The Uninsured and the Health Care Safety Net

1. The Uninsured and the Health Care Safety Net Grace-Marie Turner, Ph.D. President Galen Institute, Inc. Alexandria, VA

2. The U.S. health care system is in trouble • Rising insurance costs threaten coverage for many • Millions are uninsured • A plethora of rules, regulations, fines, penalties govern the system

3. 2004 U.S. health expenditures (estimated) Total $1.8 trillion15% of GDP • Private: $984 billion 55% of total • Public: $810 billion 45% of total see http://www.cms.hhs.gov/statistics/nhe/projections-2003/t3.asp

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

5. Does the U.S. spend too much or too little on health care? Robert Blendon and John Benson. “Americans’ Views on Health Policy” Health Affairs. March/April 2001.

6. Consumers pay 15% of costs Office of the Actuary, Centers for Medicare and Medicaid Services

7. Kaiser benefits study • Premiums now average $3,383 for single coverage and $9,068 for families • Worker contributions were stable for singles (at $508) and rising 13% for families (to $2,412) Kaiser 2003 Employer Health Benefit Survey

8. Cost drivers for health insurance 18% General health care inflation 22% New medical advances, drugs 18% Rising provider expenses 15% Government mandates and regulation 15% Increased consumer demand 7% Litigation and defensive medicine 5% Fraud and abuse, etc. • PriceWaterhouseCoopers 2002

9. Research question Can State health insurance regulations reduce costs and increase access to health insurance?

10. Insurance regulations • Guaranteed issue • Guaranteed renewal • Community rating • Mandated benefits • Pre-existing condition exclusions

11. The GAO identified 16 States that passed these insurance regulations in the early- and mid-1990s. What happened?

12. Annual growth rate in number of uninsured 8.1% 4.6% 4.1% 3.9% % growth rate in number of uninsured 2.7% 1.0% 50 50 16 34 • 34 16 # of States 1996 1990 “Uninsured Rates Rise Dramatically in States with Strictest Health Insurance Regulations,” Arnett GM, Schriver ML. The Heritage Foundation 1998. http://www.galen.org/statehealth.asp?docID=179

13. Expanding access to the uninsured Why is it so hard for the States to solve this problem?

14. The tax treatment of health insurance • A huge Federal subsidy that discriminates against lower-income, working Americans who are most likely to be uninsured

15. Low income families hard to reach with job-based coverage 82% Persons with job-based health insurance, by income 23% U.S. Census Bureau, Current Population Survey, 2004 Annual Social and Economic Supplement. Table HI01. Health Insurance Coverage Status and Type of Coverage by Selected Characteristics: 2003 (All Races) Less than $25,000 Over $75,000

16. The Galen Gap Population under age 65 with health coverage 42 Million Uninsured $0 $75,000 Income Conceptual depiction based upon the logo of the Galen Institute.

17. Getting to the root of the problem • Price controls in World War II

18. 1943:Health insurance to boost pay • Workers are scarce • Wage and price controls cap pay • Health insurance offered instead • Health insurance becomes job-based

19. Sixty years and $1 trillion later... • A $189 billion annual tax subsidy that is: • Inefficient • Regressive • Discriminatory

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

21. Pressure for Government to fill the gap $0 $75,000 Income

22. A fresh idea: Create new, fairer subsidies for health insurance • Tax credits for the uninsured to purchase health insurance • Credits are “refundable” and “advanceable” • Provide new help for those shut out of the system • A new fairness in subsidizing insurance “Empowering Health Care Consumers through Tax Reform,” Grace-Marie Arnett, Ed. University of Michigan Press, Ann Arbor. September 1999. http://www.galen.org/book.asp Mark Pauly and Bradley Herring. “Expanding Coverage Via Tax Credits: Trade-Offs and Outcomes,” Health Affairs, January/February 2001.

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

24. Bipartisan agreement • Tax credits for the uninsured • New purchasing pool arrangements • Enrolling those eligible for Medicaid and SCHIP • Gaining efficiencies through health information technologies My assessment of general agreement based upon joint publications and position papers by political leaders, including President Bush, Senator Kerry, Senator Frist, Senator Clinton, etc.

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

26. A new conversation • Prevention • Disease management • Value in medical care • Greater access to information • More consumer input into care choices

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

28. Some options for the States • About one-third of new purchasers of HSAs were previously uninsured • Encouraging HSAs can help some citizens to get coverage “Health Savings Accounts: The First Year in Review,” eHealthInsurance, February 15, 2005. Teresa Chovan and Hannah Yoo. “Health Savings Accounts Off to a Fast Start in the Individual Market,” America’s Health Insurance Plans, January 12, 2005.

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

30. One example of an HSA Catastrophic coverage + preventive care High deductible insurance $500 deductible Employer, employee, or individual makes deposit to HSA. Unspent funds roll over to next year. Funds routine health spending. Preventive care exempt. $1,000 deposit

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

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

33. What is the new world about? • Patient control: Consumers will have more choices in health insurance arrangements • Cost visibility: They will be more price conscious in shopping for insurance and some medical services • Savings incentives: Consumers have more incentive to get the best product, service, and value for their money

34. The next big thing… Consumer choice in health care and coverage

35. The goal Engaging consumers as partners rather than adversaries in managing health costs and getting the best value for health care dollars

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