Individual Health Insurance to the rescue

From the Raleigh News and Observer



Polls in North Carolina and the nation show that even amid wars, natural disasters, investigations and judicial confirmation battles, few issues matter more to average voters than health care. Unfortunately, few issues are fraught with so much complexity, confusion and misunderstanding.

For example, the Economic Policy Institute (EPI) recently published an analysis of census data showing that employer-provided health insurance continues to decline nationwide. According to the report, North Carolina experienced the second-fastest drop in the share of residents getting their health insurance from employers, declining from 64 percent in 2000 to 57 percent in 2004.



EPI estimated the number of those losing employer-based coverage who could qualify for government programs such as Medicaid and S-CHIP. It then insinuated that the remainder were unable to get health insurance and concluded that a government-run, single-payer insurance system was the only appropriate response.



It was remarkable that this report, and subsequent media accounts of it, neglected to mention the existence of the market for individual health insurance, which has been undergoing significant and important changes.



A closer look at the data in the EPI report reveals that while some North Carolina workers are no longer getting health insurance for themselves from their employers, the more significant change involves their spouses and children. Increasingly, North Carolina workers are exercising other options to get coverage for their dependents. There's no mystery why this is so: employer-based dependent coverage is too expensive.



Employees typically pay this entire cost directly out of their paychecks, and are thus strongly motivated to seek alternatives. Those with lower incomes find "free" government insurance attractive -- and state agencies have spent a tremendous amount of time and money trying to convince them of that fact. Those with higher incomes are finding better-priced plans in the individual market or decide to save their forgone premiums in accounts to pay for routine medical care as needed.



The EPI report included a graph illustrating the relationship of the decline in employer-based coverage and increasing enrollment in the government options. This correlation does not necessarily illustrate the "strength of government programs," as the authors say, but rather suggests that an expansion of government-run health insurance sends a clear signal to employers and employees, changing their behavior.



Employers become less likely to offer health benefits, on the assumption that someone else -- the government (taxpayers) -- will foot the bill for their work-force. Employees become less likely to continuing paying for benefits that others in their income level are getting from government. Advocates of government-run health care see all upsides from this, but there are also plenty of downsides: higher costs for taxpayers and private-insurance subscribers, and fewer choices and poorer incentives for those using government insurance.



At the higher end of the income scale, many are finding better opportunities in the individual health insurance market. For healthy individuals, premiums are generally less expensive than a policy through an employer group, plus you get to choose what type of policy you want and you get to keep the policy if your employment changes. Both short-term and regular insurance, purchased through the individual market, have affordable rates because they are medically underwritten. This means that those with predictably lower medical costs will pay less.



Those who have risk factors that lead to higher utilization of medical services will pay more in premiums, or be offered limited coverage, or be denied coverage. In North Carolina, we do have one company (Blue Cross and Blue Shield of N.C.) that will offer coverage to the highest-risk individuals, but the premiums are five to six times the normal rate and unaffordable for most. Again, some cite this difficulty as justifying a single-payer health system, but it doesn't. A better policy would be to set up a high-risk insurance pool.



Thirty-three other states have created such pools, allowing high-risk customers to purchase an individual health insurance policy capped at about 150 percent of what the healthy person would pay. The number of potential users of a high-risk pool isn't as large as many think, and subsidizing it would address the problem at a much lower cost in dollars and intrusiveness than opting for government-run insurance.



Public policy can help drive additional innovation in individual, portable health plans as well as cash-for-service medical practices. The latter can save significant dollars in administrative costs that can be passed along to patients as lower prices. Changes in tax policy to broaden health savings accounts and equalize the tax treatment of group and individual health plans would be welcome. Moving toward increased government control of this market would not be.