THE UNINSURED - HISTORY

Several approaches have been taken with respect to access to health coverage.  This paper discusses Children’s Health Insurance Program (CHIP), public health expansion and coverage, an exchange or connector option, tax code approaches, and mandates.

CHIP

The expansion of the Children’s Health Insurance Program has been a major focus in addressing the uninsured. Early in 2009, Congress expanded CHIP to cover 11 million total, adding an estimated 4 million more people. The CHIP reauthorization bill covered children in middle-class families earning up to 300 percent of the federal poverty level (FPL) (more than $66,000 for a family of four). Another controversial provision waived the requirement that immigrants rely on their sponsors, who pledged them financial support and meet minimum income requirements on immigrants’ behalf, for their first five years before being eligible for most public programs. Another provision waived certain identification provisions that ensure an immigrant’s status is legal, potentially opening the door for coverage of illegal aliens.  The measure also contained a tax increase on cigarettes.  Thus, the legislation became more contentious than it might otherwise have been. Further, while public coverage became more accessible to more of the uninsured, concern was expressed that expanding a public program might lead some people to drop current private coverage of their children — a practice referred to as “crowd out.”

In recent years, CHIP bills had passed both houses of Congress, such as the “Children's Health Insurance Program Reauthorization Act of 2007” (H.R. 976), but did not become law.  Vetoes by the Republican president occurred, with the democratic congressional majority lacking the two-thirds votes necessary to override a veto.  Differences between the two sides included the aforementioned aspects of program expansion, and other provisions such as covering adults up to age 25. All the proposals included improvements in premium assistance, giving states more flexibility to use CHIP funds to purchase private insurance, something for which HLC aggressively advocated.

President Obama also eliminated the previous administration’s requirement that states cover 95 percent of eligible low-income children with CHIP and Medicaid before beginning to enroll higher-income children.  In August 2007, the Centers for Medicare and Medicaid Services (CMS) issued rules that refocused the CHIP program on coverage for children in low-income families.  If states wished to provide CHIP coverage to children in families above 250 percent of FPL, they must have enrolled at least 95 percent of eligible children in the state below 200 percent of the federal poverty level, adopted five strategies to avoid having people drop private coverage in favor of CHIP (known as “crowd out”), established a minimum one-year waiting period of uninsurance, ensured that the number of CHIP-eligible children in private plans had not decreased by more than 2 percent over the previous five years, and be up-to-date with all paperwork related to crowd-out issues.  If states had received a CMS waiver to cover children over 250 percent of FPL, they had 12 months to change those policies and comply with the new standards.  Several states filed lawsuits in opposition to these new rules. CMS announced a year later it would not enforce the new requirements, and the Obama administration reversed these standards.

Public Program Expansion and Public Program Coverage

CHIP, discussed above, is a public healthcare program with eligibility level that have been expanded beyond lower-income children whose families earned too much to qualify for Medicaid but still could not afford to insure the children. This change has given coverage access to more people, but one concern is how such expansion of eligibility reduces a program’s original primary focus. Another concern is displacement of private insurance or the diminution of certain people in the risk pool for private health coverage, as well as whether the new obligations strain a program’s financial sustainability. (For instance, Medicaid increasingly represents a huge challenge to states to sustain funding and extend eligibility to more people.)  In the case of CHIP, its original beneficiary targets were uninsured children in lower income families.

Congressional plans for major health reform, such as the one outlined by Senate Finance Committee Chairman Max Baucus (D-MT), include the expansion of public programs.  The Baucus approach would expand eligibility for Medicare to 55-64 year-olds. Additionally, anyone who earns less than the official poverty level would be eligible to obtain Medicaid coverage. The Baucus paper would also expand CHIP eligibility.

Senator Baucus has suggested a new, public health insurance program, which would be structured and operated similarly to Medicare. It is intended as an option to “compete” with private health plans. An “Independent Health Coverage Council” would decide how this program is designed and operated.  It would set rates, eligibility, and other defining characteristics.  This board would also determine policies for both public and private insurance plans. Having a government-sanctioned body empowered to impose decisions even on the details of private-sector insurance under this scenario has sparked concerns. An overarching concern is whether a government health plan would fairly compete with its private counterparts. Fears have been expressed as to whether the government insurance would be able to offer more generous benefits at a better price than its private competitors, with losses under written by tax payers.  As private insurers were unable to compete on an unfair playing field, some experts fear that only the government option would be left at the end of the day.

Others, such as Senator Ted Kennedy (D-MA) and Representative Pete Stark (D-CA), have proposed qualifying more people for Medicare, regardless of age or income.  Their “Medicare for All” legislation (S. 1218/H.R. 2034 in the 110th Congress) would attempt universal healthcare by expanding the Medicare program into a universal option for everyone. Their approach to program expansion would phase in coverage eligibility over five years, beginning with those 55-65 years old, and children and young adults up to age 25.  It would finance this universalization through a payroll tax and create an administrative body to govern the expanded program. 

This approach also would offer an affordable, portable option to segments of society that may be hard to insure, such as preretirees.  However, concerns about this approach have been voiced. With Medicare, the “buy-in” would direct people to the conventional, fee-for-service aspect of the program. Conventional Medicare is the most problematic part of the program, depriving beneficiaries of access to the latest treatments and therapies, significantly underpaying providers, and driving Medicare’s financial unsustainability.  It also could result in unintended consequences relating to the risk management elements of both the government and private sector sides of health insurance.

In addition to ongoing debate about expansion of public health programs, efforts have been made on a couple of fronts to increase access to public program coverage. 

The economic stimulus bill in early 2009 extended the length of Trade Adjustment Assistance coverage for family members to up to 24 months.  This law also included COBRA coverage for those losing their job, allowing them to keep their former employment-based insurance plan.

Thirty-five states have high-risk pools to assist individuals who cannot obtain insurance elsewhere because of poor health or pre-existing conditions. Certain federal funds can be used by states to start a high-risk pool or support current operations, which includes in many cases premium subsidies to low-income individuals.   House Appropriations Chairman David Obey (D-WI) has championed high-risk pool funding.  He included $49 million for such pools in the 2008 “Consolidated Appropriations Act” that became law in December 2007.

Exchange/Connector

The exchange, or connector, approach involves using a government or public-private entity to oversee competition among health insurance plans under uniform rules. This approach is modeled on the Federal Employees Health Benefit Program (FEHBP).  Then-presidential candidate Hillary Clinton proposed opening the program currently offered to federal employees to a broader population. Others, such as candidate Barack Obama, have modeled their proposals for connecting the uninsured with affordable coverage on FEHBP. Through this program, 10 million federal employees, retirees, and dependents receive health insurance coverage.  New employees may enroll in their choice of a health plan offered by a private insurance company or employee association, regardless of any “pre-existing” medical conditions.  Employees may only change their enrollment upon certain “life-change” events or during an annual “open season.”  Plan options vary according to national and regional availability, and typically include fee-for-service (FFS), preferred provider organization (PPO), consumer-directed health plans (CDHP), and health maintenance organization (HMO) options. Some participating plans offer more than one benefit package, including a high option and a standard option; the former offers more robust benefits at a higher premium.

The Office of Personnel Management (OPM) contracts with various insurance carriers to negotiate benefits and coverage rates. OPM emphasizes the importance of using managed care services in all FEHBP plans.  OPM also standardizes information about each available plan to facilitate comparison shopping. The agency maintains that allowing consumers to choose from competing, participating plans has allowed FEHBP to control costs while maintaining a wide variety of benefit options. Recent analysis by the Government Accountability Office (GAO) found that, although the growth in the average FEHBP premium has slowed in recent years and is lower than surveyed employer plan premiums, the growth in the amount of the average employee contribution was similar across both categories.  Some policymakers have considered opening FEHBP to others outside of federal employees. Critics have noted that expanding participation in what amounts to a “connector” would change the characteristics of the risk pool and thus jeopardize the costs and financing of the program.

Some have considered Medicare as a model for a health exchange.  However, Medicare differs in significant ways from FEHBP. By way of background, the Centers for Medicare and Medicaid Services (CMS) defines and administers the standard Medicare benefit for Part A (hospital) and Part B (medical) on a fee-for-service (FFS) basis. Most beneficiaries pay no premium for Part A services and a monthly premium for Part B services that is adjusted annually to cover roughly 25 percent of total Part B costs. The 2003 Medicare Modernization Act (MMA) created the Part D prescription drug benefit for those beneficiaries enrolled in traditional Medicare Parts A and B.  Beneficiaries choose among available private sector prescription drug plans in their area. Low-income seniors may obtain a subsidy for Part D coverage. Beneficiaries in traditional Medicare may purchase additional private supplemental coverage, known as Medigap coverage.  Private insurers sell Medigap policies, which offer standardized benefit packages that meet one of 12 different options (Medigap A through L).  Medigap plans must also comply with varying state laws that affect the Medigap standard benefit.  Supplementary coverage is available to bridge gaps in standard Medicare benefits. CMS routinely contracts with third parties to conduct necessary functions to administer Medicare benefits, such as claims and payment processing, customer service, and fraud investigation.

The Balanced Budget Act of 1997, modified by MMA, followed the FEHBP model from within the Medicare program. Medicare beneficiaries may now opt to receive their Medicare Parts A and B benefits through a private health insurance plan.  Insurers may offer benefits beyond the traditional Medicare package.  Individuals may select a Part C, or Medicare Advantage (MA), plan on an annual basis during the open enrollment period. In exchange, CMS makes a risk-adjusted monthly payment to participating MA plans for each enrolled beneficiary. The MA plan then issues reimbursements for all Medicare-covered health services for those individuals according to the specific benefit structure. The MMA, in particular, created new flexibility in MA plan benefit design. This flexibility allows private insurers to, among other things, rely on provider networks or regions, and develop formularies for prescription drug coverage.  Both policies are similar to those conducted by non-Medicare private HMOs.  Beneficiaries choose among the MA plans offered in their state of residence, which vary in covered services, items, and drugs, cost-sharing responsibilities, and other features, as in FEHBP and the private market.  Part C benefits must cover, at minimum, services provided under Parts A and B, but also may adjust premiums accordingly, depending upon the breadth or richness of the benefit package.  CMS serves much like a connector for Medicare beneficiaries with respect to the various Medicare benefits. It acts much more like OMB does with FEHBP on the newer elements (Parts C and D) and as a direct regulator for traditional Medicare.

The Baucus health reform paper suggests a national exchange, much like the one President Obama discussed on the campaign trail.  This entity would help uninsured individuals and small businesses to find health coverage. The exchange would provide information on federally approved private health plans and on a new, “Medicare-style,” government-operated health insurance program. The Health Insurance Exchange would provide comparative information about health coverage options, serving as something of a clearinghouse.  Health plans would be categorized as high, medium, or low-benefit options.  Here, too, concerns have been voiced that a government-run option, by definition, enjoys an unfair competitive advantage against private insurance options, because the government can set terms without having to negotiate on a level playing field.

The Massachusetts law establishing universal coverage for state residents includes a state connector to provide comparable information about health coverage options.  The Commonwealth Connector is an independent state agency.  It helps residents gather information on health coverage options, select a health plan, and avoid a penalty for being uninsured. Six private insurers offer health policies through the connector.  The Massachusetts model facilitates private coverage purchases by combining the individual and small-group markets into the same risk pool.  Nearly 432,000 previously uninsured residents were enrolled by December 2008.  The majority of these individuals were eligible for some form of subsidized health insurance. An estimated 2.7 percent of state residents still lack insurance.  At least 100,000 were still without insurance after the first year and had to pay a penalty of anywhere between $210 and $912 in 2008. Yet, near-universal coverage — through a state insurance program (Commonwealth Care) and private plans (Commonwealth Choice) offered through the state exchange/connector — faces significant financial sustainability challenges.  Implementation of the Massachusetts law has been closely watched, and several states have fashioned their own plans.

Tax Code Approaches

Another approach to access involves use of the tax code. The Trade Adjustment Assistance Act (TAA) Health Coverage Tax Credit (HCTC) for trade-displaced workers is a precedent-setting law that provides more than 200,000 trade-related unemployed workers and their dependents – as well as some Pension Benefit Guaranty Corporation (PBGC) retirees – a 65 percent tax credit to help purchase health insurance. Pending reauthorization, the U.S. Labor Department continued the TAA program uninterrupted with funds from the omnibus appropriations bill. In early 2009, the American Recovery and Reinvestment Act expanded the program.  The economic stimulus legislation raised the tax credit amount to 80 percent. It also extended the length of coverage for family members to up to 24 months. This law also included COBRA coverage for those losing their job, allowing them to keep their former employment-based insurance.

In FY 2008, President Bush recommended that health insurance premiums become taxable above $15,000 for families and $7,500 for individuals.  This proposal would allow anyone purchasing insurance to take a standard deduction regardless of the amount actually spent and whether paid for by an individual or his/her employer. Some heralded this tax treatment as a way to level the playing field for individuals without employer-sponsored coverage.  However, others criticized it as harming individuals in poor health whose premiums exceed the standard deduction as well as small businesses taxed on individual as opposed to corporate returns.  There was little congressional support for the plan, and no action was taken. During the 2008 presidential campaign, Senator McCain embraced the concept. Candidate Obama attacked the proposal as a tax increase. But, President Obama, in early 2009, began considering the idea in the context of health reform.  Senate Finance Chairman Max Baucus has advocated direct taxation of health benefits. But key lawmakers such as Ways and Means health subcommittee Chairman Pete Stark (D-CA), and major labor unions, oppose the idea.

This proposal stems from the historical origin of health benefits being tax-free compensation. During World War II, wage and price controls prohibited employers from increasing pay, so they began offering tax-free fringe benefits such as health coverage in order to attract and retain workers. A consequence of this tax treatment is that it shields employees from the sensitivity to costs that they as consumers would incur if they paid for health coverage themselves. In this way, union- or employment-based health coverage, has contributed to health inflation.  On the other hand, health coverage provided at work has insured many working families that otherwise may not have obtained insurance.  It also protects from an added burden for those whose insurance costs are more because of age, health status, or other factors.

Another tax code-related approach is health savings accounts (HSAs). HSAs, created as a part of the Medicare Modernization Act, began in 2004.  Late in 2006, the House and Senate passed several important improvements to health savings accounts, which allow employers or employees to set aside pretax money to pay for medical expenses.  HSAs combine tax-advantaged savings with a high-deductible health insurance plan. Improvements to HSAs included: allowing rollovers from Flexible Spending Accounts and Health Reimbursement Accounts into HSAs as well as a one-time rollover from IRAs to HSAs; repeal of the annual plan deductible limitation on HSA contributions; earlier calculation of cost-of-living adjustments; adjustment to the contribution limitations for midyear enrollment and for nonhighly compensated employees; and other changes. Smaller employers that previously offered no health benefits and the self-employed constitute a significant segment of the HSA market.

A consideration relating to such approaches as refundable tax credits is whether they begin to be regarded as “welfare” by tax-strapped Americans. That could be a danger were policymakers to push such tax credits too far, particularly if combined with tax increases and new taxes on those in higher income brackets.  Already, the bottom half of taxpayers contributes just 3 percent of all tax revenues to the treasury.

Mandates

Some have turned to mandates as a means of expanding health coverage access. Congressional approaches for major health reform, such as the one outlined by Senate Finance Committee Chairman Max Baucus (D-MT), include certain mandates. The Baucus approach contains individual and employer mandates. With an individual mandate, everyone must obtain health coverage (often with government subsidies of lower-income individuals’ and small businesses’ premiums). An employer “play or pay” mandate requires employers to provide employee health benefits or else pay a fee.  The Baucus paper also contains mandates on insurers of “guaranteed issue” (pre-existing medical conditions could not bar one from coverage) and mandated coverage of certain preventive care and treatment.

Bills introduced in Congress have tried different mandates.  For example, the bipartisan “Healthy Americans Act” (S. 391), introduced by Sen. Ron Wyden (D-OR), eliminates Medicaid, CHIP, and Disproportionate Share (DSH) payments, includes an individual mandate, an employer mandate, a state connector-type model, and premium subsidies on a sliding scale up to 400 percent of the federal poverty level.

The number of state coverage mandates now number more than 1,960.  These mandates require employers and insurers to provide certain healthcare services such as infertility treatment or massage therapy, to cover certain providers such as chiropractors, or to pay for certain products such as hair prostheses.  In some markets, such mandated benefits raise the cost of health insurance by as much as 45 percent.

Rising costs present employers with a harder time providing their workers health coverage. The number of Americans who are uninsured stood at 45.7 million in 2007, in part because small businesses dropped employer-sponsored health coverage for workers. In 2008, employers endured another year of increases in the cost of providing medical benefits; premiums rose by 5 percent. The increase in employer costs translates to pared back coverage and increased premiums, co-pays, and deductibles for workers. A survey by the Kaiser Family Foundation found many employers expecting to make significant changes to their health plans and benefits in 2008.  Some 40 percent of firms said they likely would raise workers’ share of premiums this year.


The Future

Health reform is a key issue for the 111th Congress. Health reform proposals have been in development in Congress.  In addition, many organizations have expended considerable energy to contribute their diverse visions of health reform.  With continued focus on the uninsured, action on this issue is likely. The scope and breadth of congressional action remains to be seen.  States may continue to address the issue of the uninsured. Growing state Medicaid expenditures demand continued attention and action.

Rising healthcare costs make the issue of health costs and the uninsured an important one. The resonance of this message ensures both Democratic and Republican attention to the issue throughout the 2009 congressional session.  The weak economy and critical budget and financial constraints could well play the most important role in shaping how and when health reform proceeds.