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Tax Credit Proposal to Expand Health Coverage Must Deal with Risk Selection, Experts Say
Tax Credits Alone Unlikely to Make Coverage Affordable for Older and Sicker Individuals
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ASHINGTON, DC - Without either a mechanism to group risks - similar to large employers - or significant reforms to the individual health insurance market, older and sicker people using health insurance tax credits couldnt obtain affordable coverage, according to an expert panel today at a conference sponsored by the Center for Studying Health System Change (HSC).
Moderated by HSC President Paul B. Ginsburg, Ph.D., the panel of health policy, insurance and legislative experts explored the pros and cons of a stand-alone tax credit policy vs. a policy linking tax credits to purchasing pools and requiring people without employer-sponsored coverage to use the pools to buy insurance. Pools can potentially offer individuals some of the advantages available to large employer groups by spreading risk over a large and varied population and allowing the sickest and healthiest enrollees to pay the same premiums.
The bottom line question is whether more people, including the chronically ill and older workers, obtain coverage through this combined approach than under a stand-alone tax credit? Ginsburg asked.
At the conference, HSC, a non-partisan policy research organization, also released an Issue Brief, Tax Credits and Purchasing Pools: Will this Marriage Work?, which explores the advantages and disadvantages of purchasing pools and their link to tax credits. The Issue Brief is now available and a conference transcript will soon be available on the HSC Web site.
While the panelists disagreed about the wisdom of a tax credit policy requiring purchasing pools, all agreed that risk selection is a significant issue that policy makers must grapple with if they want to ensure chronically ill people using tax credits can obtain affordable coverage in the individual market. Some panelists resisted the idea of mandatory pools and instead urged giving states flexibility to either use pools or reform the individual market to address risk selection.
I would say pretty broadly that all of the people I know, including myself, that are proponents of tax credits, recognize that there has to be some kind of underwriting restrictions . combined with some way of dealing with the risk-selection issue, said panelist Stuart Butler, Ph.D., vice president of domestic and economic policy studies at the Heritage Foundation.
John McManus, majority staff director of the U.S. House Ways and Means health subcommittee, said the subcommittee chair, Rep. Nancy Johnson, R-Conn., is interested in exploring the idea of purchasing pools.
I think these new ideas were discussing today really take the proposals on tax credits one step farther, and I think its very productive, McManus said. But there has not emerged a consensus within Congress on whats the best way to approach this issue.
In the individual market, insurers usually underwrite, or base premiums on an individuals age, health status and previous illnesses, and people who are older or sicker usually face much higher premiums. In contrast, in large employer plans, where underwriting is based on the groups collective risks, people pay the same premium regardless of age or individual health status.
Ive been challenged in the past . to name one state in the country where the individual market works well, said Richard Curtis, president of the not-for-profit Institute for Health Policy Solutions. Tax credits will go a long way to infusing it with healthy lives, but you still have this incredibly fragmented market, with each individual making health insurance decisions on their own. You, by definition, do not have a good risk-spreading capacity there.
John Bertko, chief actuary at Humana Inc., a large for-profit managed care organization, echoed concerns about sending people with tax credits shopping for insurance without individual market reforms.
I will tell you that my actuarial colleagues who do individual coverage, and the underwriters, are very good at what they do. .So, if you have a continuation of the current individual, toughly underwritten, market, the people who do the tough underwriting win, and they always win, Bertko said.
If policy makers decide that linking tax credits and purchasing pools could help older and sicker people obtain and afford coverage, there are many design issues that would have to be addressed. And existing purchasing pools have had a spotty track record in some local health care markets, according to HSC research. Many panelists indicated that pools would be more effective if linked to a tax credit.
Clearly, a potential infusion of 10 million-plus people using tax credits to buy health insurance would encourage insurers to offer coverage through purchasing pools, Bertko said.
Design issues include: who would be eligible for the pools; would there be standardized benefits; how many pools should there be in each state; would federal or state authorities or a combination of the two oversee the pools; how would the pools interact with existing state insurance regulations such as mandated benefit requirements; and how would pools interact with existing public programs such as the State Childrens Health Insurance Program and Medicaid?