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23–794 2005

THE UNINSURED 

HEARING 

BEFORE THE

SUBCOMMITTEE ON HEALTH 

OF THE

COMMITTEE ON WAYS AND MEANS 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED EIGHTH CONGRESS 

SECOND SESSION 

MARCH 9, 2004 

Serial No. 108–50 

Printed for the use of the Committee on Ways and Means 

( 

ii 

COMMITTEE ON WAYS AND MEANS 

BILL THOMAS, California, Chairman 

PHILIP M. CRANE, Illinois 

E. CLAY SHAW, JR., Florida 

NANCY L. JOHNSON, Connecticut 

AMO HOUGHTON, New York 

WALLY HERGER, California 

JIM MCCRERY, Louisiana 

DAVE CAMP, Michigan 

JIM RAMSTAD, Minnesota 

JIM NUSSLE, Iowa 

SAM JOHNSON, Texas 

JENNIFER DUNN, Washington 

MAC COLLINS, Georgia 

ROB PORTMAN, Ohio 

PHIL ENGLISH, Pennsylvania 

J.D. HAYWORTH, Arizona 

JERRY WELLER, Illinois 

KENNY C. HULSHOF, Missouri 

SCOTT MCINNIS, Colorado 

RON LEWIS, Kentucky 

MARK FOLEY, Florida 

KEVIN BRADY, Texas 

PAUL RYAN, Wisconsin 

ERIC CANTOR, Virginia 

CHARLES B. RANGEL, New York 

FORTNEY PETE STARK, California 

ROBERT T. MATSUI, California 

SANDER M. LEVIN, Michigan 

BENJAMIN L. CARDIN, Maryland 

JIM MCDERMOTT, Washington 

GERALD D. KLECZKA, Wisconsin 

JOHN LEWIS, Georgia 

RICHARD E. NEAL, Massachusetts 

MICHAEL R. MCNULTY, New York 

WILLIAM J. JEFFERSON, Louisiana 

JOHN S. TANNER, Tennessee 

XAVIER BECERRA, California 

LLOYD DOGGETT, Texas 

EARL POMEROY, North Dakota 

MAX SANDLIN, Texas 

STEPHANIE TUBBS JONES, Ohio 

ALLISON H. GILES, Chief of Staff 

JANICE MAYS, Minority Chief Counsel 

SUBCOMMITTEE ON HEALTH 

NANCY L. JOHNSON, Connecticut, Chairman 

JIM MCCRERY, Louisiana 

PHILIP M. CRANE, Illinois 

SAM JOHNSON, Texas 

DAVE CAMP, Michigan 

JIM RAMSTAD, Minnesota 

PHIL ENGLISH, Pennsylvania 

JENNIFER DUNN, Washington 

FORTNEY PETE STARK, California 

GERALD D. KLECZKA, Wisconsin 

JOHN LEWIS, Georgia 

JIM MCDERMOTT, Washington 

LLOYD DOGGETT, Texas 

Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public hearing records 

of the Committee on Ways and Means are also published in electronic form. The printed 

hearing record remains the official version. Because electronic submissions are used to 

prepare both printed and electronic versions of the hearing record, the process of converting 

between various electronic formats may introduce unintentional errors or omissions. Such occurrences are inherent in the current publication process and should diminish as the process 

is further refined. 

iii 

C O N T E N T S 

Page 

Advisory of March 2, 2004, announcing the hearing ............................................ 2 

WITNESSES 

Congressional Budget Office, Douglas Holtz-Eakin, Director .............................. 6 

Center for Consumer Driven Health Care, Galen Institute, Greg Scandlen ...... 56 

Center for Studying Health System Change, Len M. Nichols ............................. 41 

Kaiser Commission on Medicaid and the Uninsured, Diane Rowland ................ 23 

University of southern California, Center for Health Financing, Policy and 

Management, Glenn Melnick .............................................................................. 49 

SUBMISSIONS FOR THE RECORD 

AdvaMed, statement ................................................................................................ 85 

American Academy of Actuaries, statement .......................................................... 86 

American College of Physicians, statement ........................................................... 92 

Associated Builders and Contractors, Arlington, VA, statement ......................... 96 

Catholic Health Association of the United States, Michael, D. Place, statement ...................................................................................................................... 98 

Communicating for Agriculture and the Self-Employed, Fergus Falls, MN, 

Wayne Nelson, letter ........................................................................................... 101 

March of Dimes, Marina L. Weiss, statement ....................................................... 102 

National Conference for Community and Justice, Sanford Cloud Jr., statement ...................................................................................................................... 105 

National Federation of Independent Business, statement ................................... 106 

Neltner Billing and Consulting, Independence, KY, Martin E. Neltner, statement ...................................................................................................................... 108 

(1) 

THE UNINSURED 

TUESDAY, MARCH 9, 2004 

U.S. HOUSE OF REPRESENTATIVES, 

COMMITTEE ON WAYS AND MEANS, 

SUBCOMMITTEE ON HEALTH, 

Washington, DC. 

The Subcommittee met, pursuant to notice, at 2:25 p.m., in room 

1100, Longworth House Office Building, Hon. Nancy L. Johnson 

(Chairman of the Subcommittee) presiding. 

[The advisory announcing the hearing follows:] 

2 

ADVISORY 

FROM THE COMMITTEE ON WAYS AND MEANS 

SUBCOMMITTEE ON HEALTH 

FOR IMMEDIATE RELEASE CONTACT: (202) 225–3943 

March 02, 2004 

HL–5 

Johnson Announces Hearing on the Uninsured 

Congresswoman Nancy L. Johnson (R–CT), Chairman, Subcommittee on Health 

of the Committee on Ways and Means, today announced that the Subcommittee will 

hold a hearing on the uninsured. The hearing will take place on Tuesday, March 

9, 2004, in the main Committee hearing room, 1100 Longworth House Office Building, beginning at 2:00 p.m. 

In view of the limited time available to hear witnesses, oral testimony at this 

hearing will be from invited witnesses only. Witnesses will include Douglas HoltzEakin, Director of the Congressional Budget Office, and experts on the uninsured 

population and health insurance. However, any individual or organization not 

scheduled for an oral appearance may submit a written statement for consideration 

by the Committee and for inclusion in the printed record of the hearing. 

BACKGROUND: 

This hearing will focus on Americans who lack health insurance coverage—a constantly changing group as some gain and others lose coverage. Estimates of the 

number of uninsured range from 20 to 60 million, depending upon the definition of 

uninsured, and the length of time considered. For example, the Congressional Budget Office estimates that between 21 and 31 million people were uninsured for all 

of 1998, about 40 million were uninsured at any point in time during 1998, and 

nearly 60 million were uninsured at some point in 1998. According to analysis by 

the Census Bureau, the number of non-elderly who were uninsured increased each 

year from 2000 to 2002, after falling the previous two years. 

The uninsured are not all alike: they encompass a wide range of characteristics. 

While some uninsured tend to have lower than average income, and tend to be in 

poorer health, others are young and healthy. Over 50 percent of the non-elderly who 

were uninsured at any time during 1998 had incomes over 200 percent of the poverty level. In 1998, 90 percent of those who were uninsured all year were in working 

families. 

In announcing the hearing, Chairman Johnson stated, ‘‘When Americans who lack 

health insurance coverage get ill, many suffer lower access to care and higher costs. 

We must understand who lacks coverage and why, before we can identify solutions 

to the problems the uninsured face when they need health care.’’ 

FOCUS OF THE HEARING: 

The hearing continues the Subcommittee’s consideration of the issues concerning 

Americans who lack access to affordable health insurance. The first panel will discuss the identification of individuals without health insurance and changes in the 

number uninsured over time. The second panel will help Members understand the 

causes and consequences of lack of health insurance, tax and regulatory policies that 

affect access to health insurance, and consequences faced by some of the uninsured 

who are hospitalized. This hearing will lay the groundwork for future hearings on 

options to address the problems of the uninsured. 

DETAILS FOR SUBMISSION OF WRITTEN COMMENTS: 

Please note: Due to the change in House mail policy, any person or organization 

wishing to submit a written statement for the printed record of the hearing should 

send it electronically to hearingclerks.waysandmeans@mail.house.gov, along with a 

3 

fax copy to (202) 225–2610, by the close of business, Tuesday March 23, 2004. Those 

filing written statements who wish to have their statements distributed to the press 

and interested public at the hearing should deliver their 200 copies to the Subcommittee on Health in room 1136 Longworth House Office Building, in an open 

and searchable package 48 hours before the hearing. The U.S. Capitol Police will 

refuse unopened and unsearchable deliveries to all House Office Buildings. 

FORMATTING REQUIREMENTS: 

Each statement presented for printing to the Committee by a witness, any written statement 

or exhibit submitted for the printed record or any written comments in response to a request 

for written comments must conform to the guidelines listed below. Any statement or exhibit not 

in compliance with these guidelines will not be printed, but will be maintained in the Committee 

files for review and use by the Committee. 

1. Due to the change in House mail policy, all statements and any accompanying exhibits for 

printing must be submitted electronically to hearingclerks.waysandmeans@mail.house.gov, along 

with a fax copy to (202) 225–2610, in WordPerfect or MS Word format and MUST NOT exceed 

a total of 10 pages including attachments. Witnesses are advised that the Committee will rely 

on electronic submissions for printing the official hearing record. 

2. Copies of whole documents submitted as exhibit material will not be accepted for printing. 

Instead, exhibit material should be referenced and quoted or paraphrased. All exhibit material 

not meeting these specifications will be maintained in the Committee files for review and use 

by the Committee. 

3. Any statements must include a list of all clients, persons, or organizations on whose behalf 

the witness appears. A supplemental sheet must accompany each statement listing the name, 

company, address, telephone and fax numbers of each witness. 

Note: All Committee advisories and news releases are available on the World 

Wide Web at http://waysandmeans.house.gov. 

The Committee seeks to make its facilities accessible to persons with disabilities. 

If you are in need of special accommodations, please call 202–225–1721 or 202–226– 

3411 TTD/TTY in advance of the event (four business days notice is requested). 

Questions with regard to special accommodation needs in general (including availability of Committee materials in alternative formats) may be directed to the Committee as noted above. 

f 

Chairman JOHNSON. Good afternoon. The hearing will come to 

order. Today’s hearing focuses on uninsured Americans, who they 

are, and why they are uninsured. Since the Subcommittee on 

Health last held a hearing on the uninsured in 2001, the number 

of Americans without coverage has increased. Over 43 million 

Americans, more than 1 in 7, are uninsured on any given day. In 

my home State of Connecticut, more than a quarter million residents live and work without health insurance. As we develop legislative solutions, we need to understand the latest research on the 

uninsured and the barriers they face in purchasing coverage. 

We will hear from our expert panelists that the uninsured are a 

dynamic group which is constantly changing as people gain and 

others lose coverage. The number of Americans who are uninsured 

depends on the definition of the uninsured, especially how long a 

person is uninsured and whom you count. Analysis by the Congressional Budget Office (CBO) shows that if you look at people who 

are uninsured for an entire year or longer, you find between 21 

million and 31 million uninsured. If you look at any given day in 

a year, about 40 million are uninsured. If you consider those who 

are uninsured at any point during a year, nearly 60 million are uninsured. 

4 

The uninsured are a diverse and divergent group demographically as well. Among the non-elderly who are uninsured all year, 

one-quarter are under age 18, but one-fifth are over 45. Threequarters have income less than two times the poverty level, but 5 

percent have income four times the poverty level. One-quarter lack 

a high school diploma, but one-third attended college. 

One characteristic may come as a surprise to many. About 90 

percent of the uninsured live in working families, and 40 percent 

live in families with a full-time worker. Over 60 percent of uninsured individuals do not have access to insurance through their 

employer, often a small business. In Connecticut, for example, 59 

percent of the uninsured adults work for companies with fewer 

than 100 employees and 30 percent, or 76,000 people in Connecticut, work at a company with fewer than 10 employees. 

Finally, some of the uninsured are eligible for public programs 

but fail to enroll. For example, one-third of uninsured children 

were eligible for Medicaid. Others are eligible for the Children’s 

Health Insurance Program (CHIP). The presence of the uninsured 

is a significant problem in our Nation’s health care system. The 

Subcommittee understands the importance of addressing this problem, both because those without health coverage often go without 

health care and because the payment structure supporting our providers no longer accommodates the cost shifting that used to absorb 

the cost of care of the uninsured. Indeed, for the individual uninsured person, he or she is more than three times likely to delay 

care, more than three times likely to leave a prescription unfilled, 

and far more likely to face financial ruin as a result of health care 

costs than an insured individual. 

From the point of view of the provider network, emergency rooms 

are closing and doctors are being forced to limit the number of nonpayers they accept for care as costs rise and payments fall. So, both 

for the sake of the individual uninsured people in America and to 

preserve our health care delivery capability for all, we must assure 

that every American has access to affordable health care. Today 

our experts will help us review the who, when, and why questions 

about the uninsured so that we may turn at a later date to the 

question of how to fix the problem. 

First we will hear testimony from the director of the CBO, Douglas Holtz-Eakin, who will focus on the diversity of the uninsured, 

and, given that diversity, the multiple approaches in the future we 

will have to consider. Actually he is not going to consider the multiple approaches. I sort of misread my punctuation there. I say 

that, given that diversity, I believe we will be required to approach 

this problem from many different points of view. Our second panel 

will turn to further examination of the uninsured population and 

our experts will discuss barriers to affordable coverage and myths 

about the uninsured. I would like to recognize Mr. Stark, the Ranking Member, for an opening statement. 

Mr. STARK. Thank you, Madam Chair. I appreciate your calling 

this hearing. I must admit it feels a little bit like Ground Hog Day. 

Year after year we hold hearings and report on the uninsured and 

year after year we hear that the numbers continue to rise. Year 

after year we fail to take any action. I say that through a series 

of various Administrations and political control. We know who the 

5 

uninsured are and we know why they are uninsured and we could 

fix it. 

Even President Bush knows how to get there, and that is why 

he is promoting national health insurance for the people in Iraq. 

It may sound strange that I agree with the President on something, but in this case his idea that a system of national insurance 

is the most equitable, efficient means of insuring all people is right. 

I only wish that he would decide to extend that same generosity 

to his folks here at home so that everyone in our great country 

could have the benefits of a national health insurance program. 

My friend and our own Secretary of Health and Human Services 

has basically said that Americans deserve less than national insurance. A week ago, when he was asked about our policy in Iraq, he 

said, well, and I am quoting him: ‘‘Even if you don’t have health 

insurance in America, you get taken care of.’’ I am not sure what 

that means, ‘‘taken care of.’’ That could be defined as universal 

health care. I find it alarming that our Administration would 

equate eventual treatment in an emergency room or a charity clinic, often too late to avoid serious damage or death, as universal 

health care. 

We know better than that. The Institute of Medicine will tell us 

that 18,000 Americans die prematurely each year due to the effects 

of lack of health insurance coverage. The Kaiser Family Foundation in their 2003 health insurance survey found that half of uninsured adults postpone seeking medical care, and over a third say 

they need it but did not get medical care in the last year. Their 

survey also found that a third of the uninsured had a serious problem paying their medical bills in the past year and a quarter were 

contacted by a collection agency, if not having homes foreclosed or 

threatened with bankruptcy. 

The uninsured are more likely than those with insurance to be 

hospitalized for conditions that could have been avoided. ‘‘Sicker 

and Poorer: The Consequences of Being Uninsured,’’ a report by the 

Kaiser Commission on Medicaid and the Uninsured, found that 

better health would improve annual earnings by 10 to 30 percent 

for private companies. 

The statistics go on. We know how to solve the problem. We have 

programs that work in this country. They work in the State of Hawaii. They are up above 95 percent covered, which is far better 

than we are able to do. We have employer-sponsored insurance for 

workers. We have got public programs such as Medicare, Medicaid, 

State Children’s Health Insurance Program (SCHIP), Consolidated 

Omnibus Budget Reconciliation Act (COBRA). We could build on 

those programs. All we need is somebody in the White House and 

their adherence here and in the Senate to roll up our sleeves and 

say, let’s do it. We could go to work tomorrow and require some 

kind of, I don’t care what it is, pay or play. We could do it, there 

is nothing new in this world of providing medical care to all Americans. It ought to start right here and I would love to join with the 

Chair and introduce a bill next week and let’s see how far we can 

go. Thank you. 

Chairman JOHNSON. Thank you, Mr. Stark. I hope that our testimony today will create a better factual basis for legislative action. 

Dr. Holtz-Eakin. 

6 

STATEMENT OF DOUGLAS HOLTZ-EAKIN, PH.D., DIRECTOR, 

CONGRESSIONAL BUDGET OFFICE 

Dr. HOLTZ-EAKIN. Chairman Johnson, Mr. Stark, Members of 

the Committee, thank you for the chance for CBO to be here today 

and present some of the work we have done on the uninsured. I 

have a written statement which I will submit for the record and 

I will instead use this time to touch briefly on the highlights, some 

of which the Chairman has introduced in her opening remarks. 

Probably the easiest way to do this is through the use of the four 

charts that we brought along. The first chart is focused on the 

question of how many people are uninsured. The answer really depends on how one asks the question. One could ask the question, 

How many people are uninsured for an entire year, for a full year? 

If the question is asked that way, using data from three different 

surveys—and these data are from 1998 but recent research suggests the basic patterns are unchanged—you would have an answer 

of roughly 20 to 30 million individuals who are uninsured for the 

entire year. 

In contrast, you could ask the question, How many people experience some spell of uninsurance during a year, however short or 

long? If one asked the question in that way, you get a much larger 

number, about 60 million individuals. Those are the bars on the 

right-hand side of the chart. Instead what you typically hear is the 

number 40 million. That is the answer to the question, if you 

walked out on the street and asked how many people are uninsured in this week or on this day, there would be a mixture of 

those two groups: those who have short spells and long spells, and 

that number is about 40 million individuals. 

As these numbers suggest and as we show in Chart 2, there are 

radically different experiences in terms of the duration of spells of 

uninsurance. For some individuals, about 45 percent, the duration 

of such a spell would be under 4 months. That is shown as the 

large wedge in the pie chart on the left. In contrast, about 29 percent, nearly 30 percent of individuals experience a spell of 

uninsurance that exceeds 1 year in length. The remainder lie in between. 

As a result of this mixture of individuals with short and long 

spells, if you walk out on the street again and find a person who 

is not insured and ask the question, How long would this person 

be uninsured, you are more likely to find somebody who has a long 

spell of uninsurance because of their prevalence in the population 

and that is displayed on the right-hand pie chart. The policy implications of this, I think, are fairly straightforward. One size evidently does not fit all and it suggests that there are really broadly 

two different kinds of problems of uninsurance: those with short 

spells perhaps driven by labor market dislocations and job transitions; and those with longer spells which exceed a year in length. 

The next question is, What do the individuals look like in these 

different spells? This is laid out in Tables 1 and 2 in the testimony. 

The highlights of that are that adults are more likely to suffer 

uninsurance in large part because the children are more likely to 

be covered by Medicaid and SCHIP programs in the United States. 

Those who are uninsured tend to be of lower income and lower education and, as the Chairman noticed in her opening remarks, in 

7 

working families, but there is not a large difference by health status. There appears to be no like defining characteristic on that dimension. 

Among those with longer spells, again we find those who are 

poorer, lower income, and lower education. This suggests that these 

are individuals who are in jobs without employer-sponsored insurance. There was also the case that among different ethnic groups, 

Hispanics are more likely to suffer long spells; and among the age 

distribution, younger individuals are more likely to be represented 

there as well. 

A moral that comes out of looking at the vast array of statistics 

that characterize the uninsured and the duration of spells of uninsured is that it is a very multidimensional problem and it will not 

be simple to target a single characteristic to identify those who 

would be likely to be uninsured or even uninsured for a great 

length of time. All of this diversity and dynamics occurs within 

longer term trends in the top line number, the fraction of individuals without insurance. 

We show in the next chart some of the patterns over the past two 

decades in the level of uninsurance in the population. Out of the 

160 million Americans with insurance, about 64 percent receive 

their insurance through their employer. That is down about 6 percentage points from the beginning of the chart in 1997. If you look, 

the large move occurred between 1987 and 1993 when there was 

about a 6 percentage point drop in the total level of employer-sponsored insurance. Since then, we have seen a modest rise and then 

a reversal during the most recent time period. 

The Medicaid pattern in the green bar roughly offsets the trend 

in employer-sponsored insurance. This suggests that one concern 

may be that variations in new sources of insurance, such as Medicaid or expansions of other types, may offset existing employersponsored insurance or crowd it out to some extent, a topic to 

which I will return before I close. 

The topic of the hearing itself, the dotted red line, is the rise in 

uninsurance, which is now about 17 percent overall, up about 3 

and one-half percentage points. One lesson I think that is easy to 

draw from that chart is that the uninsured problem is not new; indeed it is a chronic condition in the United States and needs to be 

revisited in all its forms. 

The final chart examines more carefully the link between health 

insurance premiums and uninsurance. I want to say at the outset 

that the link between these two is far from simple. One could imagine a situation in which premiums rose in the absence of any 

change in the underlying benefit from being insured, and in those 

circumstances it is quite rational for individuals to choose to purchase less insurance, and we might see uninsurance rise. 

On the other hand, to the extent that health care costs per se 

simply go up, the value of insurance rises and one might expect 

more individuals to choose to purchase insurance and to negotiate 

with their employers to get coverage. So, there is not an absolute 

relationship between premiums which may be driven by benefit increases and premiums which are not and the rate of uninsurance. 

Nevertheless, a casual inspection of the historical record suggests 

some relationship between rising health insurance premiums, an 

8 

1 Congressional Budget Office, How Many People Lack Health Insurance and for How Long? 

(May 2003). 

episode in the late eighties and early nineties, and more recently 

have both coincided with declines in the overall level of the rate of 

insurance. That may come in roughly two kinds of categories, those 

which are related to business cycles. We discuss in the testimony 

the notion that COBRA coverage may also come with not only the 

opportunity to buy but the obligation to pay a much higher premium in the face of diminished income—that would be difficult— 

but also for longer term movements in the crowd-out between the 

enhanced Medicaid programs and the acquisition of private insurance. Some estimates in the literature suggest that expansions in 

Medicaid are offset by as much as 10 to 25 percent in reduced private insurance. With that overview of the testimony, I would like 

to close and be happy to answer your questions. 

[The prepared statement of Dr. Holtz-Eakin follows:] 

Statement of Douglas Holtz-Eakin, Ph.D., Director, Congressional Budget 

Office 

Chairman Johnson and Members of the Subcommittee, I appreciate the opportunity to be here today to discuss the characteristics of people without health insurance and the relationship between health insurance premiums and insurance coverage. Although more than 240 million people in the United States have health insurance today through a variety of private and public sources, millions of others do 

not; and the percentage of Americans who are uninsured has risen in each of the 

last two years for which information is available. 

In my testimony today, I will discuss some important characteristics of the uninsured population that have received relatively little attention but that have important implications for federal policies to expand insurance coverage. I will also discuss the implications of rising health insurance premiums for insurance coverage 

rates and the potential costs of federal programs to expand coverage. 

Characteristics of the Uninsured Population 

In recent years, it has been frequently stated that about 40 million Americans 

lack health insurance coverage. That estimate, by itself, presents an incomplete and 

potentially misleading picture of the uninsured population. The uninsured population is constantly changing as people gain coverage and lose coverage. Furthermore, people vary greatly in the length of time that they remain uninsured. Some 

people are uninsured for long periods of time, but more are uninsured for shorter 

periods. 

There are several alternative measures of the number of people who lack insurance coverage. One describes those people who do not have coverage for a sustained 

period (say, one year)—the long-term uninsured. Alternatively, another identifies 

how many individuals have experienced any spell without insurance during a particular period. Finally, the most commonly used measure (a mixture of those two 

others) counts the number of individuals without insurance on any particular day 

or in a certain week. Those different approaches yield different numbers because of 

the continual movement of people into and out of the uninsured population. The 

Congressional Budget Office’s (CBO’s) recent analysis 1 found that in 1998: 

• Between 21 million and 31 million people were uninsured all year; 

• At any point in time during the year, about 40 million people were uninsured; 

and 

• Nearly 60 million people were uninsured at some point during the year (see Figure 1). 

9 

2 Agency for Health Care Research and Quality, The Uninsured in America—1996–2002, Statistical Brief No. 24, available at www.ahrq.gov. 3 Congressional Budget Office, How Many People Lack Health Insurance Coverage and for How 

Long? 

Figure 1. Estimated Number of Nonelderly People Without Health Insurance in 1998 

Source: Congressional Budget Office. 

Note: The Survey of Income and Program Participation is conducted by the Census 

Bureau. The Medical Expenditure Panel Survey is conducted by the Agency for 

Healthcare Research and Quality. The National Health Interview Survey, which 

reports only the point-in-time estimate, is sponsored by the Centers for Disease 

Control and Prevention. 

CBO conducted the analysis for 1998 because that was the most recent year for 

which suitable data were available to construct all three measures. More recent 

analyses by researchers at the Agency for Healthcare Research and Quality indicate 

that those three measures of the uninsured remained fairly stable in the subsequent 

period from 1998 to 2001.2

Nearly 30 percent of Americans under age 65 who become uninsured in a given 

year remain so for more than 12 months, while 45 percent obtain coverage within 

four months (see Figure 2).3 Those estimates were obtained by CBO using data from 

the Census Bureau’s Survey of Income and Program Participation for 1996 through 

1999. They are very similar to the findings of previous studies that have examined 

earlier time periods. 

Those estimates of the duration of uninsured spells describe the experiences of 

people who become uninsured in a given year. However, almost 80 percent of the 

people who lack health insurance at a particular time end up being uninsured for 

more than 12 months (see Figure 2). Although long uninsured spells occur less frequently than short spells, they are more likely to be under way at any given time. 


Insert offset folio 23794a.001
10 

Figure 2. Distribution of Uninsured Spells Among Nonelderly People in a 

Given Year and at a Given Point in Time, by Duration 

Source: Congressional Budget Office based on data from the first 11 waves of the 

1996 panel of the Census Bureau’s Survey of Income and Program Participation, 

which followed respondents over a period of 41 months (from March 1996 through 

July 1999). 

People with less education, those with low income, and Hispanics are more likely 

than others to be uninsured (see Table 1). They are also somewhat more likely to 

remain uninsured for long periods. For example, people in families in which no one 

attended college account for 64 percent of uninsured spells of more than 12 months 

but only 49 percent of uninsured spells that end within four months (see Table 2). 

That difference probably reflects, at least in part, the fact that people who did not 

attend college are less likely than others to have access to employment-based insurance. 

Table 1. Nonelderly People Without Health Insurance in 1998, by 

Selected Characteristics 

Nonelderly People 

Distribution 

of the Uninsured Population 

(Percent) 

Characteristic 

Uninsured at 

Any Time 

During the 

Year 

(Percent) 

Uninsured 

All Year 

(Percent) 

Age Less than 19 26 .8 7 .3 24 .9 

19–24 41 .9 14 .4 13 .7 

25–34 31 .1 12 .3 21 .9 

35–44 20 .2 9 .3 19 .7 

45–54 15 .1 7 .6 12 .6 

55–64 14 6 .7 7 .2 

Race/Ethnicity White, Non-Hispanic 18 .4 6 .3 48 .4 

Black, Non-Hispanic 33 .4 10 .7 15 .3 

Hispanic 47 .4 22 .5 30 .8 

Other 31 .1 10 .9 5 .5 

Family Income Less than 200 percent 47 .9 19 .5 74 .9 

Relative to the 200 percent to 399 percent 17 .4 5 .3 19 .8 

Poverty Level a 400 percent or more 6 1 .6 5 .3 

Education a, b No high school diploma 50 .4 24 .6 28 .4 

High school graduate 33 .1 12 .7 36 .4 

Some college course work 22 .1 7 .3 26 .6 

Bachelor’s degree or higher 9 .9 2 .6 8 .7 


Insert offset folio 23794a.002
11 

Table 1. Nonelderly People Without Health Insurance in 1998, by 

Selected Characteristics—Continued 

Nonelderly People 

Distribution 

of the Uninsured Population 

(Percent) 

Characteristic 

Uninsured at 

Any Time 

During the 

Year 

(Percent) 

Uninsured 

All Year 

(Percent) 

Family Employment Status a

At least one full-time 

worker all year 

15 5 .9 42 .9 

Part-time or part-year 

work only 

46 .1 16 .1 46 .6 

No work 32 .8 13 .1 10 .6 

Health Status c Excellent 23 .7 8 .9 28 .8 

Very good 25 .1 9 .3 32 .8 

Good 24 .6 9 .1 24 .5 

Fair 25 .1 8 .7 8 .9 

Poor 25 .3 10 .3 5 .1 

Memorandum: 

Total Nonelderly Population 

24 .5 9 .1 100 

Source: Congressional Budget Office based on an analysis of data from the 1996 panel of the Survey of Income and Program Participation. aFor family-level variables, families are defined as health insurance eligibility units, which are composed of 

individuals who could be covered as a family under most private health insurance plans. b Education measures the highest education level among the adults in the family. 

c Information on health status was collected only for survey respondents who were at least 15 years of age. 

Table 2. Comparison of the Characteristics of Nonelderly People 

with Short Uninsured Spells and Long Uninsured Spells 

Characteristic 

Duration of Uninsured Spell 

Four Months or Less 

(Percent) 

DMore Than 12 

Months 

(Percent) 

Total 100 100 

Agea Children 47 .3 37 .5 

Adults 52 .7 62 .5 

Race/Ethnicity White, Non-Hispanic 56 .7 48 .8 

Black, Non-Hispanic 19 .7 18 .2 

Hispanic 18 .4 27 .6 

Other 5 .2 5 .4 

Family Income Rela- Less than 200 percent 61 .6 77 

tive to the Poverty 200 percent to 399 per 

Level b, c -cent 26 .7 21 

400 percent or more 11 .7 7 

Education a, c No high school diploma 17 .8 26 .6 

High school graduate 

only 

31 37 .6 

Some college 35 .5 26 .8 

Bachelor’s degree or 

higher 

15 .6 9 

Adults are somewhat more likely than children to remain uninsured for long periods. The availability of Medicaid coverage may explain some of that discrepancy: 

coverage is available to many children in low-income families, but the majority of 

low-income adults are not eligible for the program. In addition, evidence suggests 

that single adults without children may be less inclined to seek insurance, on averVerDate Aug 31 2005 06:42 Mar 11, 2006 Jkt 023794 PO 00000 Frm 00015 Fmt 6633 Sfmt 6621 E:\HR\OC\23794.XXX 23794
12 

4See, for example, Bowen Garrett, Len M. Nichols, and Emily K. Greenman, Workers Without 

Health Insurance: Who Are They and How Can Policy Reach Them? (Washington, D.C.: Urban 

Institute, 2001). 5Genevieve Kenney, Jennifer Haley, and Alexandra Tebay, ‘‘Children’s Insurance Coverage 

and Service Use Improve,’’ Snapshots of America’s Families, vol. 3, no. 1 (Washington, D.C.: 

Urban Institute, July 2003). 6 In principle, that provision also applies to SCHIP. However, seven states have placed caps 

on their enrollments in SCHIP because of budget shortfalls. See Vernon K. Smith and David 

M. Rousseau, ‘‘SCHIP Program Enrollment: June 2003 Update,’’ Kaiser Commission on Medicaid and the Uninsured (Washington, D.C.: Henry J. Kaiser Family Foundation, December 

2003). 7 Researchers disagree about how the CPS estimates of the insured and uninsured should be 

interpreted. Like many health care analysts, CBO believes that those estimates provide a close 

approximation of the numbers at a specific point in time. See Congressional Budget Office, How 

Many People Lack Health Insurance and for How Long? 8The CPS estimates for 1987 to 2002 have been adjusted to account for changes that were 

made in the survey design during that period. The estimates are from Paul Fronstin, Sources 

of Health Insurance Coverage and Characteristics of the Uninsured: Analysis of the March 2003 

Current Population Survey, Issue Brief No. 264 (Washington, D.C.: Employee Benefit Research 

Institute, December 2003). 

age, than adults with children, which may cause them to experience long spells 

without insurance. 

The vast majority of the uninsured are in working families. Some 43 percent of 

the people who were uninsured all year in 1998 were in families in which at least 

one person worked full time all year, and 47 percent were in families in which at 

least one person worked part time or for a portion of the year (see Table 1, column 

3). Studies have found that over three-quarters of uninsured workers are not offered 

insurance by their employer.4 Low-wage workers are less likely to be offered insurance by their employer and are less likely to accept it if it is offered. 

Medicaid is an important source of coverage for children and parents in low-income families, the disabled, and the low-income elderly. However, the number of 

people who report in population surveys that they have Medicaid coverage is smaller than the number indicated by the program’s administrative data. Survey estimates could therefore overstate the number of people who are uninsured. But some 

evidence, albeit limited, indicates that many of the Medicaid enrollees who do not 

report being covered by Medicaid mistakenly report another type of coverage, so the 

bias in estimates of the uninsured may be small. 

About half of all uninsured children in 2002 were eligible for Medicaid or the 

State Children’s Health Insurance Program (SCHIP), according to one study.5 For 

uninsured people who are eligible but not enrolled, Medicaid provides a form of conditional coverage. Such people can apply for Medicaid at the time that they obtain 

care and then receive retroactive coverage for their expenses.6 Because of that provision, some policymakers view those people as insured. Others view them as uninsured because they may not realize that they are eligible for Medicaid and therefore 

may delay or avoid seeking medical care. 

Trends in Insurance Coverage 

The vast majority of nonelderly Americans who have health insurance are covered 

through their own or a family member’s employer. According to the Census Bureau’s 

Current Population Survey (CPS), 161 million nonelderly Americans (or 64 percent 

of the nonelderly population) had employment-based insurance in 2002.7

A smaller proportion of Americans have employment-based insurance today than 

in 1987 (see Figure 3).8 The decline in coverage occurred primarily from 1987 to 

1993, when the share of the nonelderly population with employment-based coverage 

fell by nearly 6 percentage points. From 1993 to 2000, the percentage with employment-based coverage stabilized and then increased, before falling in 2001 and 2002. 

The percentage with employment-based coverage in 2002 stood at about the same 

level as in 1993. 

The percentage of nonelderly Americans without health insurance coverage rose 

gradually during most of the period from 1987 to 2002, although it fell in 1999 and 

2000 (see Figure 3). The uninsurance rate did not increase by as much as employment-based coverage fell because of offsetting changes in the percentage of people 

who were covered by Medicaid and SCHIP. The share of the nonelderly population 

that was covered by private nongroup insurance remained relatively stable at about 

7 percent. In 2002, about 17 percent of the nonelderly population was uninsured— 

about 3.5 percentage points higher than in 1987. 

13 

Figure 3. Percentage of Nonelderly Americans With Employment-Based 

Health Insurance, Medicaid, and Private Nongroup Insurance and 

Those Without Insurance, 1987 to 2002 

Health Insurance Premiums and Insurance Coverage 

Rapidly rising health insurance premiums are a source of concern first because 

they are likely to reduce the percentage of people who have health insurance. They 

also increase the amount of federal subsidy that must be extended to individuals 

or firms to achieve a specified reduction in the number of people who are uninsured, 

and the associated growth in health care spending raises the cost of expanding public programs such as Medicaid and SCHIP. 

Just how much of the change in insurance coverage rates that has occurred over 

the past 15 years results from changes in premiums, changes in unemployment 

rates, and other factors is unknown. But in the two periods in which employmentbased coverage dropped (from 1987 to 1993 and from 2000 to the present), health 

insurance premiums rose rapidly. Private health insurance premiums grew much 

more rapidly than wages and the prices of other goods and services from 1987 to 

1993 and then grew at a more moderate pace until accelerating again in 1999 (see 

Figure 4). Thus, employment-based coverage rates fell during periods of rapidly rising premiums and stabilized (and even increased) when the growth of premiums 

slowed. Those simple correlations suggest that rising premiums contributed to the 

decline in coverage. Other factors, such as cyclical changes in employment, changes 

in the characteristics of the health plans offered, expansions in public coverage, and 

demographic changes probably also contributed. 


Insert offset folio 23794a.003
14 

9David M. Cutler, Employee Costs and the Decline in Health Insurance Coverage, Working 

Paper No. 9036 (Cambridge, Mass.: National Bureau of Economic Research, July 2002). 10 Henry S. Farber and Helen Levy, ‘‘Recent Trends in Employer-Sponsored Health Insurance 

Coverage: Are Bad Jobs Getting Worse?’’ Journal of Health Economics, vol. 19, no. 1 (January 

2000), pp. 93–119. 11 Congressional Budget Office, Family Income of Unemployment Insurance Recipients (March 

2004). 

Figure 4. Annual Percentage Change in Private Health Insurance Premiums, Wages, and the Consumer Price Index, 1987 to 2002 

In discussing the effect of increases in premiums on coverage, distinguishing 

among different causes of such increases is important. Clearly, an increase in premiums having nothing to do with the quality of the insurance benefit (a tax on premiums, for example) would lead to a reduction in the number of people with health 

insurance since the price increase would lead some people to drop their coverage. 

However, the growth in health care spending that has driven the increase in premiums in recent decades has been largely caused by the advancing capabilities of 

modern medicine. Increases in premiums therefore have reflected, at least in part, 

changes in the product itself, leaving the effect of premiums on decisions to purchase coverage less clear-cut. 

Determining how increases in premiums affect insurance coverage rates is also 

complicated by the fact that a general upward trend in the cost of medical services 

can make insurance more appealing, because covering potentially costly medical 

needs without insurance is more difficult. Although that argument applies to many 

individuals, others—particularly those with limited financial resources—are more 

likely to drop coverage when faced with rising premiums and to then rely on care 

furnished by safety net providers such as community health centers, local health departments, and public hospitals.9

The rapid growth in premiums from 1987 to 1993 may have contributed to the 

reported decline in the rates at which employees take up the offer of employmentbased coverage. According to one study, the reduction in the insurance coverage rate 

among workers from 1979 to 1997 resulted from two factors: a decline in the rate 

at which full-time workers accepted an offer of insurance from their employer and 

a decrease in the proportion of part-time and new full-time workers who were eligible for the insurance that their employer offered.10 There was no decline in the proportion of workers whose employer offered insurance. 

As noted, increasing unemployment rates, too, reduce insurance coverage, because 

losing a job sometimes puts a worker’s employment-based health insurance at risk. 

In a recent analysis, CBO found that health insurance coverage rates declined significantly among people who received unemployment insurance (UI) benefits for at 

least four consecutive months in 2001 or early 2002.11 Some 82 percent of such 

workers had health insurance coverage (from any source) before they began receiving UI benefits, but only 58 percent had coverage by the final month of those benefits. 


Insert offset folio 23794a.004
15 

12 No estimates of the crowd-out associated with tax inducements for insurance coverage are 

available. 13For a review of the literature on crowd-out, see Understanding the Dynamics of ‘‘Crowdout’’: Defining Public/Private Coverage Substitution for Policy and Research (report prepared by 

the Academy for Health Services Research and Health Policy under The Robert Wood Johnson 

Foundation’s Changes in Health Care Financing and Organization Program, June 2001). 

Federal legislation (the Consolidated Omnibus Budget Reconciliation Act of 1985, 

known as COBRA) requires firms with 20 or more employees to continue offering 

health coverage to workers who separate from their firm. However, firms may 

charge former employees up to 102 percent of the full (group) premiums for that 

coverage. Therefore, unemployed workers may face a large increase in their out-ofpocket premiums under COBRA. The reduction in coverage estimated for recipients 

of unemployment insurance probably stems, in part, from many of those people opting not to purchase coverage under that law. 

Policy Implications 

Policies aimed at increasing insurance coverage will be more effective if designed 

in light of the characteristics of the uninsured population. In particular, policymakers should be mindful of the dynamic nature of the uninsured population as 

well as the distinction between the short-term and long-term uninsured. For people 

with short spells of being uninsured, policies might have the goal of filling the temporary gap in coverage or of preventing such a gap from occurring. For people with 

longer periods without insurance, policies might seek to provide or facilitate an ongoing source of coverage. 

An issue that complicates any policy initiative to expand health insurance is the 

crowding out of existing sources of coverage. ‘‘Crowd-out,’’ which results when coverage through a new government policy initiative replaces private coverage that people would have otherwise had, can occur in various ways. Some employees may drop 

their employment-based coverage if a government program provides health insurance at a lower premium. Or employers may reduce or drop coverage if the demand 

from their employees lessens because a government program provides an alternative 

source of coverage. A related issue concerns health insurance tax credits or similar 

subsidy programs. Some proposals would extend credits or subsidies to people who 

would have been insured even without them. Through both phenomena, federal aid 

is extended to people who otherwise would have been insured. As a result, the federal cost per newly insured person could be substantially greater than the cost for 

each person who uses the federal program or who receives the tax credit. 

Information on the amount of crowd-out associated with policies to expand insurance coverage comes primarily from analyses of occasions during the late 1980s and 

early 1990s when states extended Medicaid coverage to pregnant women and children with income above the federal poverty line.12 According to those analyses, an 

estimated 10 percent to 25 percent of the people who were enrolled in Medicaid 

when eligibility expanded would have otherwise been covered by private insurance.13 The variation in the estimates arises to some extent from the use of different 

methods in measuring the effect. Such estimates may also vary because of differences in the types of people eligible for the public programs being measured. In 

particular, crowd-out rates increase as programs extend the level of income that enrollees may have, as the eligible population includes an increasing share of people 

who have private insurance instead of no insurance. 

Finally, incremental reforms probably cannot provide insurance for everyone, and 

attempting to achieve 100 percent coverage would be very expensive. As an alternative, policymakers could consider policies aimed at expanding insurance coverage 

in conjunction with policies to strengthen the system through which the uninsured 

receive medical care—for example, through increased funding of community health 

centers and public hospitals. 

f 

Chairman JOHNSON. Thank you. Thank you very much. On 

this issue of crowd-out, which is perhaps the most difficult aspect 

of doing something about the uninsured, States have done different 

things in terms of coverage. Have you done any work on States 

that have tried universal coverage to see what the crowd-out impact, particularly on small business, was? 

16 

Dr. HOLTZ-EAKIN. We haven’t done any work at CBO on that 

particular issue. We have relied on our surveys of the literature in 

looking at, particularly Medicaid expansions which have given the 

best body of evidence, to look at impacts with respect to different 

income levels as the expansions took place at different parts of the 

income distribution. We can go back and look at the literature and 

see if it gives us more evidence at the State level evidence and will 

be happy to work with you to get that back to you. 

Chairman JOHNSON. I should think it would be interesting to 

look at TennCare in Tennessee and see whether the change in the 

public coverage affected employer-provided insurance, particularly 

for small businesses. What were the other ramifications? 

Dr. HOLTZ-EAKIN. We can go back and look at the Tennessee 

experience. Most of the academic literature tries to aggregate many 

different State experiences into a summary statistic on crowd-out 

without itemizing State-by-State experiences but it is certainly 

within the data. 

Chairman JOHNSON. I don’t know whether you can look at 

whether those States have taken up all the options under Medicaid, so they cover a much larger population, much higher up the 

income ladder, what the sort of comparison is between willingness 

to provide insurance in the small business sector in States with low 

Medicaid definitions versus States with high Medicaid definitions. 

I mention that because during the Medicare debate, one of the 

things that surprised me absolutely the most and one of the reasons I think the benefits in that bill are being grossly underestimated is that 38 States define Medicaid eligibility as 75 percent of 

the Federal poverty level. 

So, for us to cover people basically up to 150 percent does make 

a huge difference for many seniors throughout the country. If that 

is what States are doing, then in those States, the small businesses 

may be finding a way to participate in their employees’ health care 

at a higher rate than, for example, in a State like Connecticut that 

has generous Medicaid coverage. So, if there is any way we could 

look at those two things I would appreciate it. I have two specific 

questions and then I will turn it over to Mr. Stark. In your charts 

and your testimony, you mentioned that there is somewhere between 21 million and 31 million, approximately, uninsured all year. 

That is a huge swing. That is a 50 percent swing. Why can’t you 

do better than that? 

Dr. HOLTZ-EAKIN. The range of estimates comes from looking 

at different data sources for information about the uninsured. To 

track completely a spell of uninsurance requires the kind of data 

that follows individuals through time. Such data sets are relatively 

rare. To the extent that they ask good questions about the nature 

of individuals’ health insurance coverage is even rarer. 

So, we have a restricted amount of data, quite frankly, that are 

available to answer this question. I guess it is in the eye of the beholder. From the point of view of someone who has looked at data 

on many problems in economics for a long period of time, I was less 

unhappy with that swing than you might have been. I think the 

key message is that out of the whole population of the uninsured, 

there is a smaller subset which is uninsured for a sustained period 

of time, and if one wanted to target that audience more carefully 

17 

it might be useful to peel back more layers, look at those individuals who perhaps had not declined employer coverage. If they declined employer coverage, it is hard to argue that they were uninsured involuntarily. You could look at the degree to which they 

might be eligible for Medicaid and not take it up. 

Chairman JOHNSON. Two things. First of all, I think it would 

be very useful to know more about the difference between 21 million and 31 million because what you are really saying is either 

half of the uninsured are uninsured for 12 months or more or 

three-quarters. So, I would like to know more about that figure. 

Dr. HOLTZ-EAKIN. We can certainly provide that. 

Chairman JOHNSON. I would appreciate that. 

[The information was not received at the time of printing] 

Chairman JOHNSON. Then in your other chart, about spells in 

progress and spells that began. On one chart you have 45 percent 

uninsured for less than 4 months, 26 percent for 5 to 12 months, 

and about 30 percent for more than 12 months. So, about 30 percent for more than a year. Then, in the chart beside it, 78 percent 

were uninsured for more than 12 months. You explained that with 

some man-in-the-street question. I didn’t get that. If only 30 percent are actually uninsured for more than 12 months, why do 78 

percent think they are? 

Dr. HOLTZ-EAKIN. It represents the difference between watching someone progress through an entire spell, from beginning to 

end and seeing how long it is, versus walking out and finding people perhaps in the middle of a spell of uninsurance. There are a 

smaller fraction, 30 percent, who have very long spells, so you are 

more likely to run into that person when you survey. As a result, 

in the right panel, what you see is the answer to the question when 

we find somebody in the survey then and say are you uninsured, 

they say yes, they are more likely to be the kind of person who has 

a long spell because they are more likely to be found in such a survey. 

Chairman JOHNSON. Do we ask them how long have you been 

uninsured or do we ask them how long do you think you will be 

uninsured? 

Dr. HOLTZ-EAKIN. We ask the first question. The latter we can 

only track by following them for a long period of time. The data are 

fairly limited. 

Chairman JOHNSON. It seems to me that the former number is 

the one that we as policymakers should be more concerned with. 

That is the number who actually are uninsured for more than a 

year. Is that the correct interpretation? 

Dr. HOLTZ-EAKIN. Yes. 

Chairman JOHNSON. Thank you very much, Dr. Holtz-Eakin. 

Mr. Stark. 

Mr. STARK. I gather that this is sort of like labor statistics, and 

are you talking to the people at home or are you talking to the employers to get different employment figures? I don’t think it makes 

a whole hell of a lot of difference. You still only had 21,000 jobs 

last month and when you need 300,000 or 400,000 jobs a month, 

we aren’t doing very well, as we are not in taking care of people 

who aren’t insured. I guess the real question is, How many people 

18 

get sick when they don’t have insurance? I don’t know as we know 

that, do we? 

Dr. HOLTZ-EAKIN. The onset of—— 

Mr. STARK. The onset of an expensive medical encounter. How 

many people have a heart attack or get diagnosed with diabetes? 

I don’t think we know that. Maybe somebody does, but I don’t know 

as we know. That is the key. If somebody makes it through the 

year, they are home free, and then they get insurance next year. 

Where they are going to get it, I don’t know. The other thing that 

I don’t believe you define, or anybody else that I know of, is what 

do you consider as insured. If they have the American Family Life 

Assurance Company (AFLAC), they get a hundred bucks a day if 

they get sick because they’ve got some kind of a hospital policy. Is 

that insured? 

Dr. HOLTZ-EAKIN. In the longer paper that underlies this testimony, the data sources have different classifications. Basically they 

include employer-sponsored insurance. Not all the details about the 

policy are available, but these are standard insurance measures. 

Mr. STARK. At the low end of the scale with some of the associated health plans, as we have been reading in the press lately 

about these plans that have cropped up that are phony. People 

think they have bought health insurance and the insurance company has gone south. We don’t have, outside of, say, Medicare, a 

definition—maybe we do in the Federal Employee Health Benefit 

Plan (FEHBP). I don’t know as the benefits are—if there is a minimum level of benefits there—but we really don’t have a definition 

as to what is, quote, ‘‘insured,’’ do we? 

Dr. HOLTZ-EAKIN. The definitions will differ by the survey. It 

is often self-reported. 

Mr. STARK. Particularly if somebody is on the margin, if they 

have high blood pressure or a host of things where they have been 

excluded as a preexisting condition, they are really not insured for 

the things they need most. I don’t know how I could define that in 

a way that a scientific researcher could use it. I do think that with 

the vast difference in benefits and what is covered and what isn’t, 

we would have a better understanding of how well we are dealing 

with this problem if we could define where we put somebody in the 

winner category. We just don’t take them and give them some kind 

of schlocky insurance company that may not pay benefits, may not 

pay hospital benefits, may not have mental health. 

We say, look, here is a standard of what a person ought to have; 

and then the question is, if they have a holdover when—as you say 

in your testimony—they move from job to job, but really do you 

count the time between when the new insurance goes into effect, 

which often is 60 days, 90 days? Yes, they may be insured, but the 

benefits don’t start if you get sick in that trial period, and there 

may be preexisting conditions which have been precluded, all of 

which I think makes no difference. I am just suggesting that we 

could argue all day whether there are 30 million or 40 million, and 

nobody has brought up children. I keep hearing the number 12 million. What would you say is the number of children? How would 

you define that? 

Dr. HOLTZ-EAKIN. Depending on the definition, we show in 

Table 1 some of the fraction of those individuals less than 19 who 

19 

are uninsured at any point during the year. It is about a quarter 

in our data. 

Mr. STARK. About 25 percent of the uninsured are kids? 

Dr. HOLTZ-EAKIN. Yes. Of the kids are uninsured at some 

point during the year. 

Mr. STARK. Again, I think this is all very interesting, but what 

does General Accounting Office (GAO) suggest we do to get all 

these people insured? 

Dr. HOLTZ-EAKIN. I am not familiar with what the GAO folks 

would suggest, sir. 

Mr. STARK. Okay. What do you think we should do? You are 

studying this. You say you think we have trouble affording it. What 

about the social costs? General Motors tells us they lose $1,300 by 

making a car here as opposed to making it in Canada. That may 

be an incentive to not have jobs here or there. In your opinion, is 

that something we should take into account when we think about 

Federal costs of insuring everybody? 

Dr. HOLTZ-EAKIN. On the job location, I think the key thing to 

focus on is not any particular part of the benefit package, but labor 

costs in any location here versus Canada. I am not familiar with 

the particular number you quoted. Certainly if you want to look at 

the decision to locate a facility or a job in one place or another, the 

typical standard is unit labor cost relative to the productivity of 

labor, not a benefit in isolation. 

The broader question, the intent of my remarks was not to tee 

up specific policy solutions but to identify the fact that there are 

many different features to the issue of uninsurance. There is the 

time series pattern of the total uninsurance, and then there is the 

fact that within the population, there appear to be different kinds 

of experience with spells of uninsurance. It wasn’t meant to offer 

specific solutions but to frame up the issues. 

Mr. STARK. So, you don’t have a suggestion for us? 

Chairman JOHNSON. Mr. Stark, we actually didn’t ask them to 

come to talk about that. They are not prepared for that. 

Mr. STARK. As a person who has a lot of knowledge about this, 

as an economist approach to what it will cost, I think you did say 

it would be expensive, didn’t you? 

Chairman JOHNSON. Let me go on to Mr. Crane. 

Mr. STARK. Sure. 

Mr. CRANE. Thank you, Madam Chairman, and thank you, Dr. 

Holtz-Eakin, for coming today. As you know, H.R. 1, the Medicare 

prescription Drug and Modernization Act, included language that 

created Health Savings Accounts (HSAs) for all Americans. Do you 

recall CBO’s estimation for the number of individuals who would 

purchase a new HSA based on the new law? 

Dr. HOLTZ-EAKIN. I don’t know the number of individuals who 

would purchase them. I know the Joint Committee on Taxation 

scored the budget costs of it. We could certainly discuss with them 

the underlying mechanics of the estimate. 

Mr. CRANE. According to the last Department of the Treasury 

report, 73 percent of people who had a medical savings account 

were previously uninsured, is that correct? 

Dr. HOLTZ-EAKIN. I am not familiar with that number again. 

We can work with you to make sure that that is right. 

20 

Mr. CRANE. One of the arguments against HSAs is that this 

type of savings account drives people out of employer-sponsored 

health care coverage, but based on the Treasury Department’s report, it seems that most people were not driven out of the system. 

They had no insurance at all. Based on factual data, it seems that 

these types of accounts are not undermining the employer-based 

health care system. Would you agree? 

Dr. HOLTZ-EAKIN. I think it is important to look at the evidence. Certainly if you look at the incentives in an HSA, they will 

differ on both the dimension for insurance and the incentives for 

efficient use of health care. For some individuals who are already 

purchasing insurance to get a tax subsidy and take on the HSA is 

clearly to their advantage, it doesn’t change insurance coverage at 

all. For other individuals who do not have insurance, there is an 

obvious incentive, lowering the cost. It will be an empirical issue 

as to which of those things dominates on the insurance front. 

Mr. CRANE. You stated in your testimony that the vast majority 

of the uninsured are in working families and that over three-quarters of uninsured workers are not offered insurance by their employer and that low-income workers are less likely to be offered insurance by their employer and are less likely to accept it if it is 

offered. It seems to me that if we are going to find a way to help 

uninsured individuals, the first place we need to start is to make 

health care more affordable for individuals and small businesses. 

Would you agree? 

Dr. HOLTZ-EAKIN. It certainly appears that the employer-sponsored part of this is an important part of it, especially the transitory spells of uninsurance. 

Mr. CRANE. Thank you. 

Chairman JOHNSON. Mr. McDermott. 

Mr. MCDERMOTT. Thank you, Madam Chairman. There is a 

fascinating article in today’s Washington Post entitled ‘‘Rising 

Costs of Health Care in the U.S. Give Other Developed Countries 

an Edge in Keeping Jobs.’’ Some guy named Jim Stanford, an economist with the Canadian Auto Workers, said employers who operate in either country, meaning Canada or the United States, can 

save $4 an hour per worker by choosing Canada. He says that is 

a significant differential. It’s one of the reasons the Canadian auto 

industry has done a lot better. 

Officials from Ford Motor, General Motors, and DaimlerChrysler 

sent out a letter that said the Canadian public health system significantly reduces total labor costs compared to the costs of equivalent private health insurance services purchased by the U.S.-based 

auto makers. Then, finally, the Vice Chairman of the Ford company said, high health care costs have created a competitive gap 

that is driving investment decisions away from the United States. 

My question to you is the Institute of Medicine did a study last 

year, a 3-year study on the uninsured and said that the U.S. economy loses between $65 and $130 billion each year because we don’t 

have a system of universal coverage. Have you done any kind of 

look at that at all? Did you look at their study? 

Dr. HOLTZ-EAKIN. I read the study briefly. I won’t pretend to 

be intimately familiar with the research underneath it. At CBO we 

haven’t done any estimate of losses of that sort. 

21 

Mr. MCDERMOTT. In a country where these things are true 

about Canada—presumably they are true. I remember that in 1994 

we had a lot of people going around beating on their chests and 

very proudly saying we defeated the Clinton program and that the 

private sector would take care of it. Is there any evidence whatsoever that you can show me since 1994 that the private sector has 

done one thing to deal with the measure of uninsurance in this 

country? 

Dr. HOLTZ-EAKIN. The evidence on uninsurance, we have presented in my opening remarks and in our testimony. I guess I 

would go back to—— 

Mr. MCDERMOTT. You think since 1994 it has gotten better? 

Dr. HOLTZ-EAKIN. In the overall insurance rate, we saw a 

sharp drop between 1987 and 1993. Then it rose during the nineties and has declined more recently. We are at 64 percent overall 

in employer-sponsored insurance. I guess I would repeat what I offered to Mr. Stark, which is that, with all due respect to the individuals involved in the auto companies, I am not familiar with 

their numbers, it is not the full calculation to look only at health 

care costs in the two countries, especially at the employer level. It 

is the total cost of labor compensation relative to how productive 

those workers are that will be the key issue. 

If health care costs rose and nothing else changed, certainly that 

is a competitive disadvantage. The evidence, however, over a long 

period of time in the United States and elsewhere is that if one 

part of the benefit package rises, it is usually offset to some extent 

by another part of the benefit package or wages. So, the total compensation package does not—— 

Mr. MCDERMOTT. So, workers wind up really worse off because 

more of their pay goes into their benefit package than it does into 

their pocket. 

Dr. HOLTZ-EAKIN. Obviously they value the benefit. So, it is a 

mix that offsets one value of compensation with another. 

Mr. MCDERMOTT. Are you testifying that from your research, 

that there is really no problem, then, with the health insurance? 

Eight years in a row of double-digit inflation. The private sector 

was going to take care of that, they told us in 1994, because they 

were scared that the—that the health providers would be scared 

and the insurers could get a better deal. We have had 8 years of 

double-digit inflation. What is happening here? Why does it continue to go up? We leave more and more people by the side of the 

road, even if for 3 or 4 months. 

If you are uninsured and you get sick, it doesn’t make any difference whether you haven’t been insured for a week or 12 months 

and 25 days. It really is a question of what you do. Where is the 

control that is supposed to come out of the private sector? I am a 

free enterpriser. I believe in free enterprise, but I don’t see them 

functioning at all. They put down the government system. So, 

where is the evidence that they control costs? 

Dr. HOLTZ-EAKIN. I think the underlying question with the rising cost of health care in the United States, not insurance per se, 

starts with care. Then I think there is broad consensus that it is 

associated with technology adoption and the enhancement of technologies in the medical sector. They have not in the United States 

22 

and elsewhere proven to be cost savers. The question is whether 

the difference in quality is worth the money. 

Mr. MCDERMOTT. All this technology has not proven to be a 

cost saver. Why does the health care industry continue to do it 

then? Why does the insurance pay for it? If it doesn’t save costs, 

why do they pay for it? 

Dr. HOLTZ-EAKIN. As an economist, I would answer that if 

quality is higher, you would be willing to pay more for something. 

What remains the outstanding question is whether we are getting 

quality per dollar with the technology enhancements. That is the 

question for the United States in looking at the efficient provision 

of health care. Insurance is layered on top of that to spread the financial risk of providing that care. The underlying issue of the rising cost of health care is one in which it may be the case that quality is rising and as this Nation becomes older and wealthier it may 

choose to buy more health care. It may also be the case that at the 

margin, some of these enhancements do not provide the quality 

enough to offset their dollar cost. That is the key issue I think in 

terms of the cost. 

Mr. MCDERMOTT. Did you do any cost-benefit analysis at all? 

Did you look at the cost-benefit analysis at all in terms of our system versus any of these other systems? 

Dr. HOLTZ-EAKIN. We don’t have a study on that. One of the 

questions that would be difficult is measuring benefits. As you can 

imagine just by introspection, valuing the benefits of additional 

medical technology is a very difficult task, both in economic and social terms. 

Mr. MCDERMOTT. I yield back the balance of my time. We don’t 

need another study, Madam Chairman. 

Chairman JOHNSON. I don’t know that I have ever seen a study 

that I thought was useful on that. At the time this issue first came 

up in the eighties, we had more computerized axial tomography 

(CAT) scanners in Connecticut than all of Canada. That says a lot 

about access to quality care. I don’t know how you would deal with 

that in a comparative analysis of health care costs. That has been 

one of the difficulties. 

I just wanted to put on the record one issue that I talked with 

you about that you did not mention in your testimony so I didn’t 

talk—bring it up earlier. You don’t mention the variation in the uninsured geographically. You talk about it demographically and in 

terms of income and age, but not geographically. I think we need 

to know that, because these sort of generic fixes end up having an 

enormous number of ramifications. 

For instance, if you go to a policy that provides tax credits, even 

if they are refundable and they go to 100 percent at certain wages, 

that will certainly displace a lot of employer-provided plans. There 

are other problems with it. If we understood the geographic structure of the uninsured population, we would have a lot more levers 

to pull. 

I just want to comment that the Health Resources and Services 

Administration is handing out grants to community health centers 

that will do two things, and they are 3-year grants. They will 

search out the underinsured and the uninsured in their region and 

bring them into the system and implant electronic technology so 

23 

that any place they enter the system, whether it is the hospital, 

the doctor’s office or their community health center, a home health 

agency, an optometrist, wherever, they can be brought into the system by electronic record so that then wherever they come again, 

their records will be available. It is a very exciting, big effort. I 

hope to get some report on where they are on that in some of the 

older demonstration areas as some portion of the guidance that this 

Committee will need. If you could talk with Census and search out 

and see what do we know about the geographic distribution, that 

would be something of interest to, I think, this Committee. Thank 

you. 

Dr. HOLTZ-EAKIN. Certainly. 

Chairman JOHNSON. We now will ask our second panel to come 

forward. As they are coming forward, I will just introduce them 

very briefly. Diane Rowland is the executive vice president of the 

Henry J. Kaiser Family Foundation and executive director of the 

Kaiser Commission on Medicaid and the uninsured. I won’t go 

through her whole biography but she has done a lot of very important work on Medicaid and long-term care issues, cost containment 

issues and so on. 

I am very pleased to have Dr. Rowland with us. Dr. Nichols is 

from the Center for Studying Health System Change, a nonpartisan health policy research organization in Washington. He is 

an expert on private insurance markets, market-based reforms and 

the Medicare Program. Dr. Glenn Melnick is the Blue Cross of 

California Professor of Health Care Finance at the University of 

southern California and a senior economist and resident consultant 

at RAND Corporation in Santa Monica. He has focused a lot of 

time and effort on areas such as pricing of hospital services, health 

insurance and health care markets. We appreciate him being with 

us here today. Greg Scandlen is with the Galen Institute and is an 

expert on financing, insurance regulation, and employee benefits 

and has written extensively on consumer choice and publishes a 

weekly newsletter, Consumer Choice Matters. 

We welcome you all here today. We thank you for your input and 

your help as we embark on this effort to take some action on the 

uninsured. I know it is an old issue as Pete has mentioned. It has 

been with us for a long time, through Republican Administrations 

and Democratic Administrations. It is a hard problem, which is one 

of the reasons we haven’t solved it. Also our system has a peculiar 

way of ultimately providing health care. At this point, it is not only 

the uninsured, we can’t afford for people to be uninsured as a matter of principle, but also the caring system can no longer sustain 

the costs of nonpayers. Dr. Rowland, if you would proceed. 

STATEMENT OF DIANE ROWLAND, EXECUTIVE DIRECTOR, 

KAISER COMMISSION ON MEDICAID AND THE UNINSURED 

Ms. ROWLAND. Thank you, Madam Chairman and Members of 

the Committee, for this opportunity to be with you today to discuss 

the Nation’s uninsured problem and population. While surveys differ in their count of the uninsured and the time period without 

health insurance, all tell us that millions of Americans go without 

coverage each year, and many for long periods of time. The census 

data we use to monitor health insurance coverage that gives us in 

24 

2002 the number 43 million Americans at any given point without 

health insurance also helps us to understand how this number 

changes over time. In 2002, we saw an increase of 2.4 million without insurance over the previous year. The size of our uninsured 

population, in fact, is comparable to the number of beneficiaries 

you deal with in other legislation who are Members of the Medicare 

Program. 

While the composition of the uninsured population includes 

Americans of all ages and incomes, the problem, especially for the 

long-term uninsured, is particularly focused on low-income families. Health insurance coverage in America is very much a patchwork. Having insurance depends on where you live, where you 

work, and what you earn. In fact, as you pointed out, Madam 

Chair, the geographic variations in the rate of insurance coverage 

are very significant. Those States with large firms and more affluent economies are more likely to have lower rates of uninsurance 

than those States with large poverty populations, small businesses 

and especially rural interests. 

There are also many misperceptions about our uninsured population. They are, as you said, hardworking families that do not obtain health coverage through their jobs. Eight in ten of the uninsured come from a working family, but I think most important to 

remember is that for the most part, they are not affluent. Two out 

of every three come from low-wage families earning less than 

$30,000 for a family of three, families hardly able to afford $9,000 

for a family policy on their own, and in most cases families who 

work for employers that don’t offer coverage. In the few cases 

where the employer offers coverage to these low-income families, 

their share of the premium, averaging $2,400 last year for family 

coverage, is often too high a price to pay when the family budget 

is extremely limited. 

The uninsured, of course, are predominantly adults because our 

public programs have actually helped to extend coverage to 1 in 4 

American children. Today Medicaid and SCHIP provide coverage to 

over 25 million low-income children and have dropped the uninsured rate among low-income children from a high of 23 percent in 

1997 to 14 percent at the beginning of 2003. 

Indeed, a success story in our efforts of extending coverage. This 

drop in the number of children without insurance has helped to 

counteract the rise in the uninsured as a result of loss of employerbased coverage. I don’t believe it is all crowd-outs. For the most 

part, you have provided coverage through Medicaid and SCHIP to 

millions of children previously uninsured, not those who were in 

the employer-based market. However, limited eligibility for parents 

and restrictions on coverage of childless adults and Medicaid leave 

over 20 million low-income adults, half of America’s uninsured population on any given day, outside of Medicaid’s reach. Unfortunately, in today’s economy with weak job growth, the number of 

Americans without health insurance is likely to grow, not shrink. 

Rising health insurance costs are compromising employer-based 

coverage as more and more employers shift increased costs for premiums and additional cost-sharing burdens onto their employees, 

making coverage ever more unaffordable for the lowest-wage emVerDate Aug 31 2005 06:42 Mar 11, 2006 Jkt 023794 PO 00000 Frm 00028 Fmt 6633 Sfmt 6602 E:\HR\OC\23794.XXX 23794
25 

ployees. Meanwhile, State fiscal constraints are putting Medicaid 

and SCHIP coverage at risk. Fiscal relief in the tax bill really did 

help stave off deeper cuts and reductions in Medicaid and reductions in eligibility during the last year, but the matching rate increase will expire this June putting the State’s fiscal considerations 

back on the table. 

It is hard to see how we will be able to make progress extending 

coverage to the uninsured or maintaining the coverage Medicaid 

now provides without a commitment of additional Federal resources. Addressing the uninsured is, as you have said, a national 

priority. People without health insurance often go without appropriate care and get sicker and die sooner than they should because 

of it. 

Leaving millions uninsured and coverage of millions more at risk 

in Medicaid is a poor prescription for our Nation’s health. So, I look 

forward to working with the Committee to find ways to secure the 

coverage we have and extend coverage to the millions of uninsured 

who need assistance in meeting their health care needs. Thank 

you. Dr. Nichols. 

[The prepared statement of Ms. Rowland follows:] 

Statement of Diane Rowland, Sc.D., Executive Director, Kaiser Commission 

on Medicaid and the Uninsured 

• Today, over 43 million Americans are without health insurance. The uninsured 

are predominantly low-income working families—nearly two-thirds (64%) have 

incomes below 200 percent of the poverty level (or less than $30,000 per year 

for a family of three in 2002). 

• Eight in ten of the uninsured come from working families but do not obtain coverage in the workplace. Low-wage workers are particularly disadvantaged—they 

are less likely to be offered coverage through the workplace and unable to afford 

coverage on their own. 

• The rising cost of health insurance is a major problem for both employers and 

employees; in 2003, the average premium cost was $3,383 for single coverage 

and $9,068 for family coverage. On average, employers contributed 84 percent 

of premium costs for single and 73 percent for family coverage; however, the 

employee share remains a substantial burden for many low-wage workers. 

• Medicaid helps fill in the gap by providing health insurance coverage with limited cost sharing and comprehensive benefits to 38 million low-income children 

and parents, the large majority being children. Medicaid’s reach for low-income 

adults, however, is severely limited—income levels for parents in 35 states are 

below poverty and childless adults are generally excluded from coverage, no 

matter how poor. 

• The recent economic downturn and return of escalating health costs now place 

health insurance coverage for working families in jeopardy from increased premium costs and loss of employer-sponsored coverage, combined with limits on 

the availability and scope of Medicaid due to state fiscal constraints. We face 

the prospect of seeing coverage erode, not expand, for millions of Americans. 

• The combination of rising health care costs and state fiscal constraints puts the 

low-income population relying on Medicaid and SCHIP particularly at risk. 

Maintaining the gains in public coverage over the last decade, especially for 

children, may require continuing federal fiscal relief to the states in return for 

a commitment to maintain coverage. 

• Health insurance matters for the millions of Americans who lack coverage—it 

influences when and whether they get necessary medical care, the financial burdens they face in obtaining care, and, ultimately, their health and health outcomes. Extending coverage to the millions of Americans without health insurance is both an important policy and health objective. 

Thank you for the opportunity to offer testimony this afternoon on the nation’s 

growing uninsured population and the consequences of leaving 43 million Americans 

without health insurance coverage. I am Diane Rowland, Executive Vice President 

26 

of the Henry J. Kaiser Family Foundation and Executive Director of the Kaiser 

Commission on Medicaid and the Uninsured. 

Health insurance coverage remains one of the nation’s most pressing and persistent health care challenges. The most recent data from the Census Bureau show 

that more than one in every seven Americans—43.6 million adults and children— 

were without health insurance in 2002. This is not only a large problem, but a growing problem for millions of Americans. From 2001 to 2002, the number of Americans 

lacking health insurance increased by 2.4 million (Figure 1). Public coverage expansions through Medicaid helped to moderate the growth in the uninsured, most notably by providing coverage to children in low-income families, but were not enough 

to offset the decline in private coverage. Lack of coverage compromises not only access to care and the health of the uninsured, but also the health and economic wellbeing of our nation. 

The Uninsured Population 

Who are America’s 43 million people without health insurance coverage? The uninsured are predominantly adults from low-income working families—three-quarters 

of the uninsured are between age 18 and 65; two-thirds have incomes below 200 percent of the federal poverty level or $28,696 for a family of three in 2002; and the 

majority (eight in 10) come from working families (Figure 2). The complexities of 

coverage through the workplace combined with gaps in public coverage through 

Medicaid and the State Children’s Health Insurance Program (SCHIP) mean millions of Americans are outside of the reach of health insurance coverage. Health coverage in America is very much a patchwork—having health insurance depends on 

where you live, where you work, and too often what you earn. 


Insert offset folio 23794a.005
27 

Two out of three nonelderly Americans receive their health insurance coverage 

through an employer-sponsored health plan offered through the workplace, but for 

millions of working families such coverage is either not offered or is financially out 

of reach. Among the 43 million uninsured, eight in ten come from working families—nearly 70 percent come from families where at least one person works full-time 

and another 12 percent from families with part-time employment. 

Most uninsured workers, and consequently their dependents, are not offered jobbased coverage either through their own or a family members job. The likelihood 

of obtaining coverage through the workplace depends largely on where one works 

and what one earns. Most large firms offer coverage, but many smaller firms do not. 

Low-wage workers are often employed in small businesses, particularly in the retail 

and service industries, where health insurance is not widely offered as a fringe benefit. 

The cost of health insurance in the workplace is a substantial financial burden 

for both the employer and employee, but remains a key fringe benefit, especially in 

large or unionized firms. When health insurance is offered in the workplace, most 

employees opt for coverage even though the share of premium they must pay often 

represents a substantial share of their income. In 2003, the Kaiser/HRET national 

survey of employers found the average annual premium for employer-sponsored 

group insurance for a family was $9,068 with the employer contributing 73 percent 

of the premium ($6,656) and the employee contributing 27 percent of the premium 

or $2,412 per year (Figure 3). For single individuals, the premiums averaged $3,383 

per year with the employer covering 84 percent of the premium cost ($2,875 per 

year). 


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28 

If health insurance coverage is not available through a group policy from an employer, families are hard pressed to be able to find and pay for a policy in the individual insurance market. Most directly purchased policies are expensive and have 

more limited benefits and more out-of-pocket costs than group coverage plans. Moreover, the cost of these policies is based on age and health risk, and any preexisting 

health conditions are generally excluded from coverage. For the average low-income 

family, a $9,000 family policy in the individual market would consume a third or 

more of their income, provide only limited protection, and could exclude coverage for 

any family members with health problems. Most notably, in many states, private 

plans individually marketed do not provide routine maternity benefits or, if they do, 

they are offered as a very costly add-on. 

Medicaid and SCHIP help fill in the gaps for some of the lowest income people, 

but this publicly sponsored coverage is directed primarily at children and pregnant 

women and varies in availability across the states. Most low-income children are eligible for assistance through Medicaid or SCHIP, but in most states parents’ eligibility lags far behind that of their children. While eligibility levels for children are 

at 200 percent of the federal poverty level ($30,520 for a family of three in 2003) 

in 39 states, parents’ eligibility levels are much lower (Figure 4). A parent working 

full-time at minimum wage (approximately $9,300 per year at 35 hours per week) 

earns too much to be eligible for Medicaid in 19 states (Figure 5). For childless 

adults, Medicaid funds are not available unless the individual is disabled or lives 

in one of the few states with a waiver to permit coverage of childless adults. As a 

result, in 2002, Medicaid provided health insurance coverage to over half of all poor 

children, and a third of their parents, but only 22 percent of poor childless adults. 

Over 40 percent of poor adults and a third of near-poor adults were uninsured. 


Insert offset folio 23794a.007
29 

Low-income individuals are disproportionately represented among the uninsured—nearly two-thirds (64%) of the uninsured come from low-income families 

earning less than 200 percent of the poverty level and over a third (36%) come from 

families living below the poverty level. Employer-sponsored coverage is extremely 

limited for the low-income population; only 15 percent of the poor and 42 percent 

of the near-poor receive coverage through their employer (Figure 6). Medicaid helps 


Insert offset folio 23794a.008 Insert offset folio 23794a.009
30 

to offset the lower levels of private insurance for over a third (38%) of the poor and 

20 percent of the near-poor, but many parents of low-income children as well as 

childless adults do not qualify for Medicaid assistance. 

The chances of experiencing a long spell without health coverage (12 months or 

longer) are not equal. Individuals with low incomes and those in fair or poor health 

status are significantly more likely than others to be uninsured for long periods. 

Young adults (19–34 years old) are at greater risk of being uninsured for 12 months 

or longer than other age groups (Figure 7). 


Insert offset folio 23794a.010
31 

This confluence of factors relating to the characteristics of the uninsured places 

low-income adults at the center of the nation’s uninsured problem and the group 

most likely to have long periods without coverage. In 2002, 48 percent of the 43 million uninsured Americans were low-income adults—16 percent parents of low-income children and 32 percent low-income adults without children (Figure 8). Assuring coverage for this group, as well as extending coverage to the parents of the lowincome children who are now largely eligible for public coverage, poses the next 

challenge in coverage expansions. Focusing attention on the lack of coverage for lowincome adults and continuing to push for better enrollment of low-income children 

offers the potential to reach two in three uninsured Americans. 


Insert offset folio 23794a.011
32 

THE CONSEQUENCES OF LACK OF INSURANCE 

The growing number of uninsured Americans should be of concern to all of us because health insurance makes a difference in how people access the health care system and, ultimately, their health. Leaving a substantial share of our population 

without health insurance affects not only those who are uninsured, but also the 

health and economic well-being of our nation. 

There is now a substantial body of research documenting disparities in access to 

care between those with and without insurance. Survey after survey finds the uninsured are more likely than those with insurance to postpone seeking care; forgo 

needed care; and not get needed prescription medications (Figure 9). Many fear that 

obtaining care will be too costly. Over a third of the uninsured report needing care 

and not getting it, and nearly half (47%) say they have postponed seeking care due 

to cost. Over a third (36%) of the uninsured compared to 16 percent of the insured 

report having problems paying medical bills, and nearly a quarter (23%) report 

being contacted by a collection agency about medical bills compared to eight percent 

of the insured. The uninsured are also less likely to have a regular source of care 

than the insured, and when they seek care, are more likely to use a health clinic 

or emergency room. Lack of insurance thus takes a toll on both access to care and 

the financial well-being of the uninsured. 


Insert offset folio 23794a.012
33 

Moreover, there is a growing body of evidence showing that access and financial 

well-being are not all that is at stake for the uninsured. There are often serious consequences for those who forgo care. Among the uninsured surveyed, half report a 

significant loss of time at important life activities, and over half (57%) report a painful temporary disability, while 19 percent report long-term disability as a result. 

Lack of insurance compromises the health of the uninsured because they receive 

less preventive care, are diagnosed at more advanced disease stages, and once diagnosed, tend to receive less therapeutic care and have higher mortality rates than 

the insured (Figure 10). Uninsured adults are less likely to receive preventive 

health services such as regular mammograms, clinical breast exams, pap tests, and 

colorectal screening. They have higher cancer mortality rates, in part, because when 

cancer is diagnosed late in its progression, the survival chances are greatly reduced. 

Similarly, uninsured persons with heart disease are less likely to undergo diagnostic 

and revascularization procedures, less likely to be admitted to hospitals with cardiac 

services, more likely to delay care for chest pain, and have a 25 percent higher inhospital mortality. 


Insert offset folio 23794a.013
34 

Urban Institute researchers Jack Hadley and John Holahan, drawing from a wide 

range of studies, conservatively estimate that a reduction in mortality of five to 15 

percent could be achieved if the uninsured were to gain continuous health coverage. 

The Institute of Medicine (IOM) in its analysis of the consequences of lack of insurance estimates that 18,000 Americans die prematurely each year due to the effects 

of lack of health insurance coverage. 

Beyond the direct effects on health, lack of insurance also can compromise earnings of workers and educational attainment of their children. Poor health among 

adults leads to lower labor force participation, lower work effort in the labor force, 

and lower earnings. For children, poor health leads to poorer school attendance with 

both lower school achievement and cognitive development. 

These insurance gaps do not solely affect the uninsured themselves, but also affect our communities and society. In 2001, it is estimated that $35 billion in uncompensated care was provided in the health system with government funding accounting for 75 to 80 percent of all uncompensated care funding (Figure 11). The poorer 

health of the uninsured adds to the health burden of communities because those 

without insurance often forgo preventive services, putting them at greater risk of 

communicable diseases. Communities with high rates of the uninsured face increased pressure on their public health and medical resources. 


Insert offset folio 23794a.014
35 

A recent IOM report estimates that in the aggregate the diminished health and 

shorter life spans of Americans who lack insurance is worth between $65 and $130 

billion for each year spent without health insurance (Figure 12). Although they 

could not quantify the dollar impact, the IOM committee concluded that public programs such as Social Security Disability Insurance and the criminal justice system 

are likely to have higher budgetary costs than they would if the U.S. population 

under age 65 were fully insured. A new study by Hadley and Holahan of the Urban 

Institute suggests that lack of insurance during late middle age leads to significantly poorer health at age 65 and that continuous coverage in middle age could 

lead to a $10 billion per year savings to Medicare and Medicaid. 


Insert offset folio 23794a.015
36 

PROSPECTS FOR THE FUTURE 

Given the growing consensus that lack of insurance is negatively affecting not 

only the health of the uninsured, but also the health of the nation, one would expect 

extending coverage to the uninsured to be a national priority. All indicators point 

to significant growth in our uninsured population if action is not taken to both 

broaden and secure coverage. 

With the poor economy and rising health care costs, employer-based coverage— 

the mainstay of our health insurance system—is under increased strain. Health insurance premiums rose nearly 14 percent this year—the third consecutive year of 

double-digit increases—and a marked contrast to only marginal increases in workers’ wages (Figure 13). As a result, workers can expect to pay more for their share 

of premiums and more out-of-pocket when they obtain care, putting additional stress 

on limited family budgets. With average family premiums now exceeding $9,000 per 

year and the workers’ contribution to premiums averaging $2,400, the cost of coverage is likely to be increasingly unaffordable for many families, especially low-wage 

workers. However, for most low-wage workers, especially those in small firms, it is 

a question of availability, not affordability—because the firms they work in do not 

offer coverage. 


Insert offset folio 23794a.016
37 

In recent years, with SCHIP enactment and Medicaid expansions, states have 

made notable progress in broadening outreach, simplifying enrollment processes, 

and extending coverage to more low-income families (Figure 14). Participation in 

public programs has helped to reduce the number of uninsured children and demonstrated that outreach and streamlined enrollment can improve the reach of public 

programs. However, the combination of the current fiscal situation of states and the 

downward turn in our economy are beginning to undo the progress we have seen. 


Insert offset folio 23794a.017
38 

From 2001 to 2002, employer-based health insurance coverage declined for lowincome adults and children while Medicaid and SCHIP enrollment increased, 

muting a sharper climb in the number of uninsured. Most notably, while the number of uninsured adults increased, the number of uninsured children remained stable because public coverage helped fill in the gaps resulting from loss of employer 

coverage (Figure 15). Recent reports of enrollment freezes in SCHIP programs and 

reductions in Medicaid coverage are troubling. 


Insert offset folio 23794a.018
39 

With the recent economic downturn, states have experienced the worst fiscal situation they have faced since the end of World War II. State revenues fell faster and 

further than anyone predicted, creating substantial shortfalls in state budgets. In 

2002, after accounting for the effect of legislative changes, real state revenue collections declined for the first time in a decade—falling 6.8 percent that year followed 

by a 3.3 percent decline in 2003. Although states predict slight growth for 2004, it 

is not sufficient to meet rising program costs. Medicaid spending has been increasing as health care costs for both the public and private markets have grown and 

enrollment in Medicaid has increased, largely as a result of the weak economy and 

loss of jobs and income. However, even with Medicaid spending pressure, it is the 

state revenue shortfalls—not Medicaid—that remain the primary cause of the state 

budget crisis. 

The state revenue falloff is, however, placing enormous pressure on state budgets 

and endangering states’ ability to provide the funds necessary to sustain Medicaid 

coverage. Turning first to ‘‘rainy day’’ and tobacco settlement funds, states have 

tried to preserve Medicaid and keep the associated federal dollars in their programs 

and state economies. But, as the sources of state funds become depleted, states face 

a daunting challenge in trying to forestall new or deeper cuts in Medicaid spending 

growth. In the Jobs and Growth Tax Relief Reconciliation Act enacted in May 2003, 

Congress provided $20 billion in state fiscal relief, including an estimated $10 billion through a temporary increase in the federal Medicaid matching rate. This 

helped states avoid making deeper reductions in their Medicaid spending growth, 

but this fiscal relief will expire in June of this year. It seems unlikely that states’ 

fiscal conditions will substantially improve by then, so the absence of continued fiscal assistance from the federal government will likely result in additional cutbacks 

in Medicaid coverage in many states. 

Because Medicaid is the second largest item in most state budgets after education, 

cuts in the program appear inevitable—in the absence of new revenue sources—as 

states seek to balance their budgets and the fiscal relief expires. Indeed, survey data 

the Kaiser Commission on Medicaid and the Uninsured released in January indicates that 49 states and the District of Columbia put new Medicaid cost containment strategies in place in fiscal year 2004. This cost containment activity follows 

two previous years of Medicaid cost containment action in many states (Figure 16). 


Insert offset folio 23794a.019
40 

States have continued to aggressively pursue a variety of cost containment strategies, including reducing provider payments, placing new limits on prescription drug 

use and payments, and adopting disease management strategies and trying to better 

manage high-cost cases. The pressure to reduce Medicaid spending growth further 

has also led many states to turn to eligibility and benefit reductions as well as increased cost-sharing for beneficiaries, although, reflecting the requirements of the 

federal fiscal relief, no states have made additional Medicaid eligibility reductions 

since the fiscal relief took effect last year. Although in many cases these reductions 

have been targeted fairly narrowly, some states have found it necessary to make 

deeper reductions, affecting tens of thousands of people. 

The fiscal situation in the states jeopardizes not only Medicaid’s role as the health 

insurer of low-income families, but also its broader role as the health and long-term 

assistance program for the elderly and people with disabilities. Although children 

account for half of Medicaid’s 51 million enrollees, they account for only 18 percent 

of Medicaid spending. The low-income elderly and disabled population represents a 

quarter of Medicaid beneficiaries, but 70 percent of all spending because of their 

greater health needs and dependence on Medicaid for assistance with long-term 

care. Facing their budget shortfalls, states will find it difficult to achieve painless 

reductions and understandably are seeking more direct federal assistance, especially 

with the costs associated with the elderly and disabled who are covered through 

both Medicare and Medicaid (the dual eligibles) and account for 42 percent of Medicaid spending. 

CONCLUSION 

Looking ahead, it is hard to see how we will be able to continue to make progress 

in expanding coverage to the uninsured or even maintaining the coverage Medicaid 

now provides. Lack of health coverage is a growing problem for millions of American 

families. The poor economy combined with rising health care costs make further declines in employer-sponsored coverage likely. The state fiscal situation combined 

with rising federal deficits complicate any efforts at reform. In the absence of additional federal assistance, the fiscal crisis at the state level is likely to compromise 

even the ability to maintain coverage through public programs. Although Medicaid 

has demonstrated success as a source of health coverage for low-income Americans 

and a critical resource for those with serious health and long-term care needs, that 

role is now in jeopardy. 

Assuring the stability and adequacy of financing to meet the needs of America’s 

most vulnerable and addressing our growing uninsured population ought to be 


Insert offset folio 23794a.020
41 

among the nation’s highest priorities. Maintaining the coverage now provided 

through Medicaid and SCHIP and building on that foundation to extend coverage 

to more of the low-income uninsured population provides both a tested and cost-effective approach to reducing the number of uninsured Americans. But, like all solutions to the uninsured, this too requires additional resources and given the fiscal 

straits of the states, undoubtedly means a greater commitment of federal support 

to address this national problem. 

I commend your efforts to highlight the plight of the 43 million Americans without health insurance coverage and to identify options that could help address this 

growing problem. I look forward to working with you to meet the challenge of making health care coverage a reality for all Americans. 

Thank you for the opportunity to testify today. I welcome any questions. 

f 

STATEMENT OF LEN M. NICHOLS, VICE PRESIDENT, CENTER 

FOR STUDYING HEALTH SYSTEM CHANGE 

Mr. NICHOLS. Madam Chair, Representative Stark, and Members of the Subcommittee, I am honored to testify before you today 

on a topic of such importance to our Nation. My name is Len Nichols, and I am the vice president of the Center for Studying Health 

System Change. I am also a participant in the Economic Research 

Initiative on the Uninsured (ERIU), a project that convened a 

group of health and labor economists from around the country to 

sort out what we do and do not know about the uninsured. ERIU 

recently published a book entitled Health Policy and the Uninsured, and my written testimony is organized around 10 myths 

about the uninsured which are implicitly debunked in different 

chapters of the book, one of which I coauthored. My remarks today 

shall highlight four of these myths. 

Myth number 3: Coverage is coverage is coverage. As Representative Stark alluded to, the punch line is that head counts in coverage are not enough. Insurance differs in terms of the kind of financial protection it offers, the potential for improvement in 

health, and the humanity of the treatment when you enter the delivery system. To put it slightly differently, imagine a policy that 

gave every American as much insurance as $100 could buy. We 

would then have zero uninsured, but we wouldn’t be very much 

better off than we are now. 

Myth number 4: Health insurance would improve the health of 

all the uninsured. This is among the more complicated and emotional disputes in health policy analysis. It turns out that standards of proof about causation in this area have not been as high 

as they should have been. Researchers have come to realize there 

may be important but unobservable differences in people that make 

different choices about things like insurance, diet, exercise, and 

education. If we merely observe what people do without proper research controls, it is hard to be sure what caused and what was 

merely associated with health outcomes. When appropriate standards of proof have been met, the evidence suggests that health insurance does indeed have positive effects on the health of certain 

key populations: the poor, the elderly, the truly sick, and children. 

What has not been proven by this standard is that universal coverage would improve the health of all of the uninsured, and this 

leads economists to the following three inferences: We cannot say 

with certainty that more public subsidies for health insurance for 

42 

the general population would be the best way to improve health. 

The second thing, understanding more about the complex relations 

between health status, health services, health insurance, personal 

behaviors and information would help us improve our policy advice. 

Third, there are many reasons to support universal coverage, but 

the analytic case for the general short-run positive health effects 

is not the strongest one. 

Myth number 9, one of my favorites: Economists don’t know anything about why people are uninsured. Sometimes it seems that a 

normal person might listen to economists argue among themselves 

and conclude that nothing has ever been satisfactorily proved. That 

is not the case. This issue is so important, I devote the last two 

myths to embellishing the point. There are three things most 

economists actually do believe about the lack of insurance coverage, 

and this one is key. The single most important reason people are 

uninsured in this country is they are not willing to pay what it 

costs to insure themselves. This unwillingness to pay is highly, but 

not perfectly, correlated with low income. Thus, if policymakers 

really want to increase coverage, they are going to have to provide 

substantial subsidies since most of the uninsureds have incomes 

below twice times poverty. 

Finally myth number 10: The combined research evidence supports doing nothing to address the problems of the uninsured 

today. Now, I want to be clear. Economists and health policy analysts cannot tell you as a scientific matter that you should implement new subsidies and other policies designed to reduce the number of uninsureds. We can, when we are at our best behavior, articulate and help you see the tradeoffs involved, but only you who 

have been entrusted with the power of the people can decide if the 

opportunity cost is worth it; that is, which competing priorities will 

and should get less attention and fewer resources. A politically 

neutral observer might conclude from our relative inaction on behalf of the adults in the last 35 years that the case for doing something substantial about the uninsured must be weak. I believe this 

is the wrong conclusion to draw from the evidence I have reported 

on today as well as some other recent empirical work. 

The case for some kind of significant coverage expansion seems 

persuasive to many health economists and health policy researchers today, but perhaps the best proof of the value of health insurance lies not in statistics or econometrics, but rather in the fact 

that all of the health policy analysts I know—and I have lived long 

enough to know quite a few of them—actually seek out and keep 

health insurance even when self-employed. They even buy for their 

recalcitrant adult children when the latter emerge from college 

feeling immortal but also stunned at the rental price of nice apartments in our great cities. 

The choice is less funny for two working parents who make, say, 

$7.50 an hour and therefore earn $30,000 a year. Their children 

would in most States, as Diane pointed out, be eligible for SCHIP, 

but they would not likely be offered health insurance at their jobs, 

and they make far more than most States’ Medicaid income cut-off 

for adults. They are also not likely to spend a third or more of their 

income on family health insurance than the nongroup market. To 

43 

add one final touch of realism, you may assume they are healthy 

today. 

Are we willing to require them to obtain health insurance? If 

they do get sick, they will use resources that will impose costs on 

the rest of us, and thus a requirement to purchase would be responsive to the free rider justification for universal coverage. Of 

course, at $30,000 a year, they can’t afford it, so we would also 

have to subsidize their purchase of insurance or impose an inequitable burden upon them. At the same time, they are healthy now, 

so the Nation would be essentially buying for them true insurance 

with no necessary immediate health benefits; that is, we would be 

buying protection from risk, a risk of potentially devastating financial, emotional, and health consequences of unforeseen health problems which could strike any of us this very afternoon. 

The question comes down to, are we willing as a nation of communities to pay to protect these parents from living with this risk 

that we all pay to avoid for ourselves and to protect us all from free 

rider costs? These are the ultimate questions that only you and 

your colleagues can answer, but we would be glad to help. Thank 

you very much. 

[The prepared statement of Mr. Nichols follows:] 

Statement of Len M. Nichols, Ph.D., Vice President, Center for Studying 

Health System 

MYTHS ABOUT THE UNINSURED

Madame Chair, Representative Stark and members of the Subcommittee, I am 

honored to have been invited to testify before you today on a topic of such importance to our nation, facts about those who live without health insurance. My name 

is Len M. Nichols and I am an economist and the vice president of the Center for 

Studying Health System Change (HSC). HSC is an independent, nonpartisan health 

policy research organization that is principally funded by The Robert Wood Johnson 

Foundation and is affiliated with Mathematica Policy Research. We conduct nationally representative surveys of households and physicians, site visits to monitor ongoing changes in the local health systems of 12 U.S. communities, and we monitor secondary data and general health system trends. Our goal is to provide members of 

Congress and other policy makers with unique insights on developments in health 

care markets and their impacts on people. Our various research and communication 

activities may be found at www.hschange.org. 

I am also a member of the Policy Advisory and Research Review Committees of 

the Economic Research Initiative on the Uninsured (ERIU), a project of The Robert 

Wood Johnson Foundation that convened a group of health and labor economists to 

sort out what we do and do not know about the uninsured in our country. The ultimate goal was to inform policy makers who may consider specific policy responses. 

The project was directed by Catherine McLaughlin, a professor of economics at the 

University of Michigan. I was a co-author of a chapter in a recently published book 

that grew out of this project, Health Policy and the Uninsured (Urban Institute 

Press, 2004). My chapter was titled, ‘‘Why Are So Many Americans Uninsured?’’ 

My testimony today is organized around a theme called ‘‘Myths About the Uninsured.’’ This theme was also the one used at a recent press briefing, which Mark 

Pauly—professor of economics and health care systems at the Wharton School of the 

University of Pennsylvania—and I did together to report on the research contained 

in the ERIU book. Dr. Pauly and I took turns clarifying the research pertinent to 

each myth, and we both essentially agreed with what the other said. Dr. Pauly has 

kindly allowed me to use some of his logic and words in my written testimony. I 

take sole responsibility for any remaining errors or ambiguity, however. In this testimony I have combined and rephrased some of the myths we used that day, and 

I have added one more that grows out of the spirit of the research but is wholly 

my contribution to your deliberations. The 10 myths about the uninsured my written testimony will highlight are: 

1. We know how many uninsured there are. 

44 

2. The uninsured are all alike. 

3. Coverage is coverage is coverage. 

4. Health insurance would improve the health of all the uninsured. 

5. The uninsured choose to be so. 

6. Employers pay $400 billion for health insurance today. 

7. The decision to remain uninsured has no effect on anyone else. 

8. Until HIPAA, workers were afraid to switch jobs because of health insurance. 

9. Economists don’t know anything about why people are uninsured. 

10. The combined research evidence supports doing nothing to address the problems of the uninsured today. 

Below I explain why economists think all these myths are misleading to an important degree. 

Myth #1: We know how many people are uninsured. Forty-four million is the 

‘‘official’’ number from the most recent Current Population Survey, but the truth 

could be (and is) on either side. The CPS asks: did you have health insurance at 

any time in the 12 months ending two months ago? Penn State Professor Pamela 

Farley Short’s chapter clarifies the overwhelming evidence that many respondents 

answer the CPS insurance questions incorrectly. Even if answered perfectly, this 

concept omits quite a large number of people who lack insurance for a period shorter 

than 12 months or the interval in which they lacked insurance did not match the 

particular window asked about. So the truth is that far more than 44 million are 

uninsured for a period shorter than 12 months in a given year. 

On the other hand, other surveys make clear that the 44 million number overstates by as much as a factor of two the people who were uninsured for all of the 

prior 12 months. The Census Bureau’s Survey of Income and Program Participation, 

HSC’s Community Tracking Household Survey, and AHRQ’s Medical Expenditure 

Panel Survey, as well as the Urban Institute’s National Survey of America’s Families, all have probed survey respondents for years and said, now, are you really sure 

that you didn’t have any insurance for that time period? 

The subtle lesson here is to pay attention to time frame. The longer the period 

of time, the smaller the number of people who are always without health insurance 

and the larger the number of people who are without insurance for some of the relevant time period. 

Perhaps the most important thing to establish from a policy perspective is not the 

precise number, as long as we are confident that the number of uninsured for an 

entire year is in the tens of millions, and researchers are confident of this. The most 

important analytic measurement may be the time trend in the percentage of nonelderly Americans who are uninsured, which has recently been quite adverse. 

Trends are more reliably calculated, assuming that the same kinds of respondent 

errors and measurement imperfections are present each year, which is a reasonable 

assumption. 

Myth #2: The uninsured are all alike. This is manifestly false. The uninsured 

tend to be somewhat lower-income and in somewhat poorer health, but because 

there are so many of them and because they do span various dimensions of American life, there are many who are young and healthy but there are many who are 

not; there are many who are reasonably well off, including a sizable fraction above 

the median income. And then, as is also important to note, there is a sizable fraction 

below the poverty line who are also sick and in a very bad way. The message of 

this diversity for policy design in a world of public budget constraints is that you 

probably want to be careful and clever in making limited funds go as far as they 

can toward expanding coverage. Of course, policies that are target efficient are also 

more complex. In addition, there are inherent trade-offs in choosing a target population, for example, in extending lower cost coverage to a larger number of relatively 

healthy uninsured vs. extending higher cost overage to a smaller number who are 

likely to have more health risks. Value judgments are unavoidable when making actual policy choices in this case. 

Myth #3: Coverage is Coverage is Coverage. Designs of insurance policies 

really do matter. Insurance is not insurance. Insurance differs in terms of the kind 

of financial protection it offers, in the potential for improvement in health it offers, 

and the humanity of the treatment when you contact the healthcare system. To put 

it slightly differently, imagine a policy that gave every American as much insurance 

as $100 could buy. Every American would then have insurance, we’d have zero uninsured, but we wouldn’t really be in that much better of a situation than we are 

now. 

45 

1 Actuarial value can be thought of as the percentage of expected health-related costs for an 

average risk person that the policy is designed to cover. It is thus a measure of generosity of 

a health insurance policy. 

But the punch line is that the head counts of coverage are not enough, that the 

actuarial value 1 of insurance may vary, and even given the same number of dollars 

spent on insurance, the consequences of insurance may be different, depending on 

the form that insurance takes. Furthermore, the harm of not having insurance may 

vary with the length of time coverage is lost, as well as with nature of the people 

without coverage. 

Moreover, the kind of insurance that people get depends very strongly on where 

they get it. If they work for a large Fortune-500 firm whose benefits department 

is run by professionals, they will get very good and well-designed coverage. If they 

get it from Gus and Otto’s Garage, and neither Gus nor Otto was trained as an actuary, it may not be such great coverage. And if they get it in the individual market, 

it depends on how good the consumers are at searching through the wide range of 

possibilities available to find the best buys out there compared to other less satisfying policies that are also available and may be easier to find. 

Myth #4: Health insurance would improve the health of all the uninsured. 

This is among the more complicated and emotional disputes in health policy analysis. I will clarify how the literature may be correctly interpreted on what is accepted as proven now, and take some care to distinguish this from what we would like 

to know and from what we might think policy should do in the face of real-world 

imperfect knowledge. 

Helen Levy and David Meltzer, both professors at the University of Chicago, were 

asked to review the literature to assess this question: ‘‘Does health insurance really 

affect health status?’’ They were rightly concerned that standards of proof about 

causation in this area have often been lower than they should have been in many 

published papers, even in many prestigious journals over the years. And they chose 

to use a standard of proof that is quite high, but is nonetheless becoming increasingly common in the social sciences, that causation is not likely to be appropriately 

inferred unless there has been an adequate natural experiment or a true experiment 

in which a representative sample of people are assigned to have or not have insurance for the duration of the experiment. This standard of proof for causation has 

become more widely shared as researchers have realized that there may be important but unobservable differences in people that make different choices about things 

like insurance, diet, exercise and education. If we merely observe what people do, 

it is hard to be sure what caused and what merely reflected health outcomes. For 

example, if some people (for whatever reason) have a low value for their health, it 

is likely that they will not obtain health insurance but also will not take steps (like 

preventive care and better health habits) that are known to affect health. We can 

easily observe the association of lack of insurance and low health, but it will be 

their low demand for health that causes the poor health, not lack of insurance per se. Now, this standard of proof has rarely been met in the research literature, but 

when it has, the bulk of the evidence suggests that health insurance does indeed 

have positive effects on the health of certain populations, and indeed, those most 

often at the center of a policy debate: the poor, the elderly, the truly sick and children. What has not been proven by this standard is that universal coverage would 

improve the health of all of the uninsured, and this leads economists to the following three inferences. (1) Because we do not have an unbiased measure of the effect of health insurance on health in general, we cannot say with certainty that 

more public subsidies for health insurance for the general population would improve 

health status more than would an increase in the capacity of public health centers 

or public hospitals, better education about diet and exercise, or a more equal income 

distribution for that matter; (2) Understanding more about the complicated pathways that different types of people traverse from coverage to health status through 

health services, and indeed, health insurance and health education, would help us 

make far better calibrated recommendations to policymakers; (3) There are many 

reasons to support universal coverage, but the analytic case for the short-run positive health effects is not the strongest one, at least for the higher income and basically healthy uninsured who comprise roughly 40 percent of the uninsured today. 

Another element of this generalized myth is that universal coverage would eliminate poor health status among vulnerable populations. Despite considerable policy 

attention and focus, rather large disparities in health care outcomes among different 

population subgroups persist in our country. At least part—and perhaps a very 

large part—of the reason lies in differential access to health insurance. Harold Pollack and Karl Kronebusch, from the Universities of Chicago and Yale, respectively, 

46 

2http://qualitytools.ahrq.gov/disparitiesReport/downloadlreport.aspx 3 Hargraves, L. and J. Hadley. ‘‘The Contribution of Insurance Coverage and Community Resources to reducing Racial and Ethnic Disparities in Access to Health Care,’’ Health Services 

Research 38:3 (June 2003). 

have written a chapter that focuses on access to health insurance by six subgroups 

that are often considered vulnerable for one or more reasons. The groups are the 

low-income population, children, racial and ethnic minorities, people living with 

chronic conditions, the near-elderly, and people suffering from psychiatric and substance use disorders. 

Each group raises distinct concerns for public policy, health insurance and the 

healthcare delivery system. Pollack and Kronebusch conclude there are four basic 

reasons vulnerable populations often lack health insurance: (1) they have medical 

and social needs that hinder their access to good jobs and to private health insurance markets; (2) they have general economic disadvantages, including lower incomes, which impede their ability to pay for health insurance when it is available 

and less access to jobs with employer-sponsored insurance, which makes it cheaper; 

(3) they sometimes face discrimination based on race, ethnicity or language; and (4) 

they sometimes suffer from impaired decision-making and rather imperfect proxy 

decision-making. And unfortunately, many people in vulnerable populations face 

multiple barriers at the same time. 

As an example of troubling disparities, taken from AHRQ’s recent healthcare disparities report,2 black women have lower rates than white women of cancer screening and higher rates of diagnosis in late stage and consequently higher death rates. 

These death rates apparently persist even after controlling for education and income. They also appear to persist after controlling for insurance. This suggests that 

insurance alone cannot solve the problems faced by vulnerable populations. Pollack 

and Kronebusch wrote: ‘‘The data provide ample warning that one should not oversell the possibilities of improving health status and individual well-being through 

expanded health coverage. Expanded coverage is unlikely to eliminate the high 

rates of death and illness that arise from multiple causes and require multifaceted 

interventions.’’ In other words, insurance will help these populations and reduce 

gaps,3 but eliminating the disparities gap will require multiple policy changes. 

Myth #5: Individuals without insurance choose to be so. In some general 

sense this is true. No law prohibits people from buying insurance, and most could 

buy individual insurance, although if you are a very high-risk person you might find 

the price quoted to exceed what you expect to get back in benefits, and a small fraction of people are outright denied access to insurance at any price. But, more generally, if we think of realistic choice or reasonable choice for low-income people or 

for people at high levels of risk, if they don’t have insurance now, obtaining insurance voluntarily without further subsidies is probably not a realistic option. 

We also know—especially from some of the studies described in the chapter that 

Linda Blumberg of the Urban Institute and I wrote—that job matching is not perfect and there are some people who probably want insurance who can only find a 

job in firms that do not offer insurance. Now, they do not want it so much they are 

willing to pay whatever it may take in the non-group market, but they do want insurance and can not get it. There are also some other people who would rather have 

higher wages than health insurance but can only find a job in a firm that offers 

health insurance to them along with an acceptable wage. The out-of-pocket premium 

required of them may even be low enough to induce them to take-up this employer 

offer, but maybe not, and thus this low relative demand—or willingness to pay— 

for health insurance may be the core reason roughly 20% of workers do not accept 

their employer’s offer. 

Myth #6: U.S. employers spend $400 billion a year for workers’ health 

care. This issue reveals how differently economists think from most people. Imagine 

that somebody could wave a magic wand and end $400 billion of employer payments 

for health insurance. First, the definition of ‘‘pay’’ in economics is not who writes 

a check, but the definition is wrapped up in the question, would employers then get 

to keep $400 billion more of profits that they could distribute to stockholders on to 

increase compensation of their senior executives, or to do whatever they wanted to 

do with it? 

And the answer that economics gives—well summarized in a couple of chapters 

in the ERIU volume—is no. One way to think about why the answer is no is to 

think about why employers offer health insurance. Now maybe some of them do it 

out of the goodness of their heart, and some of them do it because they think insurance makes employees healthier and therefore more productive, and under certain 

circumstances there may be a business case for doing that. But most employers, at 

least if you locked them in a room and asked them, ‘‘Why are you doing this if you 

47 

whine and complain about it all the time, why don’t you just stop offering health 

insurance?’’ And their answer is, ‘‘Well, we need to offer health benefits to be competitive in the market for workers, to be able to attract and retain high-quality 

workers,’’ which is another way of saying they offer health insurance to obtain a 

given quality of worker for less total compensation outlay than they would have to 

expend in the absence of health insurance. 

And so the punch line is that if somehow employers were not allowed to spend $400 billion on health insurance, then in order to attract the workers that they were 

formerly attracting with this benefit, they would have to use money or some other 

benefit that could well eat up or even exceed all of the savings. So that’s at least 

one way to think of why economists are out of step with the rest of the world. Our 

theoretical logic—and some careful empirical work—tells us that (most) employers 

actually do not pay for health insurance (and by the way, then, health insurance 

costs are not what makes U.S. products noncompetitive internationally). Economists 

believe that ultimately most workers end up paying for health insurance in the form 

of lower wages. 

This argument also works in reverse, which may be more germane for the current 

situation. Imagine that employers are mandated to provide health insurance, as has 

been passed in some states and introduced at the federal level from time to time. 

Who’s going to actually end up paying for that? Well, the story is just the same as 

above but in reverse. Initially of course employers will do most of the complaining 

about it, as they have, and threaten to lay off workers, but that will, at least over 

time, soften the labor market, cause raises to be smaller than they otherwise would 

have been, and sooner or later, the bulk of workers will end up paying for the health 

insurance that policy makers gave them with the best of intentions. They’ll end up 

paying for it themselves through reduced wages and fewer jobs unless they receive 

a subsidy. Of course, if they receive a generous subsidy or their employer does, that 

subsidy will ultimately go to workers. 

Myth #7: The decision to remain uninsured has no effect on anyone else. 

An overarching feature of modern labor markets is worker heterogeneity; we all differ in many important dimensions, including our preferences for health insurance 

arrangements. One consequence of heterogeneity is that different kinds of compensation packages may exist in equilibrium, some with a broad array of health insurance choices attached, some with one health insurance option embedded, and 

some with only cash wages to entice a prospective employee to give up their leisure 

time. Michael Chernew and Richard Hirth of the University of Michigan focus their 

critical review essay on the connections between decisions made by different people 

in the nexus of labor and health insurance markets. This myth was chosen to highlight the reality that some workers’ willingness to work at jobs without health insurance—while this may be a minority of workers today—has important consequences for the rest of us. 

First and foremost, it means employers have a choice about whether to offer 

health insurance, and they will make this decision largely based on the preferences, 

expectations and productivity of the dominant type of worker they need to produce 

their products and services, as well as on their own unique costs of delivering health 

insurance to their workforce. For example, higher-wage workers are likely to be willing to pay more for health insurance in the form of reduced wages, and so employers 

of highly productive high-wage workers are more likely to offer than are employers 

who can get by with mostly lower-wage workers. This effect is amplified by our current tax subsidy for premiums nominally paid by the employer, a subsidy that 

works out to be roughly proportional to the marginal income tax rate of the worker. 

It is also amplified for large firm employers of high wage workers, since they have 

the lowest costs of providing health insurance, for they can take advantage of various economies of scale. 

But worker heterogeneity also means that local labor market conditions can significantly affect offer rates, since firms offer only when they must to compete for 

the workers they want, and we do observe offer rates differ by as much as 20 percentage points across the United States. This variation in offer rates also affects ultimate coverage rates, of course. Differential offer rates and employer-sponsored insurance (ESI) coverage rates also affect the contours of the coverage problem faced 

by policy makers. For example, states with high offer rates find it cheaper and easier to be more generous with Medicaid and SCHIP eligibility—Minnesota and Wisconsin come to mind—than do states with very low employer offer rates, like Arkansas and Mississippi. 

Myth #8: Workers used to be afraid to switch jobs because of health insurance, and HIPAA fixed that. ‘‘Job lock’’ is the shorthand term economists applied to the phenomenon of workers remaining with less productive jobs than they 

could get because they fear losing health insurance if they were to switch. This was 

48 

originally investigated with some vigor in the early 1990s during the debates over 

the Clinton Health Security Act, for it was argued that if the aggregate amount of 

lost productivity was large enough, there could be a very large hitherto uncounted 

gain to universal coverage, and thus the net cost to society might be much lower 

than simple budgetary cost estimates. 

Since then, much research was done, and HIPAA was passed, which among other 

things, was designed to make the portability of insurance more real and reduce job 

lock. Jonathan Gruber of MIT and Bridget Madrian of the University of Pennsylvania reviewed the complex research evidence and concluded that the studies with 

the most defensible methods do indeed find some pre-HIPAA job-lock, though the 

welfare cost from this job lock is essentially impossible to quantify. This means 

economists cannot tell, at the moment, if additional policy interventions are justified. 

Gruber and Madrian also highlight two broad reasons to believe that many workers are still reluctant to switch jobs for health insurance-related reasons, even after 

HIPAA: They stem from Myth #3, coverage is coverage is coverage. First, workers 

could have more generous coverage on their current job than HIPAA requires, in 

terms of pre-existing condition waiting periods, actuarial value or access to preferred providers. Second, insurance in the individual market costs more per dollar 

of coverage, so that higher wages—exactly equal to what the previous employer 

‘‘paid’’ toward health insurance, for example—may not be able to make one whole. 

Thus, workers are often reluctant to leave a job with health insurance for a job that 

might pay higher wages but does not have health insurance attached. The cost advantages of group purchase are large. 

Myth #9: Economists don’t know anything about why people are uninsured. Sometimes it seems that a normal person might listen to economists argue 

among themselves or read a whole book devoted to methodological flaws in prior 

work and reasonably conclude that economists actually think we know exactly nothing, that nothing has been satisfactorily proved, and we therefore need millions of 

dollars and years more to study and argue before we will be able to say anything 

at all that is useful to policymakers. This is not the case, and this idea is so important, I will devote the last two ‘‘myths’’ to embellishing the point. There are three 

things I think most economists actually do believe about the lack of insurance coverage. And I think the chapter by Linda Blumberg and myself make these fairly 

clear, even, and maybe especially, to non-economists. 

1. The single most important reason people are uninsured in this country is they 

are not willing to pay what it costs to insure themselves. This unwillingness to pay 

is highly but not perfectly correlated with low income. Thus, if policy makers really 

want to increase coverage, they’re going to have to subsidize people, probably quite 

substantially, since most of the uninsured have incomes below twice-times poverty. 

2. The prices people are required to pay for health insurance vary a lot across 

different circumstances and insurance markets. Workers at large firms probably 

face the lowest prices, and they, correspondingly, have the highest offer rates and 

the most generous policies on average. Thus, to economists, price really, really matters. 

3. Even though price really, really matters, most people and firms have fairly inelastic demands for health care and health insurance. That is to say, those of us 

who can pay quite a bit more would pay more than we have to now before we would 

go uninsured, and those who do not buy it now will require substantial subsidy before they will buy it voluntarily. 

Myth #10: The combined research evidence supports doing nothing to address the problems of the uninsured today. Economists and health policy analysts cannot tell you—as a scientific matter—that you should implement new subsidies and other policies designed to reduce the number of the uninsured. We can— 

when we’re at our best—articulate and help you see the tradeoffs involved, but only 

you who have been entrusted with the power of our people can decide if the opportunity cost is worth it, i.e., which competing priorities will and should get less attention and fewer resources. For let there be no doubt, if you really want to make a 

serious dent in the uninsured problem, you’re going to have to be willing to claim 

and redirect a considerable amount of public resources. 

But at the same time, a politically neutral observer might reasonably conclude, 

from the decades we have been discussing this issue as a nation even while the 

number and percentage of uninsured keeps trending upward, that the case for doing 

something substantial about the uninsured must be widely perceived to be weak. 

I believe this is the wrong conclusion to draw from the evidence I’ve reported on 

today, as well as form the empirical work my colleagues at HSC and others around 

49 

4 B. Strunk and P. Cunningham. ‘‘Treading Water: Americans’ Access to Needed Medical 

Care,’’ Tracking Report No. 1. Center for Studying Health System Change. March 2002. http:// 

www.hschange.org/CONTENT/421/; Care Without Coverage: Too Little, Too Late. Institute of 

Medicine, National Academy Press, May 2002; J. Hadley. ‘‘Sicker and Poorer—The Consequences of Being Uninsured: A Review of the Research on the Relationship between Health 

Insurance, Medical Care Use, Health, Work, and Income,’’ Medical Care Research and Review 

Supplement to Vol. 60, No.2 (June 2003). 5For a range of coverage proposals developed by thinkers with many different perspectives, 

see the Covering America Web page at www.esresearch.org. This Robert Wood Johnson Foundation project was directed by Jack Meyer of the Economic and Social Research Institute. 

the nation have done these last few years.4 Perhaps the best evidence of the value 

of health insurance is not in statistics or econometrics, however, but rather lies in 

the fact that all the health policy analysts I know—and I know quite a few around 

the country—actively seek out and keep health insurance at all times, even when 

self-employed, and they even buy it for their recalcitrant adult children when the 

latter emerge from college feeling immortal but also stunned at the rental price of 

nice apartments in our great cities these days. The choice is less funny for two working parents who make say $7.50 an hour each—that’s more than $2 above the minimum wage—and if they work full time as 

most do, they therefore earn $30,000 a year. Their children would in most but not 

all states be eligible for SCHIP, but you can know they would not likely be offered 

health insurance at their jobs, and they make far more than Medicaid income cutoffs in the vast majority of states in our country. They are also not very likely to 

feel like they can afford to spend a third or more of their gross income on family 

health insurance in the non-group market. To add one final touch of realism, you 

may assume they are healthy today. 

Are we willing to require them to obtain health insurance? If they do get sick, 

they will most likely access health resources that will impose costs on the rest of 

us in various ways, and a requirement to purchase then would be responsive to the 

so called ‘‘free rider’’ justification for universal coverage. But of course they cannot 

afford it, so we would also have to subsidize their purchase of it, or impose an inequitable burden upon them. At the same time, they are healthy now, so the nation 

would be partially buying for them true insurance with no necessary immediate 

health benefit, that is, we would be buying protection from risk, a risk of potentially 

devastating financial, emotional and health consequences of unforeseen health problems which could strike any of us this very afternoon. The question comes down to, 

are we willing as a society to pay to protect these parents from living with this risk 

that we all pay to avoid for ourselves, and to protect us all from living with their 

free-rider risk? These are the ultimate questions that only you and your colleagues 

can answer. I devoutly wish it were otherwise, but we economists cannot tell you with certainty the best particular way to expand health insurance coverage,5 but I can say 

the case for some kind of significant coverage expansion seems strong to many 

health economists and health policy researchers today. The prudent strategy in the 

event you do move in that direction would be to monitor the outcomes quite closely 

and be prepared to alter details of the program or change course altogether if credible evidence warrants it. We at the Center for Studying Health System Change and 

in the economics and health services research professions more generally will undertake to try and keep you well informed. 

I would now be glad to answer any questions my testimony today might have provoked. 

f 

Chairman JOHNSON. Thank you very much, Dr. Nichols. Dr. 

Melnick. 

STATEMENT OF GLENN MELNICK, PH.D., DIRECTOR, CENTER 

FOR HEALTH FINANCING, POLICY AND MANAGEMENT, UNIVERSITY OF SOUTHERN CALIFORNIA, LOS ANGELES, CALIFORNIA 

Mr. MELNICK. Good afternoon, Chairwoman Johnson and Members of the Subcommittee. I am privileged to have this opportunity 

to share with you my recommendations on what Congress might do 

to improve the pricing information in the health care marketplace. 

50 

Such improvements can be a first step in helping to protect the uninsured from arbitrary and excessive prices and to lay a foundation 

for serving individuals under the HSA insurance option. 

I am a professor of health care finance at the University of 

Southern California, where I direct our Center For Health Financing, Policy and Management. We have been conducting analyses of 

hospital pricing for many years using data from California and 

other States. In my short time today, I hope to leave you with a 

better understanding of how hospital pricing as currently practiced 

impacts the uninsured and what might be done to improve it. My 

written information supplements my testimony. 

I first began with two powerful trends of hospital pricing that I 

am afraid worsen the problem of the uninsured in America and 

may stifle the market for HSAs. I will then present recommendations designed to limit the negative effects of these trends. Hospital 

pricing as currently practiced negatively impacts the uninsured. 

We have witnessed a very significant and rapid increase in hospital 

prices over the—list prices over the last 8 years. Hospitals have 

two sets of prices, list prices and net prices. Hospital list prices are 

the standard set of prices established by hospitals each year for all 

their services. The list price is more or less equivalent to the rack 

rate that hospitals display—that hotels display for their rooms. 

All patients are charged the same list price for the same service; 

however, very few patients actually pay the list price. Insurance 

companies and other third-party payers generally have contracts 

with hospitals which allow them to pay a discounted price that is 

significantly below list price. Uninsured patients, referred to in 

most hospital accounting systems as self-pay, are charged the list 

price and then, depending on the individual hospital’s policies, may 

be offered a discount. 

To illustrate how this affects the uninsured, I turn your attention 

to Exhibit 1 in the handout. This exhibit shows list and net prices 

for patients admitted to California hospitals for an appendectomy 

in 2002. The list price is $18,229, the same to all patients. However, as you can see, the net price differs depending on the patient’s insurance status. Managed care plans paid about $6,000, a 

66 percent discount. Medicare paid about $4,800, a 73 percent discount from list prices. The uninsured self-pay patients are divided 

into two groups, those that qualify for hospital indigent programs 

and all other uninsured. The indigents end up paying the lowest 

net price, about $1,700. Nonindigent self-pay patients paid the 

highest net price, about $8,000. They did receive a discount, but it 

was the smallest one. 

Please note that these numbers are not exact, but they do accurately portray the pattern of pricing out there. Hospital pricing 

strategies are driven by a complex mix of contracting arrangements 

as well as market forces, and as a result, hospitals have focused 

largely on net prices. However, since most hospitals can continue 

to increase their revenue from insured patients by raising list 

prices, there is a strong incentive for them to continue to increase 

list prices. The data in the attached exhibits show that list prices 

have increased rapidly and substantially in recent years throughout the United States. An indirect and largely, I believe, unintended affect of these trends is that they have created hardship for 

51 

the uninsured patients. In fact, hospital prices that the uninsured 

population pay are increasing more than any other group. 

Given the incentives in the system, I believe that hospital list 

prices will continue to rise faster than costs and net prices, and 

will further exacerbate the problems facing the uninsured. In some 

cases hospitals do discount from list prices for self-pay patients; 

however, the practice of granting discounts to self-pay patients is 

ad hoc at best right now. The net price that an uninsured patient 

will pay depends on too many arbitrary factors, such as the patient’s level of education, their negotiation skills, where the patient 

lives, the hospital they are admitted to, their ability to pay, and 

which collection agency their unpaid bills are sent to. Furthermore, 

the lack of a rational and transparent pricing system for self-pay 

patients may hinder development and adoption of the HSA reforms. 

In closing, I have two sets of recommendations: Form a national 

task force to study the current patterns and practice of pricing to 

the uninsured; and, two, charge the task force to do the following: 

Develop guidelines and policies regarding pricing and payment options for the uninsured; mandate that hospitals report both the 

policies for discounting charges to the self-pay patients and the 

procedures used to ensure that all patients are aware of those policies and procedures; and, finally, mandate that hospitals annually 

report their actual experience publicly vis-a`-vis the uninsured in 

terms of charges, discounts, and collections. Through mandated 

public disclosure and media attention, social pressure will be 

brought to bear on hospitals to develop fair and reasonable pricing 

for the uninsured. These explicit policies and better reporting can 

serve to moderate the negative and arbitrary effects of rising hospital charges until we have a more systematic solution to covering 

the uninsured and could lay the groundwork for the emerging HSA 

market. Thank you. 

[The prepared statement of Dr. Melnick follows:] 

Statement of Glenn Melnick, Ph.D., Director, Center for Health Financing, 

Policy and Management, University of Southern California, School of Policy, Planning and Development, Los Angeles, California 

Hospital Pricing and the Uninsured 

I will first discuss powerful trends in hospital pricing that I am afraid will worsen 

the problem of the uninsured in America and stifle the market for HSAs. I will then 

present a set of recommendations designed to limit the negative effects of these 

trends. 

Hospital pricing as currently practiced negatively impacts the uninsured 

We have witnessed a very significant and rapid increase in hospital list prices 

over the past 8 years in the U.S. 

Hospital Pricing Terminology and Practices 

To better understand hospital pricing, some terminology is required. Hospitals 

have two sets of prices: list prices and net prices. 

Hospital list prices (more commonly referred to as gross charges) are a standard 

set of prices established by hospitals each year (generally) for all their services. The 

list price is more or less equivalent to the ‘‘rack rate’’ that hotels display for their 

rooms. All patients are charged the same list price for the same service. 

However, very few patients actually pay the list price (see Exhibit 1). Insurance 

companies and other third party payors generally have contracts with hospitals, either directly or indirectly through rented provider networks, which allow them to 

pay a discounted price that is significantly below the list price. Uninsured patients 

52 

(referred to in most hospital accounting systems as self-pay) are charged the list 

price and then depending on the individual hospital’s pricing policy, may be offered 

a discount. The actual amount a hospital receives from the patient will be based 

on this discounted price less any portion of the bill that turns out to be un-collectible. 

Hospital pricing strategies are driven by a complex mix of differing payment schemes and contracting arrangements as well as market forces. 

With the advent of selective contracting and the growth of managed care in the 

U.S., the practice of negotiating discounts with hospitals has become widespread. In 

this environment the gap between list and net prices has widened. Contracting, 

combined with market forces, largely drives hospital net prices. Consequently, most 

insurers, policymakers, and researchers have focused on net prices. However, there 

are a number of factors that have kept hospital list prices important in overall hospital pricing and which have contributed to the rapid run-up in list prices. These 

factors include: 

• Not all third party payors have contracts with all providers (i.e., Some third 

parties pay list prices or charges). • Many third party contracts include payment formulae where the discount is applied to list prices (or charges). • Many third party contracts (including Medicare) have stop-loss provisions that 

pay on the basis of list prices (charges) above a certain threshold. • In many cases the stop loss threshold is based on list prices (charges). • Not all insured patients are covered by a third party at every hospital (e.g, for 

out-of-network use). • Some patients have no insurance coverage (self-pay patients) and do not have 

access to negotiated discounted prices at any hospital. 

Since most hospitals can increase their net revenue (from private insurers, Medicare, and workers comp plans) by raising their list prices, there 

is a strong incentive to keep increasing list prices. Indeed, data show that 

list prices have increased rapidly and substantially in recent years. 

The following data provide a picture of what has happened to hospital list prices 

in recent years: 

• Hospitals have increased their list prices much faster than their costs have gone 

up and much faster than their net prices (see Exhibits 2 and 3 for California 

data and Exhibit 4 for national data). • The difference between hospital list prices and costs varies substantially from 

state to state across the U.S. (see Exhibit 5). • The difference between hospital list prices and net prices varies substantially 

across hospitals within the same state (data can be obtained from the author) 

An indirect and largely unintended effect of these trends is that they 

have created hardship for uninsured patients—the hospital prices they face 

are increasing more than for any other group. 

Not only do the uninsured pay for all their care out-of-pocket, but they face higher 

fees for the same procedure than the insured since they do not benefit from the bargaining clout of an insurance company. In the current environment, self-pay patients are much more likely to be asked to pay the list price than insured patients. 

An example of this is illustrated by the data previously presented in Exhibit 1. This 

exhibit compares the average list price for an appendectomy in California hospitals 

in 2002 with the amount actually paid based on the insurance status of the patient. 

Uninsured patients who do not qualify as indigent (according to each hospital’s criteria) pay far more than patients who have insurance coverage. 

Hospital list prices will continue to rise faster than cost and net prices, 

further exacerbating the hardship on the uninsured. 

With continuing managed care push back by hospitals, we will see more hospitals 

terminating their capitated contracts with third party payers. This will move more 

hospital volume into fee-for-service contracts that generally include list prices in the 

payment formulae, either in terms of discounts from list price or as part of stoploss provisions. This will increase the reward to hospitals gained by raising their 

list prices. Under this scenario, the uninsured will continue to face higher price increases than insured patients. 

In some cases, hospitals do discount from list prices for self-pay patients. 

However, this policy may not be uniformly applied to all self-pay patients 

within a hospital and discounts vary substantially across hospitals and 

across the country. 

The practice of granting discounts to self-pay patients is ad hoc at best. It varies 

both across hospitals and within hospitals. As a result, the net price that an uninVerDate Aug 31 2005 06:42 Mar 11, 2006 Jkt 023794 PO 00000 Frm 00056 Fmt 6633 Sfmt 6621 E:\HR\OC\23794.XXX 23794
53 

sured patient pays for hospital care depends not only upon his ability to pay, but 

also upon his level of education, negotiation skills, where he lives, the hospital he 

is admitted to, and which if any collection agency is retained by the hospital. 

One reason for the wide variation in pricing services for self-pay patients is that 

hospitals have not really focused on developing an analytical capacity for retail pricing. List prices have grown very quickly and so have only recently become an important element of pricing to hospitals. 

Moreover, most hospitals do not have the necessary data systems that allow them 

to accurately calculate how much they charge or receive from the self-pay population. Self-pay patients often start out in and are billed to a third party payor category and then end up as self-pay. Often the charge is not reclassified while any 

payments would be credited to the self-pay category. This could understate gross 

charges to self-pay patients and make it appear that hospitals are collecting a higher percentage of gross charges to self-pay patients than is the case. 

Furthermore, the lack of a rational and transparent pricing system for 

self-pay patients may hinder development and adoption of the health savings account (HSA) reforms. 

Individuals choosing an HSA as their primary insurance mechanism may face the 

same rapidly increasing list prices that the uninsured face since they will be seeking 

care with their own funds. Moreover, the nascent state of analytical pricing models 

in hospitals and the absence of management tools that I’ve already noted could 

hinder the development and growth of the retail market envisioned under health 

savings accounts. 

Recommendations 

1. Form a national Task Force to study current patterns and practices of pricing 

to the uninsured. 

2. Charge the Task Force to: 

a. Develop guidelines for policies and procedures regarding pricing and payment options for the uninsured. 

b. Mandate hospital reporting of both the policies for discounting charges to 

self-pay patients and the procedures used to ensure that all patients are 

aware of the discounted payment options. 

c. Mandate that hospitals annually report their actual experience vis-a`-vis the 

uninsured in terms of charges, discounts and collections. 

Rationale 

Through mandated public disclosure and media attention, social pressure will be 

brought to bear on hospitals to develop fair and reasonable pricing policies for the 

uninsured in their communities. As a first step in easing access for the uninsured, 

hospitals should be required to develop explicit policies and procedures for discounting list prices or charges to self-pay patients. Ideally, the discounting schedule 

would be a sliding scale based on income. 

These policies and procedures should be included in all mailings to patients. 

When patients receive their first bill, it should clearly state that they may not be 

required to pay the charge listed. Rather, it should inform them that they are eligible to apply for a reduced fee under the hospitals’ discounting program based on 

specific guidelines. 

These policies and procedures should also be posted at the hospital registration 

area and should be reported to state health departments or other relevant agencies 

so that the public and media have easy access to this information. 

In addition to developing and publicizing policies for charging the uninsured, hospitals should be required to report their experience each year in terms of how the 

uninsured were billed and the final disposition of their bills. The annual reporting 

could be incorporated into the recent CMS rule requiring hospitals to report uncompensated care on the Medicare cost report form. Explicit policies and better reporting could serve to moderate the negative and arbitrary effects of rising hospital 

charges until we have a more systematic solution to covering the uninsured in the 

United States. 

Glenn Melnick 

Dr. Melnick is Professor and Blue Cross of California Chair in Health Care Finance at the University of Southern California (USC). 

Dr. Melnick has worked extensively in the area of health care insurance and 

health care market competition. Dr. Melnick’s research has focused on the areas of 

pricing of hospital services, health insurance and health care markets and he has 

numerous publications in the scientific literature, including journals such as Health 

54 

Economics, JAMA, Health Affairs and many others. He is frequently called upon to 

provide expert advice to the Federal Trade Commission, States’ Attorneys General 

and others. His editorials have appeared in the Wall Street Journal and the Los Angeles Times. 

In addition to his work in the U.S., Professor Melnick works in Pacific Rim countries (including China, Taiwan, and Indonesia) providing technical assistance and 

training to assist countries in the development of formal health insurance systems 

and social programs. Dr. Melnick is also the Director of USC’s International Public 

Policy and Management Program (IPPAM). gmelnick@usc.edu 


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55 


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56 

f 

Chairman JOHNSON. Thank you very much, Dr. Melnick. Mr. 

Scandlen. 

STATEMENT OF GREG SCANDLEN, DIRECTOR, CENTER FOR 

CONSUMER DRIVEN HEALTH CARE, GALEN INSTITUTE, ALEXANDRIA, VIRGINIA 

Mr. SCANDLEN. Thank you, Madam Chairman, for the opportunity to share some thoughts with you. I think it is worth stepping back a few paces and looking at how we got here if we are 

looking at the underlying causes of noninsurance in this country. 

I think my perspective will be different than most of what you have 

heard in the past several years. 

Generally people will cite the growth of technology, the aging 

population, labor market effects in looking at what is behind the 

uninsured. I think these things, perhaps with the exception of the 

aging population, are more symptom than cause, and I think the 

technology—for instance, in most industries technology will actually save money, but only in health care does technology actually 

add to overall costs. I would suggest this is because only in health 

care are we subject to a system of third-party payment. Third-party 

payment distorts the market so that economizing technologies are 

given short shrift while revenue enhancing technologies are highly 

valued. 

Third-party payment itself is also not the ultimate cause, I don’t 

believe. We have adopted a system of third-party payment largely 

because of State and Federal policy that has been adopted over the 

years. There are two things that I would like to focus on particularly today, although these are only two of many. It is Federal tax 

policy dating back to 1943, and the Employee Retirement Income 

Security Act (ERISA) that goes back to 1974. 

Starting with the tax situation. As you know, the Internal Revenue Service ruled that employer-sponsored health insurance benefits would be free of taxes, excluded from income for workers, and 


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57 

Congress codified that ruling in 1954. It was seen, and I think it 

was, a good way to encourage more coverage. The numbers of 

Americans with health insurance grew from about 12 million in 

1940 to 80 million in 1950 to 132 million in 1960, and the coverage 

became more generous and more comprehensive, switching from 

basic hospitalization services to major medical-type approaches. 

It has also had two substantial, I think, negative consequences. 

First of all, it advantaged only those with access to employer-sponsored health insurance. It did not advantage people that bought 

their own coverage or people that paid directly for services. The 

large amount of new money that was put into the system as a result of this incentive raised prices for everybody, including those 

not associated with an employer, with employer-based coverage. 

Now, that includes the aged and the poor, but it also includes the 

self-employed and people whose employers simply did not choose to 

provide coverage. These people found it increasingly hard to pay for 

their services. 

In 1965, Congress addressed part of this problem by enacting 

Medicare and Medicaid, but the rest of the affected population, the 

self-employed and people without employer-based coverage, were 

not helped. These days, the cost of these subsidies are enormous, 

$250 billion in Federal money for Medicare in 2003, $160 billion for 

Federal spending on Medicaid and SCHIP, and $180 billion for employer-sponsored coverage in 2004. 

There is another consequence of this subsidy as well. The extraordinary amount of the subsidy causes that anyone who could 

possibly get employer-sponsored coverage will do so, leaving behind 

only those people who are unable to. That includes lower income 

workers, people too sick to work, people who are semiretired, and 

people in seasonal employment. This is the pool that is available 

for the individual insurance market, so their costs are considerably 

higher than the employer-sponsored pool, and coverage is ever less 

accessible for them. 

I think ERISA has had a similar story. The primary result of 

ERISA was to divide the employer-based market into very large 

employers, influential employers who are completely unconcerned 

about State regulation, and small, powerless employers that were 

subject to State regulation. With the absence of the larger employers from the political scene, State legislators went on a feeding 

frenzy of regulation that raised costs for smaller employers and for 

individuals and made—and in some States destroyed the insurance 

market, and in all States making coverage much less affordable for 

people not in the employer-based system. 

I would be happy to share additional information with you 

sourcing these assertions, but also discussing some of the other 

provisions in Federal law that have been problematic. 

[The prepared statement of Mr. Scandlen follows:] 

Statement of Greg Scandlen, Director, Center for Consumer Driven Health 

Care, Galen Institute 

Madam Chairman and Members of the Committee, 

Thank you for the opportunity to share some thoughts with you about the underlying reasons for uninsurance. I think you will find my perspective rather different 

than most of what you have heard in the past few years. Most commentators will 

58 

discuss the aging population, the growth of technology, labor market effects, and the 

like. 

These all contribute, of course. But they are actually more symptoms than causes. 

Take technology. In most industries technology saves money. Only in health care 

does technology add to costs. Why should this be? Because we have a system of 

third-party payment that is unique to health care. Third-party payment distorts the 

market so that economizing technologies are dismissed in favor of revenue-enhancing technologies. Hospitals are encouraged to buy the latest whiz-bang MRI machine, but do not equip physicians with PDAs that would reduce medication errors. 

But third-party payment is not the ultimate cause, either. Our system of thirdparty payment is the direct result of many decades of well-intentioned, but shortsighted and ultimately misguided state and federal policies. These policies have had 

far-reaching and negative consequences that were unforeseen (but not unforeseeable) when they were enacted. 

I will deal today with two—federal tax policy and ERISA—but these are only two 

of the more prominent examples. Other federal laws that have contributed to the 

problems we face include the Hill-Burton Act of 1946, the McCarran-Ferguson Act 

of 1947, price controls in the early 1970s, the HMO Act of 1973, the Health Planning Act of 1974, various aspects of Medicare and Medicaid, COBRA, HIPAA, and 

a range of state and federal mandates. 

In each case, the law was passed with high hopes and good intentions, but without adequate consideration of the long-term consequences. Some of those consequences include creating the conditions that made health coverage unaffordable 

for many, and preventing the market from being able to respond appropriately. Oftentimes the problems are compounded because of the way several of the laws interact, as we will see with the combination of federal tax policy and ERISA. 

Let’s start with tax policy. As you know, in 1943 the Internal Revenue Service 

ruled that employer-sponsored benefits would be excluded from income, and Congress codified that ruling in 1954. Health insurance at the time was not very expensive and relatively few Americans had any coverage at all, so the revenue effect was 

small. The measure was seen as a good way to encourage more coverage, and in 

that it was very successful. The numbers of Americans with health insurance coverage grew from about 12 million in 1940 to 80 million in 1950 to 132 million by 

1960 and the kind of coverage became more generous, moving from basic hospitalization coverage to more comprehensive major medical plans. 

But this growth in employer-sponsored coverage had two negative consequences: 

1. Tax policy advantaged only those with employer-sponsored health insurance 

coverage, not people who bought their own or who paid directly for services, 

and 

2. The large amount of new money in the system raised prices for everybody— 

including those with no coverage. People not associated with an employer—especially the aged and the poor, but also the self-employed and people whose 

employers didn’t offer coverage—found it increasingly difficult to pay for medical care. 

In 1965, Congress addressed part of these concerns by enacting Medicare and 

Medicaid for the aged and the poor, respectively. But predictably, the infusion of 

large new amounts of federal money on the demand side of health care resulted in 

even greater increases in the cost of care. In 1960, 56% of total national health 

spending was paid directly out-of-pocket by consumers, and only 21% was paid by 

state and federal governments. In just seven years, in 1967, that changed to 36% 

OOP and 37% by government payers. The total amount of money spent on health 

care rose dramatically, tripling from 1965 to 1977, and rising from 5.9% of Gross 

National Product to 8.3%. These demand-induced cost increases further disadvantaged people remaining outside of the subsidized system. 

[As an aside, alarm over rising health care costs induced by all this new money 

in the system resulted in a panic to ‘‘do something’’ about costs in the early 1970s. 

What was done included the imposition of price controls and health planning activities aimed at limiting the supply of services. These were precisely the wrong responses to dealing with demand-induced inflation. The basic theory of supply and 

demand says that prices go up when demand outstrips supply. The way to deal with 

rising prices is to increase—not reduce—supply.] 

Since 1965 we have had a system that generously subsidizes the elderly, the poor 

and people who get coverage on the job. Federal expenditures alone equaled $250 

billion for Medicare in 2003, $160 billion for Medicaid and SCHIP, and $180 billion 

in 2004 for employer-sponsored coverage. This subsidized spending clearly results 

in higher prices for everyone, including those who get no subsidies at all. 

59 

Some of the uninsured, perhaps one quarter of the total, are already eligible for 

Medicaid or employer-sponsored coverage, but have not taken advantage of the coverage. But the overwhelming majority are people who are not eligible for public programs and whose employers do not offer coverage. These people might be willing 

to purchase their own coverage, but there is no subsidy available to them to do so. 

Someone getting coverage on the job has to earn $4,000 in compensation to get 

$4,000 in benefits. The same person who does not get coverage from an employer 

may have to earn $8,000 in wages to have enough left over after taxes to pay for 

a $4,000 insurance policy. Members of Congress, corporate executives, members of 

labor unions, all are well subsidized. But someone who is laid off from a job, a waitress in a diner, a stock clerk in a small retail store—people whose employers don’t 

provide coverage get no help with their health premium at all. Their only choice is 

to buy individual coverage with after-tax dollars or go uninsured. 

There is another consequence, as well. Because of the extraordinary tax subsidy 

provided solely to employer-sponsored coverage, anyone who can get an employerbased plan will do so. This leaves only those who cannot in the individual market. 

These people may be lower-income workers, people too sick to work or semi-retired, 

people who change jobs frequently, and people with seasonal employment. They are 

older, sicker and poorer than people with employer-sponsored coverage. Because 

they tend to be older and sicker and financially less stable, the cost of the coverage 

is higher than it would be for an employer-sponsored pool. There are higher claims 

costs because they are sicker and there are higher administrative costs because premium collection, marketing and retention are difficult. Yet these people get no help 

from their employers and they get no tax advantage from the government. 

Some employers might be willing to contribute to the costs of coverage for these 

employees, but here the Employee Retirement Income Security Act (ERISA) gets in 

the way. The employer may not want to commit to purchasing a full-scale benefit 

plan with all the added regulatory reports and responsibilities. They would prefer 

to simply contribute money to the cost of an individual policy chosen and owned by 

the employee. 

The tax code actually allows them to do this. As far as the IRS is concerned, employers are free to make such a contribution on a tax-favored basis. But ERISA forbids it. Under ERISA, an employer’s contribution means the coverage is an ‘‘employee welfare benefits plan:’’ ergo, a ‘‘group’’ plan subject to all the requirements 

of any other group plan, including the HIPAA guaranteed issue requirement. Plus, 

state insurance law makes a clear distinction between group and non-group coverage. The two are regulated and priced separately, controlled by different sets of 

laws, usually offered by different insurance companies. A worker who buys his own 

health coverage in the non-group market must forfeit any tax advantage if the employer contributes to the cost of the policy—not due to any tax code regulation, but 

because of ERISA. 

This is only the tip of the iceberg when it comes to problems created by ERISA. 

ERISA was enacted in 1974 to give employers a safe harbor from state regulations 

and protect the assets of a benefit plan from unreasonable costs. It was particularly 

important to multi-state employers who wanted to provide consistent benefits in all 

of their locations. But ERISA applies to all employer-sponsored plans (except those 

offered by churches and governments), not just multi-state plans, and not just to 

large employers. ERISA pre-empts all state laws ‘‘relating to an employee welfare 

benefits plan.’’ But ERISA ‘‘saves’’ from pre-emption state laws that regulate insurance companies. The states are allowed to continue regulating insurance companies. 

Unfortunately, this results in a division of the employer community. All are 

ERISA plans, but those who purchase coverage from an insurance company are indirectly subject to all the regulations that apply to that insurer. Those employers who 

‘‘self-insure’’ their benefits are exempt from the state insurance laws. Large employers are able to self-insure and are thus exempt from state law. Smaller employers 

must buy coverage from insurers and are thus subject to state law. 

This division affects the uninsured by disrupting the political equilibrium in the 

states. Large influential employers don’t care what the state legislatures do, because 

they are completely unaffected by it. That leaves only small, powerless employers 

to complain when a new mandate is proposed, or new restrictions are placed on 

their coverage. As a consequence, advocates of more regulations and more mandates 

encounter little effective resistance. 

In 1974, before ERISA was enacted, there were very few mandated benefits. Since 

that time, over 1,500 separate laws have been enacted by state legislatures mandating coverage of somebody’s favorite little service. The states have also passed 

limits on underwriting, community rating laws, price controls, and a vast number 

of other laws and regulations that have destroyed the insurance market in some 

60 

states. Whatever their seeming merit, all of these laws add costs and complications 

to the process of a small employer providing coverage to its workers. 

Not surprisingly, the cost of small group coverage has gone up faster than that 

of large, self-insured employers for many years. Also, not surprisingly nearly half 

of uninsured workers work for small companies. The ‘‘irrational exuberance’’ of state 

legislatures for onerous regulations has virtually destroyed the small group market 

across the country. 

Let me summarize these two issues so the point doesn’t get lost. First on tax policy: 

• Congress allowed-employer sponsored health insurance to be free of all taxes, 

state and federal, income and payroll. • The exclusion from income encouraged virtually all health care services to be 

paid through a third-party mechanism. • Third-party payment created unlimited demand for health care services. • Unlimited demand causes ever-higher prices. • Higher prices made it difficult for people not associated with an employer to pay 

for their care. • Congress responded by enacting Medicare and Medicaid to help the elderly and 

the poor to pay for coverage that was otherwise no longer affordable • Medicare and Medicaid further increased demand, raising prices even further. • The people not associated with any of these programs—especially people whose 

employers do not provide coverage—found it even harder to pay for health care. 

• These same people had access only to individual insurance policies, but the individual market had become a ‘‘residual pool’’ made up largely of those people too 

sick or too unstable to access employer plans. 

• Not only are costs higher in the individual market, but tax policy requires these 

people to earn up to twice as much in wages to pay for their coverage. 

Next on ERISA: 

• Congress allowed all employer health plans to be exempt from all state laws. 

• But Congress also allowed the states to continue to regulate health insurance 

companies.Only those employers large enough to self-fund their benefits actually escaped state regulation. 

• That left only those smaller employers who could only buy fully-insured benefits 

subject to state regulations. 

• This eliminated the largest and most influential corporations from being concerned about state laws and regulations. 

• State legislators now found little political resistance to piling on regulations. 

• State legislators went on a feeding frenzy of mandates and other regulations 

that substantially raised the cost of coverage for small employers. 

• Small employers found it ever-harder to afford coverage. 

• Ever-fewer small employers provide coverage to their employees. 

These are the kinds of underlying conditions that make it difficult for the uninsured to access coverage. We are not supposed to discuss solutions here, but I do 

want to add a cautionary note. The American people, the American health care system, and the American economy are all entrenched in this system. Even if we wanted to un-do it, it would be enormously disruptive to do it quickly. Change should 

be made carefully and thoughtfully. But having an understanding of this history 

and the consequences of well-intentioned policies should make it more feasible to 

tailor changes that can work. 

f 

Chairman JOHNSON. I thank the panel very much. You have 

brought out a number of different things that create barriers for 

people getting access to health insurance. Dr. Melnick, in your 

charts you demonstrate how rapidly gross patient charges have 

grown, particularly disparate to patient costs. To what do you attribute this? Since raising their charges, I appreciate that raising 

their charges also has an impact on raising what they actually get 

for their services. Nonetheless, the difference between the publicly 

announced charge and the received payment is extraordinarily 

large. If you were to do the bar chart on the bottom of page 8 

where you talk about trends in hospital charges and costs in CaliVerDate Aug 31 2005 06:42 Mar 11, 2006 Jkt 023794 PO 00000 Frm 00064 Fmt 6633 Sfmt 6602 E:\HR\OC\23794.XXX 23794
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fornia, if you were to do that for any other product sector, would 

you see as big a difference, for instance, in retail clothing between 

the marked price and the discounted price at Marshall’s? 

Mr. MELNICK. I can’t think of any example outside of health 

care. I think the peculiar aspect of the way health care financing 

payment has evolved over the last 10 or 15 years with contracting, 

and the fact that embedded in many contracts is a formula which 

includes charges on which some payments are made. So, what happened is hospitals figured this out and said, well, wait a second, 

we can raise our charges and get a higher revenue. Even if it is 

only a small fraction, a half of a percent, why not do it? I think 

that is how we got to where we are today. 

Chairman JOHNSON. I think behind that lies the complexity of 

the Medicare payment system and there are points at which raising your charges will reap you very big benefits for small groups 

of patients. So, there are factors that drive this behavior. In my experience, Medicaid is the worst actor in this in the sense that the 

managed care plans tend to bargain across the board; Medicaid 

tends to have a fixed price. So, if you want to comment on that, 

I would be happy to hear that. 

Mr. MELNICK. Well, I think, in preparing my testimony for 

today, one thing I am struck by is we know very little about actually this side of the whole pricing and how hospitals operate in 

their data systems. I think one of the things we need to do is improve that side of the hospital industry in order to understand it 

better and prepare for other products. I think third-party private 

sector contracts also many times have charges built into the contracts so hospitals are rewarded both through the Medicare side as 

well as through the commercial side. 

Chairman JOHNSON. Thank you. Dr. Rowland, in your research, since you have done quite a lot of research, we all agree 

that the most disadvantaged under this system are the people who 

aren’t poor enough to be on Medicaid or aren’t signed up for Medicaid whether they are poor or not, and those who work for an employer that has a good plan or who can afford a plan themselves. 

What do we know, outside of the demographics, about where these 

people are? If they are mostly in the cities, do we know why they 

are not signed up for Medicaid? It is astounding that CBO could 

say that we have 25 percent of the children uninsured when we 

have two different policies to cover children. So, we need to understand more why those policies don’t reach. 

One of the things about SCHIP is it discovered an awful lot of 

Medicaid kids who were eligible for Medicaid and hadn’t signed up. 

How big a problem is that really? How many of the uninsured live 

in a reasonable circumference of our community health centers 

which will provide them with care according to their income? So, 

we need to know more about who is using the resources we have 

out there for people under 200 or 300 percent of poverty income, 

and why do people who are eligible and nearby don’t use it? Has 

any of your research led you down these particular trails? 

Ms. ROWLAND. Well, our research has clearly shown that the 

kinds of rules and eligibility requirements in place for Medicaid 

prior to SCHIP, the documentation required when you apply for 

coverage, the face-to-face interview, the enrollment forms that were 

62 

24 pages long and asked numerous questions, the requirement to 

bring in birth certificates and all kinds of documentation helps to 

impede families from coming in to apply. So, with SCHIP, the 

streamlined eligibility that came in for SCHIP and then has been 

implemented in many States for the Medicaid population as well; 

the fact that a working family doesn’t need to take the day off to 

come in and sign up. 

Chairman JOHNSON. How much has that helped? Can you see 

that in the data? 

Ms. ROWLAND. We can clearly see. We have almost doubled the 

number of children on Medicaid as a result of some of these practices in the States that have streamlined it, and we can show you 

the increased enrollment State by State from some of the statistics 

that we collect. So, the children’s story is that when you simplify 

eligibility, you begin to increase participation. What we see in a 

State like Wisconsin is that when you cover the parents as well as 

the children, you have an even higher participation rate. 

So, some of the lack of coverage now is that in a State like, for 

example, Louisiana, children are covered up to 200 percent of the 

poverty level, that is about $30,000 per family of three, whereas a 

parent in that State is only covered up to about $3,000 per year, 

so that this gap between covering the parents and the children has 

really resulted in some lag in enrollment. 

Chairman JOHNSON. If you could provide us with that State by 

State data, that would be helpful. 

Ms. ROWLAND. I will certainly do that. 

Chairman JOHNSON. Both for children and for adults. 

Ms. ROWLAND. The other issue is that the uninsured children 

live throughout the country, and they are often in rural areas. So, 

really looking at access to facilities like community health centers 

can help and really does help in many of the urban areas, but has 

been a much less available source in the rural areas. 

Chairman JOHNSON. The same kind of studies about community health centers and who they serve and how that has grown 

and changed that you have around SCHIP. 

Ms. ROWLAND. We have some studies that have looked at the 

number of people served by community health centers and how 

many of those are actually on Medicaid. About one-third of the revenue today to community health centers comes from providing services to people already on Medicaid and that helps to supplement 

the direct core funding of community health centers. I think that 

is an important thing to remember when you are looking at trying 

to make that access more available. 

Many community health centers have also become part of the 

managed care plans that States contract with for their Medicaid 

plans. We really need to look at both the delivery side of care as 

well as the insurance card, because we know a Medicaid insurance 

card can be fairly empty if it doesn’t connect you into a network 

of physicians. The low payments rates historically have really made 

access to care for some specialists especially difficult for Medicaid 

patients. 

Chairman JOHNSON. Of course, the access to care with the community health centers is less of a problem since community health 

center doctors don’t have malpractice costs, and the community 

63 

health centers are reimbursed on costs. They are only one of the 

few actors in the systems that are reimbursed that way. So, any 

information you can give us about—-SCHIP and children and 

adults, but also about community health centers and any ways in 

which you see them participating more aggressively in the uninsured and serving the uninsured population. 

Chairman JOHNSON. Now, Connecticut lost a large, very large, 

number of jobs when a big insurance company went under and regardless of their income, I told them to go, there was an excellent 

facility. It was a great boon to the community health center because all those people were full pay. Full pay at that time was $27 

for an annual physical. Now, this is 10 or 12 years ago. So, that 

was $27, but at that time that was about $60 normally. So, they 

are very affordable. It is mysterious to me that people of higher incomes when they are unemployed don’t use these facilities. 

So, I think we need to know more about who uses them, whether 

the unemployed go there, and so on and so forth. So, how can we 

use the resources we have in the system better is one of the most 

rapid avenues to reaching out that we would have. Then, of course, 

what else do we need to do. So, anyone who wants to offer on that. 

My time is up, and I don’t want to take much more, but I do thank 

you, Mr. Scandlen, for your insight into current law, and, Dr. Nichols, for your work. Mr. Stark. 

Mr. STARK. Thank you, Madam Chair and the panel, for your 

efforts in trying to enlighten us. I guess, however, there are two 

questions for Dr. Nichols and Dr. Rowland in particular. We talk 

about the diversity of the uninsured, but it is my sense that perhaps two-thirds, just to pick a number, of the uninsured come out 

of the lower-income population. Now, they may be lower income because they lost their employment and thereby their insurance. I 

don’t know as there is any cause and effect here. 

What would be the low income—if it is systemic, if they have 

been in low-paying jobs in the service sector, in jobs that are part 

time, in jobs that have multiple employers in the service sector, 

and they are unapt to have—they work for Wal-Mart, what would 

be your recommendation, just briefly for each of you, of reaching 

that 60 percent or two-thirds of the uninsured, however many 

there are out there? I think we would all agree that a substantial 

majority of the uninsured are low income. What is the best way to 

provide them coverage? Diane? 

Ms. ROWLAND. Well, certainly I think building on the experience of Medicaid and SCHIP with children and to try to continue 

some of the outreach and enrollment simplification to get those 

children that are already eligible for coverage but are not enrolled, 

enrolled and into coverage. 

Mr. STARK. Okay. In that, do you think you could find some 

studies that you could send on to me that would show that that is 

economically efficient, as opposed to individual policies with a tax 

subsidy or other alternatives that are mentioned? 

Ms. ROWLAND. We have done some recent work in conjunction 

with Jack Hadley and John Holohan at the Urban Institute that 

looks at the low-income population, the coverage received within 

Medicaid versus comparable coverage through private insurance. In 

fact, Medicaid treats, because of the nature of the population it enVerDate Aug 31 2005 06:42 Mar 11, 2006 Jkt 023794 PO 00000 Frm 00067 Fmt 6633 Sfmt 6602 E:\HR\OC\23794.XXX 23794
64 

1For more details on the findings and methodology described in this issue paper, see Jack 

Hadley and John Holahan, ‘‘Is Health Care Spending Higher under Medicaid or Private Insurance?’’ Inquiry, Vol. 40, No. 4, Winter 2003/2004. This research was supported by the Kaiser 

Commission on Medicaid and the Uninsured. 1For more details on the findings and methodology described in this issue paper, see Jack 

Hadley and John Holahan, ‘‘Is Health Care Spending Higher under Medicaid or Private Insurance?’’ Inquiry, Vol. 40, No. 4, Winter 2003/2004. This research was supported by the Kaiser 

Commission on Medicaid and the Uninsured. 2 Hadley and Holahan based their analysis on pooled data from the Medical Expenditure 

Panel Surveys (MEPS) conducted in 1996, 1997, 1998, and 1999. The expenditure data were inflated to 2001 dollars using the annual percentage increase in the National Health Accounts. 

rolls, a sicker population than those privately insured in the lowincome groups, but does so at a much lower cost per person when 

you adjust for the differences in health status. The reason for that 

is partially the low payment rates that Medicaid pays to providers, 

but it is also that Medicaid operates fairly efficiently for that population. We can make that study available to you for the record. 

Mr. STARK. I would appreciate it. 

[The information follows:] 

Medicaid: A Lower-Cost Approach to Serving a High-Cost Population 

Medicaid is our Nation’s principal provider of health insurance coverage for lowincome Americans. The program is generally the only source of health coverage 

available to the 38 million low-income children and adults who are enrolled. Discussions about Medicaid spending and financing are a perennial feature of policy, legislative, and budget deliberations at both the Federal and state level. Some contend 

that Medicaid is excessively costly and argue that the private sector could provide 

coverage more efficiently. Others maintain that, for the population covered and the 

services provided, Medicaid is, in fact, an effective vehicle for providing coverage. 

New research conducted by Jack Hadley and John Holahan of the Urban Institute 

examines this issue and shows that Medicaid is a lower-cost approach to providing 

coverage when compared with private insurance—once the poor health status of 

Medicaid’s beneficiaries is taken into account.1 The study brings new empirical evidence to bear in the debate concerning the efficiency of Medicaid versus private 

health insurance as a mechanism for covering low-income children and adults. 

The researchers sought to assess whether, for non-elderly adults and children 

with incomes below 200 percent of the Federal poverty level, Medicaid is a highcost program relative to private health insurance. Using statistical methods to control for differences between the demographic, socio-economic and health characteristics of those with Medicaid and those with private insurance, the investigators examined whether health care spending would be lower under private coverage than 

through Medicaid.2 This policy brief highlights the key findings from this study. 

Study Highlights 

The Medicaid Population is Much Poorer and Sicker than the Low-Income 

Privately Insured Population 

Income. The Medicaid population is much poorer than the low-income privately 

insured population.3 The analysis by Hadley and Holahan indicates that the average family income for adults with Medicaid was only $18,614—56% of the average 

family income for low-income adults with private insurance. Similarly, average family income for children with Medicaid was 58% of average family income for lowincome children with private coverage. 

65 

4Tables 1 and 2 appear at the end of the brief. 

The much lower average income of the Medicaid population reflects the extremely 

high concentration of poverty among Medicaid enrollees. Among low-income adults, 

over 70 percent of those with Medicaid had incomes below the poverty level, compared with only 20 percent of the privately insured (Figure 1). Likewise, 73% of 

Medicaid children came from families below poverty, compared with only 21% of privately insured children. 

Health. Health status is markedly worse among both adults and children in Medicaid than among their privately insured counterparts. Among adults, the disparity 

is dramatic. In particular, over one-third of adults with Medicaid report that they 

are in fair or poor health, compared with only 11 percent of the privately insured. 

Nearly 60 percent of low-income adults with private coverage reported that they 

were in excellent or very good health, compared with only 34 percent with Medicaid 

(Figure 2, Table 1).4 The health status differentials for children are similar, though 

not as dramatic. 

Disability is also much more prevalent in Medicaid. Nearly half of adults with 

Medicaid report physical or cognitive limitations—a proportion over four times 

greater than among low-income adults with private insurance (Figure 3, Table 1). 

Among children, the disability rate is 20 percent in Medicaid, but 13 percent among 

the privately insured. 


Insert offset folio 23794a.026
66 

5For purposes of this analysis, ‘‘disabled’’ individuals are defined as those reporting any physical or cognitive limitation (see Table 1). 

Health Status Explains Medicaid’s Higher Per Capita Spending 

Driven largely by health status, per capita expenditures for adults with Medicaid 

were higher than the corresponding amounts for low-income adults with private coverage. However, when health status differences were adjusted by excluding disabled 

adults 5 from the analytic sample, per capita expenditures were significantly lower 

for Medicaid adults than for the privately insured. This result suggests that the 

higher per capita spending associated with Medicaid adults was due to the much 

poorer health of the Medicaid population.When all sample adults were included in 

the analysis, per capita spending was $4,877 for those with Medicaid, compared 

with $2,843 for the privately insured. When only non-disabled adults were included, 

spending per Medicaid adult dropped by nearly two-thirds, to $1,752—about 78 percent of the corresponding private insurance level of $2,253 (Figure 4, Table 2). 


Insert offset folio 23794a.027
67 

Among children, per capita expenditures were significantly lower (p¥.10) for 

those with Medicaid than for those with private coverage—even when children with 

disabilities, who are more prevalent in the Medicaid population, were included in 

the analysis (Figure 5, Table 2). 

Benefits Often Cited as ‘‘Overly Generous’’ Account for Small Share of Medicaid 

Spending and a Larger Share of Private Insurance Spending 


Insert offset folio 23794a.028 Insert offset folio 23794a.029
68 

Dental and other services that states are not required by Federal law to provide 

under Medicaid were found to account for less than 10 percent of per capita spending for non-disabled adults in Medicaid. In fact, per capita spending for these services was higher for the privately insured than it was for the non-disabled in Medicaid (Figure 6). 


Insert offset folio 23794a.030
69 

Medicaid Protects against the High Out-of-Pocket Spending Faced by the 

Low-Income Privately Insured 

Low-income people with private insurance incur much higher out-of-pocket costs 

than do those covered by Medicaid. Presumably, the higher out-of-pocket costs they 

bear are attributable to cost-sharing charges and spending for non-covered benefits. 

Privately insured adults below 200% FPL had out-of-pocket costs more than twice 

those of Medicaid adults, $585 versus $266 (Figure 7, Table 2). When disabled 

adults were excluded from the sample to increase comparability between the Medicaid and privately insured groups with respect to health status, the out-of-pocket 

gap widened to nearly a sixfold difference—$508 for the privately insured versus 

$91 for those in Medicaid (Figure 8). In the case of children, the privately insured 

spent roughly seven times more than those with Medicaid—whether children with 

disabilities were included or not. The limits on cost-sharing in Medicaid appear to 

protect its beneficiaries from large out-of-pocket obligations. 


Insert offset folio 23794a.031
70 

6See Hadley and Holahan, 2004, for more details on the simulation models used. 

The higher out-of-pocket health care costs incurred under private coverage would 

be difficult for the sicker and poorer Medicaid enrollees to afford if they were enrolled in private plans unless states provided comprehensive ‘‘wrap around’’ or supplemental protection to cover these costs. 

Simulation Results: Estimates of Spending per Person under Medicaid and 

Private Insurance 

If the average person enrolled in Medicaid were shifted to private insurance, simulation models indicate that per capita spending would increase by $1,265 for an 

adult and by $76 for a child (Figure 9).6

Per capita spending for an adult Medicaid beneficiary in poor health would rise 

from $9,615 to $14,785 if the person were insured privately and received services 

consistent with private utilization levels and private provider payment rates. For an 

adult in excellent health, a shift from Medicaid to private coverage would increase 

per capita spending by $675 (Figure 10). The results for children are generally similar, but less dramatic because the spending per person is so much lower. 


Insert offset folio 23794a.032
71 

Medicaid’s low per capita spending levels are due, in part, to lower provider payment rates under Medicaid than in private insurance. Inadequate payment rates 

have affected some providers’ willingness to participate in the Medicaid program 

and have impeded access to care. But, as discussed below, this research indicates 

that utilization of basic services among Medicaid beneficiaries is generally the same 


Insert offset folio 23794a.033 Insert offset folio 23794a.034
72 

as or higher than the utilization of these services by the low-income privately insured. 

Utilization of Services 

When controlling for income, health and other characteristics, adults in Medicaid 

appear no more or less likely than those with private coverage to have a medical 

expense (i.e., use a service). Among the adults who did have an expense, total 

spending was significantly lower for those with Medicaid than for the privately insured, largely reflecting Medicaid’s lower provider payment rates. Unlike adults, 

children with Medicaid were found to be more likely than their privately insured 

peers to use a service. However, among children with any expense, total expenditures were also lower for those covered by Medicaid. 

Using simulation techniques, the predicted utilization of Medicaid adults shifted 

to private insurance is not significantly different from their actual utilization under 

Medicaid (Figure 11). However, the findings for children are different—children in 

Medicaid have more doctor and office visits under Medicaid than they would be expected to have if their utilization followed private insurance patterns (Figure 11). 

This may reflect Medicaid’s emphasis on well-child care, and the deterrent effect on 

utilization of the much higher cost-sharing requirements of many private plans. 

It should be noted that while utilization of broad categories of service was examined, possible differences in the detailed content of the care (e.g., specialist services, 

surgical procedures, diagnostic tests, and so forth.) between the Medicaid and privately insured low-income populations were not analyzed. 

Discussion 

When the poorer health status of Medicaid beneficiaries is taken into account, 

Medicaid provides coverage at a lower per capita cost than private insurance. The 

study findings highlight the distinctive profile of the Medicaid population, compared 

with other low-income people, and the special role that Medicaid plays as an insurer. Neither higher utilization in Medicaid nor the program’s more comprehensive 

benefit structure are key factors driving Medicaid spending. 

The results of this research suggest that using public funds to purchase private 

coverage would cost considerably more than building on Medicaid. However, any reform based on a broad expansion of Medicaid would need to address the low provider payment rates long associated with the program. Additionally, the prospect of 

much higher out-of-pocket costs for the Medicaid population if they were moved to 


Insert offset folio 23794a.035
73 

private coverage could limit their access to needed care, particularly considering 

their poverty and extensive health care needs. 

As policymakers evaluate Medicaid’s performance as an insurer for low-income 

non-elderly adults and children, and private-market coverage as a potential alternative, these key study findings and implications warrant consideration: 

• The high per capita spending associated with non-elderly adults and 

children with Medicaid, as compared with the privately insured low-income population, is due to the much poorer health of those with Medicaid. The Medicaid population differs significantly from the privately insured 

low-income population. Comparisons between the two groups need to account 

for their different income and health profiles. Medicaid plays a critical role in 

our health insurance system as the source of coverage for many of the sickest 

and poorest Americans, whom private insurance does not reach. 

• Out-of-pocket spending for the low-income privately insured is six to seven 

times greater than that faced by low-income Medicaid beneficiaries. These much 

higher out-of-pocket costs would represent a heavier financial burden for the 

much sicker and mostly poor population in Medicaid. If Medicaid beneficiaries 

were moved into private coverage without the financial protection of ‘‘wrap 

around’’ or supplemental coverage, access to care could be diminished for those 

most in need. 

• Medicaid’s comprehensive coverage of dental care and other optional services 

accounts for less than 10 percent of per capita spending for individuals with 

Medicaid; per capita spending for these services is higher for individuals with 

private coverage. 

• Lower per capita spending in Medicaid (adjusted for differences in 

health status) reflects, in part, Medicaid’s lower provider payment 

rates, raising concerns about access to care in the program. Although 

this study indicates that expected utilization of basic services by Medicaid beneficiaries is comparable to what would be expected for the privately insured, further analysis is needed to examine whether less access to medical specialists, 

advanced diagnostic and therapeutic procedures, and high cost drugs contribute 

to Medicaid’s lower costs. 

• Moving those who are now on Medicaid into private coverage could significantly 

increase health care spending and might not improve access if cost-sharing 

proved to be a barrier. Better access to specialty care or better quality of care 

through market-based coverage would need to be balanced against budget concerns, and against the risk that higher cost-sharing might diminish access to 

care and increase financial hardship for very low-income people. 

This brief was prepared by Julia Paradise and David Rousseau of the Kaiser Commission on Medicaid and the Uninsured and is based on research conducted for the 

Commission by Jack Hadley and John Holahan of the Urban Institute. For more 

details on this research see Jack Hadley and John Holahan, ‘‘Is Health Care Spending Higher Under Medicaid or Private Insurance?’’ Inquiry, Vol. 40, No. 4, Winter 

2003/2004.’’ 

74 

Mr. STARK. Dr. Nichols, which way would you go to handle this 

group? 


Insert offset folio 23794a.036
75 

Mr. NICHOLS. Well, sir, I would want us to remember that the 

picture here is quite diverse even among the lower income uninsured. Some work for firms that actually do offer now, and they 

feel like they can’t afford it. So, you might think about low-hanging 

fruit, including subsidies to people to pay their employees’ share. 

That will end up being expensive because a lot of low-income workers who are offered today do take. 

So, you have got this diversity problem which will lead to an equity problem. So, in some ways it really does depend, sir, on how 

much you want to spend. If you want to pay for equity, that is expensive. If you want to target the money just for those who are currently uninsured, then you might think, well, the best thing to do 

would be to focus on those who don’t have employer offers, who 

don’t have any other alternative. Like Diane said, you might insure 

them efficiently through Medicaid, but you might also give them 

tax credits; you might also give them access to maybe let them buy 

into the State employee plan. That is a big umbrella plan; it ends 

up being—it is like FEHBP on the State level. It ends up being an 

avenue that you can enroll people in every county; it ends up being 

a way you can guarantee choice. 

So, I would submit, it depends—you have got to tell me a little 

bit more about which way—what your values are, what your 

choices are. Tell me that, and I can design a system. I would say 

at this point, do something, because we are looking at 40-something million. I would submit, if there is one thing I could say 

today that would be my main point on all of, it is we are now in 

a dynamic system where health care costs are growing faster than 

wages, and they have for 30 years. No matter what we do, that 

seems to be the reality and what that means at a personal level 

is that an increasing fraction of our workforce cannot afford health 

care as we know it. Thus, if we don’t intervene—- 

Mr. STARK. Let me toss this in. Just think about it, and send 

me a letter if you are concerned. Half of—more than half of personal individual bankruptcies are related to medical expenses, but 

80 percent of those people filing had health insurance. Now, what 

does that tell you? Does it begin to tell you that the health coverage or quality of their insurance is inadequate, or they wouldn’t 

be going bankrupt? Generally they can’t get the check and spend 

it on a new car and not give it to the insurance. Most of the health 

insurance goes right to the provider. So, the bankruptcy has got to 

be for the extra charges that the insurance didn’t cover. 

So, again, that is something—it is one of those little factoids that 

troubles me when we are dealing with—we are saying, well, we 

can’t—Holtz-Eakin said we don’t know. What is insurance? It sure 

wasn’t good enough for the people who went bankrupt who had insurance. Let me just—one more question, if I may, Madam Chairwoman, to Dr. Melnick. Maybe you know her, maybe you don’t, but 

missing, at least conspicuous to me but not to most people, from 

your testimony and your charts was Maryland, where I suspect 

your problems are all solved. 

Mr. MELNICK. You have a good eye. 

Mr. STARK. I happen to be a fan of the all-payer system, and 

all of your testimony wouldn’t apply in Maryland, would it? 

76 

Mr. MELNICK. To tell you the truth, I didn’t know it was missing, so I am not sure. 

Mr. STARK. Maryland has a State-set all-payer system. So, between cost, they charge everybody the same. 

Mr. MELNICK. Right. 

Mr. STARK. So, there is no pricing strategy there because the 

prices are set. They can’t offer every person who walks into any 

particular hospital pays the same rate no matter how they are insured. That would solve your problem, wouldn’t it? 

Mr. MELNICK. That would solve this problem. 

Mr. STARK. Thank you. Thank you. 

Chairman JOHNSON. Mr. Camp. 

Mr. CAMP. I thank the Chairman. I want to thank all the panelists for your testimony today. I think it has been very helpful. 

What I take away from what you have been saying is that the uninsured are a diverse population that is constantly changing as 

some lose coverage and some gain coverage. That may mean that 

different solutions might be required depending on the group of 

people that we are trying to help. 

It seems that estimates of the number of uninsured vary depending on what timeframe is used. Dr. Rowland, you testified that 

there were 43 million uninsured in 2002, and you gave some of 

their characteristics in your testimony. We have heard from CBO 

and others that obviously that timeframe is important when you 

look at this number of uninsured, and that there are more uninsured if you consider people who lacked coverage at a particular 

time. I think you stated that 43 million are uninsured, which is 

similar to CBO’s number of those uninsured at particular times. 

So, are your conclusions based on that same premise, that those 

are people who are uninsured at a particular time? If not, would 

those conclusions differ? Or would that change your analysis; if you 

considered the uninsured for an extended period of time, would you 

come up with a different number of uninsured people? 

Ms. ROWLAND. I certainly agree with the analysis that CBO 

presented to you. We tend to use the snapshot of the uninsured 

that comes from the current population survey so that we can 

measure how that snapshot changes from year to year. That is 

where the 43 million comes from, from the latest numbers for 2002. 

If you look at people who have a bout of uninsurance during the 

course of the year, that would increase that number much higher. 

One of the other surveys that we have worked with, the National 

Survey of American Families conducted by the Urban Institute, 

showed, for example, in 2002 that there were some 49 million people who were uninsured at some point during a 12-month period, 

and that of those, half, or 26 million, were uninsured for the whole 

12 months. I think what really is important here is that there are 

lots of people who move in and out of coverage when they are between jobs, when they are young and move off of their family’s 

health insurance policy, or when they are on Medicaid and their income changes and they lose coverage. 

I think what really is important in looking at solutions is that 

we have to look at that short-term set of people with perhaps a different set of solutions than the very hardcore, long-term uninsured. 

That group remains primarily a very low-income population and 

77 

one which tends to have bouts of uninsurance that are 12 months 

or longer. So, the chronically uninsured, I think, is a different problem than those who are between jobs or certainly family situations. 

Mr. CAMP. So, that your analysis of those for an extended period 

of time, more than a year, is similar, falls into the same range as 

CBO? 

Ms. ROWLAND. Right. 

Mr. CAMP. I appreciate that. 

Dr. Melnick, you mentioned that the uninsured paid more, and 

they are more likely to pay above the list price. It does seem to me 

that lack of transparency is a real problem, because it is hard to 

find out what something costs around the country. You make a series of recommendations. What do you think is the most significant 

thing we could do with regard to that? 

Mr. MELNICK. Well, I think we need to shine a light on the 

policies and procedures at the hospital level. We need hospitals to, 

first of all, look at what they are doing. A lot of hospitals, because 

it is kind of an artifact of their main line of business, which is insure patients, this problem has emerged—a lot of them may not 

even know that they are imposing a hardship on uninsured self-pay 

patients. They get the bills, they send the bills out, and then they 

turn it over to collections. So, a lot of hospitals may not know and 

plus, they pay the collection agency anywhere from 20 to 80 percent of the revenue that the collection agency collects. So, a lot of 

hospitals may not even know the hardship they are imposing on 

their patients. So, I think the first thing I would do is shine a light 

on this, force hospitals to look at it; publish their policies and procedures; make it clear to patients that when they get this giant bill 

in the mail, they are not responsible for that. There is a procedure 

to go through to get a discount. 

Mr. CAMP. Thank you. 

Dr. Nichols, I know my time is almost expired, but I realize we 

are dealing with a diverse group of people in terms of the uninsured. What is the one thing that we could do to help the uninsured? I realize that is a varied group, but what is the one thing 

that Congress might be able to do that you think would be most 

helpful? 

Mr. NICHOLS. Well, it seems to me that the evidence is most 

clear on the low-income population being the target and would 

most benefit from some kind of health insurance, and their health 

status would be improved the most. We cover today about half of 

the population below poverty in various ways, mostly through Medicaid and about 10 or 12 percent or so through employer-sponsored 

coverage. I would submit, commit yourselves to making sure that 

all of the people who are below poverty are covered somehow. 

There are lots of different subsidy mechanisms that could get us 

there, but that would be a goal you should set, because you know 

you would do good. 

Mr. CAMP. Thank you. 

Chairman JOHNSON. Thank you. Mr. McDermott. 

Mr. MCDERMOTT. Thank you, Madam Chairman. 

I don’t know quite what to ask you, because I have sat here for 

years and years and years and heard the same stuff go round and 

round and round. People ask, well, what little thing could we do 

78 

here; one little thing we can do there? It is pretty obvious nobody 

wants to have a universal system, so we are going to continue to 

tinker with it. 

I noted, Mr. Scandlen, you didn’t like what State legislators did. 

You kind of gave a kind of an off-hand slap to the fact that legislators insure things that don’t get covered by insurance companies, 

like Dr. Melnick. I think the States are really hamstrung in this 

whole business and what is fascinating about the two proposals 

that are floating around here, this Association Health Plan (AHP) 

business and HSAs, the AHP is deliberately set up to get rid of 

that problem with State legislatures, just knock them out of the 

box. Knock them out, knock out insurance commissioners, and 

leave the insurance industry with no regulation at all except a twoman operation over at the Department of Labor. 

Now, I can’t see any evidence from any—either of those proposals, either the AHP which allows small businesses to get together—they can do that now. They could do it before this bill 

passed. They have been—they have had that open to them for a 

long time. Didn’t reduce costs anywhere, it didn’t get any more people covered. Now we have HSAs and the idea that you would have 

$5,000 to put into an account that you could start drawing out over 

the year for anybody making less than $40,000 a year sounds like 

pretty much pie in the sky. I would like to hear from either Dr. 

Rowland or Dr. Nichols. Do you think either of those proposals will 

significantly improve the number of covered people in this country, 

reduce the number of covered people in this country? 

Mr. NICHOLS. Well, sir, I actually testified on AHPs a year ago 

before the Senate Small Business Committee, and I think it is fair 

to say that there is a lot of passion on this issue and relatively little light. I will tell you what I believe. I believe that benefit mandates are real. They do add to costs. They don’t add as much to 

costs as the advocates of AHPs believe. 

If you look at the study done by the Department of Insurance in 

the State of Texas, which is not known to be a left-wing bastion, 

they concluded that their benefit mandates, which include inpatient mental, which, as you know, is one of the more expensive— 

the full month thing for alcohol and substance abuse. They concluded their benefit mandates added about 3 percent to the premium. Now, 3 percent is no small number when you are talking 

about premiums that are $9,000, $10,000. I don’t want to imply it 

is trivial and if you are a small business on the cusp. That can 

make a difference, but that is not the kind of belief that I think 

a lot of people who advocate AHPs hold. 

So, I think there is kind of a search, if you will, with all due respect, for fool’s gold there. They are looking for savings that aren’t 

really there, because at the end of the day they are going to have 

to pay the same costs everybody else does. What is driving cost is 

technology. 

Mr. MCDERMOTT. It is the waste, fraud, and abuse sort of argument. That is what they are looking for. 

Mr. NICHOLS. Well, sir, I believe that they are sincere. In some 

cases I think they do think that it is that nasty insurance company 

middleman that somehow thinks there are costs there to be taken 

that are not. 

79 

Mr. MCDERMOTT. Well, but when a State legislature requires 

that supplies for the diabetic patient be paid for, the number one 

chronic disease in the United States, the hospitalization costs, all 

the problems that come, all the disability costs that come out of uncontrolled diabetes, do you think that that is a wasteful effort on 

the part of the State legislature? 

Mr. NICHOLS. No. I believe a number of studies have found that 

even if you didn’t have specific things mandated, as you know, 

most physicians who are going to try to get their patients the right 

care, which is true everywhere, are going to find a way to make 

what is needed covered. So, that is part of the reason, by the way, 

the benefit mandates studies don’t find all that much of a cost increase, because the reality is they are getting that stuff anyway, 

and they are going to get it. What you don’t get if you don’t have 

mandates are things like in-vitro fertilization and in some cases 

maternity care, which is not sold in the nongroup market as a matter of course. 

Ms. ROWLAND. I would also point out that while we have 

talked about the diversity in uninsured, the diversity of small businesses in America is also something that you have to take into account. The majority of the small businesses that don’t offer health 

insurance coverage tend to have a very low-wage work force where 

I think some of these efforts would be far less effective than in 

areas where the work force has a higher income. We have begun 

to start doing some modeling of the HSAs to see what the take-up 

rate might be and hope to have those results in a few weeks. 

Mr. MCDERMOTT. I would like to see them when you have 

them done. Thank you, Madam Chair. 

Chairman JOHNSON. I hope you will also model the HSAs, because the—— 

Ms. ROWLAND. Actually, it is the HSAs that we are modeling. 

Chairman JOHNSON. The other proposals do get small business 

out from under State mandates the very way big business is out 

from under State mandates. The fact that big business offers 

roughly the same spectrum of benefits indicates that mandates 

aren’t the key difference. On the other hand, all the little different 

mandates in high-mandate States do mean that you have to insure 

to a higher standard. In Connecticut, which is a high-mandate 

State, I am being told over and over again we could cut premiums 

10 percent if we could choose of the mandates the basic ones that 

everybody offers. 

So, while we don’t know exactly what it will cost, the idea that 

I am bound by what the legislature does—and the legislature is 

going to do what is politically useful—is a problem. Then don’t underestimate the power of bargaining. The big difference between 

these associated health plans or the HSAs is that you are going to 

have an employer group bargaining price, and your charts say loud 

and clear what a big difference that makes. 

So, as you look at HSAs, one of the things about HSAs that could 

make a huge difference is employer creativity and being able to add 

more in a good year and less in a poor year so that they are not 

obliged. With a rollover capability, they can even have some variation of benefit depending on catastrophic problems or big health 

problems. 

80 

So, there are a lot of permutations of HSAs. People will have a 

lot more control over what they look like, both the employees and 

the employers. So, it is hard to model, but I think we do need to 

think about it. What I want to ask you is do we know anything at 

all about how many of the—what percentage of the uninsured have 

a health problem during their spell of uninsurance by group; the 

under 4 months, 4 months to 12? Obviously, people who are uninsured for 12 months, of course, will access the system. 

Mr. MELNICK. The Institute of Medicine study reported statistics of 62 percent of the uninsured use health services while they 

are uninsured, about 1 in 30 use inpatient care, and about 1 in 15 

use the emergency room, and a higher percent use physician services as well. 

Chairman JOHNSON. This includes the long-term uninsured as 

well? 

Mr. MELNICK. Correct. 

Chairman JOHNSON. Do we have any breakdown? 

Mr. MELNICK. I can get you that. 

Chairman JOHNSON. If you will get that to me, I would be interested in that. 

[The information follows:] 

Health Services Utilization and Spending by the Uninsured 

The uninsured, while they use fewer services than the uninsured, still use health 

services during periods without health insurance coverage. Several researchers 1, 2

have utilized the Medical Expenditure Panel Survey (MEPS) to study and compare 

utilization patterns for the uninsured and insured populations. Provided below are 

three tables based on 1996 data from this prior research to provide a picture of utilization and spending patterns of the uninsured (for different time periods) compared 

to the insured. 

Probability of Using Health Services 

Table 1 presents data comparing the probability of using different kinds of health 

services depending on whether an individual is insured or uninsured for a full year. 

In general, the insured have a higher probability of using all health services, except 

for hospital emergency care. A number of other key findings include: 

For under-65 population, 89% of the people who were privately insured for the 

full year in 1996 used at least one health service, compared to 62% of the people 

who were uninsured for the full year in 1996. 

4.6% of privately insured population used inpatient hospital services compared to 

2.9% of the uninsured. 

The percentage of privately insured population was more than double compared 

to the percent of uninsured population using services such as Outpatient hospital 

(13.4% vs. 6.2%) and Dental (53.1% vs. 20.4%). 

A larger portion of privately insured population used preventive care services 

compared to the uninsured. 

Total Spending and Out of Pocket Spending 

Table 2 presents data on total spending from all sources on behalf of the insured 

and uninsured and out of pocket spending by the insured and uninsured. The estimates of per capita medical care spending are for the under-65 population and include estimates of the uninsured for an entire year or part of a year. A number of 

key findings include: 

Total per-capita spending for the uninsured (for the entire year) was about $923 

per person compared to $2,484 per person for privately insured and $2,435 per person for publicly insured. 

Total per capita spending on behalf of the uninsured (for the entire year) was substantially below the insured population—about 38% of the total spending by an insured person. 

For the uninsured population (including those uninsured for the entire year or 

part of the year), total per-capita spending on medical was about $1,335 per person 

This represents about 54% of total per-capita spending compared to an insured 

person. 

81 

Average per capita out-of-pocket spending for an uninsured (for a full year) person 

was $426 compared to $402 for a privately insured for the entire year. 

Out of pocket spending by the uninsured was not substantially different from the 

insured population in 1996. 

Financial Burden 

A final measure of the effects of being uninsured is the financial burden of outof-pocket spending on uninsured families. Table 3 presents estimates of the percent 

of privately insured and uninsured families that spent greater than 20% of their annual income on health care in 1996. A number of key findings include: 

Overall, about 4% of the uninsured families and about 1.1% of the privately insured families spent greater than 20% of their family annual income on health care. 

For poor families (income less than or equal to Federal poverty line), and for low 

income families (125–200 percent for Federal poverty line), a greater portion of the 

privately insured families spent more than 20% of their annual income compared 

to those that were uninsured. 

References 

1Taylor, Amy K., Joel W. Cohen, and Steven R. Machlin. 2001. Being Uninsured in 1996 Compared to 1987: How Has the Experience of the Uninsured Changed Over Time? Health Services 

Research 36(6, Pt. II): 16–31. 2 Hadley, Jack and John Holahan. 2003a. How Much Medical Care Do the Uninsured Use and 

Who Pays for It? Health Affairs Web Exclusive (1): W66–W81 

Tables 


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f 

Chairman JOHNSON. Then the other thing that does continue 

to frustrate me, How much do you know about—there is money in 

the system now for the uninsured, and you have talked about Medicaid money and SCHIP money. States are cutting back on Medicaid, in case you didn’t notice. The Federal government’s budget 

is stressed. I believe budgets are going to be stressed at both the 

local and the State level, no matter which party is in power, for at 

least a decade, if not for 20 years. So, I am not optimistic about 

solving this through annually appropriated programs. 

I am interested that the President put 70 billion dollars in over 

10, even in this year’s budget for the uninsured. So, there is some 

money allocated to this. In none of this conversation—this is exactly the same hearing we had 2 years ago, and yet this Administration has committed itself to and is methodically doubling the 

number of community health centers, and they expect that next 

year, with the additional allocation they are putting in, that they 


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84 

will be providing total coverage for 15 million uninsured and underserved individuals. About 7 million of these are in rural areas. 

We need to know what is happening as these expand. Who is 

being served? Are they Medicaid people? Are they SCHIP people? 

Are they uninsured? Are they underinsured? Not to know that does 

really weaken our ability to move forward. There are so many 

urban areas in which there are outstanding multiservice clinics, 

and they do mental health, and they do dental. So, why is it we 

have completely neglected in our study of the uninsured who is 

going there? 

Now, what do we know about disproportionate share hospital 

(DSH) payments? How effective are DSH payments? Are they just 

actually covering overhead for some of these people that you charge 

who it turns out are paying more than any average bloke, more 

than any other payer? So, what do we know about DSH money? It 

is big, and we give it to a hospital in ways unrelated to the burden 

they carry. So, what do we know about that money? What do we 

know about indirect medical education money and its relationship 

to uninsured? 

So, I hope that, given your resources, you will help us narrow 

this problem beyond the kind of definition we have given it today, 

because the debates to this point have covered exactly the kinds of 

things we have talked about today. Clinton laid down the challenge 

to the Congress to provide universal health care to all Americans. 

There was a bipartisan bill, Rowland and Michel, that met that 

challenge and had a majority vote, and that is why it was not allowed to come to the floor of the House. It covered everybody. That 

last segment it covered through means tested premiums so everyone would have access, but it did a number of other things. 

So, it isn’t that we haven’t thought about this a lot at the Federal level. We have. It is hard, because nobody understands the 

interactions of what happens at the end if we subsidize premiums. 

I have been amazed at how many small companies I represent, 

small manufacturers, where the employee pays 50 percent of the 

premium. That is tough. So, we need to be thinking more clearly 

about how do we reach and how do we do it in an affordable way, 

and how do we do it to encourage modest use of our resources. 

I am surprised that you haven’t talked more about consumer involvement. One of the things that is dramatic about disease management—and I want to commend the Administration right here 

and now for offering to pay half the cost of implementing disease 

management programs in Medicaid because they pay back so fast. 

It will be budget neutral for the States in a year or two. It is just 

astounding for people with chronic illness. We need to think about 

this problem: Who is it that is uncovered that needs help, where 

do they live, who could they go to? Do we need a combination of 

community health center expansion and special payments for physicians in rural areas who just take all the people who are uncovered? 

We need to think more specifically about the nature of this problem. I appreciate your input. It has been very good. It has been 

broad, and it has brought back to the table the basic research and 

state of knowledge about this issue in America. It isn’t exactly the 

information that can drive specific solutions. If we are going to do 

85 

specific solutions, we need to think about the next step. I hope to 

have your help in doing that. Thank you very much for being here. 

The hearing is adjourned. 

[Whereupon, at 4:00 p.m., the hearing was adjourned.] 

[Submissions for the record follow:] 

Statement of AdvaMed 

AdvaMed is pleased to provide this testimony on behalf of our member companies 

and the patients and health care systems we serve around the world. AdvaMed is 

the largest medical technology trade association in the world, representing more 

than 1100 medical device, diagnostic products, and health information systems manufacturers of all sizes. AdvaMed member firms provide nearly 90 percent of the $71 

billion of health care technology products purchased annually in the U.S. and nearly 

50 percent of the $169 billion purchased annually around the world. 

AdvaMed shares the concerns of the Members of Congress, the Administration 

and millions of working Americans about the number of people in our country lacking access to affordable health insurance today. Our nation enjoys the best health 

care system in the world, and everyone should have full access to it. While today’s 

market-based system provides insurance coverage to the majority of Americans, and 

along with it access to most of the latest, breakthrough technologies, some 43 million Americans are currently uninsured. 

The Benefits of Access to Health Care Insurance and Advanced Treatment 

In addition to the personal benefits to securing individual insurance, there are 

also larger benefits to the health care system and society for reducing the number 

of uninsured. An Institute of Medicine (IOM) report published in June 2003 estimated that the benefits from health years of life gained by providing continuous insurance coverage are greater than the social costs of providing it. Specifically, the 

report estimated the potential economic value from better health outcomes from uninterrupted coverage is between $65 and $130 billion each year. 

A paper published by David Cutler and now FDA Commissioner Mark McClellan 

in the Sept/Oct 2001 Health Affairs noted the net benefits of new technology for several conditions, including cataracts, depression and heart attacks. A review of the 

findings estimates that more than $1.1 billion is lost annually from lack of access 

to new technologies for treatment of the three specific conditions—an annual loss 

of around $350 in excess morbidity and mortality per uninsured person in the age 

group studied. 

Incentives to Help Make Insurance Coverage More Affordable 

To bridge the current gaps in insurance coverage, AdvaMed has consistently supported maintaining tax incentives to encourage companies to offer health benefits 

to their employees—including refundable tax credits similar to Trade Adjustment 

Assistance (TAA)—as well as expanding tax incentives to allow individuals to more 

affordably purchase coverage. As supporters of market-based health care and competition, AdvaMed also believes consumers should have a wide choice of health 

plans and coverage options that allow them to select those that best fit their needs. 

To expand the number of choices available, AdvaMed supports the creation of Individual Membership Associations or Association Health Plans to allow groups to leverage size for more affordable health options, as well as the expansion of Health 

Savings Accounts, which have already helped address the insurance needs of a select group of previously uninsured Americans. To address the many problems facing 

individuals with uninsurable medical conditions, AdvaMed also supports efforts to 

encourage states to offer ‘‘risk pools’’ that help them access insurance that will meet 

their complex and costly health care needs. 

Innovation Also Helps Reduce Health Care Costs and Makes Coverage 

More Affordable 

America is undergoing a revolution in medical technology. Through advances in 

technology we can detect diseases earlier when they are easier and less costly to 

treat, provide more effective and less invasive treatment options, reduce recovery 

times and enable people to return to work much more quickly. Medical technology 

has advanced to the point where it is fundamentally transforming our health care 

system in ways that improve quality and reduce costs. For example: 

• Three types of laparoscopic surgery have generated approximately $1.9 billion 

annually in increased productivity by enabling people to return to work more 

quickly, according to a study by DRI–McGraw Hill. 

86 

• Angioplasty and other minimally invasive heart procedures, for example, have 

greatly reduced the need for riskier, more expensive heart bypass procedures. 

An angioplasty procedure costs $20,960 on average, compared to $49,160 for 

open-heart surgery. Surgeons can complete an angioplasty procedure in 90 minutes compared to 2–4 hours for open bypass surgery. Patients can leave the hospital in one day instead of 5–6 days, and recovery only takes one week rather 

than 4–6 weeks for bypass. 

• Total knee replacement produces an average one-time health care cost savings 

of $50,000 per patient; a savings of $11.5 billion in 1994 alone, according to the 

American Academy of Orthopedic Surgeon (AAOS). 

An article in the Washington Post highlights another of the many advances transforming health care delivery: a health care information system that alerts doctors 

at Brigham and Women’s hospital to potentially dangerous medical decisions. The 

system has cut the medication error rate at Brigham by 86% compared to 10 years 

ago. 

Information systems like these can dramatically improve the safety and efficiency 

of health care delivery and help reduce health care costs. Automation in the insurance industry alone could save an estimated $20 billion. That is why both the President’s Information Technology Advisory Committee and the Institute of Medicine report on health care quality have stressed the need for a new health information infrastructure. 

Steady declines in mortality rates, medical procedure times, hospital stays and 

patient recovery times all illustrate the emergence of the New Health Economy. 

Gains in workforce productivity and accelerating declines in disability rates point 

to this shift as well. 

In order to reap these benefits, advanced medical technologies must be rapidly assimilated into the health care system. The Institute of Medicine’s report, ‘‘Crossing 

the Quality Chasm,’’ underscored this point, stating: ‘‘Narrowing the quality chasm 

will make it possible to bring the benefits of medical science and technology to all 

Americans in every community—and this in turn will mean less pain and suffering, 

less disability, greater longevity, and a more productive workforce.’’ 

Conclusion 

Again, AdvaMed applauds Congress for addressing the many needs of the uninsured in America. We look forward to working with the Congress and the Administration on efforts to help increase access to affordable coverage, as well as improve 

the quality, efficiency and cost effectiveness of the health care system through innovative medical technology. 

f 

Statement of Catherine M. Murphy-Barron, American Academy of Actuaries 

The American Academy of Actuaries’ Uninsured Work Group appreciates the opportunity to provide comments on issues concerning Americans without health insurance. The Academy is the non-partisan public policy organization for actuaries 

of all specialties in the United States. 

The U.S. Census Bureau estimates that more than 43 million non-elderly Americans did not have health insurance in 2002, an increase of more than 2 million from 

2001. A solution to the uninsured problem has so far been elusive, but the issue 

is again moving to center stage. The actuarial profession has extensive experience 

designing, pricing, and managing health insurance coverage for individuals, employers, and public programs, including Medicare and Medicaid. As the actuarial profession’s voice on public policy issues, the American Academy of Actuaries has many 

insights that may benefit members of Congress as they design proposals to provide 

health coverage to the uninsured. 

This document identifies many, but not all, of the myriad issues that should be 

considered when designing and evaluating proposals to expand health insurance 

coverage. Addressing these and other issues should help minimize any unintended 

consequences and increase the chances for success of any such proposal. This document does not cover implementation or administration, both of which will be critical 

to the success of any new initiative. Rather, in the sections that follow, we identify 

issues related to: the target population(s); the benefit packages; the costs to individuals, employers, and states; the impact on the health insurance market; the impact 

on regulation; and the impact on overall health costs. 

87 

1For more information on who the uninsured are, see the American Academy of Actuaries 

issue brief Health Coverage Issues: The Uninsured and the Insured, which is available on the 

web at http://www.actuary.org/pdf/health/uninsuredl0903.pdf. 

Who Is the Target Population? 

The uninsured population is not a homogeneous group. It includes, among others, 

low-income workers who do not have access to or cannot afford employer-sponsored 

coverage, early retirees not yet eligible for Medicare, adults who do not feel that insurance is a good way to spend their money (these people are often young, but not 

always), individuals ineligible for or unaware that they are eligible for public programs, and unhealthy individuals who cannot obtain insurance at any price.1 A proposal could use a single approach to increase coverage among the uninsured, or it 

could use different strategies for different segments of the uninsured. 

Who is the target population? 

• What uninsured population subgroup(s) does the proposal target? 

• How well does the proposal target the intended group(s)? What is the expected 

participation among the intended group(s)? 

• Will other groups also participate? If so, are they currently insured or uninsured? 

• How will the eligible population be contacted and enrolled? 

What are the conditions of eligibility? 

A proposal may offer direct insurance coverage through a public program such as 

Medicaid, a premium subsidy for use in the private insurance market, or some other 

approach. 

• Under what conditions does an individual or family member become eligible for 

coverage or premium subsidy under the proposal? 

• Is there a requirement to be uninsured for a certain period in order to be eligible for coverage? 

• How long will an individual or family member be eligible? 

• Is the proposed coverage meant to be permanent or transitional? For example, 

is eligibility tied to being unemployed? Is eligibility tied to ineligibility for other 

private coverage, regardless of cost? 

• If the proposal relies on public program expansions, how will the eligibility 

rules differ by state? 

• If the proposal relies on private coverage expansions, will plans be widely available, regardless of state or rural/urban location? 

What are the conditions of issue and is coverage portable? 

• The Federal Health Insurance Portability and Accessibility Act (HIPAA) provided Americans with increased access to health insurance. 

• Will the coverage offered under the proposal change an individual’s HIPAA 

right to insurance without a pre-existing condition exclusion? 

• Does the proposal contain open enrollment periods with guaranteed issue? 

• What conditions, such as pre-existing condition exclusions, waiting periods, etc. 

will apply to uninsured individuals who wish to obtain coverage under the program? 

• Will those who are already insured but want to move into the new program be 

subject to any pre-existing condition exclusions, waiting periods, etc.? 

• If coverage eligibility is tied to certain requirements, such as being unemployed, 

are there any portability opportunities so coverage can be retained? 

What Is the Benefit Package? 

The benefit package must be considered when evaluating proposals to provide 

health insurance coverage for the uninsured. Most insurance typically protects 

against catastrophic losses that occur with low probability. Employer-provided 

health insurance, however, has usually covered not only the expenses associated 

with high-severity, low-incidence health services, such as hospitalization, but also 

high-incidence, low-severity health services, such as office visits. One recent trend 

has been to move toward higher deductibles, thus reducing or eliminating coverage 

for more predictable health expenses. Another trend has been for some states to 

allow ‘‘bare bones’’ policies, thus avoiding state coverage mandates that can increase 

premium costs. 

88 

What is the benefit design? 

• Does the proposal provide comprehensive coverage with relatively low 

deductibles similar to traditional health insurance, or does it provide benefits 

more closely associated with catastrophic coverage? • Will coverage abide by state-mandated benefit requirements or are ‘‘bare bones’’ 

policies allowed? • Is any required provider network adequate to meet the health care needs of 

plan enrollees? • How flexible is the benefit package to advances in medicine? • Does the benefit design include cost-sharing provisions designed to encourage 

efficient use of health care? • Will the benefit design allow an individual to pre-fund future insurance expenses (e.g., health reimbursement accounts)? 

What Are the Costs to Individuals/Families? 

Many proposals to increase insurance coverage rely, at least in part, on the private insurance market. To make coverage in this market more affordable, proposals 

often provide subsidies that cover all or part of an individual’s insurance premiums. 

Are premium subsidies proposed? 

• What are the premium subsidy levels? Are they expressed as a percentage of 

premiums or as a flat amount? • How do the subsidies vary by income or age? Do subsidies vary by income levels 

of the individuals within a state, or nationwide? • Will they reflect state premium variations? • How will the subsidies be distributed? • Will they be provided in advance, as a refund of costs, or both? • Where can individuals use their subsidies? Can they be used toward only one 

coverage plan, or toward any appropriate coverage the person may be eligible 

for? 

What are the net costs payable by individuals/families? 

• The cost of participating in an insurance plan includes not only the premium, 

but also any cost-sharing requirements. On one hand, high cost-sharing requirements will reduce premiums, all else being equal. On the other hand, some individuals, especially those with low incomes, may choose not to enroll in plans 

with high cost-sharing requirements, even if the premium would otherwise be 

affordable. • What is the premium required, net of any subsidies? • What is the deductible and are there any other cost-sharing requirements? Are 

there any cost-sharing subsidies for low-income individuals/families? Is alternative care available at no, or low, cost? • Is there an out-of-pocket maximum that limits the amount of cost sharing? • Are there any lifetime or annual benefit maximums? Are there any financial 

penalties imposed for not having coverage in place? 

Will insureds know the true costs of their health care? 

Insurance shields most Americans from the true costs of their health care. Workers who obtain insurance through their employer typically pay only part of the premium, and may not know the total premium costs, including the employer premium 

share. Perhaps even more important, when receiving health care services, insured 

Americans typically see only their out-of-pocket costs, not the total costs billed or 

paid. Some data suggest that the lack of understanding regarding the total costs of 

care provides insureds with incentives to over utilize health services. 

• Will the proposal make insureds more aware of the total costs of their health 

care? 

• Does the proposal include incentives intended to encourage insureds to be more 

efficient users of health care services? 

What Is the Cost to Employers? 

Although most insured Americans obtain their coverage through the workplace, 

the majority of the uninsured are in working families. Some employers, especially 

small employers, do not offer insurance. Moreover, many employers who do offer 

and subsidize coverage are responding to growing coverage costs by shifting more 

costs to workers through increased premiums or cost sharing, thus making it more 

expensive for workers. Many proposals aim to increase the share of employers offering coverage as well as increase the affordability of that coverage. Such proposals 

may include providing additional tax subsidies to employers offering coverage, manVerDate Aug 31 2005 06:42 Mar 11, 2006 Jkt 023794 PO 00000 Frm 00092 Fmt 6633 Sfmt 6621 E:\HR\OC\23794.XXX 23794
89 

2For more information on AHPs, please refer to the Academy’s April 28, 2003 letter to Congress regarding the Small Business Fairness Act of 2003 (H.R. 660 and S. 545), which is available on the Academy’s website at http://www.actuary.org/pdf/health/ahpl042803.pdf. 

dating that employers offer coverage, providing reinsurance to employers to lower 

the costs of coverage, and facilitating the formation of purchasing pools for small 

employers. Whether such provisions would be successful at increasing the availability of employer-sponsored coverage and, ultimately, whether they will reduce the 

number of uninsured depends on several issues: 

Are tax subsidies available to employers who sponsor coverage? 

Currently, employers who offer insurance coverage are allowed to deduct their 

premium contributions as a business expense. 

• Would any additional subsidies be available for employers who offer coverage? • Would employers be required to pay a minimum share of the premiums to qualify for the subsidies? • Would the subsidies apply to the costs for all workers, or would they be limited 

to those with low incomes, or other targeted populations? • What conditions, if any, are placed on the availability of additional subsidies? 

For instance, are certain benefits required? Are minimum enrollment targets included? Are employers required to pass along any premium savings due to subsidies to the employees? 

Does the proposal include other provisions designed to make it easier for 

employers to offer coverage? 

• Does the proposal allow collective employer actions, such as purchasing pools 

or association health plans (AHPs)? 2

• Will reinsurance be made available to reimburse employer plans for high-cost 

individuals? 

• Does the proposal include some form of coverage sharing that would form a 

partnership among the employer, the government, and the insured? 

• Note that the potential impact of some of these types of provisions on the insurance market is discussed in the next section. 

What are the estimated net costs to employers and are they predictable over 

time? 

• What are the premium costs to an employer affected by the proposal, net of any 

subsidies? Are they higher or lower than those currently available? 

• What are the associated administrative costs? Are they higher or lower than 

current administrative costs? 

• Are premium costs more predictable over time? 

• Are there any costs for employers who do not offer coverage, or otherwise do 

not participate in the proposal? 

Are new subsidies available for insurance outside the employer group market? 

Proposals that increase the availability or affordability of insurance outside the 

employer group market could also impact whether some employers continue to sponsor coverage, regardless of whether any changes are made to the employer market. 

For instance, if subsidized insurance is available in the individual market, some employers may be less inclined to offer coverage to their workers. 

• Does the proposal increase the availability or affordability of coverage outside 

the employer group market? 

• Could the proposal prompt some employers to discontinue offering coverage for 

workers and/or their dependents? Is this consistent with the long-term goals of 

the proposal? 

• Does the proposal include any incentives for employers to continue offering coverage? 

• If workers can use individual tax credits to pay for their share of employersponsored coverage premiums, will employers shift more of the premium costs 

to workers? 

How Will the Proposal Impact the Health Insurance Market? 

How will the proposal affect the different private insurance market segments (small group, large group, and the individual market)? 

There is not a single unified market for private health insurance. The three main 

segments are: large (employer) group, small (employer) group, and individual. There 

90 

are major differences in the underwriting and pricing of the coverage in these three 

markets. These differences are due to competition, the regulatory environment (primarily state), and to the fundamental purchasing decisions made in the different 

markets. 

Large-group insurance (generally over 50 employees) is driven more by competition than by regulation, at least in the underwriting and pricing functions. Insurers 

generally accept any employer and provide coverage to any enrolled employee or 

family. Prices are set at the group level and typically are based in whole or in part 

on the prior and expected medical costs of the specific group. An average price is 

charged for each employee and family unit, without variation for age, gender, or 

health status. Larger employers often self-insure the underwriting risk. State benefit and coverage mandates apply to the insured groups but not to the self-insured 

groups due to exemption under the Employee Retirement Income Security Act of 

1974 (ERISA). 

Small-group insurance (2 to 50 employees) is subject to significantly more state 

regulation of the rating and underwriting practices. All groups and eligible employees must be offered coverage regardless of health status. Surcharges based on 

health status for individual employees are not permitted. Premiums charged for 

each employee may be either the average of the group or based on the age and gender of the specific employee. Some states mandate community rating, whereby an 

insurer is required to pool the medical cost experience of all small groups in determining the expected average medical costs and premiums. The average rates serve 

as the basis of the rates charged to a specific employer. State variations often set 

limits on the maximum or minimum difference from this average, and also on the 

percentage rate increase an employer must pay in a given year due to experience. 

For example, the minimum may be 75% of the average, the maximum may be 150%, 

and the rate increase limit is the increase in the average plus 15%. 

The individual insurance market is tightly regulated. Rating practices permitted 

by the states vary from community rating to full age/gender rating with initial underwriting loads (extra premiums) permitted. Many states permit individuals to be 

denied coverage due to poor health, or to have specific pre-existing conditions excluded for the life of the policy. Other states require that all applicants be accepted 

and all conditions covered. In most states, renewal rate change to reflect the change 

in an individual’s health status is not permitted. However, the rates for the entire 

pool, both new and renewal business, may be increased to reflect the experience of 

the pool. A sub-segment of the individual market is composed of those who are guaranteed coverage regardless of health. In some states the entire market is guaranteed issue. This guaranteed issue right comes under the state group conversion regulations or under the federal HIPAA portability provisions. Although coverage must 

be offered to these individuals, the premium rates charged are typically higher than 

the rates for underwritten individuals. The excess premium charges may or may not 

be regulated by the state. 

• Does the proposal change the underwriting methodology allowed in the different 

markets? • Does the proposal increase or decrease the risks to be borne by any of the private market pools? • Does the proposal change any ERISA exemptions for employers that self-insure 

coverage? • Does the proposal give flexibility to both the insured and the insurer to provide 

products appropriate to the risk the insured wants to cover? • Will the proposal allow insureds to move between markets? 

Will the proposal affect the risk composition of the insured population? 

Different insurance expansions can affect the insured-risk composition of the market differently. Proposals that remove the high-cost or otherwise uninsurable population from the individual and group markets and put them into a high-risk pool 

will reduce the coverage costs of the remaining population. The resultant lower premiums could make insurance more affordable among some of the currently uninsured. Similarly, if reinsurance is provided to insurers to cover the costs of highcost enrollees, premiums could be reduced. Note, however, that such high-risk pools 

and reinsurance arrangements are mechanisms to spread cost, not eliminate it, and 

will reduce premiums only to the extent they are financed by a population broader 

than the privately insured population. 

On the other hand, if healthy individuals are more likely to drop one type of coverage for another, premiums for those remaining with the original coverage will increase. Some may find the higher premiums unaffordable, and drop coverage as a 

result. Insurance plans that are left with a disproportionate share of unhealthy individuals are much less likely to be viable in the long term, which could ultimately 

91 

result in more uninsured individuals if those dropping coverage are unable to find 

more affordable coverage elsewhere. 

• Does the proposal include high-risk pools, and if so, how are they financed? 

• Does the proposal provide reinsurance to cover the costs of high-cost enrollees, 

and if so, how is it financed? 

• Other than into high-risk pools, will the proposal result in healthier individuals 

opting for one type of plan and unhealthy individuals opting for another? If so, 

is this the desired result? 

Is adverse selection manageable? 

Sustaining a viable private health plan typically requires minimizing adverse selection, which occurs when relatively fewer healthy individuals enroll in a plan. 

However, this adverse selection is the norm in a high-risk pool. Therefore, it is important to consider the health characteristics of those who will become newly insured. In particular, will only the unhealthy choose to participate, or will the 

healthy participate as well? If this segmentation occurs, is it planned for in the proposal? Under a private group type plan the key to minimizing adverse selection is 

to increase participation, especially among healthy individuals. This can be accomplished through various means, including high premium subsidies, automatically enrolling eligible participants, and requiring higher premiums and/or other penalties 

for those who delay enrollment. 

• Do insurance subsidies or other incentives encourage enrollment among not 

only the unhealthy but also the healthy? 

• Does the proposal require the individual to obtain coverage? 

• Does the proposal require an employer to provide coverage? 

Are risk-sharing provisions included? 

In the absence of universal coverage, some degree of adverse selection is inevitable and should be planned for. Risk adjustment and/or other types of reinsurance 

arrangements can reduce the incentives an insurer might have to avoid enrolling 

high-risk individuals. For instance, risk adjustment would adjust the payments to 

insurance plans to account for the health status of plan participants. As mentioned 

above, reinsurance is another option to limit insurers’ downside risk. Under aggregate reinsurance, all or a percentage of a plan’s total claims exceeding a predetermined threshold would be reimbursed. Individual reinsurance can reimburse a plan 

for high claims from individual plan participants. 

• Does the proposal include risk adjustment to reduce the incentives among insurers to avoid high-risk individuals? 

• Are reinsurance provisions included? 

What Are the Costs to States? 

Medicaid and coverage under the State Children’s Health Insurance Program 

(SCHIP) are not reaching all the people they are designed to serve for many reasons. With state budget deficits increasing, states may have modified their Medicaid 

and SCHIP programs to reduce costs. These cost reductions have been in the form 

of increased eligibility requirements or the termination of eligibility categories, decreased benefits or provider fee schedules, and more aggressive contract negotiations 

with managed care plans that may administer a state’s Medicaid or SCHIP program. Managed care plans may in turn withdraw from providing Medicaid or 

SCHIP coverage. 

• Will the proposal increase Medicaid or SCHIP coverage through increased benefits, provider fee schedules, decreased eligibility requirements, or new eligibility 

categories? 

• Will the proposal increase or decrease the financial burden to states and the 

federal government? 

Will enrollment in public programs increase? 

Implementing broader outreach programs to reach those who are eligible for public programs but do not know it may decrease the current number of uninsureds. 

• How does the proposal address bringing greater awareness of Medicaid and 

SCHIP programs to those who are eligible? 

• Will administrative language and cultural barriers be reduced so that Medicaid 

and SCHIP enrollment will be more efficient and effective? 

92 

What Is the Impact on Regulation? 

Individual states are responsible for regulating the individual, small—and largegroup insurance markets and monitoring the financial solvency of insurance companies. ERISA controls many aspects of self-funded programs provided by larger employers. 

• Will the proposal affect each state’s ability to regulate its local insurance market? 

• Will the proposal reduce or increase an individual state’s regulatory burden? 

• Which states will have to increase/decrease their regulatory activities as a result of the proposal? 

• Will ERISA need to be modified to allow any changes required under the proposal? 

• Can the federal government handle any new requirements? 

How Will the Proposal Be Funded? 

Proposals that include public program expansions or subsidies for private insurance coverage will need to be funded by state and/or federal revenues. Consideration 

of funding sources should also include an analysis of the sustainability of the funding over a relevant period of years and the proposal’s impact on administrative 

costs. 

How will funding be provided? 

• Federal government 

• State governments 

• Individuals (e.g., taxpayers, program participants, uninsured, etc.) 

• Employers (e.g., insured, self-insured, not currently offering insurance, etc.) 

Will funding be on an annualized basis or will it include long-term funding 

mechanisms? 

What Is the Impact on Overall Health Costs? 

According to the Centers for Medicare and Medicaid Services (CMS), the United 

States spent $1.6 trillion on health care in 2002 or 14.9 percent of gross domestic 

product (GDP). CMS projects spending to increase to $3.4 trillion, or 18 percent of 

GDP, by 2013. Because rising health expenditures have contributed to insurance 

being less affordable and less available, managing the growth in health care costs 

is key to long-term solutions for reducing the number of uninsured. Medical malpractice reform, better contract negotiations with health care providers, more consumer awareness of the cost of healthcare, and others have all been suggested as 

potential ways to stem this growth. 

• How will the proposal address the rising costs of health care? 

Conclusion 

Whether a proposal to reduce the number of uninsured is successful depends on 

many factors. We have tried to present many, but by no means all, of the issues 

that need to be considered as Congress drafts and evaluates proposals to extend 

health insurance coverage to the uninsured. Addressing these issues will improve 

the likelihood that such proposals will have a significant affect on reducing the 

growing number of Americans who lack health insurance coverage. 

f 

Statement of the American College of Physicians 

The American College of Physicians (ACP), representing more than 115,000 internal medicine physicians and medical students, is the nation’s largest medical specialty organization and second largest medical association. The ACP commends 

Chairwoman Nancy Johnson for addressing the causes and consequences of lack of 

health insurance. Understanding who the uninsured are and why they lack health 

insurance is a critical first step to formulating policies that ensure this increasing 

segment of the population can access quality health care. 

The advanced science, technology, and practice of American medicine is admired 

throughout the world. Americans with access to health care benefit from widely 

available preventive care, state-of-the-art equipment, and accomplished practitioners. However, the benefits of American medicine are less available to those who 

lack health insurance coverage. Individuals without health insurance coverage are 

less likely to have a regular source of care, more likely to delay obtaining needed 

93 

1 U.S. Census Bureau. Current Population Reports: Health Insurance Coverage in the United 

States: 2002. September 2003. 2 Ayanian J, Weissman J, Schneider E, Ginsburg J, and Zaslavsky A. Unmet Health Needs 

of Uninsured Adults in the United States. JAMA. October 2000; 284 (16): 2061—2069. 

medical care until a later and more advanced stage of disease, and more likely to 

obtain care in more costly emergency centers rather than in a physician’s offices. 

For these patients, the benefits of the best medical services in the world are not 

fully realized. 

Rising Numbers of Uninsured Americans 

Tough economic times and soaring health care costs have compromised access to 

the health system. As unemployment rises, states cut back on the number of people 

eligible for public insurance programs. At the same time, employers reduce benefits, 

shifting a larger share of health care costs to employees, or simply discontinue offering health insurance coverage. After increasing by roughly a million people each 

year throughout most of the 1990s, the number of uninsured now exceeds 43 million 

persons, representing more than 17 percent of the U.S. population under age 65.1

Those most likely to lack health insurance continue to include young adults in the 

18-to-24-year-old age group, people with lower levels of education, people of Hispanic origin, those who work part-time, and the foreign born. 

Health Consequences of Being Uninsured 

A popular myth exists that not having health insurance is merely an inconvenience. The myth asserts that anyone can go to an emergency room or free clinic and 

get care. To help dispel this myth and prove that lack of health insurance is a serious health threat, ACP conducted a literature review of over 1,000 documents published over the last ten years linking health insurance coverage with the utilization 

of health care services and individual health outcomes. The College’s 2000 report, 

No Health Insurance? It’s Enough to Make You Sick, verified that the uninsured experience reduced access to health care and tend to live sicker and die younger than 

people with health insurance. Evidence from the available medical and scientific literature indicates that: 

• Uninsured Americans experience reduced access to health care; 

• Uninsured Americans are less likely to have a regular source of care; 

• Uninsured Americans are less likely to have had a recent physician visit; 

• Uninsured Americans are more likely to delay seeking care; 

• Uninsured individuals are more likely to report they have not received needed 

care; 

• Uninsured Americans are less likely to use preventive services; 

• Uninsured Americans experience poorer medical outcomes; 

• Uninsured Americans experience a generally higher mortality and a specifically 

higher in-hospital mortality; 

• There is a disproportionate representation of racial and ethnic groups among 

the uninsured; 

• Uninsured Americans may be up to three times more likely than privately insured individuals to experience adverse health outcomes; 

• Uninsured patients are up to four times as likely as insured patients to require 

both avoidable hospitalizations and emergency hospital care. 

More specifically, ACP found that uninsured working-age adults are: 

• More likely to go without care that meets professionally recommended standards for managing chronic diseases, such as timely eye exams to prevent blindness in persons with diabetes; 

• Less able to access medications needed to manage conditions like hypertension 

or HIV; 

• Less likely to receive appropriate cancer screening, resulting in delayed diagnosis, delayed treatment, and premature mortality; and 

• More likely to have avoidable medical crises and emergency hospitalizations 

from untreated conditions. 

A separate study, funded by ACP to raise awareness about the uninsured found 

that high proportions of uninsured adults were not receiving needed medical care. 

The study examined 1997 and 1998 survey data for more than 220,000 adults between the ages of 18 and 64 from the Centers for Disease Control and Prevention’s 

Behavioral Task Force. Highlights from this study, which was published in the 

Journal of the American Medical Association,2 include: 

94 

• About 14 percent of respondents lacked health insurance and 10 percent had 

gone without health insurance for an entire year. • Nearly two-fifths of long-term uninsured and one-third of short-term uninsured 

adults reported they were unable to see a physician within the last year due 

to costs. • Of the long-term uninsured, nearly 70 percent of those in poor health and nearly 50 percent of those in fair health reported being unable to see a physician 

in the previous year due to cost. • Those who reported excellent or very good health were two to three times more 

likely to have health insurance. • For highly recommended preventive services, long-term uninsured adults (those 

that were without health insurance for more than one year) were three and a 

half times less likely to receive cardiovascular risk reduction services such as 

hypertension and cholesterol screening; 25 percent less likely to have had a 

mammogram; and three to four times less likely to have had a screening for 

breast cancer. • Clinical risk groups for the long-term uninsured reported being unable to see 

a doctor when they needed due to cost during the past year including: 37 percent of smokers, one-third of the obese, 40 percent for hypertension, 46 percent 

of diabetics, and 37 percent with elevated cholesterol. • One in five of the short-term uninsured in these same risk groups reported encountering the same obstacles. • One quarter of the long-term uninsured had not received a routine check up in 

the last two years in high-risk groups reporting hypertension, diabetes and elevated cholesterol. • Nearly half of the long-term uninsured women and 40 percent of short-term uninsured women reported being unable to see a doctor when needed during the 

last year (versus 30 percent and 22 percent of men.) • Long-term uninsured women aged 50–64 were three times less likely than insured women of the same age to have received a mammography or clinical 

breast exam; long-term uninsured women between ages 18 and 64 were three 

times as likely not to have obtained a pap smear within the last three years. • Nearly 20 percent of the self-employed had been uninsured for greater than one 

year; another 5 percent had been without insurance for some period within the 

last year. • Nearly 40 percent of the employed long-term uninsured and 30 percent of the 

employed short-term uninsured reported being unable to see a doctor when 

needed during the last year. • In contrast to federal and state government efforts to extend affordable health 

care coverage to children, nearly 33 million adults continued to lack a cohesive 

plan to address their needs. 

Economic Costs of Being Uninsured 

One of the principal obstacles to enactment of legislation to expand health insurance coverage to all Americans is the belief that the cost would be enormous and 

unaffordable. In a forthcoming paper, The Cost of the Lack of Health Insurance, ACP 

documents the extent of what is known about the aggregate economic costs to the 

United States of maintaining a considerable uninsured population. By illustrating 

that the United States already spends an enormous amount on health care for the 

uninsured, both in terms of the direct costs of services provided and the indirect 

costs to society of having individuals forego or delay receipt of needed health care, 

the paper counters the claim that the cost of extending coverage to the uninsured 

is prohibitive. 

Following an extensive review of the current literature, ACP found that the most 

integral cost estimate of the uninsured takes into account multiple factors, some 

more quantifiable than others. There are the direct costs borne by the health care 

system for treating the uninsured, whose care is often more expensive than the insured since the uninsured tend to receive treatment in the emergency department 

and lack preventive care. These costs must be absorbed by providers as free care, 

passed on to the uninsured via cost shifting and higher health insurance premiums, 

or paid by taxpayers through higher taxes to finance public hospitals and public insurance programs. Estimates of the direct costs of the uninsured found in the literature include: 

• The uninsured receive as much as $98 billion in medical care, $35 billion of 

which is considered uncompensated, a year. 

• Total government spending in the name of the uninsured is about $30 billion 

a year. 

• Hospitals provide about $24 billion worth of uncompensated care a year. 

95 

3 Hadley J, Holahan J. How Much Medical Care Do the Uninsured Use, and Who Pays For 

It? Health Affairs Web Exclusive. 12 February 2003. 4 Institute of Medicine. Hidden Costs, Value Lost. Consequences of Uninsurance Series, No. 

5. Washington, DC: National Academies Press; 17 June 2003. 5 Hadley J, Holahan J. Covering the Uninsured: How Much Would It Cost? Health Affairs 

Web Exclusive. 4 June 2003. 

• Physicians spend about $5.1 billion a year caring for those who cannot pay their 

bills. • Employers and managed care companies spend $1.5-$3 billion through higher 

rates to cover part of the amount hospitals spend caring for the uninsured.3

Although the indirect costs associated with lack of insurance are more difficult to 

calculate, a discussion of the consequences of not extending coverage to the uninsured would be incomplete without their consideration. Inadequate preventive care 

and delayed treatment among the uninsured yields substantial societal costs in 

terms of reduced life expectancy, lower workforce productivity, diminished educational attainment, imperiled public health, and the financial burden shouldered 

by uninsured individuals and communities. Making preventive medicine and existing treatment therapies available to uninsured persons will not only increase overall 

access to health care but may also substantially contribute to a reduction in the 

total burden of illness facing the United States. 

The Institute of Medicine (IOM) report, Hidden Costs, Value Lost, estimates the 

aggregate, annualized cost of diminished health and shorter life span to be between 

$65 billion and $130 billion for each year of health insurance forgone. This figure 

does not include the increased financial risk and uncertainty borne by the uninsured 

and their families, which is estimated to cost between $1.6 billion and $3.2 billion, 

nor does it account for the wide range of societal costs to which a price tag cannot 

be assigned.4

Critics of proposals to expand health insurance coverage point to the high cost of 

the additional medical care that would be used by newly insured Americans if coverage were expanded. However, a report published in Health Affairs in June 2003, 

found that this amount may not be as high as critics claim. The authors estimated 

that the uninsured would use about $34-$69 billion (in 2001 dollars) in additional 

medical care if they were fully insured, accounting for about 3–6 percent of total 

health care spending. While this amount may seem large in absolute dollars, an increase in medical spending of this range would increase health care’s share of gross 

domestic product (GDP) by less than one percentage point.5

In a related analysis, the IOM found the estimated benefit that the uninsured would experience from incremental health coverage ($1,645 to $3,280) to be higher 

than the estimated incremental cost of providing that service to the uninsured 

($1,004 to $1,866), resulting in a benefits-cost ratio of at least one for most values 

within each range.4 Given the positive effects health insurance has on life expectancy, public health, educational attainment, production, and the economy in general, the benefits of extending coverage to the uninsured appear to be greater than 

the costs of not insuring them. 

The value of extending health insurance coverage to all Americans requires an 

understanding of the alternative—the cost of leaving over 17 percent of the population under age 65 uninsured for all or part of the year. When millions of Americans are unable to receive the care they need, the health and lives of all patients 

are endangered, costs are added to the health care system, and productivity is reduced. In the debate of how to extend coverage to the uninsured, it is critical that 

both short and long-term benefits are fully considered, since the latter may offset 

what many critics fear are the direct costs associated with such an expansion. 

Proposals to Expand Health Insurance Coverage 

Given that the rising number of uninsured are imposing huge economic and social 

costs on our country, ACP believes that it is essential that Congress enact legislation to expand health insurance coverage to all Americans by the end of the decade, 

starting with the working poor and near poor who do not qualify for coverage under 

public safety net programs and those who do not have access to affordable employerprovided and individual insurance In April 2002, ACP proposed a plan, entitled 

‘‘Achieving Affordable Health Insurance Coverage for All Within Seven Years: A 

Proposal from America’s Internists,’’ which offers a framework for policies that 

would enable all Americans to obtain affordable health insurance within seven 

years. The College’s plan calls on Congress to take the following steps: 

Enacting legislation to make affordable coverage available to all people with incomes up to 200 percent of the Federal Poverty Level (FPL), including: creating a 

national income eligibility for Medicaid at 100 percent of FPL; converting the State 

96 

Children’s Health Insurance Program (SCHIP) to a federal-state entitlement program; and creating a tax credit/premium-subsidy program for individuals from 100– 

200 percent of FPL that would apply to Medicaid or SCHIP ‘‘buy-ins’’ or toward the 

purchase of private insurance. 

• Expanding the premium subsidy program to uninsured people with incomes 

above 200 percent of FPL, while authorizing the creation of purchasing groups 

and conditions for health plan participation, modeled after the Federal Employees Health Benefit Program. • Enacting legislation to authorize states to request a waiver to opt-out of the national framework for coverage. States that meet federal guidelines would be 

able to use federal funding for state programs. • Establishing a national commission that would report annually to Congress on 

progress, develop a basic benefits package, and recommend mechanisms to discourage individuals from voluntarily opting out of insurance coverage. 

Key elements of the College’s seven year plan subsequently have been incorporated into the bipartisan Health Coverage, Affordability, Responsibility and Equity Act of 2003 (HealthCARE Act of 2003), H.R. 2402, introduced by Rep. Steve 

LaTourette (OH) and Marcy Kaptur (OH). A companion bill, S. 1030, has been introduced in the Senate. 

We believe that the policy framework proposed in the HealthCARE Act of 2003 

provides a realistic basis for a bipartisan consensus in Congress on expansion of 

health insurance coverage. The legislation provides for a program of tax credits combined with state purchasing pools, to provide uninsured low-income Americans with 

the same dollar subsidies and choice of health plans available to members of Congress and other federal employees through the Federal Employee Health Benefits 

Program. It provides a means for small businesses to band together to purchase coverage comparable to that available under the FEHBP. It also provides states with 

new options to expand and simplify enrollment on Medicaid, without imposing new 

unfunded mandates on the states. Finally, it provides an innovative structure to encourage health plans to offer essential health benefits without imposing unrealistic 

benefit mandates. The ACP would welcome the opportunity to provide additional information to the Committee on the HealthCARE Act of 2003 and on initial steps 

that could be taken this year, based on elements in this legislation, to expand health 

insurance coverage to the working poor. 

Conclusion 

The American College of Physicians appreciates the opportunity to provide the 

Ways and Means Committee’s Subcommittee on Health with this summary of our 

views on the economic and health costs of not providing health insurance coverage 

to 44 million Americans, as well as our recommendations for expanding coverage to 

all Americans. Additional information on ACP’s analysis and proposals can be found 

on our website: 

• No Health Insurance? It’s Enough to Make You Sick: http:// 

www.acponline.org/uninsured/lack-contents.htm 

• Unmet Health Needs of Uninsured Adults in the United States: Ayanian 

J, Weissman J, Schneider E, Ginsburg J, and Zaslavsky A. Unmet Health 

Needs of Uninsured Adults in the United States. JAMA. October 2000; 284 

(16):2061–2069. 

• Achieving Affordable Health Insurance Coverage for All Within Seven 

Years: A Proposal from America’s Internists: http://www.acponline.org/hpp/ 

affordl7years.pdf 

• The Cost of the Lack of Health Insurance: http://www.acponline.org 

• Highlights of the HealthCARE Act of 2003, H.R. 2402, S. 1030: http:// 

www.acponline.org/uninsured/binglhighlights.pdf 

• Section by Section Summary of the HealthCARE Act of 2003, http:// 

www.acponline.org/uninsured/bing

f 

lsectsum.pdf 

Statement of Associated Builders and Contractors, Arlington, Virginia 

SPEAKING FOR THE MERIT SHOP 

Associated Builders and Contractors (ABC) appreciates the opportunity to submit 

the following statement for the official record. We thank Chairwoman Nancy Johnson (R–CT), Ranking Member Fortney ‘‘Pete’’ Stark (D–CA) and members of the 

97 

Health Subcommittee of the House Ways and Means Committee for addressing the 

crisis of the uninsured in America. ABC urges the committee to follow up on this 

important hearing with an additional hearing to examine possible solutions to this 

growing epidemic. 

ABC is a national trade association representing 23,000 general contractors, subcontractors, material suppliers, and construction-related firms from across the country within a network of 80 state chapters. Our member companies represent over 

one million craft professionals and administrative employees. As the nation’s second-largest employer, with over 6 million workers, the construction industry continues to create new and beneficial jobs each year. Construction spending has a 

stimulative effect on the economy. For every $1 million spent in construction, $3 

million in economic activity is generated and 13 new permanent jobs are created. 

To remain at the present level of activity, the construction industry needs an additional quarter of a million (250,000) workers per year to replace an aging and retiring workforce. One of the key elements to attracting and retaining workers and 

remaining competitive in any industry is to provide high quality, flexible health benefit plans. Providing quality health care benefits is a top priority for ABC and its 

members, and maintaining cost effective health insurance plans is a key ingredient 

in achieving this objective. 

Currently, there are more than 43 million uninsured Americans, and 60 percent 

of them are employed by (or family members are employed by) small businesses. 

Therefore, the problem of the uninsured does not solely lie with the unemployed, 

but also with the small businesses across the country who are unable to provide 

quality health care coverage due to skyrocketing costs. In fact, a new study by the 

Robert Wood Johnson Foundation found that more than one in three Americans 

under 65 was uninsured at some point over the past two years. 

In 2002, the Census Bureau released a study that showed that the share of the 

population covered by employer-sponsored health care coverage declined from 63 to 

61 percent. The rising cost of health insurance premiums is the biggest factor in 

this decline and number one problem facing small business in this country. Faced 

with 15, 20 and even 50 percent premium increases annually for the past several 

years, many small businesses have been forced to reduce or even drop coverage. 

Many factors have contributed to the cost increase of health insurance. Hospital 

costs, frivolous medical malpractice lawsuits, lack of competition and increased state 

regulation have all led to increased premiums. However, it is important to note that 

while health insurance costs have gone up at twice the rate of inflation, a vast majority of small businesses’s productivity and profits have failed to grow at the same 

rate. One sector though, has enjoyed its greatest profit margins ever. The insurance 

industry, namely large health insurance companies, have experienced record-setting 

profits over the past few years. 

A number of state reforms have actually led to increased rates, thus forcing employers to reduce benefits through higher deductibles and co-pays or eventually to 

drop coverage in order to comply with the law. State health insurance reforms and 

community rating laws have forced some insurance carriers to completely withdraw 

from the small group market for employers with less than 50 employees. When 

these and other state reforms occur, small employers are left with fewer alternatives 

for health insurance coverage for themselves and their employees. 

Recent mergers of health insurance companies have also reduced competition and 

alternatives for employers who seek access to quality and affordable health insurance. Today, there is a great need to bring more competition back into the system 

rather than continually reducing it. 

While there is no single solution to the problem of the uninsured, ABC feels that 

it is vital for Congress to examine the current market and to consider proposals that 

will provide market-based reforms. We believe that our current health insurance 

system, while flawed, is still the best in the world. Any solutions should help provide working families the best opportunity to obtain the quality, affordable health 

coverage they both need and deserve. Increasing competition within the small group 

market will help lower costs to employers struggling to continue to offer health insurance to their employees today. 

The House of Representatives has already passed The Small Business Health 

Fairness Act (H.R. 660), which represents one common-sense proposal to address 

the uninsured problem plaguing small businesses. President Bush, a strong proponent of this legislation, called on the Senate to pass this same measure in his 

State of the Union Address. ABC recognizes the need for this legislation and commends the House for approving it last summer. 

ABC appreciates this opportunity to submit comments on such a vital issue. We 

look forward to continuing a constructive dialogue on how to increase access to afVerDate Aug 31 2005 06:42 Mar 11, 2006 Jkt 023794 PO 00000 Frm 00101 Fmt 6633 Sfmt 6621 E:\HR\OC\23794.XXX 23794
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fordable and competitive health insurance for small businesses and thus reducing 

the number of uninsured Americans. 

f 

Statement of Michael D. Place, Catholic Health Association of the United 

States 

THE NATIONAL TRAGEDY OF THE NEARLY 44 MILLION UNINSURED 

INTRODUCTION 

Clearly, a disease that infects nearly 44 million individuals in this country would 

quickly command resources from every possible governing agency and public health 

entity. But this country faces an epidemic of uninsured individuals, and many in 

our nation seem willing to ignore this epidemic. 

While researchers and economists may disagree on exactly how many are uninsured, their income levels, and the reasons that they are uninsured, no one can deny 

the fact that by default a ‘‘silent’’ national policy excludes 1 in 7 individuals 

from fully participating in and enjoying the benefits of our health care system. 

The recent IOM Study, Insuring America’s Health: Principles and Recommendations,and numerous other research reports clearly state that being uninsured presents a formidable barrier to obtaining necessary medical care with a multitude of 

health consequences. For the individual, treatment delayed can mean serious complications, even death. For society, it means the potential spread of disease, rising 

medical costs, and the inefficient expenditure of health care resources. 

As the Catholic health ministry, whose history began over 275 years ago, we continue to serve uninsured and underinsured individuals every day in our hospitals 

and clinics. We have seen the unraveling of our nation’s safety net due to a downturn in our nation’s economy; decreasing resources at the local, state, and federal 

level; and increasing demands for services. The strains on our health care system 

must be addressed. 

As employers, health care providers, and above all as a community of faith, our 

values are the basis for our commitment to addressing these issues and presenting 

our recommendations. 

OUR VALUES 

The perspective of the Catholic health ministry is founded in social justice teachings. The following are our ‘‘operating principles,’’ derived from a faith-based tradition of caring for the poor, healing the sick, and speaking for those who often go 

unheard. 

• Every person is the subject of human dignity. This dignity must be honored, preserved, and protected from conception to death, whether one is disabled 

or aged. Flowing from this dignity is the right to basic and continuing health 

care. 

• Health care is a service to people in need. Health care is an essential social 

good. It should never be reduced to a mere commodity exchanged for profit. 

• Health care must serve the common good. The health care needs of each 

individual must be balanced by the needs of the larger society. 

• There is a special duty to care for the poor and vulnerable. The well and 

the wealthy should care for the poor, the sick, and the frail. 

• There must be responsible stewardship of resources. The resources needed for health care must be balanced with the needs of other essential social 

services. 

• Subsidiarity. To the greatest degree practicable, administration must be carried out at the level of organization closest to those to be served. 

Our ministry’s approach to health care rests in these values. As a result, we believe there is a human right to basic health care and that society has a special duty 

to care for the poor and vulnerable. These are commitments that many Americans, 

regardless of their denomination or faith, also share. 

Today, turning a blind eye to discrimination, denying any child a public education, 

or allowing a defendant in a criminal proceeding to stand trial without legal assistance would be unacceptable to us as a nation. 

We believe that if more individuals understood the suffering that millions among 

us endure, the apathy that now shrouds the issue of helping the nation’s uninsured 

could be remedied. After all, any one of us among the over 160 million privately insured could very quickly and unexpectedly join the ranks of the uninsured. 

99 

As a ministry, we continue to take steps to educate and raise awareness among 

our associates, our community leaders, and the general public about this critical 

issue. We are committed to partnerships with other organizations such as the Robert Wood Johnson Foundation to prepare this country for a serious dialogue about 

the nearly 44 million who are uninsured. We also are looking at innovative ways 

to provide coverage for low-wage earners in our own ministry, and to assist in identifying and facilitating enrollment of those populations who are eligible but not enrolled in public programs. Our ministry is motivated by our mission and underlying 

values to do the right thing, as evidenced through our commitment to broader community benefit efforts. 

As we prepare for this national dialogue, the Catholic health ministry has articulated the following guiding principles for a broader approach to health care reform 

and remains committed, both in the short and long term, to achieving the necessary 

changes in our current system. The guiding principles include: 

• A reformed system should provide health care for all • A defined set of basic benefits should be available to all • Responsibility for health should be shared by all • Spending on health care should be based on the appropriate and efficient use 

of resources • Financing of the delivery of health care should be adequate and based upon a 

pluralistic model, with shared responsibility by government, employers, and individuals • A reformed system should provide quality health care services • The effective participation of patients and families in decision making should 

be encouraged and enhanced 

In light of our values and our guiding principals, we offer the following recommendations for your consideration. 

RECOMMENDATIONS 

There are tough moral, ethical, and policy questions surrounding the uninsured 

that must be discussed and debated in an open forum where all sides are heard. 

We thank the committee for addressing these very important policy questions. 

Without abandoning the goal of accessible and affordable health care for all, but 

in recognition of the valuable lessons learned from previous efforts, CHA has chosen 

to pursue a strategy that works toward our goal in intentional and sequential steps. 

Our proposal, crafted in collaboration with the American Hospital Association, is 

both an acknowledgment of today’s political realities and an example of the policy 

choices and strategy we intend to follow in building an infrastructure for accessible 

and affordable health care for all. This proposal is consistent with our sense of societal responsibility and guiding principles. We are well aware of the current fiscal 

constraints at the local, state, and federal level, but we also believe that this issue 

demands significant resources in the near term. 

While we acknowledge that this proposal is not the ultimate solution, and that 

accessible and affordable health care for all cannot be achieved overnight, we do believe that this proposal provides additional ideas and consideration for the committee as it looks for ways to craft bipartisan legislation that achieves coverage for 

our nation’s children, the future of our country, and those most in need of care. 

The AHA/CHA proposal would expand insurance coverage through a combination 

of approaches. The proposal mandates that all children have health insurance coverage, and expands eligibility under the Medicaid and State Children’s 

Health Insurance Program (SCHIP) for those children not otherwise covered by 

other sources. The plan also would provide tax credits and premium subsidies to assist small employers and individuals in the purchase of private health insurance for 

their workers and families. The three key components to the AHA/CHA proposal to 

expand health insurance coverage are briefly described below. 

1. Mandatory Children’s Coverage: All children under the age of 19 would 

have coverage. Accessible and affordable health care for all children, without reducing employer coverage for dependents, would be accomplished by structuring the 

programs so that financial incentives remain for people to cover their children 

through private insurance whenever possible. Children would be enrolled at birth. 

Subsequently, coverage would be required as a condition of enrolling in school. 

• Premium Structure: States would be required to expand eligibility under their 

Medicaid and/or SCHIP programs to provide subsidized coverage for all children 

living below 250 percent of the federal poverty level (FPL). Children below 150 

percent of the FPL would be covered without premium contribution, while premiums would be phased in on a sliding scale for those between 150 and 250 

percent of the FPL, subject to a premium cap equal to 5 percent of family inVerDate Aug 31 2005 06:42 Mar 11, 2006 Jkt 023794 PO 00000 Frm 00103 Fmt 6633 Sfmt 6621 E:\HR\OC\23794.XXX 23794
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come. Children above 250 percent of the FPL would pay full actuarial costs in 

premiums to ‘‘buy into’’ the Medicaid/SCHIP coverage. 

• Benefits Package: States would have the choice of offering the Medicaid benefits 

package or an alternative benefits package (similar to SCHIP). 

• FMAP: State spending would be matched at the current SCHIP enhanced Federal Medical Assistance Percentage (FMAP) rate. 

• Eligibility: States would be required to maintain their current income eligibility 

levels and covered services throughout the Medicaid/SCHIP programs. 

2. Small Employer Premium Subsidies/Tax Credits: The plan includes premium subsidies to small employers for the purchase of insurance for low-wage workers below 200 percent of the FPL. The premium support would be administered by 

the United States Treasury Department. 

• Employer Eligibility: Firms with between 1 and 50 workers would be eligible 

for the subsidies, provided the employer’s workforce is paid less than an average of $10.00 per hour, or 60 percent of employees in the firm are earning less 

than $10.00 per hour. In addition, the employer must be paying at least 70 percent of the premium for single-only coverage, and 60 percent of the premium 

for family coverage. The subsidies would be available to both for-profit and notfor-profit employers. 

• Subsidy Amount: The maximum subsidy would be 50 percent of the employer’s 

share of the premium, up to a maximum premium amount based on a benchmark health plan (i.e., Blue Cross Blue Shield’s ‘‘Basic Plan’’ offered through 

the Federal Employees Health Benefits Plan). The premium percentage subsidy 

is phased down with firm size from 50 percent for the smallest firms to 30 percent for firms with 50 workers. 

• Additional Provisions: The subsidy would be refundable (the amount of the subsidy could exceed the amount of taxes owed by the employer), and would be advance fundable so that subsidies are available throughout the year as the employer’s premium payments are due. In addition, employers taking the subsidy 

would be required to offset the employer premium payment by the amount of 

the subsidy received in determining the employer’s allowable deduction for employee health benefits costs. 

3. Premium Subsidies/Tax Credits for Individuals: The program would provide a subsidy for the purchase of non-group insurance for people below 300 percent 

of the FPL, or help pay the worker’s share of premiums for people with employersponsored insurance (ESI). 

• Subsidy for individual non-group coverage: The subsidy would be equal to twothirds of the insurance payments for qualified coverage through an FEHBP 

plan, and would be phased out for persons over 150 percent of the FPL reaching 

$0 at 300 percent of the FPL. 

• Subsidy for employee share of ESI: The premium subsidy amount is capped not 

to exceed $1,000 for single coverage and $3,000 for family coverage for the employee share of the ESI. 

CONCLUSIONS 

As provider, employer, advocate, citizen, bringing together people of diverse faiths 

and backgrounds, our ministry is an enduring sign of health care rooted in the belief 

that every person is a treasure, every life a sacred gift, and every human being a 

unity of body, mind, and spirit. 

As the Catholic health ministry, our faith tradition calls us to collaborate with 

others to be both a voice for the voiceless—the millions of uninsured—and agents 

for change. CHA has been, is, and will continue to be a strong advocate for accessible and affordable health care for all in a reformed health care system. We stand 

ready and willing to work with the committee this year and as long as it takes to 

craft an equitable solution to this national tragedy. 

f 

101 

Communicating for Agriculture and the Self-Employed 

Fergus Falls, MN 56537 

March 9, 2004 

The Honorable Nancy Johnson 

Chair, Subcommittee on Health 

House Ways and Means Committee 

Washington, DC 20515 

Dear Chairman Johnson: 

Communicating for Agriculture and the Self-Employed (CA) is a national, nonprofit rural association made up of farmers, ranchers and rural small business members throughout the country. Throughout CA’s 32-year history, we have been active 

on health care affordability and access issues and we applaud your efforts to address, through a series of hearings, this pressing problem for millions of Americans. 

While much of the discussion on this issue has centered around the employerbased health insurance market, our members bring a different perspective to the 

issue, a perspective I would be happy to discuss at a future hearing. Many of our 

members are self-employed, do not have access to employer-based insurance and 

must rely on the individual health insurance marketplace. 

Solutions that we have found that would help these individuals obtain affordable 

health insurance, and solutions I would be happy to discuss with the Subcommittee 

in future hearings, include: 

State Health Insurance High Risk Pools 

High risk pools are special state created and overseen health insurance programs 

that serve people in the individual market who have been denied coverage, or who 

can only access coverage at very high rates due to a pre-existing health condition 

such as cancer, congestive health failure, diabetes, AIDS and other chronic illnesses. 

Federal legislation recently provided $40 million a year for two years to help existing risk pools and another $20 million to help states form new pools. (CA was 

called in by the Department of Health and Human Services to suggest language for 

the new regulations governing this program.) CA is now supporting legislation that 

would increase the funding per year and extend the program through 2009. 

Advanceable, Refundable Tax Credits to Purchase Health Insurance 

As you know, there are several proposals in Congress to create an advanceable, 

refundable income tax credit for the cost of health insurance purchased by individuals under 65 years of age. 

Depending on income and other factors, this tax credit would be available in advance of the time the insurance is purchased. Individuals would reduce their premium payment by the amount of the credit and the health insurer would be reimbursed by the Department of Treasury for the amount of the advance credit. Eligibility for the advance credit would be based on an individual’s prior year tax return. 

Individual Tax Deductions 

In addition the refundable tax credits, CA supports 100 percent deduction for 

health insurance for all individuals and there are several bills now in Congress to 

address this issue. Businesses and the self-employed can deduct 100 percent of 

health insurance costs, but not individuals. If General Motors can deduct its insurance costs, why can’t a woman who holds two part time jobs and is not eligible for 

health insurance at either job, deduct the cost of her individual policy? 

We believe that there is no one silver bullet that will immediately solve the problem for our uninsured. However, we also believe that a combination of programs, 

such as those I have outlined, will go a long way to enable a great many more 

Americans to have access to health insurance. 

Our members support your efforts to deal with this very serious and very complex 

problem and if we can ever be of service, please don’t hesitate to call. 

Thank you. 

Sincerely yours, 

Wayne Nelson 

f 

President 

102 

1 U.S. Census Bureau, March 2003 Current Population Survey. Data prepared for the March 

of Dimes. October 2003. http://www.marchofdimes.com/files/census2003.pdf 2 Congressional Budget Office. ‘‘Cost Estimate: S. 724 Mothers and Newborns Health Insurance Act of 2002.’’ October 11, 2002. 3Kaiser Commission on Medicaid and the Uninsured. Sicker and Poorer: The Consequences 

of Being Uninsured. February 2003. 4 Institute of Medicine. Health Insurance Is A Family Matter. National Academies Press. 2002. 

Statement of Marina L. Weiss, March of Dimes 

The March of Dimes Birth Defects Foundation is pleased to submit for the hearing record the following statement on ‘‘The Uninsured.’’ 

President Franklin Roosevelt established the March of Dimes in 1938 to fight 

polio. The March of Dimes committed funds for research and within 20 years Foundation grantees were successful in developing a vaccine to prevent polio. The March 

of Dimes then turned its attention to improving the health of children through the 

prevention of birth defects, prematurity and infant mortality. As you might expect, 

providing coverage to women of childbearing age, especially those who are pregnant, 

infants and children are policy priorities for the Foundation. 

Today, access to health insurance is especially pertinent to the advancement of 

the March of Dimes mission. In January 2003, the Foundation embarked upon a 5- 

year, $75 million campaign to address the growing problem of preterm birth. The 

Prematurity Campaign is designed to increase awareness of the problem of preterm 

birth; to expand research on the causes of preterm birth and the care of babies born 

preterm; and to improve access to health coverage for women of childbearing age 

and their children. 

The March of Dimes includes millions of volunteers and 1,400 staff members who 

work through chapters in every state, the District of Columbia and Puerto Rico. The 

Foundation is a unique partnership of scientists, clinicians, parents, business leaders and other volunteers, who work to advance the mission by supporting programs 

of research, community services, education and advocacy. 

At the March of Dimes, the overarching goal is to improve the health of women 

and children. This is why we are so concerned about improving access to health coverage for women of childbearing age, especially those who are pregnant, as well as 

to their infants and children. 

The Problem of the Uninsured 

Lack of health coverage continues to be a significant problem for millions of Americans. The Census Bureau reported in September 2003 that 43.6 million Americans 

were uninsured in 2002. Census Bureau data commissioned by the March of Dimes 

show that in 2002, 12.1 million women (19.6 percent) or nearly one in five 

women of childbearing age (15–44) went without health insurance—a higher 

rate than other Americans under age 65 (17.2 percent). In other words, approximately 28 percent of uninsured Americans are women of childbearing age. Hispanic 

women in this age group are more than 2.5 times as likely as whites to be uninsured—37 percent compared to 14 percent respectively. Native American (29 percent), African-American (24 percent) and Asian (24 percent) women were also 

likelier than whites to be uninsured. 

Compared with a U.S. average of 19%, New Mexico (31 percent) and Texas (30 

percent) had the highest rates of uninsured women of childbearing age for the 2000– 

2002 period according to the U.S. Census Bureau.1 Since the mid-1980’s expanded 

Medicaid eligibility for pregnant women has resulted in better rates of coverage for 

this group than for women in general. The Congressional Budget Office, citing in 

part March of Dimes supported research, estimates that about 1.7 million pregnancies are covered each year through Medicaid.2 But as the data indicate, considerable room for improvement remains. 

Health Insurance Makes a Difference 

Numerous studies have shown that having insurance coverage affects how people 

use health care services.3 Particularly important is the finding that the uninsured 

are less likely to have a usual source of medical care and are more likely to delay 

or forgo needed health care services. 

In a report issued in 2002 by the Institute of Medicine, researchers concluded that 

‘‘[L]ike Americans in general, pregnant women’s use of health services varies by insurance status. Uninsured women receive fewer prenatal care services than their insured counterparts and report greater difficulty in obtaining the care they believe 

they need.’’ 4

A study funded by the March of Dimes and cited by the Institute of Medicine in 

its report shows that, in 1996, some 18.1 percent of uninsured pregnant women reVerDate Aug 31 2005 06:42 Mar 11, 2006 Jkt 023794 PO 00000 Frm 00106 Fmt 6633 Sfmt 6621 E:\HR\OC\23794.XXX 23794
103 

5 Amy B. Bernstein. ‘‘Insurance Status and Use of Health Services by Pregnant Women.’’ 

AlphaCenter prepared for the March of Dimes. October 1999. http://www.marchofdimes.com/ 

files/bernsteinlpaper.pdf 6 Report 107–233. ‘‘Mothers and Newborns Health Insurance Act of 2002.’’ Committee on Finance, United States Senate. August 1, 2002. 7 Ed Neuschler. Policy Brief on Tax Credits for the Uninsured and Maternity Care. Institute 

for Health Policy Solutions prepared for the March of Dimes. January 2004. 

ported going without needed medical care during the year in which they gave birth. 

That compares with 7.6 percent of privately insured pregnant women and 8.1 percent of pregnant women covered through the Medicaid program.5

Pregnancy represents a significant cost to young parents without insurance, even 

in the healthiest pregnancies. For families with a problem pregnancy, the financial 

impact can be devastating. Without access to health insurance, many pregnant 

women delay seeing a doctor and getting the prenatal care they need. As the report 

that accompanied legislation passed by the Senate Committee on Finance in the last 

Congress stated, ‘‘[R]ecent studies have shown that infants born to mothers receiving late or no prenatal care are more likely to face complications which can result 

in hospitalization, expensive medical treatments, and increased costs to public programs. Closing the gap in coverage between mothers and their children will improve 

the health of both, while reducing costs for taxpayers.’’ 6

Maternity Coverage is Often Not Available in the Individual Insurance 

Market 

In accordance with its mission, the March of Dimes seeks to reduce the number 

of uninsured women, infants and children and to improve access to medical care. 

It is for this reason that the Foundation is concerned about certain aspects of Administration and Congressional proposals to address the problem of the uninsured 

by providing a health insurance tax credit for use in the individual market. A recent 

study by Ed Neuschler of the Institute for Health Policy Solutions, commissioned 

by the March of Dimes, found that using tax credits to subsidize the purchase of 

individual (non-group) health insurance would do little to expand access to maternity coverage.7 Services related to normal pregnancy and childbirth typically are not 

covered under health insurance policies sold in the individual market—except in a 

few states where such coverage is mandated. In some cases, maternity coverage for 

individuals is offered as a separate rider with an additional premium. Coverage 

under such riders is typically very expensive and limited in scope, with separate 

higher deductibles or low dollar limits on benefits, and special waiting periods. Private individual coverage for women who are already pregnant is simply not available, at any price. In fact, to the extent that tax credits promote a shift from employer-based coverage to individual coverage, as some researcher predict, widespread use of such credits could increase the number of young families lacking coverage for maternity care, according to Neuschler’s report. 

Maternity care is offered in most employer plans. Under the federal Pregnancy 

Discrimination Act, employers with 15 or more workers may not offer health insurance that excludes maternity care. Some researchers have estimated that, while providing tax credits for non-employment-based coverage would reduce the number of 

uninsured, there would be considerable shifting in source of coverage. That is, the 

number of individuals with employment-based coverage and associated maternity 

benefits would decline, mostly due to employers’ elimination of health coverage as 

a fringe benefit, with the result that some employees would switch to individual insurance and others would become uninsured. Thus, the number of people with individual coverage (and, therefore, without maternity coverage in most cases) could increase significantly. None of the individual health insurance tax credit proposals introduced in the 108th Congress would specifically require qualifying health plans 

to cover maternity benefits. 

While several approaches to improve the availability of maternity coverage might 

be considered in the context of designing a tax credit, there appears to be no easy 

way to assure that a policy of subsidizing individual health insurance plans will also 

expand coverage of maternity care. Simply requiring health insurers to include maternity coverage in individual insurance policies could cause carriers to increase premiums dramatically—diluting whatever effectiveness tax credits might have in helping the uninsured afford coverage—or withdraw from the market altogether, according to Neuschler. 

Should the Committee elect to approve creation of a tax credit targeted at subsidizing individual health insurance coverage, it is important that the overlap between eligibility for the credit and Medicaid or State Children’s Health Insurance 

Program (SCHIP) coverage for pregnant women be addressed. Tax credit proposals 

introduced in Congress and proposed by the Administration in 2003 deny eligibility 

104 

8The provision to expand SCHIP to cover pregnant women is a component of H.R. 3293, ‘‘The 

Prevent Prematurity and Improve Child Health Act’’ introduced by Representative DeGette on 

October 15, 2003. 9Kenneth E. Thorpe, Jennifer Flome, Peter Joski. ‘‘The Distribution of Health Insurance Coverage Among Pregnant Women, 1999.’’ Emory University prepared for the March of Dimes. April 

2001. http://www.marchofdimes.com/files/2001FinalThorpeReport.pdf 10 U.S. Census Bureau, March 2003 Current Population Survey. Data prepared for the March 

of Dimes. October 2003. http://www.marchofdimes.com/files/census2003.pdf 

to individuals enrolled in Medicaid. Because Medicaid income eligibility for pregnant 

women is more generous than for women who are not pregnant, some tax-credit eligible women will qualify for Medicaid coverage of pregnancy-related services. Under 

the proposals currently pending before the Committee, these women would be forced 

to forgo prenatal coverage while covered in the individual market and enroll in Medicaid for coverage of delivery and postpartum care, or to decline private coverage 

and enroll in Medicaid only for the duration of their pregnancy. If she chose the latter course, the woman would then be forced to re-apply for private coverage—and 

face possible denial due to underwriting—once her pregnancy is over and she is no 

longer eligible for Medicaid. 

At the very least, pregnant women who become eligible for Medicaid only because 

of pregnancy should be able to retain their tax credit for individual coverage. The 

normal third-party liability provisions of Medicaid can assure that Medicaid does 

not pay for services that the woman’s private insurance ought to cover, thus avoiding any risk of duplicative federal costs. 

Alternative Approaches 

The March of Dimes urges Members of the Committee to consider the needs of 

women, especially those who are pregnant, as you tackle the problem of the uninsured. In addition, we offer for your consideration some ‘best coverage’ suggestions 

from both the public and private sectors. 

1. If tax credits are considered as a vehicle to help the uninsured, encourage use of the credits for purchase of employer-based or group 

health insurance, rather than coverage in the individual market. Because of the difficulties inherent in trying to integrate maternity benefits into 

individual insurance coverage, it would be preferable if health insurance tax 

credits were used to expand access to and participation by low-income workers 

in employment-based coverage and other group plans that cover maternity 

services. In addition, allowing tax credits to be used for purchase of COBRA 

continuation coverage through a former employer—as with the Trade Adjustment Assistance health insurance tax credits—would protect some individuals 

and families from losing coverage that includes maternity care. 

2. Allow states the flexibility to extend SCHIP coverage to pregnant 

women 19 and older. Although outside the direct jurisdiction of the Ways 

and Means Committee, extending the State Children’s Health Insurance Program (SCHIP) to income eligible pregnant women is a modest, incremental 

step that would provide access to maternity services for thousands of women.8

In 1999, 80 percent of uninsured pregnant women (about 340,000) were eligible 

for Medicaid or SCHIP but were not enrolled. If SCHIP were expanded as described, and women already eligible for Medicaid were enrolled, nearly 90 percent of all uninsured pregnant women would have health insurance coverage.9

3. Automatically enroll newborns whose mothers are enrolled in SCHIP 

and provide 12 month continuous coverage. To avoid gaps in coverage for 

medically vulnerable newborns, enrollment of infants born to mothers eligible 

for SCHIP should begin on the child’s date of birth and continue uninterrupted 

for at least one year. 

Conclusion 

The March of Dimes supports improving access to health coverage for the 12.1 

million women of childbearing age and 9.3 million children who are uninsured.10 As 

the Committee considers alternative ways of addressing this complex but urgent 

problem, we ask that you keep the needs of women, especially those who are pregnant, infants and children uppermost in mind. 

f 

105 

Statement of Sanford Cloud, Jr., National Conference for Community and 

Justice 

Madam Chairperson and Members of the Committee, my name is Sanford Cloud, 

Jr., President and CEO of the National Conference for Community and Justice 

(NCCJ). The NCCJ, founded in 1927 as the National Conference for Christians and 

Jews, is a human relations organization dedicated to fighting bias, bigotry and racism in America. With 55 regional offices in 32 states and the District of Columbia, 

NCCJ promotes understanding and respect for all races, religions and cultures 

through advocacy, conflict resolution and education. On behalf of NCCJ, I am 

pleased to submit this testimony to the House of Representatives Subcommittee on 

Health of the Committee on Ways and Means hearing on the uninsured. 

NCCJ has identified racial and ethnic disparities in healthcare as one of our core 

public policy issues. Looking at healthcare in America, one can see there is a racial 

and ethnic divide at the most basic level by examining major differences in health 

insurance coverage by group. Some facts to consider when discussing the uninsured 

include the following: 

• According to the report Going Without Health Insurance: Nearly One In Three 

Non-Elderly Americans (March 2003) released by the Robert Wood Johnson 

Foundation (RWJ), historically underrepresented racial and ethnic groups are 

significantly more likely to be uninsured as compared to White non-Hispanic 

Americans. During the period 2001–2002, 52.2% of Hispanics and 39.3% of African Americans were uninsured, compared to 23.3% of White non-Hispanics for 

the same period. Among Asian Americans and Pacific Islanders, 17% of children 

and 24% of adults are uninsured. According to the U.S Census Bureau, 25.5% 

of American Indian and Alaskan Natives reported that they did not have health 

insurance. 

• According to the same RWJ report, there were an estimated 39.8 million people 

in the U.S. population without health insurance in year 2000. However, that 

number increased to 41.2 million in 2001, and at least 50% of those are people 

of color. The problem is compounded because those who do have insurance tend 

be in lower-end plans, forcing them to pay greater out-of-pocket expenses and 

reducing their access to medical specialists. 

• The disparities in health insurance coverage even exist among those who receive insurance through their employers. The report by the Henry J. Kaiser 

Family Foundation entitled Racial and Ethnic Disparities in Access to Health 

Insurance and Health Care (August 2000) found that only 51% of American Indians and 43% of Hispanic Americans have health insurance through jobs, compared with 73% for White Americans. 

NCCJ is addressing this issue through our research, programming and advocacy 

work. Studies, such as the 2002 Institute of Medicine report Unequal Treatment: 

Confronting Racial and Ethnic Disparities in Healthcare, show that the many factors contributing to the disparities, but can be grouped into three main categories: 

• Socioeconomic disparities—It is a fact that underrepresented ethnic groups and 

people of color are disproportionately represented in lower socioeconomic ranks, 

lower quality schools, and poorer-paying jobs. These factors lead these groups 

to experience lower rates of insurance coverage and an inability to pay for rising 

costs of health care. 

• Cultural differences and bias—The lack of diversity and cultural understanding 

among health care workers contributes to stereotypes and bias in our health 

care providers. Increasing the proportion of underrepresented racial and ethnic 

professionals and integrating cross-cultural curricula will assist caregivers to increase understanding of diversity and background of their patients and increase 

the trust of the patients in the care and caregiver. 

• Education and language barriers—Education and language barriers affect the 

delivery of adequate care through ineffective exchanges of information, misunderstanding of physician instructions, or poor shared decision making. Language difficulties may also result in decreased adherence to medical regimes, 

low appointment attendance and decreased satisfaction with services. 

While much of our work focuses on the non-socioeconomic factors, we understand 

and agree that part of the solution to eliminating healthcare disparities is based on 

increasing access to insurance or other affordable healthcare in our communities of 

color. 

Historically underrepresented racial and ethnic populations continue to experience 

disproportionate rates of morbidity and mortality. Reduced access to quality, affordable and culturally competent healthcare services are critical factors that impact the 

106 

health of underrepresented ethnic groups and communities of color across our nation. 

Public perceptions of the shape, depth and dimension of healthcare problems vary 

dramatically depending on one’s own background. NCCJ, in partnership with Aetna 

Inc., conducted a survey that documents the public opinion and perceptions of the 

problem of racism in healthcare. The report, Racial and Ethnic Disparities in 

Healthcare: A Public Opinion Update, discusses the results. 

• Americans do not see racism as an isolated phenomenon: they see it appearing 

in many aspects of daily life. In healthcare, 64% view racism as a problem, with 

20% saying it is a major problem. 

• 41% of African Americans see racism in healthcare as a major problem, as do 

25% of Hispanics. Only 16% of White Americans say it is a major problem. 

• Most Americans say difficulty getting healthcare because of one’s racial or ethnic background is not a problem for people like themselves. While only one in 

five White Americans (21%) see this as a problem, fully 45% of African Americans and 34 % of Hispanics do. 

• The public is split on how often a person’s race or ethnic background has an 

impact on whether one can get routine medical care. 40% say it happens very 

often or somewhat often, while 49% say it is an obstacle less frequently. 

• A majority of Americans (55%) say people of color receive the same quality of 

medical care as White Americans do. Less than a third (28%) disagree; saying 

African Americans, Hispanics, and other racial and ethnic groups receive a 

lower quality of care. A substantial majority of White Americans (63%) see no 

differences in the quality of healthcare, while an almost equally strong majority 

of African Americans (59%) see lower quality care for people of color. Hispanics 

are divided on the issue. 

NCCJ expresses its high hopes and expectations for the 108th Congress to address the issue of healthcare disparities. Two bills introduced recently, Healthcare 

Equality and Accountability Act of 2003 (S. 1833 and H.R. 3459) and Closing the 

Health Care Gap Act of 2004 (S. 2091), have the lofty goal of expanding access of 

quality healthcare through increasing access of affordable health insurance and expanding the health care safety net. With work we can rid our healthcare system of 

bias, bigotry and racism, and create a system that is more inclusive and just. 

Thank you. 

f 

Statement of the National Federation of Independent Business 

On behalf of the 600,000 members of NFIB, we thank you for allowing us to submit testimony today about the worsening health care crisis that faces our country, 

as the small business community is among the hardest hit. Since 1986, NFIB members have ranked the cost of health insurance as their top concern. 

America’s small-business owners, whose businesses create two out of every three 

new jobs in this country, continue to struggle with the high cost of offering health 

insurance to their employees. Because of the current structure of the health care 

industry, too many small-business owners and their employees do not have access 

to affordable health insurance. 

A recent Census Bureau report showed that over 43 million Americans lack 

health coverage. That is an increase of almost 2.5 million people over the previous 

year and the largest annual increase in more than a decade. In 2002, more than 

8 out of 10 uninsured Americans came from working families, with nearly 70% coming from families with one or more full-time workers. It is no coincidence that the 

uninsured figures continue to rise as the cost of insurance continues to skyrocket— 

small-business owners face double-digit increases year after year, pricing more of 

them out of the marketplace. 

Many factors contribute to the overall cost of healthcare. Lack of competition in 

the small group market, litigation, and mandates are just some of the many cost 

drivers that have led us to where we are today. 

Small employers are forced to purchase in the over-regulated small group market, 

and consequently, workers in the smallest businesses that do provide health insurance pay 17 percent more on average for health benefits than workers at large companies. There is inadequate competition among insurance carriers. A recent GAO 

survey found dangerously high levels of market concentration among large insurance companies in the states’ small group markets. This concentration reduces comVerDate Aug 31 2005 06:42 Mar 11, 2006 Jkt 023794 PO 00000 Frm 00110 Fmt 6633 Sfmt 6621 E:\HR\OC\23794.XXX 23794
107 

petition and enhances insurers’ underwriting gains; as competition decreases, prices 

increase. 

We must also address the growing cost of benefit mandates. Requiring health insurance to pay for every medical treatment and service covered by state mandates 

drives the cost so high that the coverage is unaffordable, and therefore, unrealistic. 

More mandates mean higher costs. The Council for Affordable Health Insurance 

says that since January 1970, mandates have increased 25-fold. 

Something must be done on the front of medical malpractice litigation. The cost 

of malpractice lawsuits has soared in recent years, pushing up insurance premiums 

and forcing physicians out of business. 

A government run healthcare system is not the solution, however, it is still very 

much on the minds of some in Congress. The devil is in the details, whether it 

comes in the form of government-run health care or mandates and minimum benefit 

packages forced on the backs of small employers. 

The problems facing small-business owners, their employees, and families must 

be addressed as part of the debate. We understand that no one solution will help 

all of the 43 million uninsured, and, therefore, we propose a multi-faceted approach 

that will help move countless numbers of Americans off the rolls of those without 

health care coverage. We are aggressively urging enactment of legislation to permit 

Association Health Plans—AHPs—to operate nationwide. We support the recently 

enacted Health Savings Accounts (HSAs), coupled with a high deductible health 

care plan, as a way for small businesses and individuals to lower their health care 

premiums. Along with HSAs, individuals should be allowed to deduct 100 percent 

of their high deductible health plan premiums, if they are not subsidized by an employer plan already. Representative Crane’s newly introduced bill, H.R. 3901, would 

allow for this. Lastly, NFIB supports allowing individuals to rollover Flexible Spending Account (FSA) money from year to year as well as allowing individuals to use 

tax credits for the purchase of health insurance or toward lowing the cost of their 

employer-sponsored health insurance plan premiums. 

Association Health Plans would allow small-business owners to band together 

across state lines through their membership in bona fide trade and professional associations to purchase health care for their families and employees. Organizations 

such as NFIB, the U.S. Chamber of Commerce, Associated Builders and Contractors, and the National Restaurant Association would be able to offer insurance to 

their members. 

Association Health Plans will make health insurance more affordable for small 

businesses. The Congressional Budget Office has estimated that small firms obtaining health insurance through AHPs will realize premium reductions of 13 percent 

on average. In fact, reductions range from 9 percent to 25 percent. It is estimated 

that as many as 2.1 and up to 8.5 million individuals—employees and their dependents—will obtain employer-sponsored health care insurance for the first time due 

to enacting AHP legislation. 

HSAs will also help reduce the number of uninsured Americans by allowing small 

businesses more choice in the current small group market. For example, some small 

businesses have saved up to 42 percent when they have chosen a Medical Savings 

Account (MSA) over traditional insurance products; others have saved up to 60 percent using a Health Reimbursement Account (HRA). Additionally, individuals who 

have catastrophic health care coverage with a health savings account should be allowed to deduct 100 percent of the premiums from their taxes. HSAs, along with 

100 percent deductibility, will provide small businesses with more accessible, affordable options in the health insurance market. 

According to a 2001 survey, 80 percent of NFIB members believe that individuals 

who contribute to tax-free savings accounts for health care should be allowed to 

carry over any unused portion. Individuals should be allowed to rollover any 

unspent funds tax-free from year to year. The current limitation of ‘‘use it or lose 

it’’ needs to be changed to allow workers to take control of health care costs and 

prepare for the future. 

Lastly, small business owners have told us they support tax credits for individuals. With tax credits, small business owners and employees without insurance currently would be more likely to purchase coverage, leaving fewer people without insurance. The credit should be created in a manner that it can be used toward either 

an individual policy or an employer-sponsored policy. This would provide an opportunity for choice—an employee can purchase a policy based upon his/her individual 

health care needs. Health insurance policies purchased with the proposed tax credit 

would also be portable, meaning employees could have the benefit to carry the policy 

with them to another job and keep the same providers of care through many years, 

rather than changing providers with each new job. 

108 

We cannot afford to wait for the ‘‘perfect’’ solution. There is none. The longer we 

delay, the more we will hear the calls for government-provided health care, and certainly, that is not the perfect solution. 

Thank you for holding this hearing that continues the discussion on how to solve 

the problem of the uninsured. 

f 

Statement of Martin E. Neltner, Neltner Billing and Consulting, 

Independence, Kentucky 

Focus on Americans Who Lack Health Insurance Coverage 

EXECUTIVE SUMMARY 

Circle of Life and the ‘‘Scars’’ of the Health Care System 

One can sum up the health care crises relating to the uninsured as told by a story 

where one day my friend the farmer went to see his doctor for a physical. Now this 

person was never sick a day in 60 years. The farmer noticed that everyone was so 

busy that he felt bad when they called him back. After all he felt good with the 

exception of a small tingle in his arm. Because the clinic was busy no one would 

take the time to ask the pertinent questions about his health. After all he looked 

healthily so why waste time to ask questions. Two days later my friend the farmer 

had a stroke that ended up costing the system over $100,000. So instead of the doctor spending 40 minutes and billing $ 150 he spent 10 minutes and billed $60. So 

the circle of life was broken because now my friend is laid up and he cannot work. 

His wife can’t work because he needs someone to care for him. No taxes were collected on wages and he could not afford his health insurance. 

The insurance company hassle factor of putting up roadblocks to pay appropriately backfired and now we have another person who is uninsured. My friend will 

never be insured again because now he has a pre-existing condition. So if he is able 

to purchase health insurance it will be costly and it will not cover this chronic condition that was caused by to busy a doctor who is not paid appropriately for the service that in the end cost everyone unnecessary costly health care. Had the doctor 

spent the time, they would have asked the question ‘‘do you have any tingling’’ the 

answer of yes would have prompted testing and discover of his risk. Preventive 

measures would have occurred and my friend would have return to work and continue paying his fair share of being a productive citizen. 

There are many ‘‘Scars’’ in the health care system that is causing the uninsured 

problem. All which are easily repaired. What is needed is for the ‘‘Lion King’’ to return to restore confidence, accountability and responsibility. We need to invoke the 

principles of the 

‘‘OZ Principle’’ 

The recent major increases in the premiums by the insurance companies are unjustified. 35% in the past two years alone suggests an out of control system. Health 

care is the only industry where there is no accountability and everyone has lost his 

or her focus. Hospitals are still inefficient. Doctors have lost confidence and don’t 

care anymore. It’s all about the money. After all they just spent 15 years in school 

and residency, fellowship and paid dearly with long hours of work with little pay. 

Now they are strapped with school debt, raising families etc. The average mean salary for a primary care doctor is $90,000. That is an insult to the time they spent 

learning to care for the sick. 

West Virginia along with other states experience a major crises in malpractice. 

In Cincinnati, Ohio physicians closing up their practices leaving town because the 

managed care companies would not increase the pay to doctors or hospitals. A large 

settlement by one insurance company will pay Cincinnati doctors their increases. 

The other two payers are doing nothing and the suits continue. Charges against insurance companies for Racketeering, low pay, timely payments are increasing all 

over the country. CLEAN CLAIMS ACT. In the last five years virtually every state 

has had to enact legislation to force insurance companies to pay promptly. The legislation is called ‘‘Clean Claims Act’’. The problem is the insurance companies have 

figured out how to get around the term ‘‘clean claim so the state legislatures had 

to return to put teeth into the legislation. 

109 

1The OZ Principle, Roger Connors, Tom Smith, Craig Hickman. 

The Problem Summarized 

1. Physicians have lost confidence in the system. I don’t care and the attitude is 

‘‘they cheat me so I will cheat back’’ 

2. Hospitals should stay with core business and learn to manage their resources 

well. Stop the kickbacks and striking deals in secret joint ventures that cause 

unnecessary increases in health care cost. 

3. Patients take health care for granted. Give me a pill to fix my problem. The 

emergency room rotation of crime, drug addicts, etc. is killing our resources. 

4. Every one is sue happy. We need tort reform desperately. 

5. The coding system that is used to pay providers invites abuse. It is complex 

and is designed to send in a 5-digit number and a paycheck appears with no 

monitoring. Medicare is the only insurance payer that has instituted audits to 

verify services provided. 

6. If hospitals and doctors would collect the small dollar balances health insurance cost could be reduced by 10% to 20% alone. Most providers collect only 

50% of what they charge. 

7. Stop this nonsense of the doctor dictating a note that creates worthless points 

to judge the level of care. Ask a doctor and he will tell you 90% of the documentation created in the chart is meaningless. The national coding guidelines 

managed by the AMA to describe physician complexity in the visit service 

called the ‘‘Evaluation and Management’’ is causing worthless documentation 

that cannot tell you much about the patients symptoms and outcome. 

8. Resolve the problem of allowing aliens or illegal residents to tax our health 

care system. The attitude is if you are sick come to America and they will care 

for you for free. 

9. Pushing pill on TV is out of control. I don’t need the V drug 

The Solution 

Accountability and Responsibility 

Practicing the OZ Principle ‘‘Getting Results Through Individual and Organizational 

Accountability 1

1. Restore confidence in the providers who control the spending of the health 

care dollars by paying more to evaluate the patient symptoms. Make the providers justify their care in a simple documentation process that promotes positive outcomes. I can show you how this would work. 

2. Patients must be held accountable for their health. Employers and employees 

should work together to reduce health care risk. 

3. Counter the pushing of pills on TV with more how to care for your health in 

a natural way. 

4. Use Medicare as a model for insurance companies to follow in claims processing. Their system is the best. 

5. Better tort reform. 

6. Medicare should go into the claims processing business. Insurance companies 

could contract with Medicare to use their system. Here is an approach based 

on fact and outcomes. This will offset Medicare administrative cost. 

7. Berlin Wall Theory. Require insurance companies to justify their cost. Require 

meaningful audits of insurance company books. Open the door to hearing 

about complaints from providers and allow meaningful dialogue to stop abuse, 

pay promptly and restore confidence between the two parties looking over the 

Berlin Wall. 

8. Allow a simple process for providers to report health care payment abuse. The 

state department of insurance is worthless. 

9. Encourage employers to install wellness programs for their employees. 

10. Encourage employers to take positive action and for God’s sake we should not 

wait for the government to solve our health care problem. 

The only way to insure those with out insurance is to lower the premium and 

spread the risk among a lot of people. This is how the system worked before 1984. 

Ask several insurance companies to pull their resources, and insure those with out 

insurance. Work with providers to install meaningful systems that reward for symptom management. 

110 

Other Comments 

1. The physician’s pen can be the best tool to curtail health care cost. 

2. Pay the physician appropriately for spending time evaluating the patient 

symptom and developing a plan of action. 

3. Stop these foolish audits that derive no benefit. Physicians are scared to code 

appropriately. 

4. The system encourages doctors to see more patients in volume. Its all about 

quantity and not quality. Refer to graph below. 

5. Profiteers in the industry that built small insurance plans 100,000 or less 

that were purchased and repurchased causing more cost in the system. 

6. The charge for the service commonly referred to as the single fee schedule. 

The phony dollar of what the service is worth. The average industry collection 

rate. 

a. Hospitals are paid 30% to 50% of gross charge. 

b. Doctors are paid 30% to 60% of the single fee schedule. 

7. NO ONE IN THE HEALTH CARE SYSTEM KNOWS WHAT IT COST TO 

PROVIDE THE SERVICE. NO ONE KNOW S WHAT THEIR PROFIT MARGIN SHOULD BE? 

8. Insurance company claims processing is a shamble. 

a. More insurance companies over pay than what you can imagine. Doctors 

and hospitals play catch me if you can. 

b. Referrals and authorizations. This system created by the insurance companies is become a legal way to steal from the health care provider. 

c. THE AMA CODING SYSTEM INVITES ABUSE. 

9. Patients demanding more but will not take care of themselves. 

10. As an employer every time I try to create a system that promotes healthily 

life styles I get bomb bared with obstacles by the government employees rules 

that say I cannot do this or that because it discriminates against some one 

else in the organization. 

a. As an employer of 84 staff here are my stats. 

i. 40% are over weigh. 

ii. 40% eat and drink. 

iii. 10% drink excessively after work. 

iv. 10% are chronic depressed. 

v. 5% have worthless spouses who milk the health care system 

vi. 65% of my employee smoke 

vii. There are approximately 10 healthy people in the organization. 

viii. Absentee is very high, kids are always sick or employee is sick. I have ten 

employees to cover for the 80 employees who call in sick. 

Office Visit 

AMA recommended 

time per visit 

Visits per 

hour 

60 

Physician time 

per visit Compared to 

Consider 

this the 

range 

Level one 5 12 3 2 .4 ok 

Level two 10 6 5 4 .8 ok 

Level three 15 4 8 7 .2 ok 

Level four 20 3 10 9 .6 ok 

Level Five 40 1 .5 15 19 .2 ?? 

As it relates to the RVU of each visit 

AMA recommended 

time per visit 

Physician time 

48% 

Staff time 

52% 

Level one 5 2 .4 2 .6 

Level two 10 4 .8 5 .2 

Level three 15 7 .2 7 .8 

Level four 20 9 .6 10 .4 

Level Five 40 19 .2 20 .8 

111 

So it appears that a physician could see double the number of patients as recommended by the AMA guidelines since in reality his staff is assisting with the 

evaluation to the degree his efficiency is improved and more billable patients per 

day are realized. 

112 

Hours 

Level II 

phy time 

5 

Level III 

Phy 

7 

Level IV 

10 

Level V 

15 

Patients per hour 12 9 6 4 

8 till 12 4 48 34 24 16 

1 till 5 4 48 34 24 16 

Total patients per day 96 69 48 32 

Payment per service 34 48 75 91 

Payment per day $3,264.00 $3,291.43 $3,600.00 $2,912.00 

Works 4 days a week 4 

$13,056.00 

4 

$13,165.71 

4 

$14,400.00 

4 

$11,648.00 

Weeks worked 48 

$626,688.00 

48 

$631,954.29 

48 

$691,200.00 

48 

$559,104.00 

Take home rate 0.52 0.52 0.52 0.52 

Take home $325,877.76 $328,616.23 $359,424.00 $290,734.08 

Æ