Individual versus job-based health insurance: weighing the pros and cons

Microsimulation of private health insurance and medicaid take-up following the U.S. Supreme court decision upholding the Affordable Care Act

OBJECTIVE

To predict take-up of private health insurance and Medicaid following the U.S. Supreme Court decision upholding the Affordable Care Act (ACA).

DATA SOURCES

Data came from three large employers and a sampling of premiums from ehealthinsurance.com. We supplemented the employer data with information on state Medicaid eligibility and costs from the Kaiser Family Foundation. National predictions were based on the MEPS Household Component.

STUDY DESIGN

We estimated a conditional logit model of health plan choice in the large group market. Using the coefficients from the choice model, we predicted take-up in the group and individual health insurance markets. Following ACA implementation, we added choices to the individual market corresponding to plans that will be available in state and federal exchanges. Depending on eligibility for premium subsidies, we reduced the out-of-pocket premiums for those choices. We simulated several possible patterns for states opting out of the Medicaid expansion, as allowed by the Supreme Court.

PRINCIPAL FINDINGS

The ACA will increase coverage substantially in the private insurance market and Medicaid. HSAs will remain desirable in both the individual and employer markets.

CONCLUSIONS

If states opt out of the Medicaid expansion, this could increase the federal cost of health reform, while reducing the number of newly covered lives.

Employer-sponsored health insurance for early retirees: impacts on retirement, health, and health care

The proportion of large employers offering retiree health insurance in the US has declined by half in the past 20 years. This paper examines the potential implications of this change by estimating the effects of a retiree health insurance (RHI) offer on a comprehensive set of labor, health and health care use outcomes in the near-elderly population. An RHI offer increases the probability of early retirement by 37% for both men and women. While the results suggest that an RHI offer has little, if any, effect on health, there is strong evidence that RHI provides significant protection from high out-of-pocket medical costs. In the top 40% of the out-of-pocket spending distribution, those with an offer of retiree coverage spend 22% less on average. Estimates of the value of RHI of over $4,000 per year suggest that increasing opportunities for the near-elderly to purchase coverage at actuarially-fair prices through the individual market or public programs could significantly increase insurance coverage and reduce financial risk for this age group.

National health insurance or incremental reform: aim high, or at our feet?

Single-payer national health insurance could cover the uninsured and upgrade coverage for most Americans without increasing costs; savings on insurance overhead and other bureaucracy would fully offset the costs of improved care. In contrast, proposed incremental reforms are projected to cover a fraction of the uninsured, at great cost. Moreover, even these projections are suspect; reforms of the past quarter century have not stemmed the erosion of coverage. Despite incrementalists' claims of pragmatism, they have proven unable to shepherd meaningful reform through the political system. While national health insurance is often dismissed as ultra left by the policy community, it is dead center in public opinion. Polls have consistently shown that at least 40%, and perhaps 60%, of Americans favor such reform.

Health insurance take-up by the near-elderly

OBJECTIVE

To examine the effect of price on the demand for health insurance by early retirees between the ages of 55 and 64.

DATA SOURCE

Administrative health plan enrollment data from a medium-sized U.S. employer.

STUDY DESIGN

The analysis takes advantage of a natural experiment created by the firm's health insurance contribution policy. The amount the firm contributes toward retiree health insurance coverage depends on when a person retired and her years of service at that date. As a result of this policy, there is considerable variation in out-of-pocket premiums faced by individuals in the data. This variation is independent of the nonprice attributes of the health insurance plans offered and is plausibly exogenous to individual characteristics that are likely to affect the demand for insurance. A probit model is used to estimate the decision to take-up employer-sponsored health insurance by early retirees between the ages of 55 and 64. Demand for insurance is measured as a function of out-of-pocket premiums and a set of individual characteristics.

PRINCIPAL FINDINGS

We find that price has a small but statistically significant effect on the decision to take up coverage. Estimated price elasticities range from -0.10 to -0.16, depending on the sample.

CONCLUSIONS

The implied elasticities are comparable with results found in previous studies using very different data. Our estimates indicate that policy proposals for a Medicare buy-in or a nongroup tax credit will have a modest impact on take-up rates of near-elderly retirees.

How much risk pooling is there in the individual insurance market?

OBJECTIVE

To examine how much pooling of risks occurs among potential purchasers in the individual market, how much pooling occurs among those who purchase coverage, and whether there is greater pooling among longer-term enrollees.

DATA SOURCES

The data are administrative records for enrollees in individual insurance plans in California in 2001, and from a survey of Californians enrolled in the individual insurance market and the uninsured.

STUDY DESIGN

Logit models were estimated for 5 health outcome measures to compare the insured and uninsured after adjusting for other factors that affect insurance status and health. Multivariate models were also estimated to explore the relationship between health and three measures of pooling in the market: plan type, pricing tier, and the actuarially adjusted premium paid by the enrollee.

PRINCIPAL FINDINGS

Those who purchase individual health insurance are in better health than those who remain uninsured. On the other hand, a large share of people with health problems does obtain individual insurance. The distribution of subscribers across plan type and pricing tier varies with their health status. Those in poor health are less likely to purchase low benefit plans. There is less separation of risks for those who become sick after enrollment based on the measure of pricing tier. The distribution of subscribers across plan type for those who have health problems at enrollment and those who become sick differs, but so does the distribution of those who become sick and those who remain healthy.

CONCLUSIONS

Despite small differences among the healthy and sick, our results support the conclusion that there is considerable risk pooling in the individual market. To some extent, this pooling occurs because underwriting happens at the time people enroll and there is greater pooling among those who become sick than those who enroll sick. Our results however suggest that health savings accounts may further fragment the market.

Incentive-compatible guaranteed renewable health insurance premiums

Theoretical models of guaranteed renewable insurance display front-loaded premium schedules. Such schedules both cover lifetime total claims of low-risk and high-risk individuals and provide an incentive for those who remain low-risk to continue to purchase the policy. Questions have been raised of whether actual individual insurance markets in the US approximate the behavior predicted by these models, both because young consumers may not be able to "afford" front-loading and because insurers may behave strategically in ways that erode the value of protection against risk reclassification. In this paper, the optimal competitive age-based premium schedule for a benchmark guaranteed renewable health insurance policy is estimated using medical expenditure data. Several factors are shown to reduce the amount of front-loading necessary. Indeed, the resulting optimal premium path increases with age. Actual premium paths exhibited by purchasers of individual insurance are close to the optimal renewable schedule we estimate. Finally, consumer utility associated with the feature is examined.

Health savings accounts: early estimates of national take-up

The 2003 Medicare Prescription Drug, Improvement, and Modernization Act (MMA) approved tax-advantaged health savings accounts (HSAs) for certain high-deductible health insurance plans. We predict that MMA could lead to approximately 3.2 million HSA contracts among Americans ages 19-64 who are not students, not enrolled in public health insurance plans, and not eligible for group coverage as a dependent. We simulate the effect of several additional tax subsidies for HSAs. We predict that the Bush administration's refundable tax-credit proposal would double HSA take-up and reduce the number of uninsured people by 2.9 million, at an annual cost of $8.1 billion.

Making Markets Work: Five Steps To A Better Health Care System

Although the U.S. health care system has made remarkable advancements, it is costly and wasteful, and it leaves many people without appropriate care. The challenge for public policy is to enable consumers and taxpayers to obtain good value for their health care dollars. Achieving this objective stands the greatest chance of success if health care markets function well. To make markets work, we recommend changes in five areas of public policy: tax reform, insurance reform, improved provision of information, enhanced competition, and malpractice reform. Our policy reforms will improve the productivity of the health care system, make insurance more affordable, reduce rates of uninsurance, and increase tax fairness and progressivity.

Private and public cross-subsidization: financing Beijing’s health-insurance reform

In 1998, the Chinese government proposed a universal health-insurance program for urban employees. However, this reform has been advancing slowly, primarily due to an unpractical financing policy. We surveyed over 2000 families and evaluated the financial impacts of Beijing's reform on public and private enterprises. We found that most state-owned enterprises provided effective health insurance, whereas most private firms did not; overall, 33% of employees had little or no coverage. On average, employees of private firms were healthier and earned more compared to public firms. Because the premium was proportional to income, private firms would pay more for insurance than the predicted health-care expense of their employees. International firms subsidize the most, contributing more than 60% of their insurance premiums to the employees of the public sector. Such an aggressive cross-subsidization policy is difficult to be accepted by private firms.

Health care administration in the United States and Canada: micromanagement, macro costs

A decade ago, U.S. health administration costs greatly exceeded Canada's. Have the computerization of billing and the adoption of a more business-like approach to care cut administrative costs? For the United States and Canada, the authors calculated the 1999 administrative costs of health insurers, employers' health benefit programs, hospitals, practitioners' offices, nursing homes, and home care agencies; they analyzed published data, surveys of physicians, employment data, and detailed cost reports filed by hospitals, nursing homes, and home care agencies; they used census surveys to explore time trends in administrative employment in health care settings. Health administration costs totaled at least dollar 294.3 billion, dollar 1,059 per capita, in the United States vs. dollar 9.4 billion, dollar 307 per capita, in Canada. After exclusions, health administration accounted for 31.0 percent of U.S. health expenditures vs. 16.7 percent of Canadian. Canada's national health insurance program had an overhead of 1.3 percent, but overhead among Canada's private insurers was higher than in the U.S.: 13.2 vs. 11.7 percent. Providers' administrative costs were far lower in Canada. Between 1969 and 1999 administrative workers' share of the U.S. health labor force grew from 18.2 to 27.3 percent; in Canada it grew from 16.0 percent in 1971 to 19.1 percent in 1996. Reducing U.S. administrative costs to Canadian levels would save at least dollar 209 billion annually, enough to fund universal coverage.

Health and the cost of nongroup insurance

This analysis estimates a selection-adjusted model of the premium for nongroup insurance to measure the effect of health status on the cost of nongroup insurance. Using data from two recent national surveys, the probability of buying nongroup insurance is about 50% lower for people in fair or poor health compared to similar people in excellent health. Correcting for selection, premiums are about 15% higher for people with modest health problems, and 43% to 50% higher for people with major health problems compared to those in excellent health. We use the selection-corrected premiums to simulate the effects on the price and affordability of nongroup insurance for the uninsured under two recent tax credit proposals.

Costs of health care administration in the United States and Canada

BACKGROUND

A decade ago, the administrative costs of health care in the United States greatly exceeded those in Canada. We investigated whether the ascendancy of computerization, managed care, and the adoption of more businesslike approaches to health care have decreased administrative costs.

METHODS

For the United States and Canada, we calculated the administrative costs of health insurers, employers' health benefit programs, hospitals, practitioners' offices, nursing homes, and home care agencies in 1999. We analyzed published data, surveys of physicians, employment data, and detailed cost reports filed by hospitals, nursing homes, and home care agencies. In calculating the administrative share of health care spending, we excluded retail pharmacy sales and a few other categories for which data on administrative costs were unavailable. We used census surveys to explore trends over time in administrative employment in health care settings. Costs are reported in U.S. dollars.

RESULTS

In 1999, health administration costs totaled at least 294.3 billion dollars in the United States, or 1,059 dollars per capita, as compared with 307 dollars per capita in Canada. After exclusions, administration accounted for 31.0 percent of health care expenditures in the United States and 16.7 percent of health care expenditures in Canada. Canada's national health insurance program had overhead of 1.3 percent; the overhead among Canada's private insurers was higher than that in the United States (13.2 percent vs. 11.7 percent). Providers' administrative costs were far lower in Canada. Between 1969 and 1999, the share of the U.S. health care labor force accounted for by administrative workers grew from 18.2 percent to 27.3 percent. In Canada, it grew from 16.0 percent in 1971 to 19.1 percent in 1996. (Both nations' figures exclude insurance-industry personnel.)

CONCLUSIONS

The gap between U.S. and Canadian spending on health care administration has grown to 752 dollars per capita. A large sum might be saved in the United States if administrative costs could be trimmed by implementing a Canadian-style health care system.

Health insurance for Americans approaching age sixty-five: an analysis of options for incremental reform

This article provides a systematic evaluation of the options for incremental health insurance reforms aimed at older Americans nearing age sixty-five. It presents three basic arguments for giving special consideration to this age group: (1) early retirement and its effect on access to employer insurance; (2) changes in health and health care expenses associated with increasing age; (3) the vulnerability to unexpected economic or health "shocks" that will affect people throughout their retirement. The analysis of policy options begins by specifying criteria for evaluating alternative approaches to reform. The proposed criteria emphasize that reforms for this age group should be designed to fit with other financial plans and decisions made during such a transitional stage of life. Policy options should be judged according to fundamental goals such as equity and efficiency, not simply ranked according to the number of uninsured who will gain coverage. After offering a comprehensive catalog and evaluation of available options, the analysis identifies and discusses a preferred approach-which preserves choices while offering universal and subsidized access to Medicare before age sixty-five.

National health insurance or incremental reform: aim high, or at our feet?

Single-payer national health insurance could cover the uninsured and upgrade coverage for most Americans without increasing costs; savings on insurance overhead and other bureaucracy would fully offset the costs of improved care. In contrast, proposed incremental reforms are projected to cover a fraction of the uninsured, at great cost. Moreover, even these projections are suspect; reforms of the past quarter century have not stemmed the erosion of coverage. Despite incrementalists' claims of pragmatism, they have proven unable to shepherd meaningful reform through the political system. While national health insurance is often dismissed as ultra left by the policy community, it is dead center in public opinion. Polls have consistently shown that at least 40%, and perhaps 60%, of Americans favor such reform.

Third party reimbursement for pharmacist services: why has it been so difficult to obtain and is it really the answer for pharmacy?

OBJECTIVES

To describe three models of how health insurance coverage can develop for health care goods and services and apply them to pharmacist services. Also, to raise readers' awareness of the costs/tradeoffs involved in receiving third party reimbursements of insurance coverage from a health provider perspective.

DATA SOURCES

Insurance theory and literature.

SUMMARY

The three models for developing health insurance coverage are the risk-pooling model, the demand model, and the cost containment model. The risk-pooling model does not apply to coverage for pharmacist services because the cost of such services is not catastrophic and unpredictable. Applying both the demand model and the cost containment model to developing coverage for pharmacist services presents some challenges, but the demand model has been used more successfully to obtain insurance coverage for other health care goods and services. Potential costs and tradeoffs to the health care provider associated with insurance coverage are higher administrative costs, lower reimbursement rates, and loss of professional autonomy.

CONCLUSION

If pharmacists want to increase third party coverage for their services, the best approach may be to increase patient demand for insurance coverage by promoting and charging for pharmacist services. However, pharmacists should seriously consider whether the benefits of such coverage for their services outweigh the costs.

Managed competition and consumer price sensitivity in social health insurance

This paper examines whether the introduction of managed competition in Dutch social health insurance has resulted in effective price competition among insurance funds. We find evidence of limited price competition, which may be caused by low consumer price sensitivity. Using aggregate panel data from all insurance funds over the period 1996-1998, estimated premium elasticities of market share are -0.3 for compulsory coverage and -0.8 for supplementary coverage. These elasticities are much smaller than in managed competition settings in US group insurance. This may be explained by differences in switching experience and higher search costs associated with individual insurance.

Guaranteed renewability and the problem of risk variation in individual health insurance markets

Consumers should be protected against fluctuations in premiums for private individual health insurance associated with the onset of high-cost chronic conditions. The most commonly discussed way to do so is through community rating, which provides protection but can require a heavy regulatory burden and can create incentives for adverse selection and cream skimming. This paper describes an alternative method of providing the same type of protection: insurance contract provisions that guarantee renewability for the next coverage period at class-average rates. Drawing on recent work in insurance theory, the paper shows that such protection is feasible in competitive insurance markets. Guaranteed renewability, which is required of all individual health insurance by the Health Insurance Portability and Accountability Act (HIPAA) of 1996, is incomplete because the law fails to require that premiums be the same for all insured persons in a rating class. However, the paper reports the results of a recent survey of state insurance regulation, which indicates that all but three state insurance departments report having such a requirement. The paper concludes with a discussion of possible threats to the protection guaranteed renewability provides against risk segmentation.

The nongroup market as one element of a broader coverage-expansion strategy

Effective health insurance provides financial protection and access to services that maintain and improve health. Such coverage is difficult to obtain in the nongroup market, however, because of a lack of sponsorship, the nature of coverage available, adverse selection, and high administrative costs. However, certain interventions could make this market an effective avenue for expanding coverage to moderate- to high-income persons who lack access to employer-based coverage. In "less regulated" markets, we suggest broader, deeper funding of high-risk pools and standardization of benefits, preexisting condition exclusions, and waiting periods. In "more regulated" markets, a broadly funded reinsurance mechanism could moderate premiums.

Increasing health insurance coverage through an extended Federal Employees Health Benefits Program

The Federal Employees Health Benefits Program (FEHBP) could be combined with health insurance tax credits to extend coverage to the uninsured. An extended FEHBP, or "E-FEHBP," would be open to all individuals who were not covered through work or public programs and who also were eligible for the tax credits on the basis of income. E-FEHBP also would be open to employees of very small firms, regardless of their eligibility for tax credits. Most plans available to FEHBP participants would be required to offer enrollment to E-FEHBP participants, although premiums would be rated separately. High-risk individuals would be diverted to a separate high-risk pool, the cost of which would be subsidized by the federal government. E-FEHBP would be administered by the states, or if a state declined, by an entity that contracted with the Office of Personnel Management. While E-FEHBP would provide group insurance to people who otherwise could not get it, premiums could exceed the tax-credit amount and some people still might find the coverage unaffordable.

Private purchasing pools to harness individual tax credits for consumers

While health insurance tax credits could help people who otherwise could not afford to purchase coverage, many might still find individual coverage too expensive and its marketplace dynamics bewildering. As an alternative, this paper outlines an approach using private purchasing pools for tax-credit recipients. The objective is to offer these individuals and families a choice among competing health plans, and provide many of the same advantages enjoyed by workers in large employer groups, such as relatively low administrative costs, no health rating, and an effective "sponsor." Some express optimism that private pools will emerge naturally and thrive as an option for individual tax-credit recipients. However, adverse selection and other individual health insurance market forces make this a dubious prospect. The approach presented here gives purchasing pools the same tool employer groups use to maintain stability and cohesion--a significant contribution that cannot be used elsewhere. The ability to offer health plans exclusive access to a sizable new, previously uninsured clientele--tax-credit recipients-would enable purchasing pools to attract health plan participation and thus overcome one major reason several state-directed pools for small employers have failed. To avoid other pitfalls, the paper also suggests private pool structures, as well as federal and state roles that seek to balance objectives for market innovation and choice with those for coverage-source stability and efficiency.

Expanding coverage via tax credits: trade-offs and outcomes

In this paper we discuss various options for using refundable tax credits to reduce the number of uninsured persons. The effect of tax credits on the number of uninsured depends on the form of the credit scheme adopted. Moreover, since large subsidies for private insurance directed to low-income persons have never been implemented, there is considerable uncertainty about the effect of various tax credit proposals. We find that small credits will do little to reduce the number of uninsured but that credits covering about half of the premium for a benchmark policy might have a significant effect, especially if they take a fixed-dollar form and can be used for policies with few restrictions. Finally, we discuss the normative issues surrounding the "costs" of these credits schemes, and the policy issues raised by the uncertainty of the effects.