Short-Term Uninsurance: The Problem No One Is Trying to Solve
According to Politico, the White House is trotting out some new arguments lately, including pushing a report from the Treasury Department that tries to make clear that lack of insurance can happen to anyone, not just those with low incomes. For example, the report found that:
- 48 percent of the population is uninsured at some point over a ten-year span and
- 41 percent go without coverage for at least six months.
The New York Times, for one, considers this a convincing argument for reform. But what kind of reform? The Treasury report is consistent with the observation that uninsurance, like unemployment, happens to lots of people for short periods of time. This is particularly true during recessions, when changes in insurance status are likely to be tied to changes in employment and, therefore, to changes in income.
Now for an unwelcome surprise: None of the health reform bills before Congress actually deals with the problem of the short-term uninsured. In fact, it’s probably fair to say that no one is even seriously thinking about it.
One of the amazing features of health policy discussions is how often they initially focus on the uninsured before quickly shifting focus to everybody else. By the time solutions are put on the table, the uninsured typically have been long forgotten.
Almost all the proposals before Congress assume that people have stable incomes, stable jobs and stable insurance problems. That allows the plan designers to sort people into convenient categories: the poor go into Medicaid; employees of large firms go into an employer plan; people with no employer plan go into the Exchange; people get subsidies based on their stable annual income; etc.
Now, it is certainly true that most people do have a stable job and a stable income. But this is typically not true of the uninsured. Nor is it true of many low-income families.
Take Medicaid and SCHIP. It is estimated that a fourth of the uninsured are eligible for these two programs, but not enrolled. Part of the problem is there is an income test that causes people to be eligible and ineligible as their incomes rise and fall. In fact, it is probably fair to say that these two programs were not designed at all for people whose incomes fluctuate.
A similar problem arises with proposals to subsidize premiums with vouchers or tax credits. These are attractive solutions until you realize that the people you are trying to help have unstable incomes. Take someone making $80,000 a year who loses his job and has no income for six months and then finds a new job paying $60,000. What health insurance premium subsidy should this person get during the period when he had zero income? The answer is not obvious.
Under the bills before Congress, the IRS is the information gatherer that forms the basis for fines (for being uninsured) and subsidies (for being insured). But people only file tax returns once a year and over longer periods in the case of extensions.
To consider an extreme case, imagine a world in which everyone experiences a job change and an income change every month. In such a world, what is the best way to encourage insurance and how would you implement it? Whatever the right answer, it is not in any bill before Congress.
Full confession: I don’t know the full solution to this problem. But I promise to return to it.
Another really good post.
Very interesting. No one is looking at this?
Another issue, tangentially related to this one, is that the discussions about “reform” is confusing because the terms “Health Insurance Reform” and “Healthcare Reform” are used interchangably. The average person does not recognize the distinction and the two, while connected, are not the same and changes in one does not equal changes in the other.
Two quick points:
1. If insurance is tied to the individual, not the employer, you create portability. So, if you change jobs, your insurance would stay with you. Lets say your employer provides $400 per month toward health insurance, and you can go on line every January 1 and by any policy you like….if you change jobs, you keep your insurance.
2. Tie health care to unemployment benefits. If you are eligible to get unemp. benefits, you are able to get short term Medicaid as well.
-peter
One thing that’s interesting on the tax credit side is the determination of the credit size.
Since the credit is advanceable, the IRS data will have to come from two years prior at the beginning of every year. Then, come tax time, the actual credit received will have to be reconciled with the credit you should have gotten.
The result will be credits amounts that change every January, and either very happy (in the case of a reconciled windfall) or very upset (in the case of a reconciled balance due) taxpayers.
As someone who owns his own tax prep firm, I’m not looking forward to having to explain that to clients. And I thought the first time homebuyer credit was complex!
This is a major issue with almost all of the policy solutions pushed by this Congress. They seem to focus on the talking points, instead of actual solutions.
John:
Off this subject, but I would like to see a discussion about the numerous articles concerning health care delivery and costs around the US that the news services are so fond of quoting. Do they ever mention this is all based upon Medicare data and there is no commercial data in the findings? Or is there commercial data in the findings and if so, what is the source?
Of course there is an answer: improve Medicare, make enrollment automatic for everyone for life, and finance it through the tax system. That would eliminate employment and income as factors in determining eligibility. Further, as a beneficent monopsony, that would bring us greater value in our health care purchasing, helping to slow the excessive growth in health care costs.
John,
You raise a key point here. We live in an enormously fluid and dynamic economy — something that escapes the well-paid policy wonks in Washington and academia. In fact, many, many people work multiple jobs, live off savings for a while, work in the barter economy, sponge off friends and relatives, rent rooms in their homes for income, and engage in thousands of other ways to live “off the grid.”
These massive proposals will either curtail much of this creativity, or inspire many more people to do the same. The fact is, the people in Washington don’t have any idea what the consequences will be of their social engineering.
I agree with Greg.
Unlike the politicians, the market has tried to address this problem. Medically underwritten short-term health insurance (maximum duration of 6 months) is readily available in many states. It is not unreasonably priced, $55 or so for $5,000 deductible.
To Don McCanne:
Do you really want our politicians 100% in control of our healthcare system with a medicare for all system?
That would be the end of American innovation in healthcare, and the furthering of bureaucratic nightmares!!
The issue of providing mechanisms for “continuous coverage” without gaps and with financial support if required is one for which solutions can be provided, as has been demonstrated by comments already. In the absence of a “mandate” or some proxy thereto, it is more difficult to do it on a consistent and equitable basis, but it can still be done. I think that more interesting in the posting is how the reformaholics in government (and out) keep finding ways to manipulate statistics to support a perception of the “risk” people have in moving from a state of “insured” to one of “uninsured.” These latest figures of 48%/41%/ten year period seem to be an extension to the tilted analysis done by Families USA back in April, when they were trying to challenge the Census Bureau’s continuous 45-47 million “uninsured” figure for several years, because it didn’t generate a big enough percentage for impact when compared to 262.3 million persons below 65. They preferred the figure of 33% generated by their claim that 86.5 million different persons had been without insurance for some amount of time during a running 2 year period.
There is a fairly straightforward reconciliation between this manipulation of the data by Families USA and the Census bureau. It doesn’t take an actuary (I happen to be one, however) to dissect the data. Families USA wanted to find a way to take the facts and make the numbers look worse somehow. So, yes, they looked at a two year period, and are able to say (and this is probably correct) that 86.5 million different persons under age 65 were without formal health insurance at some point within that 2 year period. The point, however, is that when they compare that figure with 262.3 million persons under age 65, they are mixing two years of a subset with an implicit single year of “exposure.” Using mid-points for the brackets of length of uninsured status, and calculating a weighted average, we arrive at an average period of uninsured status of 13.1 months. That is not important however, what is important is that the total number of “uninsured person months” during the two year period is 1,132.75X10^6, while the number of total person months exposed during the two year period is 6,295.2X10^6, for a ratio of uninsured months to total exposed months of roughly 18%. (The total exposure is the 262.3X10^6 population times 24 months each.) Guess what 18% of 262.3X10^6 is? 47.2 million (some rounding error). That looks suspiciously like the census bureau figure for the average, at any given time, of the number of uninsured persons. (This doesn’t even address the “voluntarily” uninsured issue, of course.)
It appears the same games are being played to generate the higher figure of 48%, but they had to push the exposure period to 10 years. Perhaps they should spend their time, and our money, trying to reduce the documented over-payments for things like wheelchairs under Medicare.
John, an apt observation.
In our next book (Why health care costs so much: The Solution – Government’s Role) Greg Dattilo and I will be offering an idea for immediate conversion for those who lose their jobs. This idea would allow anyone covered under a group health insurance plan that either quits or is released from employment to purchase a temporary guaranteed issue health plan of their choice, without pre-ex. A variety of plans (from traditional, to HMOs, to HDHPs) could be made available.
Instead of paying high cost COBRA premium for a traditional plan, individuals could purchase affordable coverage that would be available to them until they are covered under their new employer’s health plan.
Currently, COBRA coverage only attracts the sickest of people, rendering loss ratios of 350% to premium, or more. Immediate conversion to temporary individual health plans would attract healthier individuals as well, who are just looking for temporary coverage.
COBRA is the present day option. There sould be a national market for individually owned short term plans similar to plans that already exist in some states.
The temporary plans that already exist apparently have less stringent underwriting than a permanent individual plan. The problem for many is that if they accept the temporary plan in place of COBRA, they lose their creditable group coverage status with respect to qualifying for permanent HIPAA or conversion coverage.
COBRA is no more expensive than employer-based coverage. In fact it’s the same coverage, at the same price (plus the 2% admin fee). So it makes no sense to start with the premise that COBRA is too expensive, when it apparently wasn’t too expensive before the layoff.
The problem is inequitable tax treatment for identical insurance coverage. And the fact that employer costs tend to be somewhat hidden.
Bart – excellent observations on COBRA, as well as tax treatment issue. Actually, the 350% loss ratio on COBRA experience figure referred to earlier is, based on more recent studies I have seen, a bit dated. The current studies indicate more like about 150%. And considering that the COBRA premium is based on the employer rate averaged over the entire employee age spread, and people who “take” COBRA probably average older (or sicker, yes) than the average employee age, much of the loss is generated by that old bugaboo “age factor” than necessarily from ill health. Certainly, the earliest years of COBRA were rampant with anti-selection, and it is still true that current COBRA population is “sicker” than the active group, but the reasons may be harder to pin down. It will be interesting to see if the subsidy for COBRA premiums lowers or increases the COBRA loss ratio as measured against the employer premium base. I think the “COBRA as transition” idea is one that can be improved/smoothed/made more consistent and logical rather than creating an entirely new bunch of policies for temporary gaps. That is always an option, of course.
Thanks, H.Carroll. I have no idea whether the loss ratio is 150 or 350%; either seems plausible enough to me.
I think small business plans are usually age-banded, so age may not be an issue here. In this case I think adverse selection would be largely due to tax treatment. The tax exclusion more-or-less compensates healthy employees for bearing the high cost of group coverage. When they go on COBRA, the tax exclusion is gone, and there is now a definite advantage to shopping for individual coverage. So only sicker employees remain. I think tax treatment has to be the culprit, since that’s the only thing that’s changed with the layoff.
I’m not as familiar with large-company practices. But where COBRA is not age-banded, you’d be hard-pressed to keep young healthy people from dropping it even with equitable tax treatment (then again, maybe that’s why the temporary COBRA tax credit is so high, at 65%). I expect that during their employment, the non-age-adjusted cost would have been mostly accounting fiction, compensated by adjustments in salary etc. But there’s no way to continue the fiction when the ex-employee has to write an actual COBRA check.
Want an easy fix? Just add COBRA reimbursement financing to the federal and state unemployment programs. They are going to buy lots of votes with the current extension of benefits. Most of my employer clients are LIVID about the 65% mandate of employee and dependents COBRA costs on the to the back of the employer. SEIU is already gearing up to add over 650,000 new members as all of the health insurance agents are put out of business. This was going to be a combined deal with ACORN until some of the illegal activities came back to bite the for awhile at least.
What 65% mandate? This money is reimbursed by the federal government, in the form of a direct reduction in payroll taxes.
Although I’ve been wondering how this is handled with state COBRA-equivalents such as Cal-COBRA, when the individual writes the check directly to the insurance company. I’ve seen this with Kaiser– it passes the credit directly to the consumer, but to get reimbursed, does it have to claim the credit against it’s own employees’ payroll taxes? That’s what the language in the stimulus bill seems to require.
John–
Under the House bill, if you leave/lose your job and are temporarily uninsured, you can go into the Insurnace Exchange where you can purchase private insurance or the public plan.
In the Exchange, you automatically become part of a group, and so rates would be much lower than they would be if you tried to purchase your own individual insurance.
Once in the Exchange, you can stay there until you’re 65 (an elligible for Medicare) –even if your “circumstances change” (i.e.you get a job that offers insurance.)
I double-checked this with the House Education Committee, so I’m quite sure it’s correct.
This is one reason why many, many more people will be eligible for the Exchange (and for the public plan) than CBO acknowledges.
[…] employment, get married, get divorced, have a child, or have a child leave home. And as my Health Alert pointed out, the bills before Congress have no mechanism for dealing with the problem of short-term […]
[…] and this estimate is probably too optimistic, given the very fluid nature of uninsurance (see here and here). Up to one out of every four seniors will either lose the plan they now have or […]
Small Business owners are largely forgotten. Thats why I only focus on them. I have experience several members of my family file bankruptcy due to small business failures. I also I suffered through 2 destroyed businesses due to failure however, in my failings I have learned some of the secrets to success. (Who can say they know it all?)
onlineuniversalwork
To Maggie Mahar:
You state: “In the Exchange, you automatically become part of a group, and so rates would be much lower than they would be if you tried to purchase your own individual insurance.”
You make that statment as if it is true for the entire population. Sure, for older, less healthy individuals that holds true. But for younger or healthier individuals, your statement would often be incorrect.
Not only is it enough that liberals want to transfer wealth and income from the relatively rich to the relatively poor, but they now want to transfer income from healthy to unhealthy individuals via community rating.
Have you ever bothered to read Adam Smith…..”Mercy to the guilty is cruelty to the innocent.”
If I were to error in developing public policy that will effect every American either now or in the future, I would error on the side of encouraging healthier behavior. How? The same way car insurers encourage better driving, by allowing actuaries and underwriters to do their jobs and assess risk at the individual level. Only then will people be held accountable for their unhealthy behavior. SKIN IN THE GAME!
Liberals, in their fantasy world, are dying to hold bankers accountable for risky loans via higher underwriting standards and higher capital requirements (or even compensation tied to long-term value of equity shares), yet when it comes to the health behavior of individuals, where are they?
I have a solution: everyone that has payed into the Medicare system for some minimum period of time, say 5 years, should have catastrophic coverage from Medicare, for medical bills over some amount, say $20,000, during times of involuntary unemployment resulting in no insurance. If Medicare taxes have to go up some, fine with me. Probably wouldn’t be very much.