|
P E R S P E C T I V E :
N O N G R O U P M A R K E T
W E B E X C L U S I V E
23 October 2002
Using Tax Credits And State High-Risk Pools
To Expand Health Insurance Coverage
A healthy dose of practicality
for the coverage-expansion debate.
by Bruce Abbe
ABSTRACT:
There are practical proposals now on the public policy table to reduce the number
of Americans without health coverage. While they won’t make health care
free or eliminate the forty million uninsured persons, they would help millions
of Americans acquire or improve their health insurance. Practical strategies
can also be taken to address access issues for unhealthy persons in the nongroup
market through federal assistance to states to establish and improve state high-risk
health insurance pools, as well as to make health insurance more affordable
for low-income Americans.
The continuing debate about how to lower the number of uninsured Americans could
use a healthy dose of practicality. We need to step back from the great ideological
divide between the competing beliefs that only expanding government programs
will work and only expanding private insurance will work. This divide threatens
to stop progress once again, and to thwart efforts that could provide workable
new incentives for people to get health coverage.
The nongroup market certainly can be used to expand health insurance coverage.
Much in this market needs repair, but there are logical reasons why it should
be a part of efforts to cut the number of uninsured persons.
Here are some key factors to consider. According to recent estimates, sixteen
million persons have individual insurance (approximately 7 percent of all nonelderly
Americans holding private insurance policies or certificates). That number alone
is significant. When you consider that a substantial portion of the nearly forty
million uninsured Americans would be in this market if they could afford it,
it takes on still more importance. Many self-employed small-business owners,
farmers, and ranchers will always look to this market for coverage. Employees
of small businesses that do not offer coverage are also in this market. It would
be wrong to gear efforts to expand insurance coverage only by further subsidizing
the employer-group market, because such efforts would miss a major share of
the uninsured population.
Expanding Governmental Programs
Some suggest extending coverage by expanding Medicaid and other governmental
programs. However, no surplus budget dollars exist for these expansions. States
are facing enormous problems in trying to fund their existing Medicaid programs
during this economic slump. The National Governors Association (NGA) has called
for increased federal funding to bolster state Medicaid programs, but the prospects
for adequate resources are not promising. The cost of Medicaid benefits “has
reached the breaking point. The growth rate is simply unsustainable,” Raymond
C. Scheppach, the NGA’s executive director, said recently.1
Despite recent efforts in the Senate to provide some relief, states are struggling
with soaring Medicaid costs—up 13 percent last year—and state legislatures
are trying to cope by cutting benefits, capping enrollments, and requiring beneficiaries
to pay more for their care.2
Low Medicaid reimbursement rates to providers are hurting the health care infrastructure
in many states. More doctors are declining Medicaid patients because they say
that the payments are too low.3 Low reimbursement
rates by government programs cause providers to shift more costs to private
insurance. If coverage is expanded but not adequately funded, this problem could
be exacerbated.
To be sure, additional funding is needed for Medicaid, public health clinics,
and other programs that serve the uninsured poor, and adequate funding needs
to be maintained for the State Children’s Health Insurance Program (SCHIP).
But we must first address the funding and effectiveness of these programs so
they can serve the people they are now intended to serve, before we contemplate
expanding them.
Affordability: The Overriding Issue
The most serious obstacle to expanding insurance coverage is the most basic
one: cost. Medical costs, and therefore insurance costs, are rising far more
rapidly than incomes for too many Americans. Premiums rose an average of 11
percent last year and are expected to rise another 13 percent this year, with
rates for small businesses climbing at in even higher rate.4
Rising costs are forcing more Americans to go without insurance and more businesses
to stop offering employer coverage. While the number of uninsured dropped slightly
in 1999 and 2000 during the good economic years, many analysts are expecting
a rise in the uninsured when the Census Bureau releases its 2001 totals. The
consumer group Families USA estimated that two million Americans lost their
insurance last year as a result of job layoffs.5
Expanding private coverage through targeted subsidies could increase the number
of Americans who can afford such coverage.
Tax credits are one form of subsidy. There are several current proposals for
refundable tax credits or vouchers, which, although they won’t make health
care free, can put it within reach of millions of more Americans. If structured
correctly, these proposals can also address the hugely regressive tax policies
that now discriminate against those who pay for all of their own insurance.
In the next section I discuss this option in the context of differences between
the individual and employer-group markets.
Differences Between The Individual And Employer Markets
The nongroup individual market is different from the employer market in a number
of fundamental ways. First, with individual insurance, the consumer pays the
entire premium. There is no employer contribution. There is no payroll deduction,
no employer matching of premium costs, and no reliable payment of premiums for
the whole group by an employer. Individuals must do this themselves every month
or quarter.
Second, unlike in the employer-group market, in the individual market people
can choose when they want their coverage to begin. Thus, the individual market
has always been far more susceptible to adverse selection; people can obtain
coverage only when it is likely to be immediately used and perhaps drop it later.
In response, the insurance industry has been required to price coverage and
design benefits accordingly.
Third, while most Americans with employer coverage have little awareness of
how much their health insurance actually costs, individuals who pay for their
own plans most assuredly do know the full cost of their coverage. That is why
many choose plans with higher deductibles and copayments, even though plans
with more generous benefits are available. The individual market is often criticized
because of these higher-deductible plans, yet they are a natural response to
cost-benefit economics. Furthermore, an increasing number of health care policy
analysts are saying that the regular employer-group market needs to move in
this direction to put Americans in closer touch with the real cost of health
care.
Several current legislative proposals that call for advanceable, refundable
tax credits for the purchase of health insurance directly address the issue
of affordability for people in the nongroup market. These credits would be available
to low-income persons, scaled to their income, and could be used even by persons
with no taxable income. Although there is debate about the adequacy of the proposed
credits, even the administration’s proposal of up to $1,000 per individual
and $3,000 per family is a sizable subsidy that would help many Americans—six
million now without insurance, and nine million more now underinsured, according
to Treasury Department estimates.6
Improving Access Through High-Risk Pools
The nongroup market has received criticism because it is typically a medically
underwritten market wherein individuals with preexisting health conditions can
be rejected for coverage by carriers, or exclusions or riders can be applied.
Access for the unhealthy uninsured is an issue in this market, to a varying
degree among the states. State high-risk pools can play a role in easing this
problem.
High-risk pools have been established to provide coverage to people who have
been rejected for coverage, who can only get coverage with exclusions or only
at a higher cost. They provide coverage that mirrors that of individual-market
plans in most states that offer them. They provide guaranteed access for the
small segment of the individual market made up of persons with chronic health
conditions (the “medically uninsurable”). Persons who enroll in risk
pools pay more for coverage, but there is a cap on premiums, usually 25–50
percent more than comparable private coverage. Although some of the states face
funding challenges, all but three of the thirty state risk pools are open year
round (Maryland’s new program will begin in July 2003), accepting new enrollees
and providing an access safety net.
High-risk pools have been in existence since 1976. Most are similar in design
to model legislation of the National Association of Insurance Commissioners
(NAIC). Many analysts believe that they are the best approach to providing access
for the medically uninsurable, while avoiding the disruption, exodus of carriers,
and high costs that have plagued states that have tried guaranteed issue.
At their most basic level, high-risk pools serve as a risk-spreading mechanism
whereby the few high-risk, high-cost persons in a market are guaranteed a source
from which to purchase insurance, and the added costs are spread broadly throughout
the insurance industry or the public through government funding.
All high-risk pools inherently lose money because they only insure those considered
medically uninsurable. They need to be subsidized to pay for normal losses.
Premiums generally cover 40–60 percent of the operating funds needed by
state pools.7 Twenty-six of the thirty state risk
pools use some kind of assessment on the insurance industry to pay for the subsidies.
Twelve of those states also grant a full or partial premium tax credit back
to the insurance carriers, thereby providing for partial or full state funding.
The other states use general revenue appropriations, tobacco tax revenue, or
other state funding for pool subsidies.8 However,
funding is still the most challenging issue for existing pools and for expanding
high-risk pools to other states.
Affordability is also an issue for risk-pool coverage. Premiums in some state
programs are much higher than in others. States have choices in how they design
programs. They can offer lower premiums and enriched benefits. However, these
options come at additional cost. Some have established their own modest low-income
premium subsidy programs, and more would like to do so.
Many policymakers believe that the best way to fund normal risk-pool losses
would be through proportional assessments on the entire health insurance industry.
However, federal Employee Retirement Income Security Act (ERISA) regulations
prevent states from assessing self-insured employer-group plans, which accounts
for upward of half the overall market in some states. Federal rules thus have
made it difficult for state legislators to find an equitable way to fund pool
losses within the insurance industry. Federal funding assistance could ease
the burden on states and on the insurance industry sectors now paying these
subsidies.
Differences in risk-pool design, and the nature of each state’s individual
and small-group markets, affect enrollment and therefore make it difficult to
project the cost of a new state high-risk pool. However, among existing programs
that assess insurance carriers for losses per covered life, assessments have
rarely approached one dollar per month and often been half that amount: $6–$12
per year per enrolled covered life, spread over a state’s insurance system.
In 2000 total operating losses (claims plus administrative costs, less premiums)
totaled just over $401 million for all of the operating pools.9
Enrollment and health care costs in high-risk pools nationally have been increasing
by roughly 15–20 percent in each of the past three years and will rise
again in 2002.10 If new state pools are added,
and if coverage is subsidized and enrollment expanded in existing programs,
costs will increase correspondingly. Nevertheless, when one considers the total
cost of private and government insurance programs, the cost of high-risk pools
is very small in relation to their safety-net access guarantee.
Federal strategies that would help ease access problems in this market include
providing (1) federal grant funding to help state pools pay for their losses
due to expanding enrollment, and start-up funding for new pools; and (2) federal
funding targeted to low-income enrollees, which could be used in addition to
any tax credit/voucher program that might be applied to risk-pool coverage.
Both of these proposals have been included in legislation now before Congress.
Incentives also could be included to encourage states to keep risk-pool coverage
more affordable.
Of course, a requirement that all states have a high-risk pool would be the
surest way to expand the programs nationally; however, that alone would not
solve funding issues. Federal funding assistance could go a long way in encouraging
more states to establish and improve these programs.
One area of potential improvement lies within new disease management programs,
which supporters claim can improve the long- term health of persons with chronic
diseases while reducing costs. High-risk pools are keenly interested in disease
management programs. However, again there is a cost to develop these systems.
Modest federal funding assistance could also help state high-risk pools to pilot
disease management programs and objectively analyze their results.
NOTES
1. As quoted in R.E. Pierre, “Slump Is Still Taking Toll
on State Budgets,” Washington Post, 17 May 2002.
2. R. Toner and S.G. Stolberg, “Decade after Health Care
Crisis, Soaring Costs Bring New Strains,” New York Times, 11 August
2002.
3. Ibid.
4. Ibid.
5. Ibid.
6. C. Connolly, “Bush Health Plan Called Inadequate,”
Washington Post, 11 May 2002.
7. Communicating for Agriculture and the Self-Employed, Comprehensive
Health Insurance for High- Risk Individuals—A State-by-State Analysis,
16th ed., 2002–2003 (Fergus Falls, Minn.: Communicating for Agriculture
and the Self-Employed, 2002), 24.
8. Ibid., 37–42.
9. Ibid., 24.
10. Ibid., p. 24; 14th ed., 2000, p. 12; and 15th ed., 2001–2002,
p. 22.
Bruce Abbe is vice-president
of public affairs for Communicating for Agriculture and the Self-employed, a
national nonprofit membership organization long involved in rural health care
issues. Abbe also serves on the board of directors of the National Association
of State Comprehensive Health Insurance Plans, which is made up of all of the
state high-risk health insurance pools.
©2002 Project HOPE–The
People-to-People Health Foundation, Inc.
|
