Private Health Insurance: Challenges for Reform

1. Private Health Insurance:Challenges for Reform Karen Pollitz Research Professor Georgetown University Health Policy Institute Alliance for Health Reform October 3, 2008

2. Some basics • We don’t buy health insurance in case we stay healthy • For insurance to protect us, it must be • Available • Affordable • Adequate • Always

3. Sources of health coverage, non-elderly • 71% of uninsured are in full-time working families • 2/3 of uninsured are poor or near-poor (below 200% FPL) • Most uninsured are ineligible for ESI or Medicaid • 1/3 of non-elderly will have spell uninsured over 4-year period Employer, Dependent30% Uninsured18% Employer,Own32% Medicaid/Other public 15% Individual Policies5% Total = 255 million people under 65 Source: Urban Institute estimates of March 2006 Current Population Survey, U.S. Census Bureau.

4. Risk spreading Concentration of Health Spending in the U.S. Population Note: Population includes those without any health care spending. Health spending defined as total payments, or the sum of spending by all payer sources. Source: Agency for Healthcare Research and Quality, Medical Expenditure Panel Survey, 2003.

5. Availability challenges • Job-based plans • ESI is voluntary • Eligibility cannot be based on health status • Individual health insurance • Medically underwritten in most states, eligibility isbased on health status

6. Always available? • Job based plans • Loss of eligibility due to layoff, retirement, change in family status, employer drops benefits • Continued eligibility cannot be based on health status • Individual health insurance • Ability to switch plans limited if health declines • Rescission

7. Affordability challenges • Job-based plans • Average price ($4,000/$12,000) reflects broad pooling, comprehensive benefits • Significant tax subsidies • Significant employer subsidies • Individual health insurance • Price based on health status, age, industry • Price varies dramatically • Few subsidies

8. Affordability always? • Job-based plans • Medical costs rise faster than wages, straining affordability over time • “Experience rating” hikes price of employer group policies when claims are made • Employee contribution must not be based on health status • Individual health insurance • Premiums rise with age, change in health status • “Durational rating” penalizes policyholders who stay • Other renewal and marketing practices strand sick in policies whose premiums spiral

9. Adequacy challenges • Job-based plans • Generally comprehensive benefits (varies) • Cost sharing is increasing • Individual health insurance • Benefit exclusions, caps • Pre-existing conditions permanently excluded • High cost sharing

10. Adequacy always? • Job-based health plans • Gradual erosion of coverage, mostly through increased cost sharing • Individual health insurance • Policyholder “option” to trim coverage, raise cost sharing to offset renewal premium increase • Policyholder option to increase coverage often restricted

11. Many approaches to reform……but not just anything will do • Public vs. Private Coverage • Single vs. Multiple Payers • Federal vs. State • Competition vs. Regulation • Beginning discussion with the 4 As can shape design of any of these approaches