MR. ROBERT REISCHAUER: Why don't we get started? I'm Bob Reischauer.
I'm the president of the Urban Institute and I'd like to welcome you all here to this First Tuesday, as they are called.
The
topic today is "Private Health Insurance Markets: Treatable or Terminal?" which is a timely issue considering concerns over the uninsured and various government policy initiatives to enhance the individual's ability to purchase insurance in the individual market, using tax credits or some other form of subsidy.
We have an unusually distinguished and knowledgeable panel to discuss this issue. Marilyn Moon will be the moderator. Marilyn, as all of you know, I'm sure, is a senior fellow and economist here at the Urban Institute who has worked on these issues and Medicare for a number of years.
Linda Blumberg, who is a senior research associate at the Urban Institute, will also participate. She has worked on tax credit issues and has been involved in these markets since she worked with the Clinton administration, where I think I first met her at probably about 3:00 in the afternoon on a Saturday, if I'm not wrong.
We also have representatives from the state level: Ward Sanders, who has been the executive director of the agencies in New Jersey, which are responsible for the Individual and Small Group Health Benefits Market.
New Jersey is a state where there has been a lot of developments over the course of the 1990s in this area.
We also have Mary Nell Lehnhard, who's the senior vice president in charge for policy at Blue Cross Blue Shield, and has spent a number of years on Capitol Hill, both working for the Congressional Research Service and for the Ways and Means Committee, Subcommittee on Health.
Last, but not least, Karen Pollitz, who is the project director at the Institute for Healthcare Research and Policy at Georgetown University, and the adjunct professor of Public Policy at Georgetown. Karen also served as deputy assistant secretary for legislation at HHS during the Clinton administration, I believe, and has also served on Capitol Hill, both on the Senate and the House side.
So, we have a lot of experience here and a lot of knowledge, and I'll turn it over
to Marilyn.
MS. MARILYN MOON: Thank you, Bob. We're glad you're all here today.
In case you want to know, for the record, you are part of the KaiserNetwork.org broadcast and that's one of the reasons why, when you're asked questions later on, we're going to ask you to use the microphone, so that people out there can hear what you have to say, as well as the folks here in the room.
I guess I'm getting a little feedback at the moment, but I'm sure that'll get fixed up.
As you all know, the insurance system in the United States is extremely complicated. That keeps health policy analysts like me busy, but it also causes a lot of problems to the American public.
Workers usually get their insurance through employers, which provides them both subsidies for their insurance, for the most part, and tax benefits as well. But, sometimes—and sometimes they get this through [inaudible] are often very important in making sure that you get health insurance in the United States as well.
But not all employees get coverage, either because their employers don't offer it, or because they don't feel they can afford it, or they decline it for some other reason. And, in that case, those individuals get neither a subsidy nor a tax benefit when they try to purchase insurance.
Those folks who do try to buy insurance when their employers do not offer it are likely limited
in the individual market. And for those who are outside of the labor force, the options are even more limited. If they have left employment, the first line of defense is COBRA, the Consolidated Omnibus Budget Reconciliation Act. Coverage says that employers who are still there must provide you with some benefits, but you have to pay 102 percent of the cost of those benefits. And the time limits vary, from 18 months to a little bit longer, depending upon whether this change in status has occurred because you're unemployed, because you're divorced, or other changes in status of that sort.
Once you've got COBRA coverage, if you have it, then you can go to HIPAA. We have a lot of these wonderful acronyms—the Health Insurance Portability and Accountability Act. And HIPAA gives protection mostly for people that have had good coverage, and that's allowed them to buy insurance in the individual market, or however the states have arranged to have that happen.
The problem is that, in HIPAA, not only do you not just—are assured 102 percent of the cost of insurance, but you're out there in the private insurance market in many cases, in the individual insurance market, and you can pay a lot more than group coverage.
And, if you are solely in the individual market with no other protection, it may be even more expensive still, depending upon how the regulations work at the state level.
The individual market, then, is one of a sort of market of last resort. And as an economist, I know that the markets work well in some circumstances, but there are many circumstances in which there are problems, and that certainly is the case with the individual market, as we're going to hear today.
Coverage is often expensive and comes with exclusions. And one of the things that I'm particularly interested in right now are the older workers, people 55 to 64, for whom such exclusions and higher rates can be extremely important.
The insurance world goes on at the state level with some exceptions, and they all come with trade-offs. Some of the guarantees they offer can result in higher costs or higher premiums. And in other places, where states don't have much in the way of guarantees, people don't have much access to health insurance in many cases. States also sometimes do high-risk pools for people who are uninsurable in other circumstances.
So as you can imagine, I'm just touching the tip of the iceberg in terms of the complexities that are here. And one of the questions we're going to talk about today is, are we just pushing on parts of the balloon with new parts of it coming out elsewhere when we try to deal with this troubled insurance market? And thus, whether and how we can make it work better is an open question.
This is a question that often gets ignored when people are talking about dealing with the uninsured. The enthusiasm over the market and getting people subsidies to go out and buy in the market causes many of them to not talk so much about what the market is actually like there. And that's what we're going to spend a considerable amount of time on this afternoon.
And finally, a lot of the proposals that are being discussed, such as tax credits that someone just handed me something from the paper this morning that I missed, saying the House GOP is pushing a tax credit, and the Bush administration unveiled its version of tax credits. Those are probably the most prominent kind of proposals that people are discussing now, and they really do depend upon giving people money and then letting you go out, and hoping that the private market works for you.
So, that's what we're going to talk about today, and I'm going to turn it over, first, to Karen Pollitz, who's done a very important study on the issues facing people in the individual market, and she also runs a Web site that tells people on a state-by-state basis all that they can—all the things that can work for them, or all the things that don't work for them, and in some cases have to spend their time saying, "Sorry, there's nothing we can do for you." But Karen has some interesting examples that I'm sure she's going to talk about today. Karen?
MS. KAREN POLLITZ: Marilyn. Good afternoon everybody.
I'm glad we're here today to talk about the individual insurance market. It's an important one to talk about, not just because of the interest, the current interests on Capitol Hill about maybe using this as the venue for expanding coverage for the uninsured, but because this is really a market that any one of us might find ourselves in at some point in our lives.
While it is very small, for all the reasons that Marilyn mentioned, it's a little residual market, and anytime the Census Bureau takes a snapshot, there's only about 6 percent of us who are in this market, about 16 million people.
But it's a place that people sort of come and go. You know, like in Oz, people come and go so quickly here. Well, that's the individual market. People sort of come and then move through quickly. And the times in your life when you might find yourself—I was in the individual market for about a month when I first finished graduate school and no longer qualified to be on my mother's policy. And before I found my first job, I had to buy an individual insurance policy.
If you retire early, before you are eligible for Medicare, if you take a job where health benefits are not offered, if you become self-employed—so, if you get divorced from your coverage, all the reasons why, you know, people can and do find themselves in this market. So, this could happen to you someday. It's a good thing to kind of study up and see what it's like.
The study that Marilyn referenced is one that we did for the Kaiser Family Foundation last summer, titled How Accessible Is the Individual Health Insurance Market for Consumers Who Are in Less than Perfect Health?
And I guess the first point I'd like to make about the individual health insurance market is that not everybody who goes to this market may actually be able to get coverage here.
The Commonwealth Fund did a study that was just released that showed that in the past three-year period, more than one in four adults reported having had to go to this market to buy coverage, and very few of them were actually successful in being able to obtain decent coverage that they could afford.
And so one of the reasons why is something called "medical underwriting." You can't just go out and buy an individual insurance policy in most states. You have to qualify for it. And that means the insurance company needs to sort of assess how risky you are, and then decide on that basis whether or not they're going to sell you coverage and how much they're going to charge you for it.
So, there's really no such thing as a price for individual insurance coverage, and the price sort of depends on who you are, how old you are, where you live, and how sick you are.
We made up some hypothetical applicants for health insurance and we sent them out to real insurance companies in a survey and said, "Would you please underwrite these imaginary friends of ours and let us know if you would, in real life, sell them coverage in the individual market, sell them your most popular policy and if so, under what terms and what would you charge them for it?" And our hypothetical applicants ranged in age from twenty-something to sixty-something, and they had health problems ranging from hay fever to HIV.
And, I'll just tell you about our youngest, healthiest applicant. Her name was Alice and she's a waitress and doesn't get health benefits at work. That's why she has to buy insurance on her own. She's 24 years old and she's in terrific health, except she does have hay fever. And, during pollen season, she needs to take a prescription drug called Allegra, so that she doesn't sneeze all over the customers' food.
And Alice applied for 60 health insurance policies around the nation, in markets from East Coast to West, and everywhere in between. And in 60 applications, only three times did the insurer agree that they would make Alice what we call a "clean offer." That is, only three times out of 60 did they agree that they would sell her the policy that she wanted, their most popular policy in that market, at the advertised price that is available for the healthiest customers.
Five times Alice got turned down flat. The insurers just said, "We reject you. We will not sell you coverage at all." And all of the rest of the times Alice got what we call substandard offers. That is, the insurer said, "Yes, I'll sell you coverage, but I won't necessarily sell you the coverage that you asked for," or "I won't sell it to you at this most favored price," or both: "I'll sell you less coverage for more money than would be available to the healthiest applicants."
Those substandard offers were sort of all over the map. Sometimes instead of the $500 deductible that Alice applied for, she got a $2,500 deductible. Sometimes she got offered a policy but she couldn't have the drug card. She could just have the rest of the policy.
Oftentimes, there was an exclusion rider, which is an amendment to her insurance contract that was applied. That said "We won't cover your allergies—ever." So that was just—any claim that you ever file for them will never be paid. And three times Alice picked up an exclusion rider for her entire respiratory system.
So, this can be a tough market and that was, again, our youngest, healthiest applicant. At the other end of the scale, our HIV/AIDS positive applicant was rejected all 60 times out of 60. So, this can be a tough market to access.
The premiums that—again, the price of coverage in this market very much depend on how old you are, where you live, how healthy you are, and other circumstances. The premiums were all over the map. The 60 policies that our folks looked for had carried 120 different premiums with them, so—and they really ranged quite a bit.
The cheapest coverage that got offered to Alice cost, unbelievably, $400 a year. The most expensive policy that got offered to our oldest applicant, who had a lot of health problems, was $30,000 a year.
So, the prices do range enormously in this market and even within city markets. The price variation on the offers that we observed routinely varied by a factor of 2:1 or 3:1, from lowest to highest. So, it's kind of a little squirrelly market. And when you're applying for coverage, the other important thing to know is, you don't really know until you actually make the application what the answer is going to be.
The agents who took this survey around for us were really incredibly helpful and nice in doing this. And we asked them at the end of all of this, when the data were all collected, we said, "Did anything surprise you?" Because I thought Alice would surprise them, I didn't think it would be that bad for Alice. And they said, "Oh yeah, we were surprised. We didn't think she'd get three clean offers." So, they didn't even think she would do that well.
So, medical underwriting is a feature that you find in most state individual markets, and it can really complicate your access to coverage. Even when you're healthy, age rating is another thing that you commonly find in the individual market.
Even when you're in perfect health, you will pay anywhere from four to six times—when you're sixty-something, you will pay four to six times what a twenty-something would pay for an identical policy. And when you buy a policy and hold it, the premium will go up every year automatically, just because you have a birthday.
So, age rating is something else, and for those of us in the baby-boom generation, you might just be interested to know, age rating starts to hurt sometime after your 40th birthday.
So, benefits in this market tend to be much less comprehensive than what you find in group coverage, where we're all used to it, and this was again something that we observed in the policies that we looked at—maternity coverage is very hard to come by in the individual market; mental health coverage, almost nonexistent; and lots of limitations on prescription drugs, just to name a few.
Also, cost sharing tends to be very high in this market. While many policies are offered with a deductible as low as $500 or $250 a year, most people find they can't afford that, and they elect policies with higher deductibles on the order of $1,000 or $1,500 a year, because that makes the premium cheaper.
Getting insurance is sort of its own adventure in the individual market, as we documented in this study. But something that we're finding from our Web site is that insurance, even after you get it, can be hard to keep. Renewing insurance is sort of your next trick after you have purchased a policy in this market. And again, your ability to renew coverage and to continue to be able to afford coverage depend on how old you are and how healthy you are.
So, if you're young and healthy when you buy a policy, and you get a friendly rate, there's no guarantee that that rate will continue on into the future.
And, in fact, we have heard from people from our Web site. We get e-mails there. It's called HealthInsuranceInfo.net. We just got an e-mail recently from a couple who lived in Michigan. They had been paying a monthly premium of $526 for the two of them for a family policy and, at renewal, they were shocked to find that the premium had jumped to $1,026.
And they had held this policy for three years and they had never made a claim until this most recent year. The wife had fallen and hurt her knee and had to have some outpatient surgery on it. The husband had gone to the doctor because he had a reaction when he ate a bad clam. Those were their two claims and their premium almost doubled in one year. And they are basically looking at having to drop their coverage, because they don't have $12,000 a year to stay covered in this market.
It doesn't have to be the case of your insurance premiums going up. Conseco, which is a national company that has participated in this market—it was just in the news that they've decided that they're not going to sell individual insurance anymore. They've pulled out of 16 states and that's left 80,000 people who were their policyholders scrambling to replace that coverage. And, of course, if they had made claims since they bought it, they'll run into the same kind of problems that Alice did.
In terms of the overall question of, is this a market that's treatable or terminal, I will mostly let our panelists talk about that. But I would just observe that states have done different things, and you'll hear from Ward about one of them. But states have tried to do different things to make room for this market, to make it a little more stable, a little less unpredictable.
Those things range from comprehensive reforms that say to insurers, "You can never turn anybody down, you can never charge them any more, you can never exclude their respiratory system, you always have to treat everybody the same and make this a perfectly even market," to more incremental reforms.
There are states that have taken HIPAA—like Marilyn talked about, the federal law—and tried to make it easier for people to not necessarily get coverage at the beginning, but to hang on to it once they've got it and to make it more affordable, so if your carrier leaves the market you can at least safely switch to a new carrier and not have to resubmit to medical underwriting.
There are state high-risk pools that have been established in about half the states now to make coverage open to people who get rejected. All of these state reforms that are out there are different. If you've seen one state, you have seen one state. This is something that I've learned.
But they've all sort of had their good points and their bad points. I think it's fair to say that subsidies in this market would probably make any of these reforms work better, but subsidies alone, in the absence of reform, are not likely to address the kinds of problems that we've observed so far. So, that was that.
MS. MOON: Thank you, Karen. It makes me think about car insurance. That—it used to be that your car insurance rates would go up if you had an accident that was your fault, but I'm not sure that eating clams is something that I would want to be held liable for.
Next, we're going to turn to Ward Sanders, and he's going to tell us about the New Jersey experience, where there has been a lot more in the way of reforms and attempts to protect people in the insurance market as opposed to some of the things that Karen was talking about. Ward?
MR. WARD SANDERS: Thanks very much.
As has been suggested, New Jersey truly has—sort of represents the edge of a lot of reform. And you could probably start a Dickens novel by looking at the commentators' observations about New Jersey. It's the best of individual markets, it's the worst of individual markets. It probably lies somewhere in between there in reality.
It has been very successful in attracting competition in the marketplace. There's been between 17 and 30 carriers in the individual markets since the reforms that started in 1992 where, previously, there had been one, which was Horizon Blue Cross Blue Shield of New Jersey.
On the other hand, coverage is expensive. These reforms do come at a cost. While older folks and folks with health conditions are probably well served by this marketplace, younger, healthier folks can receive much less expensive rates in other states.
Just to talk about—in setting up the—in talking about New Jersey's reform here, I'll take a step back and talk about the era immediately preceding the reform, just to give you a sense of the problem, and it's sort of the problems that Karen had mentioned.
There was a underwritten market for the most part. There was a meltdown of the state Blues, the Horizon Blue Cross Blue Shield, partly as a result of being the carrier of last resort in that state, and also because of its responsibility to file rates and get them approved in what was arguably a very politicized process.
The Blue Cross entity in New Jersey was having financial—significant financial difficulties. The rates were skyrocketing, enrollment was plummeting, and something needed to be done very quickly. At that time, a series of reforms had passed completely reforming the individual market.
Let me just talk about the key features of what those—the elements of reform were. First, there was a limit on preexisting conditions and what carriers could limit coverage for.
Essentially, there was a six-month look back to say, "Have you gone to the doctor or should you have gone to the doctor in the past six months?" If you had, then you would be limited for coverage for a 12-month period for that condition. After that time, though, you were completely covered for that condition.
Secondly, there was guaranteed renewability of all plans. So, if you had a plan and you had a health condition, you wouldn't have your coverage terminated as a result of the change in your health status. These two reforms are largely, sort of, in HIPAA now and, as a result, most states should have these baseline reforms.
The things that made New Jersey unique were the following: First, there was a minimum 75 percent loss ratio requirement. It's just an analysis of the premium collected and the claims that are paid. For every dollar that a carrier collects in premium, it has to spend 75 cents in benefits. If it doesn't do that, say it spends 50 cents on the dollar, it must provide a refund to consumers.
So, it took that politicized process of rate filing preapproval out of the marketplace and provided for a retrospective analysis of the reasonableness of the rates. So carriers can file any rates that they want, but there is this retrospective analysis.
The fourth element of reform is standardized contracts, especially for small employers and individuals. It's difficult to compare policies. As a result, the states required that all plans be standardized. The state actually developed them and promulgated them as regulations, so the consumer can go to Horizon Blue Cross or at US Healthcare, or any other carriers in the marketplace, and they'd know that they'd be comparing apples to apples and oranges to oranges.
Another feature of reform was an assessment mechanism that was sometimes called for short a "pay or play program." It's a lot more of a Rube Goldbergesque mechanism than just pay or play suggests. But essentially it's an incentive mechanism to encourage carriers in the marketplace.
Remember, New Jersey really had one carrier, which is Horizon Blue Cross. We had up to 30 at one point. At this point, we have 17 carriers. But, it has been clearly successful in attracting carriers into he marketplace.
Into the more controversial aspects of this program have been peer community rating so, unlike the states that Karen studied that allowed for underwriting, no insurance company can consider your age, your gender, the geographic location, your claims history prior, health status, anything in determining your rates. The Alice the Sneezer would get charged the same as the clam eater, as the person that was HIV positive.
The last feature of reform was—and again, this is also very controversial—the guaranteed issuance of all plans. So the folks that have problems accessing coverage, again New Jersey would require all carriers to offer all the standardized contracts to all people who met the eligibility requirements. Eligibility is not linked at all to health status. It's through your residence, you're not eligible for Medicare in folks 65 and older, and you're not eligible for group coverage. So, those are the key areas of New Jersey's reforms.
As part of that process, there were other elements of reform. One was the reform of the small group market, which had sort of parallel reform measures. Guaranteed issuance of all plans in your ability. Rating restrictions on what carriers could consider in determining rates and so forth. They couldn't dump poor-risk lives from the small group and put them in the individual market.
And lastly, there was a subsidy program, which probably is of interest for today's discussion. It provided a subsidy so that people could purchase coverage in the individual market. So it did use the individual market as sort of a platform for a subsidy program.
Let me talk briefly about the experiences that we've had in New Jersey. First, with respect to enrollment. At the time when—the beginning of reform in New Jersey, in 1992, Blue Cross at that time had about 170,000 covered lives in the market. That's both policyholders and the dependents covered under those contracts. That was sort of our start point.
The reforms then, as of January of '96, rose to 220,000 covered lives. We are now down to about 95,000 covered lives. In looking at those numbers, there's a couple of things that I would have to take into consideration.
Clearly one, the cost of coverage has gone up and has had a significant impact on enrollment. There's no question about that.
Secondly, states, and New Jersey included, had a hard time policing the border between the individual and the small employer market. See, a lot of husbands and wives, who when their rates become significantly different in those marketplaces, will sort of cross over the border to the small employer market.
So, I don't think the New Jersey level of uninsurance has actually decreased in the past couple of years. I think that part of that is the migration of folks from the individual market to the small group market.
And another sort of cause of that probably is that this subsidy program stopped accepting new applicants in 1996. At the peak of enrollment, there were about 23,000 covered lives through that subsidized program and there are no folks in the individual market through that subsidy mechanism today.
The other thing that I wanted to talk about was competition, which I mentioned briefly earlier. Again, we had one carrier that was the carrier of last resort for this residual market. There was a smattering of other carriers doing business, but they were selling underwritten plans and they didn't really have much in the way of market penetration in new Jersey. We now have the 17 carriers. Most of the market is dominated by the Horizon Blue Cross and the HMO carriers, of which there's about 10 or 11, and there's some small indemnity carriers that have a small amount of business.
With respect to the cost of coverage, Karen was throwing out some prices. I wanted to give you a sense today of what it costs in New Jersey. Right now, the least expensive plan is an HMO $30 copay. This is a comprehensive major medical plan, unlike a lot of the plans that you'll find in the other states in the individual market. This does provide for maternity benefits, it has mental health coverage including parity for biologically based mental illnesses, and it also includes prescription drugs.
The cost is about $320—least expensive plan is $324 a month for a single person, $897 per month for a family. To translate that to a yearly cost, it's $3,888 for a single and around $10,700 for family coverage. So, this is clearly not inexpensive. This is not cheap coverage, but again, this is major medical coverage and anybody can get this regardless of your health status in the state.
So, clearly, one of the results is that, while the law provides for guaranteed access to coverage, affordability, as most states are understanding as well, it really is a significant impediment to increasing enrollment.
Just briefly I wanted to touch upon the two subsidy programs in New Jersey. The Access Program, as I mentioned, it covered 23,000 lives. That was sort of phased out and New Jersey has recently implemented its CHIP program for kids and has been very successful in doing that, and then used the tobacco settlement fund to fund an adult portion of that, and it's now under the big name, New Jersey Family Care. There's about 130,000 covered lives through that program as well.
And I'll leave the rest, I think, for the discussion portion.
MS. MOON: Thank you.
Our next panelist is Mary Nell Lehnhard, who's going to give us an insurance perspective as the representative from Blue Cross Blue Shield National Association.
And Mary Nell, it's all yours, for the time being anyway.
MS. MARY NELL LEHNHARD: I would note to start with, all Blue Cross Blue Shield plans are in the individual market. We cover every county, every part of the country and often, or not infrequently, we may be the only carrier in the market, depending on the state environment.
And I'd make a few points today. First, management of the individual market and the risks in that market is our largest challenge—of Blue Plans' largest challenge. And the challenge is doing the best possible job for high-risk individuals who want to buy coverage while keeping the cost of the coverage affordable and at the point where the healthy risks don't leave.
And I would make a point before we move on that, generally, almost in all cases, the insurance commissioners do not let us rate up an individual. Once they're in, you can only rate up classes of individuals, because of the class in that whole pool going up. You can't rate up somebody because they've been in a car wreck or eaten a clam. You have to increase the entire enrollment in that pool.
MS. POLLITZ: [Inaudible.]
MS. LEHNHARD: Well but that's—that's a state law, generally, for everybody. But what it means, all of this, it means that we have to ask our healthy risks to subsidize the bad risks, the high risks. Both newly enrolled risks that are coming on, where we know they're sick, and people who maybe came on healthy and then developed a disease or an illness later.
So, it is critical, absolutely critical for us to keep these healthy risks paying their premiums. They are like subsidizing the high-risk people. And there's an actuarial truism for any population, people in this room, that 5 percent of any population will generate 50 percent of the claims cost. So, you can see how a few people walking in the door with high experience can raise the cost for everyone. This means, for example, that a single transplant is equal to 100 people's annual premiums in the insurance business.
Our plans deal with two very prominent things in their brain, in the insurance market, individual market, every day. First of all, this market is extraordinarily price sensitive and the healthiest people are the most price sensitive. It's voluntary. They don't have to pay coverage and nobody's helping them pay their coverage. They pay it entirely out of their pockets, so they are constantly reassessing, "Is this worth it to me to pay this premium?"
The second point they think about every day in the business strategy is, the market is very prone to adverse selection. Because people are paying out of pocket, they buy based on the expected health care needs. A young person who's 25, never been sick, has to choose between some lifestyle issues and insurance may well say, "I think I'm gonna be okay this year, I'm gonna forgo health insurance."
And I think there's a very good statistic that shows this. People who are age 55 to 65 are twice as likely to have individual, private, non-group insurance than somebody who's 35 to 45, because they expect—they're more worried about their health risk, they think they're a greater risk.
The second point I would make is that regulation of the individual market is fraught with unintended consequences. There is no faster way to make coverage unaffordable for everyone than by asking very healthy people to subsidize high-risk people too much. They will simply drop their coverage.
This is what community rating does. Everyone pays the same price and I can tell you the healthy risk will sometimes go bare before they pay what community rating costs. It can also end up with insurers not willing to offer anyone coverage, leaving the market, or not offering coverage at affordable prices—or affordable cost sharing.
You'll find in states with cost sharing—with community rating, you will have very high deductibles. I believe you're looking at a $10,000 deductible to make products more attractive. A lot of your enrollment is way above the standard types of products, I believe, of $500 deductible.
I think the lowest individual rate for what we're used to, $500 deductible with 80/20 copay for New Jersey, is $1,122 a month. That's almost $14,000 a year, and that's almost higher than anybody pays in your spending in Kaiser.
My point is, regulation has to be approached very carefully, or you have unintended consequences. And local structural regulation is very critical, because states will vary tremendously in terms of what they can tolerate, what's needed, what's going to keep the healthy people in the pool subsidizing the sicker people.
The third point I would make is that the individual market is working for the vast majority of people. We are 16 million people with individual coverage. The products tend to be responsive to what people want, all types of products. I think it's—in the Kaiser study, 74 percent of the applicants were accepted and everyone, except the HIV individual, had multiple offers for less than $300 a month. That may sound like a lot, but compare it to the standard rate in New Jersey for almost $1,200 a month.
We're not saying the individual market doesn't need to be addressed, and we think there are ways to make the individual market work better, but we can't ask our large employers to subsidize that market, and we can't even ask our healthy individuals to subsidize very much of that individual market.
We do think a way to address the problems in the market is to acknowledge the fact that you need public subsidy for high-risk individuals if you want to keep everybody enrolled—a mix of risks enrolled if you want to have—to make coverage affordable.
Solutions like high-risk pools definitely help. Also, premium subsidies, so that we have a greater take-up rate. The many individuals who are healthy, low-income, but can't afford to buy coverage. We think we need to be creative and we're in the process of looking at what types of subsidies could you construct, so that we can make coverage more comprehensive, more responsive to the low-risk individuals and we don't scare off our high-risk individuals.
In terms of overall federal reform, we think federal reform should start with actually the small group market. It's been reformed in nearly every state. We have to pool all of our small group business, every carrier does, in every state. They are huge pools. The Blue Cross and Blue Shield small group market in any state will be all pooled together. They get the same rates that we negotiate for our big companies.
But, what is very startling in the small group market is that 64 percent of low-income workers in very small firms, ten [employees] and under, are uninsured. We think that that statistic cries out for starting with low-wage workers in the small group market.
We have—we would support tax subsidies for that. Get the cash out. We have a mechanism to get the cash out immediately to small employers, and we know from dealing in this market that a lot of small employers won't even put the coverage on the table, because they know the employees can't come up with the 50 percent of the premium that they would be expected to pay. We did a survey last year and a lot of employers said they would offer it if they thought that their employees would have some assistance in paying the premium.
What we are concerned about, as I mentioned, are reforms that don't reflect the buying habits in the market. And also we're very concerned about some of the federal initiatives to create association health plans, purchasing groups that are exempt from state regulations, and we're concerned they would siphon off the best risks very quickly and leave the state insurance market with total—immediately—with totally unacceptably high-risk, high-cost people.
MS. MOON: Thank you.
We've heard now both sides of community rating, and I'm sure we'll come back and talk about that later, but Linda Blumberg is now going to talk a little bit about some of the financing side issues, as well as some of the small group and individual insurance questions that have arisen. Linda?
MS. LINDA BLUMBERG: Thank you, Marilyn. I'm going to now focus a lot of my time on the interactional tax credits with the problems that people have raised here today about the private market. And clearly, those problems do have important implications for the ability of a tax credit proposal to effectively expand health insurance coverage for low-income people.
I want to start off quickly by reminding everybody what a tax credit for health insurance actually is. And what it is, is a government subsidy for those who purchase health insurance, and this subsidy takes the form of a reduced end-of-year tax liability for those individuals that are eligible for it. If the credit is refundable, and most of those proposals that have come out thus far would have their credit be refundable, then the amount of the credit or the subsidy could exceed the amount of the individual's actual tax liability.
But it's important to note that one—as Karen had noted, that when you've seen one state, you've seen one state. A similar philosophy is true with regard to tax credits. The actual character of a credit, and what it may potentially be able to accomplish, is really in the details of the design. And the design choices that policymakers have to make with regard to tax credits includes who's going to be eligible, and what the rules are around that; how big the credit is going to be; and will it vary by different types of eligibles? Is there going to be an effort made to get the credit to individuals at the beginning of the year, so that they can use it and have the liquidity they need to purchase health insurance early on, and, if they do make their payments of this type, will those payments be reconciled with end-of-year taxable income, after the money has already been paid out?
In addition, administrative mechanisms are very important. How are credits going to be delivered to individuals who either don't file tax returns or who have very irregular or no attachment to the labor market?
And the point that I'm going to focus really all the rest of my comments on this afternoon, and which are relevant to the conversation we've been having thus far is, what type of health insurance coverage qualifies an individual for receiving a tax credit? Is it going to be only useable in the private, non-group market? Can it be used to buy employer insurance or is a public option going to be available?
So, talking about qualifying coverage in more detail, what can I use my tax credit to buy? Well, most of the tax credit proposals that are out there now restrict the use of a tax credit to the private, non-group insurance market. And as everyone has already noted, there's a tremendous amount of shortcomings in that market.
Only nine states currently require that insurers issue a guaranteed product for all types of policies that they offer to individuals regardless of their health status. And only three of those states also prohibit insurers from rating individuals off of the consequence of their health status.
Non-group policies have very high administrative loads. Now, in those states which are not regulated as New Jersey is, they can be on the order of 40 percent of the benefits paid out. And these high administrative costs both make the policies more difficult for individuals to afford and give less of a value per amount of benefits that—per amount of insurance that somebody is purchasing.
And, in addition, as is true of all health care costs, there are substantial variations in premiums by geographic location. And tax credits cannot—the amount of a tax credit cannot vary by geographic location. So, a tax credit subsidy—form of subsidy would have a very different value for individuals in California than it would in New York, for example.
Some proposals, the Bush plan among them, would allow individuals to use their tax credits to buy health insurance in state high-risk pools. Now, these high-risk pools, theoretically, would be a backup insurer for those individuals who couldn't find coverage in the non-group market, for the difficulties that have already been answered here today, because of their health status.
Unfortunately, however, the state high-risk pools are not the fail-safe that we had hoped that they would be. First of all, not every state has one. There are currently only 29. Second of all, these pools are not very well funded. States subsidize them currently out of their own funds, often by using premium taxes on small group insurers who are fully insuring their workers.
And so they—what they are doing is they are subsidizing individuals for some multiple of what they can find in—is the standard premium in the non-group market. So, you may end up being able to buy in one state a high-risk pool plan for 125 percent of what a healthy person can buy in the state, or it could be over 200 percent, as a multiple. It varies by state and by pool.
So, those premiums still can be very steep for individuals and very few of those pools actually do any kind of effort at income relating the premiums that are charged.
And since the subsidies are paid out of state revenues and, as I said, a lot of the burden often in these states falls on small employers, or those employers that are offering fully insured products to their workers. So states do a number of things that were to limit the size of those high-risk pools.
As of the recent count, the total number of covered lives in these high-risk pools across all 29 states, was approximately 100,000 lives, and about half of that enrollment is attributable to two states' programs: Minnesota and California. So they are very small relative to the size of the problem of the uninsured and what we might want to impose upon them.
So, if I receive a tax credit under one of the current proposals, what can I buy in the existing non-group market? Well, I went on the eHealthInsurance.com site, which is a kind of a forum on the Web for being able to purchase non-group health insurance policies. The quotes available there are for perfectly healthy people. And so what I did was I plugged in information on what I refer to as a typical couple, which is two adults. One age 37, one age 40, living in suburban Chicago. What the Bush credit would allow is $1,000 per adult. I have excluded the children, assuming for these purposes that they would go into a CHIP plan of some sort because they're a low-income family.
The Bush plan would allow $1,000 per adult, up to 90 percent of the cost of the premium, because they want everyone to contribute something to the cost of their health insurance coverage.
So, I looked to see what I could buy for this couple for about $2,300. And, what I was able to find for them was a policy with a $1,000 deductible per person. So, depending upon the distribution of their health insurance expenditures they could be facing a $2,000 deductible per year. After the deductibles, co-insurance was 20 percent.
The policy does not cover any office visits. It doesn't cover prescription drugs, no emergency room care, no dental care, and no mental health care. It's essentially a high deductible, inpatient policy for which a low-income couple would have to come up with $300 up front in order to buy it, and that whole subsidy is what's available to a couple with adjusted gross income at or below $25,000 per year. Above that income level, the amount of the credit declines.
So, it's hard to see how this policy would be attractive to a couple that was low income like this, and would have difficulty coming up with the money that they would need for the deductibles, let alone for the coverage. If they—if one of them or both of them—had a health insurance, a health status problem, they would have to face much higher premiums potentially, and if they happen to live in a higher cost area than Chicago, they also would face a higher premium.
So, the bottom line is that, in order for a subsidy for health insurance coverage to be effective, individuals eligible for the credit have to have a guaranteed place where they can buy a stable, actuarially fair, quality insurance product. And currently, this place is not in the markets that we have available to us.
Eighty percent of uninsured workers do not have an offer of coverage from their employers, so we can't rely on the employer group market. Eligibility for current public programs is quite limited by eligibility category, and so even if you wanted to buy into a public program, you couldn't necessarily do that for a very large segment of the population.
The non-group market, as we've heard, has a lot of shortcomings and we shouldn't rely on that for a place to take our credit and buy coverage.
And so, if we wanted to think about what options we have for giving people a stable place to buy coverage, what would we think about? Well, the things that are foremost in my mind are the types of policies that—where, for example, the states are contracting with private insurers. This is the case under the CHIP programs and the Medicaid programs in most states at this point.
Another option is private plans contracting with the federal government as is the case under the Federal Employees Health Plan. Our states also contract with private insurers in order to provide coverage for their own employees.
But, of course, whenever we do this and however we do it and wherever we find a policy, the risk pool matters a lot. How premiums are set is a function of who enrolls in each plan—is going to determine the types of individuals that are going to be attracted to that plan and the extent to which low-income individuals with a fixed subsidy are going to be able to find that type of coverage affordable.
These issues have to be accounted for. We have to decide, as a society, to what extent we want to spread these risks. And, to spread them over small populations, as in the non-group market, or in the non-group market plus the small group market, I think are insufficient for handling the types of problems that have been raised here today.
MS. MOON: Thank you. Not only is there a lot of work for health analysts to do, but it's very cheery work, too. But I think that these—as the panelists have indicated—a lot of really interesting issues, including the tough trade-off between how far you go in reforms, how you deal with health risks, whether or not some well-intended reforms bring more expensive policies that then cause people to flee the market, and how much subsidies are necessary to get this kind of product to work, and if it is even worth doing so, which I think is still somewhat of an open question.
Why don't we open it up to various questions that people have. I have a few of my own, but if you all want to start out. Anyone? And remember, wait till we get the microphone to you. Just wave your hand and we'll bring you a microphone. Right here.
UNIDENTIFIED WOMAN: Hi. I just wanted to comment on your comment, Dr. Moon, about the auto insurance and car accidents. I used to be an insurance underwriter for a home and auto insurance [company], and I know another difference that strikes me is the fact that when a house would burn down that was it—it goes down. It's going to burn down over a period of years, like people are sick over a period of years. And this gets back to Ms. Lehnhard's point about good risks and bad risks.
I guess the point I would have to say is that you aren't really a bad risk. You're somebody who's had your—your house is still burning down and it's doing that for a period of [inaudible].
But anyway, to get to my question, I was wondering if you think the private health insurance market [inaudible] work [inaudible] reforms like the ones in New Jersey? Community ratings, standardized contracts, underwriting [inaudible].
If we mandated that people bought coverage and we gave people subsidies to buy that coverage—it seems like you need all three of those things together in order to get around these adverse selection problems. And I'm wondering what you think about that.
MS. MOON: A number of our panelists will have something to say. Mary Nell?
MS. LEHNHARD: There is no question that, if you mandated coverage, you'd go a long way to solving the problem in the individual market, go a long ways to solving the problem in the employer market. What you do is get your optimum mix of risks and you don't have to worry about scaring off the—you can ask the high-risk to subsidize—the healthier people to subsidize the sicker people as much as you want to and nobody can leave.
So, the answer is yes, it would help tremendously. And in fact, back in the days of the employer mandate, it made a huge, huge difference whether you had—all the reforms and such—whether you were looking at a mandate or not. The question is, is it politically feasible, and there's no way would anybody in Congress ever touch that—particularly in the individual market because of the income issues.
But, with respect to your question on New Jersey reforms, I think you have to look at are they working? I mean, the coverage has gone from 170,000 to 90 and I don't know how much of that is within the small group market, but it couldn't be a huge amount of that. And the coverage for what we would consider the standard policy—$500 deductible, 80/20 copay—is $14,000 a year for an individual.
So, that HMO rate was way at the outer range of low cost. Most of the policies are much more expensive, again, than any other policies the people in the Kaiser study got. So, I wouldn't say that that's working optimally in New Jersey and they're, you know, trying to figure out how to deal with it. And it gets back to the high-risk—the healthy people are asked to heavily subsidize the sick people and they said no and they left the market.
MR. SANDERS: I would definitely agree with Mary Nell, that if you made this a mandatory market, that you would improve the risk pool, but that it's probably politically not feasible.
In looking at New Jersey, one of the things that we found was that there had to be a range of products that are offered. The indemnity market, which the prices that she was citing for, you know, the carriers—the non-HMO carriers—the lower deductible options and so forth. There is an incredible amount of adverse selection and, as a result, indemnity-based plans—and there's really only Horizon that's offering the indemnity and a couple of others—but the prices
are—
MS. LEHNHARD: Excuse me, it's PPO. It's PPO. It's just got indemnities in it.
MR. SANDERS: Yeah, there's some managed care elements to the plan, but there's been a lot of selection against those plans. As a result, enrollment has really shifted to the HMO plan. You could look at a $250 deductible in New Jersey with a 20 percent co-insurance. The rates are going to be astronomical, there's no question.
It's just that those got selected against pretty severely and, as a result, the enrollment has shifted. So, really managing the HMO plans are the only—and some of the higher deductible plans that have been selected against as much—is really where the enrollment is and that it's feasible. The lower deductible options and the lower co-insurance amounts just have not worked at all.
MS. MOON: And Linda, have you thought about how much subsidies would help this kind of an issue as well?
MS. BLUMBERG: Well, I think that—a couple of points. I think that the subsidies are—in particular markets like in New Jersey and in New York could be helpful for those individuals who are trying to find affordable—buy coverage in an affordable way in those markets, where there is something that's available to everyone.
In terms of the market, and I think, you know, an issue related to even the community-rated market that might be helpful—and while politically, we find it infeasible to propose that everybody be mandated to be covered, and so that we force everybody into those pools—one thing that I think would help us to think about more, is while we—if we don't feel like we could mandate everybody covering—getting covered—can we mandate that everybody contribute to paying for the high cost?
And as I said, I don't think the high-risk pools as they're currently structured are sufficient for doing that, because of the way the funding streams work and what the premiums are. But, if we came up with a mechanism for paying for the coverage for these excess costs basically, for the high-risk population, or the less healthy population, then I think we could—do come a long way to getting where we wanted to be by forcing universal pooling through mandated coverage.
So what we need to—we need to get those dollars from the full population, in my opinion, and not just from those that are moving in and out of particular markets.
MS. MOON: Hang on one second.
MS. PEGGY RHOADES: Peggy Rhoades, National Coalition on Health Care. Would the panel suggest a level of tax credit that they think would provide a significant increase in coverage for this group? There are lots of design issues when we talk about covering this group, but it seems to me that the one that is the most glaring is the size of the tax credit. How large would it have to be to make a significant number of people move into the ranks of the insured?
MS. MOON: One aspect of that is that if more people then took it up, would that affect the cost of the insurance as well, in terms of it's the healthier folks that are staying out?
Karen, you have thoughts?
MS. POLLITZ: [inaudible] source of modelings, but I would just offer this rather crude thought.
If you go to the databases that talk about sort of per capita health spending in this country, I think it's riding just above $4,000 a year, per person. I mean, that's what we spend on health care in this country per person. You know, insured, uninsured, old, young, that's what we spend.
When health insurance costs less than that, it's not covering something. Just by definition. It's leaving something out, it's leaving out long-term care. It's leaving out people with asthma. It's leaving out baby boomers. It's leaving out people who live in Miami. Sort of all the different things, you know, that make the price of health insurance act funny in this market. Whenever insurance is cheaper than that, it's not covering something.
I could sell everybody in this room a health insurance policy right now that cost $1. Anybody want it? It will only cover a toothbrush. But, I will sell you a policy for $1 right now. So, your design issue has to really be, how insured do we want people to be? And then I think you can answer that question.
And, if I could maybe just circle around. The one thing that Mary Nell has said—and I agreed with 90 percent of [what] Mary Nell said, so I thought that was a good thing—but, you did make one point about my study that I've actually seen made elsewhere, in a Counsel on Economic Advisors report that's recently been released. And I just thought it merited a comment.
It is true that each of our hypothetical applicants in every market, with the exception of the HIV positive guy, who kept getting turned down—it is true that in every market, each one of our applicants got at least one offer that was "affordable." But, let me just tell you a little bit about what those inexpensive offers were.
Alice, our lady with hay fever, in Tucson, got offered a policy that is $66 a month. But it didn't cover her allergies and it had a $1,000 deductible. So, she could get a cheap policy in Tucson, but those were the terms. Not what she was looking for.
Bob was a 36-year-old who had a knee injury in Richmond, Virginia. He got offered a policy for $69 a month. Didn't cover his knee. His knee would never be covered.
We had a breast cancer survivor named Denise, who's 48. She got offered a policy for $178 a month in Chicago. Didn't cover her breasts. They're just not covered.
We had a depressed widow named Emily, who's 56. She got offered a policy in Corning, Iowa: $184 a month. Pretty affordable. Will never cover any mental or nervous condition, ever; that's excluded.
And finally, we had a—oh, we had a 62-year-old who had hypertension and he was overweight. He couldn't get it for $300 a month, but in Chicago he got offered a policy for $394 a month. It excluded his circulatory system. I don't even know what's covered when your circulatory system is excluded, but that was the offer that he got.
And finally, we had a family applicant. They—we called them the Cranes—and they were all healthy except for their little boy, who had asthma, and in Fresno, California, they got offered a policy that was $141 a month, but it excluded their little boy, all of him.
So, there is affordable coverage out there in this market. There is no question about it. But, it is not what I would call complete coverage. It is not what I would call desirable coverage. People buy this stuff because they're desperate, and they buy what they can afford, but it's not necessarily good coverage.
And if we're going to design a tax credit that lets everybody buy something affordable, I think we ought to also pay attention to what's covered, because otherwise, I think we're going to be spending a lot of money on a problem that won't really be fixed at the end of the day.
MS. MOON: Linda.
MS. BLUMBERG: There's a double bind in trying to figure out what the optimal tax credit—size of the tax credit would be. Because, while I agree with what Karen said, you need to—and I criticize plans for doing it less—you need to have a subsidy that approximates the cost for very low income people, the cost of an available premium.
The problem is, is that if these credits are restricted essentially, for use in the non-group insurance market, you set up a situation where the more generous you become with the credit, the more attractive for some individuals the non-group credit's going to be.
If you believe, as most economists do, that employers' behavior and their decisions to offer health insurance reflect the underlying demand for coverage from the workers in those firms, then once you start picking away of more and more of the individuals, particular types of individuals, the healthier individuals, in those markets, the lower the demand for employers providing health insurance would be.
So, you set up the system where you are attracting more and making non-group coverage more affordable for many people in the non-group market, but at the same time, you're losing employer-sponsored insurance. And the truth, from what we know from looking at behavior today, [is] that the probability here in the non-group market of buying a non-group policy is substantially lower than the probability that you're going to buy a group policy if your employer offers it to you.
And so what happens is we do pick up some of those people who'd rather be in the non-group market and have higher wages as a consequence, but we also lose a bunch of people who had employer coverage, now the employers drop because the demand in that particular firm went down, and they never pick up or they can't get the non-group coverage.
So what we're finding in trying to look at this quantitatively, is that it's very difficult to increase the size of the non-group credit, without also doing substantial damage to the employer market at the same time. And you end up spending money on credit and getting very little net gain in coverage as a consequence.
MS. LEHNHARD: That's exactly what I would say.
MR. SANDERS: In closing, if the subsidy has to approximate the cost of the coverage to make it effective for low-income folks, the individual market would not seem to be a really very good vehicle to do this. Because, as you've seen here today, there's—people have tried different solutions, and no matter what model you use—a heavily regulated market or not one that's so regulated, or somewhere in between—there are certain difficult consequences. Because this is an expensive market to cover, folks.
MS. MOON: Yes.
MS. KALA LADENHEIM: We've talked a lot about dealing with how you deal with the—
MS. MOON: Say who you are.
MS. LADENHEIM: I'm sorry. I'm Kala Ladenheim, at the National Conference of State Legislatures. And I actually was hoping I'd hear more of this from Ward. Linda sort of alluded to it.
You've really been focusing on the individual side of the distribution and pooling issues. And there's another set of mechanisms, like reinsurance and things like that, where you deal with the inequities in risk by—at the other side, subsidizing the inequities and the risks after it's pooled. And I wondered whether you all could talk a little bit about what we've learned from some of those experiences that have gone on at the state level with that sort of thing?
MR. SANDERS: Could you clarify your question a little bit. I'm not sure I'm—
MS. LADENHEIM: What kind of experiences have states had with making the individual market more affordable by mandating different sorts of reinsurance mechanisms after people who are pooled in the normal market, rather than being pooled into a high-risk pool?
MS. LEHNHARD: We have looked very closely at this, because I actually think this might do more to make coverage more affordable and more comprehensive than—possibly than tax credits. If you could take that highest risk category, and say this is the public—we're going to subsidize this publicly. Not just for the high-risk pool, but we're going to take maybe that 5 percent, or maybe not even that much, and subsidize this, then insurers wouldn't have to be so worried about pricing recoverage or screening high-risk people to keep the coverage affordable for the best risks, so they don't lose them.
The NAIC struggled for years on how to set that model up, and it is extraordinarily complicated. The equity issues are enormous, the administrative issues are enormous, but I think they spent about two years looking at it and I don't know of any state that ever implemented any kind of—except maybe New York did something, but I don't know how well it worked. It is just extraordinarily complicated.
MS. MOON: Well, and if you take the top 5 percent off, you—as from your earlier number—you're taking 50 percent of the cost, yeah.
MS. LEHNHARD: Well, it's [inaudible] why it's—it's not the 5 percent, it's something short of that. But, you know, you don't want to take all of that away, but a certain amount of
that—if you look at the fact that our individual healthy subscribers are saying, "we won't subsidize it."
A small—I can remember when I first started working for Blue Cross, our individual and small group markets were merged together and they subsidized each other and the small employers said, "If you keep doing that, we're leaving you." So, nobody wants to subsidize the sick as long as they're healthy. You know, tomorrow's another story.
MR. SANDERS: With respect to New Jersey—the assessment mechanism, that's the model that I really know—is that there is a requirement that all carriers issue individual coverage or they can be deemed to be issuing by paying an assessment to cover the losses of the carriers in the market. It's a little bit more complicated than that, but it's proven—one of the difficulties is that, at the state level, you can't get at an assessment of self-funded arrangements.
So, there—I don't know what the percentage is in New Jersey, for example, of the folks that are self-funded, but it's a pretty big chunk. We can only go after the insurance companies that place the greatest burden on the Aetnas and the Horizons, Blue Crosses and so forth. So, and at state levels, it's difficult to sort of spread that burden around. We're probably burdening carriers probably as much as we can, but to provide more of a subsidy, I think the solution will probably have to come from the federal government.
MS. LEHNHARD: Years ago, we used to ask—many of our plans used to ask their large groups to pay a 1 percent subsidy to the individual market, because they all used to be pooled together and the thought was, when the larger employers started having their own pools, they should contribute to the individuals, but that's history now.
MS. MOON: I think there's another question back here. Burt?
MR. BURT SEIDMAN: I'm Burt Seidman, from the Alliance of Retired Americans.
I—my question may be beyond the scope of this meeting. And if it is, just tell me. But, in industrialized countries all over the world that have what they call universal health insurance, many of them have employer-based programs, some do not. But, with respect to those that do have employer-based programs, there must be a group of people who, for one reason or another, don't come under the employer-based programs. And I wonder if anybody has looked at how they are able to cover the people who don't achieve coverage through the employer-based program, and whether it would be of any use to us to have that information?
MS. MOON: What? Americans look at what other people in other parts of the world do? What a radical notion. I think that's a very good suggestion and I don't have a clue. Does anyone on the panel? That's a topic for maybe another First Tuesday one of these times, but I think that's a very good question.
Bob.
MR. BOB LERMAN: Yeah, Bob Lerman, Urban Institute. I think there's a bit of a confusion about what is insurance. I mean, some of the examples that Karen used are sort of ongoing payments, I mean in a way. It's insurance in that you don't know exactly what it's costing, but it's not some unanticipated event that simply happens on a kind of random basis and then somehow, you know, comes out. It's not, you know—it's far from random.
And I think that there is a confusion about what it means to say the market is or isn't working. I mean, certainly evidence of 40 percent administrative costs means something is happening in which, for one reason or another, a lot of energy is put into things that don't have directly to do with health expenses.
But, as far as the issue of the nature of subsidies, I mean, we don't—I mean other markets, you know—if somebody said, well, you know, you have to subsidize somebody's housing because their normal housing is—they're not able to afford it, and you say, well, you know, does the housing market work, you know, you wouldn't use that as a criteri[on]. So I think it's very important to separate these issues. I mean, sometimes you do separate them in the discussion.
Third point has to do with the issue of life cycle. Some of these issues are problems because of the life cycle and we have, you know, sort of one-year enrollment periods. If you could somehow sort of say, okay, you know, when I enter as a young person, you know, and part of that subsidy, that will go toward my policy when I'm older, or something like that—I don't know how you would link it. But there is a kind of very important life cycle component and somehow separating out these different things I think would be [an] important move toward clarity.
MS. POLLITZ: I mean, I think that that's actually the problem, that last problem that you raised. That the randomness about the events of getting sick isn't a matter of if this will ever happen to us. This'll happen to all of us. It's not like your house burning down. A lot of us will go through our whole lives and our house won't burn down, thank God.
Very few of us will make it from cradle to grave without being in the hospital. We're born in the hospital. I mean that's, you know, that's your first big claim, is being born. So you know, and most of us check out through a hospital, so and in between, things happen. So it's not a matter of "if," it's a matter of "when."
And we can be darned sure that, in the course of our lifetime, at some point, we're going to land in that little 5 percent pool that Mary Nell talked about. We may not stay there forever, but we'll do some time in that sort of bad end of the risk pool and then we'll get better and life will go on.
So, we do. We have to sort of—we buy insurance a year at a time, or we buy insurance a job at a time and then things change. We have a birthday, the year—the calendar turns over, we change jobs, we retire, and then you have to hit it again. And it's those changes that tend to bring people into this market, and then you are what you are, you're not random anymore. You either are a breast cancer survivor or you're not. You either have a kid with asthma or you don't. You either have high blood pressure or you don't.
But you're not random anymore; you're just trying to stay covered. You had coverage before but things changed and now you have to get new coverage, and this is where a lot of people kind of fall out of the system, I think, is in this market.
So, I think you're right, that part of the problem is that we buy insurance, you know, it's like buying toothpaste, a squeeze at a time. I mean, who does that? But we buy health insurance, you know, one day at a time, or one month, or one year, or one job at a time, instead of just saying when you're born you're covered and then that's it, you're just covered. And that, I think, is part of the dynamic that makes this market particularly difficult, when you add that into everything else that we've talked about.
MS. MOON: I think another way that insurance is different in health care than in some of the other insurance markets is the fact that Americans have shown at least—and I suspect other people in other countries as well—that they value first-dollar coverage, even though that's not insurance.
But first-dollar coverage is not what's driving [the] cost [of] health care. First-dollar coverage—if we had a $200 deductible for everyone or a $500 deductible for everyone, the cost of health care wouldn't really go down that much. It's those—it's that 5 percent that's spending 50 percent that's really the problem, and we spend an awful lot of time worrying about whether insurance is providing first-dollar coverage as economists, I think, sometimes missing
the point.
It's also the case that there's not very much first-dollar coverage left out there if you look around, and certainly not in the small group or individual insurance market where you're more likely to be talking about $1,000 or $2,000 deductibles in many cases. And remember, that's for covered services only, and if you go to the doctor and the doctor charges you $70 and the insurance company says $35 is what they should have charged you, your 80 percent—the 80 percent contribution they're making is on the basis of the $35, not on the basis of the $70, and you can very quickly end up paying 60 or 70 percent co-insurance and not have very much count towards your deductible.
So, we're not talking about really generous insurance policies in many cases out there at the first dollar anymore. Not even for HMOs, which used to be where people would go if they wanted first-dollar, absolute first-dollar coverage. Almost all HMOs now have copays, have all sorts of other aspects because that's the easiest way to hold down the cost of care, rather than doing the other kinds of management, I think.
Anyone else want to add anything? Let me give everybody a chance, on the panel, to have one last word on what they'd like people to take away as a message or something they didn't get to say.
And I'll start over here with Linda. I'll put her on the spot and make her go first.
MS. BLUMBERG: I think the point that I would have you take away is that, when we're thinking about mechanisms for expanding coverage, we have to think in a two-pronged approach. We have to, number one, which seems really self-evident, is to provide subsidies to the individuals who are low income and, because of their low income, cannot afford a health insurance policy.
But, the second prong, that sometimes we forget, is that the risk pool matters a lot. And if we're going to be able to do this in an effective way, to expand coverage to individuals in a long-term way, we need to find a much broader way to spread the risks—the costs of those individuals whose expenditures are above average. And I think that that mechanism for spreading those costs has to go well beyond the insured population, and in order to makes such a subsidization in a private market work effectively.
MS. MOON: Ward.
MR. SANDERS: I guess my take-home message is that the individual markets, no matter how you construct them, are necessarily nasty and brutish and there's really no magic bullet that's incremental in nature that's going to solve this problem.
If you're looking at tax credits or subsidy mechanisms, this is probably not the vehicle for expanding coverage significantly. That existing—like the Medicaid platform and the KidCare, I think provide a much more—the CHIP programs, provide a—probably a better vehicle for expanding coverage.
MS. MOON: Mary Nell.
MS. LEHNHARD: I guess I would leave with the message of unintended consequences, since there's a lot of discussion about reform because we're looking at tax credits for displaced workers and just tax credits in individual markets. And I can think of four states where, because of the reforms in the state, we were the only carrier left and, finally, we shut down. In Washington, there's no individual coverage available. And that is extraordinarily rare for us. We stay in there till the bitter end. But again, if you ask the healthy to do too much to help the unhealthy, they'll leave and that's how you pay for everything.
MS. MOON: Karen.
MS. POLLITZ: Okay. Well, I guess I would end by saying that, as difficult as this market is—and I agree with virtually everything that's been said about that—even if you decide that maybe these tax credits aren't such a hot idea and you don't want to do that, this is still a market that you need to contend with. Because, it is what's left for people when they don't sort of fit into the other boxes in our system. And it is a market that many of us will spend at least a little bit of time in, at some point in our life. So, at some point, as awful as it is, I think we're going to have to reconcile ourselves to doing something to either make this market work better, or to replace it with something that works better.
MS. MOON: Thank you and thank you all.
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