[House Hearing, 108 Congress]
[From the U.S. Government Publishing Office]



 
              THE HEALTH INSURANCE CERTIFICATE ACT OF 2003
=======================================================================

                                HEARING

                               before the

                         SUBCOMMITTEE ON HEALTH

                                 of the

                    COMMITTEE ON ENERGY AND COMMERCE
                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED EIGHTH CONGRESS

                             FIRST SESSION

                                   on

                               H.R. 2698

                               __________

                             JULY 17, 2003

                               __________

                           Serial No. 108-44

                               __________

       Printed for the use of the Committee on Energy and Commerce


 Available via the World Wide Web: http://www.access.gpo.gov/congress/
                                 house

                               __________


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                    COMMITTEE ON ENERGY AND COMMERCE

               W.J. ``BILLY'' TAUZIN, Louisiana, Chairman

MICHAEL BILIRAKIS, Florida           JOHN D. DINGELL, Michigan
JOE BARTON, Texas                      Ranking Member
FRED UPTON, Michigan                 HENRY A. WAXMAN, California
CLIFF STEARNS, Florida               EDWARD J. MARKEY, Massachusetts
PAUL E. GILLMOR, Ohio                RALPH M. HALL, Texas
JAMES C. GREENWOOD, Pennsylvania     RICK BOUCHER, Virginia
CHRISTOPHER COX, California          EDOLPHUS TOWNS, New York
NATHAN DEAL, Georgia                 FRANK PALLONE, Jr., New Jersey
RICHARD BURR, North Carolina         SHERROD BROWN, Ohio
  Vice Chairman                      BART GORDON, Tennessee
ED WHITFIELD, Kentucky               PETER DEUTSCH, Florida
CHARLIE NORWOOD, Georgia             BOBBY L. RUSH, Illinois
BARBARA CUBIN, Wyoming               ANNA G. ESHOO, California
JOHN SHIMKUS, Illinois               BART STUPAK, Michigan
HEATHER WILSON, New Mexico           ELIOT L. ENGEL, New York
JOHN B. SHADEGG, Arizona             ALBERT R. WYNN, Maryland
CHARLES W. ``CHIP'' PICKERING,       GENE GREEN, Texas
Mississippi                          KAREN McCARTHY, Missouri
VITO FOSSELLA, New York              TED STRICKLAND, Ohio
ROY BLUNT, Missouri                  DIANA DeGETTE, Colorado
STEVE BUYER, Indiana                 LOIS CAPPS, California
GEORGE RADANOVICH, California        MICHAEL F. DOYLE, Pennsylvania
CHARLES F. BASS, New Hampshire       CHRISTOPHER JOHN, Louisiana
JOSEPH R. PITTS, Pennsylvania        JIM DAVIS, Florida
MARY BONO, California                THOMAS H. ALLEN, Maine
GREG WALDEN, Oregon                  JANICE D. SCHAKOWSKY, Illinois
LEE TERRY, Nebraska                  HILDA L. SOLIS, California
ERNIE FLETCHER, Kentucky
MIKE FERGUSON, New Jersey
MIKE ROGERS, Michigan
DARRELL E. ISSA, California
C.L. ``BUTCH'' OTTER, Idaho

                   Dan R. Brouillette, Staff Director
                   James D. Barnette, General Counsel
      Reid P.F. Stuntz, Minority Staff Director and Chief Counsel

                                 ______

                         Subcommittee on Health

                  MICHAEL BILIRAKIS, Florida, Chairman

JOE BARTON, Texas                    SHERROD BROWN, Ohio
FRED UPTON, Michigan                   Ranking Member
JAMES C. GREENWOOD, Pennsylvania     HENRY A. WAXMAN, California
NATHAN DEAL, Georgia                 RALPH M. HALL, Texas
RICHARD BURR, North Carolina         EDOLPHUS TOWNS, New York
ED WHITFIELD, Kentucky               FRANK PALLONE, Jr., New Jersey
CHARLIE NORWOOD, Georgia             ANNA G. ESHOO, California
  Vice Chairman                      BART STUPAK, Michigan
BARBARA CUBIN, Wyoming               ELIOT L. ENGEL, New York
HEATHER WILSON, New Mexico           GENE GREEN, Texas
JOHN B. SHADEGG, Arizona             TED STRICKLAND, Ohio
CHARLES W. ``CHIP'' PICKERING,       LOIS CAPPS, California
Mississippi                          BART GORDON, Tennessee
STEVE BUYER, Indiana                 DIANA DeGETTE, Colorado
JOSEPH R. PITTS, Pennsylvania        CHRISTOPHER JOHN, Louisiana
ERNIE FLETCHER, Kentucky             JOHN D. DINGELL, Michigan,
MIKE FERGUSON, New Jersey              (Ex Officio)
MIKE ROGERS, Michigan
W.J. ``BILLY'' TAUZIN, Louisiana
  (Ex Officio)

                                  (ii)



















                            C O N T E N T S

                               __________
                                                                   Page

Testimony of:
    Greenstein, Robert, Executive Director, Center on Budget and 
      Policy Priorities..........................................    32
    Nelson, John C., President-elect and Executive Committee 
      Member, American Medical Association.......................    19
    Shea, Gerald M., Assistant to the President for Government 
      Affairs, American Federation of Labor and Congress of 
      Industrial Organizations...................................    24
    Spitznagel, Dede, Executive Vice President, Healthcare 
      Leadership Council, on behalf of Coalition for Affordable 
      Health Coverage............................................    28
    Young, Donald A., President, Health Insurance Association of 
      America....................................................    12
Material submitted for the record by:
    Nelson, John C., President-elect and Executive Committee 
      Member, American Medical Association, response for the 
      record.....................................................    60
    Shea, Gerald M., Assistant to the President for Government 
      Affairs, American Federation of Labor and Congress of 
      Industrial Organizations, response for the record..........    65
    Spitznagel, Dede, Executive Vice President, Healthcare 
      Leadership Council, on behalf of Coalition for Affordable 
      Health Coverage, response for the record...................    66
    Young, Donald A., President, Health Insurance Association of 
      America, response for the record...........................    71

                                 (iii)
















              THE HEALTH INSURANCE CERTIFICATE ACT OF 2003

                              ----------                              


                        THURSDAY, JULY 17, 2003

                  House of Representatives,
                  Committee on Energy and Commerce,
                                    Subcommittee on Health,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 1:10 p.m., in 
room 2123, Rayburn House Office Building, Hon. Michael 
Bilirakis (chairman) presiding.
    Members present: Representatives Bilirakis, Norwood, 
Fletcher, Brown, Waxman, Towns, Pallone, Eshoo, Strickland, 
Capps, and Dingell (ex officio).
    Staff present: Nandan Kenkeremath, majority counsel; Yong 
Choe, legislative clerk; Jeremy Allen, health policy 
coordinator; Amy Hall, minority professional staff member; and 
Bridgett Taylor, minority professional staff member.
    Mr. Bilirakis. Good afternoon. And I now call this hearing 
of the Health Subcommittee to order.
    I would like to first thank our panel of witnesses who are 
joining us today. I am sure your insight will help us better 
understand the problem of the uninsured and how legislation 
like H.R. 2698 can help reduce the number of individuals 
without health insurance.
    We all know the numerous problems that not having health 
insurance can cause. The uninsured tend not to access care as 
regularly, and when they do, they often do so in an inefficient 
manner such as through a hospital emergency room. What comes 
for individuals who didn't buy health insurance tends to be 
worse than they would be for individuals with health insurance.
    Section 405 of the Congressional Budget Resolution for 
fiscal year 2004 included a $50 billion reserve fund over 10 
years to be used to help provide health insurance to the 
uninsured. While $50 billion is not enough to guarantee health 
insurance coverage for the tens of millions of Americans 
without health insurance coverage, it is still, I am sure we 
would all agree, a significant sum of money and one we could do 
a lot of good with. There are many reasons why people find it 
difficult to buy health insurance either through their employer 
or on the individual market. And I am sure we will explore some 
of those causes today. I hope some of the discussion today 
centers on a May 2003 report by the CBO, Congressional Budget 
Office, that sheds some new light on the dynamics of the 
uninsured population.
    Notably, CBO found that the majority of the uninsured are 
young, uninsured for only part of a given year and are either 
working or have a family member that works at least part-time 
or for part of the year. The premise behind H.R. 2698 is to 
help as many of these people as possible buy health insurance 
by providing subsidies to low-income individuals and families 
to help them with the cost of their insurance premiums.
    Under the bill as currently drafted, individuals with 
incomes under $13,000 are eligible for a $1,000 health 
certificate which would gradually phaseout at $18,000. Families 
with incomes up to $25,000 would be eligible for a subsidy of 
$2,750 which would phaseout at $34,000. Under limited 
circumstances, eligible individuals would be able to use their 
certificate to help pay for their premiums associated with 
their employer-sponsored health insurance coverage.
    H.R. 2698 also extends the authorization for funding first 
made available through the Trade Act of 2002 for State high-
risk pools. And I would like to thank the gentleman from New 
York, Mr. Towns, for his good work in this area. High-risk 
pools help serve a small but expensive segment of the 
population, those people with high-risk conditions that cause 
them to be turned down for other forms of health insurance. 
Individuals who purchase insurance through a high-risk pool 
have access to a comprehensive health insurance product. While 
their premiums are higher than what they might pay were it not 
for their high-risk conditions, premiums are capped usually at 
no more than 150 percent of what a comparable plan might cost 
in an individual market.
    This design structure means that by definition, high-risk 
pools lose money and need to be subsidized in order to 
function. Up until last year, States usually funded their high-
risk pools through assessments on insurance carriers or through 
other State funding mechanisms. Now, many States will be 
eligible for Federal funding to help them establish new high-
risk pools or to expand their ability to enroll new individuals 
into existing programs.
    I make no claim that the bill before us is perfect or that 
it is in its final form or even that it must be the vehicle to 
help solve this problem, but it does say that this committee 
cares that so many Americans might not have adequate access to 
needed health care, and that hopefully, we can work together to 
try to solve this problem. That is why I opted to have a 
legislative hearing in this subject, so we can better 
understand the strengths and weaknesses of this approach and to 
hear of other possible approaches. I happen to think that this 
is a good bill and will help a lot of people buy health 
insurance that could not otherwise afford it. But again--and 
that this legislation will help the individual insurance 
markets function better, but again, I don't say this concept is 
the only way to go. I am open to whatever good ideas people 
might have to improve this legislation or to consider new 
ideas.
    And with that, I yield to the gentleman from Ohio for an 
opening statement. The gentleman is recognized.
    Mr. Brown. I thank the chairman very much and welcome to 
our witnesses.
    I appreciate the chairman's interest in covering the 
uninsured. There is clearly interest on this side in making 
major steps in covering the uninsured. There are no easy 
answers to this problem. And I commend both the chairman and 
Mr. Towns for taking the initiative in developing a new 
coverage strategy for our consideration. I hope we will have 
the opportunity to hold additional hearings to consider other 
measures focusing on the uninsured.
    H.R. 2461 is one of several coverage measures under the 
jurisdiction of this committee. Other bills, including ranking 
member Dingell's Family Care Act, offer viable options for 
expanding access to coverage. As Congress considers proposals 
like this bill and the President's tax credit approach that 
would subsidize the purchase of individual insurance policies, 
it would also be useful for the committee to address the 
notorious shortcomings of the individual insurance market. 
Barriers to access in the nongroup market are part of the 
problem. While it will be difficult to reform this market in a 
way that both protects individuals from discrimination and 
protects insurers from adverse selection, those reforms are 
absolutely necessary before it can reasonably expect the 
insurance market to be part of the solution. Today's hearing 
provides the subcommittee an opportunity to begin the 
discussion, and, as I said, I commend the chairman on his work 
in this critical area.
    One of the Nation's longest running and most profound 
mistakes is our complacency about insurance access gaps. More 
than half the personal bankruptcies in this country result from 
catastrophic medical expenses. Coverage gaps are a drag on our 
Nation's potential. They compromise our public health goals, 
our families, our productivity, our collective prosperity. The 
chairman has offered a solution featuring insurance vouchers 
and appropriately targeting the largest group of uninsured 
Americans, low-income individuals and families.
    Unfortunately, subsidies like this one hold little 
potential for reducing the number of uninsured. In fact, some 
think this could make the uninsured problem worse. The first 
problem is substitution. Most of the dollars invested in these 
vouchers would go toward reducing the cost of health insurance 
for individuals who are already insured. The bill's $49 billion 
investment health insurance certificates could reduce the 
number of uninsured by 1.2 million or about 3 percent as Mr. 
Greenstein said. That return simply doesn't justify the 
investment. The second problem is the proposal relies on 
individual coverage. The nongroup market is largely unregulated 
and notoriously inefficient and enormously expensive. In many 
States, nongroup premiums vary dramatically based on age and 
medical history. Insurers can refuse to cover some people 
entirely and can apply preexisting condition exclusions. While 
every individual who receives a voucher would have to 
supplement it to buy insurance, older less healthy individuals 
would have to pay far more than the voucher to get the 
coverage, if coverage is even offered to them. Older and less 
healthy individuals should be our first priority, particularly 
when our resources--according to Republican budget plans in 
large part because of a tax cut that has gone overwhelmingly to 
the wealthiest Americans--when resources are so limited. This 
proposal leaves them behind.
    A related problem is the impact on group coverage both 
private and public. Because of the economies of scale and the 
broad pooling of risks, group coverage is inherently more cost-
efficient and stable than individual insurance. That holds true 
whether you are comparing employer-sponsored health plans to 
individual insurance, whether you are comparing Medicaid and 
SCHIP to individual insurance, whether you are comparing 
Medicaid to individual insurance, also known as 
Medicare+Choice. Administrative costs for Medicare and Medicaid 
are significantly under 5 percent. Administrative costs for 
group insurance plans are generally in the 12 to 15 percent 
range. Administrative costs for individual coverage can hit as 
high as 40 percent. If this bill were enacted, some employers 
would likely refrain from sponsoring health insurance. Others 
would drop the plans they sponsor now. Some States may even cut 
back on Medicaid and SCHIP.
    This effect would likely be limited because the bill is 
modest in scope and relies on the appropriations process, and 
therein lies the fourth problem. If these subsidies come and 
go, so could health insurance access. Uncertainty about 
vouchers would undercut the ability of individuals and families 
to budget appropriately for future coverage needs. The last 
thing we want is for these subsidies to provoke substitution of 
individual coverage for public or private group coverage then 
have the subsidies disappear. It is my belief that building on 
successful group insurance models, Medicaid and SCHIP for 
instance, would better serve beneficiaries and taxpayers than 
the individual subsidy approach. It appears the dollars set 
aside in the budget resolution can be used to expand Medicaid 
and SCHIP, and, obviously, it is within our committee's 
jurisdiction to do so.
    I appreciate, Mr. Chairman, your active involvement in the 
uninsured issue. I look forward to the discussion today. Hope 
we can have a wide-ranging discussion of various plans and 
yield back my time.
    Mr. Bilirakis. I thank the gentleman.
    Mr. Dingell, ranking member of the full committee for an 
opening statement.
    Mr. Dingell. Mr. Chairman, I thank you for your courtesy in 
recognizing me.
    I want to thank you, also, for holding the hearing today. I 
believe that the importance of this issue and the many 
different approaches to address it require a hearing so we can 
begin to reduce not only the number of uninsured but also to 
reduce the number of questions associated with how we should 
best do that. I commend you for putting forward the Health 
Insurance Certificate Act, which attempts to address the 
problems of the uninsured.
    There is $50 billion available in fiscal year 2004 Budget 
Resolution for the uninsured, and I believe we should not let 
this opportunity go to waste. I do have some serious concerns 
about the legislation, however, as it is constructed. In 
particular, I worry that this approach does not get the most 
bang for the buck. In other words, it does not cover many of 
the uninsured for the amount it spends. As we hear from the 
witnesses today, estimates indicate that 89 percent of those 
who receive the certificate under this model will already have 
coverage. Thus for the $50 billion spent, it would reach only 
about 1.28 million individuals who previously did not have 
coverage. This is something like the average cost of $39,000 
per newly insured person.
    I am concerned about who will be able to receive coverage 
under the Health Insurance Certificate Act and what kind of 
coverage it would be. There is nothing in this bill that 
guarantees any individual who gets a certificate will be able 
to use it or even that the coverage would provide the benefits 
needed. I fear that this legislation will wind up giving 
Federal dollars, primarily, to young, healthy individuals, 
leaving families and individuals who are older or in less-than-
perfect health, the population most in need of assistance, I 
would note, out in the cold.
    It is no surprise that my friends in the insurance industry 
would line up behind such a proposal. They do not want people 
with high risks in their health insurance plans. And if you 
look at the health plans of this country, most of them make 
their money not by the service they provide or by the 
efficiencies that they achieve, but rather by risk avoidance. I 
am sure that they will certainly take Federal funding to cure 
the healthy. I hope that we will see it differently and that we 
will provide assurances that the care goes to those most in 
need.
    As a Nation it is our job to take care of all who are in 
need, not just to permit cream skimming and the care for the 
easiest, cheapest and the best who are seeking that service. I 
believe that a better approach would be one that builds off the 
existing system of public programs and employer coverage. 
Public programs already have an infrastructure in place and 
proven experience in serving not just the healthy, but also the 
most health-challenged and vulnerable individuals. Public 
programs also guarantee coverage to all who are eligible, 
coverage that is comprehensible, affordable and meets the very 
needs of families, and we know that they are cost effective.
    We must also work to reinforce the existing system of 
employer coverage. We should not be setting up a system for 
healthy, low-cost individuals to flee to individual market 
policies leaving employers with the highest risks and spiraling 
costs. There are many employers out there who provide decent 
coverage for their workers and who want to continue to do so. 
There are also many who would like to but have serious 
difficulties in doing so. We need to shore up these employers. 
But unfortunately, the legislation before us does not do so 
and, in fact, may do some harm.
    Any successful program will have to combine positive 
elements from a variety of approaches. Unfortunately, H.R. 2698 
does need work in order to provide those kinds of approaches. 
It leaves those with the greatest health care on the outside 
looking in. I hope we can explore additional approaches to 
covering the uninsured in this committee before we act.
    I look forward to hearing from today's witnesses. And I 
particularly welcome Mr. Jerry Shea from the AFL-CIO and Robert 
Greenstein who is the Executive Director of the Center on the 
Budget. Gentlemen, thank you for being with us, and thank you 
Mr. Chairman.
    Mr. Bilirakis. And I thank the gentleman.
    Dr. Fletcher?
    Mr. Fletcher. Thank you, Mr. Chairman, and thank you for 
holding this hearing and for your work on helping extend 
insurance and health care coverage for the uninsured.
    When you look at the differences between morbidity and 
mortality and the number of studies, some in the older-age 
population, across the board you see a substantial increase in 
morbidity and mortality, particularly, even hospitalized 
patients that have no insurance versus those who have no 
insurance. We commend your effort, Mr. Chairman, on working 
toward providing more insurance and decreasing the number of 
uninsured.
    Reducing the number of uninsured in my State and the Nation 
is a large priority for me, and I am sure, as well, all of us. 
I am reminded that my bill, H.R. 660 the Small Business Health 
Fairness Act, that recently passed the House, if enacted and 
passed through the Senate, will go a long way toward helping 
small businesses provide their employees with health care 
coverage. It now makes sense that we turn our attention to 
workers and their families, providing them with the helping 
hand to purchase insurance coverage that they can barely afford 
now or even worse, go without all together.
    In addition to helping those who have no insurance, I am 
pleased to see that this bill helps employees who currently 
have some health care coverage, giving those individuals the 
proper incentives and assistance to keep their current coverage 
because as we look across the market and across the Nation, we 
see an increasing number of uninsured because it becomes more 
and more difficult for individuals to even afford their share 
of the health care offered them. Overlooking this critical 
policy point would punish those who are already making 
sacrifices to purchase coverage for themselves and their 
families. I am pleased to see that the bill recognizes the 
importance of States high-risk pools and, accordingly, provides 
additional funding for those unable to purchase health care 
coverage in the traditional private market. We know that 
uninsured Americans face poor medical outcomes and in turn 
higher mortality, as I mentioned. A lack of coverage will also 
lead to less efficient use of health care services and 
facilities.
    Those who may express concerns with the bill's cost need to 
understand that the uninsured often must seek care in the most 
costly settings, for example, the emergency room. And other 
unreimbursed costs that are absorbed by our hospitals and 
physicians are by necessity shifted to paying patients, raising 
health care costs for everyone. I look forward to the 
discussion on this important legislation and know there will be 
some good ideas presented about how we might improve this 
legislation.
    And again I want to thank the chairman who put forth a good 
bill, and I commend him on his efforts.
    Mr. Bilirakis. I thank the gentleman.
    Mr. Pallone for an opening statement?
    Mr. Pallone. Thank you, Mr. Chairman, for holding this 
hearing on what I consider an important issue, the uninsured. 
The country's woeful situation of the lack of access for health 
care coverage, which according to a recent IOM report reached 
75 million uninsured Americans at any point during the year, is 
a problem that is not going away, especially in the light of 
our deeply troubled economy.
    I know that the subcommittee is primarily evaluating 2698 
today, and I just wanted to say that I'm afraid evaluating one 
proposal or focusing on what happens to piggyback off what the 
President requested, is really a nonstarter, in my opinion, 
when addressing the complex and tremendous crisis of both the 
uninsured and our flawed health insurance market.
    In looking at H.R. 2698, I find that this means-tested 
program that provides subsidies to low- and low-middle-income 
families is inadequate, and I think derisive. It seems to me 
the problem of the uninsured is not fully addressed since the 
amount of subsidies being offered would never provide enough 
assistance to purchase skimpy coverage, let alone comprehensive 
coverage. Moreover, the bill is set up to provide subsidies to 
those who are already paying for health insurance coverage in 
some cases. And I am all for providing help to those who are 
underinsured, but if we are spending $50 billion over the next 
10 years, and we are planning on trying the help the uninsured, 
then I think we need to evaluate some meaningful way to provide 
comprehensive, affordable coverage to those millions and 
millions of Americans who currently have no health insurance at 
all.
    In addition to this bill today, we should be looking at a 
number of proposals. For example, if everyone likes tax credits 
so much, then we should consider tax credits that can be used 
toward purchasing employer-based health insurance that 
guarantees a basic package of benefits, or tax credits for 
hard-pressed small businesses to offer health insurance to 
their employees. I am in favor and have both introduced in the 
past and plan to reintroduce employer-mandate legislation that 
requires businesses of 50 employees and above to offer health 
insurance to their employees. Any of these types of initiatives 
that ensure a strong and stable system of employer-based health 
insurance should be discussed today if we intend to have a real 
discussion about providing health care protections to uninsured 
populations.
    In addition, it is our responsibility to evaluate the 
expansion of government programs that have been successful in 
providing coverage to certain vulnerable pockets of population, 
such as the parents of children eligible for CHIP or the near-
elderly population age 55 to 65.
    I know that we need to deal with the problem with the 
uninsured, and I know it is a crisis, but I just have to say, 
Mr. Chairman, States are broke. Employers are shifting 
burdensome insurance costs to their employees, and I think we 
need to get away from this health certificate idea, the tax 
credits proposed by the President, because I don't really think 
they are a viable option, and there are a lot of other options 
that are viable that should be considered instead.
    Thank you Mr. Chairman.
    Mr. Bilirakis. The Chair thanks the gentleman.
    Mr. Towns, for an opening statement.
    Mr. Towns. Thank you very much, Mr. Chairman.
    I would like to begin by thanking you for holding this 
hearing. Health insurance safety nets help a small but critical 
segment of our population and their importance cannot be 
overlooked, and I want to thank you----
    Mr. Bilirakis. Would the gentleman please continue. I would 
announce since we have been rudely interrupted, there are a 
series of six votes. And shortly thereafter, we are going to go 
into the joint meeting with Prime Minister Tony Blair. So right 
after the six votes, we will come back and do the best that we 
possibly can.
    Mr. Towns. Thank you, Mr. Chairman.
    Even in the world's greatest health care system, sick 
people are often unable to access affordable health insurance. 
According to Communicating for Agriculture, 1 percent of our 
population has been deemed medically uninsurable. They cannot 
qualify for standard health insurance coverage because of 
preexisting health conditions, which makes it difficult to find 
affordable health insurance.
    Health insurance safety nets are special programs created 
by State legislatures to provide needed coverage for people who 
are medically uninsurable. The way they work is fairly simple. 
The programs operate as State-created, nonprofit associations 
overseen by a board of directors which often include industry, 
consumer and State insurance department representatives. The 
board contracts with an established insurance company to 
collect premiums, pay claims and administer the program on a 
day-to-day basis. Currently 30 States have safety net plans, 
and approximately 153,000 people were covered by these plans 
last year. Safety net plans do not take the place of Medicare, 
Medicaid or any other State or Federal health care programs. 
They are largely temporary measures used to fill gaps in 
coverage; the average length of enrollment in such programs is 
approximately 30 months. Last year Congress recognized the 
value of health insurance safety nets and appropriated $100 
million for State-based programs.
    H.R. 1110, the State High-Risk Pool Funding Extension Act, 
currently with 41 cosponsors, extends initial Federal funding 
for an additional 5 years, thus allowing States to continue 
providing affordable health care to the population with the 
greatest need, including individuals with severe illnesses such 
as Parkinson's disease, diabetes and cancer.
    This legislation also makes funds available for States 
without health insurance safety net plans to put such programs 
in place. As an original cosponsor, I am pleased that language 
extending the high-risk pool was included as part of H.R. 2698.
    I look forward to the testimony of the witnesses today. I 
would like to conclude by saying although this might not be a 
perfect bill, it is a giant step and I am happy that we are 
moving in the right direction.
    Thank you very much, Mr. Chairman, and I yield back on that 
note.
    Mr. Bilirakis. The Chair thanks the gentleman.
    Let us see who is next, Ms. Capps.
    Ms. Capps. Do we still have the option----
    Mr. Bilirakis. Yes.
    Mr. Bilirakis. Mr. Waxman.
    Mr. Waxman. Thank you very much, Mr. Chairman. I am pleased 
you called this hearing, and I know we have a very 
distinguished panel that at some point is going to be able to 
tell us their views on this legislation and the problem 
generally of 41 million uninsured in this country.
    It is a disgrace, it is shameful, but this isn't the first 
time we have said this. We've been saying that statement for 
almost 30 years. And what we have are so many millions of 
people in this country without insurance. So if we are going to 
do something about the problem, we ought to look to see what we 
can do with very limited money and make sure we spend it wisely 
and also make sure we don't make the problem worse by 
encouraging employers to drop coverage.
    My colleagues have said there are other alternatives. I 
want to repeat that there are other alternatives. We ought to 
make sure that we protect the coverage of public programs like 
Medicaid and SCHIP. And we should look at other ideas as well 
like the Family Care Act offered by Mr. Dingell. Another idea 
would be to buy into Medicare for spouses or persons who lose 
their jobs and eliminate the Medicare 2-year waiting period for 
disabled people.
    Today, however, we are looking at only one option and that 
option has some problems with it. In my view, that option is 
subject to the vagaries of the appropriations process. And if 
we rely on an approach where we are looking for appropriations 
each year, we are starting out with a flat amount that is 
inadequate to purchase reasonable coverage and in future years 
we can expect that it is going to be further lagging behind the 
obvious increase in health care costs, which also is an 
approach that could well result in employers dropping group 
coverage and public programs being scaled back with the 
unfortunate effect of making the problem worse instead of 
better. It relies on the individual insurance market, which is 
already notorious for failure to provide assured and affordable 
coverage for people with or are likely to have health problems, 
and, by all estimates, is not very effective in reducing the 
number of the uninsured. But my point is not to be so critical 
of this one approach per se, but to point out that this 
subcommittee must surely provide equal attention to other 
approaches to covering the uninsured, which at least, in my 
view, are much more likely to make a meaningful contribution to 
addressing the problem. Shouldn't we owe the 41 million 
Americans without health insurance no less?
    Mr. Chairman, I look forward to the testimony of the 
witnesses at some point today. Perhaps we ought to ask Prime 
Minister Blair not just to tell us of his ideas on intelligence 
and the Iraq nuclear weapons. Maybe we ought to get some of his 
ideas on health care. At least they cover all their people, 
which may not be the best approach for us, but they are doing 
something we haven't done. And that only shows in a glaring way 
how we have failed to treat all Americans with the dignity that 
they deserve.
    Mr. Bilirakis. The Chair thanks the gentleman for his 
comments.
    Ms. Eshoo for an opening statement. And then we will break 
for approximately an hour. I can only guess how long that will 
take. I apologize.
    Ms. Eshoo. Good afternoon, Mr. Chairman, and thank you for 
having this hearing. And a warm welcome to the very 
distinguished panelists that are here to testify before us.
    It has been stated that over 40 million Americans are 
without health insurance at any given time in our country. 
Given that we are the wealthiest Nation on the face of this 
earth, I think that that is a black eye for a great Nation.
    So I look forward to what we are going to discuss today in 
the examination of at least one solution that is out there, and 
maybe meld some ideas that members would have in order to make 
this legislation stronger and better, and really serve people 
well. The committee, I think, should pause before we actually 
shape a solution here, because I think we need to, after 
looking at the legislation--and I have met with the chairman 
and his staff on this, because I think we have the collective 
obligation to do something about this, but I think we need to 
take a step back and examine the fundamentals of the problem.
    Who are the uninsured? What are their demographics? In 
order to best help people, we need to tailor a bill that will 
provide solutions that really fit their life circumstances. How 
are we going to ensure that any solution we provide, such as 
the health certificates that the chairman is proposing, won't 
diminish the coverage already provided by employers. We have to 
be careful to supplement current insurance options and not 
supplant them. I think it is very important that we determine 
whether the benefit being proposed is workable. Health 
certificates provide individuals with a specific amount of 
money to purchase insurance. In a way, it reminds me of Section 
8 certificates at home. When people finally get that 
certificate, in an area where housing is a real premium in my 
district and certainly in the bay area, there is not housing to 
be found, even though you have the certificate in your hand. So 
how stable is the insurance market that this plan is reliant 
upon? We have to examine that.
    I also think we should take into consideration what already 
is in place in our country. There is $50 billion, with a B, on 
the table. It is not enough to cover some of the 40 plus 
million in our country. How can we best, really get the best 
bang for the buck and use the $50 billion and optimize it?
    So I don't know the answers to these questions, to all of 
them. I have some ideas about them. I do have a commitment to 
helping the uninsured. I really don't know how parents can wake 
up in the morning and know that if something happens or already 
has happened to their children that they don't have coverage. 
It is an undignified situation. We can do so much better in our 
country. We do have collective intellect here, in the private 
sector, and with those that are testifying here today to help 
shed some light on this issue. So I look forward to gaining 
even more knowledge today. I think as much as each one of us 
thinks we know, we could learn more.
    I thank the chairman for raising the issue and for the 
witnesses who are here today.
    Mr. Bilirakis. And I thank the gentlelady for her comments. 
I have heard some of them before, and I certainly agree with a 
large number of them.
    [Additional statements submitted for the record follow:]
 Prepared Statement of Hon. W.J. ``Billy'' Tauzin, Chairman, Committee 
                         on Energy and Commerce
    Thank you Mr. Chairman: I want to commend you for holding this 
hearing and thank Chairman Bilirakis, Mr. Towns, Mr. Walden, and Mr. 
Fletcher for sponsoring H.R. 2698, the Health Insurance Certificate Act 
of 2003.
    We are embarking on a bipartisan effort to assist uninsured 
Americans. Unfortunately, the problem of the uninsured in America has 
been a persistent one. For a few years, the strong economy and low 
health care cost inflation seemed to make a dent in the problem of the 
uninsured. Now I fear that rising health care costs and a weaker 
economy jeopardize these gains. Employers, and particularly small 
businesses, face increasing pressures, which make provision of health 
insurance benefits difficult. We need to ease some of their pressures 
and ensure that the numbers of the uninsured always continue to 
decline.
    H.R. 2698, the Health Insurance Certificate Act of 2003, is an 
income-related program designed to reduce the number of uninsured 
Americans by providing subsidies to low and low-middle income families 
for the purchase of health insurance coverage. In some cases, the bill 
will simply reduce the financial burden of those who have already been 
paying for health insurance coverage--a modest, but meaningful step. 
The bill also incorporates provisions of H.R. 1110, the State High Risk 
Pool Funding Extension Act of 2003. These provisions will help those 
who have historically had difficulty procuring coverage in the 
individual market.
    Our legislation is a step in the right direction in addressing the 
plight of the uninsured. As you all know, the uninsured often have less 
access to care than those who are insured. They are more likely to 
delay obtaining care and frequently receive their health care services 
in a more costly emergency room setting. In addition, providers of 
health care are often uncompensated for the care that they provide to 
uninsured individuals. As a result, they often shift the cost of that 
care to other private and public payers.
    This bill emphasizes a number of important values and marries smart 
policy with new resources. These values include individual choice of 
insurance plans, portability, a strengthening of private sector 
insurance mechanisms, and accountability. I know the bill won't solve 
all the problems of the uninsured but it will make a difference.
    Let me stress: today's hearing is meant for us to explore this 
issue carefully. I remain open to good ideas and suggested ways to 
improve this legislation. However, the amount of money we can spend to 
address this problem this year is set by the budget agreement. So let's 
work within those parameters to produce the best bill possible.
    I would like to thank all of today's witnesses for lending us their 
expertise on this matter. This issue may be one of the most important 
health care matters that we consider this Congress. It would be a shame 
if we didn't find a way to legislate some solutions to this pressing 
problem.

    Mr. Bilirakis. Well, we are going to break now. And again, 
I apologize in advance, but probably an hour or so. Give you a 
chance to grab a bite to eat or whatever.
    [Brief recess.]
    Mr. Bilirakis. Our panel today consists of Dr. Donald A. 
Young, President of Health Insurance Association of America; 
Dr. John C. Nelson, President-Elect and Executive Committee 
Member of the American Medical Association; Mr. Gerald M. Shea, 
Assistant to the President for Government Affairs, American 
Federation of Labor and Congress of Industrial Organizations, 
better known as AFL-CIO; Ms. Dede Spitznagel, Executive Vice 
President of Healthcare Leadership Council on behalf of the 
Coalition for Affordable Health Coverage; and Mr. Robert 
Greenstein, Executive Director of the Center on Budget Policy 
Priorities.
    Mr. Shea is not back yet. Well, all right. Well, gentlemen 
your written statements are a part of the record, and I 
apologize very much for not only the delay, but not having more 
members here. But that is the way it is up here. They just come 
and go. It is a very busy place. Your written statements are a 
part of the record, and we hope--what in the world is going on 
now?
    I believe that is recess subject to the call of the Chair. 
And I will place the clock at 5 minutes, but if you are on the 
roll or something of that nature, I will certainly allow you 
some lead time.
    Dr. Young--again thanks to all of you for being here and 
your understanding and patience.
    Please proceed sir.

  STATEMENTS OF DONALD A. YOUNG, PRESIDENT, HEALTH INSURANCE 
  ASSOCIATION OF AMERICA; JOHN C. NELSON, PRESIDENT-ELECT AND 
   EXECUTIVE COMMITTEE MEMBER, AMERICAN MEDICAL ASSOCIATION; 
   GERALD M. SHEA, ASSISTANT TO THE PRESIDENT FOR GOVERNMENT 
     AFFAIRS, AMERICAN FEDERATION OF LABOR AND CONGRESS OF 
   INDUSTRIAL ORGANIZATIONS; DEDE SPITZNAGEL, EXECUTIVE VICE 
    PRESIDENT, HEALTHCARE LEADERSHIP COUNCIL, ON BEHALF OF 
     COALITION FOR AFFORDABLE HEALTH COVERAGE; AND ROBERT 
  GREENSTEIN, EXECUTIVE DIRECTOR, CENTER ON BUDGET AND POLICY 
                           PRIORITIES

    Mr. Young. Chairman Bilirakis and members of the committee, 
HIA appreciates this opportunity to discuss your efforts to 
make health insurance coverage more affordable for low-income 
Americans.
    In 1998 HIA Board of Directors formally adopted a 
comprehensive set of public policy recommendations, known as 
InsureUSA, to expand access to affordable health insurance 
coverage for all Americans. This initiative became a key 
legislative priority for our association. A summary of the 
InsureUSA proposal is attached to my testimony.
    As the proposed Health Insurance Certificate Act of 2003 
recognizes, the best way to reduce the number of the uninsured 
is to start with low-income individuals and their families. 
Over half of the uninsured live in families with incomes less 
than two times the Federal poverty level. Low-income 
individuals are less likely than others to have access to 
employer-sponsored health benefits, and when they are offered 
coverage at work, are more likely to turn it down. When asked, 
they consistently cite the cost as the primary reason for 
declining coverage. To make health care coverage affordable for 
all Americans, we must provide a meaningful subsidy to those 
who do not have the income to buy it on their own.
    I am pleased to support H.R. 2698. This proposed 
legislation is consistent with HIA's InsureUSA proposal, which 
calls for providing direct financial subsidies through 
certificates, vouchers or refundable tax credits to the working 
poor to help them buy into the same private health insurance 
programs serving their neighbors and coworkers. We are 
particularly pleased that the subsidies may be applied toward 
the purchase of employer-subsidized coverage. Roughly one out 
of every five nonelderly uninsured individuals has been offered 
employment-based coverage but turned it down. Where employer-
subsidized coverage is available helping uninsured individuals 
take advantage of it is a common sense way of expanding 
coverage. Requiring health insurance certificates to be used 
toward the purchase of plans that meet the Health Insurance 
Portability and Accountability Act of 1996 definition of 
credible coverage will ensure that the coverage obtained will 
be a primary health plan and not a limited-benefit hospital 
indemnity or other supplemental plan. Eligible individuals 
offered health benefits at work will be able to apply their 
certificate toward their employer's health plan without placing 
complex and burdensome requirements on employers. Other 
eligible individuals will be able to shop for the coverage that 
best meets their needs and the needs of their families just 
like any other consumer.
    We are pleased to see that this proposal includes 
additional Federal funding for State-sponsored high-risk pools. 
Well-managed high-risk pools have proven to be an effective 
mechanism for ensuring access to health insurance coverage for 
individuals with serious medical conditions and do so without 
disrupting the private individual health insurance market on 
which millions of other consumers depend.
    We welcome your efforts to help low-income Americans more 
easily afford private health insurance coverage. We strongly 
support the proposed Federal financial assistance for State 
high-risk pools. We would welcome the opportunity to work with 
you and your staffs in this effort and in future efforts to 
address the needs of the uninsured.
    Thank you, Mr. Chairman.
    [The prepared statement of Donald A. Young follows:]
  Prepared Statement of Donald A. Young, President, Health Insurance 
                         Association of America
                              introduction
    Chairman Bilirakis and members of the committee, HIAA appreciates 
this opportunity to discuss your efforts to make health insurance 
coverage more affordable for low-income Americans. HIAA is the nation's 
most prominent trade association representing the private health care 
system. Our nearly 300 members provide health, long-term care, dental, 
disability, and supplemental coverage to more than 100 million 
Americans. Our members also provide stop-loss coverage to employers 
sponsoring self-funded health benefit plans, and reinsurance coverage 
to other health insurers. In addition, we are the nation's premier 
provider of self-study courses on health insurance and managed care.
    HIAA has long been concerned about the growing number of uninsured 
Americans; we believe this is one of the most important health policy 
challenges facing the nation. The nature of this challenge is well 
understood. Research consistently demonstrates that the primary reason 
more than 41 million Americans lack health insurance coverage is that 
they simply cannot afford it. Any meaningful expansion of coverage 
must, of necessity, address the underlying issue of affordability. For 
most of the uninsured, for whom limited income is the primary barrier 
to coverage, this means someone else must help pay for the coverage 
they need. Of course, while we are focusing right now on the needs of 
the uninsured, it is important to remember that cost is an issue for 
everyone--anything we can do to help control the rising cost of health 
care will ultimately make health insurance more affordable for 
everyone.
    Back in 1998, HIAA established a task force of experts from member 
companies to develop a new association policy on how best to extend 
health insurance coverage to more uninsured Americans. This task force 
developed a comprehensive set of public policy recommendations, known 
as InsureUSA, for guaranteeing access to affordable health insurance 
coverage to all Americans. The HIAA Board of Directors formally adopted 
InsureUSA in May of 1999. This initiative became a key legislative 
priority for our association, and we actively promoted it in the media 
and in a variety of public policy forums.
    Early in 2002, HIAA formed a new Task Force on the Uninsured to 
review HIAA policy on the uninsured and make any adjustments necessary 
to reflect changes in the environment since 1999. We were pleased to 
find that the original InsureUSA proposal had stood the test of time 
quite well; only relatively minor fine-tuning was needed. The 
refinements proposed by the new task force were accepted, and HIAA's 
commitment to this issue, were reaffirmed by the Board of Directors in 
October of last year. A summary of the InsureUSA proposal is attached.
    As the proposed ``Health Insurance Certificate Act of 2003'' 
recognizes, the best place to start reducing the number of uninsured is 
with low-income individuals and their families. The greatest number of 
the uninsured fall within this population segment, and they are also 
the ones who need help the most. Over half the non-elderly uninsured 
live in families with incomes below two times the federal poverty 
level. Low-income individuals are less likely than others to have 
access to employer-sponsored health benefits, and when they are offered 
coverage at work, are more likely to turn it down. When asked, they 
consistently cite cost as the primary reason for declining coverage. 
Low-income families face many competing financial demands. All too 
often, there simply isn't enough income left over to pay for health 
insurance. If we are ever to make significant headway towards making 
health care coverage affordable for all Americans, we must provide a 
meaningful subsidy to those who do not have the income to buy it on 
their own.
                        details of the proposal
    I am pleased to support H.R. 2698 as it is broadly consistent with 
HIAA's InsureUSA proposal. HIAA strongly supports federal financial 
assistance for the working poor to help them buy the health insurance 
coverage they need. A key component of InsureUSA calls for providing 
direct financial subsidies (i.e., certificates/vouchers or refundable 
tax credits) to the working poor to help them buy into the same private 
health insurance programs serving their neighbors and coworkers.
    We are particularly pleased to note that the subsidies provided by 
H.R. 2698 may be applied towards the purchase of employer-subsidized 
coverage. This feature, which is also part of InsureUSA, is vital. 
Roughly one out of every five non-elderly uninsured individuals has 
been offered employment-based coverage, but turned it down;1 
where employer-subsidized coverage is available, helping uninsured 
individuals take advantage of it is a common-sense way of expanding 
coverage. It is also very important to avoid undermining the 
employment-based health insurance system; after all, almost nine out of 
every ten Americans with private health insurance is covered through 
that system. The employment-based health coverage--currently covering 
more than 160 million non-elderly Americans--is the most efficient 
mechanism for covering workers and their families, and should remain a 
key component of our health insurance system.
---------------------------------------------------------------------------
    \1\ Peter J. Cunningham, Elizabeth Schaefer, and Christopher Hogan, 
Who Declines Employer-Sponsored Health Insurance and is Uninsured? 
Center for Studying Health System Change, Issue Brief Number 22, 
October 1999.
---------------------------------------------------------------------------
    While including individuals offered coverage at work within the 
scope of the subsidy might seem expensive to some, we believe it to be 
a valuable long-term investment. For those who are currently uninsured, 
helping pay for the employee's share of the premium will almost always 
be less expensive than providing public coverage. Allowing the subsidy 
to help other low-income workers, who have already made the decision to 
participate in employer-sponsored coverage, is no waste of federal 
resources; by helping those workers who are least able to deal with the 
ever-rising cost of coverage, it is a common-sense way to help 
stabilize the system and forestall further erosion of coverage. As you 
continue to refine the proposal, we would encourage you to make every 
effort to avoid inadvertently undermining the efforts employers are 
making to provide health benefits to workers and their families.
    Allowing health insurance certificates to be used towards the 
purchase of plans that meet the Health Insurance Portability and 
Accountability Act of 1996 (HIPAA) definition of ``creditable 
coverage'' strikes an appropriate balance, allowing for consumer choice 
and flexibility, while still ensuring that the funds will go towards 
the purchase of primary health coverage. Eligible individuals offered 
health benefits at work will be able apply their certificate towards 
that health plan--the same health plan used by their higher-wage 
coworkers--without placing complex and burdensome requirements on 
employers. Other eligible individuals will be able to shop for the 
coverage that best meets their needs and the needs of their families--
just like any other consumer. At the same time, the HIPAA requirements 
will ensure that the coverage obtained will be a primary health plan, 
and not a limited benefit, hospital indemnity, specified illness or 
other supplemental benefit policy.
    We are also pleased to see that this proposal includes additional 
federal funding for state-sponsored high-risk pools--an additional $35 
million for fiscal year 2004, and $75 million annually for fiscal years 
2005 through 2009. Well-managed high-risk pools have proven to be an 
effective mechanism for ensuring access to health insurance coverage 
for individuals with serious medical conditions, and do so without 
disrupting the private, individual health insurance market on which 
millions of other consumers depend. Federal support for these risk 
pools is another key element of InsureUSA.
                         potential refinements
    Eligibility for the H.R. 2698 certificates is limited to 
individuals who are not eligible for public coverage--for instance, 
low-income singles or childless couples who are not elderly or 
disabled. We would suggest that you consider expanding eligibility to 
include all those who are not enrolled in public programs. As it 
stands, individuals or families who qualify for Medicaid or S-CHIP but 
who, for whatever reason, have chosen not to enroll are not eligible 
for a health insurance certificate. However, many eligible individuals 
may not enroll in public programs such as Medicaid and S-CHIP due to a 
perceived stigma. Providing the certificate as an alternative has the 
potential to help some of these individuals who cannot be reached--or 
simply do not wish to be served--through public programs. Since the 
value of the certificates is significantly less than the value of 
Medicaid or S-CHIP, those who elect the certificates would actually be 
choosing a coverage option involving lower federal expenditures.
    H.R. 2698 also applies an asset test; it bases eligibility not just 
on income, but on how much an individual owns as well. Asset testing is 
important when providing Medicaid coverage to seniors, where retirees 
who need long-term care services and have significant assets might 
otherwise be tempted to limit their income to qualify for Medicaid 
coverage while still preserving their assets. Individuals in a long-
term care facility present a special case regarding income. Once the 
monthly facility fee is paid for room and board, they have relatively 
few out-of-pocket expenses, and can afford to minimize their realized 
income. Fewer non-elderly individuals will combine very low incomes 
with significant assets. We would urge you to consider carefully 
whether such an asset test is cost-effective with a much younger 
population. Administering an asset test will complicate the program, 
and may well cost more than it saves.
    You may also want to consider whether the size of the subsidy, when 
used in the individual market, should vary by age. Health care needs 
and in turn, the cost of health care coverage, rise significantly with 
age. A fixed certificate amount will constitute a proportionately 
larger subsidy for younger individuals, and cover a smaller percentage 
of the cost of coverage for older individuals. There may be some 
justification for providing an additional incentive to young adults, 
because they are more likely to be uninsured than any other demographic 
group. Nonetheless, given the rapid increase in costs with age, we 
believe it may be appropriate for the dollar value of any certificate 
or credit to increase as well. Balancing the need younger adults have 
for additional encouragement to buy coverage against the needs of older 
adults facing larger premiums makes for a difficult trade-off--
particularly during a time of limited budgets.
                               conclusion
    We welcome your efforts to help low-income Americans pay for the 
health insurance coverage they need. HIAA strongly supports direct 
federal financial assistance for the working poor to help them buy the 
health insurance coverage they need We believe that subsidizing the 
cost of private coverage is the most appropriate way to expand coverage 
for the working poor, and that this must be done in a way that does not 
undermine the employment-based system of coverage on which over 160 
million non-elderly Americans depend. We also strongly support federal 
financial assistance for state high-risk pools, which provide a vital 
safety net for individuals with serious health conditions.
    We would welcome the opportunity to work with Members and their 
staffs in this effort, and in future efforts to address the needs of 
the uninsured.
                                 ______
                                 
                               InsureUSA
                      covering america's uninsured
           Covering the Uninsured: HIAA's InsureUSA Proposal
    Tens of millions of Americans still lack health insurance. To solve 
this enormous problem, Congress must act to help these Americans afford 
the health care coverage that they, and their families, need. HIAA's 
InsureUSA proposal (www.insureusa.org) offers a series of practical 
initiatives that would provide coverage for most of the nation's 
uninsured.
    The time is ripe for action. The number of uninsured Americans grew 
steadily during most of the 1990's. While there was a two-year hiatus 
at the peak of the economic expansion, this was a brief pause in a 
steady trend that had lasted more than a decade. The growth in the 
uninsured has resumed with the current economic downturn. According to 
the U.S. Census Bureau, over 41 million Americans have no health 
insurance coverage.
    To increase coverage, health insurance must be more affordable for 
more Americans. The main reason that Americans are uninsured is because 
they cannot afford health insurance coverage. Many well-intentioned 
attempts at insurance market reform have had the effect of increasing 
the cost of coverage and increasing the net number of individuals 
without health insurance. Reforms, therefore, should both reduce the 
costs of health insurance and provide financial support for those who 
otherwise cannot afford coverage.
    Multifaceted problem requires multifaceted approach. While 
affordability is the primary reason people lack health coverage, the 
uninsured have many faces. Rather than advocating a singular approach 
to insuring more Americans, we are advocating a 5-point program 
designed to attack the underlying reasons that people are uninsured.
    A strong, vibrant private health insurance market should remain a 
cornerstone of our health care system. Expanded coverage must be 
achieved through means that do not threaten the coverage of other 
Americans or damage the existing private market. Competitive markets 
remain the most efficient and responsive mechanisms to provide 
consumers with coverage. Regulations that stifle innovation, 
flexibility and responsiveness to consumers should be strongly 
discouraged. For example, nothing in the proposal should be interpreted 
as favoring public coverage over private or as requiring health 
insurers to operate in markets in which they have chosen not to.
    Reforms should make health coverage more affordable within the 
context of the employment-based private health care system, rather than 
destroying it. Nine in every 10 Americans with private health coverage 
get their health insurance through their employer. While the percentage 
of Americans with employment-based health coverage has declined 
somewhat in the wake of the recent economic slowdown, steady increases 
in coverage during most of the 1990s demonstrate the strength and 
resiliency of this system.
    The new initiative should be financed with broad-based funds. 
Rather than recommending specific sources to finance this series of 
initiatives on the uninsured, HIAA recommends that funding decisions be 
left to state and federal policymakers. Policymakers should be 
encouraged to finance these proposals with broad-based funding sources. 
For instance, stable, on-going funding is critical to the success of 
any risk pool. Policymakers should consider general revenues, as well 
as state funds related to health (such as tobacco-related recoveries) 
as possible financing sources.
                       key elements of insureusa
    The InsureUSA proposal has 5 key components:

 Extending the safety-net for Americans living below the federal 
        poverty level
 Giving the working poor the help they need to buy their own coverage
 Guaranteeing access to coverage for uninsurable individuals through 
        broad-based funding for state high risk pools
 Encouraging greater coverage for individuals and small businesses 
        through enhanced tax incentives
 Extending and enhancing Archer Medical Savings Accounts (MSAs)
                i. covering very low-income individuals
    Conceptual approach: Extend the current social safety net 
obligation currently fulfilled by Medicaid to include all adults below 
100% of the federal poverty level, regardless of family structure. 
Medicaid, the joint state-federal program designed to provide health 
insurance coverage to low-income Americans, does not extend coverage to 
all poor people. For example, married couples without children and men 
are generally not eligible for Medicaid coverage unless they are 
disabled. A government-sponsored program is proposed based on the 
assumption that individuals with family incomes below 100% of the 
federal poverty level have at best a tenuous connection with the work 
force (only 17.5% of non-elderly Americans in this income range have 
employment-based coverage).
    Target population: Individuals and families with incomes below 100% 
of the federal poverty level who are not eligible for other federal or 
state subsidized health insurance coverage such as, but not limited to, 
Medicaid, Medicare or the Children's Health Insurance Program (S-CHIP).
    Key elements of the proposal:

 Expansion of public program to provide health insurance to all 
        individuals with incomes below 100% of poverty.
 Funding and structuring program are both fundamentally government 
        responsibilities.
 Joint federal/state funding and program structure would be based on 
        the S-CHIP program.
 States would be given significant flexibility with regard to 
        coverage, benefits and program structure, as in the current 
        Health Insurance Flexibility and Accountability (HIFA) 
        demonstration initiative.
 States would be encouraged to use program funds to subsidize coverage 
        under private employer-sponsored health plans for poor 
        individuals eligible for such plans.
                     ii. covering the working poor
    Conceptual approach: Subsidize the cost of private health insurance 
coverage for the near poor and working poor. Subsidized private 
coverage is proposed because this population segment largely consists 
of low-income working individuals who in many cases have access to 
employer-sponsored coverage (45% of non-elderly Americans with family 
incomes between 100-200% of the federal poverty level have employment-
based coverage) and it is neither necessary nor desirable to replace 
private coverage with a government-sponsored program. The subsidy 
should be large enough to make coverage substantially more affordable 
for low-income individuals, but should not be so large as to encourage 
over-insurance. Because the cost of coverage varies significantly by 
age, family size and geographic location, it is critical to provide a 
subsidy that is equitable for individuals in different situations.
    Target population: Individuals and families with incomes between 
100% and 200% of the federal poverty level who are not eligible for 
current subsidy programs (e.g., Medicaid, Medicare or S-CHIP).
    Key elements of the proposal:

 A refundable tax credit or direct federal voucher provided to 
        individuals with incomes between 100% and 200% of poverty based 
        on taxable income.
 If eligible individuals have access to an employer-sponsored plan, 
        the credit or voucher would be used for the employee 
        contribution.
 If no employer-sponsored plan is available, then the credit or 
        voucher may be used towards any coverage meeting the Health 
        Insurance Portability and Accountability Act (HIPAA) definition 
        of ``creditable coverage'' for which the individual is 
        eligible.
 If a tax credit is used:
     It should be equal to 60-75% of the premium. A percentage of 
            premium credit allows for variations in cost by age, family 
            size and location.
     The credit should be refundable, in order to help low-income 
            taxpayers.
     Ways to make the credit advancable should be explored.
 If a voucher is used:
     The voucher amount should be based on an objective measure of the 
            cost of providing health benefits, and should represent 
            roughly 60-75% of the cost of coverage (e.g., equal to 75% 
            of the national average Federal Employee Health Benefit 
            Plan (FEHBP) premium).
     The voucher should be adjusted for geographic and demographic 
            variations in cost.
     The voucher should be redeemable by health plans for actual 
            premiums up to the full face-amount and electronic 
            assignment of vouchers and transfer of funds would be 
            encouraged to facilitate administration.
   iii. guaranteeing access to coverage for uninsurable individuals 
                     through state high-risk pools
    Conceptual approach: Authorize broad-based federal funding to 
encourage states to guarantee uninsurable individuals (those who would 
not qualify for private, medically underwritten individual policies) 
access to coverage through high-risk pools. While some states have 
chosen to implement other mechanisms to guarantee access to coverage, 
guaranteeing access to coverage through high-risk pools should be the 
preferred approach. Financing for high-risk pools at both the state and 
federal levels should be provided through broad-based funding.
    Target population: Individuals who may be able to afford to pay a 
meaningful premium, or have a voucher or other subsidy available to pay 
a premium, but who do not qualify for private coverage due to health 
status.
    Key elements of the proposal:

 Provide federal seed money to states without high-risk pools for 
        start-up costs (program design and administration, initial 
        reserves, outreach, etc.).
 Provide federal block grants for all states to defray administrative 
        costs of high-risk pools.
 Provide 50-50 federal matching funds for the underwriting losses of 
        pools (claims minus premiums). However, if a pool sets premiums 
        below 150% of a standard private market rate, the match will be 
        calculated as if the premiums were set at 150% of standard.
 To receive funds, state pools must have lifetime maximum benefits of 
        no less than $1 million, and meet NAIC model high-risk pool 
        standards.
 Federal reinsurance program for qualifying state high-risk pools will 
        cover 75% of claims over $1 million for an individual pool 
        enrollee (indexed to medical CPI).
 The Secretary of Health and Human Services (HHS) will establish pools 
        in states if the state has not sponsored a pool (federal funds 
        will be matched by withholding appropriate federal matching 
        funds in such states).
 Any new state or federal funding for this program must be stable and 
        broadly-based.
 States should replace guaranteed issue and community rating 
        requirements in the individual health insurance market with 
        guarantee access through high-risk pools
 iv. encouraging greater coverage for individuals and small businesses 
                    through enhanced tax incentives
    Conceptual approach: Provide a variety of additional tax subsidies, 
in conjunction with targeted consumer education, to encourage more 
individuals and employers to purchase private health insurance.
    Target population: The self-employed, small businesses, and 
individuals without access to employer-sponsored health insurance 
coverage.
    Key elements of the proposal (employer market):

 Small employer tax credit (could be phased-in beginning with smallest 
        employers). To be eligible for the credit, a small employer 
        must have an average payroll below the median for all small 
        firms.
     40% credit for employers with fewer than 10 employees
     25% credit for employers with 10-25 employees
     15% credit for employers with 26-50 employees
 Allow employee contributions for health insurance to be excluded from 
        taxable income (even if not made through a section 125 
        cafeteria plan)
    Key elements of the proposal (individual market):

 Allow all individuals, not just the self-employed, to deduct the full 
        cost of health insurance premiums.
 Undertake a variety of consumer education and outreach activities on 
        the importance of having and maintaining health insurance.
   v. encouraging increased coverage and providing more options for 
 consumers by extending and enhancing archer medical savings accounts 
                                 (msas)
    Conceptual approach: Encourage more individuals and employers to 
purchase health insurance and save for future medical expenses by 
extending and enhancing Archer Medical Savings Accounts (MSAs). 
Increase the number of Americans who are given the option of 
establishing an MSA, and enhance the program to better meet the needs 
of the average American consumer.
    Target population: Individuals and business of all sizes.
    Key elements of the proposal (Medical Savings Accounts):

 Make MSAs more attractive by simplifying rules
     Extend eligibility to large employers
     Extend eligibility to all individuals--not just the self-employed
     Eliminate sunset provision
     Allow both employee and employer contributions to MSA account
     Allow cafeteria plans to offer MSAs
     Allow imbedded individual deductibles with family deductible cap
     Increase the deduction allowed for MSA contributions to 100% of 
            the deductible amount under the qualifying high deductible 
            insurance policy
     Increase the range of allowable deductibles and out-of-pocket 
            limits (Lower limits are important to allow MSA holders' to 
            limit their liability as they accumulate funds for medical 
            expenses, and higher limits are important for policyholders 
            who have accumulated, or expect to accumulate, significant 
            funds in their MSAs).
     Make it easier for PPOs and other network plans to offer MSA 
            products
     Preempt state benefit mandates to the extent that they would 
            require a qualified high-deductible health plan to provide 
            coverage below the level of the deductible. If this is not 
            acceptable, then qualified high deductible health plans 
            should be allowed to provide low-deductible or first-dollar 
            coverage when necessary to comply with a state benefit 
            mandate.
                 cost and access to affordable coverage
    InsureUSA, through a combination of targeted subsidies for low-
income individuals, federal matching funds for risk pools for 
individuals with serious medical conditions, and enhanced tax 
incentives to encourage the purchase of health insurance, addresses the 
need to ensure access to coverage to all Americans. But meaningful 
efforts must also be taken to reduce the cost of health care and make 
health insurance coverage more affordable. Costs must be addressed in 
three broad ways. First, regulatory burdens that increase the cost of 
coverage must be reduced. Second, individuals must take greater 
responsibility for ensuring that the health care they receive is paid 
for, and thus for ensuring that they have the health care coverage they 
need to fulfill that responsibility. Third, individuals must become 
more careful consumers of health care through increased control over 
and an increased financial interest in health care purchasing 
decisions.

    Mr. Bilirakis. Thank you so much, sir.
    Dr. Nelson.

                   STATEMENT OF JOHN C. NELSON

    Mr. Nelson. Thank you, Mr. Chairman.
    What an honor it is to be here on behalf of the American 
Medical Association physicians dedicated to the health of 
America to participate in this discussion on the crisis of the 
uninsured in America.
    I also would like to thank you, Mr. Towns, for your 
leadership on the issue of the introduction of H.R. 2698.
    My name is John C. Nelson MD. I am the President-Elect of 
the American Medical Association, and I am a practicing 
obstetrician and gynecologist in Salt Lake City. We appreciate 
the opportunity to be here.
    That 41.2 million Americans lack insurance in 2001 is a 
problem, a major public health problem. As that number of 
uninsured climbs, the health care costs will continue to rise, 
which makes the problem of the uninsured--means it will get 
worse. The American Medical Association believes it is time to 
rethink health insurance, since a real human price is paid when 
individuals are uninsured.
    First, the lack of health insurance has a direct-risk 
effect on the health of those uninsured; not having health 
insurance itself is a health risk. The uninsured receive less 
preventive care, they are diagnosed more often in the advanced 
stages of diseases, and they tend to seek care less often when 
they do have it. I think of a 22-year-old young woman who died 
of cervical cancer, a preventable disease, because she could 
not afford to have a pap smear.
    Second, individuals who lack health insurance forego the 
needed medical care, so they are sicker when they get it. As a 
result, physicians who are already overburdened by increased 
liability premiums and decreased reimbursement are the ones 
forced to bear even higher costs to care about these Americans. 
In our State, we have a program called the Health Access Plan, 
or through the Utah Medical Association, we sign up to take 
care of those individuals within our specialty. I have the 
privilege of caring for some of these wonderful people. While 
not long ago, one was from Somalia, another from the Sudan, yet 
another from Bosnia people who don't have the ability to get 
the care that others would have. Perhaps most importantly, 
individuals in poor health are less likely to work at their 
fullest capacity, which is a drain on the engine of America's 
productivity. This means lost time, skills lost, people not 
being able to do what they should do because they are 
concerned.
    To solve these problems, the AMA has long advocated that 
every American should have health insurance, and we propose 
reform that would dramatically increase the number of folks who 
are insured through a series of things which may start very 
well with H.R. 2698. We appreciate that positive step and think 
it is something that ought to be looked at. The AMA supports 
the use of health care certificates to reduce the number of the 
uninsured, our most vulnerable--those who don't have insurance 
are the most vulnerable--to assist individuals and their 
families to purchase health insurance.
    Any certificate system must ensure that the lower-income 
Americans have the health insurance first. They get the 
vouchers or the certificates first. This means that the dollar 
value has got to be sufficient so that the care that they 
purchase is meaningful and affordable. H.R. 2698 would apply to 
individuals purchasing health insurance on the individual 
markets, but because some are uninsurable, perhaps we have to 
find a different way to take care of those folks, people with 
diabetes or some preexisting condition.
    The AMA believes these individuals require targeted 
policies to subsidize their coverage and ensure that insurance 
markets allow affordable premiums for the general population. 
The concern is we have too many that are really sick and are 
really high-risk, that it costs so much to insure those that it 
increases the premium for everybody thereby making insurance 
not available even for those who otherwise could have afforded 
it. Therefore, we are very concerned that insurance pools 
should be encouraged by exempting them from selective State 
regulations regarding mandated benefits, premium taxes and 
small group rating laws. State and Federal patient protection 
laws have got to be safeguarded.
    In addition, the AMA believes individuals should be able to 
buy into State employee purchasing pools or the FEHBP.
    Further, appropriate market regulations should be pursued, 
greater uniformity across markets, modified community rating, 
guaranteed renewability, subsidization of high-risk individuals 
and the like through general tax revenues is a sounder approach 
than increasing premium taxes. We maintain that the ultimate 
solution to solving this problem of the uninsured is to 
encourage individual ownership and personal choice of 
affordable health insurance. This is America. One size does not 
fit all. We relish the idea of choice.
    The cornerstone of our proposal is a plan of individual tax 
credits for the purchase of health insurance that is 
refundable, advancible and inverse income-related. We shared 
with the Congress, a publication further detailing this 
proposal. And if it is appropriate, Mr. Chair, I would submit 
this for the record.
    Mr. Bilirakis. Without objection.
    [The material is available at http//www.ama-assn.org/ama1/
pub/upload/mm/363/expandinghealthinsur.pdf]
    Mr. Nelson. We would ask the subcommittee to include in the 
record and having done that, simply want you to know the 
American Medical Association representing almost 300,000 
physicians stands ready, willing, able, motivated and excited 
to participate in helping take care of this glaring public 
health problem.
    Thank you very much for the opportunity to participate.
    [The prepared statement of John C. Nelson follows:]
Prepared Statement of John C. Nelson on Behalf of the American Medical 
                              Association
    Mr. Chairman and members of the Subcommittee, my name is John C. 
Nelson, MD, President-Elect of the American Medical Association (AMA). 
I am a practicing obstetrician in Salt Lake City. On behalf of the 
Association and its physician and student members, I thank you for the 
opportunity to share our views with the Subcommittee regarding the 
critical issue of reducing the number of individuals who lack health 
insurance. We especially thank this Subcommittee for holding this 
hearing, continuing to focus attention on the national health crisis of 
the uninsured, and working with the Administration and others on 
legislative solutions.
                              the problem
    According to the most recent Census Bureau figures released in 
September 2002, a staggering 41.2 million Americans lacked health 
insurance at some time in 2001. Data show that almost 1.5 million 
Americans became uninsured in 2001, due primarily to job loss. As these 
numbers remain high, health care costs continue to rise and the problem 
of the uninsured will likely worsen. The Center for Studying Health 
System Change reported that health care costs rose 9.6 percent in 2002. 
From 2001 to 2002, premiums for employer-sponsored coverage rose 12.7 
percent, the largest increase since 1990.
    Most of the uninsured are employed--78 percent are full time 
workers and 84 percent are in families headed by a worker. Only two-
thirds of non-elderly Americans (those aged 64 and younger) are covered 
for medical expenses by an employer benefit plan. Thus, it is time to 
rethink health insurance since the problem of the uninsured involves 
several facets of our society, including health consequences to 
individuals, costs to the health care system, and lack of employee 
productivity.
Health Consequences Affecting Individuals
    Lacking health insurance has a direct effect on the health of those 
uninsured. The uninsured receive less preventive care, are diagnosed at 
more advanced disease stages, and once diagnosed, tend to receive less 
therapeutic care and have higher mortality rates. For instance, 
uninsured women with breast cancer are twice as likely to die of cancer 
as women who have health insurance. Uninsured men are nearly twice as 
likely to be diagnosed at a later, and potentially more deadly, stage 
for colon cancer as men with health insurance. Uninsured individuals 
brought to the emergency room with severe injuries, are equally likely 
to be admitted to the Intensive Care Unit (ICU) when compared to 
privately insured individuals. Once admitted to the ICU, the uninsured, 
however, are less likely to undergo an operative procedure and are 
twice as likely not to survive their stay as those with health 
insurance benefits.
Costs to the Health Care System
    Studies have also demonstrated that individuals who lack health 
insurance forego needed medical care and are sicker when they do seek 
care. They visit emergency rooms and are admitted to hospitals in 
disproportionate amounts, raising medical care costs which are then 
passed on to an already overburdened system. As a result, the already 
overburdened health care system is forced to bear even higher costs to 
care for these Americans. In 2001, total uncompensated care was an 
estimated $35 billion. The primary source of funding for uncompensated 
care is the government, which spent an estimated $30.5 billion for care 
on the uninsured, two-thirds of which are federal dollars.
Employee Productivity & Absenteeism Affected by Lack of Health 
        Insurance
    Individuals in poor health are less likely to work to their fullest 
capacity. Thus, health status is one of the many factors that determine 
the quantity (working time) and quality (productivity) of employees in 
the workplace. Uninsured individuals often put off receiving needed 
medical care. At the worksite, this translates into lost time, skills 
and productivity--through absenteeism or reduced efficiencies--that 
cost businesses money.
    Poor health conditions affect one's ability to work and are costly 
to employers. Common conditions, such as migraine headaches, low back 
pain, diabetes, allergies, and depression, dominate health-related lost 
labor time. Although employees may go to work with these and similar 
conditions, costs of their performance can be substantially reduced. 
For instance, estimates indicate that depression costs U.S. employers 
$24 billion annually in lost productive work time.
                               solutions
    The AMA has long advocated for a health care system in which every 
American has health insurance. We propose health care finance reform 
which would dramatically increase the number of Americans with health 
insurance coverage while putting patients first in choosing an 
insurance package that best meets their needs. We suggest using health 
care vouchers or certificates (that are sufficient to cover a large 
cost of health insurance), fostering the development of new health 
insurance marts, implementing the appropriate insurance market 
regulation, offering refundable health care tax credits for 
individuals, promoting the individual selection and ownership of 
coverage, and developing defined contributions from employers.
Offer Health Insurance Certificates
    Just last week, Chairman Bilirakis and Representative Towns 
introduced H.R. 2698, the ``Health Insurance Certificate Act,'' which 
would seek to reduce the number of uninsured Americans by providing 
subsidies to low and low-middle income families for the purchase of 
health insurance coverage. In some cases, the certificates would reduce 
the financial burden of those who have already been paying for health 
insurance through either the individual market or their employer. 
Additionally, this legislation would adjust the value of the 
certificate based on an individual's or family's income.
    The AMA supports the use of health care certificates to reduce the 
number of the uninsured and to assist individuals and families with 
their purchase of health insurance. This legislation takes an important 
step in accomplishing these critical goals. We believe that any health 
certificate system must ensure that lower income Americans would 
benefit from these certificates. Accordingly, the dollar value of 
certificates, such as those in this legislation, must be large enough 
to ensure that health insurance is affordable for most people. The 
certificates must at least be sufficient to cover a substantial portion 
of the premium costs for individuals in the low-income categories.
    As previously mentioned, this legislation would apply to 
individuals purchasing health insurance on the individual market and to 
others who obtain health benefits through their employer-base insurance 
(group market). Due to their health status, some individuals are 
considered ``uninsurable'' when purchasing health insurance on the 
individual market. Such individuals require special, targeted policies 
in order to both subsidize their coverage and ensure that insurance 
markets allow affordable premiums for the general population. It is the 
AMA's preference to finance risk-related subsidies through general tax 
revenues rather than through premium surcharges, because premium 
surcharges have the unintended consequences of driving low-risk 
individuals out of the market, particularly low-income, low-risk 
individuals.
Foster the Development of New Health Insurance Markets
    The AMA supports the development of new health insurance markets 
that offer a wide range of affordable coverage options. We believe that 
empowering people with tax credits, health insurance vouchers, and 
freedom of choice would dramatically transform today's health insurance 
markets. The new system would make health plans more responsive to 
patients, rein in premiums and health care costs, and stimulate the 
development of new forms of health insurance that better meet the wide 
range of needs of individuals and families. The influx of average-risk 
people into the individual health insurance market would prompt 
insurers to replace costly medical underwriting practices with 
simplified, automated ones. This would make coverage more affordable, 
particularly for those with pre-existing or chronic conditions.
    The AMA also supports alternative means of pooling risk along the 
lines of existing prototypes, such as small group purchasing alliances 
and Internet-based health insurance vendors. To achieve this goal, the 
AMA supports federal legislation enabling the formation of ``Health 
Insurance Marts'' by affinity groups that could include coalitions of 
small employers, unions, trade associations, voluntary health insurance 
cooperatives, chambers of commerce and other community organizations.
    Alternative insurance pools should be encouraged by exempting them 
from selected state regulations regarding mandated benefits, premium 
taxes, and small group rating laws, while safeguarding state and 
federal patient protection laws. In addition, the AMA believes that 
individuals should be allowed to ``buy in'' to state employee 
purchasing pools or the Federal Employees Health Benefits Plan 
(FEHBP).Implement Appropriate Market Regulation 1
---------------------------------------------------------------------------
    \1\ See Appendix A for AMA's principles for health insurance market 
regulation.
---------------------------------------------------------------------------
    The AMA recognizes that in order for markets to function properly, 
it is important to establish fair ground rules. Neither free-market 
mechanisms, nor market regulations alone would fully meet the needs of 
those with chronic illness or conditions that are expensive to treat. 
The large number of existing state and federal health insurance market 
regulations has created problems. Regulations intended to protect high-
risk individuals have actually driven up premiums and lead to a 
disproportionate number of young, healthy individuals to be without 
coverage. The combination of guaranteed issue, strict community rating, 
and extensive benefit mandates has had unintended effects on costs, 
coverage, and choice.
    The AMA believes that greater uniformity across markets, modified 
community rating, guaranteed renewability, and subsidization of high-
risk individuals through general tax revenues is a sounder approach 
than community rating or premium taxes. Such a regulatory environment 
would provide assistance to high-risk individuals without unduly 
driving up health insurance premiums for the remaining population; 
would provide individuals with incentives to be continuously insured; 
and would enable private market innovation, such as medical savings 
accounts (MSAs), consumer-driven health care plans, defined 
contribution health benefits, and new forms of coverage.
Protecting Vulnerable Populations
    Vulnerable populations must also be protected. One way to protect 
some of those populations would be by intensifying outreach efforts to 
ensure that the five million children and adults who are currently 
eligible are enrolled in Medicaid and the State Children's Health 
Insurance Program (SCHIP).
Establish Tax Credits
    The ultimate solution to solving the problem of the uninsured is to 
encourage individual ownership and selection of health insurance, as 
well as expand coverage to low-income workers who currently cannot 
afford coverage. The cornerstone of AMA's proposed plan is a system of 
individual tax credits for the purchase of health insurance that are 
refundable and income-related. The AMA would replace the current 
business tax deduction and employee exclusion for health insurance with 
a tax credit for the purchase of health insurance.
    The current tax exclusion must first be converted to a tax credit 
for those who purchase health coverage, whether or not they receive 
health benefits from their employer. The tax credits should be 
inversely related to income; that is, larger credits should be 
available to families and individuals in the lower tax brackets. The 
size of the tax credits should also be large enough to ensure that 
health insurance is affordable for most people. The credits must at 
least be sufficient to cover a substantial portion of the premium costs 
for individuals in the low-income categories. In addition, the tax 
credits should be ``refundable'' so those who do not earn enough to owe 
taxes can still claim a credit.The current tax exclusion is inequitable 
because it provides a higher subsidy for those with higher incomes. 
Moreover, a large portion of the 41.2 million uninsured Americans are 
low-income wage earners who are not eligible for Medicaid. Under the 
AMA plan, the tax subsidy would be redirected toward those who need it 
most. Furthermore, compared to a tax credit that does not vary with 
income, a sliding scale tax credit reduces the federal spending 
necessary to expand coverage.
    We have previously shared with the Congress an AMA publication 
further detailing our proposal to increase the number of Americans with 
health insurance entitled, ``Expanding Health Insurance: The AMA 
Proposal for Reform.'' I have a copy here and ask the Subcommittee to 
include it in the record of this hearing. We hope that it proves 
helpful as you consider this subject.
    Thank you again for the opportunity to testify and provide our 
suggestions for reducing the number of the uninsured. The AMA offers 
this Subcommittee and the Administration our assistance in advancing 
solutions to this critical issue.
                               APPENDIX A
    The American Medical Association (AMA) supports the following 
principles for health insurance market regulation:

1. There should be greater national uniformity of market regulation 
        across health insurance markets, regardless of type of sub-
        market (e.g., large group, small group, and individual), 
        geographic location, or type of health plan.
2. State variation in market regulation is permissible so long as 
        states demonstrate that departures from national regulations 
        would not drive up the number of uninsured, and so long as 
        variations do not unduly hamper the development of multi-state 
        group purchasing alliances, or create adverse selection.
3. Risk-related subsidies such as subsidies for high-risk pools, 
        reinsurance, and risk adjustment should be financed through 
        general tax revenues rather than through strict community 
        rating or premium surcharges.
4. Strict community rating should be replaced with modified community 
        rating, risk bands, or risk corridors. Although some degree of 
        age rating is acceptable, an individual's genetic information 
        should not be used to determine his or her premium.
5. Insured individuals should be protected by guaranteed renewability.
6. Guaranteed renewability regulations and multi-year contracts may 
        include provisions allowing insurers to single out individuals 
        for rate changes or other incentives related to changes in 
        controllable lifestyle choices.
7. Guaranteed issue regulations should be rescinded.
8. Insured individuals wishing to switch plans should be subject to a 
        lesser degree of risk rating and pre-existing conditions 
        limitations than individuals who are newly seeking coverage.
9. The regulatory environment should enable rather than impede private 
        market innovation in product development and purchasing 
        arrangements. Specifically:
    (a) Legislative and regulatory barriers to the formation and 
            operation of group purchasing alliances should, in general, 
            be removed.
    (b) Benefit mandates should be minimized to allow markets to 
            determine benefit packages and permit a wide choice of 
            coverage options.
    (c) Any legislative and regulatory barriers to the development of 
            multi-year insurance contracts should be identified and 
            removed.

    Mr. Bilirakis. Thank you very much Dr. Nelson.
    Mr. Shea, you are on.

                   STATEMENT OF GERALD M. SHEA

    Mr. Shea. My name is Gerry Shea. I am Assistant to the 
President of the AFL-CIO, where I manage government affairs, 
including health policy matters. And also, for the information 
of the committee, I represent the AFL-CIO in unions around the 
country in various health policy discussions such as the 
National Quality Forum, the Joint Commission on Accreditation, 
the Institute of Medicine and in past years on the MedPAC 
board. You have my written submission, and I wanted to 
supplement that with some additional comments here.
    First, let me commend you for, in my view, seizing the 
opportunity that is provided by the Budget Resolution in 
beginning this debate. And our hope is it will be a full and 
robust debate about various ways to do that, and I commend you 
for the legislation you have submitted to begin that process.
    I, likewise, am pleased to be joining such distinguished 
colleagues on this board, many of whom I know. And I would just 
make the point that, even though we may differ on policy, I 
think at the moment, we are more together on our values and our 
principles about what needs to be done to address this problem 
of uninsured than we are divided, even though we may have 
significant differences.
    The worst rate of inflation in health care in American 
history has produced yet another crisis in the backbone of our 
coverage, that is employment-based coverage. While unions are 
proud of the fact that we're able to advance coverage for some 
low-wage workers in particular industries, for the most part, 
we are playing totally a defensive game in trying to hold on to 
coverage that was negotiated years ago. And I want to say that 
as much as we are rightfully--we are all rightfully concerned 
about the 47 million who are currently uninsured. I would 
suggest to the committee that you bear in mind, as I think you 
already do, that just behind those 47 million, there are at 
least that number, or maybe many more, who are in serious risk 
of losing their existing coverage.
    I will turn to the specifics of the bill that the chairman 
has introduced in a minute, but let me make a more general 
comment. Based on our experience, there is no solution to the 
coverage issue unless we can address the cost problem in 
American health care. We simply have an unsustainable situation 
in terms of the cost and the care that we get for that. And I 
would go one step further and say I don't believe, based on my 
experience, that there is any addressing successfully the cost 
issue without first addressing quality in the system.
    Now, thankfully there are substantial steps being taken in 
that direction, in the private sector among businesses, in the 
health professions and within the government. I would 
particularly call to your attention the CMS activities and 
Secretary Thompson's outspoken leadership in terms of setting 
up information systems and providing information on reliable 
quality measures that are widely accepted as being important. 
And from the point of view of purchasers, my own view and 
experience in this, we want to start buying quality care and 
buying only the best quality care. We need more information and 
infrastructure to do that, but that is something that we hold 
as an important goal and one that, I believe, will lead us on 
the road to solving, long-term, the cost problems.
    In terms of the specific legislation, let me say that 
first, I appreciate the fact that this legislation addresses 
the employment-based situation by providing subsidies for 
existing employment-based coverage.
    I fear, however, and I should say first, and we are happy 
to accept the offer that has been made by my staff to talk 
about this at great length and to explore this and getting to 
potential areas of agreement. I fear, however, that in the 
present situation, this may not be the most efficient or 
effective use of the $50 billion over time that is available in 
terms of making any really substantial progress, in terms of 
adding to reducing the number of uninsured.
    And I fear as well, as my written testimony indicates, that 
there may be unintended consequences here of actually 
undermining the employment-based area and that is probably the 
subject on which we could be most helpful. I would note that as 
with many members of the committee and others in town, we have 
spent a lot of time in the last 2 years, really dating back to 
the tragedy of September 11, 2001, looking at whether a tax 
vehicle could be configured to subsidize coverage. And I think 
in those discussions after many months of work, there were some 
very interesting ideas raised and some progress made. But I 
think if the phrase ``the devil is in the details'' ever 
applied to any area, it is in the health care field, as you 
know well, and therefore, you have to be very careful about how 
to structure this. And I think, as my written submission 
indicates, there are a number of issues that would need to be 
explored further.
    Thank you, Mr. Chairman.
    [The prepared statement of Gerald M. Shea follows:]
 Prepared Statement of Gerald M. Shea, Assistant to the President for 
   Government Affairs, American Federation of Labor and Congress of 
                        Industrial Organizations
    Thank you for the opportunity to present the views of the AFL-CIO, 
a federation of 66 national and international unions representing 13 
million active workers and 3.2 million retired members. We are pleased 
to offer testimony on H.R. 2698, the Health Insurance Certificate Act 
of 2003.
    The AFL-CIO believes a full debate on how to best use the money 
allotted in the budget resolution can and should make a constructive 
addition to the current nationwide debate over the vexing problems of 
health care costs and coverage.
    Employment based coverage is the backbone of our country's health 
care system. Nine out of ten insured in America receive their coverage 
through an employer. That represents 153 million active U.S. workers 
and their dependents and 19 million retirees, including over 5 million 
early retirees who don't yet qualify for Medicare. The AFL-CIO unions 
negotiate benefits for 40 million covered lives. Employers and unions 
that sponsor health plans use the purchasing power of pools of workers 
to negotiate for better prices and better quality, providing uniform 
coverage to all employees regardless of income or health status.
    Until Congress enacts universal coverage that is financed 
equitably, any proposal considered in Congress must bolster--not 
undermine--this significant and successful segment of our health care 
system. Although a laudable initial attempt to use the $50 billion set 
aside in the budget for the uninsured, H.R. 2698 would seem to fail 
that critical test.
    As drafted, H.R. 2698 could lead to several outcomes that would 
undermine employer-based coverage. First, employers may eliminate their 
coverage with the expectation that their workers will have the benefit 
of the federal subsidy. Second, employers may reduce the level of 
subsidy they provide for employees' coverage. Finally, employers may 
see their costs rise as younger, healthier workers opt out of the 
employer plan for a less comprehensive plan in the non-group market, 
leaving behind older, sicker workers in the employer plan
    When employers eliminate coverage, workers either go without 
coverage or purchase inferior coverage that shifts substantially more 
cost onto the enrollee. Those who seek coverage in the non-group market 
are subject to vigorous medical underwriting, designed to separate the 
healthy from the sick. As a result, many cannot obtain coverage that is 
either affordable or adequate, and only those who are young and in good 
health can purchase a policy.1
---------------------------------------------------------------------------
    \1\ See for example, Karen Pollitz, Richard Sorian, and Kathy 
Thomas, ``How Accessibly is Individual Health Insurance for Consumers 
in Less-Than-Perfect Health?'' The Henry J. Kaiser Family Foundation, 
June 2001.
---------------------------------------------------------------------------
    That coverage, though, is far less comprehensive than group-based 
coverage, particularly employer-sponsored coverage. One study of 
coverage in the non-group market has found that half of people buying 
individual policies are covered for just 30 percent of their health 
care costs.2 A similar study has found that individual 
policies that can be purchased for $1000 are often not available. Where 
they are available, coverage is woefully inadequate--sometimes 
requiring enrollees to meet a deductible of as much as 
$5000.3 It's important to note that only the premium can be 
offset by the health certificate. The substantial cost sharing required 
by the policy must be borne entirely by the enrollee.
---------------------------------------------------------------------------
    \2\ Jonathan Gabel, ``Individual Insurance: How much financial 
protection does it porovide?'' Health Affairs, April 17, 2002.
    \3\ Families USA, ``A 10-Foot Rope for a 40-Foot Hole: Tax Credits 
for the Uninsured, 2002 Update''
---------------------------------------------------------------------------
    For those who cannot pass the vigorous medical underwriting, 30 
states now have high-risk pools. However, premiums for these pools are 
typically very high and coverage often requires significant enrollee 
cost sharing or excludes coverage for pre-existing conditions. One 
study done of 29 high-risk pools in 1999 found premiums averaged 168 
percent of the standard market rate, but can go as high as 200 percent 
(in 8 states) and even 250 percent (in Florida). In dollar terms, this 
represents a significant cost--particularly for older individuals. In 
fact, in most states, the average premium--$3038--was high relative to 
ability to pay, and certainly significantly more than the value of the 
health certificate in H.R. 2698.4
---------------------------------------------------------------------------
    \4\ L. Achman and D. Chollet, ``Insuring the Uninsurable: An 
Overview of State High-Risk Health Insurance Pools'' Commonwealth Fund, 
August 2001
---------------------------------------------------------------------------
    Secondly, H.R. 2698 makes a distinction between employer plans with 
50 percent or more of the premium paid by the employer and those plans 
with the employer contributing less than 50 percent. If an individual 
is enrolled in a plan in which the employer contributes 50 percent or 
more, they are only entitled to the group coverage subsidy. However, if 
the employer contributes less than 50 percent, the individual is 
entitled to either the group coverage subsidy or the subsidy for non-
group coverage. The difference between the two is that the group 
subsidy is valued at 40 percent of the non-group subsidy. This could 
provide an incentive for employers to reduce the level of their 
subsidy, since their employees would have two certificate options, one 
of which would be more valuable than is available to them in the 
employer's plan.
    Another possible outcome of H.R. 2698 is that young and healthy 
workers may choose to opt out of the employer plan and use the federal 
subsidy to purchase a less comprehensive plan in the non-group market. 
This option--and the incentive of a greater federal subsidy if workers 
choose non-group coverage on their own--will segment the risk in the 
employer's pool, leaving the older and sicker workers in the employer's 
plan. The employer's costs will rise, driving up premiums and further 
threatening affordability for the employer and the workers who must 
contribute to the cost of their coverage. After several years of 
double-digit premium increases and more predicted for next year, 
embarking on such a policy is, in our view, shortsighted and unwise.
    Finally, I would like to comment on Congress' most recent 
experience with federal subsidies for individuals to purchase health 
insurance, and one with which the AFL-CIO has been very much involved. 
The Trade Adjustment Assistance Act passed last year included a new 
health care tax credit for workers who lose their jobs as a result of 
U.S. trade policy and retirees whose pensions have been taken over by 
the Pension Benefit Guarantee Corporation. As you know, the tax credit 
subsidizes 65 percent of an individual's health care premiums and 
beginning in August, will be made available to workers at the time they 
purchase coverage. After much negotiation, the law requires the health 
coverage through the state-based options to include four consumer 
protections: guaranteed offer of coverage, no exclusions for coverage 
of pre-existing conditions, and premiums and benefits comparable to 
other insured individuals. However, we are very concerned that the 
law's restrictions on who qualifies for those consumer protections will 
prove to be a significant hurdle for the older workers and retirees 
this new tax credit purports to help.5
---------------------------------------------------------------------------
    \5\ Under the TAA law passed last year, these four consumer 
protections are only available to those individuals who have three 
months of prior coverage at the time ``they seek to enroll'' in state-
based coverage. While the language is ambiguous and could be 
interpreted differently, the Administration has said individuals must 
have the prior creditable coverage at the time they are found eligible 
for the tax credit--many months after they were separated from 
employment and likely even longer for PBGC beneficiaries. It is highly 
unlikely that laid-off workers and retirees will have coverage at that 
point in time. Using this narrow interpretation of the test of prior 
coverage, none of the market protections would apply, yet without these 
protections, no retiree aged 55 to 65 and very few laid-off workers 
will get coverage.
---------------------------------------------------------------------------
    In addition, the House has already passed language that would 
severely undermine those consumer protections, slipping the provisions 
into an unrelated and otherwise popular bill, the Taxpayer Protection 
and IRS Responsibility Act (H.R. 1528). Unfortunately, this bill would 
further weaken another important protection. H.R. 2698 would increase 
and extend the funding for high-risk pools and at the same time, 
eliminate a number of important requirements: that high-risk pools can 
set their premiums at no more than 150 percent of the standard market 
rate and must offer two or more plans in order to qualify for the 
federal funds. Instead, H.R. 2698 only requires states to adhere to the 
NAIC model, which recommends states set premiums as high as 200 percent 
of the standard market rate. Eliminating this requirement is a blow not 
only to health care consumers but to the taxpayers who will be helping 
fund even more expensive coverage.
    Another feature of H.R. 2698 that departs significantly from the 
TAA health care tax credit, and one which we oppose, is the capped 
value of the certificate. Setting the value of the subsidy at a fixed 
dollar rather than a percent of the premium discriminates against 
consumers based on their health status and where they live. The TAA 
program rightly recognizes that by providing a 65 percent federal 
subsidy, older workers and those with significant health care needs are 
more likely to find affordable coverage.
    In conclusion, we welcome the debate on this important matter and 
appreciate the committee's work on developing a proposal for the $50 
billion available for the uninsured. Without a doubt, both the rising 
number of uninsured and the importance the public has placed on this 
problem have made it a subject that demands the attention and 
commitment of all of us. However, we are concerned that the bill before 
the committee, H.R. 2698, fails to meet the AFL-CIO's primary test for 
health care policy: to strengthen and not undermine an already-fragile 
employment based system upon which most Americans depend for 
comprehensive, affordable health coverage. We would like to continue 
this dialogue and be very much involved in your discussions as they go 
forward.
    Thank you.

    Mr. Bilirakis. Thank you very much, Mr. Shea.
    Ms. Spitznagel.

                  STATEMENT OF DEDE SPITZNAGEL

    Ms. Spitznagel. Mr. Chairman, members of the subcommittee, 
I am Dede Spitznagel, Executive Vice President of the Health 
Care Leadership Council, and I am here testifying today on 
behalf of the Coalition for Affordable Health Coverage. Thank 
you very much for this opportunity.
    It is a privilege to appear in support of bipartisan 
legislation H.R. 2698 that will make private health insurance 
more affordable for lower-income workers and their families. 
The CHC is made up of 17 organizations sharing a common goal of 
making private health insurance more acceptable and affordable 
for the approximately 15 percent of Americans who are currently 
without coverage. Our members are health providers, employers, 
both large and small, insurers, pharmaceutical companies and 
consumers. My own organization, the, Health Care Leadership 
Council, is comprised of chief executives of the Nation's most 
respected health care companies and institutions. This 
coalition was formed 3 years ago in recognition of the critical 
nature of this issue.
    In the United States today, there are millions of uninsured 
people who skip preventive care and end up with poor, and often 
more expensive, health outcomes. Emergency rooms become primary 
care clinics. We have a status quo that doesn't work well for 
patients, for health care providers, or for communities, or for 
taxpayers. All Americans will benefit when we provide the 
uninsured with increased access to private health coverage. In 
my testimony, I want to focus on how the chairman's and Mr. 
Towns's bill, the Health Insurance Certificate Act of 2003, 
moves us significantly toward that goal.
    First, let us start by looking at the nature of the 
uninsured problem. A recent CBO study found that almost 60 
million people go without health coverage for at least part of 
the year. But the number of people who are uninsured for a year 
or more is actually between 21 and 31 million, this group, 
people who tend to have low incomes who are not eligible for 
Medicaid, is exactly the population that H.R. 2698 wisely 
targets. There is a very important facet to this legislation 
that deserves highlighting. The bill provides a subsidy for 
those who do not have access to employer-sponsored health 
insurance. It also provides a lesser subsidy to those with 
access to employer-sponsored coverage. This is critical in 
reaching many of the uninsured. Many low-wage earners work for 
small employers who can provide only a minimal contribution 
toward coverage. Also, low-wage earners may not owe income 
taxes, and, therefore, may not benefit from the tax free status 
of the premium contributions made by their employers. For these 
working Americans, even a small subsidy can be just enough to 
help afford coverage.
    In terms of affordability, one has to ask the question just 
how helpful will $1,000 for individuals or $2,750 for families 
be in purchasing health insurance in the nongroup market. We 
believe these dollars will provide a very meaningful helping 
hand.
    Let us look at the actual prices of health coverage today 
to determine the impact of these subsidies. According to the 
Nation's largest online brokerage, the average premium cost for 
individuals in 2002 was $2,011 per year, and it was about 
$4,188 for a family of three. This is the price for a 
comprehensive policy, the kind of health plan relied upon by 
most insured Americans. So using these figures, we see that if 
the chairman's bill becomes law, individuals could have an out-
of-pocket expense of about $1,011 per year or about $85 per 
month, and families could have a premium expense of $1,938 per 
year or about $162 per month. The chairman's bill would pay, on 
average, 52 percent of the cost of health insurance. This is a 
tremendous boost for families that otherwise would have no 
assistance whatsoever. It is also important to note that H.R. 
2698 provides $75 million in annual funding for high-risk 
pools, which would serve as a safety net for those who may have 
health conditions that prevent them from obtaining health 
insurance coverage. Through these pools, individuals with 
serious health conditions can gain access to affordable, high-
quality insurance coverage.
    The Coalition for Affordable Health Coverage believes that 
measures like H.R. 2698 are not only the right thing to do, 
they are also fiscally responsible. Last year our health care 
providers and facilities spent $35 billion to treat the 
uninsured. Not only does this affect the cost and availability 
of health care for all Americans, but our society and our 
economy are lessened when millions suffer from poor health and 
are less able to contribute in the workplace and in the 
classroom.
    According to a recent report by the Institute of Medicine, 
the potential economic value to be gained if all Americans were 
to have health coverage is estimated at between $65 and $130 
billion per year. So we commend the subcommittee for this 
hearing, and we applaud and support this legislation. You are 
addressing the population that needs your attention. Congress 
is moving toward the passage of a Medicare bill that will 
provide better health care to the elderly. Money has also been 
added to Medicaid to address the needs of those at the lowest 
level of poverty. This bill addresses the needs of the working 
poor, those who do not have the higher-wage jobs that bring 
with them more health coverage options. We are committed to 
supporting your efforts, and we thank you very much.
    In addition, Mr. Chairman, I just wanted to mention, 
coincidentally, you have sitting here four members of the 
Robert Wood Johnson Initiative on covering the uninsured. And 
together, the four of us signed a letter on March 31, 2003 and 
sent it to all of the budget conferees, asking that the $50 
billion in the Budget Resolution be maintained in the Budget 
Resolution. Now, we did get the $50 billion, and we just have 
to work together to create solutions.
    Mr. Bilirakis. Would you like to put that in the record? 
Without objection that will be the case.
    [The prepared statement of Dede Spitznagel follows:]
  Prepared Statement of Dede Spitznagel, CAHC Board Member, Executive 
             Vice President, Healthcare Leadership Council
    Mr. Chairman and Members of the Subcommittee: The Coalition for 
Affordable Health Coverage appreciates the opportunity to appear in 
support of H.R. 2698, The Health Insurance Certificate Act of 2003, a 
bipartisan bill to make private health insurance more affordable for 
lower income workers and their families.
    I serve as a Board member of the Coalition, a three-year-old group 
of 17 organizations who share a common goal of making private health 
insurance more accessible and affordable for workers and the 15% of 
Americans who currently have no coverage.
    The members of CAHC include provider groups like the American 
Medical Association, the American Osteopathic Association, and the 
American College of Cardiologists. Our employer groups represent the 
spectrum, from large manufacturers to micro businesses. Members include 
the U. S. Chamber of Commerce, the National Association of 
Manufacturers and the National Association for the Self-Employed. The 
insurance sector participates in the Coalition with members like the 
National Association of Health Underwriters, Fortis Health, Aetna, and 
UnitedGroup Health. Pharmaceutical companies include Bayer, 
GlaxoSmithKline, and Wyeth. Consumers, such as farmers and self-
employed individuals, are represented by the American Campaign for 
Consumer Choice and Lower Health Costs. My own organization, the 
Healthcare Leadership Council, represents the CEOs of more than 40 
companies and organizations involved in all sectors of the healthcare 
industry.
    Our diverse membership speaks with one voice when it comes to the 
uninsured: we support bills like H.R. 2698 that will help the uninsured 
afford private health coverage. Last year, the Coalition worked to see 
the creation of a health care tax credit on the Trade Adjustment and 
Assistance Act. This year, the Coalition worked with the Congressional 
budget committees and the leadership of both houses to include the $50 
billion reserve fund for the uninsured in the 2004 Congressional Budget 
Resolution. Now, we appreciate the opportunity to share our views on a 
bill that will provide real help for the uninsured.
    The Chairman's bill provides a certificate to low-income 
individuals and families that can be used to help pay for the cost of 
health insurance premiums. Who will benefit from this certificate and 
what do we know about them? These questions are important to answer, 
because understanding the people you are trying to assist is essential 
in crafting a solution that really works.
    First, we know that those who are uninsured are clustered more 
heavily in the southeastern and southwestern states. They are 
disproportionately minority, and hardest hit is the Hispanic community 
where 35% are uninsured as compared with 12% of Caucasians.
    Members of this subcommittee represent states that have the highest 
rates of uninsured in the entire country. If you look at the chart over 
to my (left/right), you may find your state listed if its uninsured 
rates are higher than the national average of 14.8%. For example, 
Representatives Barton, Hall, and Green will note that their state, 
Texas, has more uninsured residents than any other state: almost 1 out 
of 4 people in Texas are uninsured. Representatives Wilson, Waxman, 
Eshoo, Capps, and John are from states that rank second, third and 
fourth in the nation: New Mexico, California, and Louisiana. The two 
sponsors of the H.R. 2698 hail from states that are grappling with 
large uninsured populations. The Chairman's state, Florida, has the 7th 
highest number of uninsured, at 18%; and Representative Towns, also an 
original cosponsor, represents New York, which has the 16th highest 
rate of uninsured in the country.
    I am certain you all know how these large populations of uninsured 
residents affect your states. Not only do the uninsured skip 
preventative care and end up with poorer and often more expensive 
health outcomes, their narrow choices cost communities more. Charitable 
physicians, community clinics, and public hospitals strive to be the 
safety net, and emergency rooms become primary care clinics. But none 
of this works very well for the patient, the community, the taxpayer, 
or the health care worker. We pay for this substandard system of care 
with higher taxes and premiums. All of us--and most especially the 
uninsured--would benefit from increased access to private health 
insurance. The Chairman's bill provides an effective way for this to 
occur.
    A recent study by the Congressional Budget Office found that almost 
60 million people go without health insurance for at least part of the 
year. Yet, when looked at closely, the study is actually very 
encouraging for policy makers who want to help the uninsured but are 
contending with tough fiscal realities. It turns out that many of the 
60 million are without coverage for only a few months, often because 
they are between jobs. The number of people who are uninsured for a 
year or more is actually between 21 and 31 million. This latter group 
is the one for whom the Chairman's legislation could make a significant 
difference, because those who are uninsured for longer periods of time 
tend to have low incomes, but not low enough to qualify for Medicaid.
    This is just the group that H.R. 2698 wisely targets. If you look 
at the ``pie chart'' I have displayed, it shows the income levels of 
those who are uninsured. As you can see, about 40% of the uninsured 
earn less than 150% of the poverty level. The income limits in the 
Chairman's bill are at about 143% of the poverty level. This means that 
the bill could benefit about 60% of those who are uninsured.
    The legislation provides a subsidy for those without access to 
employer sponsored health insurance, and it would also provide a 
partial subsidy to those with access to employer sponsored health 
insurance coverage. Many low-wage earners work for small employers who 
can provide only a minimal contribution towards coverage. Also, low 
wage earners may not owe income taxes and therefore may not benefit 
from the tax-free status of the premium contributions made by their 
employers. For these individuals and families, it is often a choice 
between health insurance and other essential living expenses. Even a 
small subsidy could be just enough to help them afford coverage.
    Providing $400 to an individual or $1100 to a family to help them 
pay their portion of the employer premium will equalize the value of 
the certificate for those with and those without a tax-exempt employer 
offer. And it rewards people who have chosen to do the right thing. In 
addition, an employee premium subsidy helps small employers maintain 
coverage for the group as a whole, as most small group health plans 
require a minimum percentage of employees to participate in the plan, 
or the coverage won't be issued.
    Questions have been raised as to how much ``bang for our buck' can 
be gained from a subsidy that may result in employers dropping or 
reducing health care coverage for their workers. CAHC has serious 
reservations about the methodologies used in assuming displacement or 
``crowd out'' of employer coverage. Health insurance is a very 
important benefit sought by workers in lieu of wages. And employers 
care deeply about the health and well being of their employees, 
particularly in small businesses where the business owner works 
alongside employees and knows their families and personal situations. 
Offering health coverage helps employers compete for and retain 
employees, and it keeps their workforces healthy, at work, and back at 
work sooner following an illness.
    In addition, under H.R. 2698, employers have a large disincentive 
to reduce or discontinue their contributions toward health coverage 
since the subsidy is targeted only to the low-income portion of their 
workforce.
    Further, a look at previous experiments where employers were 
offered government wage or childcare subsidies demonstrates that 
employers do not necessarily reduce their overall contribution in the 
presence of a subsidy. For example, a Florida study looking at the 
effects of welfare reform on the earnings of the working poor found 
that increases in funding for child care subsidies led to an overall 
increase in the earnings of the working poor.
    The question will naturally arise as to just how helpful $1000 
(individual) or $2750 (family) would be in purchasing health insurance 
in the non-group market. We believe that it can be very helpful. It is 
not the intent of the Chairman that this bill pay for 100% of anyone's 
premium cost and create a new federal entitlement program. People are 
naturally better stewards when they have something invested. So, how 
much of a personal investment are we talking about?
    Figures from the largest national online brokerage show that the 
average premium cost for individuals in 2002 was $2,011 per year and 
$4,188 for families of three. Between 80% and 90% of these policies 
would be considered ``comprehensive'' in coverage, so we are talking 
about the kind of policies that most insured Americans might enjoy.
    These figures indicate that--with the assistance of the Chairman's 
bill--individuals will have an out-of-pocket expense of $1,011 per 
year, or about $85 per month. Families would have a premium expense of 
$1,938 per year, or about $162 per month. The Chairman's bill pays--on 
average--about 52% of the cost of health insurance. This is a 
tremendous boost for families that, otherwise, would have no 
assistance. In addition, these out-of-pocket expenses could be slightly 
less since over 60% of the uninsured are under the age of 35, 
presumably a less expensive group to cover, resulting in lower 
premiums.
    Wisely, the Health Insurance Certificate Act provides $75 million 
in funding each year from 2004 through 2009 for state high-risk pools. 
As you know, high-risk insurance pools exist in 30 states and serve as 
a ``safety net'' for those who may have health conditions that prevent 
them from obtaining health insurance coverage. Although the number of 
individuals with serious health conditions is small, the cost of their 
health care can be tremendously high. High-risk pools provide a source 
of affordable high-quality health insurance coverage for those without 
access to employer sponsored plans. In states where high-risk pools are 
the safety net for individuals with health conditions, both healthy and 
unhealthy individuals enjoy lower health insurance rates than in states 
that require mandatory guaranteed issue coverage for everyone.
    CBO examined survey data describing the reasons people give for 
being uninsured. More than 60 percent said that ``cost'' and ``lack of 
access to employment-based coverage'' were their reason(s) for being 
uninsured. Yet, only about 4 percent of responders cited poor health as 
a reason for going without health insurance. Although this group is 
small, we can presume that they are likely to be high users of public 
health care and so it is important to ensure that they have a viable 
alternative. By supporting the creation and providing assistance with 
the ongoing funding of high-risk pools, H.R. 2698 recognizes the need 
for a viable ``safety net'' for this sicker population.
    There may be an additional concern among some about spending $50 
billion this year on the uninsured, given the country's tight fiscal 
situation. To those, I would like to refer to the very substantial cost 
this country already incurs for uncompensated care. Last year, the 
nation's health care providers and facilities spent $35 billion to 
treat the uninsured. In its recent report, Hidden Costs, Value Lost, 
Uninsurance in America, the Institute of Medicine notes that when 
people lack health insurance, the cost to society is substantial. The 
report further notes:
        The economic vitality of the country is diminished by 
        productivity lost as a result of the poorer health and 
        premature death or disability of uninsured workers. The 
        potential economic value to be gained in better health outcomes 
        from continuous coverage for all Americans is estimated to be 
        between $65 billion and $130 billion each year.
    Finally, I would like to commend this Committee for their concern 
about the working poor. This legislation is timely, and it has the 
potential to addresses a significant number of the uninsured 
population.
    This year, Congress will likely create new and expanded health 
benefits for the elderly in the Medicare Reform bill. For the very 
poor, we have Medicaid, to which Congress added money this year. But 
one group is conspicuously missing: the so-called ``working poor'' who 
do not have the higher wage jobs that allow more coverage options. This 
group needs affordable access to health insurance. Both Republicans and 
Democrats have made helping the uninsured a theme in Presidential 
campaigns. The Health Insurance Certificate Act puts policy to those 
words. I hope the Committee will move this forward and the Coalition, 
representing so many and such diverse organizations, is committed to 
supporting your efforts.
    For further information on the Coalition for Affordable Health 
Insurance, please contact: Laura Clay Trueman, Executive Director, 1615 
L Street, NW, Suite 650, Telephone (202) 626-8573, Fax (202) 626-8593, 
Email: [email protected]

                                Uninsured By State Ranking & Subcommittee Members
----------------------------------------------------------------------------------------------------------------
                                                                    % of
                      State                           Rank        Uninsured          Subcommittee  Member
----------------------------------------------------------------------------------------------------------------
Texas...........................................            1           24%   Rep. Barton
                                                                              Rep. Hall
                                                                              Rep. Green
New Mexico......................................            2           21%   Rep. Wilson
California......................................            3           20%   Rep. Waxman
                                                                              Rep. Eshoo
                                                                              Rep. Capps
Louisiana.......................................            4           19%   Rep. John
Arizona.........................................            6           18%   Rep. Shadegg
Florida.........................................            7           18%   Rep. Bilirakis
Georgia.........................................            8           17%   Rep. Norwood
                                                                              Rep. Deal
Mississippi.....................................            9           16%   Rep. Pickering
Wyoming.........................................           13           16%   Rep. Cubin
Colorado........................................           15           16%   Rep. DeGette
New York........................................           16           16%   Rep. Towns
                                                                              Rep. Engel
----------------------------------------------------------------------------------------------------------------
All of other states represented on the Subcommittee fall under the national average on uninsured, which is
  14.8%.


    Mr. Bilirakis. Mr. Greenstein.

                 STATEMENT OF ROBERT GREENSTEIN

    Mr. Greenstein. Thank you very much, Mr. Chairman.
    Few priorities should rank higher than reducing the ranks 
of the uninsured. And I join my fellow panelists in 
congratulating you for taking this matter on and attempting to 
fashion a new approach toward addressing this issue.
    Having said that, I do have some significant concerns about 
H.R. 2698. Principally around the issue that I believe the 
reduction in the ranks of the uninsured, what it would achieve 
would be modest and not what one would want to get for $50 
billion. I also have a concern that it may encourage some 
States to scale back Medicaid and SCHIP coverage to shift 
financial responsibility to the Federal Government, which would 
pick up 100 percent of the cost of the health certificates.
    Let me turn to the issue of how effective it would be in 
reducing the ranks of the uninsured. One of the Nation's 
leading experts on these issues is Professor Jonathan Gruber at 
MIT. In recent days, he has conducted an informal analysis of a 
proposal very similar to H.R. 2698. His projection is that 
close to 90 percent of the expected health certificate 
participants would be people who are already insured and that 
only 1.3 million of the uninsured would gain coverage. By the 
way, in doing the assumption, he essentially treated this as a 
mandatory program. If the Appropriations Committee didn't 
appropriate the full amount you intend, it would be even less 
than the 1.3. His findings are consistent with prior research, 
and the reason is that he finds that the vast majority of 
participants would either be people who are already in 
employer-based coverage paying an employees share of the 
premium who would get a subsidy for the premium they are 
already paying or already purchasing coverage in the individual 
market and would get a subsidy for that. Of particular concern 
is that older and sicker workers who are not insured would have 
difficulty making--getting insurance with the health 
certificate because for those people going into the individual 
market, even a $2,750 subsidy falls well below what they will 
be charged, if they are able to secure coverage at all. And it 
is very often the case for older and sicker people that, in 
fact, they can't purchase comprehensive coverage in the 
individual market. Yet, they are the people that need the 
comprehensive coverage the most.
    I am also concerned for low- and moderate-income people 
that the subsidies involved, the $2,750, would be insufficient 
to enable them to cover--to purchase family coverage, 
comprehensive coverage in the individual market. According to 
the GAO, the mid-range premiums for family insurance in the 
individual market was about $7,300 in 1998. The prior panel 
quoted a much lower figure, but I think the problem with the 
figure that was quoted is it reflects the costs for policies 
currently being purchased in the individual market. The 
individual market, at present, is primarily used by people who 
are healthier than average, and this doesn't reflect the prices 
that are quoted to less healthy people who then end up not 
buying coverage in the individual market because they conclude 
they can't afford it.
    Of particular concern, if I understand the bill correctly, 
is that the subsidy amounts, the health certificate subsidy 
amounts are fixed, that they don't rise from year to year. But, 
with health care premiums rising at often double-digits rates, 
then as the years go by the subsidies would cover a smaller and 
smaller percentage of the cost of the premium.
    With regard to low-income employees, the biggest issue here 
are those for whom the employer does not offer coverage as 
distinguished from those where the employer does offer and they 
can't afford it. This could help for those where the employer 
offers and they can't afford it, might make some modest gains 
in coverage there; not a big effect in those cases there where 
the employer is not offering to begin with.
    A note of concern on the Medicaid and SCHIP side, and a 
final issue, I will note, which I just had difficulty in 
reading the bill, is understanding the administrative 
structure. There really isn't an administrative structure laid 
out for who determines the eligibility, whether you meet the 
asset and the income limits. Is it the States? Is the Federal 
Government? If it is the States, do they get the administrative 
costs covered for determining the subsidies? The administrative 
structure is not really laid out in the bill.
    A final concern is on the one hand your bill is careful to 
target the subsidies to a group with low income and low assets, 
and because of that targeting, the risk of employers dropping 
coverage in response to the health certificates is small. I am 
concerned, however, that if an approach like this got enacted, 
and future Congresses significantly increased the income and 
asset limit, this approach would then pose a significantly 
larger risk of employer dropping.
    So where does this all lead me? I think where it leads me, 
Mr. Chairman, is to concluding that there is an alternative 
type of approach that I think would be more efficient and 
effective with the $50 billion in reducing the ranks of the 
uninsured. And that would really be building on the SCHIP 
program that was enacted on a bipartisan basis in 1997. I am 
specifically thinking of the bipartisan Family Care proposal 
here, the notion of increasing Federal allotments to States in 
the SCHIP program, one could provide the bulk of the $50 
billion in increased allotments, SCHIP allotments to States, 
and then allowing the States to cover the parents in 
particular, or first the parents of children whom SCHIP already 
covers.
    As you may know, the Medicaid income limit for parents in 
the median State today, is only about 70 percent of the poverty 
line. We did see that when SCHIP was set up, States 
significantly expanded coverage for low-income children. We 
have had major progress in reducing uninsurance among low- and 
moderate-income children. And by broadening SCHIP and covering 
parents, we could make substantially further progress.
    I would also note that, in my view, the very first claim 
perhaps, within the $50 billion, this would just be a small 
piece of it, is making sure that we don't go backwards on 
SCHIP. As you know, Federal SCHIP funding went down a billion a 
year starting in 2002. So far that hasn't been a problem, 
because there were unspent SCHIP funds from the earlier years, 
and you and your colleagues very fortunately have passed and 
hopefully before you go home, will reach agreement on a 
temporary fix by having the expired SCHIP funds continue. But 
that only takes us through about the end of 2004, and our 
projections, using the CMS SCHIP expenditure model, the HHS 
expenditure model, is that without some additional funds in 
SCHIP, that between now and 2007, the number of low-income 
children insured through SCHIP will go down 370,000, as the 
unspent funds from the earlier years run out, and the effect of 
the billion dollar a year funding cut works it way through the 
system.
    Surely, we should not let the progress made on a bipartisan 
basis covering children in SCHIP go backwards. Now, let me just 
finally say that we do have evidence that the approach of 
covering parents, through a SCHIP-type approach is very 
efficient. Secretary Thompson, when he was the Governor in 
Wisconsin, he pioneered something called Badger Care. He 
expanded coverage, he and the legislature expanded coverage to 
parents up to 185 percent of the poverty line. Studies indicate 
that fewer than 10 percent of those who came on had previously 
been insured.
    Other studies find similar results for other parent 
expansions through the public program route. Again, this is a 
big contrast with the estimates Professor Gruber has come up 
with for the Health Certificate bill.
    Medicaid and SCHIP, the family care-type approach, also has 
the benefit that there would be no problem for the older and 
sicker people, they wouldn't have to go into the individual by 
themselves.
    Mr. Bilirakis. Please summarize.
    Mr. Greenstein. They get the basic comprehensive coverage.
    So just to conclude, if we look at the three key goals of 
reducing the ranks of the uninsured, avoiding adverse side 
effects in employer or public coverage, and making sure the 
sicker people can get adequate coverage, I think that the 
family care-type of approach, building on the SCHIP block grant 
would be a more effective use of the $50 billion, trying to 
achieve the same goal that you are trying to achieve in your 
bill.
    Thank you.
    [The prepared statement of Robert Greenstein follows:]
Prepared Statement of Robert Greenstein, Executive Director, Center on 
                      Budget and Policy Priorities
    I appreciate the invitation to testify today. I am Robert 
Greenstein, Executive Director of the Center on Budget and Policy 
Priorities, a non-profit policy institute that conducts research and 
analysis on fiscal policy and on programs and policies affecting low- 
and moderate-income families. The Center does not hold (and has never 
received) a grant or contract from any federal agency.
    My testimony today focuses on evaluating approaches for expanding 
coverage to the 41 million Americans currently without health 
insurance, particularly the Health Insurance Certificate Act of 2003 
(H.R. 2698), which is the subject of this afternoon's hearing. The 
problem of the uninsured is likely to worsen, at least in the short 
term. During the current economic downturn, some families are at risk 
of losing their jobs and their health insurance. In addition, facing 
the worse budget crises since World War II, states are struggling to 
maintain their Medicaid and State Children's Health Insurance Program 
(SCHIP) coverage.
    Initiatives to cover more of the uninsured are needed. While the 
goal of the Health Insurance Certificate Act of 2003 is very laudable, 
I believe the legislation has some serious shortcomings. The proposal 
is unlikely to help reduce the ranks of the uninsured by an amount 
commensurate with the expenditure of $50 billion. The proposal also 
could encourage some states to scale back existing coverage under 
Medicaid and SCHIP to shift financial responsibility from the states to 
the federal government.
    Furthermore, if eligibility for the health certificates is 
substantially expanded over time and the program is more adequately 
funded, the health certificate proposal could weaken the traditional 
employer-based health insurance system through which the vast majority 
of Americans obtain their health insurance and could thereby cause some 
workers' current access to affordable and comprehensive health 
insurance to be placed at risk.
    Employer-based coverage and public programs such as Medicaid and 
SCHIP are the twin pillars of the health insurance system in the United 
States. In 2001, the latest year for which data are available, 162 
million non-elderly individuals obtained their health insurance through 
an employer.1 (By comparison, only 16.4 million obtained 
private health insurance coverage through the individual market.) In 
2003, about 50 million non-elderly individuals and families receive 
coverage through Medicaid or SCHIP. Initiatives to expand coverage 
should build on these pillars of health insurance in the United States, 
rather than risk weakening them.
---------------------------------------------------------------------------
    \1\ Paul Fronstin, Sources of Coverage and Characteristics of the 
Uninsured: Analysis of the March 2002 Current Population Survey, Issue 
Brief no. 252, Employee Benefit Research Institute, December 2002.
---------------------------------------------------------------------------
    To address the problem of the uninsured without weakening existing 
coverage, a better alternative would be a carefully designed expansion 
of public programs such as Medicaid and SCHIP. Under the ``FamilyCare'' 
proposal, additional federal funding would be provided to states, at 
their option, to expand Medicaid and SCHIP to more parents in working 
families. Research shows that expanding coverage to parents so parents 
and children can be covered by the same public program produces the 
additional benefits of an increase in enrollment among eligible-but-
uninsured children in these programs and an increase in utilization of 
necessary health care services by children. Such a proposal would 
strengthen public programs that have a proven ability to provide 
affordable, comprehensive health insurance to millions of low- and 
moderate-income families. It also would be a much more efficient use of 
$50 billion--substantially more of the uninsured would gain insurance, 
and far less of the money would ``leak'' to subsidizing people who 
already are insured. Another sound alternative could involve tax 
incentives for more small employers to offer health insurance to their 
workers.
      evaluating approaches to expanding coverage to the uninsured
    In this testimony, I use several principles in evaluating proposals 
to reduce the ranks of the uninsured.
A proposal should do no harm to the existing health insurance system 
        through which the vast majority of families obtain their health 
        coverage.
    Any proposal to expand coverage to the uninsured should not weaken 
the ability of the existing employer-based health insurance system and 
public programs like Medicaid and SCHIP to continue to offer 
affordable, comprehensive coverage to millions of Americans. If a 
proposal has the inadvertent effect of encouraging employers or states 
to scale back health insurance coverage, any gains in new coverage 
could be offset in substantial part or in whole by resulting losses in 
existing coverage (or by a lessening of the affordability or quality of 
existing coverage).
    An example of a policy that could have an adverse effect is the 
health tax legislation to establish Health Savings Security Accounts 
(HSSAs). This legislation was passed by the House three weeks ago and 
included as part of the Medicare prescription drug bill and is 
intended, at least in part, to help cover the uninsured.2 
HSSAs would likely have the effect, however, of encouraging employers 
to move away from traditional health insurance plans--which include low 
deductibles and modest copayments and provide comprehensive benefit 
coverage--to less comprehensive, high-deductible insurance, where 
employees bear a greater proportion of health care costs. Low-income, 
older and sicker workers could be disproportionately affected and have 
reduced access to necessary health care services.
---------------------------------------------------------------------------
    \2\ For an analysis of these accounts, see Edwin Park, Joel 
Friedman and Andrew Lee, Health Savings Security Accounts: A Costly Tax 
Cut that Could Weaken Employer-Based Health Insurance, Center on Budget 
and Policy Priorities, revised July 8, 2003.
---------------------------------------------------------------------------
A proposal should be well-targeted to maximize the number of uninsured 
        individuals and families gaining health care coverage.
    The overwhelming majority of the assistance provided under any 
coverage proposal should go to families currently without health 
insurance. For example, a proposal could be targeted to low-income 
families that are least able to afford health insurance. Such families 
are also most likely to work in small firms, which offer health 
coverage to their workforces at a substantially lower rate than do 
larger firms. A proposal would not meet this test if most participants 
either already had insurance through employer-based coverage (and 
would, under the health certification bill, start to receive a subsidy 
for employee premiums they already are paying) or merely shifted their 
existing insurance arrangements (for example, by moving from employer-
based coverage to the individual market).
A proposal should provide accessible, affordable, and comprehensive 
        health coverage to uninsured families.
    Any proposal to expand health insurance coverage should ensure that 
uninsured families eligible for the new assistance actually have access 
to health insurance. Families with older or sicker members should not 
be excluded from obtaining coverage because of their poorer health 
status, as is often the case in the individual market. To assure 
access, a proposal should make health insurance affordable. Modest 
assistance that still requires a low-income family to pay a prohibitive 
proportion of its gross income is unlikely to be very successful in 
encouraging the purchase of health insurance coverage.
    Research has found that uninsured individuals and families are less 
likely to have regular access to health care services and that this can 
lead to poorer health outcomes.3 Research has also shown 
that if individuals with insurance have a less comprehensive policy, 
with higher deductibles, substantial copayments and a narrow array of 
covered benefits, their access to needed health care services may be 
limited (albeit less so than if they have no insurance at 
all).4
---------------------------------------------------------------------------
    \3\ See, for example, Institute of Medicine, Health Insurance is a 
Family Affair, September 2002; Jack Hadley, Sicker and Poorer: the 
Consequences of Being Uninsured, Kaiser Family Foundation, May 2002.
    \4\ Elisabeth Simantov, Cathy Schoen and Stephanie Bruegman, Market 
Failure? Individual Insurance Markets for Older Americans, Health 
Affairs July/August 2001.
---------------------------------------------------------------------------
  description of h.r. 2698, the ``health insurance certificate act of 
                                  2003
    I turn now to the ``Health Insurance Certificate Act of 2003'' 
(H.R. 2698), the focus of today's hearing. The bill would establish a 
new program to provide subsidies to individuals and families for the 
purchase of health insurance. Under the bill, individuals under the age 
of 65 who are not eligible for public health insurance coverage and 
meet certain income and assets requirements could participate.
    Eligible individuals and families would receive a ``health 
certificate'' from the Secretary of Health and Human Services to help 
purchase health insurance. To use the health certificate, participants 
would provide the certificate to a health insurance issuer. The issuer 
would subsequently receive a direct payment from the HHS Secretary 
equal to the value of the subsidy for which the individual or family is 
eligible. The certificates could be applied to health insurance in the 
individual market (including coverage obtained through a high-risk 
pool), COBRA coverage provided through a former employer, or the 
employee's share of the premium for health insurance offered through 
his or her job.
    For the purchase of health insurance in the individual market, the 
annual subsidy would be up to $1,000 for individuals and up to $2,750 
for two-parent families with children, with the full subsidy being 
available only to individuals with incomes of less than $13,000 per 
year and families with incomes below $25,000. The subsidy would phase 
down as income rose above these levels and phase out entirely when 
income exceeded $18,000 for individuals and $34,000 for a two-parent 
family of four.
    The health certificate also could be used to pay for an employee's 
share of the premium cost of employer-based coverage, so long as the 
employer subsidizes at least 50 percent of the cost of health 
insurance. This provision is intended to assist uninsured employees who 
are offered insurance through their job but cannot currently afford 
their share of the premium. The annual subsidy for employer-based 
coverage would be limited to $400 for individuals and $1,100 for 
families of four. The subsidy for employer-based coverage would phase 
down by income at a somewhat faster rate than the individual market 
subsidy, phasing out entirely when income exceeded $16,000 for 
individuals and $33,000 for families.
    In no case could the value of the annual subsidy exceed 70 percent 
of the premium cost of either individual market or employer-based 
coverage. The subsidy amounts would not be indexed for inflation. In 
addition, the asset limits in determining eligibility would be set at 
$12,500 for individuals and $20,000 for families. These asset limits, 
as well, would not be indexed for inflation.
    The health certificates program would not be a mandatory program. 
It would be funded solely on a discretionary basis under the annual 
appropriations process. The bill authorizes total appropriations of up 
to $28.5 billion between fiscal years 2004 and 2008 (no year-by-year 
authorization levels are provided) and up to about $50 billion over ten 
years. The number of certificates available each year to eligible 
individuals and families would be subject to the availability of 
appropriated funds. The bill would allow up to $75 million of the 
appropriated funds each year to be used to extend and increase modestly 
the existing funding for state high-risk pools.
            evaluation of the health certificate act of 2003
The health certificates are highly unlikely to be a cost-effective and 
        well-targeted approach to reduce the ranks of the uninsured, 
        since the large majority of those who would use the subsidy 
        already have insurance.
    The goal of the health certificates bill--to target assistance to 
low-income families--is laudable. These are the families most likely to 
be uninsured, least likely to have access to health insurance through 
their employment, and least able to purchase health insurance on their 
own.
    There is serious question, however, about the bill's effectiveness 
and efficiency in achieving this goal. Professor Jonathan Gruber of 
M.I.T., an expert in analyzing the effects of coverage proposals on the 
uninsured, has conducted an informal analysis of a proposal similar to 
the health certificates bill.5 He projects that about nearly 
90 percent of expected health certificate participants would previously 
have had health insurance. This is because the vast majority of 
participants are expected to be people who either are already insured 
through employer-based coverage--and could start getting a subsidy for 
the employee premiums they are already paying--or are already 
purchasing individual-market coverage on their own.
---------------------------------------------------------------------------
    \5\ In his analysis, Professor Gruber assumes the subsidy is 
provided as a refundable tax credit at a cost of $4.2 billion in the 
first year. Factoring in health care inflation, the approach Professor 
Gruber modeled could be more costly than would be allowed under the 
discretionary funding limit of $50 billion over 10 years set in the 
health certificate bill. The informal analysis Professor Gruber 
conducted found that 1.38 million previously uninsured individuals 
would gain coverage out of an estimated total participation of 12 
million people. Thus, only 11.5 percent of participants would 
previously have been uninsured. A small number of individuals 
previously enrolled in employer-based coverage are projected to become 
uninsured, reducing the net gain in coverage to 1.28 million people.
---------------------------------------------------------------------------
    This analysis is consistent with prior research conducted both by 
Professor Gruber and by the Kaiser Family Foundation, which found that 
under similar coverage proposals using refundable tax credits rather 
than direct subsidies--such as the health tax credit the Administration 
has proposed--more than two-thirds of participants would be people who 
already were insured.6 As a result, only a relatively modest 
share of the benefits of the health certificate subsidy likely would go 
to reducing the ranks of the uninsured. A larger share of the subsidy 
costs would go to provide people who already are insured with financial 
assistance.
---------------------------------------------------------------------------
    \6\ Jonathan Gruber, Written Testimony before the Subcommittee on 
Health, House Ways and Means Committee, February 13, 2002; Judith 
Feder, Cori Uccello, and Ellen O'Brien, The Difference Different 
Approaches Make: Comparing Proposals to Expand Health Insurance, Kaiser 
Family Foundation, October 1999. The Administration's own estimates of 
its tax credit proposal from last year, issued by the Treasury 
Department, indicate that nearly two-thirds of tax-credit recipients 
would have already had health insurance. Testimony of Mark McClellan 
before the Senate Health, Education, Labor and Pensions Committee, 
March 12, 2002. For analysis of the Administration's tax credit 
proposal, see Edwin Park, Administration's Proposed Tax Credit for the 
Purchase of Health Insurance Could Weaken Employer-Based Health 
Insurance, Center on Budget and Policy Priorities, revised April 22, 
2003.
---------------------------------------------------------------------------
Older and sicker individuals not eligible for employer-based coverage 
        would likely be unable to secure adequate health insurance in 
        the individual market without paying exorbitant amounts.
    The individual market is generally unregulated. Under the health 
certificate proposal, a family containing older or sick members could 
find itself excluded from coverage in the individual market or charged 
premiums that are unaffordable, even with a $2,750 subsidy. The 
individual market generally permits individual medical 
``underwriting''--that is, insurers can vary premiums based on age and 
medical history and can deny coverage entirely. The health certificate 
bill does not include any reforms of the individual market.
    According to a study by the Commonwealth Fund, only 16 states 
require that insurers offer a plan to most applicants in the individual 
market, and this does not necessarily mean an affordable 
plan.7 Another Commonwealth Fund study found that among 
adults aged 19-64 who sought coverage in the individual market and who 
were in poorer health or suffered from chronic conditions, 62 percent 
found it very difficult or impossible to find a plan they could afford 
that provided the coverage they needed.8
---------------------------------------------------------------------------
    \7\ Lori Achman and Deborah Chollet, Insuring the Uninsurable: An 
Overview of State High-Risk Health Insurance Pools, The Commonwealth 
Fund, August 2001.
    \8\ Lisa Duchon and Cathy Schoen, Experiences of Working-Age Adults 
in the Individual Market, The Commonwealth Fund, December 2001.
---------------------------------------------------------------------------
    A Kaiser Family Foundation study examined the response that 
hypothetical families and individuals applying for coverage in the 
individual health insurance market would meet; the hypothetical 
applicants were structured to test the medical underwriting process 
through 60 applications in eight geographic markets. The study found 
that older and sicker people, even those with relatively mild 
conditions, are often unable to obtain comprehensive coverage in the 
individual market.9
---------------------------------------------------------------------------
    \9\ Karen Pollitz, Richard Sorian and Kathy Thomas, How Accessible 
is Individual Health Insurance for Consumers in Less-than-Perfect 
Health?, Kaiser Family Foundation, June 2001. See also Karen Pollitz 
and Larry Levitt, Explaining the Findings of a Study About Medical 
Underwriting in the Individual Market, Kaiser Family Foundation, May 
2002.
---------------------------------------------------------------------------
    Alternatively, such a family could be offered a plan that is 
affordable but does not provide coverage for a variety of significant 
medical conditions. Many plans in the individual market do not offer 
comprehensive coverage. They may require high deductibles, impose 
significant cost-sharing, and provide limited benefits. Many individual 
market plans require deductibles of $1,000 or more--on average, 
deductibles are set at $1,550 in the individual market. Individual 
market plans also often do not cover the broad range of benefits 
available in comprehensive employer-based coverage. Plans available in 
the individual market may not cover preventive benefits or mental 
health services, for example, and may place stringent limitations on 
prescription drug coverage. A recent study by the Commonwealth Fund 
found that individual market plans rarely include maternity 
benefits.10 On average, individual market plans cover 63 
percent of medical costs, as compared to 75 percent under group 
insurance plans. Half of people buying individual policies are covered 
for only 30 percent of their health care bills.11
---------------------------------------------------------------------------
    \10\ Sara Collins, Stephanie Berkson and Deirdre Downey, Health 
Insurance Tax Credits: Will They Work for Women, The Commonwealth Fund, 
December 2002.
    \11\ Jon Gabel, Kelly Dhont, Heidi Whitmore and Jeremy Pickreign, 
Individual Insurance: How Much Financial Protection Does It Provide, 
Health Affairs (Web Exclusive), April 17, 2002.
---------------------------------------------------------------------------
    People enrolled in individual insurance may delay treatment because 
of potential out-of-pocket costs or because benefits are not covered. 
One study found that older individuals with individual coverage are 
twice as likely as those with employer-based coverage to fail to see a 
doctor when a medical problem has developed or to skip medical tests or 
follow-up treatment.12 Another study concluded that so-
called ``bare-bone'' health plans, comparable to some of those found in 
the individual market, could leave low-wage individuals and families 
with catastrophic health care costs well in excess of their annual 
income.13
---------------------------------------------------------------------------
    \12\ Simantov, Schoen and Bruegman.
    \13\ Sherry Glied, Cathi Callahan, James Mays and Jennifer Edwards, 
Bare-Bones Health Plans: Are They Worth the Money, The Commonwealth 
Fund, May 2002.
---------------------------------------------------------------------------
The health certificates would be of inadequate size to make health 
        insurance in the individual market affordable for many low- and 
        moderate-income families.
    Comprehensive health insurance can be expensive. According to the 
General Accounting Office, the mid-range premium for family insurance 
in the individual market exceeded $7,300 in 1998. Even without 
factoring in the increases in health insurance premium costs since 
1998, a family of four with income of $25,000 that receives a $2,750 
subsidy would have to expend 18 percent or more of its gross income to 
purchase insurance at this price.
    A Commonwealth Fund study examined premiums for individual health 
insurance policies that provide coverage comparable to what employer-
based insurance typically provides. The study looked at premium costs 
in 17 cities for policies for a single healthy adult aged 55. It found 
the median annual premium for these policies to be approximately 
$6,100.14 Thus, with a subsidy of $1,000, a 55 year-old with 
income of $15,000 would have to pay $5,100 ``more than one-third of his 
or her gross income--to obtain such insurance. A less healthy person 
generally would have to pay still more, if he or she were not excluded 
entirely from the individual market. Moreover, in some high-cost 
geographic areas, premiums could consume even larger percentages of 
family income. For example, premiums for a healthy 55 year-old were 
more than $9,500 in the Los Angeles-Long Beach, California 
area.15 The subsidy would reduce that cost only to $8,500.
---------------------------------------------------------------------------
    \14\ Jon Gabel, Kelly Dhont and Jeremy Pickreign, Are Tax Credits 
Alone the Solution to Affordable Health Insurance, The Commonwealth 
Fund, May 2002.
    \15\ Gabel, Dhont and Pickreign. See also Collins, Berkson and 
Downey, which found that individual market premiums for women varied 
significantly across geographic areas.
---------------------------------------------------------------------------
    Studies indicate that premium costs of these magnitudes are well 
beyond what most low-income families can afford. One study determined 
that premiums set at or above five percent of income discouraged most 
low-income families from enrolling in health insurance.16
---------------------------------------------------------------------------
    \16\ Leighton Ku and Teresa Coughlin, Use of Sliding Scale Premiums 
in Subsidized Insurance Programs, Urban Institute, March 1, 1997.
---------------------------------------------------------------------------
    Finally, the value of the health certificate subsidy is likely to 
erode significantly over time. Under the bill, the subsidy amounts 
available under the health certificate program are not adjusted 
annually. Insurance premiums could rise at double-digit rates from year 
to year while the subsidy remained frozen.17
---------------------------------------------------------------------------
    \17\ The average cost of employer-based health insurance increased 
12.7 percent between 2001 and 2002. Kaiser Family Foundation and Health 
Research and Educational Trust, Employer Health Benefits: 2002 Annual 
Survey, September 2002.
---------------------------------------------------------------------------
The health certificates are likely to encourage only modest increases 
        in participation in employer-based coverage by low-income 
        workers.
    Allowing the health certificates to be used by employees to pay for 
their contribution to the cost of health insurance is likely to 
increase participation in employer-based health insurance only 
modestly. This is because most uninsured low-income workers are 
uninsured not because they cannot afford employee premiums but because 
their employer does not offer them coverage.18 Only 40 
percent of low-wage workers earning less than $7 per hour were offered 
health insurance through their employer, as compared to 96 percent of 
higher-wage workers earning at least $15 per hour.19 In 
another analysis, the Commonwealth Fund looked at low-wage workers 
employed by small businesses with fewer than 25 workers. In 2001, only 
36 percent of small-business employees who earned less than $10 per 
hour were offered health insurance coverage, as compared to 67 percent 
of small business employees earning more than $15 per hour. The 
Commonwealth Fund study found that as a result, 37 percent of workers 
earning less than $10 per hour in small businesses were 
uninsured.20
---------------------------------------------------------------------------
    \18\ Leonard Burman, Cori E. Uccello, Laura L. Wheaton and Deborah 
Kobes, Tax Incentives for Health Insurance, Urban-Brookings Tax Policy 
Center, May 2003.
    \19\ Diane Rowland, Written Testimony before the Subcommittee on 
Health, House Committee on Energy and Commerce, February 28, 2002.
    \20\ Sara R. Collins, Cathy Schoen, Diane Colasanto and Deirdre A. 
Downey, On the Edge: Low-Wage Workers and Their Health Insurance 
Coverage: Findings from the Commonwealth Fund 2001 Health Insurance 
Survey, the Commonwealth Fund, April 2003.
---------------------------------------------------------------------------
    Moreover, for those uninsured workers with access to employer-based 
coverage, the health certificate subsidies may encourage firms--
particularly small firms with large numbers of low-wage workers--to 
lower their premium contributions in response.21 As a 
result, the bill could end up substituting substantial new public 
dollars for existing employer contributions. While the health 
certificate bill requires that employers must subsidize at least 50 
percent of health insurance coverage for an employee to qualify for 
assistance, employers could reduce the health insurance premium 
contribution they are currently providing so long as they do not reduce 
it below 50 percent. As a result, such firms may shift a greater 
proportion of the premium costs of health insurance to their employees, 
knowing their workers can use the health certificate to help offset 
those costs. Such an outcome is most likely to occur among very small 
employers with substantial numbers of low-income workers who already 
pay for a smaller proportion of the costs of health insurance, rather 
than among larger firms and firms with substantial numbers of higher-
income workers.
---------------------------------------------------------------------------
    \21\ Burman, Uccello, Wheaton and Kobes.
---------------------------------------------------------------------------
Establishment of the health certificates could encourage some states to 
        scale back Medicaid and SCHIP coverage for families with 
        children.
    Facing severe budget deficits, some states have recently scaled 
back eligibility for working parents and children under Medicaid and 
SCHIP. (The state fiscal relief package included in the recently 
enacted tax bill is likely to avert or reduce the magnitude of some 
pending reductions.)
    The health certificate subsidy is targeted to the same low-income 
individuals and families who currently are served or could be served by 
those public programs. For families of four, income eligibility for the 
full certificate subsidy would be capped at $25,000 per year. This 
equals 136 percent of the poverty line. Forty states now provide 
Medicaid or SCHIP coverage to children in families with incomes up to 
200 percent of the poverty line. While many states have been less 
generous with eligibility for working parents in such families--income 
eligibility for parents in the median state was only 69 percent of the 
poverty line in 2001--some 20 states including the District of Columbia 
covered working parents up to 100 percent of the poverty line or 
higher.22
---------------------------------------------------------------------------
    \22\ Several states including Connecticut, Missouri and New Jersey 
have recently reduced eligibility for parents due to their budget 
deficits. Other states such as Arizona, Illinois and New York have 
expanded eligibility since 2001.
---------------------------------------------------------------------------
    Because the health certificate subsidy would be targeted in part at 
the same low-income adults and children served by these public 
programs, it could give states facing budget pressures an inducement to 
reduce Medicaid and SCHIP coverage. States could decide that some 
beneficiaries should instead use the health certificates to purchase 
health insurance in the individual market. After all, unlike public 
programs such as Medicaid and SCHIP that require states to contribute a 
portion of the costs, the health certificate would be fully funded by 
the federal government. As a result, beneficiaries who now have access 
to affordable and comprehensive public coverage through Medicaid or 
SCHIP could be placed into the individual market and become uninsured 
or face much higher out-of-pocket costs and significantly reduced 
benefits.
Access to the health certificates would be substantially limited by 
        significant administrative hurdles.
    The health certificate bill does not indicate how it would resolve 
several administrative obstacles in implementing the health certificate 
program. For example, the bill limits eligibility by imposing income 
and asset limits. While the bill states that the Secretary of Health 
and Human Services is responsible for developing a methodology for 
calculating income and assets, it does not delineate how eligible 
individuals and families would apply and who would make the eligibility 
determinations. States already conduct eligibility determinations for 
programs like Medicaid and SCHIP, but there is no requirement in the 
bill that states process health certificate applications or that states 
receive additional federal funding to do so. If the federal government 
is to determine eligibility for the health certificates, it would have 
to establish a new bureaucracy to administer it.
    Moreover, the bill states that a health insurance issuer may 
receive payment directly from the Secretary of Health and Human 
Services equal to the value of the subsidy when an individual or family 
presents a health certificate to the issuer. This is intended to ensure 
timely advance payment of the subsidy so that individuals do not have 
to pay the premiums first themselves--which is likely to be impractical 
considering the families' low incomes--and wait to receive the subsidy 
from the federal government. There are no provisions, however, that 
describe the structure and procedures through which these advance 
payments would be made. For example, one unresolved issue is how the 
federal government will identify and reimburse individual insurers and 
employers providing coverage to individuals and families eligible for 
the health certificate.
The health certificate program would not have mandatory funding and 
        would be subject to the vagaries of the annual appropriations 
        process.
    Under the health certificate bill, no mandatory funding is provided 
for the program. The bill only includes an authorization for funding to 
be provided through the annual appropriations process, with a limit of 
just under $28.5 billion for the next five years as a whole and a limit 
of just under $50 billion over the 10-year budget window. The number of 
certificates provided would be subject to the amount of discretionary 
funding actually made available each year.
    Since no funds or only a small amount of funds could be 
appropriated for the program, there is no guarantee that a significant 
number of individuals and families would receive a health certificate 
subsidy to purchase health insurance. Alternatively, adequate funding 
could be provided in the program's first few years, but funding could 
subsequently be reduced as appropriators struggled to fit within 
stringent appropriation caps.
    On the other hand, if the program receives substantial funding 
increases over time, use of the health certificate program is likely to 
be significantly more widespread. That would result in more families 
receiving the certificates. It would, however, also increase the risks 
that the certificates would pose to the employer-based health insurance 
system and public programs.
If expanded substantially over time to families at higher income 
        levels, the availability of the health certificates could lead 
        some employers to cease providing health insurance coverage to 
        their workers and could induce many new employers not to offer 
        coverage.
    Analysts from M.I.T., the Kaiser Family Foundation, and the Urban 
Institute have found that enactment of a subsidy for the purchase of 
health insurance (done through the tax code as a refundable credit) 
would encourage some firms not to offer health insurance coverage to 
their employees because the firms would know their workers could now 
get a subsidy to purchase coverage in the individual 
market.23 This is not likely to be the case under the health 
certificate program: the restrictive income and asset limits would 
mitigate that risk.24 In examining tax credits, the Urban-
Brookings Tax Policy Center found that if eligibility for such credits 
is limited to families with low-incomes, fewer employers will drop 
coverage since the credits would be unavailable to many of their 
workers. The availability of partial subsidies for employer-based 
coverage also should somewhat reduce the likelihood that firms would 
drop coverage.25
---------------------------------------------------------------------------
    \23\ Burman, Uccello, Wheaton and Kobes; Jonathan Gruber, Tax 
Subsidies for Health Insurance: Evaluating the Cost and Benefits, 
National Bureau of Economic Research, February 2000; Judith Feder, Cori 
Uccello, and Ellen O'Brien, The Difference Different Approaches Make: 
Comparing Proposals to Expand Health Insurance, Kaiser Family 
Foundation, October 1999; Leonard E. Burman and Amelia Gruber, First Do 
No Harm: Designing Tax Incentives for Health Insurance, National Tax 
Journal, May 2001; and Linda Blumberg, Health Insurance Tax Credits: 
Potential for Expanding Coverage, Urban Institute, August 2001. The 
Administration also acknowledges that some tax credits could have this 
adverse effect on employer-based coverage. Council of Economic 
Advisers, Health Insurance Tax Credits, February 13, 2002.
    \24\ Professor Gruber expects little or no employer dropping under 
the health certificate bill because of the restrictive income and asset 
limits.
    \25\ Burman, Uccello, Wheaton and Kobes.
---------------------------------------------------------------------------
    As a result, the magnitude of the risks the health certificate bill 
could pose to the employer-based health insurance system would be 
limited. If over time, however, the health certificate income and asset 
limits were lifted to increase eligibility and funding were increased 
substantially, the program could end up weakening employer-based health 
insurance coverage and encouraging a substantial number of employers to 
drop their health insurance coverage (or not to offer coverage in the 
first place).
    Substituting the purchase of health insurance in the individual 
market for group coverage through an employer would seriously 
disadvantage older and less healthy workers. As discussed above, in 
most states, insurers can vary premiums for health insurance policies 
offered in the individual market on the basis of age and medical 
history and can refuse to cover people entirely. Many older and less 
healthy workers would generally have to pay far more than the amount 
that the subsidy would provide to secure coverage in the individual 
market or would not be able to obtain coverage at all because of their 
health status.
If expanded substantially over time, the health certificates could 
        institute an ``adverse selection'' cycle.
    Some young, healthy low-income workers whose employers do offer 
coverage but require their employees to pay a substantial share of the 
premium would be able to opt out of employer-based coverage and instead 
use their health certificate subsidies to purchase insurance in the 
individual market.
    The movement of substantial numbers of workers from employer-based 
coverage to the individual market is not likely, however, because of 
the restrictive income and asset eligibility requirements. Relatively 
few workers in these income ranges have access to employer-based 
coverage. In addition, the availability of a partial subsidy for 
employer-based coverage could offset some of the incentives to leave 
employer-based coverage for those low-income workers participating in 
such coverage. (However, because the health certificate program 
provides a greater subsidy for the purchase of health insurance in the 
individual market then for employer-based coverage, it may still 
encourage some young, healthy employees to leave employer-based 
coverage for the individual market.26)
---------------------------------------------------------------------------
    \26\ Burman, Uccello, Wheaton and Kobes.
---------------------------------------------------------------------------
    The health certificate proposal, however, could be expanded in 
subsequent years through Congressional action to remove these income 
and asset limitations. Such a move could make it attractive for more 
young and healthy employees to opt out of employer-based coverage and 
shift to the individual market. If these young and healthy workers opt 
out of employer coverage, however, the pool of workers remaining in 
employer plans would become older and sicker, on average. That would 
drive up the average premium costs for employer-based insurance and 
further raise the amounts that the employees remaining in these plans 
must pay for insurance.
    This phenomenon--known as ``adverse selection''--could then induce 
yet additional younger, healthier workers to abandon employer-based 
coverage and use their subsidies in the individual market instead, 
since the departure of the first wave of younger, healthier employees 
would have caused premiums for employer-based coverage to rise. In this 
way, a vicious cycle could be set in motion. The increase in premiums 
for employer-based coverage that ultimately could occur could induce 
some employers either to cease offering health insurance or to increase 
substantially the amounts their employees must pay for insurance. The 
end result could be that a substantial number of older and less healthy 
individuals could eventually lose their employer-based coverage and 
become uninsured or underinsured or have to pay very large amounts for 
decent coverage.
    Intensifying the risk that many firms might not offer coverage is 
the recent return of a high rate of inflation in health care costs, 
which are now rising at double-digit rates. As a result, fewer firms, 
especially small businesses, are offering health insurance coverage to 
their employees. Institution of an expanded health certificate subsidy 
with substantially higher income and asset limits could provide a 
further incentive for some employers, especially small businesses 
seeking to cut costs, to drop or not to institute coverage for their 
workforce.
         more effective approaches to coverage of the uninsured
                               FamilyCare
    A more effective and efficient alternative that would avoid the 
principal pitfalls of the health certificate approach is to expand 
public programs like Medicaid and the State Children's Health Insurance 
Program (SCHIP). Public programs are a proven approach to reduce the 
ranks of the uninsured. For example, according to the Centers for 
Disease Control and Prevention, the percentage of low-income children 
who are uninsured fell by about one-third, from 23 percent in 1997 
(when SCHIP was established) to 16 percent by 2002, in large part 
because of public programs.27
---------------------------------------------------------------------------
    \27\ Centers for Disease Control and Prevention, National Center 
for Health Statistics, ``Early Release of Selected Estimates Based on 
Data from the 2002 National Health Interview Survey,'' June 2003.
---------------------------------------------------------------------------
    The effective safety net role of Medicaid and SCHIP has also been 
highlighted during the current economic downturn as families have lost 
their jobs and their health insurance. According to other CDC data 
released last year, the number of children who were uninsured would 
have been two million higher and the number of uninsured adults would 
have been one million higher in the first quarter of 2002 (as compared 
to 2001) but for increased Medicaid and SCHIP enrollment picking up the 
slack.28
---------------------------------------------------------------------------
    \28\ Leighton Ku, The Number of Americans without Health Insurance 
Rose in 2001 and Appears to be Continuing to Rise in 2002, Center on 
Budget and Policy Priorities, revised October 8, 2002.
---------------------------------------------------------------------------
    One public program expansion proposal that would be particularly 
effective in addressing the problem of the uninsured is the bipartisan 
``FamilyCare'' legislation, introduced in the last Congress, that would 
provide $50 billion in new SCHIP funds to assist states, at their 
option, in expanding Medicaid and SCHIP coverage to the low-income 
parents of children eligible for those programs.
    In 2001, some 34.5 percent of parents--about 6.6 million--in 
families with incomes below 200 percent of the poverty line ($36,800 
for a family of four) were uninsured. This is partly the result of 
limited coverage within the Medicaid program; in 2001, the Medicaid 
income eligibility level for parents in the median state was only 69 
percent of the federal poverty line (about $12,700 for a family of 
four). Just as SCHIP facilitated coverage expansions for low-income 
children, additional federal SCHIP funds could be provided for states 
to expand Medicaid and SCHIP coverage to low-income working parents.
    A number of states such as Arizona, Illinois, New Jersey, Rhode 
Island, and Wisconsin have expanded SCHIP (or are in process of 
implementing such an expansion) to provide comprehensive coverage to 
parents, as well as other adults. However, the long-term ability of 
states to continue to expand coverage is threatened by a lack of 
adequate federal SCHIP funding. The Balanced Budget Act of 1997 
instituted a 26 percent reduction in federal SCHIP funding for the 
fiscal years 2002, 2003 and 2004--a reduction of over $1 billion each 
year. In addition, the SCHIP redistribution system suffers from timing 
and targeting problems. Some states have federal funds they will never 
use, while other states face the prospect of having to cut their 
programs sharply in the future years because their federal SCHIP 
allotments will be insufficient. As a result, even with the likely 
passage in coming days of bipartisan legislation to extend the life of 
$2.6 billion in expired or expiring SCHIP funds, a number of states are 
projected to have insufficient funding to sustain their existing 
programs over the next few years.
    Greater SCHIP funding provided under the FamilyCare approach would 
not only address funding shortfalls for existing SCHIP coverage of 
children but would provide additional resources for expansions to their 
parents. If history is any guide, when states are given new flexibility 
to expand coverage and sufficient additional funding, they will take up 
the option and expand coverage, in many cases substantially. Examples 
include the significant increase in children's coverage after SCHIP was 
created and a number of Medicaid expansions for parents following 
enactment of welfare reform in 1996, which gave states more options in 
this area.
    The FamilyCare proposal benefits from a number of advantages over 
other approaches to cover the uninsured:

 It would not encourage many individuals to drop employer-based 
        coverage, nor would it significantly induce employers no longer 
        to offer health insurance to their workers, especially as 
        compared to the likely effects of other approaches. Research 
        has found that a relatively modest percentage of the additional 
        individuals covered through public expansions previously had 
        employer-based coverage.29 For example, an 
        examination of Minnesota's Medicaid expansion to adults and 
        children found that only seven percent of enrollees gave up 
        private insurance (both employer-based and individual market) 
        to join the program, of which fewer than half previously 
        participated in employer-based coverage. In Wisconsin, which 
        expanded coverage to parents up to 185 percent of the poverty 
        line through its BadgerCare program, only 6 percent of the 
        25,000 families screened had access to employer-based coverage 
        prior to enrolling in the SCHIP program. Other studies 
        estimating the effects of public program expansion proposals 
        project that only 30 percent of participants would have 
        previously had insurance.30 By comparison, as 
        discussed above, Professor Jonathan Gruber estimates that 
        nearly 90 percent of participants in the health certificate 
        bill would previously have had health insurance.
---------------------------------------------------------------------------
    \29\ Lisa Dubay, Expansions in Public Health Insurance and Crowd-
Out: What the Evidence Says, Kaiser Family Foundation, October 1999; 
Kathleen Call et al., Who Is Still Uninsured in Minnesota? Lessons from 
State Reform Efforts, Journal of the American Medical Association, 
October 8, 1997, p.1191-95; Leighton Ku, Marilyn Ellwood et al., The 
Evolution of Medicaid Managed Care Systems and Eligibility Expansions, 
Health Care Financing Review, Winter 2000; Jeremy Alberga, Wisconsin's 
BadgerCare Program Offers Innovative Approach to Family Coverage, 
Robert Wood Johnson Foundation, January 2001; Amy Lutzky and Ian Hill, 
Has the Jury Reached a Verdict? States' Early Experiences with Crowd-
Out Under SCHIP, Urban Institute, June 2001; and Richard Kronick and 
Todd Gilmer, Insuring Low-Income Adults: Does Public Coverage Crowd-Out 
Private?, Health Affairs, January/February 2002.
    \30\ Feder, Uccello and O'Brien; Judith Feder, Written Testimony 
before the Subcommittee on Health, House Committee on Energy and 
Commerce, February 28, 2002
---------------------------------------------------------------------------
 The coverage provided under Medicaid and SCHIP is accessible and 
        affordable to the low-income populations served. Unlike the 
        individual health insurance market, public programs are open to 
        any eligible individual irrespective of age or medical history. 
        In addition, both the Medicaid and SCHIP programs have limits 
        on premiums, deductibles and cost-sharing to ensure that 
        participating families and individuals can afford out-of-pocket 
        costs. Research shows that premiums and cost-sharing above 
        minimal levels deter participation or use of necessary care 
        among low-income families.31 Medicaid generally 
        requires no premiums and nominal copayments and exempts 
        vulnerable populations such as children and pregnant women from 
        any cost-sharing. SCHIP families are protected from cost-
        sharing that exceeds 5 percent of family income.
---------------------------------------------------------------------------
    \31\ Judith Feder, Larry Levitt, Ellen O'Brien and Diane Rowland, 
Covering the Low-Income Uninsured: The Case for Expanding Public 
Programs, Health Affairs, January/February 2001.
---------------------------------------------------------------------------
 Medicaid and SCHIP coverage also provides comprehensive benefits that 
        meet the needs of older and sicker families and individuals. 
        Both programs establish federal benefit standards that are 
        intended to provide comprehensive health insurance coverage. 
        Under Medicaid, states must provide certain minimum benefits 
        such as hospital, physician coverage and nursing home care, as 
        well as preventive, acute-care and long-term care benefits that 
        meet the special needs of children, people with disabilities 
        and people with chronic illnesses. Under SCHIP, state programs 
        must generally provide a benefits package that is equivalent to 
        a basic benchmarks, such as the Blue Cross-Blue Shield Standard 
        Option under the Federal Employees Benefits Health Plan 
        (FEBHP).
 Expanded coverage of low-income parents under Medicaid and SCHIP 
        would also have the added benefit of increasing coverage of 
        children who currently are eligible for, but not enrolled in, 
        the Medicaid or SCHIP programs. Many low-income children who 
        are eligible for these programs remain unenrolled and 
        uninsured.32 Research has found that extending 
        health insurance to low-income parents under the same public 
        program so that the entire family can be covered under a single 
        joint policy boosts enrollment of children and use of necessary 
        services by children. In states that have expanded publicly 
        funded coverage to include working parents, enrollment rates 
        among children are significantly higher.33
---------------------------------------------------------------------------
    \32\ See, for example, Lisa Dubay, Ian Hill and Genevieve Kenney, 
Five Things Everyone Should Know about SCHIP, Urban Institute, October 
1, 2002.
    \33\ Institute of Medicine, Health Insurance is a Family Affair, 
September 2002; Leighton Ku and Matthew Broaddus, The Importance of 
Family-Based Insurance Expansions: New Research Findings about State 
Health Reforms, Center on Budget and Policy Priorities, September 2000; 
Jeanne Lambrew, Health Insurance: A Family Affair, The Commonwealth 
Fund, May 2001; Lisa Dubay and Genevieve Kenney, Covering Parents 
Through Medicaid and SCHIP: Potential Benefits to Low-Income Parents 
and Children; Kaiser Family Foundation, October 2001; Elizabeth 
Gifford, Robert Weech-Maldonado and Pamela Farley Short, Encouraging 
Preventive Health Services for Young Children: The Effect of Expanding 
Coverage to Parents, Pennsylvania State University, presentation at the 
Academy for Health Services Research and Health Policy Conference, 
Atlanta, June 12, 2001.
---------------------------------------------------------------------------
 Finally, Medicaid and SCHIP already have a working administrative 
        structure in place; there would be no need to establish a new 
        bureaucracy to implement the FamilyCare expansion. In fact, 
        since SCHIP has been established, states have simplified and 
        streamlined enrollment procedures for eligible families. States 
        know how to determine income eligibility for Medicaid and SCHIP 
        coverage and how to facilitate families' enrollment in health 
        insurance plans. States have existing contracts with providers 
        and managed care plans; expansion participants would receive 
        their comprehensive benefits through existing coverage 
        arrangements that the state has already established. In many 
        cases, families would already be familiar with the Medicaid or 
        SCHIP managed care plans, doctors and hospitals because their 
        children already participate in those programs.
                       Small Employer Tax Credits
    Another approach to the problem of the uninsured that could be 
considered, possibly in conjunction with FamilyCare, would be to 
provide additional subsidies to small businesses to offer health 
insurance coverage to their workers. As discussed above, small 
employers especially those with large numbers of low-income workers, 
are less likely to provide health insurance to their workforces.
    The federal government could provide a tax credit to small 
businesses (say for firms with fewer than 50 workers) that offer health 
insurance benefits, with the value of the credit equaling a percentage 
of the employer's premium costs. The credit would be available both to 
employers currently providing such coverage and to businesses not 
currently offering health benefits. According to a Kaiser Family 
Foundation survey of small businesses, 89 percent of small business 
executives supported offering tax credits to employers to help them 
purchase health insurance for their employees.34
---------------------------------------------------------------------------
    \34\ Kaiser Family Foundation, National Survey of Small Businesses, 
April 2002.
---------------------------------------------------------------------------
    To maintain a relatively modest cost and target the credit to the 
most vulnerable small businesses that are least able to offer coverage, 
the credit could be designed to provide the greatest subsidy to the 
smallest firms and the firms with substantial numbers of low-wage 
workers. Professor Jonathan Gruber of M.I.T. has suggested the design 
of such a credit. While the credit would be available to all firms with 
fewer than 50 workers, the subsidy would be largest for the smallest 
firms (say firms with fewer than 10 workers or some higher level), with 
the value of the credit slowly phasing out by firm size. In addition, 
the credit would be targeted at firms with a high percentage of low-
wage workers. The value of the credit would be largest for firms whose 
average wage is less than some annual earnings benchmark or hourly wage 
level, with the credit slowly phasing out above that level. In other 
words, the credit would phase out along two dimensions: firm size and 
wage level.
    This design has the benefit of targeting the greatest subsidy to 
the small businesses that most need it while still providing some 
financial assistance to all small businesses offering health insurance 
that have fewer than 50 workers. Most importantly, the credit would not 
disrupt--and would build on--the current employer-based health 
insurance system. It would assist the relatively few small employers 
with large numbers of low-income workers that currently offer 
traditional coverage so they can continue to afford such coverage, 
while also encouraging other firms to begin offering coverage. It would 
not produce the adverse selection risks likely to result from tax 
credits and subsidies for health insurance in the individual market, 
which could lead to significant increases in premium costs for 
traditional group health insurance coverage and thus could place older 
and sicker workers at risk of becoming underinsured or uninsured.
    According to a Kaiser Family Foundation survey, 61 percent of small 
business executives believe employees would be better off in employer-
based coverage than on their own in the individual market, and 74 
percent thought it would be harder for employees to meet their health 
insurance needs if they got sick if the employees were in the 
individual market rather than in employer-based coverage. A tax credit 
to small businesses would meet these preferences and concerns.
                               conclusion
    In evaluating proposals to covering more of the uninsured, three 
principles should govern. A proposal should do no harm to the health 
insurance system through which the vast majority of families obtain 
their health insurance. A proposal should be well-targeted to maximize 
the number of uninsured individuals and families gaining health 
coverage. And a proposal should provide accessible, affordable and 
comprehensive health insurance coverage to uninsured families.
    Carefully designed expansions of Medicaid and SCHIP, as well as 
certain tax incentives for more small employers to offer health 
insurance coverage, would satisfy these principles.

    Mr. Bilirakis. Thank you, sir.
    Well, a few months ago, must have been maybe the middle of 
last year, I visited virtually every Chamber of Commerce. I 
made this statement publicly at least once in my District. And 
where it used to be you would attend the Chambers and, you 
know, find out what their problems are and things of that 
nature, it was always things like infrastructure, et cetera, 
well, this time it was health insurance. And I mean 
resoundingly, across the board. Every one of them. So there is 
no question about the problem.
    There is a problem there for the uninsured. There is a 
problem there for the employers. There is a problem.
    I have very unrehearsed questions. We have laws that 
require you to be able to--if you have a driver's license, you 
have got to have automobile insurance. And I don't know of any 
cases, there may be some, but I don't know of any cases where 
the premiums are subsidized by government or any form of 
government. But I guess somehow people needing a car or needing 
transportation manage to raise the money to pay for those 
policies, and they are pretty darn high.
    I guess the question might be, is that something we should 
consider doing? Mandating health insurance, that everybody have 
health insurance, every family have health insurance? When I 
use the word mandating, you know there is more than one way you 
can mandate something or encourage it, if you will. Any of you? 
Any thoughts? Dr. Young?
    Mr. Young. Well, I think there are several questions that 
it raises. All of the answers to which have impacts that need 
to be considered. Mandating who? The individual. If you mandate 
the individual, how are you going to enforce it? And what would 
the financial impact be on very low-income that were mandated 
to a premium that they simply couldn't afford? But the same is 
true if you were to do it for business now, particularly small 
businesses. Now, large businesses virtually all offer 
insurance. But, if you have a mom and pop business with two or 
three employees, they are struggling to do the right thing, and 
they are offering insurance, but they are having a hard time. 
And you mandate on them, what is that going to do to the 
business, and what is that then going to do to our economy? So 
I think it is a question that can be raised and discussed, but 
it--the answer to it has implications that have to be probed 
and understood.
    They could be significantly negative implications. I think 
the better approach is the one that you are taking, and that 
is, providing financial assistance, hopefully, over time 
additional financial assistance, letting people buy into it. 
Their employer pays them, they pay some, the subsidy pays some, 
it is combined, shared funding.
    I think they that will get you to where you want to go and 
maintain the health of our economy.
    Mr. Bilirakis. Very briefly, any further comments? I only 
have 5 minutes, so it is going to have to be brief.
    Mr. Nelson. The American Medical Association thinks there 
is a better way to do it. Incentives would work better than a 
mandate. It is a carrot or a stick. In this case, a carrot or a 
club. We prefer the carrot.
    Mr. Shea. I warned the chairman that there would be a few 
policy differences here. I don't think we are going to solve 
this problem unless we have everybody included. And however we 
determine is the best basis for the system, my own current 
thinking is, we have an employment-based system, we need to 
build on that.
    I think we are going to have to have everybody included one 
way or the other. Now, as Dr. Young points out, this is going 
to require some significant subsidies for small employers.
    Mr. Bilirakis. Everybody included, meaning the full 41 
million or whatever the figure is uninsured?
    Mr. Shea. And all of the employers, if we are going to have 
an employment-based system they need to be participating.
    Ms. Spitznagel. I agree with all of those comments. We have 
a system now that has a lot of problems. The No. 1 problem is 
affordability. A lot of people want to purchase insurance. It 
is not that they have the affordability and they can't and they 
just don't want to, they would like to purchase it. There are 
more devils in the details that Dr. Young had mentioned, in 
addition to what Dr. Young mentioned, including the issue of 
having to define, for instance, what they would be mandated to 
purchase.
    And that could become very controversial, and it could lock 
a lot of people out of the coverage system and make the idea of 
an individual mandate very prohibitively expensive if we 
settled on a requirement that this mandate be applied toward a 
very rich Cadillac insurance plan.
    Mr. Greenstein. I was going to say, the key is 
accessibility and affordability. If we really found the way, 
which we are a long way away from today, of making health care 
accessible and affordable to everyone in the country, one could 
then consider an individual mandate.
    But, one would have to solve the problem of making it 
accessible and affordable to older and sicker people as well as 
the younger and healthier people. That is really the tough 
problem. If we get over that hurdle, we might not need an 
individual mandate or we might be able to do one, but we are a 
long ways from there now.
    Mr. Bilirakis. How many--of all of the people that are in 
the category of uninsured, do you know, we just keep referring 
to uninsured, insured, uninsured. And uninsured is significant. 
But I guess my biggest concern is, are people getting adequate 
proper health care in this wealthiest country in the history of 
the world?
    How many of these people are getting what we might call 
adequate or close to adequate health care? Do we know?
    Mr. Young. On average across the pool of the uninsured, the 
spending on their behalf is about 50 percent of what the 
spending would be for a fully insured individual. A large share 
of that is spending that occurs in the hospital and occurs at a 
time of an emergency, or occurs at a catastrophic kind of an 
event.
    What they are not getting are the preventative services, 
the routine services, a child with asthma is not getting the 
drugs that prevents the asthma attack that leads to the 
hospital stay. So they are consuming a substantial amount of 
resources, but they are the wrong kinds of resources.
    You need to do the others that prevent those kinds of 
hospital stays as well.
    Mr. Bilirakis. Any other further comments?
    Mr. Nelson. It was referred to that about $35 billion is 
spent each year to care for those who are uninsured when they 
finally do get to the system. How much could one prevent with 
that $35 billion? A pap smear, the clinical preventative 
services, prenatal care, and pneumococcal vaccines and diabetic 
medic screening and so on. The cost would be astronomically 
saved. We are spending at the wrong end. It is not efficient.
    Mr. Bilirakis. Are you saying that we should focus on 
whatever the few dollars, heck, to say $50 billion is few, it 
is kind of crazy, but that is the way it is up here. Are you 
saying that we should be focusing those dollars maybe toward 
something like that?
    Mr. Nelson. Yes, sir. I think they are the most cost-
effective things that we can do. To be honest with you, the 
most cost-effective thing we do in health care, prenatal care. 
Moms who come in and keep their visits have larger babies, 
healthier babies, fewer cesarian sections, and cost less.
    There is a lot of evidence of this, Mr. Chairman. This is a 
good place where this bill might be able to focus.
    Mr. Bilirakis. So we shouldn't be concerned then 
necessarily about insurance, if you will, but----
    Mr. Nelson. They still have to have access. So the coverage 
by the insurance would be a way to make us to do that.
    Mr. Shea. Mr. Chairman, I would just add that the work of 
this committee and others in Congress on patient safety 
legislation, which hopefully we will see realized this year is 
an element in this whole troubling picture, because, we know 
from the Institute of Medicine studies that we waste huge 
amounts of money on unnecessary care in this country.
    As I was saying before, we just need better quality 
standards. The simple truth of the matter is, we pay the same 
whether it is great care, mediocre care, or dangerous care. We 
have to stop doing that. If we stop doing that, there is going 
to be a lot of money available for doing other things.
    Mr. Bilirakis. Well, my time is up. But I would sure like 
to spend more time on that subject.
    The Chair now recognizes the gentlelady from California for 
8 minutes because she waived her opening statement.
    Ms. Capps. Thank you, Mr. Chairman.
    I think you set off a series of questions in a very 
interesting way. And I think it was George W. Bush's 
predecessor who had the same request, that everybody have 
health insurance. But, the question of affordability and 
accessibility is a big question.
    Mr. Greenstein, I want to ask you some questions to allow 
you to give a fuller answer. But you didn't get to respond to 
this last series. This amount of money in this bill, a thousand 
dollars for a policy, how much of that could be used in the 
ways that Dr. Nelson would like it to be used? I mean, because 
that actually is our goal.
    Mr. Greenstein. Well, I think it is complicated. Surely the 
preventative services are key. Something particular like 
prenatal services, you want to make sure, though, if you are 
doing, as Dr. Nelson just said. If you have a prenatal 
screening and you find a problem, the person needs the 
insurance to be able to get the problem dealt with.
    So you can't really separate the prenatal from the adequate 
follow-up coverage for the problems you then find.
    Ms. Capps. Just to follow up on that just for a minute, Dr. 
Young. I nodded all of the way through yours. I am a public 
health nurse. I agree with you that the best kind of coverage 
is not necessarily the high end. And that those preventative 
dollars go such a long way. Your comment on preventative 
services to people, I think, is telling about why many of us 
are concerned, actually, about this health certificate, just in 
this one area.
    And now I want to talk about what these tax credits or 
health certificates can help people do, and the drawbacks that 
it might have. Now, turning to those with basic health problems 
such as diabetes, some of those people would find health 
insurance policies in the individual market expensive, and some 
people, such as cancer survivors, may not even find an insurer 
who is willing to issue them a policy, though part of this, but 
only $75 million would go into the high-risk pools. That is not 
going to go far in this country for that topic.
    But, even so, proponents of this approach argue it is 
better than nothing. They argue that vouchers are bound to help 
some people. I think also, though, and this is what I want to 
get at, there maybe a counter argument that such an approach 
could do more harm than good. And here, Mr. Greenstein, I want 
to ask you to elaborate on how a certificate or tax credit 
approach might actually undermine the system that we have 
today. For example, could it cause some to lose their coverage 
or raise costs for employers? And how would employer coverage 
perhaps be affected under a Health Certificate Act?
    Mr. Greenstein. Under this particular bill, the income 
limits and the asset limits are drawn very tightly. So a few 
employers would likely drop coverage as a result of the 
availability of the health certificates. Perhaps the only 
potential would be employers whose workforce is almost entirely 
a low-income workforce. But if you take a different kind of a 
approach, or a variant of the approach, I should say, like the 
Tax Credit Proposal in the President's budget, which has higher 
income limits, and is broader in terms of who could be covered.
    Under that approach, there have been a number of analyses, 
I think Professor Gruber and others that have done that do 
find, they believe, there would be significant effects on 
employer coverage. Employers could reason that people could get 
these tax credits, so that these employers, especially smaller 
ones, deciding whether to offer coverage or not, it is more of 
an inducement not to offer coverage.
    Another concern is that if you have a credit, another 
improvement in this bill over the President's proposal is this 
allows the certificates to be used toward the employer 
purchase. But, if you have a situation where an employee is 
faced with paying 30, 40, 50 percent of an employer premium 
cost, and the employer is, of course, pooling sicker workers 
and less sick workers, if you have a young healthy worker, that 
person with one of these tax credits might say, it is to my 
advantage to go purchase my own coverage in the private market.
    Then, if the younger, healthier workers withdraw from the 
employer coverage, the employer is left with a pool of older 
and sicker workers, and therefore, the average cost for the 
comprehensive coverage the employer offers goes up. So under a 
number of those kinds of approaches, you--what you can have are 
winners and losers, and the younger healthier workers can be 
the winners, and the older sicker workers can be the losers. I 
think we should avoid approaches in which older and sicker 
workers are the losers. And one of my principal concerns about 
this bill is simply that it could start us down that path, as I 
said in my testimony, if future Congresses came back through, 
if you enact the Health Certificate bill, and raised the--let's 
let more of the uninsured get these health certificates. Then 
you would start to have more of a potential eroding of 
employer-based coverage.
    Ms. Capps. Thank you. So this is a delicate balance you are 
talking about. Isn't it also possible that even those who 
currently have coverage and find themselves getting assistance 
through this certificate may find that they themselves are no 
better off, because their employer could just reduce their 
subsidy equal to the new certificate? Could you comment briefly 
on that? Because I want to ask you one more question.
    Mr. Greenstein. As I understand the bill, for the employee 
to use the certificate toward the employee share of an employer 
premium, the employer would have to pay at least 50 percent of 
the premium cost. There could lead some employers--again, I am 
only talking about those where the workforces are almost 
entirely low-income workers.
    But, for those employers, if the employer now pays 60 
percent or 65 percent, the employer could reason, well, I can 
reduce to it 50, and the employees are going to make up the 
difference through the health certificate.
    Ms. Capps. Finally, it is a related topic. The recently 
passed Medicare legislation has a provision, the Health Savings 
Security Accounts. What effect do you--what effect do you think 
they would have on employer-sponsored coverage? This is not 
what we have are having the hearing on today, but it is so 
closely related that I wonder if you can comment on legislation 
that has just recently been passed in the House.
    Mr. Greenstein. I am much more concerned about the impact 
of that than 2698. Again, 2698 has some features, as I 
mentioned, that if one stuck with them. I don't think it would 
do that much good in terms of covering that many more people. 
But, I don't think it would cause that much harm in terms of 
inducing a lot of employers to drop.
    The provision the House recently passed has the Health 
Savings Security Accounts, but to use them the policies have to 
be relatively high, deductible policies, at least a thousand 
dollar deductible for family coverage.
    The Joint Tax Committee estimates that over time, a 
majority of the employers in the country would move in that 
direction, so that you would have employers moving to higher 
deductible, and potentially less comprehensive coverage. It is 
true that employers could offer two options, a more 
comprehensive low deductible, and a less comprehensive higher 
deductible. But then you would get the adverse selection of the 
younger healthier workers moving to the higher deductible 
policies, and the average premium costs for the comprehensive 
policies might become prohibitive at that point.
    So it is, again, this winners and losers thing. I think 
under that approach, there is a very high risk of significant 
losses for older and sicker workers occurring.
    Ms. Capps. That was perfectly timed, wasn't it, Dr. 
Norwood. Thank you very much.
    Mr. Norwood [presiding]. very well done. Mr. Towns, you 
beat me here considerably. Why don't you go next. You are now 
recognized for 5 minutes.
    Mr. Towns. Thank you very much.
    First of all, I want to thank all of you for being here. 
The chairman and I drafted this bill recognizing that it was 
not and is not perfect. We wanted to hold this hearing to have 
the opportunity to hear from you so that we might fix some of 
the things that need to be fixed, recognizing the fact that we 
are talking about a budget resolution of $50 billion.
    Let me just go down the line, and ask each of you, what you 
would suggest that we fix at this point. What is not in the 
bill that should be? What is in there that should be taken out? 
I'll start with you, Dr. Young. If it is perfect in your 
opinion, please indicate that fact.
    Mr. Young. We can always argue for more money in it. We can 
always argue for particularly a continued strengthening of the 
risk pools, which we think are an important component. But, we 
think this is a very good start, modest as it is dollar-wise. 
And for those people who will find it of value, it will be of 
great value to them.
    So I believe that you have made a very good start.
    Mr. Towns. Thank you.
    Mr. Nelson. Let's make sure it is aimed for those who need 
it the most, those who are not able to get health insurance 
now. And figure out whatever mechanisms it is to get it there. 
Let's make sure it is not so bureaucratically heavy, there is a 
lot of time and money and expense in the administration of the 
program. Let's make sure that the dollars which are so precious 
do get to the people that need them the most.
    Let's emphasize preventative care, clinical preventative 
services. Let's make sure that patients have the opportunity to 
get the care they need early, because it is going to cost less 
in the long run.
    Mr. Towns. Thank you.
    Mr. Shea. I think on balance the committee would be better 
served, or the country would be better served by using this 
money in a different kind of vehicle, as I said. But I don't 
mean to disparage the notion here or the design structure 
entirely at all.
    However, sensing as I do, how fragile employment-based 
coverage is, and the problems that Mr. Greenstein points out as 
potential, and I would say, I agree with his analysis, but 
thinking he may be underestimating the potential problems in 
this, I think this is more appropriate for an experiment or a 
pilot than a full-blown program.
    And that is something that might be worth further 
exploring. One specific point. Unlike what happened in the 
Trade Adjustment Assistance Act, this is a capped benefit 
dollar amount. And it really, if it is going to be done, we 
think in a fair way to people, it needs to be done as a 
percentage of the premium as opposed to a capped dollar amount.
    Ms. Spitznagel. Our coalition is very sympathetic to having 
to be subject to the constraints of $50 billion. So we think 
that the bill is very good in regard to the fact that it had to 
stay within $50 billion.
    In a perfect world, if there were more money available, 
there are some things that we would like to see changed. We 
would like to see the asset tests be eliminated, because we 
think that especially for this low-income population, it is 
very important that it be as easy as possible for people to 
enroll in these programs. And we see that as just one barrier 
that will divert their interest in this.
    Perhaps some geographic adjustment for higher cost areas 
and age adjustment for older-aged workers. But also, increased 
subsidies for the risk pools, because the risk pools are a 
very, very important part of this system in keeping the 
premiums down, for those that are purchasing coverage in the 
individual market.
    Mr. Greenstein. Well, the $50 billion available in the 
budget resolution, like Gerry Shea, I probably wouldn't go this 
route. Because I think for $50 billion, one can make much more 
progress than one makes under this route given that most of the 
people who will get a subsidy, use the certificate, are people 
who are already insured.
    And most of the people who aren't insured who will gain 
insurance with the certificates would tend to be the healthier 
workers. So I would refocus the $50 billion, as I indicated in 
my testimony, more on expanding. I would build on the twin 
pillars that we now have, employer coverage and public program 
coverage.
    I particularly would expand the SCHIP block grant and let 
it cover parents. I would think perhaps about some kind of a 
targeted tax credit or other subsidy for small employers to 
make it more affordable for them to offer coverage. But I don't 
think I would want to put the bulk of the money into putting 
more people into trying to buy coverage in the unregulated 
individual market, because of the difficulties that poses for 
older and sicker workers.
    If one were, nevertheless pursuing this approach, I think 
the two most important changes to make would probably be one 
just mentioned by Gerry Shea, to have a fixed dollar 
certificate amount, that it is the same 5 years from now, even 
though health care costs are rising at double digit levels, 
wouldn't do that much. The percentage approach as opposed to a 
dollar approach would address that.
    The second thing is, I would do it as a mandatory, even a 
capped mandatory program like SCHIP is, rather than a 
discretionary program. I don't think there is any assurance 
that after the first year, any of this money would ever be 
appropriated. The appropriators would have to find room within 
the appropriations caps.
    Mr. Norwood. Thank you very much.
    Mr. Towns. I'd like to ask another question and I would 
appreciate if each one of you would answer this in writing. 
Given that some Americans are considered uninsurable, if we do 
not promote the approach before us today, what options do we 
have to insure these individuals?
    Mr. Norwood. If you ladies and gentlemen will submit that 
to the committee, we will be happy to get that to you, Mr. 
Towns, and distributed.
    Ms. Eshoo, you are now recognized for 5 minutes.
    Ms. Eshoo. Thank you, Mr. Chairman. And thank you to each 
one of the panelists for the important testimony today, and for 
the answers that you have given to the questions that have 
already been posed.
    I would liked to ask the--the four that are to the left of 
Mr. Greenstein, if you agree with what he just recommended, in 
terms of shaping or reshaping what we have in front of us, 
given the amount of dollars that are available?
    Because, you know, in terms of pillars or a foundation, we 
all agree that this is a black eye for our country. It is how 
we do it. Now, we have some money. We have the opportunity. And 
yet, I think if we get off on the wrong foot here, that we are 
going to blow a unique opportunity to make optimum use of the 
dollars. So can you react just quickly to what Mr. Greenstein 
said?
    Mr. Young. I don't agree. As I understand his point, it is 
that the subsidy will go to a number of people that now have 
coverage. As I look at it, these people are very low-income 
people. They are struggling to pay their share of the premium. 
And in many cases their employer is doing the same.
    This raises to me an important issue of public policy, and 
of equity, equity of treatment of all citizens who are in very 
similar circumstances. As he would not give it to people who 
are trying to do the right thing and struggling, and give it to 
another group who has made the decision not to do it, and they 
are identical circumstances. So I do not agree with him.
    Mr. Nelson. The American Medical Association thinks there 
is a better way to do it as well, by having advanceable tax 
credits available for both the employee and the employer. For 
some places, whether there is something like SCHIP that work, 
we should build on it. In our State it works very well. In 
other States it does not. If something is working, let's use 
it. Let's look at some new ways. There is a point here that has 
not been brought out that needs to be underlined.
    When we talk about the uninsured, some of these are people 
who are uninsured for only part of the year, that big number we 
talk about. It is as important to keep people insured, as to 
get those who are not insured again.
    A lot of those folks that we are supposedly going to be 
double covering, wouldn't have the continuity of the care. 
Let's make sure that we don't forget them as well. So we would 
have a little bit different approach.
    Mr. Shea. I think the issue really here is what can you do 
given the amount of money on the table, as I understand the 
question you posed. I think Dr. Young makes a very important 
policy point. But, I don't think--I can't agree with him in 
this context of $50 billion. I think if you have got $50 
billion, what you want to do with the stated goal is to 
increase coverage, there are better ways and more efficient 
ways to do it.
    I think this approach is one that is definitely worth 
exploring. But, to do it as a nationwide program is going to 
cost a lot more money. That is why I raised, in answer to 
Congressman Towns's question, this is kind of thing which if a 
State wanted to step forward and say, we would like to 
experiment with this in a pilot, would be an interesting way, 
although even in that context there is some design issues.
    Ms. Spitznagel. We are very concerned about the idea of 
using this money to expand the income eligibility levels of 
SCHIP and Medicaid. There is strong evidence now that 
participation in means-tested programs is reduced as income 
rises. That has been found in the SLIMBY population, and in the 
QMB population, and it has been found in the higher-income 
populations that are eligible for SCHIP.
    That is part of the reason why one-third to one-half of 
those eligible for Medicaid and SCHIP simply are not enrolled. 
They would be prefer to be receiving insurance in their 
workplace with their colleagues.
    Ms. Eshoo. That is a very interesting thing that you just 
stated. I mean, I follow this very, very closely in my 
Congressional District, especially an San Mateo County where I 
was on the Board of Supervisors for 10 years, chaired our 
hospital board of directors, was directly involved with these 
populations.
    I have never heard that, about that. Is it from a study?
    Ms. Spitznagel. Yes. I do have a study. I would be glad to 
submit that to you. There are a couple of studies, actually. 
And again, looking at the SLIMBY and QMB populations, they are 
at the higher of the low-income levels, and there are very low 
enrollment rates in those groups.
    That data is readily available. I will be glad to get that 
to you. In addition, we believe that it is very important that 
private coverage be offered, because of the choice and 
portability that is available for those that are in this 
population.
    Ms. Eshoo. I am going to need to ask you to stop there, 
because I only have 28 seconds left. I would like to ask Bob 
Greenstein something.
    One of the troubling aspects of the legislation to me that, 
as it was being drafted, and that I have pointed out, is that 
we need to be targeted--we need to know whom we are targeting. 
And I don't really know whether we understand full well here 
what the profile of the uninsured population is.
    I mean, some people talk about college students who don't 
want to pay for any insurance. Some say that they are mandated 
to by the college or university that they go to.
    Are there more males than females? Are there more families 
less than singles. Are there more that are insured by their 
employers but not be able to take full advantage of it maybe 
for their families but only for themselves because they can't 
afford it.
    What specific policies does the insurance industry have for 
poor people today? How competitive are those prices? When you 
look at the legislation, do you think that those are salient 
points? And do you think that we can cover them better with the 
dollars that are on the table?
    Mr. Greenstein. Well, I do think that we can. If I could 
relate this to the comment that previous panelist just 
mentioned. You know, SLIMBY and QMB are not the appropriate 
comparison here. Those are simple a buy-in to the Medicare 
premiums and deductibles that the Federal Government mandated 
States to offer through Medicaid. The States did not feel that 
was an appropriate State role, many of them have never really 
implemented it properly, often haven't done outreach and so 
forth.
    What we do have, is we have coverage in most States, up to 
about twice the poverty line through Medicaid and SCHIP for 
children. And we have coverage in the median state, only up to 
70 percent of the poverty line, for those children's parents. 
We have extensive research now, a long body of research that 
finds, that where the parents can get in the public program, 
whether it be SCHIP or Medicaid, the same program as their 
children, in a single plan, that that significantly increases 
enrollment by the children who are already eligible, and 
significantly increases utilization of necessary health care 
services by the children.
    Now, we can debate what to do for people between 200 and 
300 and 400 percent of the poverty line. But I think it should 
be a no brainer that we should cover the parents together 
with--the low-income parents together with their children 
through these public programs. That is where I would put the 
$50 billion.
    Mr. Norwood. Thank you, Ms. Eshoo.
    Ms. Eshoo. I wanted to thank the panelists for their 
answers.
    Mr. Norwood. I also thank all of you for attending today. 
Obviously, this is a very interesting discussion. And we have 
$50 billion over 10 years. And we are--all of us want to get 
more people under some type of health care coverage. So my 
question to you that I would be very grateful for, in writing, 
because we just are going to run out of time here is: What is 
your program? If you don't like what we are doing here, why 
don't you tell us what you would do with $50 billion over 10 
years, to get more people covered under health care.
    Mr. Young, real quick. I am curious if you have given this 
any thought, or in fact any of you: Do individual subsidies 
work in a health insurance market that basically today is 
geared to group pooling arrangements?
    Mr. Young. Yes, they would.
    Mr. Norwood. How would this fit?
    Mr. Young. Yes, they would. About 10 percent of today get 
their insurance through the individual market, not through the 
group market. There have been a lot of studies that have looked 
at this. There have been some things thrown out today that are 
based on some studies that were very poorly designed.
    My members sell the individual market. And we know that it 
works. Let me just give you a couple of statistics. We recently 
did a survey. We had 700,000 people, 1.3 million lives. The 
average premium was $2,000 for the individual, and was $4,000 
for a family. There is an affordable product.
    Mr. Norwood. May I interrupt as we go here? Are you telling 
me that the individual health care plans are competitive with 
group plans in terms of cost?
    Mr. Young. Yes, they are. But when do you the comparison, 
you also have to look at the nature of the benefit package. The 
ones I am talking about today are real full health insurance 
coverage. All policies will differ in terms of where they are 
out of pocket. But, are they competitive? Yes. Are they 
affordable? Yes.
    Mr. Norwood. So you think the subsidy will work in a market 
where people will have to go buy individual policies, through 
we are trying to help them with some cash in which to buy that 
policy, where 70 percent, is that right, I think of the Nation 
is insured under a group pooling arrangement.
    Mr. Young. Yes.
    Mr. Norwood. So you think this will work?
    Mr. Young. Yes. Ninety percent of the market, according to 
our survey, applied for insurance. And those who completed the 
application got the insurance. That other 10 percent is why we 
are so strongly supportive of the risk pools. That will deal 
with the people that have cancer, the people that have severe 
diabetes.
    Mr. Norwood. Well, I am glad you ended on risk pools. I 
want to go there just a minute.
    Dr. Nelson, in the last hearing that this subcommittee held 
on the topic of the uninsured, in which one of the witnesses 
here stated that in the last few years, the effects of 
guaranteed issue and community rating having made health 
insurance more unaffordable for small employers and 
individuals.
    You also raised these issues in your written testimony, and 
state that the guaranteed issue and strict community rating has 
unintended outcomes. And I would like to give you a minute to 
explain that, if you would.
    Mr. Nelson. Yes, sir, thank you. What happens is when these 
are put together, the guaranteed issue and the mandates and so 
forth, it gets very, very sick people, with very high risk, 
lots of cost, thereby increasing the premium for everyone.
    That can have the unintended and undesirable consequence of 
forcing the less sick, the healthier and the younger out, 
because their premiums have gone up. So it kinds of works 
backwards. We are not sure that is the way to do it.
    Mr. Norwood. So are you suggesting, then, that perhaps 
those that are sicker, and would be related higher, a better 
solution to that would be to utilize risk pools for them?
    Mr. Nelson. Yes, sir. Something like that.
    Mr. Norwood. I got questions all over the place up here.
    Mr. Greenstein, my understanding is that Medicaid or SCHIP 
requires a State match, obviously it does. And you yourself 
noted that States are struggling to maintain their Medicaid or 
SCHIP programs. Are you aware, or maybe you haven't had time, 
but are you aware of any States that are willing to expand 
their Medicaid or SCHIP program at this particular time to 
cover the target population that we are trying to cover under 
H.R. 2698?
    Mr. Greenstein. Actually, Illinois just instituted an 
expansion on July 1st. I believe there is some expansion going 
on in Pennsylvania, and the State of Maine, just enacted a 
universal health coverage plan.
    To be sure, in the midst of the current State fiscal 
crisis, it will be more difficult to get States to do this. I 
think as the economy recovers, and State budget situations 
improve, States would be more ready to do it.
    The other quick point I would make is, if we were going to 
provide something closer to 100 percent Federal funding for 
something, rather than doing it for these health certificates, 
what I would rather do, and you take a step in this direction 
in the House Prescription Drug bill, is you essentially 
Federalize the prescription drug costs for the dual eligibles; 
the Senate doesn't, you do. Your bill is better than the Senate 
in that area.
    Mr. Norwood. Oh, in a lot of places.
    Mr. Greenstein. I disagree on some of the others, but in 
that area I think it is. And if we can Federalize a larger 
share of the cost of the dual eligibles, then we free up room 
in State budgets to cover people like more of the parents 
through a Medicare SCHIP approach. I think that is the route to 
go.
    Mr. Norwood. I see my time has expired. Mr. Strickland, I 
think you are next on your side. You are recognized for 5 
minutes.
    Mr. Strickland. I want to thank you, sir. I have a question 
I want to direct toward Mr. Shea.
    Mr. Shea, in your testimony, you briefly mentioned concerns 
with the implementation of the consumer protections in the 
Trade Act, in particular as the Bush Administration is 
interpreting the law, many of the protections Congress passed 
to ensure individuals can get decent coverage would not apply, 
as I understand it.
    Could you please elaborate on the problems with how the 
Trade Act is being implemented, and what it may mean for 
consumers?
    Mr. Shea. Congressman, I said earlier that a number of us, 
maybe a lot of us in this room, spent a lot of time trying to 
develop an effective and workable tax vehicle to subsidize 
coverage, primarily for the unemployed when we first looked at 
this in the wake of the September 11, 2001 tragedy.
    And we came up with a design which was an assignable, 
advanceable credit, which applied primarily to group coverage 
but would also apply to individual market coverage. And that 
didn't get enacted at the time, but was the model for the 
action under the TAA, and it has several design elements that 
are--we think make it superior to design in this.
    I have explained before that it is a percentage of premium 
not a capped dollar amount. But what you refer to is another 
dimension of this issue, which frankly has made some of us who 
participated in the earlier discussions much more shy about 
going down this road again, which is--we have a TAA benefit, 
which while it is due to do into effect next month, does not 
look like it is going to benefit many of the people it was 
intended to.
    And part of the problem is, it is a result of the 
interpretation of the administration of admittedly ambiguous 
language, but their interpretation has minimized the number of 
people who would be eligible, because they have defined a 
certain phrase to mean that you have to have credible health 
insurance coverage just prior to your applying for the benefit, 
which means in many cases, months and months and years, after 
people had run out of coverage, I offer to use some of the 
bankrupt manufacturing corporations, in the heartland of the 
country as an example of that.
    Mr. Norwood. Mr. Strickland, if you would yield. I am going 
to stop you not exactly on time, because the Prime Minister is 
going to be on the floor in 15 minutes, and we need to get 
there.
    Mr. Strickland. Absolutely. Thank you. Thank you very much, 
Mr. Chairman. I would like to address a question quickly to 
those who of you on the panel who are in favor of the bill. The 
expenditure of $50 billion appears to be inadequate to provide 
sufficient subsidy for the uninsured.
    But the implementation of this program, the bureaucratic 
costs and the like, will no doubt reduce that figure. Are there 
any estimates as to how the implementation process, the setting 
up the process, the establishing of the needed bureaucratic 
functions and so on, reduce the original expenditure, and by 
how much?
    Mr. Young. I am not aware of any estimates that have looked 
at it. From our perspective on the insurance side, we think it 
can be made to work quite readily. But on the implementation 
government side, I don't have any data.
    Mr. Nelson. Congressman, I don't know the answer in 
dollars. But I have a pager that floats when I drop it in the 
toilet, been run over by my car, been damaged but still works.
    We ought to have the ability to do this. Your point is well 
taken.
    Mr. Strickland. Mr. Chairman, given the fact that we are 
needing to move on to get to Mr. Blair, and I don't want to 
dominate the time, I will yield back whatever time I have.
    Mr. Norwood. I ask that the record be open for 30 days for 
responses to any questions by the members that they may submit 
in writing. And without objection, that is so ordered.
    Mr. Waxman, you are now recognized.
    Mr. Waxman. Thank you very much, Mr. Chairman.
    I want to ask Mr. Greenstein some questions. We are all 
concerned about the numbers of uninsured Americans. And I would 
like to ask you about the Medicaid and the SCHIP program in 
terms of their contributions to covering people who would 
otherwise be uninsured, and what the impact would be if we 
don't help the States to avoid cutbacks in coverage, to what 
might happen to the ranks of the uninsured if we put a cap on 
the Federal contribution to Medicaid as advocates of turning 
Medicaid into a block grant program have proposed.
    And, three, what the effectiveness would be of reducing the 
uninsured in this country if we built on Medicaid and SCHIP and 
spent our money there.
    Mr. Greenstein. Well, I think as I have been indicating 
throughout the hearing, I would concentrate on building on 
Medicaid and SCHIP. But, we can just look, for example, at the 
SCHIP's expansions after its enactment in 1997, and how 
successful it has been in reducing the number of uninsured 
children, and we can also look at these States that have 
expanded parent expansions, primarily in Medicaid, and a few 
cases with SCHIP waivers, using SCHIP funds in recent years.
    Any they have made major progress in reducing the ranks of 
the uninsured. We pool everybody's risk through group coverage. 
By contrast in the individual market, the healthier people may 
be able to go buy policies, and the less healthy cannot, which 
as I would say, why I think the figures other panelists have 
used of 2,000 for individual coverage and 4,000 for family 
coverage in the individual market are not really directly 
relevant.
    Those are the average premiums for those healthier than 
average people, who are the people who have succeeded in buying 
coverage in the individual market. But we need to be able to 
have programs that cover the less healthy as well as the more 
healthy. We need to pool risk. We need group coverage.
    That is what both Medicaid and SCHIP and employer-based 
coverage do. I am very fearful of the effect that a block grant 
approach would have. It would pose significant difficulties 
during economic downturns, when more people lose employer-based 
covering and qualify for public coverage. It would pose 
significant difficulties if we have epidemics that were not 
foreseen, or we have medical breakthroughs that save lives but 
raise costs.
    And we need to be able to have a structure that can cover 
these people and not run out of money halfway through the year 
because none of us in either the public or the private sector 
have been very good at predicting in advance, the percentage 
increase from year to year in health care costs.
    Mr. Waxman. Is it safe to say you think that we would get 
more bang for our buck if we put it into shoring up these 
programs, either by the Federal Government helping the States 
with more of the costs or expanding eligibility than we would 
if we put it into a--they don't call it voucher, what do they 
call it, certificate program?
    Mr. Greenstein. Single main point of my testimony, yes. As 
I note in the testimony, estimates by Professor Gruber at MIT 
are that close to 90 percent of those who would use the health 
certificate subsidies are people who are already insured.
    By contrast, if you look at, for example, Medicaid parent 
expansions of recent years, the estimates range from 6 to 30 
percent in terms of the percentage of people who are already 
insured, meaning 70 to 94 percent in terms of those who were 
previously uninsured who gain coverage.
    So both in terms of helping sicker people, but also just in 
terms of the efficiency, we have very little crowdout that we 
found or adverse effect in terms of employer coverage. And we 
don't discriminate in favor of the healthier people, rather 
than as we distinguish from the less healthy when we expand a 
public program like Medicaid or SCHIP.
    By contrast the certificate approach almost inherently 
results in a lot of leakage in terms of people who are already 
covered. It is inherently much easier for people who are 
healthier and whose premium costs would be lower to use the 
certificate to buy coverage, than for people who are sicker and 
whose premium costs in the individual market would, therefore, 
buy much higher to buy coverage.
    Mr. Waxman. Would it be fair to say that had I been able to 
be here for the testimony, and if I had read your statement in 
advance, I would have had no need to ask you the questions I 
asked, except for the fact that it is good to have these issues 
clearly on the record in case anyone has any doubt about the 
points that you made?
    Mr. Greenstein. The only other thing I would add, which is 
really not in my testimony, and I am sure you know this, is 
regardless of one's view on things like the Health Certificate 
bill, I think there is a general bipartisan sense that SCHIP 
has made a lot of progress in covering children.
    As you know, we are at risk of going backwards. Beyond the 
bipartisan bill that will hopefully be enacted next week, if 
that is all we do, we lose 370,000 kids by 2007, because of 
inadequate Federal SCHIP funding.
    It only costs a few billion dollars to fix that. That is 
the very first thing we ought to do out of the $50 billion. We 
shouldn't go backwards in progress we have already made on a 
bipartisan basis in covering low-income kids.
    Mr. Norwood. Thank you very much, Mr. Waxman. I thank all 
of the panelists immensely. We have talked about a lot of 
written questions that we would be very grateful for you to try 
to answer within the 30 days.
    Thank everyone, and this hearing is now closed.
    [Whereupon, at 3:50 p.m., the subcommittee was adjourned.]
    [Additional material submitted for the record follows:]
      Response for the Record of the American Medical Association
    Mr. Chairman and members of the Subcommittee, my name is John C. 
Nelson, MD, President-Elect of the American Medical Association (AMA). 
As you know, I testified before this Subcommittee on July 17, 2003. I 
am happy to provide the Subcommittee with the AMA's responses to the 
Subcommittee's follow-up questions.
    QUESTION NO. 1: What is Congress' role in helping physicians help 
the uninsured?
    Congress can assist physicians with providing healthcare to all 
Americans by establishing advanceable and refundable tax credits that 
are of a size inversely related to income (see attached AMA Policies H-
165.920 and H-165.865). The tax credit must be large enough to ensure 
that health insurance is affordable. We believe that any federal 
spending on health care benefits should include a provision for tax 
credits (see attached AMA Policy H-165.861).
    We recently established specific policy that Congress could use to 
better prepare the health insurance market for viable individual health 
insurance. These provisions were included as Appendix A of our written 
testimony that has been submitted to the Subcommittee. We are attaching 
these provisions to our written answers.
    The AMA also supports the use of health care certificates to reduce 
the number of the uninsured and to assist individuals and families with 
their purchase of health insurance. Chairman Bilirakis' legislation, 
H.R. 2698, the ``Health Insurance Certificate Act,'' which would seek 
to reduce the number of uninsured Americans by providing subsidies to 
low and low-middle income families for the purchase of health insurance 
coverage takes an important step in accomplishing these critical goals. 
We believe that any health certificate system must ensure that lower 
income Americans would benefit from these certificates. Accordingly, 
the dollar value of certificates must be large enough to ensure that 
health insurance is affordable for most people. The certificates must 
at least be sufficient to cover a substantial portion of the premium 
costs for individuals in the low-income categories.
    QUESTION NO. 2: Can you please explain how the uninsured population 
impacts doctors, hospitals, and other segments of the health system?
    Uncompensated care to uninsured individuals is a strain on the 
entire health system. Physicians in particular, are compassionate 
professionals, who have great concern for unmet patient needs. Unlike 
hospitals, physicians receive no subsidy to account for uncompensated 
care they voluntarily provide to the uninsured. In fact, during 2001, 
64 percent of physicians provided charity care to patients. This 
resulted in 7.6 hours per week of charity care, which was 16.1 percent 
of their total patient care hours.
    Studies have demonstrated that individuals who lack health 
insurance forego needed medical care and are sicker when they do seek 
care. They visit emergency rooms and are admitted to hospitals in 
disproportionate amounts, raising medical care costs which are then 
passed on to an already overburdened system. As a result, the already 
overburdened health care system is forced to bear even higher costs to 
care for these Americans. In 2001, total uncompensated care was an 
estimated $35 billion.
    QUESTION NO. 3: Can you please elaborate on why the AMA opposes 
benefit mandates?
    Giving patients individual choice and enhancing consumerism (smart 
shopping) assists in keeping health insurance costs in check. The AMA 
supports mandates that are designed as patient protection measures. AMA 
Policy H-185.964 specifically states that we ``oppose new health 
benefit mandates unrelated to patient protections, which jeopardize 
coverage to currently insured populations. (CMS Rep. 2, A-99).''
    QUESTION NO. 4: Do you have any comments regarding the provision of 
H.R. 2698 that deals with high-risk pools?
    Provisions in H.R. 2698 refer to following the NAIC Model Health 
Plan for Uninsurable Individuals. At this time, we are in the process 
of reviewing the model law.
    The AMA supports access to health care for the uninsured through 
state-run high-risk pools (AMA Policy H-165.979; H-165-995). Recently, 
through AMA's Council on Medical Services (CMS) Report 7 (A-03), the 
AMA determined that risk subsidies should be financed through general 
revenues (will become AMA Policy H-165.856). However, the Association 
has considered the questions, but not yet determined, whether it is 
better to use reinsurance and typical risk adjustment (payment to 
plans) or whether direct subsidies to high-risk individuals should be 
used, which would allow such individuals to purchase their more costly 
coverage from among the choices that everyone else has.
    QUESTION NO. 5: In your oral testimony you argued that greater 
access to preventive medicine would be highly effective in driving down 
health insurance costs. How would H.R. 2698 help increase access to 
preventive medicine?
    As previously discussed, H.R. 2698 would offer health care 
certificates to certain individuals. As long as the dollar value of 
certificates are large enough to ensure that health insurance is 
affordable for most people and at least sufficient to cover a 
substantial portion of the premium costs for individuals in the low-
income categories, then such certificates could increase access to 
preventive medicine.
    By assisting individuals with their purchase of health insurance, 
the certificates could allow individuals to chose plans that provide 
preventive services, such as annual examinations, blood work, and 
laboratory test that could assist in the diagnosis of health problems 
in their early stages. By diagnosing problems early-on, an individual 
can receive needed treatment and prevent complications from occurring 
and stop the further development of the disease.
    An example of preventive care working for patients is prenatal care 
for pregnant women. Women who receive such care have fewer 
complications, less cesarean sections, and larger babies, which 
benefits both the mother and child. Preventive care also has been shown 
to work in the following areas:

 Immunizations (especially the pneumococcal vaccine for the elderly 
        population)
 Smoking cessation
 Weight loss
 Stress relief
 Ensuring one is properly taking prescribed medications (such as 
        medication for hypertension and diabetes)
 General patient education
        key policies articulating ama proposal for the uninsured
H-165.861 Use of Federal Surpluses for Uninsured Americans
    AMA policy is that a portion of any increases in federal health 
care benefit spending be used to provide refundable tax credits, 
inversely related to income, for the purchase of health insurance to 
uninsured Americans, and that this be communicated to the President of 
the United States and to the Congress. (Res. 129, A-01; Modified: CMS 
Rep. 10, A-02)
H-165.920 Individual Health Insurance
    Our AMA: (1) affirms its support for pluralism of health care 
delivery systems and financing mechanisms in obtaining universal 
coverage and access to health care services;
    (2) recognizes incremental levels of coverage for different groups 
of the uninsured, consistent with finite resources, as a necessary 
interim step toward universal access;
    (3) actively supports the principle of the individual's right to 
select his/her health insurance plan and actively support ways in which 
the concept of individually selected and individually owned health 
insurance can be appropriately integrated, in a complementary position, 
into the Association's position on achieving universal coverage and 
access to health care services. To do this, the AMA will:
    (a) Support legislation that would provide the employer with the 
same tax treatment for payment of health expense coverage whether the 
employer provides the coverage for the employee or whether the employer 
provides a financial contribution to the employee to purchase 
individually selected and individually owned health expense coverage, 
including the exemption of both employer and employee contributions 
toward the individually owned insurance from FICA (Social Security and 
Medicare) and federal and state unemployment taxes;
    (b) Support the concept that the tax treatment would be the same as 
long as the employer's contribution toward the cost of the employee's 
health insurance is at least equivalent to the same dollar amount that 
the employer would pay when purchasing the employee's insurance 
directly;
    (c) Study the viability of provisions that would allow individual 
employees to opt out of group plans without jeopardizing the ability of 
the group to continue their employer sponsored group coverage;
    (d) Work toward establishment of safeguards, such as a health care 
voucher system, to ensure that to the extent that employer direct 
contributions made to the employee for the purchase of individually 
selected and individually owned health expense coverage continue, such 
contributions are used only for that purpose when the employer direct 
contributions are less than the cost of the specified minimum level of 
coverage. Any excess of the direct contribution over the cost of such 
coverage could be used by the individual for other purposes; and
    (e) To ensure that the health insurance plan purchased by the 
individual employee is sufficient to provide a basic level of health 
care and does not increase the probability that the employee will 
become uninsured, the AMA would work toward the establishment of the 
following guidelines: (i) minimum benefit requirements, including 
catastrophic protection, (ii) fiscal solvency of the plan, (iii) 
provision of basic consumer information, (iv) protection of the 
consumer from fraud, (v) guaranteed issue, (vi) guaranteed 
renewability, and (vii) rate reform;
    (4) will identify any further means through which universal 
coverage and access can be achieved;
    (5) supports individually selected and individually-owned health 
insurance as the preferred method for people to obtain health insurance 
coverage; and supports and advocates a system where individually-
purchased and owned health expense coverage is the preferred option, 
but employer-provided coverage is still available to the extent the 
market demands it;
    (6) supports the individual's right to select his/her health 
insurance plan and to receive the same tax treatment for individually 
purchased coverage, for contributions toward employer-provided 
coverage, and for completely employer provided coverage;
    (7) strongly supports legislation promoting the establishment and 
use of medical savings accounts (MSA)s and allowing the tax-free use of 
such accounts for health care expenses, including health and long-term 
care insurance premiums and other costs of long-term care, as an 
integral component of AMA efforts to achieve universal access and 
coverage and freedom of choice in health insurance;
    (8) continues to place a high priority on enactment of federal 
legislation to expand opportunities for employees and others to 
individually own health insurance through vehicles such as medical 
savings accounts;
    (9) supports legislation requiring a ``maintenance of effort'' 
period, such as one or two years, during which employers would be 
required to add to the employee's salary the cash value of any health 
expense coverage they directly provide if they discontinue that 
coverage or if the employee opts out of the employer-provided plan;
    (10) encourages through all appropriate channels the development of 
educational programs to assist consumers in making informed choices as 
to sources of individual health expense coverage;
    (11) encourages employers, unions, and other employee groups to 
consider the merits of risk-adjusting the amount of the employer direct 
contributions toward individually purchased coverage. Under such an 
approach, useful risk adjustment measures such as age, sex, and family 
status would be used to provide higher-risk employees with a larger 
contribution and lower-risk employees with a lesser one;
    (12) supports a replacement of the present exclusion from 
employees' taxable income of employer-provided health expense coverage 
with tax credits for individuals and families;
    (13) encourages continued experimentation with and monitor the 
success of approaches to minimizing or compensating for adverse 
selection among the individually purchased and owned health expense 
plans available, including risk adjustment across plans, reinsurance 
pools, and limiting enrollment and disenrollment opportunities through 
such mechanisms as multi-year policy contracts;
    (14) upon legislative enactment of Policy H-165.920(3a) and Policy 
H-165.920(6) ,the AMA should rescind Policy H-165.995(2)(a), which 
calls for tax code changes to allow persons paying the entire premium 
for their health insurance to deduct the full cost of their premium 
separately from their gross income;
    (15) supports the use of tax incentives, and other non-compulsory 
measures, rather than a mandate requiring individuals to purchase 
health insurance coverage;
    (16) seeks federal legislation to rescind Internal Revenue Service 
tax regulations requiring annual forfeiture of unspent funds in 
employer provided flexible spending accounts; and.
    (17) believes that tax credits are preferred over public sector 
expansions as a means of providing coverage to the uninsured.
    (BOT Rep. I-93-41; CMS Rep. 11, I-94; Reaffirmed by Sub. Res. 125 
and Sub. Res. 109, A-95; Amended by CMS Rep. 2, I-96; Amended and 
Reaffirmed by CMS Rep. 7, A-97; Reaffirmation A-97; Reaffirmed: CMS 
Rep. 5, I-97; Appended and Amended by CMS Rep. 9, A-98; Reaffirmation 
I-98; Res. 105 & 108, A-99; Reaffirmed: CMS Rep. 5 and 7, I-99; 
Modified: CMS Rep. 4, CMS Rep. 5, and Appended by Res. 220, A-00; 
Reaffirmation I-00; Reaffirmed: CMS Rep. 2, I-01; Reaffirmation; 
Reaffirmed: CMS Rep. 1 and 3; Appended: CMS Rep. 3, A-02; Reaffirmed: 
CMS Rep. 3, I-02)
H-165.865 Principles for Structuring a Health Insurance Tax Credit
    (1) Our AMA supports for replacement of the present exclusion from 
employees' taxable income of employer-provided health expense coverage 
with tax credits, be guided by the following principles:
    (a) Tax credits should be contingent on the purchase of health 
insurance, so that if insurance is not purchased the credit is not 
provided.
    (b) Tax credits should be refundable.
    (c) The size of tax credits should be inversely related to income.
    (d) The size of tax credits should be large enough to ensure that 
health insurance is affordable for most people.
    (e) The size of tax credits should be capped in any given year.
    (f) Tax credits should be fixed-dollar amounts for a given income 
and family structure.
    (g) The size of tax credits should vary with family size to mirror 
the pricing structure of insurance premiums.
    (h) Tax credits for families should be contingent on each member of 
the family having health insurance.
    (i)Tax credits should be applicable only for the purchase of health 
insurance, including all components of a qualified MSA, and not for 
out-of-pocket health expenditures.
    (2) It is the policy of the AMA that in order to qualify for a tax 
credit for the purchase of individual health insurance, the health 
insurance purchased must provide coverage for hospital care, surgical 
and medical care, and catastrophic coverage of medical expenses as such 
expenses are defined by Title 26 Section 213(d) of the United States 
Code.
    (CMS Rep. 4, A-00; Reaffirmation I-00; Reaffirmation A-02)
H-185.964 Status Report on the Uninsured
    Our AMA opposes new health benefit mandates unrelated to patient 
protections, which jeopardize coverage to currently insured 
populations. (CMS Rep. 2, A-99)
H-165.995 Coverage of the Uninsured Through State Risk Pooling
    Our AMA supports:
    (1) the establishment in each state of a risk pooling program, in 
which all health care underwriting entities in the state participate, 
to provide adequate health insurance coverage at a premium slightly 
higher than the standard group rate to
    (a) those who are unable to obtain such coverage because of medical 
considerations, and
    (b) those with medically standard risks who could afford, but 
presently lack, access to such group coverage;
    (2) the amendment of the federal tax code to
    (a) allow persons paying 100 percent of the premium for health 
insurance coverage providing adequate benefits to deduct the full cost 
of their premiums separately from their gross income; and
    (b) require employers to purchase group health insurance coverage 
from an entity participating in the state risk pool or, if self-
insured, to participate in the risk pool if such a pool is available, 
in order to deduct the cost of their coverage as a business expense; 
and
    (3) legislation to allow individuals to ``buy in'' to state 
employee purchasing pools or the Federal Employee Health Benefits 
Program (FEHBP).
    (CMS Rep. J, I-85; Reaffirmed: Res. 241, A-93; Reaffirmed by CLRPD 
Rep. 2, I-95; Reaffirmed by CMS Rep. 6, I-96; Reaffirmation A-99; 
Reaffirmation I-00; Appended: CMS Rep. 10, A-02)
H-165.979 Access to Health Care for the Uninsured
    Our AMA
    (1) reaffirms its support for ensuring access to health care for 
the uninsured through a combination of employer-sponsored coverage, 
other private approaches such as risk pools and the AMA proposed 
restructuring of Medicaid and Medicare programs which would provide 
health insurance coverage for those uninsured who are not otherwise 
covered through the private sector; and
    (2) supports aggressively pursuing implementation of a program 
ensuring health care access for the uninsured as a high legislative 
priority beginning in the 101st Congress.
    (Sub. Res. 28, I-89; Reaffirmed by CMS Rep. 8, A-95)
 ``appendix a'' in ama's written statement (referenced in question no. 
                                   1)
    The American Medical Association (AMA) supports the following 
principles for health insurance market regulation:
    1. There should be greater national uniformity of market regulation 
across health insurance markets, regardless of type of sub-market 
(e.g., large group, small group, and individual), geographic location, 
or type of health plan.
    2. State variation in market regulation is permissible so long as 
states demonstrate that departures from national regulations would not 
drive up the number of uninsured, and so long as variations do not 
unduly hamper the development of multi-state group purchasing 
alliances, or create adverse selection.
    3. Risk-related subsidies such as subsidies for high-risk pools, 
reinsurance, and risk adjustment should be financed through general tax 
revenues rather than through strict community rating or premium 
surcharges.
    4. Strict community rating should be replaced with modified 
community rating, risk bands, or risk corridors. Although some degree 
of age rating is acceptable, an individual's genetic information should 
not be used to determine his or her premium.
    5. Insured individuals should be protected by guaranteed 
renewability.
    6. Guaranteed renewability regulations and multi-year contracts may 
include provisions allowing insurers to single out individuals for rate 
changes or other incentives related to changes in controllable 
lifestyle choices.
    7. Guaranteed issue regulations should be rescinded.
    8. Insured individuals wishing to switch plans should be subject to 
a lesser degree of risk rating and pre-existing conditions limitations 
than individuals who are newly seeking coverage.
    9. The regulatory environment should enable rather than impede 
private market innovation in product development and purchasing 
arrangements. Specifically:
    (a) Legislative and regulatory barriers to the formation and 
operation of group purchasing alliances should, in general, be removed.
    (b) Benefit mandates should be minimized to allow markets to 
determine benefit packages and permit a wide choice of coverage 
options.
    Any legislative and regulatory barriers to the development of 
multi-year insurance contracts should be identified and removed.
                                 ______
                                 
                   American Federation of Labor and
                       Congress of Industrial Organizations
                                                    August 15, 2003
The Honorable Michael Bilirakis, Chairman
Subcommittee on Health
House Committee on Energy and Commerce
2125 Rayburn House Office Building
Washington, D.C. 20515-6115
    Dear Chairman Bilirakis: Thank you again for the opportunity to 
present testimony for the subcommittee's July 17th hearing on H.R. 
2698, the Health Insurance Certificate Act of 2003. Below are my 
responses to the follow up questions you have asked me to answer.
    Question 1: Do you argue that a Health Insurance Certificate 
Program for low-income families may inspire some employers to drop 
coverage but an expansion of Medicaid in this same income bracket would 
not? If so, why?
    As any program extends eligibility higher up the income scale--
whether the health certificate or a Medicaid expansion--the probability 
of employers dropping coverage will increase. However, this is less 
likely to be the case with Medicaid, which has historically targeted 
coverage based on family composition and income, covering mostly 
children, and to a lesser extent, their parents. Despite federal 
authority to effectively raise the income guidelines without limit 
(using the Section 1931 authority discussed below), states' income 
eligibility guidelines remain very low. The median income eligibility 
cutoff for parents is just 71 percent of poverty, or $6376 annually for 
a single parent. In addition, very few programs cover childless adults, 
which would further limit the proportion of employers dropping coverage 
for workers. In contrast, H.R. 2698 allows individuals earning $25,000 
annually to use the full value of the certificate toward family 
coverage (with partial value afforded to those earning no more than 
$34,000).
    In addition, to restate the testimony I presented at the hearing, 
H.R. 2698 includes incentives for employers to either drop coverage 
entirely or to reduce the portion of the premiums that they subsidize. 
For employer sponsored coverage, H.R. 2698 provides for a certificate 
valued at a portion of what would be provided if the individual 
purchased coverage elsewhere. The legislation also allows individuals 
to choose between an employer's plan and coverage in the non-group 
market if the employer subsidizes less than 50 percent of the premium. 
Therefore, by either dropping coverage or reducing their contribution 
to the premium, employers could argue that they are giving their 
workers a more valuable certificate or providing them with more choices 
for coverage.
    Question 2: My understanding is that Medicaid is basically like a 
cliff. You either qualify or you do not. This creates an incentive for 
individuals not to earn over a certain amount for fear of losing 
Medicaid coverage. H.R. 2698 does not have this problem. First, it 
provides a softer landing for those who now make more than what 
Medicaid allows for. In this case, they could have significant help 
with employee premiums or on the individual market. In addition, the 
proposal has a phase down policy. Is there a similar proposal to 
address these concerns under a Medicaid-style proposal?
    Medicaid also allows for graduated income eligibility guidelines, 
primarily to accommodate individuals who move from welfare to work. 
Federal law allows for enrolled individuals to earn income above 
Medicaid eligibility guidelines in two ways. First, the Transitional 
Medical Assistance program allows individuals whose increased earnings 
would make them ineligible for Medicaid to remain enrolled for up to 12 
months. Second, Section 1931 of the Social Security Act gives states 
the authority to disregard a portion of an individual's earnings in 
order to keep them enrolled in Medicaid. Prior to enactment of the 
Personal Responsibility and Work Opportunities Reconciliation Act of 
1996, states were limited in how much earnings they could disregard; 
however, Section 1931 eliminated those restrictions. Thirty-nine states 
have increased earned income disregards using Section 1931 authority 
(Kathleen Maloy, Kyle Anne Kenney, Julie Darnell and Soeurette Cyprien, 
``Can Medicaid Work for Low-Income Working Families?'' published by the 
Kaiser Family Foundation, April 2002).
    I would also disagree with the assertion that H.R. 2698 would 
provide ``significant help with employee premiums or on the individual 
market.'' H.R. 2698 would provide between $300 and $1100 (40 percent of 
the value of a certificate for non-employer sponsored coverage), yet 
annual premiums for employer-sponsored family coverage averaged $7,954 
in 2002 (Employer Health Benefits 2002 Survey, Kaiser Family Foundation 
and Health Research and Educational Trust).
    Question 3: You propose a 65% subsidy versus set amounts. Do you 
know how much this would cost? Do you propose a 65% subsidy regardless 
of the amount of family income?
    I do not know how much it would cost to provide a 65 percent 
subsidy to the target population in H.R. 2698. The cost would 
presumably depend on a number of factors, including how many 
individuals qualify for coverage, how many eligible individuals are 
able to purchase coverage with the certificate, and the cost of 
coverage. The AFL-CIO supports a 65 percent subsidy because it is more 
equitable than a fixed dollar subsidy. Such a fixed subsidy would 
discriminate against individuals who may be charged higher premiums 
because of factors such as their age, health status or where they live. 
For example, a report by Jonathan Gabel found that average premiums 
vary considerably by age, even among healthy individuals. Specifically, 
average annual premiums for individual coverage in 2000 for a 27 year 
old healthy male was $1584, while a healthy 55 year old male averaged 
$3756 (``Individual Health Insurance: How Much Financial Protection 
Does it Provide?'' Health Affairs, April 17, 2002).
    Again, I want to thank you for the chance to offer further comment 
on H.R. 2698 and I would be pleased to have further discussion on this 
and related subjects. While I believe that the funds available in the 
budget resolution to increase health coverage would be more efficiently 
and effectively spent in expanding existing public programs, e.g. 
Medicaid and SCHIP, H.R. 2698 recognizes the fragile state of employer-
based health coverage and the need for public underwriting if such 
coverage is to continue to form the backbone of health care in America. 
I look forward to continuing the conversation.
            Sincerely,
                                             Gerald M. Shea
                  Assistant to the President for Government Affairs
cc: The Honorable Sherrod Brown,
   Ranking Minority Member, Subcommittee on Health,
   House Committee on Energy and Commerce
                                 ______
                                 
    Responses for the Record from Dede Spitznagel, Board Member and 
Executive Vice President, Healthcare Leadership Council, Coalition for 
                       Affordable Health Coverage
    Question 1. Why does the Coalition support helping uninsured people 
get private coverage rather than expanding Medicaid or S-CHIP?
    Response: The Coalition for Affordable Health Coverage (CAHC) 
believes that encouraging and enabling people to have private health 
insurance rather than expanding welfare with more Medicaid is wise 
policy for the following reasons.
    Assisting people with private coverage is less expensive than 
providing public health care. Providing individuals with a $1000 
certificate or a family with a $2750 certificate to purchase coverage 
is less expensive than paying for the Medicaid infrastructure and 
medical services needed by the individual in any given year.
    Giving individuals and families access to private health insurance 
means they have more choice. They can select insurance that reflects 
their family's needs and there are more doctors who will take privately 
insured patients than will take Medicaid patients.
    Expanding Medicaid eligibility may not work. Already, about 30% of 
the uninsured are eligible for Medicaid. Why aren't they using it? 
There are several reasons. Some simply don't know that they have this 
option. Some are afraid of immigration authorities. More than 25% of 
the uninsured are from other countries and may be unwilling to come 
forward for Medicaid because they fear immigration authorities, either 
because of their own situation or because of someone in their 
household. Finally, many of the ``working poor'' don't want to be on 
welfare. They are working very hard to stay off the public rolls and 
prefer to go without insurance rather than participate in Medicaid, at 
least until a medical crisis occurs. For many in this 30% cohort of the 
uninsured, getting assistance to participate in the private insurance 
market would be more appealing.
    To the extent possible, we believe that government should encourage 
the private sector to provide insurance and health care, rather than 
the public sector. The free enterprise system is a tremendous strength 
of our society and, where possible, should be supported, not 
supplanted.
    Question 2. In the last hearing this Subcommittee held on the topic 
of the uninsured, your organization's President, Mary Grealy, stated 
for the hearing record that evidence suggests that we are reaching the 
limits of effectiveness in reducing the number of uninsured through 
federally funded programs such as SCHIP and Medicaid. Can you provide 
some reasons as to why this is the case, and how H.R. 2698 might help 
to address the problem?
    Response: Medicaid and S-CHIP are valuable public programs for 
their intended purposes--very low-income families. However, evidence 
suggests that we are reaching the limits of effectiveness in reducing 
the number of uninsured through the S-CHIP and Medicaid programs.
    Only about half of individuals currently eligible for Medicaid and 
S-CHIP actually participate. A number of reasons have been cited for 
low participation rates including the fact that participation rates of 
means-tested public insurance programs decline as incomes rise. A large 
number of those not participating are those with incomes too high for 
Medicaid eligibility, but low enough to qualify for S-CHIP. Families 
with incomes just above the poverty level are often working full time 
and are more reluctant to receive their health care through a public 
program. This pattern of lower participation among higher income 
persons is also evident in other government health care subsidy 
programs, including the Qualified Medicare Beneficiaries (QMBS) and 
Specified Low-Income Medicare Beneficiaries (SLMBs) programs. 
Researchers have concluded that substantial outreach is necessary to 
overcome barriers to participation, such as the possible stigma 
associated with public programs.
    These data suggest that eligibility alone, without considerable 
investment to remove existing barriers to participation, will not 
efficiently increase participation in Medicaid and S-CHIP. Many 
eligible individuals in the higher income categories of Medicaid and S-
CHIP, as well as income categories under consideration for Medicaid and 
S-CHIP expansions, are connected to the workforce. In fact, about 15% 
decline overage available from their employers. Therefore, solutions 
involving employer insurance may be more effective in increasing 
coverage rates for these populations.
    The health certificates created by H.R. 2698 would be more 
desirable than these restrictive public programs for much of the 
uninsured population because the certificates would allow recipients to 
choose the insurance that best suits their needs, including their 
employer-offered health plan. The low-income working uninsured will be 
more likely to pursue enrollment in a health coverage option if they 
have a choice other than the public programs.
    Question 3. Do you agree that a Health Insurance Certificate 
Program for low-income families may inspire some employers to drop 
coverage but an expansion of Medicaid would not?
    Response: The concern that employers may drop health coverage if 
subsidies are provided to their uninsured workers can exist regardless 
of whether subsidies are provided through ``health insurance 
certificates,'' tax credits, or through expansions in public programs. 
The key issue is to include design elements that reduce the likelihood 
that employers will drop coverage, as H.R. 2698 does.
    If an employer is currently offering health insurance to her 
employees, and a government subsidy is made available to only low-
income employees (as in H.R. 2698), the employer would be hard pressed 
to drop health insurance altogether or reduce her contribution level, 
since those not qualifying for the low-income subsidy would be left 
with a gap in resources.
    Furthermore, employers have incentives and a strong desire to 
provide health insurance to their workers if it is affordable. 
Providing health insurance--the most sought after employer benefit--
helps a company compete for and retain higher quality employees, and it 
helps keeps their workforce productive. CAHC believes that a subsidy 
for purchasing private health insurance could actually encourage more 
employers to offer health insurance; especially those employers who do 
not now offer to subsidize coverage because they do not have a crucial 
number of employees that can afford their share of the premium.
    Question 4. My understanding is that Medicaid is basically like a 
cliff. You either qualify or you do not. This creates an incentive for 
individuals not to earn over a certain amount for fear of losing 
Medicaid coverage. H.R. 2698 does not have this problem. First, it 
provides a softer landing for those who now make more than what 
Medicaid allows for. In this case, they could have significant help 
with employee premiums or on the individual market. In addition, the 
proposal has a phase down policy. Please comment on this distinction 
between the Medicaid approach and the approach in H.R. 2698.
    Response: In previous testimony before this committee, a 
representative from the Institute of Medicine noted that all of the 
enrollment and eligibility hoops--including hard income cut-offs--
result in an average Medicaid tenure of five months. Many individuals 
between 100 and 200 percent of poverty have incomes that fluctuate 
greatly throughout any year. Hard income cut-offs in the public 
programs not only disrupt continuity of care, but they also create a 
disincentive for people to pursue higher paying jobs, and in some 
cases, any job at all.
    H.R. 2698 encourages continuous health care coverage in a number of 
ways. In addition to encouraging them to enroll in their employer plan 
which in itself facilitates coverage stability, it allows individuals 
to receive at least some amount of a phased-down subsidy as their 
income rises, instead of abruptly cutting off individuals when the 
exceed income eligibility.
    Question 5. In your written testimony, you state that CAHC has 
serious reservations about the methodologies used in assuming 
displacement or ``crowd out'' of employer coverage. Can you please 
elaborate on this and provide some examples?
    Response: CAHC has never fully understood nor accepted the 
methodology used by budget and policy analysts that predict that 
employers will drop health benefits packages when a government 
certificate or tax credit is created. In order to compete for good 
employees, employers have to provide good benefits.
    Past history has demonstrated that employers offering childcare 
subsidies did not stop offering this benefit just because the 
government created a childcare tax credit. Health insurance is even 
more primary and embedded in our employee compensation packages.
    In addition, large self-insured employers would run afoul of anti-
discrimination laws if they stop offering coverage to their low-income 
workers. This in not an excludable class for the purpose of benefits.
    Question 6. In Mr. Shea's written testimony, he states that 
employer premiums may rise as a result of younger, healthier workers 
opting out of an employer plan for a less comprehensive plan in the 
non-group market. However, H.R. 2698 states that if the employer 
contributes at least 50% of the cost of the premiums towards the 
employee's coverage, then the employee is only eligible for the 
employment subsidy, not the individual market subsidy. And if the vast 
majority of employers are contributing at least 50%, which they 
presently are, is this likely to occur?
    Response: Historically, coverage through employer-sponsored plans 
is more attractive to workers than individual coverage. Employers 
subsidize premiums, making comprehensive coverage much more affordable 
to their employees. In addition, employees often have access to a 
company benefits manager who helps them sort through claims and acts as 
a go-between for the employee and insurer.
    HR 2698 does not allow employees to leave their group policy when 
they work in companies that have more than a 50% subsidy. Although such 
employees would be highly unlikely to find individual market policies 
that could compete with a 50% subsidy from the employer, this is not 
even an option under this bill.
    Since most companies pay at least 50% of their employee's premium 
costs, there should be little concern about some exodus of younger 
workers into the individual market.
    Question 7. Your organization supports providing assistance to the 
working uninsured. Why does your organization support offering help to 
this group when they already have tax benefits and/or employer 
assistance?
    Response: Actually, most of the uninsured do work but don't have 
access to employee-based health insurance Seventy-five percent work for 
employers who are unable to offer benefits. Our present patchwork of 
tax incentives and public programs leaves them out in the cold. 
Certainly, they don't have the disposable income to participate in tax-
sheltered savings programs like MSAs. In addition, they earn too much 
to participate in government welfare programs like Medicaid. To further 
exacerbate their problem, those who lack health insurance often end up 
paying the highest prices for medical care because they are not pooled 
into a group that has negotiating leverage. They can ill afford this 
situation. If Congress wants equity in ensuring access to health care 
services, the working poor need assistance.
    A small segment of the uninsured do have access to health insurance 
through their employers (25%) and can benefit from the positive tax 
treatment afforded to employers and employees. The problem is that many 
of these individuals simply cannot afford to pay their share of the 
employer-provided insurance. Fortunately, H.R. 2698 provides a partial 
certificate to allow these workers to participate in their company's 
plan
    Question 8. H.R. 2698 is going to help a new group of individuals--
the so-called working poor--get health insurance. What do we know about 
this group, and how do you believe they can best be helped?
    Response: We know quite a lot about the uninsured. Here is a 
composite of the facts relative to the uninsured that fall into the 
category of the ``working poor.''

 Income: 41% of the uninsured earn under $20,000 per year. About 31% 
        make less than $15,000.
 Employment: More than half (55%) of the uninsured work full-time, all 
        year round. Only 18% have no attachment to the work force. More 
        than half (61%) work for small firms (less than 25 employees).
 Age: More than half are 19 to 34 years of age, an appealing age group 
        for private insurers.
 Employers: The uninsured are most likely to work in the following 
        fields: agricultural, personal service, construction, retail, 
        and entertainment.
 Ethnicity: The uninsured are disproportionately minority, with 
        Hispanics leading the list (35% of Hispanics are uninsured).
 How long without coverage? Many of the uninsured (45%) are without 
        coverage for less than fours months. However, CBO found that 
        ``people with less education are more likely than higher 
        educated people to experience long uninsured spells.'' This 
        tells us that the ``working poor'' are likely to be uninsured 
        longer periods and that crafting policy targeted toward the 
        long term uninsured will mean that lawmakers are also targeting 
        assistance to the lower income or ``working poor.''
 Health Status of Uninsured: CBO reports that only about 5% of the 
        uninsured have poor health.
    There are many complexities in understanding the characteristics of 
the uninsured. However, the above demographics convince CAHC that a 
large percentage of the uninsured fall into this ``working poor'' 
category. Many are young and healthy enough to get reasonable insurance 
policies within the private market. They are motivated to work and be 
independent, rather than rely on government-provided health programs. 
In fact, almost \1/3\ of the uninsured qualifies for Medicaid or SCHIP 
but do not participate. CAHC believes that bills such as HR 2698 which 
assist the working poor in obtaining private coverage would take a big 
bite out of the number of uninsured in the United States.
    Question 9. How would you characterize the state of the individual 
market? How would a health certificate program affect it?
    Response: Nationwide, around 15-17 million people obtain coverage 
through the individual market, versus more than 175 million through 
employer-based coverage. There are at least two reasons for the 
relatively small size of the individual market. First, post WW II tax 
incentives helped create a tradition of employer-provided coverage in 
our country that continues today. For most people, this works quite 
well. Second, some states have made it impossible for a thriving 
individual market to exist in their state, making this health insurance 
option unavailable to those who could use it. Requirements like such as 
community rating and guaranteed issue make the individual market 
artificially expensive. For example, the state of New York has 
guaranteed issue and community-rated individual health coverage. The 
result is that the average cost is more than $1000 per month for family 
coverage.
    Despite these problems there is encouraging news. In states where 
the market is free to operate, there is healthy competition and the 
individual market provides comprehensive and flexible health plan 
options for individuals. States with ``safety nets'' like high-risk 
pools for individuals with serious health issues provide an environment 
for health plans to compete most effectively on price, quality, and 
innovation. For example, if someone leaves New York and moves next door 
to Connecticut, they will find that a standard risk individual can 
obtain comprehensive health coverage, with prescription drug coverage, 
for under $200 a month.
    Health care tax credits would directly impact the ability for lower 
income families to afford coverage through the individual market. Six 
out of ten uninsured families have a working head of household employed 
through a small employer who does not provide health coverage. These 
individuals are forced to obtain health coverage with no financial 
assistance and without the tax advantaged status employers receive. 
Further, less than 5% of individuals are medically uninsurable, so 95% 
of uninsured families would have no problem obtaining private coverage. 
Tax credits provide the assistance these families need to afford basic, 
comprehensive medical coverage.
    Question 10. As you know, a large percentage of the uninsured are 
dependents of workers and while the workers may be able to afford 
coverage for themselves, they cannot afford the higher premium for 
family coverage. Could you please comment on this portion of the 
uninsured population, and comment on how the certificate could help 
this segment?
    Response: Many people inside the beltway assume that most employers 
contribute to family health insurance coverage in the same way the 
federal government does. The fact is that many employers, particularly 
small employers, pay some or even all of the employee's coverage but 
none of the cost of dependent coverage.
    Dependent coverage alone can easily cost $500 per month or more, 
which could be a huge part of a low-income worker's paycheck, even if 
the employer is paying all of the cost of coverage for the employee. 
One of the features of the proposed Health Certificate legislation is 
to provide assistance with premium costs for dependents that obtain 
coverage through an employer-sponsored health plan. This assistance 
would defray the large deduction these workers face out of each 
paycheck for dependent medical coverage and would allow the worker to 
combine the employer contribution and the health certificate with their 
own funds to get the whole family insured.
    Allowing low-income employees to supplement their employer's 
contributions with a health certificate would help families to be 
insured together. Those who would benefit the most from a certificate 
in an employer plan are lower income employees, the working poor and 
``near-poor'' whose employers pay some of the employee premium but 
little if any of the dependent premium--people who cannot now afford to 
come up with ``their share'' of health insurance premiums. For these 
individuals and families, the current employer contribution is not 
enough to enable them to purchase coverage, and because they are in low 
or zero tax brackets, the tax exemption on employer paid premiums does 
not benefit them. If they were able to combine their employer's 
contribution with a health certificate to help them pay their share of 
health insurance premiums, they would be much more likely to be able to 
afford coverage, and, it would empower individuals to select their own 
place of purchase, rather than having it imposed on them by the 
government.
    Of course, a number of small employers don't provide any health 
insurance benefits. For low-income employees who work for these 
employers, the health certificate will be essential to their being 
insured at all. The legislation takes into account that these working 
poor don't have any assistance with the cost of coverage, and provides 
a larger certificate than that provided to those who have employer-
sponsored coverage.
    Question 11. Mr. Shea argues that employers might drop coverage. 
Mr. Greenstein states in his testimony the income and asset limits are 
such that it is unlikely that employers would drop coverage because the 
credit would not be available to all of their workers. There is also 
the preferred tax-treatment of health coverage benefits. H.R. 2698 
would provide partial subsidies for employment-based insurance. 
Moreover, I do not know how this argument is any different than a 
subsidy under Medicaid or S-CHIP. Could you please comment on this?
    Response: It is highly unlikely that employers would drop coverage 
if a health certificate or other subsidy were available to low-income 
workers. Employers have different types of workers, and not all are 
low-income. Dropping their health plan could mean the loss of key 
employees, as health benefits are one of the most important factors in 
attracting and retaining good employees, as well as loss of the owner's 
coverage.
    There has also been some concern expressed that employers would 
contribute less for certificate-eligible employees, increasing the 
potential cost to the government. This would be unlikely, as employer 
contributions cannot legally be discriminatory in this manner, and they 
would not want to run the risk of losing key employees if they lowered 
their contributions for everyone. It is frankly unlikely to happen, and 
is not any more likely to happen than it would under Medicaid or SCHIP.
    Some have speculated that certificate-eligible employees are 
unlikely to leave an employer plan to purchase less expensive coverage 
in the outside market with a health certificate. The value of the 
health certificate relative to the employer's contribution would make 
that an unattractive option, since the employer contribution in most 
cases would be larger and the employee would lose the employer 
contribution in the outside market. And since employers need to keep 
credit-eligible employees in the plan to meet plan participation 
requirements, employers are unlikely to reduce their contributions or 
benefits so dramatically that an employee would be tempted to leave the 
plan with their health certificate.
                                 ______
                                 
                      Home Insurance Association of America
                                                    August 19, 2003
The Honorable Michael Bilirakis
U.S. House of Representatives
Committee on Energy and Commerce
2125 Rayburn House Office Building
Washington, D.C. 20515
    Dear Chairman Bilirakis: I appreciated the opportunity to testify 
before your committee last month on behalf of H.R. 2698, ``The Health 
Insurance Certificate Act of 2003.'' As a follow up to the hearing, the 
committee has asked for answers to some additional questions. The 
answers to these questions are attached to this letter.
    Also attached is the Health Insurance Association of America's 
proposal for dealing with the growing problem of the uninsured in 
America, called InsureUSA. InsureUSA is a comprehensive set of public 
policy recommendations for guaranteeing access to affordable health 
insurance coverage to all Americans.
    If you have any other questions or would like to discuss these 
proposals further, please call me at 202-824-1682.
            Sincerely,
                                        Donald A. Young, MD
                                                          President
                questions for dr. donald a. young, m.d.
    Question 1. Do you agree that a Health Insurance Certificate 
program for low-income families may inspire some employers to drop 
coverage but an expansion of Medicaid would not?
    The extent of ``crowd-out'' is not determined by whether the 
alternative is public or private, but the degree of overlap in 
eligibility, the relative benefit levels and cost to enrollees, and 
whether individuals are able to apply any subsidy towards their 
existing private coverage. For individuals with family incomes below 
the federal poverty level, crowd-out should not be a significant issue 
in either case--few have employer-sponsored coverage to begin with.
    For the near-poor or ``working poor,'' or those with family incomes 
roughly between 1 and 2 times the federal poverty level, the situation 
is more complicated--a significant number in this income range are 
enrolled in or have access to employer-sponsored coverage. Using SCHIP 
to buy into employer-sponsored plans is generally impractical; to take 
advantage of any expansion, workers would have to drop their employer-
sponsored coverage--the Health Insurance Certificate program would 
allow eligible workers to stay with their private plans. SCHIP is 
typically provided without a significant premium--the Health Insurance 
Certificate program would require participants to pay at least 30% of 
the premium. On balance, for individuals with incomes above the federal 
poverty limit where crowd-out becomes a serious issue, we believe that 
a Health Insurance Certificate would be much less damaging to the 
private employment-based system than Medicaid or SCHIP expansions.
    Question 2. My understanding is that Medicaid is basically like a 
cliff. You either qualify or you do not. This creates an incentive for 
individuals not to earn over a certain amount for fear of losing 
Medicaid coverage. H.R. 2698 does not have this problem. First, it 
provides a softer landing for those who now make more than what 
Medicaid allows for. In this case, they could have significant help 
with employee premiums or on the individual market. In addition, the 
proposal has a phase down policy. Can you comment on the comparison?
    Any proposal for providing assistance based on income must face the 
question of whether eligibility should be phased out gradually, or 
simply terminate with a cliff at a particular income threshold. One 
advantage of certificates, vouchers or tax credits is that their value 
may be graded down gradually, making the ``soft landing'' phase-out 
much more practical. With Medicaid or SCHIP the only realistic way to 
structure an eligibility phase-out is with an income-graded premium. We 
believe the implementation of an income-graded premium will prove 
challenging, since the Medicaid and SCHIP programs are not 
fundamentally designed for a premium, and such an approach delays 
``mainstreaming'' the working poor into the same health plans that 
their neighbors and co-workers use.
    Question 3. In Mr. Shea's written testimony, he states that 
employers premiums may rise as a result of younger, healthier workers 
opting out of an employer plan for a less comprehensive plan in the 
non-group market. However, H.R. 2698 states that if the employer 
contributes at least 50% of the cost of the premiums towards the 
employee's coverage, then the employee is only eligible for the 
employment subsidy, not the individual market subsidy. And if the vast 
majority of employers are contributing at least 50%, which they 
presently are, is likely to occur?
    Health plans, like any other employee-benefit program, are part of 
an overall compensation strategy, and affect high-wage workers as well 
as low-wage workers. Research shows that low-wage workers are much more 
likely to be offered health coverage if there are also high-wage 
workers in the firm, suggesting that this is a fringe benefit that is 
primarily offered because high-wage workers demand it. Employers are 
unlikely to raise their contribution requirements, which would affect 
their entire work force, simply because a relatively modest subsidy is 
available to their low-wage workers. To the extent any change is made 
to employee contribution levels, it will likely be offset by other 
benefit enhancements or higher wages.
    Question 4. What are the specific problems driving high costs for 
health insurance for small businesses and individuals?
    According to a survey HIAA conducted earlier this year, 31% of all 
Americans rated cost as the most important health care issue, slightly 
ahead of those who say the uninsured or Medicare prescription drug 
coverage ought to be policymakers' top concern. The survey also shows 
that people with private insurance tend to underestimate the amount of 
insurance premiums paid by their employer, and to overestimate the 
amount of health care spending that comes from their own pocket. HIAA 
put together a chartbook outlining the reasons health care premiums are 
rising. It is attached to this letter.
    Question 5. Can you please identify the different segments of the 
uninsured population that would benefit from H.R. 2698? Of these 
different populations, which would you expect to exhibit the highest 
utility, and how would that impact the overall costs to the healthcare 
system?
    Individuals below the federal poverty level who are not eligible 
for Medicare or SCHIP. A minority of this group will be offered access 
to employer-sponsored plans, though their employment will likely not be 
stable. The Health Insurance Certificate will allow them to buy into 
employer plans when available. Others will be able to buy individual 
coverage, though the need to pay 30% of the premium will be a barrier 
to some.
    The working-poor not offered employer-sponsored coverage. 
Individuals and families in this category have a meaningful, albeit 
limited, income--paying 30% of the premium is a much less significant 
barrier for them.
    The working-poor with access to employer-subsidized coverage. This 
group is likely to benefit the most from the Health Insurance 
Certificate program. The availability of an employer subsidy has 
already reduced the cost of coverage--the ability to apply a government 
subsidy to the remainder of the premium will make coverage 
significantly more affordable.
    Question 6. As you know, a large percentage of the uninsured are 
dependents of workers--and while the workers may be able to afford 
coverage for themselves, they cannot afford the higher premium for 
family coverage. Could you please comment on this portion of the 
uninsured population and comment on how the health certificate could 
help this segment?
    This is an important segment of the uninsured population. Allowing 
the Health Insurance Certificate to be applied towards the cost of 
family coverage in an employer's plan will be of direct benefit to 
these families.
    Question 7. As you probably know, states such as Kentucky, 
Washington, Idaho, and New Hampshire have repealed guaranteed issue 
requirements and put in high-risk pools instead. Could you please 
provide some reasons why states have chosen to move in that direction?
    Guaranteed-issue requirements, particularly in conjunction with 
restrictions on premium rating, increase the cost of coverage for 
everyone in the market. High-risk pools are an effective method of 
capping the cost of coverage for individual with serious medical 
conditions, without undermining the private market for other consumers. 
Guaranteed issue effective imposes a hidden tax on healthy consumers to 
reduce premiums for high-risk individuals; state pools provide an 
efficient mechanism for funneling a subsidy to high-risk individuals 
from a broader, more equitable tax base.
    Question 8. Do you think H.R. 2698 provides for adequate consumer 
protections?
    The bill offers adequate protections by requiring that the 
certificate be applied towards HIPAA creditable coverage ensures that 
eligible individuals will be buying a primary health plan, rather than 
supplemental coverage. Individual insurance is extensively regulated by 
the state; insured employer-sponsored coverage, as is found among small 
employers, is also governed by state law. Large employer plans are 
limited by the demands of high-wage workers.
    Question 9. How would you characterize the state of the individual 
market? How would the health certificate impact it?
    The individual insurance market is a vital source of coverage for 
millions of Americans. It is, however, in a very real sense a residual 
market for those who are not offered coverage at work. As such, it is 
fragile--ill-conceived legislation, such as guaranteed-issue and 
community-rating requirements, can easily damage or destroy it. The 
proposed Health Insurance Certificate program would bring additional 
people into the individual market, but would be unlikely to change the 
fundamental nature or economics of the market.
    Question 10. Mr. Shea argues that employers might drop coverage. 
Mr. Greenstein states in his testimony that the income and asset limits 
are such that it is unlikely that employers would drop coverage because 
the credit would not be available to all of their workers. There is 
also the preferred tax-treatment of health coverage benefits. H.R. 2698 
would provide partial subsidies for employment-based insurance. 
Moreover, I do not know how this argument there is any different than 
for a subsidy under Medicaid or SCHIP. Could you please comment on 
this?
    Replacing private coverage is not a significant issue below the 
federal poverty line. Above the federal poverty level, Medicaid or 
SCHIP expansions would be more damaging to the employment-based system 
than a dollar-amount subsidy--particularly a subsidy than can be 
applied towards employer-sponsored plans. It is absolutely vital to 
avoid undermining the employment-based system, and as the details of 
any legislation are worked out this should remain a focus. However, I 
would note that the first and most important step--allowing the credit 
to be applied towards employer plans--has already been taken, and that 
the income and asset levels involved are relatively modest. Very few 
employers will find that all of their workers qualify for the Health 
Insurance Certificate, which should minimize the number that would be 
tempted to drop their coverage.
                               InsureUSA
                      covering america's uninsured
           Covering the Uninsured: HIAA's InsureUSA Proposal
    Tens of millions of Americans still lack health insurance. To solve 
this enormous problem, Congress must act to help these Americans afford 
the health care coverage that they, and their families, need. HIAA's 
InsureUSA proposal (www.insureusa.org) offers a series of practical 
initiatives that would provide coverage for most of the nation's 
uninsured.
    The time is ripe for action. The number of uninsured Americans grew 
steadily during most of the 1990's. While there was a two-year hiatus 
at the peak of the economic expansion, this was a brief pause in a 
steady trend that had lasted more than a decade. The growth in the 
uninsured has resumed with the current economic downturn. According to 
the U.S. Census Bureau, over 41 million Americans have no health 
insurance coverage.
    To increase coverage, health insurance must be more affordable for 
more Americans. The main reason that Americans are uninsured is because 
they cannot afford health insurance coverage. Many well-intentioned 
attempts at insurance market reform have had the effect of increasing 
the cost of coverage and increasing the net number of individuals 
without health insurance. Reforms, therefore, should both reduce the 
costs of health insurance and provide financial support for those who 
otherwise cannot afford coverage.
    Multifaceted problem requires multifaceted approach. While 
affordability is the primary reason people lack health coverage, the 
uninsured have many faces. Rather than advocating a singular approach 
to insuring more Americans, we are advocating a 5-point program 
designed to attack the underlying reasons that people are uninsured.
    A strong, vibrant private health insurance market should remain a 
cornerstone of our health care system. Expanded coverage must be 
achieved through means that do not threaten the coverage of other 
Americans or damage the existing private market. Competitive markets 
remain the most efficient and responsive mechanisms to provide 
consumers with coverage. Regulations that stifle innovation, 
flexibility and responsiveness to consumers should be strongly 
discouraged. For example, nothing in the proposal should be interpreted 
as favoring public coverage over private or as requiring health 
insurers to operate in markets in which they have chosen not to.
    Reforms should make health coverage more affordable within the 
context of the employment-based private health care system, rather than 
destroying it. Nine in every 10 Americans with private health coverage 
get their health insurance through their employer. While the percentage 
of Americans with employment-based health coverage has declined 
somewhat in the wake of the recent economic slowdown, steady increases 
in coverage during most of the 1990s demonstrate the strength and 
resiliency of this system.
    The new initiative should be financed with broad-based funds. 
Rather than recommending specific sources to finance this series of 
initiatives on the uninsured, HIAA recommends that funding decisions be 
left to state and federal policymakers. Policymakers should be 
encouraged to finance these proposals with broad-based funding sources. 
For instance, stable, on-going funding is critical to the success of 
any risk pool. Policymakers should consider general revenues, as well 
as state funds related to health (such as tobacco-related recoveries) 
as possible financing sources.
                       key elements of insureusa
    The InsureUSA proposal has 5 key components:

 Extending the safety-net for Americans living below the federal 
        poverty level
 Giving the working poor the help they need to buy their own coverage
 Guaranteeing access to coverage for uninsurable individuals through 
        broad-based funding for state high risk pools
 Encouraging greater coverage for individuals and small businesses 
        through enhanced tax incentives
 Extending and enhancing Archer Medical Savings Accounts (MSAs)
                i. covering very low-income individuals
    Conceptual approach: Extend the current social safety net 
obligation currently fulfilled by Medicaid to include all adults below 
100% of the federal poverty level, regardless of family structure. 
Medicaid, the joint state-federal program designed to provide health 
insurance coverage to low-income Americans, does not extend coverage to 
all poor people. For example, married couples without children and men 
are generally not eligible for Medicaid coverage unless they are 
disabled. A government-sponsored program is proposed based on the 
assumption that individuals with family incomes below 100% of the 
federal poverty level have at best a tenuous connection with the work 
force (only 17.5% of non-elderly Americans in this income range have 
employment-based coverage).
    Target population: Individuals and families with incomes below 100% 
of the federal poverty level who are not eligible for other federal or 
state subsidized health insurance coverage such as, but not limited to, 
Medicaid, Medicare or the Children's Health Insurance Program (S-CHIP).
    Key elements of the proposal:

 Expansion of public program to provide health insurance to all 
        individuals with incomes below 100% of poverty.
 Funding and structuring program are both fundamentally government 
        responsibilities.
 Joint federal/state funding and program structure would be based on 
        the S-CHIP program.
 States would be given significant flexibility with regard to 
        coverage, benefits and program structure, as in the current 
        Health Insurance Flexibility and Accountability (HIFA) 
        demonstration initiative.
 States would be encouraged to use program funds to subsidize coverage 
        under private employer-sponsored health plans for poor 
        individuals eligible for such plans.
                     ii. covering the working poor
    Conceptual approach: Subsidize the cost of private health insurance 
coverage for the near poor and working poor. Subsidized private 
coverage is proposed because this population segment largely consists 
of low-income working individuals who in many cases have access to 
employer-sponsored coverage (45% of non-elderly Americans with family 
incomes between 100-200% of the federal poverty level have employment-
based coverage) and it is neither necessary nor desirable to replace 
private coverage with a government-sponsored program. The subsidy 
should be large enough to make coverage substantially more affordable 
for low-income individuals, but should not be so large as to encourage 
over-insurance. Because the cost of coverage varies significantly by 
age, family size and geographic location, it is critical to provide a 
subsidy that is equitable for individuals in different situations.
    Target population: Individuals and families with incomes between 
100% and 200% of the federal poverty level who are not eligible for 
current subsidy programs (e.g., Medicaid, Medicare or S-CHIP).
    Key elements of the proposal:

 A refundable tax credit or direct federal voucher provided to 
        individuals with incomes between 100% and 200% of poverty based 
        on taxable income.
 If eligible individuals have access to an employer-sponsored plan, 
        the credit or voucher would be used for the employee 
        contribution.
 If no employer-sponsored plan is available, then the credit or 
        voucher may be used towards any coverage meeting the Health 
        Insurance Portability and Accountability Act (HIPAA) definition 
        of ``creditable coverage'' for which the individual is 
        eligible.
 If a tax credit is used:
     It should be equal to 60-75% of the premium. A percentage of 
            premium credit allows for variations in cost by age, family 
            size and location.
     The credit should be refundable, in order to help low-income 
            taxpayers.
     Ways to make the credit advancable should be explored.
 If a voucher is used:
     The voucher amount should be based on an objective measure of the 
            cost of providing health benefits, and should represent 
            roughly 60-75% of the cost of coverage (e.g., equal to 75% 
            of the national average Federal Employee Health Benefit 
            Plan (FEHBP) premium).
     The voucher should be adjusted for geographic and demographic 
            variations in cost.
     The voucher should be redeemable by health plans for actual 
            premiums up to the full face-amount and electronic 
            assignment of vouchers and transfer of funds would be 
            encouraged to facilitate administration.
   iii. guaranteeing access to coverage for uninsurable individuals 
                     through state high-risk pools
    Conceptual approach: Authorize broad-based federal funding to 
encourage states to guarantee uninsurable individuals (those who would 
not qualify for private, medically underwritten individual policies) 
access to coverage through high-risk pools. While some states have 
chosen to implement other mechanisms to guarantee access to coverage, 
guaranteeing access to coverage through high-risk pools should be the 
preferred approach. Financing for high-risk pools at both the state and 
federal levels should be provided through broad-based funding.
    Target population: Individuals who may be able to afford to pay a 
meaningful premium, or have a voucher or other subsidy available to pay 
a premium, but who do not qualify for private coverage due to health 
status.
    Key elements of the proposal:

 Provide federal seed money to states without high-risk pools for 
        start-up costs (program design and administration, initial 
        reserves, outreach, etc.).
 Provide federal block grants for all states to defray administrative 
        costs of high-risk pools.
 Provide 50-50 federal matching funds for the underwriting losses of 
        pools (claims minus premiums). However, if a pool sets premiums 
        below 150% of a standard private market rate, the match will be 
        calculated as if the premiums were set at 150% of standard.
 To receive funds, state pools must have lifetime maximum benefits of 
        no less than $1 million, and meet NAIC model high-risk pool 
        standards.
 Federal reinsurance program for qualifying state high-risk pools will 
        cover 75% of claims over $1 million for an individual pool 
        enrollee (indexed to medical CPI).
 The Secretary of Health and Human Services (HHS) will establish pools 
        in states if the state has not sponsored a pool (federal funds 
        will be matched by withholding appropriate federal matching 
        funds in such states).
 Any new state or federal funding for this program must be stable and 
        broadly-based.
 States should replace guaranteed issue and community rating 
        requirements in the individual health insurance market with 
        guarantee access through high-risk pools
 iv. encouraging greater coverage for individuals and small businesses 
                    through enhanced tax incentives
    Conceptual approach: Provide a variety of additional tax subsidies, 
in conjunction with targeted consumer education, to encourage more 
individuals and employers to purchase private health insurance.
    Target population: The self-employed, small businesses, and 
individuals without access to employer-sponsored health insurance 
coverage.
    Key elements of the proposal (employer market):

 Small employer tax credit (could be phased-in beginning with smallest 
        employers). To be eligible for the credit, a small employer 
        must have an average payroll below the median for all small 
        firms.
     40% credit for employers with fewer than 10 employees
     25% credit for employers with 10-25 employees
     15% credit for employers with 26-50 employees
 Allow employee contributions for health insurance to be excluded from 
        taxable income (even if not made through a section 125 
        cafeteria plan)
    Key elements of the proposal (individual market):

Allow all individuals, not just the self-employed, to deduct the full 
        cost of health insurance premiums.
 Undertake a variety of consumer education and outreach activities on 
        the importance of having and maintaining health insurance.
   v. encouraging increased coverage and providing more options for 
 consumers by extending and enhancing archer medical savings accounts 
                                 (msas)
    Conceptual approach: Encourage more individuals and employers to 
purchase health insurance and save for future medical expenses by 
extending and enhancing Archer Medical Savings Accounts (MSAs). 
Increase the number of Americans who are given the option of 
establishing an MSA, and enhance the program to better meet the needs 
of the average American consumer.
    Target population: Individuals and business of all sizes.
    Key elements of the proposal (Medical Savings Accounts):

 Make MSAs more attractive by simplifying rules
     Extend eligibility to large employers
     Extend eligibility to all individuals--not just the self-employed
     Eliminate sunset provision
     Allow both employee and employer contributions to MSA account
     Allow cafeteria plans to offer MSAs
     Allow imbedded individual deductibles with family deductible cap
     Increase the deduction allowed for MSA contributions to 100% of 
            the deductible amount under the qualifying high deductible 
            insurance policy
     Increase the range of allowable deductibles and out-of-pocket 
            limits (Lower limits are important to allow MSA holders' to 
            limit their liability as they accumulate funds for medical 
            expenses, and higher limits are important for policyholders 
            who have accumulated, or expect to accumulate, significant 
            funds in their MSAs).
     Make it easier for PPOs and other network plans to offer MSA 
            products
     Preempt state benefit mandates to the extent that they would 
            require a qualified high-deductible health plan to provide 
            coverage below the level of the deductible. If this is not 
            acceptable, then qualified high deductible health plans 
            should be allowed to provide low-deductible or first-dollar 
            coverage when necessary to comply with a state benefit 
            mandate.
                 cost and access to affordable coverage
    InsureUSA, through a combination of targeted subsidies for low-
income individuals, federal matching funds for risk pools for 
individuals with serious medical conditions, and enhanced tax 
incentives to encourage the purchase of health insurance, addresses the 
need to ensure access to coverage to all Americans. But meaningful 
efforts must also be taken to reduce the cost of health care and make 
health insurance coverage more affordable. Costs must be addressed in 
three broad ways. First, regulatory burdens that increase the cost of 
coverage must be reduced. Second, individuals must take greater 
responsibility for ensuring that the health care they receive is paid 
for, and thus for ensuring that they have the health care coverage they 
need to fulfill that responsibility. Third, individuals must become 
more careful consumers of health care through increased control over 
and an increased financial interest in health care purchasing 
decisions.

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