Health insurance, and the growing lack of access to it, is a daunting national issue, one that congressional committees, presidents and presidents' wives have wrestled with--to no avail. Meanwhile, the situation continues to deteriorate. In 1992, there were 35.4 million uninsured people in the United States; a decade later, there were 43.6 million, with the biggest jump coming in 2001-02 when the rate rose 5.8 percent in that one year alone.
States want to reduce the ranks of the uninsured within their borders, and they keep trying--with very little success. Right now a bad situation is growing markedly worse in 18 states, with a small statistical improvement in only one. The rest have stayed stable, but stable is not exactly a good place to be. "The best thing we can say we've done for the uninsured is that we haven't created more of them," says Barbara Edwards, Medicaid director in Ohio, one of the states where the rates haven't changed.
The basic problem is systemic: The United States relies on the private sector to insure its citizenry, but that arrangement is being undermined by changes in the economy. There's been a migration of workers from benefit-rich manufacturing jobs to benefit-poor service jobs, and to small businesses, many of which do not provide any coverage at all. On top of that, the economic downturn that started in 2001 tore yet more holes in the net of coverage: Many people lost their insurance when they lost their jobs. Although the economy is recovering, job growth has not been impressive, and many employers continue to rely on temporary employees, who usually do not qualify for health benefits.
"Employer-based coverage is eroding at the edges, and that erosion is contributing to the growth in our uninsured population," says Diane Rowland, executive director of the Kaiser Commission on Medicaid and the Uninsured. In 2002 alone, the number of U.S. residents insured by their employers dropped by 1.3 million to 61.3 percent of the total population.
Lack of insurance translates into unfortunate outcomes for those without it: higher mortality rates, lost productivity, increased personal bankruptcies and the need for more expensive care when early signs of illness are ignored. "You see many more people coming in through the emergency room or with poorly managed conditions or later- stage diseases," says Benjamin Chu, president of the New York City Health and Hospi-
tals Corp., the largest municipal hospital system in the country. The bottom line, Chu says, is that "the uninsured ultimately get care somewhere. They come to our system, and they contribute to a large bad-debt pool, and someone has to pay that."
Medical costs for the uninsured were about $60 billion in 2001. Of that, $35 billion was "uncompensated care," which means it was care not paid for by the patients.
Who foots the bill? State-financed public hospitals or charity hospital systems as well as nonprofits provide care to needy patients. That pressure on a hospital's balance sheet, however, translates into higher prices for paying patients, which in turn helps push up the cost of insurance premiums--making health insurance more expensive and putting a financial squeeze on the companies that provide it.
To defray some of the uncompensated-care costs, the federal government and the states chip in with special Medicaid payments for hospitals that serve large numbers of poor people. These are called "disproportionate share" payments simply because those hospitals serve a disproportionate share of the poor population. Hospitals also seek donations, and states and localities provide tax exemptions or credits, as well as indigent-care grants.
This patchwork of funding is a poor way to support a medical system. Medicaid's contribution through its disproportionate share program, for example, compensates hospitals but not necessarily in direct proportion to the number of uninsured they serve. "It's grossly inefficient. The distribution of these dollars across the states is very uneven," says John Holahan, director of the Urban Institute's Health Policy Center. "There are a lot of inequities and a lot of problems with it."
There are also administrative expenses. Lower-income individuals in particular may go off and on insurance several times during any given year. "If they fall off insurance, we send in a claim and the claim is denied," says New York Hospital System's Chu. "Then we spend a lot of time and manpower working on the denied claims. It's an administrative nightmare."
CASE HISTORY
Employer-based health care insurance was introduced in this country during World War II, when wage and price controls were in place and health insurance was a great fringe benefit that helped employers attract employees. Coverage expanded for 25 years. Then, in the 1980s, a slow contraction set in. Since foreign competitors didn't have the same obligation to their employees, U.S firms found themselves at a disadvantage in a global economy. "The general economic pressures of a world market made it more difficult for firms to continue the unabated growth of private, employer-based insurance," says Allen Koop, visiting history professor at Dartmouth University.In the past decade, medical advances have continued pushing health costs higher, and these increased costs have made insurance increasingly unaffordable to businesses and individuals.
To lower their health care expenses, companies have begun forcing their employees to shoulder more of the load. The Kaiser Foundation's Annual Employer Health Benefit Survey for 2003 found that 65 percent of companies hiked the employee's share of the health premium in 2003, and 79 percent of large firms planned to do so in 2004. By 2003, employees reported paying 50 percent more for both individual and family coverage than they did in 2000. Some employees, particularly low-income workers and young adults, decided they couldn't afford to pay, or didn't want to, and dropped their health insurance.
COMPLICATIONS
One of the biggest obstacles states face in expanding employer-based health insurance is ERISA. Passed by the U.S. Congress in 1974, the Employee Retirement Income Security Act was primarily intended to protect employees' pensions. But it also put employee benefits under the jurisdiction of the federal government and not the states. That meant a state could not mandate that all companies provide their employees with coverage, even if the political will to do so were there. "ERISA was enacted for a totally different set of purposes," says Kaiser's Rowland. "But it's become a fundamental barrier for states in dealing equitably with insurance plans and employers."The only state exempted from ERISA's health care clauses is Hawaii, which passed its Prepaid Health Care Act a few months before ERISA was enacted and was, therefore, grandfathered in. Hawaii's law mandates that employers provide coverage for any employee who works more than 20 hours a week. Not surprisingly, Hawaii's uninsured rate is among the lowest in the country. California passed a law this fall that also has mandates for employee coverage, but employers are challenging it in court, arguing that it is out of compliance with ERISA.
While employers have played the ERISA card in every state that has toyed with legislating coverage, people in general support the idea of employer mandates. A recent poll taken by Stony Brook University on Long Island found that 71 percent of respondents were in favor of the government requiring businesses to provide health insurance. Of course, that support would likely erode if businesses perceived the idea as a genuine threat and started to lobby heavily against it.
In any case, the current situation is putting pressure on small businesses and self-employed individuals to find bargain insurance plans. That demand is creating an opportunity for con artists who have flooded the market with fraudulent policies that charge very low premiums but have no intent of actually paying anything but small claims. Recently, Mila Kofman, an assistant research professor at the health policy institute at Georgetown University, looked at four health plans that were shut down by states or the federal government and found $85 million in unpaid claims for 100,000 individuals. "When you have a demand for affordable alternatives and there aren't any, you'll always have a criminal element providing the supply," she says. The U.S. General Accounting Office has been asked to do a study on this issue. The results are expected early this year.
REMEDIES
Small Business BoostThe weakest links in employer-based coverage are small and very small businesses. Among uninsured workers, 14 percent are self-employed and 49 percent come from businesses with fewer than 100 employees. Many states have tried to encourage small businesses to provide their workers with health insurance, with only limited success.
The latest--and arguably most ambitious--effort in the field is Maine's recently enacted Dirigo (the Latin for "I lead"). The plan, which begins implementation in July, is the "last best test of an employer-based system," says Trish Riley, director of the Governor's Office of Health Policy and Finance in Maine.
A key element of the multi-layered system is state-administered health plans for small businesses and the self-employed. Private insurers will provide the health coverage, with the state regulating rates. The state will also help with enrollment, eligibility determination, wellness programs and disease management. The assistance with administrative details, which will help eliminate employer hassle, is a vital element, Riley says. "They work through us. If we have to change insurers every year, it will be invisible to them."
Riley sees this as an important part of the program's appeal to a small business. She ran her own small enterprise for 15 years and says her problem with health insurance "wasn't just the high cost of the increases. It was the unpredictability."
The program also includes state subsidies to help with the purchase of private insurance, through employers, for those whose incomes would otherwise qualify them for public help. Those with incomes below 300 percent of the poverty level, and who don't have employer insurance, will still qualify for Maine Care, the state's Medicaid and Children's Health Insurance Program.
In an effort to control health care costs and thus keep insurance premiums affordable, the state imposed a temporary moratorium on capital expenditures for such things as new hospitals, enforced through its certificate-of-need program. When that moratorium ends in May, the state will explicitly limit the capital expenditures it is willing to finance on the public side. Meanwhile, the state has sought voluntary cooperation from the private side--both providers and insurers--to limit operating profits for a year and publicly post both prices and quality measures. A forum has been set up to monitor quality issues and act as a clearinghouse for evidence-based medicine.
This drive to erase the problem of the uninsured was a key campaign issue for Governor John Baldacci, who was elected in 2002. While the private sector, particularly hospitals, had muted enthusiasm for a number of Dirigo's elements, there's been a major effort to include diverse representation on the study commissions and task forces that are moving the program from idea to implementation.
In its first year of funding, the plan will be bolstered by $53 million in one-time state money. In the future, the state plans to use an assessment of up to 4 percent assessment on gross revenues of insurance companies. Eventually, this assessment may be reduced-- "offset" by the elimination of bad debt and charity care, as well as other cost-containment activities. All payments--from employees, employers and insurers--will stream into the Dirigo Health Fund where the state hopes to use some of them to match Medicaid dollars.
Pooled Purchasing
Several states have set up purchasing cooperatives for small businesses with the idea that these organizations could eliminate some of the administrative hassle and improve bargaining power, thereby increasing rates of employee coverage. But states often find that their own regulations provide huge obstacles to negotiating good deals. In Florida, for example, state insurance rules prohibited the cooperatives from negotiating with insurers based on price, except for administrative costs. The latter just didn't make enough of a dent in the financial terms to persuade businesses to sign up.
Texas also attempted to establish cooperative plans that would be marketed by the state centrally, thereby skirting the expense of insurance agents. But it turned out that agents are tied in to small businesses for a variety of financial services. Once bypassed, "they turned out to be a formidable adversary," says Linda Blumberg, senior research associate at the Urban Institute. One problem, she notes, was that alienated agents worked against the purchasing cooperatives by sending them high-risk individuals--the most expensive to cover. Eventually, the state decided it had to work with the agents, but as soon as it did, the cost savings went away, and there weren't real financial incentives for businesses to join the plans.
California probably has the most successful cooperative insurance program for small businesses. The program was started in the public sector and was subsequently privatized. Initially, the state set rules and negotiated contracts to provide businesses with two to 50 employees with up to 20 health plan choices and two levels of benefits. The actual operation of the program was left to private- sector vendors and health plans. Employers who participated loved it, but market share remained small. At its peak, only about 2 percent of small businesses that purchased insurance did it through this program.
In spite of good programs, California has seen an increase in the number of uninsured over the past two years and ranks a lowly 46th in the country on this measure.
The Subsidy Approach
If states can't mandate universal coverage, they can help lower the rates of the uninsured by helping those in need pay the premiums for health insurance.
In Massachusetts, one innovative effort requires employers to pay into a fund that helps the recently unemployed buy their former employers' coverage through COBRA. The federal Consolidated Omnibus Budget Reconciliation Act requires many employers to offer continued health benefits to terminated employees. The former employees, however, must pay the premiums themselves--not necessarily affordable for someone who has just lost a job. Massachusetts will kick in with supplementary payments, so individuals--even those with incomes as high as 400 percent above the poverty level--will have to pay only 25 percent of the COBRA premium.
Rhode Island and Massachusetts also are trying to promote the use of private insurance through subsidies. Rhode Island has had moderate success with Rite Share, its premium-assistance program. The program has identified about 5,300 people who have qualified for public insurance but who work for employers who offer private coverage. The state pays the employees' share of the premium so they can afford the private plan. This reduces the costs of coverage by about half. In Massachusetts, the premium-assistance program covers 10,000 to 12,000 individuals--substantially less than the 60,000 once anticipated. But the program, which provides subsidies to both employer and employee, is regarded as a qualified success and has continued a steady, if slow, growth.
A New Tool
For several years, states have been able to use waivers to shift SCHIP dollars that were not spent on children to cover their parents. CMS is now approving a second generation of waivers that allows this money to go to childless adults as well. Money for hospitals that serve the poor--disproportionate share dollars--also can be shifted by states to expand insurance coverage for adults.
The waivers appeal to states because they provide more freedom to cut back on benefits and increase cost sharing as long as the individuals affected are not among the groups mandated to receive coverage. A few states, notably Arizona, Illinois and Maine, have taken advantage of this new opportunity with vigorous coverage expansions. But overall, the new waivers have had far less impact than was hoped, according to a December 2003 study from the Kaiser Commission on Medicaid and the Uninsured.
One of the big problems is that the new waiver program was introduced just as the economic downturn clicked in. California, which intended to add coverage for 275,000 people by the waiver's third year of operation, never implemented the program. Colorado, which was going to cover 13,000 over a four-year period, had 253 enrollees by September 2003. Faced with budget problems, it closed its enrollment, as did New Jersey. While federal officials ballyhooed coverage of 2.7 million more Americans when the waivers were designed in 2001, the actual net impact has been fewer than 202,000.
Some experts worry that the waiver contains a big risk: In a strained budget climate, states could take advantage of the permission to cut back on benefits but limit the expanded-coverage part of the equation.
Meanwhile, the new waiver-based flexibility provided by CMS can also be used to focus on premium assistance. This approach removes some of the regulations that have made these efforts administrative nightmares in the past. It's too soon to know how effective this will be, although state officials say they are optimistic.
PROGNOSIS
The Bush administration has provided grants to 30 states over the past several years to study the issues of the uninsured within their borders and to develop policy decisions. And that fits in with the current public mood. "When you ask the public what government should do about the problem, most people would like to see it do something," says Leonie Huddy, director of the Center for Survey Research at Stony Brook University on Long Island. "Everyone realizes that this is a major problem. But the problems rise when you get to specifics."One specific in particular: It costs money to insure people. Innovation and experimentation can certainly help. But most states simply don't have the financial resources they need to come anywhere near a full solution to this problem.
Within government circles, there is great frustration, even among wealthier states with greater resources. Mary Kennedy is the Medicaid director for Minnesota. She's worked under three governors and observed three different health-cost containment commissions attempt a variety of innovations. Today, Minnesota has one of the highest levels of public coverage in the country and the lowest rate of uninsured people. But segments of the population continue to be beyond the grasp of the state's substantial efforts. Meanwhile, escalating costs are dimming the luster of past programs that looked successful for a while, such as the state's reform of the insurance market for small businesses.
"I think it's very difficult for an individual state," she says. "People will say that individual states can be incubators of new ideas, but employers have to be competitive across all states. Even our public programs can't be dramatically different from our border states, or we wouldn't be able to afford it."
From the states' point of view, only Uncle Sam has deep-enough pockets, or the authority, to help them come anywhere near a broad- based solution. But waiting for Uncle Sam to arrive is like waiting for Godot. Everybody can talk endlessly about him, but it's not likely that he's going to show up anytime soon.
The graphics associated with this article will be uploaded soon. We apologize for the inconvenience.
