Health Care Reform and the Uninsured

1. Health Care Reform and the Uninsured Catherine McLaughlin University of Michigan Cover the Uninsured Week May 2, 2008

2. The Uninsured and Underinsured: Numbers are High and Rising • In 2006, 46.5 million people (16% of population) were without health insurance coverage, up from 44.8 million people in 2005 • Approximately another 20 million are underinsured, meaning their insurance did not adequately protect them against catastrophic health care expenses • 40% of those with coverage cited unmet health care need because of costs

3. The Uninsured and Underinsured: Likely to Rise Some More • Unemployment rates are rising for lower income workers and spells without work are getting longer • On average, each 1 percentage point increase in unemployment rate adds 600,000 children and 400,000 adults to uninsured pool • Longest spells for men 45-54 years of age • More small businesses are dropping offers of employer-sponsored insurance (ESI); 30,000 fewer firms offered in 2005 than in 2001 • More large businesses are discontinuing retiree health benefits

4. The Uninsured and Underinsured: Likely to Rise Some More • Increasing out-of-pocket premiums (OOP) are leading to lower take-up rates and higher numbers without ESI • From 2001-2005, $OOP went up 30%, income went up 3% • Average $OOP for family coverage = $3,276; average annual income for hourly worker = $35,800 • Increased deductibles and co-pays in ESI are increasing the numbers of underinsured.

5. Myths about “the Uninsured” • Before we can design health care reform to cure the problem of the uninsured, we need to know more about who they are, why they are uninsured, and what the problem actually is.

6. Myth #1: The Uninsured are all alike. • On average, those without coverage tend to have lower-income and be in somewhat poorer health than those with coverage • However, many are young and healthy (14% are 6-18 years old, 16% are 19-24 years old); some are reasonably well off (14% in households with annual income of more than $75,000) • And 83% are workers and their families Based on 2006 CPS data

7. Myth #2: There were 47 million uninsured Americans in 2006. • The Current Population Survey estimate isn’t clear about the time frame captured • National surveys that gather monthly data estimate over 67million experienced a spell without coverage in 2005, but “only” 36 million were uninsured the whole year; another 31 million were without coverage part of the year.

8. Uninsured Rates: MEPS 2005 All Year Ever during year Note: There has been little increase since 2000 in the % ever uninsured during a year. The growth has been in the % without coverage all year, particularly for those 19-34 years of age.

9. Myth #3: Coverage is Coverage is Coverage. • Insurance differs in terms of financial protection, the potential for improvement in health, and the humanity of the treatment when you contact the healthcare system. • Not enough to simply say “everyone will (or must) have coverage” • What coverage will $5000 get a family? (McCain) • Average premium for an ESI family plan = $12,000 • What level of coverage will satisfy a mandate? • Clinton and Obama: Congressional plan

10. Myth #4: Individuals without insurance choose to be so. • In some general sense this is true. No law prohibits people from buying insurance. • Willingness andability to pay have to be considered • Only 7% of those without coverage say they don’t need it; 54% say they can’t afford it • FT minimum wage worker earns < $11,000; average ESI premium for single coverage > $4,000 • Mandates: overrules willingness, but what about need for subsidies to overcome ability?

11. Myth #5: U.S. employers spend $400 billion a year for workers’ health care. • In reality, workers and consumers pay $400 billion a year for that employer-sponsored health insurance. • Increased prices to consumers • Lower wage growth for covered workers • If can’t pass on to consumers or workers, loss of jobs • Difference between who writes the check and who actually pays for insurance

12. The “Problem” of the Uninsured and Underinsured: What to do? • Classic Economic Tools • Change Supply of Health Insurance • Change Demand for Health Insurance • Policy Approaches • “Incentivize” the market • Government regulation

13. Change the Supply of Health Insurance for Uninsured • Allow small businesses to form large pools; provide tax incentives to offer • Expand high risk pools • Offer health insurance independent of employment • Improve/expand individual private market • Make public programs available: expand Medicaid and SCHIP, Medicare; open up enrollment into Federal Employees Health Benefit Plan (FEHBP) • Outlaw or eliminate underwriting; premium caps

14. Change the Demand for Health Insurance: Two overall approaches • Voluntary • Involuntary, aka Mandates

15. Voluntary Efforts: Change the Demand for Health Insurance • Make it more affordable • Reduce the premiums • Reduce overall health care costs and therefore premiums for all • Directly reduce the premium for those without coverage • Increase income of purchasers • Provide a direct income subsidy

16. Change Demand by Reducing the premium • Reduce overall health care costs and all premiums • Change provider behavior • Change consumer behavior • “I can characterize my approach on health care by choice and competition, affordability and availability.” Senator McCain

17. Reduce Overall Health Care Costs and premiums • Change provider behavior • Change reimbursement incentives, e.g., move to pay-for-performance • Adopt health information technology (HIT) • Cap medical liability • Reduce waste, fraud, and abuse

18. Change Demand by Reducing the premium • Reduce overall health care costs and all premiums • Change provider behavior • Change consumer behavior

19. Reduce overall health care costs and premiums • Change consumer behavior • Increase cost-sharing, e.g., health savings accounts (HSAs); consumer driven health care, get some “skin in the game” • And give more choice, e.g., cafeteria plans, flexible spending arrangements • And provide information on performance and costs • And consumers will buy value

20. Voluntary Efforts: Change the Demand for Health Insurance • Make it more affordable • Reduce the premiums • Reduce overall health care costs and therefore premiums for all • Directly reduce the premium for those without coverage • Increase income of purchasers • Provide a direct income subsidy

21. Directly reduce the premium: Subsidies • For only those without coverage? • Use as incentive to increase take-up of offers • Increase ability to purchase in nongroup market • Target only those without coverage and with low income? • Problem: Erode ESI coverage?

22. Directly reduce the premium for everyone: Tax Credit • “Let’s give every American family a $5,000 refundable tax credit so that they can go out across state lines and get the insurance policy that suits them best.” Senator McCain. • Problem #1: Average ESI premium is $12,000 for family of 4. Over 50% of uninsured in households earning less than $40,000 a year. • Problem #2: Giving $ to 82% of Americans who already pay for insurance directly or through lower wage growth. Ends up being very expensive for each newly insured person.

23. Directly reduce the premium for everyone: Tax Credit • “The tax credits will ensure that working families never have to pay more than a limited percentage of their income for health care.” Senator Clinton • “Individuals and families who do not qualify for Medicaid or SCHIP but still need financial assistance will receive an income-related federal subsidy to buy into the new public plan or purchase a private health care plan.” Senator Obama • Problem: “Show me the money honey”

24. Directly reduce the premium for everyone • Government provides reinsurance • “The Obama plan would reimburse employer health plans for a portion of the catastrophic costs they incur above a threshold if they guarantee such savings are used to reduce the cost of workers' premiums.” • Tax credit for businesses • “To make it easier-not harder-for small businesses to create new jobs with health coverage, a new health care tax credit for small businesses will provide an incentive for job-based coverage.” Senator Clinton

25. Involuntary Efforts • Mandate participation at the individual level • Through income tax at federal level • Through school system, drivers license, etc. • “Obama will require that all children have health care coverage and will expand the number of options for young adults to get coverage, including allowing young people up to age 25 to continue coverage through their parents' plans.” • 12% of children < 19 years old (9.4m) are without coverage; 20% of those 19-24 (7.5m) are without coverage; that leaves > 29.3m uninsured adults

26. Involuntary Efforts • Mandate participation at the employer level • Most of the action is with small firms • “Employers will help financing the system; large employers will be expected to provide health insurance or contribute to the cost of coverage.” Senator Clinton • “Pay or Play” model • Similar in concept to Massachusetts plan

27. Involuntary Efforts • Massachusetts is variant on “Pay or Play” for employers, but mandate is at individual level, with penalties if not covered and income-related subsidies • Enrollment for low and middle income workers exceeded expectations • Over half of uninsured have gained coverage • State revenues not large enough to cover subsidies as enrollment continues to grow

28. The “Problem” of the Uninsured and Underinsured: What to do? Answer, in part, reflects what the goals are Improve access to the right care at the right place and the right time? Reduce financial burden of consumer? Reduce financial burden of provider? Increase economic efficiency of health care system? Improve overall health status of country? Reduce disparities in health status?