The first of a two-part series, this report analyzes and compares leading congressional bills and Administration proposals to expand health insurance coverage introduced over 2005–2007. The Commonwealth Fund commissioned The Lewin Group to estimate the effect of the bills on stakeholder and health system costs and the projected number of people who would become newly insured through them.
All coverage and cost estimates are for 2007 and are based on the assumption of full implementation of the proposals this year. The Lewin Group projects that, under current law, the number of uninsured in the United States will rise to 47.8 million people in 2007 out of a total estimated population of 295.1 million.
The proposals take different approaches to achieve near-universal coverage or more incremental expansions in health insurance. The approaches fall into three broad categories:
- fundamental reforms of the nation's health insurance system;
- expansions of existing public insurance programs; and
- strengthening employer-based health insurance.
FUNDAMENTAL REFORMS OF THE HEALTH INSURANCE SYSTEM
Proposals that would fundamentally reform the U.S. health insurance system include:
- health insurance tax deduction and tax on employer contribution to health
insurance (President Bush);
- regional insurance exchanges (Senator Wyden);
- federal–state partnerships to expand health insurance (Senators Bingaman and Voinovich, Representatives Baldwin, Tierney, and Price); and
- Coverage through Medicare (Representative Stark, Senator Kennedy, Representative Dingell).
The proposals vary in design but contain common elements (Figure ES-1).
- With the exception of federal–state partnerships, all of the proposals would transform the traditional role of employers by eventually scaling back or eliminating the extent to which they contract directly with health plans for coverage. The president's and Senator Wyden's proposals would achieve this in part by eliminating the tax exemption for employer-provided benefits and replacing it with an income tax deduction. The proposals differ in the extent to which employers would continue to finance coverage.
- With the exception of President Bush's proposal, the plans would require individuals to have health insurance and require employers and individuals to share in the cost.
- All of the proposals except the president's would provide subsidies to people with lower incomes to help defray the costs of premiums.
- All of the proposals except the president's would pool health risks into large groups in order to equalize premium costs across families, regardless of health risk, and increase efficiency in insurance administration.
The proposals vary in the number of people covered, the source of coverage, and in the comprehensiveness and affordability of coverage.
- Representative Stark's "AmeriCare" proposal would cover nearly all uninsured, as would Senator Wyden's "Healthy Americans Act."
- Medicare would become the primary source of coverage for all Americans under Representative Stark's bill and private Health Help Agency plans would become the major source under Senator Wyden's bill.
- The state–federal partnerships bills propose state demonstrations to expand health insurance and by definition do not provide sufficient details to permit cost estimates. For purposes of illustration of how such a partnership might work, The Lewin Group assumed a hypothetical model under which 15 states would implement a blended version of Massachusetts's Commonwealth Care and Governor Schwarzenegger's health proposal for California, with federal matching funds provided for Medicaid and State Children's Health Insurance Program (SCHIP) expansions. About 20 million people are estimated to gain coverage out of 23.6 million currently uninsured in those states.
- President Bush's proposal to equalize the tax treatment of employer and individual coverage is estimated to cover 9 million previously uninsured people in 2007, mostly through the individual insurance market. The new income tax deduction would be for a fixed amount that would rise annually by the rate of consumer price inflation, which is projected to rise more slowly than premiums. Therefore, the proposal is likely to cover more uninsured people in the first years of the proposal than in future years, when premiums are more likely to exceed the cap and thus be more expensive to taxpayers. Other families may buy increasingly less comprehensive coverage with higher out of pocket costs as the growth in the standard tax deduction lags that of premiums.
- By setting a floor on acceptable levels of health benefits, all of the proposals—with the exception of the president's—would improve coverage for millions of people who are currently underinsured. In addition, Representative Stark's bill, Senator Wyden's bill, and the state–federal partnership model would cap out-of-pocket costs as a share of income and/or subsidize premiums.
The cost of the proposals and how costs are shared depend on the source of coverage, the extent of premium subsidies, how broadly health risk is pooled, and inclusion of other efficiency measures.
- Representative Stark's AmeriCare bill would increase federal spending by $154.5 billion in 2007. President Bush's proposal would increase the budget deficit by $70.4 billion in 2007, but is expected to generate a surplus within the next ten years. Federal Medicaid and SCHIP matching funds for 15 states would increase federal spending by about $22 billion unless offset by savings measures. Senator Wyden's Healthy Americans Act would increase Federal spending by $165 billion but the tax revenue effect of the bill's requirement that employers cash-out their health benefits in the first two years of the program would dampen the increase significantly to $24.3 billion in 2007.
- Representative Stark's AmeriCare bill would result in substantial overall health system savings relative to the other approaches: the bill is estimated to reduce national health expenditures by $60.7 billion in 2007, compared with savings of $11.7 billion under the president's proposal and $4.5 billion under Senator Wyden's bill.
- This difference stems primarily from large savings in the cost of administering health insurance under Representative Stark's bill: the total costs of health insurance administration in the United States would decline by $74 billion in 2007. Insuring everyone under Medicare would spread risks across a large risk pool and bring Medicare's lower administrative costs per premium dollar to the full population.
- Senator Wyden's bill also substantially reduces insurance administrative costs by creating large regional groups in which people would buy private coverage. Insurance administration costs are estimated to decline by $57 billion in 2007, though the savings would be offset somewhat by the costs of administering the new program.
- Representative Stark's AmeriCare proposal is also estimated to achieve savings by requiring the federal government to negotiate prescription drug prices with pharmaceutical companies, thus reducing national spending on prescription drugs by $33.9 billion in 2007.
- The president's proposal achieves savings by reducing the comprehensiveness of coverage and inducing lower utilization of services.
Premium subsidies and new tax provisions in the bills greatly affect how family health spending changes.
- Under Representative Stark's bill, households would see a dramatic drop in health care expenditures of $142.6 billion, with the largest savings falling to families with low and moderate incomes. However, these savings might be offset if taxes are increased to finance higher federal government spending.
- Under Senator Wyden's bill, household health spending would decline by $78 billion. Spending would decline for the most for lower and moderate income households and rise for the highest income earners. Average health spending would fall by $983 per year among families earning less than $10,000 a year and increase by an average $1,562 among families earning $250,000 or more annually.
- Under President Bush's proposal, household spending on health care is estimated to fall by a net $31 billion in 2007 due to income tax savings. But tax savings disproportionately accrue to people in higher income brackets: average spending would decline by $23 in 2007 among families with annual incomes of less than $10,000 and by $1,263 a year among those earning $150,000 or more per year. In future years, however, the differential indexing of the deduction and growth in employer premiums would lead to an increase in taxes for households now covered by employer plans.
EXPANSIONS OF EXISTING PUBLIC INSURANCE PROGRAMS
More modest proposals can be important first steps toward universal coverage. Several bills would expand health insurance coverage by building on Medicare, Medicaid, and SCHIP. These include:
- Medicare buy-in for older adults (Representative Stark);
- elimination of the Medicare two-year waiting period for people who are disabled (Senator Bingaman and Representative Green);
- universal coverage for children (Senator Kerry, Representative Waxman, Senator Rockefeller, Representative Stark); and
- Medicaid expansions (Representative Dingell).
- Representative Stark would allow older adults ages 55 to 64 to buy in to Medicare, using tax credits to offset premium costs. This would insure an estimated 3.5 million out of 4.8 million uninsured older adults in 2007. The estimated cost to the federal budget is $26.9 billion, with spending on premiums and out-of-pocket costs reduced by $10.6 billion for people who enroll.
- People who become disabled and cannot work would eventually no longer have to wait 24 months before becoming eligible for Medicare under bills introduced by Senator Bingaman and Representative Green in June 2005. This would help 1.7 million disabled people currently in the waiting period, of whom 15 percent are uninsured. The estimated cost to the federal budget of immediately ending the waiting period in 2007 is $9.1 billion.
- Senator Kerry and Representative Waxman would provide states with incentives to expand coverage through Medicaid and SCHIP for children up to age 21 in families with incomes up to 300 percent of the federal poverty level, and would cap premium costs for children in families with incomes over 300 percent of poverty. The bill is estimated to cover 5.2 million out of 11.1 million uninsured children in 2007. It would increase federal spending by about $20 billion in that year, but reduce state and local government spending by $8.2 billion through increased federal matching funds for poor children.
- Representative Dingell would insure parents of children in Medicaid and SCHIP, thus extending new coverage to an estimated 6.2 million children and adults. The bill would increase federal spending by $12.7 billion in 2007 and state and local government expenditures by $3.2 billion. Family spending on health care would decline by nearly $5 billion as more families gained more comprehensive insurance.
STRENGTHENING EMPLOYER-BASED HEALTH INSURANCE
Several proposals would expand health insurance by building on the employer-based system, which currently covers more than 160 million workers and their dependents, or about 63 percent of the population. They include:
- employer mandate for large employers (Representative Pallone); and
- improving the affordability of health insurance for small employers (President Bush, Representative Johnson, Senator Durbin, Representative Kind, Representative Allen).
- Representative Pallone would require companies with 50 or more workers to offer and contribute to comprehensive health insurance for their employees and dependents. An estimated 12.3 million workers and their dependents would become newly insured under the proposal. Because workers and their dependents with coverage through public insurance programs are required to enroll in their employers' plans, 9.7 million workers and dependents would move from those programs into employer-based coverage, saving the federal government an estimated $42.6 billion in 2007. Employers would face the largest net increase in costs under the bill, of $92.1 billion.
- The Bush Administration and Representative Johnson would allow trade and other professional associations to create association health plans (AHPs) to provide health insurance to their member employers. The Johnson bill would in effect allow companies to bypass state insurance regulations such as community rating, which are aimed at increasing access to the small group market for small businesses with less healthy or older workers. The bill is estimated to make small group coverage more affordable for companies with a young and/or healthy workforce but to significantly increase premiums for companies with older and/or less healthy workforces that must continue to purchase coverage in the small group market. While 2.6 million workers and dependents are estimated to gain employment-based insurance through association health plans, 2.8 million would lose existing employer coverage because of a rise in premiums in the small group market. The number of uninsured is estimated to increase by a net 278,000 under the bill.
- Senator Durbin, Representative Kind, and Representative Allen propose bills that take an entirely different approach than AHPs by establishing pools for small businesses with premium protections and federal reinsurance. But in the absence of state-wide insurance market regulations, the proposals might ultimately have the unintended effect of increasing premiums within the pools, even with the reinsurance and tax credits, as those companies with less healthy and older workforces disproportionately enroll, attracted by the community-rated plans. About 600,000 people become newly insured.
To assess these proposals, the public might pose the following criteria: Will the proposals improve access to care, increase health system efficiency, make the system more equitable, and improve quality of care? Do they promise to set the nation on a path toward longer, healthier, and more productive lives?
Access to Care
- The proposals range in scope from targeted efforts that would cover a defined group of people to those that aim to expand coverage options for everyone. Bills that fundamentally reform the health system vary in their effectiveness. Representative Stark's AmeriCare proposal and Senator Wyden's Healthy Americans Act would cover nearly all of those currently uninsured. President Bush's proposal would cover less than one of five of those uninsured in 2007, and this number is likely to decline in future years.
- By setting a floor on acceptable levels of health benefits and providing premium assistance for low- and moderate-income families, several of the bills would improve coverage for the estimated 16 million people who are currently underinsured.
- The cost of the proposals and how those costs are distributed across stakeholders is affected by their scope and structure. In general, more targeted proposals are less expensive to the federal government than are more comprehensive coverage plans.
- Yet, the estimated savings to the overall health system from insuring everyone through Medicare or other near-universal mechanisms swamp those from incremental approaches. This results from the administrative savings from broadly pooling risk as well as other efficiency gains such as negotiating pharmaceutical prices on behalf of the full population.
- The proposals that would enroll people automatically through the tax system or at birth and mandate that people have coverage, such as the Representative Stark's bill and Senator Wyden's bill, are the most likely to ensure that people become enrolled and remain enrolled over their lifespan.
- The design of new premium subsidies, tax credits, or tax deductions for the purchase of health insurance has dramatic implications for how new costs or savings accrue across households. Representative Stark's AmeriCare proposal and Senator Wyden's Healthy Americans Act would distribute changes in health care expenses equitably, according to family income. Under President Bush's proposal, savings from the new tax deduction accrue disproportionately to those with higher incomes.
- Broad risk pooling; i.e., the sharing of health risks among many participants, also has implications for equity. The proposals that attempt to cover people through existing individual or small group insurance markets ultimately run up against the central dynamic governing those markets—the powerful incentive on the part of carriers to protect against health risk. To help ensure that everyone, regardless of health risk, has affordable insurance coverage and to prevent escalating premiums, risks should be spread among as large a group as possible, participation should be mandatory, community rating should be imposed for the full state market if one exists outside of the pool, and adequate federal reinsurance should be provided.
- The ways in which people are insured, the systems that evolve to achieve near-universal coverage, and the role of insurance carriers will be important determinants of whether significant and systematic improvements in quality can be achieved nationally. Proposals that would organize coverage through a central mechanism, such as the Medicare program in Representative Stark's proposal and Health Help Agencies under Senator Wyden's bill, have the potential to improve quality in a number of ways. For example, they could enable development and use of common measures of health care quality, collection of outcome data for the full population, creation of uniform provider payment systems that reward high-quality care, and standardization and broad diffusion of health information technology.
- Most of the bills that would fundamentally reform the health system also include specific quality improvement measures. Senators Bingaman and Voinovich and Representatives Baldwin, Price, and Tierney would require or encourage states proposing coverage expansions to also include plans to improve health care quality and efficiency, and expand the use of health information technology. Senator Wyden would encourage people of all ages to have a "health home," establish an expert panel to ensure quality control in hospitals, reward healthy behavior, and establish a chronic care disease management program. Representative Stark would require uniform electronic claims reporting and electronic medical records and create a national electronic claims data set.
Longer, Healthier, and More Productive Lives
- The ultimate goal of health care reform should be improvements in the length, quality, and productivity of people's lives. The analysis of these proposals demonstrates that universal coverage is feasible and that many proposals and particular elements of the proposals have the potential to yield overall savings in national health expenditures and systematic, long-term improvements in the quality of care nationwide.
- The Institute of Medicine estimates that the millions of people who lack insurance coverage generate between $65 billion and $130 billion annually in costs associated with diminished health and shorter life spans. This provides a stark benchmark against which to compare inaction versus the estimated annual costs and savings in this report of investing in a more rational and equitable system of health care in the United States.