DR. TRUDE: Excuse me a moment while we get this.
[pause]
DR. TRUDE: Thank you for waiting.
There’s growing bipartisan support for expanding health insurance coverage through tax credits. Yet some are concerned that a stand-alone tax credit may not be as effective because it relies on people buying their health insurance coverage on the individual market.
Today our panelists will be discussing a policy that seeks to bypass the individual market by linking tax credits to purchasing pools. I’ll be providing the groundwork for that discussion. First I’ll briefly touch on problems of the individual, like I mentioned, a key issue facing a stand-alone tax credit policy. Next I’ll discuss how purchasing pools use large employers as their role model in the hopes of gaining the same advantages. Then I’ll discuss some of the issues for linking tax credits to purchasing pools. And finally, I’ll wrap up with a score card for you to use when assessing the various approaches and their implications.
Although bipartisan support is growing for tax credits for the uninsured, some question whether this would work without reforms to the individual market. Individuals buying health insurance have little bargaining clout. Overhead costs are higher, and older and sicker people have trouble obtaining and affording individual policies. For example, in the individual market, a health plan product would cost twice as much for a 50-year old as for a 25-year-old.
On the other hand, a large employer brings together a diverse group of people, including both the sicker and healthier workers, young and old. The large employer pools these risks to workers pay the same amount regardless of their individual risk. In addition, large employers have bargaining clout. They standardize benefits, allowing comparison by price, and they gain efficiencies by coordinating enrollment and providing other administrative functions.
Purchasing pools provide a mechanism for bringing individuals together like a large employer, but there have been challenges with this approach. In general, voluntary purchasing cooperatives have had a poor track record. Many have had little success expanding coverage for the uninsured, and have not gained significant market clout. In addition, purchasing cooperatives have struggled to gain the participation of brokers and health plans, key stakeholders in every health insurance market.
And linking purchasing pools to tax credits is going to present its own set of complex design issues. We can gain an understanding of the participation of key stakeholders from research on purchasing cooperatives from people like Mark Hall and from HSC’s third visit to each of its 12 communities. As part of that third visit, we placed a special emphasis on purchasing cooperatives for small businesses and the role of brokers. Brokers help educate their clients about health insurance options and help them identify what type of insurance is available at what price. They also have an ongoing relationship, and tend to be there for handling grievances. My best example was being shown a 20-page fax of medical claims that the broker was then expected to figured out.
We found that in several of our sites, purchasing cooperatives had first hoped to bypass brokers and save the cost of the brokers’ commission. They quickly had to reverse themselves and bring brokers back into the picture. One association in the Boston market had its membership triple in the last two years after bringing in outside brokers. Operational issues can also affect whether brokers bring clients into a purchasing cooperative.
Now, for health plans, it’s another story. For health plans purchasing pools can be a plan’s worst nightmare. Needless to say, insurers do not necessarily want to encourage an organization to have gained purchasing clout, and they may not want to compete on price, which is a byproduct of a standardized benefit, but most important, from previous experience, purchasing cooperatives know that--I mean health plans know that purchasing cooperatives can be a magnet for high risks.
Purchasing cooperatives typically have a social mission of extending coverage to those who have difficulty obtaining insurance. Given that social mission though, when they find that they achieve it, they may be also fueling the adverse selection because they’re attracting these higher risks. In the issue brief in your packet, I describe the Florida cooperative and Cleveland’s Council of Small Enterprises. It’s also called COSE. And they’re on two ends of the spectrum.
On one end, the Miami cooperative, which is no longer in existence, had lenient membership criteria that attracted higher risks. Their typical member had one or two employees, and according to health leaders in that market, the Miami cooperative was a gateway for high-risk individuals to come in and out of the purchasing cooperative as they needed medical care. On the other end of the spectrum, COSE has an average group size of six, and charges a membership fee of $450 per year that helps to keep single membership out.
A policy that would require those with tax credits to purchase the health credits through the purchasing pool though, would undoubtedly gain plan participation if there’s enough people taking up the tax credit. It would also depend on a number of other design issues that will have to be addressed.
Today I’d like to highlight some of the issues, and the panel will be discussing some of the most salient parts, without getting into too many of the nitty-gritty details, I promise. These design issues include deciding who is eligible for the pool. As described earlier, we assume that everyone using tax credits would be in the pool. Under stand-alone tax credit policy, the 23 percent of families not taking their employers’ offering would use the tax credit toward their employer’s coverage, and then the rest would be in the individual market.
Under a policy that links tax credits with purchasing pools, the question is raised about who besides those using tax credits would use the purchasing pools? Would the purchasing pool only include those with tax credits, or could sole proprietors and small businesses participate? Those are typically the members of a purchasing cooperative. Could employees of large companies use their tax credits to buy their employer’s coverage?
Other key design issues include determining state versus federal authority and oversight of the purchasing pools. How would the number of pools be determined, selected and monitored? Would there be a minimum benefit requirement? How would these purchasing pools dovetail with state regulations? How might these purchasing pools interact with existing public programs? What if the children were in SCHIP and the parents were in the purchasing pool?
Fortunately, I get to leave these issues to our panelists. So I’d like to wrap up with the score card, so that as you’re listening to this presentation, you can decide whether or not the tax credits to purchasing pools is going to be a better mousetrap. When all is said and done, does the new policy bring the advantages of a large employer, not just have the trappings of the large employer? In particular, does it spread the cost of sicker individuals across the group so the chronically ill can afford coverage? Does the new entity have bargaining clout? Is it administratively efficient? Does it standardize benefits?
Next, does the new policy expand coverage or does it just change where the insured buy their insurance? And finally, what are the consequences for the rest of the people buying health insurance? In particular, how does the new policy affect the rest of the individual and the small group market?
During the panelists’ discussion you can use the score card to keep your eye on the bottom line, and then you can sort of decide which is the most effective, a stand-alone tax credit relying on the individual market, linked tax credits and purchasing pools, or maybe some other approach?