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![]() ![]() The Individual Health Insurance MarketResearchers, Policy Makers Seek Common Ground on Tax Credits for the UninsuredIssue Brief No. 58
Growing Interest in Health Insurance Tax Credits
Reflecting the keen interest in this topic on Capitol Hill, the conference drew a standing room only audience of almost 300 analysts. The objective of the meeting, HSC President Paul B. Ginsburg said, was "to dig beneath the surface and explore what we know, what we dont know and what we need to find out about this market." The 108th Congress is certain to focus renewed attention on individual tax credits. House Speaker Dennis Hastert (R-Ill.) recently said increasing the number of Americans with health insurance is a top priority for the new Congress and the President. A Shrinking Market Shows Signs of Promise
Despite its shortcomings, Pauly and Nichols concluded "that the individual market works acceptably well for about 80 percent of potential buyers." These are primarily people in good health with incomes high enough to afford coverage, but some with health problems also find coverage at acceptable prices. However, Pauly and Nichols also found the individual market is unlikely to work well for the roughly 20 percent of those eligible who are in poor health, especially those with low incomes. Efforts to force insurers to take all comers or to limit premiums "have uniformly reduced coverage in states that have tried it," Pauly told the conference. State-run high-risk pools can help stabilize the rest of the individual market, he added. HSC researcher Jack Hadley estimated that 7 percent of people with individual insurance are in fair or poor health, compared with 21 percent of the uninsured. His conclusion: either those who buy individual coverage are healthier, or the market screens the sicker ones out. Tax credits indeed would provide substantial help for many healthy and younger uninsured Americans but would need to be adjusted for age or health status if they were to help the "sicker, older, poorer uninsured," Hadley said. Tax Credits Could Help "Millions"
Baicker noted that 80 percent of uninsured families have someone in the workforce, and 60 percent have incomes above the poverty line. Any policy to reduce the number of uninsured must be flexible, she added. "No single approach is going to... capture them all." She stressed the importance of coupling tax credits with expanded subsidies to high-risk pools. The Trade Adjustment Assistance Reform Act moves in this direction, providing tax credits to workers who lose jobs due to trade, along with $80 million in new funding for state high-risk pools. "Not Ready for Prime Time"
One approach to resolving these concerns is "better risk spreading," said Maryland Insurance Commissioner Steven B. Larsen. "Health insurance is a quasi-public or public function [that is] delivered by the private marketplace. If we acknowledge that its a public function, then maybe were more comfortable with a much greater level of regulation than we have today." Mark Hall, professor of law and public health at Wake Forest University, questioned the notion that proffering tax credits could solve the individual markets problems. Policy makers cannot just wave "a magic wand" and make the individual market operate like the group market, Hall said. He suggested expansion of group coverage might be more practical with alternative subsidy vehicles. Insurers View Market Favorably
Tom Miller, director of health policy studies for the Cato Institute, dismissed adverse selection as "a trumped-up bogey-man."The individual market is small because the tax system is so tilted in favor of employer-sponsored group insurance, he said. Regulatory mechanisms that block insurers ability to select their customers have failed. "They dont make individual insurance more available to high-risk consumers because they drive the low-risk people out of a thinning voluntary individual market, and they raise overall premiums," Miller said. Leaders of two major insurers expressed bullish views about the individual market. Thomas B. Hefty, CEO of Cobalt Corp., and its Blue Cross and Blue Shield United of Wisconsin, and John Bertko, chief actuary for Humana, Inc., said sales of individual policies are growing rapidly in their markets. Hefty said the uninsured rate in Wisconsin, which does not limit premiums, is half the national average. Wisconsin is among 10 Midwestern states where more residents are enrolled in private plans than in Medicaid or other government programs, he noted. Purchasers include "young people...baby boomers and early retirees in particular who have fallen out of the [group] market." He suggested that bad public policy, not a bad market, was responsible for other states high rate of uninsured. If families know they can get public coverage if they get sick, they wont buy private coverage while theyre healthy, he said. Humana, a newcomer to the individual market, sees "big opportunities," Bertko said. Half its applicants for individual coverage "go through clean and get a policy issued." He said, but 10 percent to 20 percent may be uninsurable. Adverse selection is a big problem. "People seek insurance because they need it," Bertko explained. High-Risk Pools Offer Some Help
"Risk pools, as they exist today, serve a small but important niche," said Bruce Abbe of Communicating for Agriculture. "They provide a guarantee that everyone in the insurance market has a place to buy insurance if theyre willing to." Risk pools arent perfect, Abbe added, but they provide a significant subsidy limited by funding constraints. Deborah Chollet, a senior fellow at Mathematica Policy Research, Inc., noted that most high-risk pools have experienced problems that mirror those of individual markets. The coverage is expensive, waiting periods long and benefits limited, she said. Some of their failures "are stunning," according to Chollet. Florida shut down its pool because of inadequate funding, and California, Illinois and Louisiana have capped enrollment and periodically barred new entrants. All high-risk pools have waiting periods before covering preexisting conditions, and they charge 25 percent to 100 percent above standard premiums. Most strictly limit mental health benefits, and 10 do not cover maternity. "Theres a lot of leakage in this fix," said Chollet. She also noted that insurers prefer high-risk pools to more state regulation. Those who see the glass as half-full argue that high-risk pools provide better protection than nothing, and Abbe noted most people use them as transition bridges either to Medicare or back to group coverage. Government as Reinsurer
"If the government were the reinsurer, we would end up solving this problem," Swartz said. The government already plays the role of reinsurer for natural disasters, having bailed out the airline industry after the September 11 attacks, and it assumes responsibility for the worst-risk mortgages, she noted. Views from Capitol Hill
But Patrick Morrissey, deputy chief of staff on the House Energy and Commerce Committee, said he viewed the task at hand as refining a market to make it work better. Consumers want to make their own health care choices, Morrissey said, and tax credits will provide that flexibility. Any solution will require "a viable high-risk pool system." Elizabeth Fowler, chief health and entitlements counsel for the Senate Finance Committee, said Democrats might resist expanding tax credits until they see how the tax credits provided for in the trade act work out. "I do think it would be difficult to reach agreement on uninsured policies in the coming Congress without going down the road of an individual tax credit in some form," Fowler said, along with an expansion of public programs. Finally, Dean Rosen, Republican staff director on the Senate HELP Public Health Subcommittee, recalled that in E.B. Whites classic, Charlottes Web, the enterprising spider of the title helps people to view the pig in a more positive light. The current individual market is small and fragile, Rosen said, but people shouldnt look at it as it is now, "but [as] how it can be." Finding Common Ground
Notes
ISSUE BRIEFS are published by the Center for Studying Health System Change. President: Paul B. Ginsburg For additional copies or to be added |
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