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

2. Some basics We dont buy health insurance in case we stay healthy For insurance to protect us, it must be –Available –Affordable –Adequate –Always

3. Sources of health coverage, non-elderly 71% of uninsured are in full-time working families 2/3 of uninsured are poor or near-poor (below 200% FPL) Most uninsured are ineligible for ESI or Medicaid 1/3 of non-elderly will have spell uninsured over 4-year period Total = 255 million people under 65 Source: Urban Institute estimates of March 2006 Current Population Survey, U.S. Census Bureau. Employer, Dependent 30% Employer, Own 32% Uninsured 18% Medicaid/ Other public 15% Individual Policies 5%

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

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

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

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

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

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

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

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