Center for Studying Health System Change

Session Three - What Works?

Moderator: John Iglehart, Health Affairs

Panel Members:
Katherine Baicker, Dartmouth College and NBER
Tom Miller, Cato Institute
Janet Trautwein, National Association of Health Underwriters
Bruce Abbe, Communicating for Agriculture

Respondents:
Elizabeth Fowler, Senate Finance Committee
Dean Rosen, Senate HELP Committee

John Inglehart: We’re going to start in a couple of minutes. Could you take your seats, please?

[Pause.]

John Inglehart: I’m John Iglehart. I am tasked with the duty of moderating this session. Before we start, I have several announcements. One is the box lunches are right outside this meeting room to the right, vegetarian to the left, chicken sandwiches, that is. Please take a moment to get your lunch and come back to your seats for the luncheon address by Steve Larsen, the Maryland Insurance Commissioner, and we’ll just move right on.

The other thing I wanted to mention relates to Health Affairs. I’m the editor of Health Affairs, and I just wanted to point out to you that this set of papers is really the first time on our website we have posted basically a theme issue on individual insurance. It spotlights the perspectives of more than 20 authors, obviously with a wide range of opinion on this subject. But it also premiers a new feature on our website, and that’s an online discussion board. It’s different from letters to the editor because it’s a real-time discussion of the articles, and it’s unmoderated and free-wheeling. And we invite all of you and, for that matter, all of our readers to respond and comment on these papers and others in the pages of the journal, the paper journal, and also on our website.

We’ve been publishing Web-exclusive papers for almost two years now, and the response, I must say, has been most gratifying.

Our first speaker--each of our four speakers will take ten minutes, and then each of our respondents will take ten minutes, and I have a chain up here, and I’ve told them that if they go over ten minutes, I’d pull it. But they all assured me that they wouldn’t do that.

Our first speaker is Kate Baicker of Dartmouth College and of NBER, a colleague of Mark McClellan’s at the Council of Economic Advisers. Kate?

Katherine Baicker: Thanks. I’m grateful to be able to participate in this forum. It isn’t often that we get to hash out our areas of agreement and areas of disagreement so concisely and with so many interesting and important people to discuss them. So I think we all share the goal of increasing access and availability of high-quality health care and health insurance to all Americans. The question is: How do you actually do that when the group of people you’re trying to cover is as widely diverse as it is?

In fact, 80 percent of uninsured families, roughly, have one or more workers, so policies that are geared towards the unemployed are going to miss the vast majority of uninsured people. Sixty percent are in families with income higher than the federal poverty line, so policies aimed just at very-low-income families are also going to miss a lot of the uninsured. Last, 50 percent or more are in childless families, so policies geared just towards low-income families with children or just towards the children themselves are also going to miss a lot of people.

So any policy that we implement that aims to get the widest section of people into the health insurance market is going to have to be flexible. No single approach is going to be able to capture them all. And one of the main advantages of the non-group health insurance market is that it does have this flexibility, and health insurance tax credits will enable millions of people to purchase insurance through the non-group market.

This doesn’t mean that everyone will be covered, and I don’t think anyone would disagree with that fact. In fact, there are going to be some people who are uninsurable through the non-group market, and that’s why it’s important that policies like a health insurance credit are coupled with reforms to the non-group market or to bolstering state policies that will cover the wider group of people that might not be insured through this. But it will reach millions of people, and, in fact, this promising approach has been implemented in the trade adjustment assistance package that we’ve been talking about briefly in the earlier panels. That health credit is not exactly the same as the one that the administration might propose, but it shares a lot of the features and it will prove a really interesting test case to see how this works.

So the first question you may be wondering is: Is the health insurance credit proposal big enough to reach people and enable them to purchase health insurance? Let me go through quickly what the administration proposal is, although we’ve all been talking about it for the last couple of hours.

It’s a credit of up to $1,000 for individuals, $3,000 for families, and up to a 90 percent subsidy of premiums. It would phase out with income, both the total amount available and the subsidy rate. It’s advanceable and refundable, which means that people would be able to claim the credit regardless of whether they had a tax liability. So even those people with low incomes who don’t have any tax liability would be able to take the whole credit.

Also, people would be able to claim it in advance so that it would be available when people need to purchase insurance. We all agree that getting a credit months after you need to purchase insurance would not enable a lot of people who are cash constrained to actually go purchase insurance, so it’s important that the mechanism be available in advance when people actually need to go purchase insurance as soon as they lose it.

Last, it’s available to everyone under age 65 who doesn’t have employer-sponsored or public insurance, and we’ll get to how this group differs from those other groups in a second.

So is this a big enough credit to reach people? That’s one area of disagreement. Is the size of the credit too small? Will people not be able to purchase health insurance?

I think there’s a fair amount of evidence that this credit would, in fact, enable millions of people to purchase health insurance. Studies by the Council of Economic Advisers and eHealthInsurance both indicate that the average premium paid by the bulk of the population buying policies through the non-group market is less than the amount that we’re talking about. The average family policy from the National Health Interview Survey was around $3,400 in the non-group market. So the health insurance credit would not cover all of it, but it would cover a substantial fraction. The average individual policy purchased through eHealthInsurance.com was less than $1,500, and it had a deductible of less than $500.

So these are comprehensive policies. These aren’t bare-bones policies that offer no protection to people.

Estimates from the nonpartisan Treasury staff suggest that about six million people would be able to gain insurance through this mechanism. Research by Mark Pauly and others has shown that people are very sensitive to the subsidy rate that you offer, so a 90 percent subsidy or phasing down to a 65 percent subsidy would surely enable millions of people to purchase it, and they would. They would take advantage of the policy and take up coverage.

We’ve also talked about the fact that a lot of people who purchase coverage in the non-group market now aren’t getting any subsidy. Nine million extra people would take up the credit who are already insured. So, no, that’s not reducing the ranks of the uninsured, but it is providing a substantial subsidy to a low-income group of people who’s currently not receiving any assistance. And I hope that we’d all agree that those people need help, too.

This would promote high-quality, high-value care because people would be able to shop around for different policies. Clearly, having some minimum benefit standard is important to ensure that selection doesn’t price people out of the market, but allowing people to purchase policies that are catered both to their particular needs and to their tastes is important to ensure that the quality of the care they get is on par with that of the rest of the population.

I think it’s also, as a last point on this slide, important to realize that this is not just for healthy people. There has been some controversy over whether people with chronic conditions or less than perfect health are able to purchase insurance with a credit of this size. And surely there is a group of the population that is uninsurable and wouldn’t be able to, but that group is small. In fact, National Association of Health Underwriters--and Janet will probably speak to this in a little bit--has looked at the same data that Kaiser has looked at and come to a different conclusion, that, in fact, for most people, even those with chronic conditions, some insurance is available, albeit at a more expensive price than for people in perfect health, still affordable under the premium.

So the first question was: Is the credit big enough to draw people into the group market? There’s a second class of criticisms of credits of this sort that, in fact, it’s too generous and it would draw too many people into the non-group market and that that would undermine coverage through the group market. In fact, I don’t believe that would be the case. I think it would complement the group market. The non-group market individually purchased insurance policies are, in fact, some of the only insurance policies now that are not currently subsidized through public policy. Purchase of employer-sponsored insurance is subsidized through the tax system to the tune of about $100 billion a year. It’s a big subsidy because the premiums that employers paid are not subject to taxation.

People who receive public insurance through Medicaid or Medicare are also subsidized through the public system. Only people purchasing non-group insurance are getting the benefit of that subsidy. So this would, in fact, increase tax equity.

If you think about the size of the group market versus the size of the non-group market, which came up in the panel before, the effect on the group market of even a broad expansion of the non-group market through a health insurance credit would be very small. Less than 1 percent of the group market is likely to be affected by the increase in non-group coverage brought about by a health insurance tax credit.

In fact, when employers decide whether to offer coverage to their employees, their decisions are catered to all of their employees, not just the few low-income employees who could benefit from a health insurance credit like this. So it’s unlikely that there would be massive dropping of coverage by group plans through employers. So the credit is both big enough to help a lot of people, but not so big or so widely available to undermine group coverage overall because it is targeted to low-income people.

That being said, it’s not going to help every single person. There are a small number of people who are uninsurable because of their very high expected costs, and that’s why it’s particularly important to support state high-risk pools. In fact, you know, some pools work much better than others. Some are open, some are closed. Some are broadly financed, some are narrowly financed. It’s important that federal policy supports state policies that expand the availability of insurance through high-risk pools, and also expand the availability of other types of insurance that cater to this group. Voluntary purchasing groups and association health plans need to have broad membership and also need to be solvent to ensure that the people who enroll in them have insurance available to them for the long run. But that being said, they can provide an important mechanism to get down those fixed costs that we’ve been talking about and to get down the loading factors on individually purchased insurance.

Putting all of that together--and I think the other panelists will discuss more about high-risk pools--I think defines a complementary approach to expanding insurance through a variety of different ways. The health insurance credit through the non-group market is, I think, the most effective way to reach that 80 percent of the people who would be able to purchase plans, or more, and then supporting these other more flexible plans and state human rights pools will ensure that there’s a safety net available for the rest of the people. Clearly, any one approach is not going to reach all of the people that comprise the very diverse group of the uninsured. So the flexibility that a market-based, patient-centered approach would bring I think is the best way to expand coverage and the most cost-effective way to reach this group of people, especially in the current economic climate. Thank you. [Applause.]

John Iglehart: Our next speaker is Tom Miller, and Kate had 27 seconds left, so she-- [Laughter.]

Tom Miller: She yielded it to me.

Katherine Baicker: Wait a minute.

Tom Miller: Okay. Thank you, John. I’ll open with the usual disclaimer. My co-author, Scott Harrington, did all the academic and analytical work. I supplied the soaring rhetoric and the deregulatory, carpet-bombing attitude. [Laughter.]

Last year, Mark Hall wrote an article for a Yale journal in which he and David Hyman said, "Employer-based health is the Rodney Dangerfield of health policy. It gets no respect from anyone. Well, that’s better than the treatment of the individual insurance market in most of the lead health policy circles, but someday soon this pig will fly."

A long time ago, in my misspent youth I used to be a trial attorney. My cases included insurance defense, slander, and even some criminal cases. We don’t look too overlawyered on the panel here today, so it looks like I’m assigned counsel for the individual insurance market. I’m tempted to go with a diminished capacity defense due to the tax subsidy or regulatory entrapment, but no plea bargains today. I’m shooting for at least a hung jury and possibly a clean acquittal.

Now, let’s go to my opening statement. A more dynamic individual insurance market could match benefits to individual preferences, provide more portable and permanent coverage, and stimulate consumer-focused service. Necessary reforms would include tax parity and targeted assistance to high-risk pools. They would enable individual coverage to expand efficiently. Guaranteed renewability and switching costs would stabilize individual market risk pools. As the individual market becomes more representative of the overall population, insurers perceived needs to underwrite and market selectively will lessen, making administrative loading factors less significant.

The small market share for individual health insurance reflects in part the longstanding tax subsidy that favors employment-sponsored group insurance. You might notice I’ve got some neat software here. I’ve got a program that automatically brings--flies in from the right all the market-based reforms. Flying in from the left are the old failed policies that never work.

Now, the private sector grass-root initiatives of innovation come up from the bottom, and you guessed it, from the top down it’s bureaucratic command and control.

The existing safety net, besides the tax subsidy, the existing safety net for the uninsured further reduces incentives to buy individual coverage, and in many ways it mimics a private catastrophic health insurance policy, which is even means-tested.

Many observers also argue that the supply of individual coverage is going to remain thin in the face of high administrative expense ratios and pervasive underwriting and risk selection. Now, public policies that favor employer-sponsored insurance coverage, including the ERISA preemption for state regulation for self-insured plans, augment the natural advantages of employer-sponsored insurance with its relatively low marketing and administrative costs, and this makes the individual market in many respects more like a residual pool of people unable to access the employer market. So insurers are necessarily going to be more skeptical about insuring any of those individuals at standard rates.

Now, competition in most insurance markets is good. I know that’s a revelation to folks here. But it creates relentless pressure for accurate pricing and risk classification, and that provides appropriate incentives for policy holders to manage their risk of loss.

On the other hand, competitive risk classification contributes to two problems that are more prevalent in the individual health insurance market. Some insurance buyers are going to have high risk of loss before the fact, and that may make competitively priced coverage unaffordable for them. And, in addition, policy holders may face some risk that a deterioration in their health will cause future coverage to become much more expensive or unavailable. Because individual insurance plans arguably serve the least stable risk pools, they may provide less protection against such health risk redefinition. However, relatively few people are chronically uninsurable due to health status.

The bigger problem is that many low-risk individual market buyers may face rates higher than they’re simply willing to pay. This is one of my favorite quotes--oh, I’m one behind here. Let me go back here. One down here. Unsafe at any speed.

In terms of willingness to pay, I think that kind of sums up the market on most days of the week.

The regulatory efforts, though, to limit the permissible set of standardized individual insurance policies and to block insurers’ abilities to use selection mechanisms ultimately have failed. They don’t make individual insurance more accessible to high-risk consumers because they drive the low-risk people out of a thinning voluntary individual market and they raise overall premiums.

Now, some sensible responses to the above concerns are: Well, change the tax rules for individual coverage; facilitate the formation of more stable purchasing arrangements to help achieve scale economies and reduce expense ratios; and, if necessary, provide targeted assistance to high-risk purchasers rather than attempt to impose cross-subsidies through counterproductive regulation.

We should provide tax parity instead of a tax penalty for purchase of individual health insurance. Recent policy proposals have tended to focus too narrowly on targeted refundable tax credits for just low-income workers without access to employer-sponsored insurance. Broader access to more comparable tax treatment for all health insurance consumers, regardless of where or how they purchase insurance, is needed to provide a deeper, more diversified pool of potential customers and move the individual market beyond the narrow niche role.

If sensible reforms increase the demand for individual coverage, guaranteed renewability but at rates that reflect the initial risk-based underwriting of new entrants then combined with the subsequent experience of the policy holders class should ensure stable supply for most policy holders. As Mark Pauly and Scott Harrington have pointed out before, roughly three-fourths of individual health insurance policies were already guaranteed renewable before HIPAA was passed and most states mandated it in the 1990s.

There are some overheated worries that clever insurers will skim healthy policy holders from rating groups if rates reflect the experience of policy holders whose health has declined. Some possible mechanisms to prevent or eliminate this problem might include: front-end loading of premiums or other disincentives to exit from longer-term insurance arrangements.

A brief Cato commercial here. Mark Pauly is in the midst of some pioneering work on how to structure incentive-compatible, renewable health insurance premiums with an initial stab at what the pattern of those premiums might look like, and we’ll be discussing that along with other ways to deal with health risk redefinition in both the individual and group markets at a forum a week from Friday. That’s the one that Mark Hall was too busy to speak at.

In any case, switching insurers to get lower rates is costly to individual policy holders. It’s comparatively more so than for small groups. As long as relatively few policy holders experience material reductions in their health status, the switching costs are likely to swamp any savings that a healthy policy holder might achieve by changing insurers. And that should encourage stable risk pools with guaranteed renewable rates. Front-end underwriting and policy issue costs are higher for new coverage than for renewal coverage.

Because insurers generally seek to recover those costs over the duration of the contractual relationship, policy holders’ costs will be lower when they stick with one insurer.

Now, why won’t the implicit lock-in associated with switching costs not produce widespread opportunistic behavior by insurers? Well, primarily due to reputation concerns and the insurers’ desire for high renewal rates to spread up-front costs, especially if other policy changes are causing demand and the number of competing insurers to increase. Insurance contracts that are guaranteed renewable and implicitly more long term will incentivize individual buyers to shop more diligently for assurances of quality.

A few words about adverse selection. Tales of this trumped-up bogeyman are talked about more than they’re seen in real life, even in places where individual choice is allowed to include self-interest as well as altruism. There is little concrete evidence that individuals and families can identify and anticipate most of their future medical expenses in ways that potential insurers cannot. Take a look at the recent study by Cardon and Hendel in the Rand Journal of Economics. It finds little empirical evidence of information asymmetries, market failure, and adverse selection in health insurance markets. Not that that won’t stop the next generation of PhDs from rechanting Rothschild, Stiglitz all over again about information asymmetries.

But Cardon and Hendel found that differences in health expenditures between the insured and uninsured are mostly due to observable differences in demographics, such as age and gender, and price sensitivities--higher-income workers capture more tax subsidies for insurance coverage--rather than the unobservable factors that might be related to health status.

Now, Long and his co-authors found little support for the hypothesis that people anticipate changes in their insurance status and arrange their health care consumption accordingly. The authors also found no evidence that people choose to purchase or drop insurance coverage in anticipation of change in their overall health care needs. And they concluded that insurer selection is an unlikely explanation for this failure to find quantitatively important transitory demand. However, they did observe that recent state reforms aimed at eliminating or limiting some insurer restrictions on coverage of pre-existing conditions ironically might increase the ability of patients to adjust their treatment patterns for chronic conditions in anticipation of insurance changes.

Let me just jump to what is a better approach beyond that. We’ll talk about high-risk pools, but other folks will talk about that as well.

In terms of once we get kind of this newer environment in which the individual market is going to be more important if you look at those kind of things that are in the works, you can throw in genetic information that’s predictive, convergence of financial services with health insurance. That’s why the individual market is going to become more important, and those are the payoffs from the advantages of a more customized individual market.

Now, in terms of what we’ve actually found with the benefits of an individual market, this is a Watson Wyatt survey which, in essence, shows that employees don’t think they’re being wonderfully served by this employer insurance market. About 43 percent there, if I read it right, are satisfied. In the next one, it will talk about how the employees don’t necessarily trust their employer to make the best choice for them in their insurance, and even they’re willing--about almost four of ten of them are willing to go into the individual market with a defined contribution in order to get that. So something is disconnecting between these noble claims of the wonderful employer market and what the employees are actually saying themselves.

But, in conclusion, let’s just kind of give choice a chance for a change. Thank you very much. [Applause.]

John Iglehart: Our next speaker is Janet Trautwein of the National Association of Health Underwriters. Janet?

Janet Trautwein: Thank you. What I’d like to do today--we have talked a lot about the individual market. We’ve been talking about it all day long, and I’d like to just provide you some factual information about how the individual market works. For those of you that are not real familiar with it, I think it might give you a little bit of a basis to think about some of these proposals.

First of all, a variety of different types of coverage are available in the individual market. This means there are a variety of deductibles--you can get as low as a $250 deductible, as high as a $5,000 deductible, if that’s what you want--a variety of cost sharing, a variety of copayments. Even with the higher deductible often you will have copays for things like office visits. So there really is a large selection of plan types: PPOs, HMOs to a lesser extent. Admittedly, HMOs are not as readily available in the individual market, but there are there to a certain extent.

So you can buy a variety of different things. Maternity, you can buy a rider for it. It’s not a very great deal, to be perfectly honest, to buy a rider for maternity, but you can do that. And many policies do actually cover complications of maternity, which is where the greatest expense comes from. So I did want to clear up some of those items.

Now, on this first slide here, there’s a lot of discussion about whether or not a tax credit is adequate in order to purchase health insurance. And I guess my opening comment on that would be that I’m not sure that a tax credit needs to cover 100 percent of the premium, that there might not be some benefit to people having some of their own financial participation with any purchase that they make, because they value it more that way.

But just to give you an idea, let’s say that you had a person who didn’t have any more money at all to purchase coverage with and was dependent only on the amount of the tax credit. What this chart illustrates--and you can probably see it more easily in your books--is coverage for a single mother with two children and what you can get for $3,000 a year. Now, 40 percent of the plans that were available--by the way, this is from an NAHU study. We do a lot of market studies repeatedly over--during every year. Forty percent of the plans available had a deductible of $500 or less without this family putting in one penny of their own money. Seventy percent of plans had a deductible of $1,000 or less, and even those with these higher deductibles, keep in mind, may have a copay of $20 for an office visit. So the deductible doesn’t apply to everything. And 96 percent of plans had a deductible for those big expenses of $2,500 or less.

Next, how much does it cost? And these are--again, we have exhaustive studies at different ages, but just to throw out a couple of ages, for a female age 27, the average monthly cost was $179 per month for a policy with a $250 deductible, which, by the way, is not the most common thing that people purchase. They usually buy a little bit higher deductible than that in the individual market. The cost was $147 per month for a policy with a $500 deductible. For a male age 53, it does cost more. Individual policies are age rated. The average cost for a $250 deductible, $288; for a $500 deductible, $253.

Now, a little bit about how the individual market is regulated. I know that we characterized this market as being unregulated, but just a little bit of facts. The individual market is regulated by the states, and that’s required by the McCarran-Ferguson Act. So this is not an option for states. They have to regulate this market.

States have many laws relating to access, consumer protection, mandated coverages. Most of the states--a good number of them, I think "many" is a better word, do also have limits on how long pre-existing conditions can be excluded. This is as opposed to a rider, which I’ll talk about in just a minute, but regular pre-existing conditions clauses are limited in many states. Many of these same states also offer a waiver for people, and I’m not talking necessarily about HIPAA eligibles, but for other people that come in with creditable coverage from other policies, even if they may not be a HIPAA eligible. For example, if someone comes in with five months under another policy, they would get credit for that on any pre-existing exclusion on the new policy.

Twenty states limit initial rates going in. Many states additionally limit renewal rates. And this is done through either limits on rate bands or through a modified or community rating. And then most states mandate at least some benefits, and that’s probably laughable to some. Most states mandate a lot of benefits. And these include mandated coverage of certain diseases, certain treatments, certain types of providers or persons, and all types of patient protection laws.

Now, if you’re sick, can you get coverage? Let’s talk a little bit about this. First of all, in most states--not all states but most states--individual coverage is medically underwritten, which means they can ask you health questions, and rates are based on the age of the person and the health status of the applicant.

Depending on what state it’s in, there are several choices. Either the applicant will be issued coverage as applied for; they’ll be issued coverage with a rider, either for a specific condition that they have, or sometimes it’s for a body part; or they’ll be issued with a premium that’s higher than a standard rate, and in some cases, they are actually declined for coverage if the insurer just considers the risk to be not acceptable.

Rates do vary tremendously in the individual market, and you see this particularly in competitive markets where you’ve got a number of insurers participating, which is the best possible scenario, to have a good competitive market. And I mention this because it’s particularly important in the case of people who do have these conditions and might be issued a policy with a rated-up premium. It’s very important to look at the offers that you get and what that means when you get a rated-up policy, because it’s very possible that an offer that you get on a policy that is rated up that had a base premium that was lower than the other policy may still be less expensive to start with. Even though it technically has a rate-up, you have to do a good comparison there. And so it may not be as it seems just because it’s rated up. It may still be a good buy for someone.

Then on riders, you really have to look at a rider. Some riders are very narrow and some are broad, and they need to be analyzed carefully to determine whether the thing that’s ridered out is significant to that person, whether they can self-insure for a certain type of expense, and what their particular situation is.

Now, for people with serious health conditions, many of you that know NAHU know that we are huge advocates of state high-risk pools, and there’s a very big reason for that. In virtually every single state that has an open high-risk pool, markets work tremendously better than they do in states without one. It’s night and day. There’s a lot of competition. That keeps rates down for consumers, and we think that risk pools are a good place to be.

Most risk pools do offer a selection of coverage, good, high-quality coverage. Most pools average rates about 150 percent of an average premium. Most of them are open, actually. Most of them do continually accept new individuals. And the new federal funding is just going to be tremendously helpful not only in providing the needed funds that the states need in order to help them with their losses, which are increasing, but also it’s a very good incentive for them to make the changes they need not to get into funding jams again. So if they can have a continual source of funding all the time.

In states without high-risk pools, we do have options even in those states, in most of them. A number of states use an insurer of last resort, which is just one carrier that’s designated by the state or that voluntarily takes people that don’t meet normal underwriting requirements. Some states work better than others on that. It’s usually higher than states that have a high-risk pool.

Some states also might have an annual open enrollment for carriers, for people to buy through one or more carriers. There are a small number of states that combine guaranteed issue and modified community rating. Although rates are much higher in these states, they do have that protection.

We’re hopeful, as I said earlier, that the new funding for high-risk pools will be a good incentive for them to become available in many other states.

In terms of the adequacy of tax credits for individual market purchasers, our observation is that affordability is a key consideration. After all, people that purchase in the individual market do not have any assistance from an employer to pay part of that premium. And that is a huge issue, and it contributes and is largely responsible for a lot of the adverse selection that’s in the market.

Any help that we can give them at all is more help than they have right now. Many people--whether you think the individual market is a good place to buy or not, many people have to buy there. And we think it is a good market for people, but a lot of people are going to have to buy there whether we think it’s a good place or not. And I think we need to realize that they do need assistance.

I would like to speak just real quickly on the impact on employer coverage, whether or not employers would actually drop coverage. We think that absolutely they would not. If you look at this from an employee’s perspective, a tax credit is highly unlikely to be as attractive as what their employer’s contribution would be. And if you talk to the employers, you would know that they contribute a lot more than what the amount of these tax credits are. So it would be an unusual situation that that tax credit would even look better to an employee, even a younger employee, than what their employer’s contribution is.

I’ll finish up now. From the employer’s perspective, employers offer benefits for the same reason they’ve always offered benefits: in order to attract and retain employees. This is not going to stop just because we have a tax credit, and, additionally, there are a number of anti-discrimination laws that would prevent them from having one contribution level for people who just happen to be eligible for a tax credit while other people were not. And they’re not going to change their contribution levels for that type of a situation without some potential anti-discrimination problems.

And, finally, how would the market respond? I think in every other scenario we can observe that competition forces prices up and quality down. We can see this very clearly in the health insurance market. In states that have market-friendly regulation, that very thing has occurred. And we think as long as the new federal tax credits are not tied to costly new mandates, the marketplace would respond by being creative and by offering new products and becoming more affordable, more choices, and we’re very much in favor of that approach. Thank you. [Applause.]

John Iglehart: Our last formal presentation is by Bruce Abbe of Communicating for Agriculture.

Bruce Abbe: Well, thank you very much for the invitation to join you and for the invitation to contribute a paper to Health Affairs. We were very, very honored by that chance and opportunity to do so.

What I’d like to talk a little bit about today is a little bit more about the individual market, and this is kind of some basic 101 things, below the academic level, okay? This has to do with normal behavioral things that go on in the individual market. I want to talk a little bit about the tax credit proposals and why we like them, and it comes from our perspective. I work for a 30-year-old rural organization, farmers, ranchers, self-employed people, and people that have not been treated well by the tax system.

I’ll talk a little bit about that and a little bit about risk pools, also. You’ve heard so much about them here, and I think the most important thing, I guess, in this is to try to keep our eye on the big priorities here.

Risk pools--it’s interesting because I think that’s why I’m here. Risk pools have been around 25 years. My organization was one of the first supporters of one of the first risk pools created in Minnesota in 1977. We started doing the information work on them shortly after that, carried it to other states, started doing a directory, which became in demand, and we do it every year, and I’m the guy that does them. So I talk to the risk pool people every day, and this is not an advertisement. It’s not an advertisement, but our new book has just come out. And this comes right from them. This is their information. This is not sifted, not analyzed. This is them, the basics. You’ve got the whole history, and you can get it. And, again, it’s not an advertisement, but it’s cheap. We held it to $29.95 here every year for years, and I just got the printing bill, and a little help would be all right. You’d be very welcome to get the information from the state risk pool.

I want to talk about that, though, because in the context of keeping them in the right perspective here, this issue, the big picture we got to get at reducing the uninsured. This is an affordability issue. It’s an income issue. It is 85, 90 percent how do we help people that are between Medicaid and at whatever level that they enter the private insurance market. How do we help these people get insurance?

Sure, there are some that have the means and they should pay for it, and we can prod them. There are some that just don’t have the ability right now. So we have to figure out a way to put some subsidies that are practical and effective in their hands.

The access issue is a little part of it. Okay? A very little part of it. And we think risk pools are a way to help address that issue. They’re not perfect. None of the health care programs we have--private, public--are. Okay? They’re not perfect and they can be improved. But we have an opportunity right now, if we can come--it’s been interesting because we’ve heard everybody, the pros and the cons, and we’re going off out here. If I could do anything to put us together and say let’s find some common ground where we can make some progress, that’s what I would like to do.

Individual market. We could spend a lot of time talking about this, but there are some key things to remember. Number one is that there will always be one. The employer market is very key. We don’t need to try to detract from it. The employer market is very key. But all of us are subject to being in it. Certainly our members are in the individual market. And many self-employed people are out here. But people move through--people leave the employer market, get into it, so it’s a part of our system, and it’s going to be there. We should not ignore it if we want to reduce the uninsured. That’s where a lot of them will enter. It doesn’t have to be all of them.

It’s inherently different because of the nature of it. It’s voluntary market so everybody has to pay it themselves. You know, there’s no HR department over here where somebody takes money out of the check, adds the employer’s contribution, and pays it for the whole group. Everybody has to do it themselves.

Of course, it’s expensive. It’s not subsidized by an employer. And just the natural tendency for people is they’re going to wait until they need health insurance. They’re going to wait until they have a claim. They’ll pay it then. Adverse selection is naturally more prone to it. It’s just the way it is. And if you ignore that, if we choose other routes--government programs, for example, or other routes--if we ignore the impact of adverse selection and make it an immediate entree to them, okay, you do it at your own peril to the cost of those programs. And there have been a number of lessons where it hasn’t worked very well.

But, again, affordability is the key issue, and we need to bring down the cost so more people can get into it in those markets that we have.

Risk pools, as they exist today, serve a small but important niche out there. They provide a guarantee that everyone in the insurance market has a place to buy insurance if they’re willing to. They can certainly be improved. If you look through the directory, you’ll see that a number of them are quite affordable. There’s a number of them, and a few that are, frankly, too expensive. They all represent tradeoffs that the state legislatures have done when they’ve set up these programs. If money is there, we can improve them. All of them have tradeoffs as to what they will do.

Some of the comments earlier, I think you do need to understand, I worry about people criticizing risk pools kind of unfairly because they don’t understand them. And then there’s another side that are going to love them to death out here, and they pretty soon want to--how can we move all our high risks from all over into these pools and these things will become more unworkable with it? So they have to serve a certain niche. And it’s interesting that we’re sort of--we’re kind of like the O.J. trial, all of a sudden, risk pools. We did this information work for years and years. This is our 16th edition. Suddenly, we’re the most popular thing out in Washington. It’s kind of amazing. Everybody’s looking at them now. But you need to go the step deeper and understand how they work.

There was a criticism that a number of risk pools have waiting periods for people entering it, and this, of course, is not the HIPAA people. The portability people entered. They’ve been paying into the system all along. They get in right now and they can continue. But if you don’t have a waiting period, you really open up the risk of adverse selection. People in the individual market, it’s just an open door for people to come in, get their claims paid, and drop again. A good example is the TenCare program in Tennessee, which is a Medicaid expansion program. And they did some Medicaid things with it. These are people above Medicaid that can get into it. They had no waiting period for it.

A year ago, I asked the people, how many people are in it, in your uninsurable category, which they regularly--usually didn’t separate out when they gave us the information. And I was told that there was 124,000 people, uninsurables, in the TenCare program at that time. That was almost as much as all of the other risk pools put together.

The reason is pretty simple: There was no waiting period. People would go to the emergency room in the hospital. The hospital wants to get paid. Enroll them in TenCare, it gets paid.

Back to the 101. We have to have dollars in this system to pay claims. Our health care providers expect to get claims. So when we design insurance systems, we’ve got to make sure we have regular payment of premiums, enough to cover the costs and the losses. Keep it as efficient as we can. But the dollars have to be there.

What a risk pool does is it provides a way, in the individual market, a guarantee for people they can always get coverage. They pay a little bit more. We subsidize it beyond that. Maybe half the cost--not quite half the cost needs to be subsidized, but in the end it’s very, very minor. Total claims in all of the 30 risk pools--28 operating at that time--was about $870 million a year ago. Total premiums were about 490. I think it was about $401 million had to be made up for. Not a lot of money in the overall insurance system to make up for those costs.

Let me just switch a little bit to the tax credit proposals. I think you know this. I don’t need to go on too much about it. But people in the individual market, self-employed, people in the past--it’s getting better, but people in the individual market where they’re not offered insurance have really been ill-treated by our system. It’s just--not intentional, but it’s evolved that way. There’s been no deduction for them. The costs, the net costs of that insurance are far higher out there, and the tax credit proposal gives us an opportunity to try to rectify this problem.

There’s the chance where you--one of the proposals offers people the choice of a tax deduction or a tax credit. Presumably, if they’re low enough income, they would get into a tax credit, and that could be scaled to them. It uses the tax system where it has a means of trying to identify and match up incomes with the amount of subsidy.

I’m not somebody that says we need to do a tax cut to solve all our problems. Far from it. But in this instance, our health care system is based on it, and it would be workable.

There are a number of areas we can talk about the tradeoffs regarding risk pools.

Is this the final hook here? Is that the one-minute hook?

John Iglehart: Take 30 seconds.

Bruce Abbe: All right. Let me just say I’m intrigued by some proposals to improve things. I think we can improve things in the individual market out there, and we certainly could in risk pools with money. I’m intrigued by Dr. Swartz’s proposal about a reinsurance concept, and I think Kate Sullivan mentioned earlier and said why couldn’t we use the risk pools more. I think we could in some ways. There’s a way we could utilize possibly a large catastrophic type program, costs any claims over $200,000, $500,000. In any of the health care markets, you could put the people in a risk pool, spread the costs broadly, and also utilize disease management and new techniques. All the risk pools are having a keen interest in right now to try to zero in on costs, to try to reduce them.

I’ve overstayed my time up there, but thanks very much. [Applause.]

John Iglehart: We are honored to have two respondents from Capitol Hill, two of the most respected staff professionals there. We’ll begin with Liz Fowler of the Senate Finance Committee staff. She works for the Democratic members, and she will be followed by Dean Rosen, who works for the Republican members of the Senate Health, Education, and Labor Committee.

Liz?

Elizabeth Fowler: Thank you, and thank you for inviting me to speak here today. I’m happy to be part of the lipstick panel this morning.

Dean and I have agreed this morning that we’re going to speak from our chairs rather than the podium. I hope that’s okay with you. We’re out of the reach of your chain, but you can wave or yell at us if we start going over.

Prior to this panel, or listening to this panelist, I would have said that there seems to be widespread acknowledgment that policies to promote the purchase of individual insurance coverage have the potential for undermining the employer-based market, and they also have the potential for leaving out those with health problems or high risk for substantial health costs. I guess I know that there’s some degree to which folks might disagree whether those are problems. For example, maybe you don’t consider it a problem to undermine the employer-based system. In fact, maybe you might actually hope that that’s a potential effect. And I think that there also seems to be disagreement, and the panelists on both of the previous panels have spoken to the extent to which these are problems or these problems actually occur. For example, what really happens to people with allergies and pain in their right side when they try to purchase insurance in the individual market? Can they get coverage? What are the limits on that coverage, if any? And at what price?

So having helped my mother try to navigate through the individual market to purchase insurance for herself, I can tell you that she’s someone who did have the means to purchase insurance, though she’s at an age where potentially it’s difficult. And she did have problems finding affordable options, and it was of concern to her. And that was before we got to the point in the online application process where she actually had to disclose a pre-existing chronic health problem.

So I guess I’m speaking more from personal experience and less from research and less from numbers and statistics that it can be difficult to find affordable options in the individual market.

Many of the speakers this morning have pointed to TAA, the Trade Adjustment Assistance Act, and the potential lessons we can learn from that. It is a potential test case for tax credits, and it certainly offers some important insights for the debate on the uninsured.

I just wanted to point out three areas where the trade bill is very different from what we’re talking about in the uninsured debate.

Number one, we’re talking about in that context an unemployed population. TAA workers have been displaced as a result of trade, U.S. trade policy, and, therefore, they aren’t employed at the time that they receive the tax credit and, therefore, there is no risk of undermining the employer market.

The second is that it’s a very discrete population. It’s a small population. I think it’s estimated to be between 125,000 to 200,000 people a year. And what that meant for us who worked on the trade bill was that we could look at a higher credit amount, 65 percent, which I think is higher in ultimate dollar figures than what you’re talking about in some of the proposals that are on the table, though I think that many of us who worked on the bill question whether 65 percent would really be high enough in terms of credit amount for someone who’s actually unemployed as they go to try to purchase insurance.

And the third difference I think that TAA represents compared to the rest of the debate is that the TAA program is short term and it’s time limited, that at least for the folks who are eligible for the tax credit because of TAA eligibility, it is a two-year program, and after the two-year program you don’t get the tax credit anymore.

I think that the lessons from TAA might not be known for some time. We continue to consult with the administration about implementation and how that’s going. It seems to be a real feat of the administration to try to pull together HHS, Department of Labor, and Treasury to all agree on a common theme for moving forward and agree on a lot of the details. But they do seem to be making pretty rapid progress.

I guess I would say that it’s going to be difficult in the upcoming session of Congress for many Democrats to want to expand the tax credit policy beyond where it is now until we see whether the approach works in the context in which it was enacted. For example, I think that a lot of us will want to know what percentage of the population that gets the tax credit actually uses it. What are they buying with the tax credit? How much are they paying for those premiums together with the 65 percent tax credit? And those who aren’t using the tax credit, why are they not using it? What are the reasons that have either prevented them or convinced them not to use the tax credit?

I think it’s also going to be interesting to see what happens, what the response of the insurance industry is to the tax credit and the trade bill. And I think we’re all watching to see what sort of options will be made available and what the premiums will be there and what the participation rates are.

Looking at the Bush proposal and the REACH Act, those proposals are obviously meant to be incremental coverage options and incremental solutions to helping the uninsured. And I don’t think either of those acts or those proposals are intended to address a significant number of the uninsured, of the currently uninsured.

I guess I was hoping, looking at the political, social, and--polling tea leaves and reading articles lately, I was hoping that there would be more talk about doing more than just incremental coverage, although I know that might be overly optimistic. I had the pleasure of listening to Victor Fuchs last night who reiterated his theory that we won’t get larger-scale reform in this country until there’s a war, depression, and/or massive civil unrest. I’m not sure if the conflict in Iraq and the current recession counts and is really enough to push this over that edge. But certainly I’d like to see more talk about larger options and expanding coverage more than just to incremental populations.

But from my political vantage point, listening to all the speakers and having worked on these issues, I do think it would be difficult to reach agreement on uninsured policies in the coming Congress without going down the road of an individual tax credit in some form or another. I think that also there has to be a recognition that any solution should include an expansion of public programs, and I think that the general point of view on the Democratic side is that that’s a more efficient way at reaching the uninsured, and hopefully any solution that we look at will include that aspect as well.

Some of the audience I know might be thinking, well, let’s wait until after the election. If the Republicans take over the Senate, perhaps we’ll have to look less down the road of public program expansions and we’ll be able to look more down the road of individual insurance options. I guess I would just caution that those of you who are familiar with the Senate operating procedures would also agree that it’s not quite that easy on a thin margin to simply look in one direction and not the other and work on a compromise. You still need 60 votes, and there’s still going to be a mandate to work together, I think. I don’t think the margins will be any greater than they are now one way or the other.

So, regardless of what happens in November, I hope the uninsured--really truly hope that the uninsured gets more attention in the coming months and the coming years than it did in the 107th where we had $28 billion in the budget last year and we were unable to come to any agreement on what to do with that money, and we did not use that money. And I thought that was a shame.

So I look forward to upcoming discussions and to working with others on the panel and others in the audience as we move forward on this debate. Thanks. [Applause.]

Dean Rosen: Thank you. Well, I guess every congressional staff member has talked about David Nexon’s comment about the pig, so I have to say something as well. And I was thinking about the lipstick and the pig, and the only thing I guess I could say is that we’re reading with our four-and-a-half-year-old daughter "Charlotte’s Web," and she really loves Wilbur, the pig. And I think the reason that she does is because people in that story sort of look at the pig in a way that they didn’t look at the pig before and in a way that people really hadn’t looked at pigs before at all on that farm.

So I think there’s an important lesson in that, and maybe rather than sort of this dichotomy between the panels of what works and what doesn’t work, I think, you know, a lot of actually both panels have talked about a more fundamental question for me, which is what will work and how can we make it work. And I think it’s been tacit, but just to make it explicit, I think there has been some discussion to how--and I think Bruce talked a lot about this--how you make the individual market function better, and Janet talked about that, too. I think Tom’s comments more broadly talked about how you make the market overall work better, how you help the uninsured, and how you more fundamentally change it.

I think in a sense from a policy standpoint, both of those kinds of discussions are valid. And it sort of occurred to me in thinking about the individual market that for a lot of the policy discussions, and really a lot of the analysis as well to date, academic and otherwise, the individual market has been more of kind of a Rorschach test for how people--I think it reflects more their individual views and biases rather than providing a lot of facts. I think, you know, Len Nichols and Mark Pauly’s paper is--and among others in the publication are very helpful in terms of providing some framework and also providing some facts and pointing out those areas where there are agreements and disagreements, and those kinds of things are really ultimately going to be helpful to how we look at this.

We know that the individual market is, you know, small, relatively small, relatively fragile, that there are gaps in coverage. There are certain people who aren’t covered, and some people look at that and see tremendous opportunity and other people look at that and say, as David Nexon said, and in part as Liz said, although more diplomatically, you know, why would we want to look at--I’ve known David for a long time. I can say that. Why do we want to look at, you know, the individual market as a place to go?

I think again we come back to this question about not how it is, but how can it be and how can we use it as an effective option to expand coverage. I think it’s better and more constructive to look at it that way. The same comments that you can make about the individual market I think you can also make about some of our public safety net programs and Medicaid. It’s relatively small, it’s relatively fragile. There’s gaps in benefits. They’re scaled back in terms of benefits. It doesn’t cover everyone. But yet a lot of the folks on the left side of the debate, instead of throwing that out, look at that as fertile ground for expansion. I think, you know, we ought to do the same and look at the individual market in much the same way.

Is the individual market a safety net? I think it’s clearly yes, it’s a safety net. If you look at the kinds of people who purchase coverage, they’re not all healthy. They’re not all wealthy. They don’t all have other options. Is it a possible safety valve? I think Tom’s comments and other people’s comments went to this, too. People looking for an option out of the employment-based system, people looking at ways to increase choice and design their own kind of benefits, yes, I think it’s also a safety valve.

Will it become more important over the next few years as we see more and more employers at least shifting costs and looking at ways of dealing with rising costs, particular in the retiree area to individuals and to workers? I think clearly the answer is yes. The question is: Is it going to be the alternative or at least a larger alternative to the group market? And I think that in some ways is kind of the central debate as we go forward.

I think the policy options out there, you know, Liz and others have talked about it, so I just want to comment briefly on this and then maybe talk a little bit about where we may be going. But I think that the policy options out there as we look at this of coupling tax credits with something else I think are very much on the table. I think they’re more on the table--they’ve been more on the table in the last two years under the Bush administration than they have been in the past in a realistic way. And I think the thing that I would say from our perspective on the Republican side that’s very--makes me very wary is that whenever we talk about expanding the individual market and trying to provide subsidies, it always is sort of coupled from the Democratic side with, you know, we need to have, quote-unquote, market reforms. And I think the guarantee issue, the community rating, some of those we know from the state level are--particularly if done the wrong way, are not only not helpful but are counterproductive. And so I think we need to tread very, very lightly, and I think also we do have this Washington bias other than Tom. But, you know, we also haven’t talked very much about federalism and about the local nature of markets other than some comments earlier.

But I also think we need to be very careful of what kinds of attendant regulations we look at in Washington. I think it’s one thing in terms of providing the funding. It’s another thing providing the total construct and road map and rules of the road for how individual markets are going to be regulated across the country. So I think we need to be very careful.

But I am intrigued by Kathy Swartz’s paper on reinsurance, high-risk pools, I think, and looking at coupling tax credits, again, with sort of new ways of looking at this. The REACH Act, as was mentioned earlier, tries to deal with this issue of group erosion by also providing a smaller tax credit for people to help them pay their portion of the employer-sponsored premium, and I think that’s a useful tool as well.

So, again, I think as we look at things, some of the old--you know, and I think, again, sort of failed policies and failed answers are not going to provide the right way. But I think some of the new thinking, I think some of the ground that’s been plowed in the publication I think will be very useful to us doing that.

Now, let me just finish with the following, which is sort of what John and Richard and others have asked me to comment on, as well as Liz, is just kind of realpoliticking where we are and not how Senator Frist or Dean Rosen or President Bush or others would like to see things, but how are things likely to play out. And as I say, every time I speak I have no idea, and I’ve learned after a number of years not to predict. But I think it is--my own view at this point, I think it’s interesting, as Liz said, that there is a renewed interest, there is renewed discussion in sort of major reform in terms of comprehensive reform issues. And I am actually still skeptical about that. I think while we may have a war and I think we may have a slight recession--I think we’re coming out of it--I still don’t think people in looking at the polls and looking at the tea leaves and talking to people, even though there’s great concern about costs and there’s great pressure, are really ready for the kind of radical redistributive reform that, you know, you have to have in order to get there. I think there still is a lot of bitter aftertaste from the Clinton health plan effort, and I think that kind of taking away from folks and giving to other folks kind of policies and changing the way that people purchase who are relatively happy is going to be difficult to do.

I guess I wanted to just finish in looking at Rob Cunningham’s comment from earlier about--he touched briefly on the strange bedfellow kind of proposal and the fact that because of sort of the deficits and the tax cuts, we may not have the opportunity to do that kind of additive proposal anymore. And I think that to an extent that may be true. That was a very, very expensive proposal. But I think aside from the specifics--and the specific strange bedfellows proposal as well, I think a number of Republicans had some deep problems with because it did give the individual market and individual market solutions very, very short shrift.

But I think the formula of looking at coupling some kind of public program improvement--I’m not going to necessarily say expansion, but some kind of improvement--with some kind of an individual formula and looking at things in a new way is still viable. I think despite the deficit, budget deficit that we have, I think spending more money is still going to be necessary rather than redistributing. And I, you know, noted, as Liz did, that the President had nearly $100 billion on the table this year in terms of the uninsured, which is a significant amount of money, and that even around some of these smaller solutions, until they were sort of forced to Congress in the TAA, we really didn’t deal with even some of the more incremental stuff. So how we deal with the larger stuff, I don’t think it necessary gets any easier.

But I guess I do conclude on a hopeful note and think that there are some opportunities for progress, and I think the individual market and looking at some of the options that have been discussed and put on the table even today is really one of the ways we ought to look at it. Thank you. [Applause.]

John Iglehart: Thank you, Dean.

We have about ten minutes for questions of the panelists. If you would come to the microphone, identify yourself and your organization, we will entertain your question. Yes, sir?

Greg Scanlon: Am I first? Great. I’m Greg Scanlon with the National Center for Policy Analysis. I have just a couple quick comments and then a softball question for Tom Miller, which are the ones he likes best, I’m sure.

You know, John Dillinger was asked why he robs banks, and he said that’s because that’s where the money is--oh, was it Willie Sutton? Well, that’s probably why John Dillinger robbed banks, too. And it seems to me if we’re dealing--if we’re trying to address the problem of the uninsured, we have to go to where the uninsured are. And if I remember right off the top of my head, I believe 70 percent of the uninsured are under age 45. They’re in relatively good health. And it seems to me that a tax credit proposal is pretty effective at addressing that population.

Now, you can contrast that and say, yes, but it doesn’t take care of the 62-year-old low-income diabetic fellow, and that’s probably right. But perhaps there are other initiatives that should be targeted at that population. But if our goal is to reduce the numbers of uninsured, we’ve got to start with who they are.

I find it very odd that the left is supporting the employer-based system with its exclusion from income, which is highly regressive--I mean, it’s enormously regressive--while the right, on the other hand, is supporting this highly progressive aimed at the low-income flat tax credit approach.

And the softball question to Tom is: From a libertarian point of view, would you like to comment on what an ideal tax policy would be vis-a-vis health care?

Tom Miller: Well, the ideal tax policy wouldn’t lean toward health in any direction. I don’t see that in the immediate next couple of decades as an option. A real flat tax would just, you know, raise some revenue and treat everything pretty much the same. And the second-best measure is to try to equalize whatever you’re doing with the tax system so you don’t discriminate among different purchasers regardless of where they’re buying and who’s buying for them or they’re buying on their own.

A little adjunct, though, what you were saying about the uninsured, these are only year-to-year deltas, but there’s that anomaly in the data, although it’s been somewhat trending that way in the last couple of years, which is of this sudden spike, which wasn’t as great as people were hoping for who then wanted to move on to single payer, saying the system is falling apart. Of the 1.4 million, at least in the data from the Census Bureau, over 800,000 of those were folks in households with incomes of over $75,000 a year.

That suggests that what Mark and Len mentioned in their article about the affordable uninsureds may be increasing. We don’t know all the dynamics behind it, but clearly that’s what’s showing up in the numbers in terms of the folks who are not being insured or becoming uninsured. They’re coming from wealthier families rather than low-income ones.

John Iglehart: Yes, ma’am?

Question: Yes, there’s been some discussion about the variability of--what?

John Iglehart: Identify yourself, please.

Question: Oh, yes. My name is Pat Taylor. I’m a consultant on rural health policy.

There’s been discussion about the variability across the states in the individual insurance market. I wonder if anyone on the panel knows how many states in which there is no individual insurance market. I know you cannot buy individual insurance in Maine. At one time recently you could not buy it in Alaska. For a while in the State of Washington it was not available. So does anybody know?

Janet Trautwein: Well, there’s technically an individual market in every state. Now, I would agree with you on whether--Maine’s situation is pretty dire right now, and during my comments I talked about what happens when you’ve got the wrong type of regulation in the state. That’s what happened to Maine, and there are a number in Maine that are considering doing the high-risk pool approach instead to get that market back and running again.

Washington State--I’m glad you mentioned Washington State. That’s what they did. Their individual market was guarantee issue. In fact, we talk about adverse selection. One of the most common Washington stories is a comment that when the Washington system was guarantee issue, someone wrote into the system and said, Gee, thank you so much, I love the system, I got into it when I was pregnant, and I don’t need it anymore now that I’ve had my baby, but I’ll come back again and use it again if I get pregnant again.

That’s adverse selection. That’s why individual policies don’t cover maternity routinely, by the way. But Washington fixed their market. They went back in and allow underwriting again, reinstituted their high-risk pool, and it’s getting back up to speed again. But there are some that are struggling, and it’s almost unbearably in states that have too much regulation, and that’s a pretty common denominator.

Question: Elliott Wicks, Economic and Social Research Institute. My question is for Tom Miller.

You and others have suggested that guaranteed renewability might be a way of ensuring--reducing the adverse selection problem. But it seems to me that that works only if people stay in the individual market for long periods of time.

I don’t know what the evidence is in some anecdotal evidence based on interviews with insurers. I’ve heard something like that the average amount of time is 18 months, something like that. And John said four years, but in any case, a lot of these people are people who are buying individual coverage between jobs, or they’re just entering the labor market and they don’t yet have employer-based insurance. Most people are going to favor employer-based insurance because it’s cheaper because the employer pays the bill.

So I don’t see how this is really a solution because most people are not going to stay in the individual market. They’re going to come in and out.

Tom Miller: Well, we really need--and Mark Pauly kind of alluded to this, although he’s the INS chief of the border, so he’s always looking for folks straying across. It’s more of a hybrid market that takes advantage of being able to pool people in a group even though they may come to that group as individuals rather than being sent there by their employer en masse.

I understand there’s a great chapter coming out in a book by your organization which talks about ways to do that type of pooling by some upstart. And certainly we’re in a transitional phase where because we’ve had such a distorted market, you can’t say, well, it just didn’t work out. Until you’re purchasing insurance on the same level playing field where it doesn’t unnecessarily cost you more to buy it, there’s no market demand to begin to kind of build enough critical mass to have these alternative pooling mechanisms.

Now, as I mentioned, Mark Pauly is working out ways to kind of have this type of more level premium--not totally level, though, but it’s incentive compatible so the low risks stay in as well as the high risks as it goes up over time. But ultimately to move beyond just having a single insurer offering the product, which is where it’s going to go right away, then you’re going to have to have some kind of third-party agent, a private sector version of FEHBP, where, in fact, you’re running an honest market. But you’ve got to lock people in and they agree to stay in there for a long period of time and then take the choices in the annual open season. But it’s tough to do.

John Iglehart: We have run out of time. I want to thank the panelists, but I also want to tell you again the lunches are out there. Retrieve them and bring them back. We’ll eat them and then move right on with the program. Thank you.

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