[Congressional Record Volume 144, Number 80 (Thursday, June 18, 1998)]
[Senate]
[Pages S6633-S6635]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




    RELEASE OF A NEW GAO REPORT PRIVATE HEALTH INSURANCE: DECLINING 
      EMPLOYER COVERAGE MAY AFFECT ACCESS FOR 55- TO 64-YEAR-OLDS

 Mr. JEFFORDS. Mr. President, as the Chairman of the Committee 
on Labor and Human Resources, I have closely monitored Americans' 
access to health insurance coverage in order to have a better 
understanding of the trends and underlying causes of declining 
coverage. Today, I am releasing a new U.S. General Accounting Office 
(GAO) report, entitled Private Health Insurance: Declining Employer 
Coverage May Affect Access for 55- to 64-Year-Olds (GAO/HEHS-98-133). 
This report examines access of the ``near elderly'' population to 
employer-based and individually purchased private insurance. 
Specifically, the report discusses the employment, income, health, and 
health insurance status of the near elderly, their ability to obtain 
employer-based health insurance if they retire before becoming eligible 
for Medicare, and their health insurance coverage through the 
individual market or employer-based continuation insurance. The 
findings of this report will be the focus of a Labor Committee hearing 
scheduled for June 25, 1998.
  This report and the related hearing have been prompted by a growing 
concern that several factors may converge to create the situation where 
a large number of 55- to 64-year-old Americans could lose, or have to 
pay considerably more for, health insurance coverage. Access to 
affordable health insurance is especially critical for this population, 
since their health status is worse than that of any other age group 
except the elderly who have the guarantee of Medicare.
  The near elderly population can be characterized as a group in 
transition. Their employment status, income, and health are all 
changing. The GAO reports that currently about 14 percent of the near 
elderly have no health insurance. Although this rate is lower than that 
of the nonelderly population in general, the GAO found several 
disturbing trends that could lead to a substantial increase in the 
numbers of near elderly without health insurance coverage. This would 
be especially problematic, since the near elderly have 25 percent lower 
median family incomes, but 45 percent higher health care expenses than 
younger age groups. The economic impact would be even greater when 
``baby boomers'' join the near elderly, swelling their ranks from 21 
million now, to 35 million by 2010.
  Most of the near elderly acquire health insurance coverage from one 
of the same three sources as individuals in other age groups: their 
employers, the individual private insurance market, or the Government. 
The main difference between coverage for the near elderly and the 
elderly is that all elderly qualify for Medicare, but only those near 
elderly who are ill or disabled qualify for public benefits. The main 
difference between coverage for the near elderly and younger 
populations is that a larger proportion of the near elderly are covered 
by public programs or have individual coverage through the private 
market. The near elderly are more likely to be willing to purchase 
individual coverage than younger age groups, because they are more 
averse to the risk of high health care costs.
  The two main factors contributing to the trend for more near elderly 
to become uninsured are the loss of employer-based coverage and the 
rising costs of individual insurance. The GAO reports that in 1996, 65 
percent of the near elderly had employer-based insurance; but, despite 
the strong economy, this coverage is being eroded, particularly as the 
near elderly retire. Already the rate of health coverage offered by 
large employers to retirees has fallen faster than that of coverage for 
active employees, from an estimated 60 to 70 percent in the 1980s to 
less than 40 percent now. In addition, retirees are

[[Page S6634]]

being asked to cover a larger share of the premiums. For example, in 
1995, retirees contributed an average of $655 more for family coverage 
than did active workers. The higher costs have prompted some near 
elderly to drop coverage. The GAO reports that 27 percent of the 5.3 
million retirees who discontinued employer-based benefits in 1994 cited 
expense as a factor.
  Retirees also are finding that more employers are linking retirement 
health benefits to length of service. The GAO report cites the example 
of one company's requiring 35 years of service to qualify for the 
maximum employer contribution of 75 percent. This trend does not bode 
well for retirees who have changed jobs frequently.
  The source of health insurance for the near elderly generally 
correlates with employment, health, and income status. The GAO reported 
that near elderly who had individual health insurance were more likely 
to be employed, be in good health, and have higher incomes than those 
on Medicare and Medicaid. The correlation is not absolute, however, 
because 20 percent of the uninsured had family incomes of more than 
$50,000 per year, and one-third of near elderly with individual 
insurance had incomes of less than $20,000. It should be noted that the 
latter figure may be misleading because this group may have less-
expensive coverage, less-comprehensive benefits, or the income measured 
may not have included all of their resources.
  In general, the near elderly are more likely than younger age groups 
to purchase insurance through the individual market if they lose 
employer-based coverage. Often, however, they find that they do not 
qualify because of preexisting conditions, or that the cost of 
individual coverage is prohibitive because premiums take into account 
the fact that this age group uses more medical services than younger 
age groups. The GAO found that premiums for individual coverage 
constituted 10 percent of the median family income for the married near 
elderly in Colorado, which is almost twice as much as the retiree share 
of employer-subsidized family coverage.
  Some States have provisions guaranteeing access to some form of 
individual coverage, but in most States individual insurance for the 
near elderly is limited by exclusion of certain conditions or body 
parts, or denial of coverage. Chronic conditions that are common in 
this age group such as diabetes and heart disease, and even such non-
life-threatening conditions as chronic back pain, may limit eligibility 
for coverage. Reform measures that have been considered or implemented 
to remedy these problems include initiatives to limit variation in 
premium rates; guarantees of certain products to all applicants; and 
State pools for those who have been rejected by at least one carrier. 
These measures have met with variable success. Overall, the GAO found 
that about 15 percent of all applicants were denied individual 
coverage, while many others were denied coverage for specific 
conditions.
  Since 1986, the Consolidated Omnibus Budget Reconciliation Act of 
1985 (COBRA) has provided temporary access to health insurance for 
individuals of all ages who leave the work force. COBRA may be 
particularly important to the near elderly before they become eligible 
for Medicare. It is attractive for continuation coverage, because its 
premiums reflect lower group coverage rates, and it does not exclude 
preexisting conditions. However, several factors limit the near 
elderly's ability to use COBRA benefits: It is available only to 
retirees whose employers have at least 20 employees and who offer 
health insurance benefits; it lasts for only 18 months; and it may not 
be affordable since employers do not provide contributions. It also is 
important to note that many people who could benefit from this program 
do not know about it.
  The Health Insurance Portability and Accountability Act of 1996 
(HIPAA) also guarantees that some people who leave group coverage have 
access to individual coverage and cannot be excluded for preexisting 
conditions. However, HIPAA has stringent eligibility requirements, 
depends on exhausting COBRA or other continuation benefits, and places 
no limits on the cost of premiums.
  Before HIPAA was enacted, individuals usually relinquished COBRA 
before they had used up all of their benefits. The impact of HIPAA on 
the use of COBRA remains to be determined, but cost may prevent many 
near elderly from being able to afford to take advantage of either. The 
GAO reports that whereas one company paid almost the entire cost of 
health benefits for active employees, the COBRA cost ranged from about 
$5,600 to almost $8,000 per year for family coverage. This is a great 
deal of money, particularly for people who are taking advantage of the 
program because they are leaving the work force.
  I believe the GAO report, Private Health Insurance: Declining 
Employer Coverage May Affect Access for 55- to 64-Year-Olds (GAO/HEHS-
98-133), will be an important resource as Congress considers proposals 
to expand health insurance coverage.
  Mr. President, I ask that excerpts of the executive summary of the 
report be printed in the Record.
  The material follows:

Private Health Insurance Declining Employer Coverage May Affect Access 
                        for 55- to 64-Year-Olds

                           EXECUTIVE SUMMARY

                                Purpose

       A series of age-related transitions heighten the importance 
     of health insurance to 55- to 64-year-old (near elderly) 
     Americans and could place them at greater risk of losing, or 
     paying considerably more for, coverage. Too young to qualify 
     for Medicare, many near elderly are considering retirement or 
     gradually moving out of the workforce. These events may be 
     related to worsening health, job displacement, or simply the 
     desire for more leisure time. Since health insurance for most 
     Americans is an employment-related benefit, retirement may 
     necessitate looking for another source of affordable 
     coverage. However, insurance purchased directly in the 
     individual market or temporary continuation coverage 
     purchased through an employer are typically expensive 
     alternatives and may not always be available. Their 
     affordability, moreover, may be exacerbated both by declining 
     health and the reduction in income associated with 
     retirement. For some near elderly, an alternative to retiring 
     without insurance is simply to continue working.
       The Chairman, Senate Committee on Labor and Human 
     Resources, requested GAO to assess the ability of Americans 
     aged 55 to 64 to obtain health benefits through the private 
     market--either employer-based or individually purchased. In 
     particular, he requested an examination of the available 
     evidence on the near elderly's health, employment, income, 
     and health insurance status; ability to obtain employer-based 
     health insurance if they retire before becoming eligible for 
     Medicare; and use of and costs associated with purchasing 
     coverage through the individual market or employer-based 
     continuation insurance.
       To provide the Congress with information about the near 
     elderly and their ability to obtain health insurance, GAO 
     analyzed the March 1997 Current Population Survey (CPS), a 
     source widely used by researchers; reviewed the literature on 
     employer-based health benefits for early retirees; 
     interviewed employers, benefit consultants, insurers, and 
     other experts knowledgeable about retiree health issues and 
     the individual insurance market; and updated information 
     provided in previous GAO reports.
     Background
       Like most Americans, over 80 percent of the near elderly 
     have access to some type of health insurance--either 
     comprehensive or partial. Nevertheless, continued access to 
     health insurance is a primary concern for some 55- to 64-
     year-olds who retire early or who lose access to employer-
     based coverage. First, Medicare is not generally available 
     until one reaches age 65. Second, most Americans under age 65 
     rely on coverage provided by an employer--a link that may be 
     severed by retirement, a voluntary reduction in hours, or job 
     displacement. The existing alternatives to employer-based 
     coverage for the near elderly are (1) individually purchased 
     insurance, (2) temporary continuation coverage from a former 
     employer, (3) public programs such as Medicare and Medicaid, 
     and (4) becoming uninsured. Among those aged 55 to 64, 
     Medicare or Medicaid are available only to the very poor or 
     the disabled.
       Some near elderly may encounter difficulty in obtaining 
     comprehensive, affordable coverage through the individual 
     market or in obtaining any health coverage at all. The high 
     cost of individual insurance often mirrors the near elderly's 
     greater use of medical services compared with younger age 
     groups. Moreover, some individuals may be denied individual 
     insurance because of preexisting health conditions. Retirees 
     whose jobs provided health benefits that ended at retirement, 
     however, may continue temporary coverage for up to 18 months 
     under the Consolidated Omnibus Budget Reconciliation Act of 
     1985 (COBRA). Only firms with 20 or more employees who offer 
     health insurance to active workers are required to provide 
     COBRA continuation coverage. When available, COBRA coverage 
     may entail substantial out-of-pocket costs, because the 
     employer is not required to pay any portion of the premium. 
     For eligible individuals leaving group coverage who exhaust 
     any available COBRA or other conversion coverage,

[[Page S6635]]

     the Health Insurance Portability and Accountability Act of 
     1996 (HIPAA) guarantees access to the individual market, 
     regardless of health status and without coverage exclusions. 
     The premiums faced by some individuals eligible for a HIPAA 
     guaranteed access product, however, may be substantially 
     higher than the prices charged to those in the individual 
     market who are healthy.
       Persons seeking an alternative to employer-based coverage 
     may go through a common mental calculus in which health 
     status and cost play a prominent role. For someone healthy, 
     there are no access barriers to the individual market and the 
     cost may be lower than COBRA, especially if he or she buys a 
     policy with a higher deductible. For someone with a health 
     condition who wants comprehensive coverage, the individual 
     market may not be an option because of health screening by 
     insurers--a process that can result in the denial of coverage 
     or the exclusion of preexisiting conditions. However, COBRA, 
     if available, has no such screening and should be more 
     affordable than individually purchased insurance because of 
     economies of scale and reduced administrative costs that 
     result in lower premiums for group coverage. HIPAA's group-
     to-individual portability now provides a link between COBRA 
     and the individual market for those who are eligible, but it 
     is too early to judge the extent to which unhealthy consumers 
     will utilize this option.
     Results in Brief
       Though the near elderly access health insurance differently 
     than other segments of the under-65 population, their overall 
     insurance picture is no worse and is better than that of some 
     younger age groups. These differences, however, may not 
     portend well for the future. Since fewer employers are 
     offering health coverage as a benefit to future retirees, the 
     proportion of near elderly with access to affordable health 
     insurance could decline. The resulting increase in uninsured 
     near elderly would be exacerbated by demographic trends, 
     since 55- to 64-year-olds represent one of the fastest 
     growing segments of the U.S. population.
       The current insurance status of the near elderly is largely 
     due to (1) the fact that many current retirees still have 
     access to employer-based health benefits, (2) the willingness 
     of near-elderly Americans to devote a significant portion of 
     their income to health insurance purchased through the 
     individual market, and (3) the availability of public 
     programs to disabled 55- to 64-year-olds. Today, the 
     individual market and Medicare and Medicaid for the disabled 
     often mitigate declining access to employer-based coverage 
     for near-elderly Americans and may prevent a larger portion 
     of this age group from becoming uninsured. The steady decline 
     in the proportion of large employers who offer health 
     benefits to early retirees, however, clouds the outlook for 
     future retirees. In the absence of countervailing trends, it 
     is even less likely that future 55- to 64-year-olds will be 
     offered health insurance as a retirement benefit, and those 
     who are will bear an increased share of the cost. Although 
     trends in employers' required retiree cost sharing are more 
     difficult to decipher than the decisions of firms not to 
     offer retiree health benefits, the effects may be just as 
     troublesome for future retirees. Thus, some additional 
     employers have tied cost sharing to years of service; 
     consequently, retirees who changed jobs frequently may be 
     responsible for most of the premium.
       Moreover, access and affordability problems may prevent 
     future early retirees who lose employer-based health benefits 
     from obtaining comprehensive private insurance. The two 
     principal private insurance alternatives are the individual 
     market and COBRA continuation coverage. With respect to 
     individual insurance, the cost may put it out of reach of 
     some 55- to 64-year-olds--an age group whose health and 
     income is in decline. For example, the premiums for popular 
     health insurance products available in the individual markets 
     of Colorado and Vermont are at least 10 percent and 8.4 
     percent, respectively, of the 1996 median family income for 
     the married near elderly. In contrast, the average retiree 
     contribution for employer subsidized family coverage is about 
     one-half of these percentages. The near elderly who are in 
     poorer health run the risk of paying even higher premiums, 
     having less comprehensive coverage offered, or being denied 
     coverage altogether. Thirteen states require insurers to sell 
     some individual market products to all who apply, and about 
     20 states limit the variation among premiums that insurers 
     may offer to individuals. GAO found that conditions such as 
     chronic back pain and glaucoma are commonly excluded from 
     coverage or result in higher premiums. Furthermore, 
     significant variation exists among the states that limit 
     premiums: A few require insurers to community-rate the 
     coverage they sell--that is, all those covered pay the same 
     premium--while other states allow insurers to vary premiums 
     up to 300 percent or more.
       COBRA is only available to retirees whose employers offer 
     health benefits to active workers, and coverage is only 
     temporary, ranging from 18 to 36 months. Information on the 
     use of COBRA by Americans is spotty. Although 55- to 64-year-
     olds who become eligible for COBRA are more likely than 
     younger age groups to enroll, the use of continuation 
     coverage by early retirees appears to be relatively low. 
     Since new federal protections under HIPAA--ensuring access to 
     individual insurance for qualifying individuals who leave 
     group coverage--hinge on exhausting COBRA, the incentives for 
     enrolling and the length of time enrolled could change. 
     Because employers generally do not contribute toward the 
     premium, the cost of COBRA may be a factor in the low 
     enrollment, even though similar coverage in the individual 
     market may be more expensive. In 1997, the average insurance 
     premium for employer-based coverage was about $3,800. 
     However, there is significant variation in premiums due to 
     firm size, benefit structure, locale, demographics, or 
     aggressiveness in negotiating rates. For one company, total 
     health plan premiums in 1996 for early retirees ranged from 
     about $5,600 to almost $8,000 for family coverage. Since this 
     firm paid the total cost of practically all of the health 
     plans it offered to current workers, the COBRA cost would 
     have come as a rude awakening to retirees . . .

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