concept that the tax treatment would be the same as
long as the employer's contribution toward the cost of the employee's
health insurance is at least equivalent to the same dollar amount that
the employer would pay when purchasing the employee's insurance
directly;
(c) Study the viability of provisions that would allow individual
employees to opt out of group plans without jeopardizing the ability of
the group to continue their employer sponsored group coverage;
(d) Work toward establishment of safeguards, such as a health care
voucher system, to ensure that to the extent that employer direct
contributions made to the employee for the purchase of individually
selected and individually owned health expense coverage continue, such
contributions are used only for that purpose when the employer direct
contributions are less than the cost of the specified minimum level of
coverage. Any excess of the direct contribution over the cost of such
coverage could be used by the individual for other purposes; and
(e) To ensure that the health insurance plan purchased by the
individual employee is sufficient to provide a basic level of health
care and does not increase the probability that the employee will
become uninsured, the AMA would work toward the establishment of the
following guidelines: (i) minimum benefit requirements, including
catastrophic protection, (ii) fiscal solvency of the plan, (iii)
provision of basic consumer information, (iv) protection of the
consumer from fraud, (v) guaranteed issue, (vi) guaranteed
renewability, and (vii) rate reform;
(4) will identify any further means through which universal
coverage and access can be achieved;
(5) supports individually selected and individually-owned health
insurance as the preferred method for people to obtain health insurance
coverage; and supports and advocates a system where individually-
purchased and owned health expense coverage is the preferred option,
but employer-provided coverage is still available to the extent the
market demands it;
(6) supports the individual's right to select his/her health
insurance plan and to receive the same tax treatment for individually
purchased coverage, for contributions toward employer-provided
coverage, and for completely employer provided coverage;
(7) strongly supports legislation promoting the establishment and
use of medical savings accounts (MSA)s and allowing the tax-free use of
such accounts for health care expenses, including health and long-term
care insurance premiums and other costs of long-term care, as an
integral component of AMA efforts to achieve universal access and
coverage and freedom of choice in health insurance;
(8) continues to place a high priority on enactment of federal
legislation to expand opportunities for employees and others to
individually own health insurance through vehicles such as medical
savings accounts;
(9) supports legislation requiring a ``maintenance of effort''
period, such as one or two years, during which employers would be
required to add to the employee's salary the cash value of any health
expense coverage they directly provide if they discontinue that
coverage or if the employee opts out of the employer-provided plan;
(10) encourages through all appropriate channels the development of
educational programs to assist consumers in making informed choices as
to sources of individual health expense coverage;
(11) encourages employers, unions, and other employee groups to
consider the merits of risk-adjusting the amount of the employer direct
contributions toward individually purchased coverage. Under such an
approach, useful risk adjustment measures such as age, sex, and family
status would be used to provide higher-risk employees with a larger
contribution and lower-risk employees with a lesser one;
(12) supports a replacement of the present exclusion from
employees' taxable income of employer-provided health expense coverage
with tax credits for individuals and families;
(13) encourages continued experimentation with and monitor the
success of approaches to minimizing or compensating for adverse
selection among the individually purchased and owned health expense
plans available, including risk adjustment across plans, reinsurance
pools, and limiting enrollment and disenrollment opportunities through
such mechanisms as multi-year policy contracts;
(14) upon legislative enactment of Policy H-165.920(3a) and Policy
H-165.920(6) ,the AMA should rescind Policy H-165.995(2)(a), which
calls for tax code changes to allow persons paying the entire premium
for their health insurance to deduct the full cost of their premium
separately from their gross income;
(15) supports the use of tax incentives, and other non-compulsory
measures, rather than a mandate requiring individuals to purchase
health insurance coverage;
(16) seeks federal legislation to rescind Internal Revenue Service
tax regulations requiring annual forfeiture of unspent funds in
employer provided flexible spending accounts; and.
(17) believes that tax credits are preferred over public sector
expansions as a means of providing coverage to the uninsured.
(BOT Rep. I-93-41; CMS Rep. 11, I-94; Reaffirmed by Sub. Res. 125
and Sub. Res. 109, A-95; Amended by CMS Rep. 2, I-96; Amended and
Reaffirmed by CMS Rep. 7, A-97; Reaffirmation A-97; Reaffirmed: CMS
Rep. 5, I-97; Appended and Amended by CMS Rep. 9, A-98; Reaffirmation
I-98; Res. 105 & 108, A-99; Reaffirmed: CMS Rep. 5 and 7, I-99;
Modified: CMS Rep. 4, CMS Rep. 5, and Appended by Res. 220, A-00;
Reaffirmation I-00; Reaffirmed: CMS Rep. 2, I-01; Reaffirmation;
Reaffirmed: CMS Rep. 1 and 3; Appended: CMS Rep. 3, A-02; Reaffirmed:
CMS Rep. 3, I-02)
H-165.865 Principles for Structuring a Health Insurance Tax Credit
(1) Our AMA supports for replacement of the present exclusion from
employees' taxable income of employer-provided health expense coverage
with tax credits, be guided by the following principles:
(a) Tax credits should be contingent on the purchase of health
insurance, so that if insurance is not purchased the credit is not
provided.
(b) Tax credits should be refundable.
(c) The size of tax credits should be inversely related to income.
(d) The size of tax credits should be large enough to ensure that
health insurance is affordable for most people.
(e) The size of tax credits should be capped in any given year.
(f) Tax credits should be fixed-dollar amounts for a given income
and family structure.
(g) The size of tax credits should vary with family size to mirror
the pricing structure of insurance premiums.
(h) Tax credits for families should be contingent on each member of
the family having health insurance.
(i)Tax credits should be applicable only for the purchase of health
insurance, including all components of a qualified MSA, and not for
out-of-pocket health expenditures.
(2) It is the policy of the AMA that in order to qualify for a tax
credit for the purchase of individual health insurance, the health
insurance purchased must provide coverage for hospital care, surgical
and medical care, and catastrophic coverage of medical expenses as such
expenses are defined by Title 26 Section 213(d) of the United States
Code.
(CMS Rep. 4, A-00; Reaffirmation I-00; Reaffirmation A-02)
H-185.964 Status Report on the Uninsured
Our AMA opposes new health benefit mandates unrelated to patient
protections, which jeopardize coverage to currently insured
populations. (CMS Rep. 2, A-99)
H-165.995 Coverage of the Uninsured Through State Risk Pooling
Our AMA supports:
(1) the establishment in each state of a risk pooling program, in
which all health care underwriting entities in the state participate,
to provide adequate health insurance coverage at a premium slightly
higher than the standard group rate to
(a) those who are unable to obtain such coverage because of medical
considerations, and
(b) those with medically standard risks who could afford, but
presently lack, access to such group coverage;
(2) the amendment of the federal tax code to
(a) allow persons paying 100 percent of the premium for health
insurance coverage providing adequate benefits to deduct the full cost
of their premiums separately from their gross income; and
(b) require employers to purchase group health insurance coverage
from an entity participating in the state risk pool or, if self-
insured, to participate in the risk pool if such a pool is available,
in order to deduct the cost of their coverage as a business expense;
and
(3) legislation to allow individuals to ``buy in'' to state
employee purchasing pools or the Federal Employee Health Benefits
Program (FEHBP).
(CMS Rep. J, I-85; Reaffirmed: Res. 241, A-93; Reaffirmed by CLRPD
Rep. 2, I-95; Reaffirmed by CMS Rep. 6, I-96; Reaffirmation A-99;
Reaffirmation I-00; Appended: CMS Rep. 10, A-02)
H-165.979 Access to Health Care for the Uninsured
Our AMA
(1) reaffirms its support for ensuring access to health care for
the uninsured through a combination of employer-sponsored coverage,
other private approaches such as risk pools and the AMA proposed
restructuring of Medicaid and Medicare programs which would provide
health insurance coverage for those uninsured who are not otherwise
covered through the private sector; and
(2) supports aggressively pursuing implementation of a program
ensuring health care access for the uninsured as a high legislative
priority beginning in the 101st Congress.
(Sub. Res. 28, I-89; Reaffirmed by CMS Rep. 8, A-95)
``appendix a'' in ama's written statement (referenced in question no.
1)
The American Medical Association (AMA) supports the following
principles for health insurance market regulation:
1. There should be greater national uniformity of market regulation
across health insurance markets, regardless of type of sub-market
(e.g., large group, small group, and individual), geographic location,
or type of health plan.
2. State variation in market regulation is permissible so long as
states demonstrate that departures from national regulations would not
drive up the number of uninsured, and so long as variations do not
unduly hamper the development of multi-state group purchasing
alliances, or create adverse selection.
3. Risk-related subsidies such as subsidies for high-risk pools,
reinsurance, and risk adjustment should be financed through general tax
revenues rather than through strict community rating or premium
surcharges.
4. Strict community rating should be replaced with modified
community rating, risk bands, or risk corridors. Although some degree
of age rating is acceptable, an individual's genetic information should
not be used to determine his or her premium.
5. Insured individuals should be protected by guaranteed
renewability.
6. Guaranteed renewability regulations and multi-year contracts may
include provisions allowing insurers to single out individuals for rate
changes or other incentives related to changes in controllable
lifestyle choices.
7. Guaranteed issue regulations should be rescinded.
8. Insured individuals wishing to switch plans should be subject to
a lesser degree of risk rating and pre-existing conditions limitations
than individuals who are newly seeking coverage.
9. The regulatory environment should enable rather than impede
private market innovation in product development and purchasing
arrangements. Specifically:
(a) Legislative and regulatory barriers to the formation and
operation of group purchasing alliances should, in general, be removed.
(b) Benefit mandates should be minimized to allow markets to
determine benefit packages and permit a wide choice of coverage
options.
Any legislative and regulatory barriers to the development of
multi-year insurance contracts should be identified and removed.
______
American Federation of Labor and
Congress of Industrial Organizations
August 15, 2003
The Honorable Michael Bilirakis, Chairman
Subcommittee on Health
House Committee on Energy and Commerce
2125 Rayburn House Office Building
Washington, D.C. 20515-6115
Dear Chairman Bilirakis: Thank you again for the opportunity to
present testimony for the subcommittee's July 17th hearing on H.R.
2698, the Health Insurance Certificate Act of 2003. Below are my
responses to the follow up questions you have asked me to answer.
Question 1: Do you argue that a Health Insurance Certificate
Program for low-income families may inspire some employers to drop
coverage but an expansion of Medicaid in this same income bracket would
not? If so, why?
As any program extends eligibility higher up the income scale--
whether the health certificate or a Medicaid expansion--the probability
of employers dropping coverage will increase. However, this is less
likely to be the case with Medicaid, which has historically targeted
coverage based on family composition and income, covering mostly
children, and to a lesser extent, their parents. Despite federal
authority to effectively raise the income guidelines without limit
(using the Section 1931 authority discussed below), states' income
eligibility guidelines remain very low. The median income eligibility
cutoff for parents is just 71 percent of poverty, or $6376 annually for
a single parent. In addition, very few programs cover childless adults,
which would further limit the proportion of employers dropping coverage
for workers. In contrast, H.R. 2698 allows individuals earning $25,000
annually to use the full value of the certificate toward family
coverage (with partial value afforded to those earning no more than
$34,000).
In addition, to restate the testimony I presented at the hearing,
H.R. 2698 includes incentives for employers to either drop coverage
entirely or to reduce the portion of the premiums that they subsidize.
For employer sponsored coverage, H.R. 2698 provides for a certificate
valued at a portion of what would be provided if the individual
purchased coverage elsewhere. The legislation also allows individuals
to choose between an employer's plan and coverage in the non-group
market if the employer subsidizes less than 50 percent of the premium.
Therefore, by either dropping coverage or reducing their contribution
to the premium, employers could argue that they are giving their
workers a more valuable certificate or providing them with more choices
for coverage.
Question 2: My understanding is that Medicaid is basically like a
cliff. You either qualify or you do not. This creates an incentive for
individuals not to earn over a certain amount for fear of losing
Medicaid coverage. H.R. 2698 does not have this problem. First, it
provides a softer landing for those who now make more than what
Medicaid allows for. In this case, they could have significant help
with employee premiums or on the individual market. In addition, the
proposal has a phase down policy. Is there a similar proposal to
address these concerns under a Medicaid-style proposal?
Medicaid also allows for graduated income eligibility guidelines,
primarily to accommodate individuals who move from welfare to work.
Federal law allows for enrolled individuals to earn income above
Medicaid eligibility guidelines in two ways. First, the Transitional
Medical Assistance program allows individuals whose increased earnings
would make them ineligible for Medicaid to remain enrolled for up to 12
months. Second, Section 1931 of the Social Security Act gives states
the authority to disregard a portion of an individual's earnings in
order to keep them enrolled in Medicaid. Prior to enactment of the
Personal Responsibility and Work Opportunities Reconciliation Act of
1996, states were limited in how much earnings they could disregard;
however, Section 1931 eliminated those restrictions. Thirty-nine states
have increased earned income disregards using Section 1931 authority
(Kathleen Maloy, Kyle Anne Kenney, Julie Darnell and Soeurette Cyprien,
``Can Medicaid Work for Low-Income Working Families?'' published by the
Kaiser Family Foundation, April 2002).
I would also disagree with the assertion that H.R. 2698 would
provide ``significant help with employee premiums or on the individual
market.'' H.R. 2698 would provide between $300 and $1100 (40 percent of
the value of a certificate for non-employer sponsored coverage), yet
annual premiums for employer-sponsored family coverage averaged $7,954
in 2002 (Employer Health Benefits 2002 Survey, Kaiser Family Foundation
and Health Research and Educational Trust).
Question 3: You propose a 65% subsidy versus set amounts. Do you
know how much this would cost? Do you propose a 65% subsidy regardless
of the amount of family income?
I do not know how much it would cost to provide a 65 percent
subsidy to the target population in H.R. 2698. The cost would
presumably depend on a number of factors, including how many
individuals qualify for coverage, how many eligible individuals are
able to purchase coverage with the certificate, and the cost of
coverage. The AFL-CIO supports a 65 percent subsidy because it is more
equitable than a fixed dollar subsidy. Such a fixed subsidy would
discriminate against individuals who may be charged higher premiums
because of factors such as their age, health status or where they live.
For example, a report by Jonathan Gabel found that average premiums
vary considerably by age, even among healthy individuals. Specifically,
average annual premiums for individual coverage in 2000 for a 27 year
old healthy male was $1584, while a healthy 55 year old male averaged
$3756 (``Individual Health Insurance: How Much Financial Protection
Does it Provide?'' Health Affairs, April 17, 2002).
Again, I want to thank you for the chance to offer further comment
on H.R. 2698 and I would be pleased to have further discussion on this
and related subjects. While I believe that the funds available in the
budget resolution to increase health coverage would be more efficiently
and effectively spent in expanding existing public programs, e.g.
Medicaid and SCHIP, H.R. 2698 recognizes the fragile state of employer-
based health coverage and the need for public underwriting if such
coverage is to continue to form the backbone of health care in America.
I look forward to continuing the conversation.
Sincerely,
Gerald M. Shea
Assistant to the President for Government Affairs
cc: The Honorable Sherrod Brown,
Ranking Minority Member, Subcommittee on Health,
House Committee on Energy and Commerce
______
Responses for the Record from Dede Spitznagel, Board Member and
Executive Vice President, Healthcare Leadership Council, Coalition for
Affordable Health Coverage
Question 1. Why does the Coalition support helping uninsured people
get private coverage rather than expanding Medicaid or S-CHIP?
Response: The Coalition for Affordable Health Coverage (CAHC)
believes that encouraging and enabling people to have private health
insurance rather than expanding welfare with more Medicaid is wise
policy for the following reasons.
Assisting people with private coverage is less expensive than
providing public health care. Providing individuals with a $1000
certificate or a family with a $2750 certificate to purchase coverage
is less expensive than paying for the Medicaid infrastructure and
medical services needed by the individual in any given year.
Giving individuals and families access to private health insurance
means they have more choice. They can select insurance that reflects
their family's needs and there are more doctors who will take privately
insured patients than will take Medicaid patients.
Expanding Medicaid eligibility may not work. Already, about 30% of
the uninsured are eligible for Medicaid. Why aren't they using it?
There are several reasons. Some simply don't know that they have this
option. Some are afraid of immigration authorities. More than 25% of
the uninsured are from other countries and may be unwilling to come
forward for Medicaid because they fear immigration authorities, either
because of their own situation or because of someone in their
household. Finally, many of the ``working poor'' don't want to be on
welfare. They are working very hard to stay off the public rolls and
prefer to go without insurance rather than participate in Medicaid, at
least until a medical crisis occurs. For many in this 30% cohort of the
uninsured, getting assistance to participate in the private insurance
market would be more appealing.
To the extent possible, we believe that government should encourage
the private sector to provide insurance and health care, rather than
the public sector. The free enterprise system is a tremendous strength
of our society and, where possible, should be supported, not
supplanted.
Question 2. In the last hearing this Subcommittee held on the topic
of the uninsured, your organization's President, Mary Grealy, stated
for the hearing record that evidence suggests that we are reaching the
limits of effectiveness in reducing the number of uninsured through
federally funded programs such as SCHIP and Medicaid. Can you provide
some reasons as to why this is the case, and how H.R. 2698 might help
to address the problem?
Response: Medicaid and S-CHIP are valuable public programs for
their intended purposes--very low-income families. However, evidence
suggests that we are reaching the limits of effectiveness in reducing
the number of uninsured through the S-CHIP and Medicaid programs.
Only about half of individuals currently eligible for Medicaid and
S-CHIP actually participate. A number of reasons have been cited for
low participation rates including the fact that participation rates of
means-tested public insurance programs decline as incomes rise. A large
number of those not participating are those with incomes too high for
Medicaid eligibility, but low enough to qualify for S-CHIP. Families
with incomes just above the poverty level are often working full time
and are more reluctant to receive their health care through a public
program. This pattern of lower participation among higher income
persons is also evident in other government health care subsidy
programs, including the Qualified Medicare Beneficiaries (QMBS) and
Specified Low-Income Medicare Beneficiaries (SLMBs) programs.
Researchers have concluded that substantial outreach is necessary to
overcome barriers to participation, such as the possible stigma
associated with public programs.
These data suggest that eligibility alone, without considerable
investment to remove existing barriers to participation, will not
efficiently increase participation in Medicaid and S-CHIP. Many
eligible individuals in the higher income categories of Medicaid and S-
CHIP, as well as income categories under consideration for Medicaid and
S-CHIP expansions, are connected to the workforce. In fact, about 15%
decline overage available from their employers. Therefore, solutions
involving employer insurance may be more effective in increasing
coverage rates for these populations.
The health certificates created by H.R. 2698 would be more
desirable than these restrictive public programs for much of the
uninsured population because the certificates would allow recipients to
choose the insurance that best suits their needs, including their
employer-offered health plan. The low-income working uninsured will be
more likely to pursue enrollment in a health coverage option if they
have a choice other than the public programs.
Question 3. Do you agree that a Health Insurance Certificate
Program for low-income families may inspire some employers to drop
coverage but an expansion of Medicaid would not?
Response: The concern that employers may drop health coverage if
subsidies are provided to their uninsured workers can exist regardless
of whether subsidies are provided through ``health insurance
certificates,'' tax credits, or through expansions in public programs.
The key issue is to include design elements that reduce the likelihood
that employers will drop coverage, as H.R. 2698 does.
If an employer is currently offering health insurance to her
employees, and a government subsidy is made available to only low-
income employees (as in H.R. 2698), the employer would be hard pressed
to drop health insurance altogether or reduce her contribution level,
since those not qualifying for the low-income subsidy would be left
with a gap in resources.
Furthermore, employers have incentives and a strong desire to
provide health insurance to their workers if it is affordable.
Providing health insurance--the most sought after employer benefit--
helps a company compete for and retain higher quality employees, and it
helps keeps their workforce productive. CAHC believes that a subsidy
for purchasing private health insurance could actually encourage more
employers to offer health insurance; especially those employers who do
not now offer to subsidize coverage because they do not have a crucial
number of employees that can afford their share of the premium.
Question 4. My understanding is that Medicaid is basically like a
cliff. You either qualify or you do not. This creates an incentive for
individuals not to earn over a certain amount for fear of losing
Medicaid coverage. H.R. 2698 does not have this problem. First, it
provides a softer landing for those who now make more than what
Medicaid allows for. In this case, they could have significant help
with employee premiums or on the individual market. In addition, the
proposal has a phase down policy. Please comment on this distinction
between the Medicaid approach and the approach in H.R. 2698.
Response: In previous testimony before this committee, a
representative from the Institute of Medicine noted that all of the
enrollment and eligibility hoops--including hard income cut-offs--
result in an average Medicaid tenure of five months. Many individuals
between 100 and 200 percent of poverty have incomes that fluctuate
greatly throughout any year. Hard income cut-offs in the public
programs not only disrupt continuity of care, but they also create a
disincentive for people to pursue higher paying jobs, and in some
cases, any job at all.
H.R. 2698 encourages continuous health care coverage in a number of
ways. In addition to encouraging them to enroll in their employer plan
which in itself facilitates coverage stability, it allows individuals
to receive at least some amount of a phased-down subsidy as their
income rises, instead of abruptly cutting off individuals when the
exceed income eligibility.
Question 5. In your written testimony, you state that CAHC has
serious reservations about the methodologies used in assuming
displacement or ``crowd out'' of employer coverage. Can you please
elaborate on this and provide some examples?
Response: CAHC has never fully understood nor accepted the
methodology used by budget and policy analysts that predict that
employers will drop health benefits packages when a government
certificate or tax credit is created. In order to compete for good
employees, employers have to provide good benefits.
Past history has demonstrated that employers offering childcare
subsidies did not stop offering this benefit just because the
government created a childcare tax credit. Health insurance is even
more primary and embedded in our employee compensation packages.
In addition, large self-insured employers would run afoul of anti-
discrimination laws if they stop offering coverage to their low-income
workers. This in not an excludable class for the purpose of benefits.
Question 6. In Mr. Shea's written testimony, he states that
employer premiums may rise as a result of younger, healthier workers
opting out of an employer plan for a less comprehensive plan in the
non-group market. However, H.R. 2698 states that if the employer
contributes at least 50% of the cost of the premiums towards the
employee's coverage, then the employee is only eligible for the
employment subsidy, not the individual market subsidy. And if the vast
majority of employers are contributing at least 50%, which they
presently are, is this likely to occur?
Response: Historically, coverage through employer-sponsored plans
is more attractive to workers than individual coverage. Employers
subsidize premiums, making comprehensive coverage much more affordable
to their employees. In addition, employees often have access to a
company benefits manager who helps them sort through claims and acts as
a go-between for the employee and insurer.
HR 2698 does not allow employees to leave their group policy when
they work in companies that have more than a 50% subsidy. Although such
employees would be highly unlikely to find individual market policies
that could compete with a 50% subsidy from the employer, this is not
even an option under this bill.
Since most companies pay at least 50% of their employee's premium
costs, there should be little concern about some exodus of younger
workers into the individual market.
Question 7. Your organization supports providing assistance to the
working uninsured. Why does your organization support offering help to
this group when they already have tax benefits and/or employer
assistance?
Response: Actually, most of the uninsured do work but don't have
access to employee-based health insurance Seventy-five percent work for
employers who are unable to offer benefits. Our present patchwork of
tax incentives and public programs leaves them out in the cold.
Certainly, they don't have the disposable income to participate in tax-
sheltered savings programs like MSAs. In addition, they earn too much
to participate in government welfare programs like Medicaid. To further
exacerbate their problem, those who lack health insurance often end up
paying the highest prices for medical care because they are not pooled
into a group that has negotiating leverage. They can ill afford this
situation. If Congress wants equity in ensuring access to health care
services, the working poor need assistance.
A small segment of the uninsured do have access to health insurance
through their employers (25%) and can benefit from the positive tax
treatment afforded to employers and employees. The problem is that many
of these individuals simply cannot afford to pay their share of the
employer-provided insurance. Fortunately, H.R. 2698 provides a partial
certificate to allow these workers to participate in their company's
plan
Question 8. H.R. 2698 is going to help a new group of individuals--
the so-called working poor--get health insurance. What do we know about
this group, and how do you believe they can best be helped?
Response: We know quite a lot about the uninsured. Here is a
composite of the facts relative to the uninsured that fall into the
category of the ``working poor.''
Income: 41% of the uninsured earn under $20,000 per year. About 31%
make less than $15,000.
Employment: More than half (55%) of the uninsured work full-time, all
year round. Only 18% have no attachment to the work force. More
than half (61%) work for small firms (less than 25 employees).
Age: More than half are 19 to 34 years of age, an appealing age group
for private insurers.
Employers: The uninsured are most likely to work in the following
fields: agricultural, personal service, construction, retail,
and entertainment.
Ethnicity: The uninsured are disproportionately minority, with
Hispanics leading the list (35% of Hispanics are uninsured).
How long without coverage? Many of the uninsured (45%) are without
coverage for less than fours months. However, CBO found that
``people with less education are more likely than higher
educated people to experience long uninsured spells.'' This
tells us that the ``working poor'' are likely to be uninsured
longer periods and that crafting policy targeted toward the
long term uninsured will mean that lawmakers are also targeting
assistance to the lower income or ``working poor.''
Health Status of Uninsured: CBO reports that only about 5% of the
uninsured have poor health.
There are many complexities in understanding the characteristics of
the uninsured. However, the above demographics convince CAHC that a
large percentage of the uninsured fall into this ``working poor''
category. Many are young and healthy enough to get reasonable insurance
policies within the private market. They are motivated to work and be
independent, rather than rely on government-provided health programs.
In fact, almost \1/3\ of the uninsured qualifies for Medicaid or SCHIP
but do not participate. CAHC believes that bills such as HR 2698 which
assist the working poor in obtaining private coverage would take a big
bite out of the number of uninsured in the United States.
Question 9. How would you characterize the state of the individual
market? How would a health certificate program affect it?
Response: Nationwide, around 15-17 million people obtain coverage
through the individual market, versus more than 175 million through
employer-based coverage. There are at least two reasons for the
relatively small size of the individual market. First, post WW II tax
incentives helped create a tradition of employer-provided coverage in
our country that continues today. For most people, this works quite
well. Second, some states have made it impossible for a thriving
individual market to exist in their state, making this health insurance
option unavailable to those who could use it. Requirements like such as
community rating and guaranteed issue make the individual market
artificially expensive. For example, the state of New York has
guaranteed issue and community-rated individual health coverage. The
result is that the average cost is more than $1000 per month for family
coverage.
Despite these problems there is encouraging news. In states where
the market is free to operate, there is healthy competition and the
individual market provides comprehensive and flexible health plan
options for individuals. States with ``safety nets'' like high-risk
pools for individuals with serious health issues provide an environment
for health plans to compete most effectively on price, quality, and
innovation. For example, if someone leaves New York and moves next door
to Connecticut, they will find that a standard risk individual can
obtain comprehensive health coverage, with prescription drug coverage,
for under $200 a month.
Health care tax credits would directly impact the ability for lower
income families to afford coverage through the individual market. Six
out of ten uninsured families have a working head of household employed
through a small employer who does not provide health coverage. These
individuals are forced to obtain health coverage with no financial
assistance and without the tax advantaged status employers receive.
Further, less than 5% of individuals are medically uninsurable, so 95%
of uninsured families would have no problem obtaining private coverage.
Tax credits provide the assistance these families need to afford basic,
comprehensive medical coverage.
Question 10. As you know, a large percentage of the uninsured are
dependents of workers and while the workers may be able to afford
coverage for themselves, they cannot afford the higher premium for
family coverage. Could you please comment on this portion of the
uninsured population, and comment on how the certificate could help
this segment?
Response: Many people inside the beltway assume that most employers
contribute to family health insurance coverage in the same way the
federal government does. The fact is that many employers, particularly
small employers, pay some or even all of the employee's coverage but
none of the cost of dependent coverage.
Dependent coverage alone can easily cost $500 per month or more,
which could be a huge part of a low-income worker's paycheck, even if
the employer is paying all of the cost of coverage for the employee.
One of the features of the proposed Health Certificate legislation is
to provide assistance with premium costs for dependents that obtain
coverage through an employer-sponsored health plan. This assistance
would defray the large deduction these workers face out of each
paycheck for dependent medical coverage and would allow the worker to
combine the employer contribution and the health certificate with their
own funds to get the whole family insured.
Allowing low-income employees to supplement their employer's
contributions with a health certificate would help families to be
insured together. Those who would benefit the most from a certificate
in an employer plan are lower income employees, the working poor and
``near-poor'' whose employers pay some of the employee premium but
little if any of the dependent premium--people who cannot now afford to
come up with ``their share'' of health insurance premiums. For these
individuals and families, the current employer contribution is not
enough to enable them to purchase coverage, and because they are in low
or zero tax brackets, the tax exemption on employer paid premiums does
not benefit them. If they were able to combine their employer's
contribution with a health certificate to help them pay their share of
health insurance premiums, they would be much more likely to be able to
afford coverage, and, it would empower individuals to select their own
place of purchase, rather than having it imposed on them by the
government.
Of course, a number of small employers don't provide any health
insurance benefits. For low-income employees who work for these
employers, the health certificate will be essential to their being
insured at all. The legislation takes into account that these working
poor don't have any assistance with the cost of coverage, and provides
a larger certificate than that provided to those who have employer-
sponsored coverage.
Question 11. Mr. Shea argues that employers might drop coverage.
Mr. Greenstein states in his testimony the income and asset limits are
such that it is unlikely that employers would drop coverage because the
credit would not be available to all of their workers. There is also
the preferred tax-treatment of health coverage benefits. H.R. 2698
would provide partial subsidies for employment-based insurance.
Moreover, I do not know how this argument is any different than a
subsidy under Medicaid or S-CHIP. Could you please comment on this?
Response: It is highly unlikely that employers would drop coverage
if a health certificate or other subsidy were available to low-income
workers. Employers have different types of workers, and not all are
low-income. Dropping their health plan could mean the loss of key
employees, as health benefits are one of the most important factors in
attracting and retaining good employees, as well as loss of the owner's
coverage.
There has also been some concern expressed that employers would
contribute less for certificate-eligible employees, increasing the
potential cost to the government. This would be unlikely, as employer
contributions cannot legally be discriminatory in this manner, and they
would not want to run the risk of losing key employees if they lowered
their contributions for everyone. It is frankly unlikely to happen, and
is not any more likely to happen than it would under Medicaid or SCHIP.
Some have speculated that certificate-eligible employees are
unlikely to leave an employer plan to purchase less expensive coverage
in the outside market with a health certificate. The value of the
health certificate relative to the employer's contribution would make
that an unattractive option, since the employer contribution in most
cases would be larger and the employee would lose the employer
contribution in the outside market. And since employers need to keep
credit-eligible employees in the plan to meet plan participation
requirements, employers are unlikely to reduce their contributions or
benefits so dramatically that an employee would be tempted to leave the
plan with their health certificate.
______
Home Insurance Association of America
August 19, 2003
The Honorable Michael Bilirakis
U.S. House of Representatives
Committee on Energy and Commerce
2125 Rayburn House Office Building
Washington, D.C. 20515
Dear Chairman Bilirakis: I appreciated the opportunity to testify
before your committee last month on behalf of H.R. 2698, ``The Health
Insurance Certificate Act of 2003.'' As a follow up to the hearing, the
committee has asked for answers to some additional questions. The
answers to these questions are attached to this letter.
Also attached is the Health Insurance Association of America's
proposal for dealing with the growing problem of the uninsured in
America, called InsureUSA. InsureUSA is a comprehensive set of public
policy recommendations for guaranteeing access to affordable health
insurance coverage to all Americans.
If you have any other questions or would like to discuss these
proposals further, please call me at 202-824-1682.
Sincerely,
Donald A. Young, MD
President
questions for dr. donald a. young, m.d.
Question 1. Do you agree that a Health Insurance Certificate
program for low-income families may inspire some employers to drop
coverage but an expansion of Medicaid would not?
The extent of ``crowd-out'' is not determined by whether the
alternative is public or private, but the degree of overlap in
eligibility, the relative benefit levels and cost to enrollees, and
whether individuals are able to apply any subsidy towards their
existing private coverage. For individuals with family incomes below
the federal poverty level, crowd-out should not be a significant issue
in either case--few have employer-sponsored coverage to begin with.
For the near-poor or ``working poor,'' or those with family incomes
roughly between 1 and 2 times the federal poverty level, the situation
is more complicated--a significant number in this income range are
enrolled in or have access to employer-sponsored coverage. Using SCHIP
to buy into employer-sponsored plans is generally impractical; to take
advantage of any expansion, workers would have to drop their employer-
sponsored coverage--the Health Insurance Certificate program would
allow eligible workers to stay with their private plans. SCHIP is
typically provided without a significant premium--the Health Insurance
Certificate program would require participants to pay at least 30% of
the premium. On balance, for individuals with incomes above the federal
poverty limit where crowd-out becomes a serious issue, we believe that
a Health Insurance Certificate would be much less damaging to the
private employment-based system than Medicaid or SCHIP expansions.
Question 2. My understanding is that Medicaid is basically like a
cliff. You either qualify or you do not. This creates an incentive for
individuals not to earn over a certain amount for fear of losing
Medicaid coverage. H.R. 2698 does not have this problem. First, it
provides a softer landing for those who now make more than what
Medicaid allows for. In this case, they could have significant help
with employee premiums or on the individual market. In addition, the
proposal has a phase down policy. Can you comment on the comparison?
Any proposal for providing assistance based on income must face the
question of whether eligibility should be phased out gradually, or
simply terminate with a cliff at a particular income threshold. One
advantage of certificates, vouchers or tax credits is that their value
may be graded down gradually, making the ``soft landing'' phase-out
much more practical. With Medicaid or SCHIP the only realistic way to
structure an eligibility phase-out is with an income-graded premium. We
believe the implementation of an income-graded premium will prove
challenging, since the Medicaid and SCHIP programs are not
fundamentally designed for a premium, and such an approach delays
``mainstreaming'' the working poor into the same health plans that
their neighbors and co-workers use.
Question 3. In Mr. Shea's written testimony, he states that
employers premiums may rise as a result of younger, healthier workers
opting out of an employer plan for a less comprehensive plan in the
non-group market. However, H.R. 2698 states that if the employer
contributes at least 50% of the cost of the premiums towards the
employee's coverage, then the employee is only eligible for the
employment subsidy, not the individual market subsidy. And if the vast
majority of employers are contributing at least 50%, which they
presently are, is likely to occur?
Health plans, like any other employee-benefit program, are part of
an overall compensation strategy, and affect high-wage workers as well
as low-wage workers. Research shows that low-wage workers are much more
likely to be offered health coverage if there are also high-wage
workers in the firm, suggesting that this is a fringe benefit that is
primarily offered because high-wage workers demand it. Employers are
unlikely to raise their contribution requirements, which would affect
their entire work force, simply because a relatively modest subsidy is
available to their low-wage workers. To the extent any change is made
to employee contribution levels, it will likely be offset by other
benefit enhancements or higher wages.
Question 4. What are the specific problems driving high costs for
health insurance for small businesses and individuals?
According to a survey HIAA conducted earlier this year, 31% of all
Americans rated cost as the most important health care issue, slightly
ahead of those who say the uninsured or Medicare prescription drug
coverage ought to be policymakers' top concern. The survey also shows
that people with private insurance tend to underestimate the amount of
insurance premiums paid by their employer, and to overestimate the
amount of health care spending that comes from their own pocket. HIAA
put together a chartbook outlining the reasons health care premiums are
rising. It is attached to this letter.
Question 5. Can you please identify the different segments of the
uninsured population that would benefit from H.R. 2698? Of these
different populations, which would you expect to exhibit the highest
utility, and how would that impact the overall costs to the healthcare
system?
Individuals below the federal poverty level who are not eligible
for Medicare or SCHIP. A minority of this group will be offered access
to employer-sponsored plans, though their employment will likely not be
stable. The Health Insurance Certificate will allow them to buy into
employer plans when available. Others will be able to buy individual
coverage, though the need to pay 30% of the premium will be a barrier
to some.
The working-poor not offered employer-sponsored coverage.
Individuals and families in this category have a meaningful, albeit
limited, income--paying 30% of the premium is a much less significant
barrier for them.
The working-poor with access to employer-subsidized coverage. This
group is likely to benefit the most from the Health Insurance
Certificate program. The availability of an employer subsidy has
already reduced the cost of coverage--the ability to apply a government
subsidy to the remainder of the premium will make coverage
significantly more affordable.
Question 6. As you know, a large percentage of the uninsured are
dependents of workers--and while the workers may be able to afford
coverage for themselves, they cannot afford the higher premium for
family coverage. Could you please comment on this portion of the
uninsured population and comment on how the health certificate could
help this segment?
This is an important segment of the uninsured population. Allowing
the Health Insurance Certificate to be applied towards the cost of
family coverage in an employer's plan will be of direct benefit to
these families.
Question 7. As you probably know, states such as Kentucky,
Washington, Idaho, and New Hampshire have repealed guaranteed issue
requirements and put in high-risk pools instead. Could you please
provide some reasons why states have chosen to move in that direction?
Guaranteed-issue requirements, particularly in conjunction with
restrictions on premium rating, increase the cost of coverage for
everyone in the market. High-risk pools are an effective method of
capping the cost of coverage for individual with serious medical
conditions, without undermining the private market for other consumers.
Guaranteed issue effective imposes a hidden tax on healthy consumers to
reduce premiums for high-risk individuals; state pools provide an
efficient mechanism for funneling a subsidy to high-risk individuals
from a broader, more equitable tax base.
Question 8. Do you think H.R. 2698 provides for adequate consumer
protections?
The bill offers adequate protections by requiring that the
certificate be applied towards HIPAA creditable coverage ensures that
eligible individuals will be buying a primary health plan, rather than
supplemental coverage. Individual insurance is extensively regulated by
the state; insured employer-sponsored coverage, as is found among small
employers, is also governed by state law. Large employer plans are
limited by the demands of high-wage workers.
Question 9. How would you characterize the state of the individual
market? How would the health certificate impact it?
The individual insurance market is a vital source of coverage for
millions of Americans. It is, however, in a very real sense a residual
market for those who are not offered coverage at work. As such, it is
fragile--ill-conceived legislation, such as guaranteed-issue and
community-rating requirements, can easily damage or destroy it. The
proposed Health Insurance Certificate program would bring additional
people into the individual market, but would be unlikely to change the
fundamental nature or economics of the market.
Question 10. Mr. Shea argues that employers might drop coverage.
Mr. Greenstein states in his testimony that the income and asset limits
are such that it is unlikely that employers would drop coverage because
the credit would not be available to all of their workers. There is
also the preferred tax-treatment of health coverage benefits. H.R. 2698
would provide partial subsidies for employment-based insurance.
Moreover, I do not know how this argument there is any different than
for a subsidy under Medicaid or SCHIP. Could you please comment on
this?
Replacing private coverage is not a significant issue below the
federal poverty line. Above the federal poverty level, Medicaid or
SCHIP expansions would be more damaging to the employment-based system
than a dollar-amount subsidy--particularly a subsidy than can be
applied towards employer-sponsored plans. It is absolutely vital to
avoid undermining the employment-based system, and as the details of
any legislation are worked out this should remain a focus. However, I
would note that the first and most important step--allowing the credit
to be applied towards employer plans--has already been taken, and that
the income and asset levels involved are relatively modest. Very few
employers will find that all of their workers qualify for the Health
Insurance Certificate, which should minimize the number that would be
tempted to drop their coverage.
InsureUSA
covering america's uninsured
Covering the Uninsured: HIAA's InsureUSA Proposal
Tens of millions of Americans still lack health insurance. To solve
this enormous problem, Congress must act to help these Americans afford
the health care coverage that they, and their families, need. HIAA's
InsureUSA proposal (www.insureusa.org) offers a series of practical
initiatives that would provide coverage for most of the nation's
uninsured.
The time is ripe for action. The number of uninsured Americans grew
steadily during most of the 1990's. While there was a two-year hiatus
at the peak of the economic expansion, this was a brief pause in a
steady trend that had lasted more than a decade. The growth in the
uninsured has resumed with the current economic downturn. According to
the U.S. Census Bureau, over 41 million Americans have no health
insurance coverage.
To increase coverage, health insurance must be more affordable for
more Americans. The main reason that Americans are uninsured is because
they cannot afford health insurance coverage. Many well-intentioned
attempts at insurance market reform have had the effect of increasing
the cost of coverage and increasing the net number of individuals
without health insurance. Reforms, therefore, should both reduce the
costs of health insurance and provide financial support for those who
otherwise cannot afford coverage.
Multifaceted problem requires multifaceted approach. While
affordability is the primary reason people lack health coverage, the
uninsured have many faces. Rather than advocating a singular approach
to insuring more Americans, we are advocating a 5-point program
designed to attack the underlying reasons that people are uninsured.
A strong, vibrant private health insurance market should remain a
cornerstone of our health care system. Expanded coverage must be
achieved through means that do not threaten the coverage of other
Americans or damage the existing private market. Competitive markets
remain the most efficient and responsive mechanisms to provide
consumers with coverage. Regulations that stifle innovation,
flexibility and responsiveness to consumers should be strongly
discouraged. For example, nothing in the proposal should be interpreted
as favoring public coverage over private or as requiring health
insurers to operate in markets in which they have chosen not to.
Reforms should make health coverage more affordable within the
context of the employment-based private health care system, rather than
destroying it. Nine in every 10 Americans with private health coverage
get their health insurance through their employer. While the percentage
of Americans with employment-based health coverage has declined
somewhat in the wake of the recent economic slowdown, steady increases
in coverage during most of the 1990s demonstrate the strength and
resiliency of this system.
The new initiative should be financed with broad-based funds.
Rather than recommending specific sources to finance this series of
initiatives on the uninsured, HIAA recommends that funding decisions be
left to state and federal policymakers. Policymakers should be
encouraged to finance these proposals with broad-based funding sources.
For instance, stable, on-going funding is critical to the success of
any risk pool. Policymakers should consider general revenues, as well
as state funds related to health (such as tobacco-related recoveries)
as possible financing sources.
key elements of insureusa
The InsureUSA proposal has 5 key components:
Extending the safety-net for Americans living below the federal
poverty level
Giving the working poor the help they need to buy their own coverage
Guaranteeing access to coverage for uninsurable individuals through
broad-based funding for state high risk pools
Encouraging greater coverage for individuals and small businesses
through enhanced tax incentives
Extending and enhancing Archer Medical Savings Accounts (MSAs)
i. covering very low-income individuals
Conceptual approach: Extend the current social safety net
obligation currently fulfilled by Medicaid to include all adults below
100% of the federal poverty level, regardless of family structure.
Medicaid, the joint state-federal program designed to provide health
insurance coverage to low-income Americans, does not extend coverage to
all poor people. For example, married couples without children and men
are generally not eligible for Medicaid coverage unless they are
disabled. A government-sponsored program is proposed based on the
assumption that individuals with family incomes below 100% of the
federal poverty level have at best a tenuous connection with the work
force (only 17.5% of non-elderly Americans in this income range have
employment-based coverage).
Target population: Individuals and families with incomes below 100%
of the federal poverty level who are not eligible for other federal or
state subsidized health insurance coverage such as, but not limited to,
Medicaid, Medicare or the Children's Health Insurance Program (S-CHIP).
Key elements of the proposal:
Expansion of public program to provide health insurance to all
individuals with incomes below 100% of poverty.
Funding and structuring program are both fundamentally government
responsibilities.
Joint federal/state funding and program structure would be based on
the S-CHIP program.
States would be given significant flexibility with regard to
coverage, benefits and program structure, as in the current
Health Insurance Flexibility and Accountability (HIFA)
demonstration initiative.
States would be encouraged to use program funds to subsidize coverage
under private employer-sponsored health plans for poor
individuals eligible for such plans.
ii. covering the working poor
Conceptual approach: Subsidize the cost of private health insurance
coverage for the near poor and working poor. Subsidized private
coverage is proposed because this population segment largely consists
of low-income working individuals who in many cases have access to
employer-sponsored coverage (45% of non-elderly Americans with family
incomes between 100-200% of the federal poverty level have employment-
based coverage) and it is neither necessary nor desirable to replace
private coverage with a government-sponsored program. The subsidy
should be large enough to make coverage substantially more affordable
for low-income individuals, but should not be so large as to encourage
over-insurance. Because the cost of coverage varies significantly by
age, family size and geographic location, it is critical to provide a
subsidy that is equitable for individuals in different situations.
Target population: Individuals and families with incomes between
100% and 200% of the federal poverty level who are not eligible for
current subsidy programs (e.g., Medicaid, Medicare or S-CHIP).
Key elements of the proposal:
A refundable tax credit or direct federal voucher provided to
individuals with incomes between 100% and 200% of poverty based
on taxable income.
If eligible individuals have access to an employer-sponsored plan,
the credit or voucher would be used for the employee
contribution.
If no employer-sponsored plan is available, then the credit or
voucher may be used towards any coverage meeting the Health
Insurance Portability and Accountability Act (HIPAA) definition
of ``creditable coverage'' for which the individual is
eligible.
If a tax credit is used:
It should be equal to 60-75% of the premium. A percentage of
premium credit allows for variations in cost by age, family
size and location.
The credit should be refundable, in order to help low-income
taxpayers.
Ways to make the credit advancable should be explored.
If a voucher is used:
The voucher amount should be based on an objective measure of the
cost of providing health benefits, and should represent
roughly 60-75% of the cost of coverage (e.g., equal to 75%
of the national average Federal Employee Health Benefit
Plan (FEHBP) premium).
The voucher should be adjusted for geographic and demographic
variations in cost.
The voucher should be redeemable by health plans for actual
premiums up to the full face-amount and electronic
assignment of vouchers and transfer of funds would be
encouraged to facilitate administration.
iii. guaranteeing access to coverage for uninsurable individuals
through state high-risk pools
Conceptual approach: Authorize broad-based federal funding to
encourage states to guarantee uninsurable individuals (those who would
not qualify for private, medically underwritten individual policies)
access to coverage through high-risk pools. While some states have
chosen to implement other mechanisms to guarantee access to coverage,
guaranteeing access to coverage through high-risk pools should be the
preferred approach. Financing for high-risk pools at both the state and
federal levels should be provided through broad-based funding.
Target population: Individuals who may be able to afford to pay a
meaningful premium, or have a voucher or other subsidy available to pay
a premium, but who do not qualify for private coverage due to health
status.
Key elements of the proposal:
Provide federal seed money to states without high-risk pools for
start-up costs (program design and administration, initial
reserves, outreach, etc.).
Provide federal block grants for all states to defray administrative
costs of high-risk pools.
Provide 50-50 federal matching funds for the underwriting losses of
pools (claims minus premiums). However, if a pool sets premiums
below 150% of a standard private market rate, the match will be
calculated as if the premiums were set at 150% of standard.
To receive funds, state pools must have lifetime maximum benefits of
no less than $1 million, and meet NAIC model high-risk pool
standards.
Federal reinsurance program for qualifying state high-risk pools will
cover 75% of claims over $1 million for an individual pool
enrollee (indexed to medical CPI).
The Secretary of Health and Human Services (HHS) will establish pools
in states if the state has not sponsored a pool (federal funds
will be matched by withholding appropriate federal matching
funds in such states).
Any new state or federal funding for this program must be stable and
broadly-based.
States should replace guaranteed issue and community rating
requirements in the individual health insurance market with
guarantee access through high-risk pools
iv. encouraging greater coverage for individuals and small businesses
through enhanced tax incentives
Conceptual approach: Provide a variety of additional tax subsidies,
in conjunction with targeted consumer education, to encourage more
individuals and employers to purchase private health insurance.
Target population: The self-employed, small businesses, and
individuals without access to employer-sponsored health insurance
coverage.
Key elements of the proposal (employer market):
Small employer tax credit (could be phased-in beginning with smallest
employers). To be eligible for the credit, a small employer
must have an average payroll below the median for all small
firms.
40% credit for employers with fewer than 10 employees
25% credit for employers with 10-25 employees
15% credit for employers with 26-50 employees
Allow employee contributions for health insurance to be excluded from
taxable income (even if not made through a section 125
cafeteria plan)
Key elements of the proposal (individual market):
Allow all individuals, not just the self-employed, to deduct the full
cost of health insurance premiums.
Undertake a variety of consumer education and outreach activities on
the importance of having and maintaining health insurance.
v. encouraging increased coverage and providing more options for
consumers by extending and enhancing archer medical savings accounts
(msas)
Conceptual approach: Encourage more individuals and employers to
purchase health insurance and save for future medical expenses by
extending and enhancing Archer Medical Savings Accounts (MSAs).
Increase the number of Americans who are given the option of
establishing an MSA, and enhance the program to better meet the needs
of the average American consumer.
Target population: Individuals and business of all sizes.
Key elements of the proposal (Medical Savings Accounts):
Make MSAs more attractive by simplifying rules
Extend eligibility to large employers
Extend eligibility to all individuals--not just the self-employed
Eliminate sunset provision
Allow both employee and employer contributions to MSA account
Allow cafeteria plans to offer MSAs
Allow imbedded individual deductibles with family deductible cap
Increase the deduction allowed for MSA contributions to 100% of
the deductible amount under the qualifying high deductible
insurance policy
Increase the range of allowable deductibles and out-of-pocket
limits (Lower limits are important to allow MSA holders' to
limit their liability as they accumulate funds for medical
expenses, and higher limits are important for policyholders
who have accumulated, or expect to accumulate, significant
funds in their MSAs).
Make it easier for PPOs and other network plans to offer MSA
products
Preempt state benefit mandates to the extent that they would
require a qualified high-deductible health plan to provide
coverage below the level of the deductible. If this is not
acceptable, then qualified high deductible health plans
should be allowed to provide low-deductible or first-dollar
coverage when necessary to comply with a state benefit
mandate.
cost and access to affordable coverage
InsureUSA, through a combination of targeted subsidies for low-
income individuals, federal matching funds for risk pools for
individuals with serious medical conditions, and enhanced tax
incentives to encourage the purchase of health insurance, addresses the
need to ensure access to coverage to all Americans. But meaningful
efforts must also be taken to reduce the cost of health care and make
health insurance coverage more affordable. Costs must be addressed in
three broad ways. First, regulatory burdens that increase the cost of
coverage must be reduced. Second, individuals must take greater
responsibility for ensuring that the health care they receive is paid
for, and thus for ensuring that they have the health care coverage they
need to fulfill that responsibility. Third, individuals must become
more careful consumers of health care through increased control over
and an increased financial interest in health care purchasing
decisions.
-