Increasing Health Insurance Coverage for High-Cost Older Adults

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Abstract

Because a small fraction of individuals account for a large share of total health expenditures, insurers gain more by excluding high-cost people from coverage than by efficiently managing the care of enrollees. The incentives for insurers to avoid high-cost and high-risk enrollees affect not only the likelihood of health insurance coverage for the high-risk population, but also the cost and accessibility of coverage overall in the small-group and nongroup private health insurance markets. This paper identifies public policies that might address these problems in private health insurance markets more effectively and delineates the advantages and disadvantages of each.

Executive Summary
Introduction

Because a small fraction of individuals account for a large share of total health expenditures, insurers gain more by excluding high-cost people from coverage than by efficiently managing the care of enrollees. The incentives for insurers to avoid high-cost and high-risk enrollees affect not only the likelihood of health insurance coverage for the high-risk population, but also the cost and accessibility of coverage overall in the smallgroup and nongroup private health insurance markets. This paper identifies public policies that might address these problems in private health insurance markets more effectively and delineates the advantages and disadvantages of each. spending.

ISSUES AFFECTING ALL POLICY OPTIONS PRESENTED

Age Group Issues
While the problem of high medical need is not exclusive to prime age adults (ages 50 to 64), there are several reasons to focus attention on this age group. Between the ages of 50 and 64, the rates of onset for many chronic diseases increase rapidly, and the consequences of forgoing care necessary to prevent and manage these health problems become ever greater. At the same time, rates of private insurance coverage in this age group have fallen in recent years as costs have risen.

Cost Containment
Regardless of the reform approach pursued, the focus of successful cost containment efforts will have to fall on the high-need population, as they account for the lion's share of total health care spending. Most of the strategies being considered as cost containment components of reform require significant up-front investment in analytic work and infrastructure development. Consequently, their greatest benefits are unlikely to be realized until a number of years after implementation.

Mandatory versus Voluntary Reforms
The question of whether all or some specified groups of individuals should be required to enroll in insurance coverage has important implications for access to affordable coverage for the high-medical-need population. A voluntary system would likely result in significant adverse selection in a new insurance product that is accessible to all without health status rating, potentially compromising its viability. A mandatory system would eliminate the possibility of adverse selection in the insurance market at large, but might still require some risk adjustment. A voluntary system combined with subsidies for highcost enrollees might be sustainable.

POLICY OPTIONS FOR THE HIGH-COST/HIGH-NEED POPULATION

Government-Financed Reinsurance
Publicly financed reinsurance would remove a portion of the financing burden of large claims from insurers and, thus, insurance payers (i.e., individuals and employers), with the broad base of taxpayers paying for that portion of reinsured medical spending. Public reinsurance alone would not have a significant impact on the number of uninsured, nor would it decrease medical underwriting or the incentive for insurers to avoid high-cost individuals. By decreasing the variance in health spending within the small-group and nongroup markets, however, public reinsurance could increase the stability of these markets.

Public Program Buy-In
Recent reform proposals suggest allowing otherwise ineligible individuals to purchase Medicare or Medicaid coverage. This approach has the advantage of broad risk pools and pre-existing plan infrastructure. Subsidies for low-income individuals would likely be necessary, and the establishment of actuarially fair premiums would depend on whether participation was mandatory or voluntary. A Medicare buy-in program, which would be feasible only at the federal level, would have the advantage of broad access to providers. States could institute a Medicaid buy-in program, which offers a more comprehensive benefit package than Medicare but may restrict choice of providers.

Assigning Risk to Private Insurance Carriers
Under this approach, high-cost individuals could apply for random assignment to a private carrier operating in their area. Carriers would be assigned high-cost individuals in proportion to their share of the group and nongroup markets. The enrollees themselves would pay income-related premiums, with the government paying the difference between the individual's portion and the full standard risk premium. Creating incentives for carriers to effectively manage high-cost assignees, even with government subsidization, would be a critical design feature.

Federal Financing of State High-Risk Pools
A stronger commitment from the federal government?including expanded benefits, income-related premiums, and elimination of pre-existing condition exclusions—could improve existing high-risk pools' ability to serve people with high-cost medical needs. However, using high-risk pools alone to effectively expand coverage to the high-need population maximizes the public dollars necessary to finance coverage for this population. When high-need enrollees are segregated in their own risk pools, their expenses cannot be spread through premiums across a broader, lower-average risk population.

Purchasing Pools with Low-Income Subsidies as Guaranteed Source of Coverage
Purchasing pools, which have varying design characteristics, provide a structured marketplace through which at least a segment of consumers (e.g., individual purchasers and small employers) are guaranteed accessible insurance coverage with a defined set of benefits, coupled with income-related subsidies. Important design issues impacting access and affordability for the high-medical-need population include: the rules of issue and rating in the pool; insurance regulations outside of the pool; the inclusion of the Medicaid population; and benefits and cost-sharing offered by pool plans.

COBRA Expansion
Encouraging the use of COBRA coverage through extended periods of eligibility or subsidizing premium costs is another means of increasing coverage of high-risk individuals. This approach has the advantage of reducing their premium costs, since they would be pooled with lower-risk current employees. However, the effect on the premiums of current and former employers could be substantial. In addition, the reach of such an approach would be limited to the recently unemployed with prior employer-based

Other Public Policies with Significant Implications for the High-Cost Population
Other reform proposals, although not directed at expanding coverage for the highcost/ high-risk population, could increase risk segmentation in insurance markets, with potentially harmful consequences for access to coverage for the high-cost population. These proposals include: increased incentives to use health savings accounts; increased incentives to use existing private, nongroup insurance markets; and allowing insurance to be bought from out-of-state carriers.

CONCLUSIONS

Any serious effort to increase or guarantee the high-cost population's access to adequate and affordable health insurance coverage will require a significant redistribution of health care financing. People ages 50 to 64 are particularly vulnerable to the market's shortcomings, as they are more likely to develop high-cost conditions. Yet their private insurance options under the current health care system are deteriorating. Access to regular medical care for this population is not only important to them personally, but also has implications for their costs upon entering the Medicare program at age 65. Comprehensive health reform, if enacted, is likely to address many of the shortcomings of the current system for the high-cost population. However, in the absence of such reforms, there continues to be a compelling public interest in increasing access to coverage for this at-risk population.

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