# Presentation: 716755

## The Uninsured and the Health Care Safety Net

- Grace-Marie Turner, Ph.D.
- President
- Galen Institute, Inc.
- Alexandria, VA

## The U.S. health care system is in trouble

- Rising insurance costs threaten coverage for many
- Millions are uninsured
- A plethora of rules, regulations, fines, penalties govern the system

## 2004 U.S. health expenditures (estimated)

_**Total **_**	**_**$1.8 trillion**_**	**_**15% of GDP**_
- Private:	$984 billion	55% of total
- Public:	$810 billion	45% of total

- see _[http://www.cms.hhs.gov/statistics/nhe/projections-2003/t3.asp](http://www.cms.hhs.gov/statistics/nhe/projections-2003/t3.asp)_

## Cost concerns drive debate

- “2004 Mercer U.S. National Employer-Sponsored Health Plans Survey,” Mercer Human Resources, November 22, 2004. _[http://www.mercerhr.com/knowledgecenter/reportsummary.jhtml?idContent=1051300](http://www.mercerhr.com/knowledgecenter/reportsummary.jhtml?idContent=1051300)_
- U.S. Department of Labor, Bureau of Labor Statistics. Consumer Price Index. January 19, 2005. ftp://ftp.bls.gov/pub/special.requests/cpi/cpiai.txt

## Does the U.S. spend too much or too little on health care? 

- Robert Blendon and John Benson.  “Americans’ Views on Health Policy”  *Health Affairs.*  March/April 2001.

## Consumers pay 15% of costs

- Office of the Actuary, Centers for Medicare and Medicaid Services

## Kaiser benefits study

- Premiums now average $3,383 for single coverage and $9,068 for families
- Worker contributions were stable for singles (at $508) and rising 13% for families (to $2,412)

- Kaiser 2003 Employer Health Benefit Survey

## Cost drivers for health insurance

- 18%	General health care inflation
- 22%	New medical advances, drugs
- 18%	Rising provider expenses
- 15%	Government mandates and regulation
- 15%	Increased consumer demand
- 7%	Litigation and defensive medicine
- 5%	Fraud and abuse, etc.

- PriceWaterhouseCoopers  2002

## Research question

- Can State health insurance regulations
- reduce costs and increase access
- to health insurance?

**Notes:**
We began this descriptive study to answer the question - using a common sense approach - do insurance market regulations achieve their stated goals?  In other words, do we see a decrease in the number of uninsured citizens and an increase in private insurance coverage?

## Insurance regulations

- Guaranteed issue
- Guaranteed renewal
- Community rating
- Mandated benefits
- Pre-existing condition exclusions

**Notes:**
- including guaranteed issue, renewability, portability requirements, and premium rate restrictions.

Thus, we focused on two groupings of states:  our 16 study states and the other 34 states.

## The GAO identified 16 States that passed these insurance regulations in the early- and mid-1990s.

What happened?

- What happened?

**Notes:**
We only included states which had passed insurance market reforms in BOTH the small-employer and individual insurance markets.  Also, we only included states which had implemented a complete package of regulations

## Annual growth rate in number of uninsured

- 4.6%

- 3.9%

- 4.1%

**1990**

**1996**

- 8.1%

- 1.0%

- 2.7%

**16**

**34**

**50**

**16**

**34**

**50**

- “Uninsured Rates Rise Dramatically in States with Strictest Health Insurance Regulations,” Arnett GM, Schriver ML. The Heritage Foundation 1998. http://www.galen.org/statehealth.asp?docID=179

**# of States**

**% growth rate in number of uninsured**

**Notes:**
Even more striking, when we compare the pre-reform annual growth in the uninsured with the post-reform growth we find that in 1990 all three groups experienced a comparable increase in their uninsured populations.

In 1996, after passing reforms designed to decrease the number of uninsured - the 16 regulatory states experienced an average annual growth rate in their uninsured population of 8.1% versus only a 1.0% increase in the other 34 states!  

In 1996, these 16 most regulatory states experienced an average eight-fold increase in the size of their uninsured populations!!

## Expanding access to the uninsured

**Why is it so hard for the States to solve this problem?**

## The tax treatment of health insurance

- A huge Federal subsidy that discriminates against lower-income, working Americans who are most likely to be uninsured

## Low income families hard to reach with job-based coverage

**Less than**
**$25,000**

**Over**
**$75,000**

**23%**

**82%**

- Persons with job-based health insurance, by income

- U.S. Census Bureau, Current Population Survey, 2004 Annual Social and Economic Supplement. Table HI01. Health Insurance Coverage Status and Type of Coverage by Selected Characteristics: 2003 (All Races)

## The Galen Gap

**Population under age 65 with **
**health coverage**

**$0**

**$75,000**

**Income**

- 42 Million
- Uninsured

- Conceptual depiction based upon the logo of the Galen Institute.

**The Galen Gap**

## Getting to the root of the problem

- Price controls in World War II

## 1943:Health insurance to boost pay

**Workers are scarce**
**Wage and price controls cap pay**
**Health insurance offered instead**
**Health insurance becomes job-based**

## Sixty years and $1 trillion later...

- A $189 billion annual tax subsidy that is:
- Inefficient
- Regressive
- Discriminatory

## Problems

- Leads people to think health insurance is a gift from employers, not part of their pay, as it is
- Consumers of health care drive up costs by demanding more expensive coverage without seeing the price
- Higher costs drive more and more people out of the market for health insurance, especially low-income workers/families

## Pressure for Government to fill the gap

**$0**

**$75,000**

**Income**

**Pressure for Government ****to fill the gap**

## A fresh idea: Create new, fairer subsidies for health insurance

- Tax credits for the uninsured to purchase health insurance
- Credits are “refundable” and “advanceable”
- Provide new help for those shut out of the system
- A new fairness in subsidizing insurance

- “Empowering Health Care Consumers through Tax Reform,” Grace-Marie Arnett, Ed. University of Michigan Press, Ann Arbor. September 1999. http://www.galen.org/book.asp
- Mark Pauly and Bradley Herring. “Expanding Coverage Via Tax Credits: Trade-Offs and Outcomes,” Health Affairs, January/February 2001.

## The uninsured will need new places to purchase coverage

- Individuals with new subsidies will need new places to buy health insurance, outside the workplace, to get group rates
- Labor unions, professional organizations, churches, and other affinity groups could offer insurance as a member benefit
- This insurance would be portable from job to job and provide more continuity in coverage

## Bipartisan agreement

- Tax credits for the uninsured
- New purchasing pool arrangements
- Enrolling those eligible for Medicaid and SCHIP
- Gaining efficiencies through health information technologies

- My assessment of general agreement based upon joint publications and position papers by political leaders, including President Bush, Senator Kerry, Senator Frist, Senator Clinton, etc.

## Public sector innovations

- Secretary Leavitt will support greater use of 115 waivers for Medicaid to expand options
- Governor Jeb Bush of Florida wants to bring competition and choice into Medicaid
- South Carolina offers Medicaid Health Savings Account (HSA) option
- New York State’s reinsurance program
- Maine’s DirigoChoice for small businesses

## A new conversation

- Prevention
- Disease management
- Value in medical care
- Greater access to information
- More consumer input into care choices

## Care management programs have demonstrated success

- Florida’s Cash and Counseling programs  give the disabled more choice and control
- Pitney-Bowes’ positive experience in direct care management
- The Asheville Project provides care for chronic conditions like diabetes, asthma, and heart disease

## Some options for the States

- About one-third of new purchasers of HSAs were previously uninsured
- Encouraging HSAs can help some citizens to get coverage

- “Health Savings Accounts: The First Year in Review,” eHealthInsurance, February 15, 2005.
- Teresa Chovan and Hannah Yoo. “Health Savings Accounts Off to a Fast Start in the Individual Market,” America’s Health Insurance Plans, January 12, 2005.

## HSA overview

- HSAs allow individuals, employers, or employees to deposit tax-free money into a special account to pay for current and future medical expenses
- Savings roll over from year to year
- Individuals must have a “high-deductible health plan” to open a HSA

## One example of an HSA

**$1,000 deposit**

**Employer, employee, or individual makes deposit to HSA. Unspent funds roll over to next year.**

**Funds routine health spending. Preventive care exempt.**

**Catastrophic coverage + preventive care**

**High deductible insurance**

**$500 deductible**

**Notes:**
Average cost of an individual health policy for workers in 2002 was $3,060

## HSA options for the States

- Enhancing the HSA option
- Allow a State tax deduction for deposits to HSAs
- Allow State tax deductibility for conforming health insurance
- Allow cross-State purchase of health insurance
- A new benefit option for State employees to save State funds on health costs

## Other State responses

- Avoid new State mandates and regulations that drive up costs and reduce choice
- Extend Medicaid and SCHIP $$:
- Focus on better managing chronic care patients
- Focus on value, not just cutting costs
- Provide incentives for patients to stretch dollars
- Develop private-public partnerships to strengthen the safety net
- Expand community health centers

## What is the new world about?

- _Patient control_:  Consumers will have more choices in health insurance arrangements
- _Cost visibility_:  They will be more price conscious in shopping for insurance and some medical services
- _Savings incentives_:  Consumers have more incentive to get the best product, service, and value for their money

**Notes:**
Lumenos, Vivius, Aetna, Humana
New Rules:  HRAs and HIFA, Independence Initiative
New programs:  Tax credits, 

## The next big thing...

- Consumer choice in health care and coverage

## The goal

- Engaging consumers as partners rather than adversaries in managing health costs and getting the best value for health care dollars

## For more information

- Contact:
- Grace-Marie Turner
- Galen Institute
- www.galen.org
- (703) 299-8900
- gracemarie@galen.org