Health Insurance for Children: Private Individual Coverage Available, but
Choices Can Be Limited and Costs Vary (Letter Report, 08/05/98,
GAO/HEHS-98-201).

Pursuant to a congressional request, GAO reviewed the availability of
private sector health coverage for children in the individual insurance
market, focusing on: (1) the availability and characteristics of private
health insurance products that can be purchased only for a child and how
these products differ from other individual private insurance products;
(2) the costs of these child-only products; and (3) any barriers in
access to individual private health coverage for children.

GAO noted that: (1) comprehensive health coverage is available to
children in the individual health insurance market across the United
States; (2) at least one comprehensive product is available to most
children in all 50 states; (3) in almost all states, a product that is
priced specifically for children is available; (4) the insurance agents
and brokers GAO contacted in two selected states were generally aware
that products for children existed and could either sell the products
themselves or refer GAO to someone who could; (5) the benefits covered
under these products typically mirror those of products available to
adults in the individual market; (6) while these products were available
nationwide, among the carriers GAO contacted they represented a
relatively small share of total individual sales--from under 1 percent
to 20 percent; (7) furthermore, since many carriers do not tend to
operate in states with certain regulatory requirements, consumers may
have a more limited choice of benefit plans and carriers in these
states; (8) as is the case with products for adults in the individual
market, costs for child-only products varied considerably, both within
and across selected markets; (9) standard monthly premium rates for the
products GAO reviewed that are available to children are based largely
on age, geographic location, plan type, and product design, including
deductible and cost-sharing options; (10) in calculating rates, carriers
also take into account the expected health care utilization of different
age groups and the impact of various state regulations; (11) GAO found
standard monthly premium rates for a healthy 15-year-old among its
selected carriers ranged from a low of about $42 for a $1,000-deductible
preferred provider organization plan in Portland, Oregon, to one as high
as $321 for a $250-deductible fee-for-service plan in Los Angeles,
California; (12) while these child-only products are available in all
states--as is typical in the individual insurance market--many states do
not require carriers to accept all applicants; (13) in these states,
children with certain health conditions may be denied coverage, or their
coverage may exclude an existing condition or treatments for particular
parts of the body, or they may be charged a rate higher than the
standard premium rate; and (14) of the carriers that GAO reviewed, two
that market specifically to children do not cover children under these
policies during their first 6 or 12 months of life, due to the high cost
of early preventive care and lack of information about a child's
possible future health problems.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  HEHS-98-201
     TITLE:  Health Insurance for Children: Private Individual Coverage 
             Available, but Choices Can Be Limited and Costs
             Vary
      DATE:  08/05/98
   SUBJECT:  Insurance premiums
             Children
             Health insurance
             Managed health care
             Health care services
             Eligibility determinations
IDENTIFIER:  Medicaid Program
             
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Cover
================================================================ COVER


Report to Congressional Requesters

August 1998

HEALTH INSURANCE FOR CHILDREN -
PRIVATE INDIVIDUAL COVERAGE
AVAILABLE, BUT CHOICES CAN BE
LIMITED AND COSTS VARY

GAO/HEHS-98-201

Child-Only Health Insurance

(101710)


Abbreviations
=============================================================== ABBREV

  COBRA - Consolidated Omnibus Budget and Reconciliation Act of 1985
  FFS - fee-for-service
  HIPAA - Health Insurance Portability and Accountability Act of 1996
  HMO - health maintenance organization
  PPO - preferred provider organization

Letter
=============================================================== LETTER


B-279540

August 5, 1998

The Honorable Anna Eshoo
The Honorable Frank Pallone
Cochairs, Democratic Caucus Children's
  Health Care Task Force
House of Representatives

The Honorable Sherrod Brown
Ranking Minority Member
Subcommittee on Health and the Environment
Committee on Commerce
House of Representatives

The Honorable Elizabeth Furse
House of Representatives

In 1996, nearly 10.6 million children--about 14 percent of all U.S. 
children--did not have health insurance coverage.  The largest group
of children without coverage are from low-income working families. 
Some of these children are not eligible for Medicaid or other public
programs, and their parents may not have access to employer-based
coverage.  For these families, the cost of private health insurance
and their inability to qualify for Medicaid or other public programs
present significant barriers to access to coverage.  To increase the
number of children with insurance coverage, the Congress appropriated
almost $40 billion over the next 10 years through the Balanced Budget
Act of 1997, under title XXI of the Social Security Act.  This
funding, primarily targeted for state children's health insurance
programs, is intended to improve access to coverage for uninsured
children from low-income families--either through an expansion in
Medicaid or the development of other state initiatives. 

In addition to these public program approaches, the Congress has
expressed interest in the availability of private sector health
coverage for children in the individual insurance market.\1
Accordingly, you asked us to (1) describe the availability and
characteristics of private health insurance products that can be
purchased only for a child and how these products differ from other
individual private insurance products, (2) determine the costs of
these child-only products, and (3) identify any barriers in access to
individual private health coverage for children. 

For the purpose of our study, we define a child-only product as a
comprehensive medical policy\2 that can be purchased for a single
child--without an adult on the policy--in the individual insurance
market.  In addition, we define a child-rated product as one that is
priced specifically for enrollees under the age of 18 or 19 years. 
We identified about 20 carriers that offer child-only coverage by
contacting representatives from insurance trade associations and
research organizations and obtained information about the
availability of their products nationwide.  In addition, we collected
information about the characteristics of these products, including
their benefit structure as well as their cost nationwide and any
barriers to access, by conducting in-depth interviews with seven of
these carriers, including three multistate carriers, two single-state
carriers, and two regional HMOs.\3 The plan types of these seven
carriers included traditional indemnity fee-for-service (FFS) plans,
preferred provider organization (PPO) options, and HMOs.\4 We did not
independently verify the premium prices of the three carriers in our
study that did not provide us with published rates. 

To determine consumer awareness of products available to children
only, we tested the awareness of insurance agents and brokers, since
they may likely be a consumer's first point of contact in locating a
child-only product.  To do so, we contacted over 100 agents and
brokers who sell health insurance in both Georgia and Illinois.\5 We
also reviewed published literature on children's insurance and the
individual insurance market.  We conducted our review between January
and June 1998 in accordance with generally accepted government
auditing standards. 


--------------------
\1 While most Americans obtain health insurance coverage through
employer-sponsored group plans or government programs like Medicare
and Medicaid, a significant minority purchase health insurance
individually for themselves and their families, which we refer to in
this report as the private individual insurance market.  For more
information about the individual insurance market, see Private Health
Insurance:  Millions Relying on Individual Market Face Cost and
Coverage Trade-Offs (GAO/HEHS-97-8, Nov.  25, 1996). 

\2 Our study focuses on private comprehensive individual major
medical and health maintenance organization (HMO) products and does
not include other health insurance products, such as hospital and
medical expense plans, accident, or other supplemental medical plans
that may be offered for children.  In addition, the study does not
include products offered through public and private subsidy programs. 

\3 Our study does not include all carriers that may offer coverage to
children in the individual health insurance market. 

\4 PPOs are health benefit arrangements through which patients can
obtain services at lower costs by using a selected network of health
care providers with whom the PPO has negotiated reduced payment rates
for services.  PPO members can obtain covered services delivered by
nonnetwork providers but may be responsible for higher levels of
coinsurance, copayments, and deductibles for using nonnetwork
providers. 

\5 We judgmentally selected two states that do not guarantee coverage
to everyone or restrict premium rates in their individual insurance
markets. 


   RESULTS IN BRIEF
------------------------------------------------------------ Letter :1

Comprehensive health coverage is available to children in the
individual health insurance market across the United States.  At
least one comprehensive product is available to most children in all
50 states.  In almost all states, a product that is priced
specifically for children is available.  The insurance agents and
brokers we contacted in two selected states were generally aware that
products for children existed and could either sell the products
themselves or refer us to someone who could.  The benefits covered
under these products typically mirror those of products available to
adults in the individual market.  While these products were available
nationwide, among the carriers we contacted, they represented a
relatively small share of total individual sales--from under 1
percent to 20 percent.  Furthermore, since many carriers do not tend
to operate in states with certain regulatory requirements, consumers
may have a more limited choice of benefit plans and carriers in these
states. 

As is the case with products for adults in the individual market,
costs for child-only products varied considerably, both within and
across selected markets.  Standard monthly premium rates for the
products we reviewed that are available to children are based largely
on age; geographic location; plan type, such as managed care or FFS
plans; and product design, including deductible and cost-sharing
options.  In calculating rates, carriers also take into account the
expected health care utilization of different age groups and the
impact of various state regulations.  We found standard monthly
premium rates for a healthy 15-year-old among our selected carriers
ranged from a low of about $42 for a $1,000 deductible PPO plan in
Portland, Oregon, to one as high as $321 for a $250 deductible FFS
plan in Los Angeles, California. 

While these child-only products are available in all states--as is
typical in the individual insurance market--many states do not
require carriers to accept all applicants.  In these states, children
with certain health conditions may be denied coverage, or their
coverage may exclude an existing condition or treatments for
particular parts of the body, or they may be charged a rate higher
than the standard premium rate.  Of the carriers that we reviewed,
two that market specifically to children do not cover children under
these policies during their first 6 or 12 months of life, due to the
high cost of early preventive care and lack of information about a
child's possible future health problems. 


   BACKGROUND
------------------------------------------------------------ Letter :2

The majority of children--about 62 percent in 1996--obtain health
coverage as dependents through their parents' employer-sponsored
group plans.  Most other children who are insured are covered by
Medicaid, the largest public insurance program for children.  The 14
percent of children without health insurance tend to be from families
where one or both parents are unemployed, self-employed, or work for
firms that either do not provide dependent coverage or offer this
coverage at a price the parents consider unaffordable.  In such
cases, parents may purchase health coverage individually for
themselves and their families.  Since rates for family coverage in
the individual market may be high relative to a family's disposable
income, some parents opt to forego coverage for themselves and only
purchase coverage for their children.  Divorced parents who are
required by court order to provide health insurance for their
children and grandparents who are retired but caring for their
grandchildren are examples of consumers who typically rely on the
individual market to purchase health coverage for children. 


   COMPREHENSIVE COVERAGE
   AVAILABLE TO CHILDREN
   NATIONWIDE, BUT CHOICE MAY BE
   LIMITED
------------------------------------------------------------ Letter :3

Individual policies are available to children nationwide, and
products that are priced specifically for children are available in
almost all states.  The benefit structure for child-only products was
similar to comprehensive products typically available to adults in
the individual market.  However, the choice of carriers and products
may be limited in some markets because many carriers perceive demand
for child-only policies as low and, therefore, do not aggressively
market this type of product.  Furthermore, some carriers do not tend
to operate in states with certain regulatory requirements. 


      PRODUCTS AVAILABLE
      NATIONWIDE
---------------------------------------------------------- Letter :3.1

As long as an adult is the policyholder and is responsible for the
premium payment, almost all of the carriers we contacted in the
individual market will sell a product that provides comprehensive
coverage for a child only.  We found that at least one individual
comprehensive health insurance product is available to children in
all 50 states.  Furthermore, among the carriers that provided
information, we found that at least five sold a comprehensive health
product to children in the individual market of most states.  In
addition, we found that 49 states and the District of Columbia
currently have at least one carrier that offers a product priced
specifically for children--that is, child rated.  Most insurance
agents and brokers we contacted in Georgia and Illinois were
generally aware that these products are available from a number of
carriers.  Approximately 91 percent of the agents we contacted in
Georgia and 74 percent of the agents we spoke with in Illinois either
sold the products or referred us to a carrier that did. 


      BENEFITS AVAILABLE TO
      CHILDREN MIRROR INDIVIDUAL
      ADULT PRODUCTS
---------------------------------------------------------- Letter :3.2

The benefit structure of comprehensive health products available to
children was not notably different than products available to adults
in the individual market.  We found that comprehensive products
available to children in our selected sample covered a wide range of
benefits, including inpatient and outpatient hospital and medical and
surgical services; emergency care; diagnostic services, such as
laboratory tests and X rays; prescription drugs; and skilled nursing
facility care.  Most of these plans also included coverage for
physical, occupational, and speech therapies; organ transplants;
mental health; substance abuse; home health care; and hospice care. 
Similar to their adult products, two of the non-HMO multistate
carriers--one of which marketed specifically to children--did not
include as a core benefit preventive care, such as immunizations and
well-baby visits.  Coverage for these benefits is available from
these two carriers but at an additional cost--ranging from $4 to $33
a month.\6 In addition, another multistate carrier limited the
preventive care benefits in its individual product to $50 per member
in a calendar year. 


--------------------
\6 When we quote premium rates from these carriers in this report, we
include the additional cost of preventive care to make the policies
more comparable with products offered by other carriers. 


      CHOICE OF PRODUCTS AND
      CARRIERS MAY BE LIMITED
---------------------------------------------------------- Letter :3.3

Although coverage is available nationwide, consumer choice among
products and carriers may be limited in a number of states for at
least two reasons.  First, while many carriers are willing to offer
their individual adult products to children, they perceive the demand
for child-only policies as low and therefore do not aggressively
market this product.  Carrier officials told us that the adults who
are likely to purchase this type of coverage represent a small share
of individual purchasers.  One multistate carrier reported that it
has sold only a "handful" of child-only policies, while officials at
other multistate carriers said they have about 7,000 to 9,000 of
these policies currently in force nationally.  Among the seven
carriers we reviewed, child-only products represent a relatively
small share of the carriers' total individual health insurance
sales--from under 1 percent to 20 percent.  Further, since children's
products are often among the lowest priced individual products, the
commission amount--which is usually based on a percentage of the
premium--may not provide agents a strong incentive to actively sell
these products. 

Second, few carriers tend to operate in states with insurance reforms
in place, such as "guaranteed issue" requirements and premium rate
restrictions.\7 Guaranteed issue requires all carriers that
participate in the individual market to offer at least one plan to
all individuals and accept all applicants regardless of their
demographic characteristics or health status.  Thirteen states
require carriers to guarantee-issue certain products to all
applicants.  Twenty states include provisions in their legislation
that attempt in some way to limit the amount carriers can vary
premium rates in the individual market or the characteristics they
may use to vary these rates. 

Insurance industry representatives as well as some analysts and
policymakers claim that these regulatory provisions can result in the
tendency for individuals to wait to purchase insurance until medical
care is needed.  The potential result is "adverse selection," where a
disproportionate number of individuals with high health care costs
seek insurance, which increases the average cost of coverage for all
those insured.  While such reforms can benefit individuals who may
otherwise have difficulty obtaining coverage, the combination of
guaranteed issue and rate restrictions discourages some carriers from
entering or remaining in such a market. 


--------------------
\7 For additional information about states that require certain
products to be guaranteed issue or impose rating restrictions for
products in their individual markets, see Private Health Insurance: 
Declining Employer Coverage May Affect Access for 55- to 64-Year-Olds
(GAO/HEHS-98-133, June 1, 1998). 


   COSTS FOR CHILD-ONLY PRODUCTS
   VARY CONSIDERABLY
------------------------------------------------------------ Letter :4

Children's monthly premium rates may vary widely based on factors
such as a child's age and local market and product characteristics. 
Carriers also take into account the expected health care utilization
of different age groups and the impact of various state regulations
in calculating their premium rates.  For the products we reviewed
that are available to children, we found standard monthly premium
rates for a healthy 15-year-old among our selected carriers ranged
from a national low of about $42 for a $1,000 deductible PPO plan in
Portland, Oregon, to one as high as $321 for a $250 deductible FFS
plan in Los Angeles, California.  In 18 selected geographically
dispersed urban and rural markets, we found that nearly half of the
products had premiums priced at more than $80 a month for one child. 

Even within particular markets, there were substantial differences in
the premium prices of products that carriers offered.  Table 1
illustrates some choices a consumer would encounter if shopping for
coverage for one child in the individual insurance markets of certain
cities.  Although it is difficult to isolate one factor from another,
the standard monthly premium rates generally vary based on the type
of plan a consumer chooses and the deductible a consumer is willing
to spend up front as well as how the carrier rates its product.  Even
within a single geographic market, premium prices for child-only
products varied considerably.  For example, a consumer in Chicago,
Illinois, who wanted to purchase health insurance for a healthy
10-year-old could choose from among at least five different products
offered by four carriers, with monthly premiums ranging from $63 to
$142.  Even products that seemed similar differed in price--such as
the child-rated, PPO products with a $250 deductible offered by
Carriers A and B in Chicago, Illinois, which differed in price by $39
a month. 



                                     Table 1
                     
                      Examples of Selected Carriers' Monthly
                     Premium Rates for a Healthy 10-Year-Old
                                in Several Markets

                              Ho
                              w
                              ra
            Plan    Deductib  te
Carrier     type       le     d                   Monthly premium
--------  --------  --------  --  -----------------------------------------------
                                  Chicag                                      San
                                      o,  Clevelan  Hattiesbu  Omaha,  Francisco,
                                    Ill.   d, Ohio  rg, Miss.   Nebr.      Calif.
--------  --------  --------  --  ------  --------  ---------  ------  ----------
A         PPO           $250  Ch     $63        NA         NA      NA          NA
                              il
                              d-
                              ra
                              te
                              d
                              by
                              ag
                              e
                              gr
                              ou
                              p

B         PPO            250  Ch     102       $82        $80     $61        $145
                              il
                              d-
                              ra
                              te
                              d
                              by
                              ag
                              e
                              gr
                              ou
                              p

B         PPO            500  Ch      83        67         65      50         118
                              il
                              d-
                              ra
                              te
                              d
                              by
                              ag
                              e
                              gr
                              ou
                              p

C         FFS            500  Si     142        NA        120      66          NA
                              ng
                              le
                              -
                              ch
                              il
                              d
                              ra
                              te

D         FFS          2,500  Lo     103        68         62      55          NA
                              we
                              st
                              ad
                              ul
                              t
                              ra
                              te

E         HMO              0  Ch      NA        NA         NA      NA          52
                              il
                              d-
                              ra
                              te
                              d
                              by
                              ag
                              e
                              gr
                              ou
                              p
---------------------------------------------------------------------------------
Note:  "NA" indicates the plan is not available in this market. 

We identified several factors that affect monthly premium rates for
child-only products:  age and number of covered children in a family
and their expected health care utilization; geographic location and
state regulations; and plan type and design, including deductible and
cost-sharing options. 


      AGE, NUMBER OF CHILDREN, AND
      EXPECTED HEALTH CARE
      UTILIZATION
---------------------------------------------------------- Letter :4.1

The seven selected carriers in our study priced their products using
age and number of children covered from the same family in one of
three ways: 

  -- four carriers used a child rate that was tiered according to
     specified age groups,

  -- two used a single child rate for all enrollees aged 0 through 17
     years, and

  -- one charged its child enrollees the lowest adult rate--that of
     an 18-year-old male. 

In the last case, when more than one child from the same family was
covered, the carrier charged a combination rate, whereby the youngest
child paid the lowest adult rate and additional children paid a
lower, child's rate.  Insurance industry officials told us that
charging a child rate as opposed to the lowest adult rate can reduce
the premium for most children.  This is because children are
typically low users of health care services compared with adults and
therefore are less expensive to insure. 

Some of the tiered child-rated products were priced differently to
take into account the specific age of the child.  While children
overall are typically low users of health care services compared with
adults, some age groups tend to use more services than others.  For
example, carrier officials stated that children under age 2 tend to
be high users of health care services due to the number of
immunizations and physical exams recommended by the American Academy
of Pediatrics.  Thus, to cover the cost of their higher expected
utilization, some carriers that offer child-rated products that are
tiered by age categories typically charge their youngest enrollees a
higher premium than children in other age groups.  Two of the
regional HMO carriers we reviewed divide children into two age
groups:  (1) birth through age 2 and (2) age 3 through age 18 or 19. 
In both cases, the youngest children were charged monthly premiums
about $20 higher than the older age group.  We also found that two of
the carriers, both of which market specifically to children, do not
cover children during their first 6 or 12 months due, in part, to the
high costs of immunizations and well-child visits. 

For the carriers in our study that offered child-rated products in
three age categories, children aged 6 through 14 years typically had
the lowest rates, while premium prices increased for older
children--aged 15 through 19 years--to compensate for expected higher
health costs during the teen years.  Table 2 shows how carriers'
rating methods affect the premium prices for a family with three
children in different age groups living in Chicago, Illinois. 



                                     Table 2
                     
                      Monthly Premium Differences Among Age
                        Groups for Four Carriers Offering
                          Coverage in Chicago, Illinois

Carrier    Plan type  Deductible      How rated     7 mos.     6 yrs.    15 yrs.
---------  ---------  ----------  --  ---------  ---------  ---------  ---------
A          PPO              $250      Child-         \$114       $102       $131
                                      rated by
                                      age group

B          PPO               250      Child-            \a         63         98
                                      rated by
                                      age group

C          FFS               500      Single-          142        142        142
                                      child
                                      rate

D          FFS             2,500      Lowest           103         71         71
                                      adult
                                      rate\b \
--------------------------------------------------------------------------------
\a Carrier B does not cover children from birth to 12 months. 

\b The youngest child in the family is charged the lowest adult rate,
while other children in the family are charged a lower, single-child
rate. 


      GEOGRAPHIC LOCATION AND
      STATE REGULATIONS
---------------------------------------------------------- Letter :4.2

Premiums may also vary by geographic location, due largely to
differences in physician and hospital costs as well as cost of living
and state regulations.  As table 1 illustrates, when Carrier B,
Carrier C, and Carrier D are looked at across markets, consumers
living in Omaha, Nebraska, are charged less for the same product than
those living in Chicago, Illinois.  For those carriers, depending on
where the consumer resides, monthly premium rates ranged from $33 to
$76 across the markets we reviewed.  State regulations--guaranteed
issue and rate restrictions, in particular--may also impact carriers'
determinations of premium rates.  For example, in Illinois, where
there are no rate restrictions, a healthy 10-year-old could obtain
coverage for $63 a month; that same child may pay $192 for coverage
of similar benefits in Vermont--a state that has community rating,
which requires carriers to set premiums at the same level for all
plan participants, regardless of their age, gender, health status, or
any other demographic characteristics. 


      PLAN TYPE AND DESIGN
---------------------------------------------------------- Letter :4.3

The plan type and design offered by the carrier is another factor
that may affect the price of an individual health product.  Plan
types include traditional FFS, PPO, and HMO structures.  Usually, the
more willing an enrollee is to use selected providers that have
negotiated charges for health services with the carrier, such as in
PPOs and HMOs, the lower the premium an enrollee will have to pay. 
Similarly, the cost-sharing arrangement selected by the consumer also
determines the price of an individual insurance product. 
Cost-sharing refers to the policyholder's contribution to the cost of
the benefits received.  Under traditional FFS plans, consumers pay an
annual deductible and coinsurance up to a specified total limit on
out-of-pocket expenses.  HMOs typically require consumers to make
copayments for each service rendered until an annual maximum is
reached.  The more potential out-of-pocket expenses the consumer
could incur, the lower the premium usually will be.  Child-only
products that we examined included a wide range of cost-sharing
alternatives.  Deductibles for FFS and PPO plans typically ranged
from $250 to $2,500; HMO copayments were typically $15 per physician
visit and $100 to $500 per hospital admission. 

Table 3 shows the difference in one carrier's premium prices for each
of the plan types and deductible amounts ($250 and $500) it offers to
a healthy 4-year-old in selected markets.  In these markets,
consumers would pay lower monthly premiums if they opted for the
higher $500 deductible and the carrier's more restrictive PPO option. 



                                     Table 3
                     
                         Examples of Variation in Monthly
                       Premiums for a Healthy 4-Year-Old in
                         Selected Markets Resulting From
                       Different Plan Types and Deductible
                       Amounts for One Child-Rated Carrier

                    Cairo, Ill.          Jackson, Miss.       Zanesville, Ohio
                --------------------  --------------------  --------------------
                     Deductible            Deductible            Deductible
                --------------------  --------------------  --------------------
Plan type            $250       $500       $250       $500       $250       $500
--------------  ---------  ---------  ---------  ---------  ---------  ---------
Hospital and           78         64         97         79         74         60
 physician
 PPO\a
Hospital-only          88         72        107         88         82         67
 PPO\b
FFS                   107         87        130        106         97         79
--------------------------------------------------------------------------------
\a The hospital and physician PPO option steers enrollees to certain
hospitals and physicians with whom the carrier has contracted prices
for services.  According to officials, this is the carrier's most
popular plan in markets where a provider network is available. 

\b The hospital-only PPO option steers enrollees to certain
hospitals; participants may select any physician. 

The variation in premium rates attributable to different deductible
amounts was also evident in the rates of a carrier in Oregon that we
contacted.  For this carrier, the monthly premium for the same
individual product costs about $42, $70, or $98 a month, depending
solely on whether the applicant opted for the $1,000, $500, or $200
deductible, respectively. 


   MEDICAL UNDERWRITING MAY
   PRECLUDE COVERAGE FOR CHILDREN
   WITH CERTAIN HEALTH CONDITIONS
------------------------------------------------------------ Letter :5

While most children qualify for coverage at the standard rate,
children with certain health conditions can be denied coverage, or
their coverage may exclude an existing condition or treatment of
certain parts of the body, or they may be charged a rate higher than
the standard premium rate in states that allow medical
underwriting.\8 Under medical underwriting, carriers may evaluate an
applicant's health status on the basis of responses to a detailed
health questionnaire.  On these questionnaires, applicants may be
required to indicate whether the child to be included on the policy
has received medical advice or treatment of any kind within the
child's lifetime or within a more limited time frame.  Applicants may
also be required to indicate whether the child has experienced a
broad range of specifically identified symptoms, conditions, and
disorders.  Applicants may have to indicate whether the child has any
pending treatments or surgery, is taking any prescription medication,
or has ever been refused or canceled from another health or life
insurance policy.  On the basis of these responses, carriers may
request additional information--typically medical records--or may
require a physical examination. 

The information obtained through this process may be used by carriers
to determine whether to decline to cover the applicant altogether,
accept the applicant but charge a higher than standard premium rate,
or exclude from coverage an existing health condition or treatment of
a part of the body.  While the carriers we interviewed decline
coverage to fewer child applicants than adult applicants, they still
decline coverage to between 5 and 15 percent of child applicants.\9
Furthermore, as previously mentioned, two of the carriers we reviewed
that market specifically to children told us that they do not cover
children during their first 6 or 12 months of life due, in part, to
the lack of information about a child's potential long-term health
status. 

Carriers may treat certain health conditions differently, so a
consumer who is denied coverage due to a particular condition by one
carrier may be able to find coverage from another carrier, possibly
at a higher rate.  (See fig.  1.) For example, Carrier A, Carrier B,
and Carrier C decline coverage to applicants with juvenile diabetes,
but Carrier D may offer these applicants coverage but at a higher
premium.  Similarly, a carrier's treatment of certain health
conditions may vary depending on the severity and duration of the
conditions.  For example, Carrier D indicated that applicants with
epilepsy could be (1) declined coverage altogether, (2) offered
coverage but at a higher than standard premium rate, or (3) accepted
for coverage at its standard rate.  The criteria used to make these
determinations vary among carriers and are considered proprietary. 

   Figure 1:  Examples of How
   Selected Carriers May Treat
   Applicants With Certain Health
   Conditions

   (See figure in printed
   edition.)


--------------------
\8 Although medical underwriting results in the exclusion of
individuals from the private insurance market, many carrier
representatives and analysts suggest that it plays a key role in
keeping insurance premiums more affordable for most individuals. 
(For additional information about medical underwriting and adverse
selection, see GAO/HEHS-97-8, Nov.  25, 1996.) Recent state and
federal initiatives may mitigate the effect of medical underwriting
in many states.  (For more information, see the appendix.)

\9 Some officials suggest that these declination rates could be
understated since insurance agents will often deter individuals with
a health condition from even applying for coverage from certain
carriers.  In addition, the declination rates do not take into
account carriers that attach riders to policies to exclude certain
health conditions, leaving children with only partial coverage. 


   CONCLUSIONS
------------------------------------------------------------ Letter :6

Although comprehensive health insurance coverage is generally
available for healthy children in the private individual market
across the United States, consumers would do well to shop carefully
for the child-only product that best meets their needs.  Depending on
multiple factors--such as where a child resides, the plan type
selected, and the amount of out-of-pocket expenses the purchaser is
willing to spend--premium prices vary substantially.  In selected
markets we reviewed, nearly half of the products had premiums priced
at more than $80 a month for one child, making this an expensive
purchase for some families. 

Children who rely on the individual market for health insurance face
problems similar to adults.  Depending on where they live, premiums
may be high relative to their family budget and choice of carriers
and products may be limited.  Furthermore, in many states,
children--like adults--with certain health conditions may be charged
a higher premium, have an existing health condition or part of the
body excluded from coverage, or be denied coverage altogether. 


   EXTERNAL COMMENTS
------------------------------------------------------------ Letter :7

We provided a copy of this report draft to the American Association
of Health Plans, BlueCross and BlueShield Association, and Health
Insurance Association of America for their review and comment.  Each
offered clarifying and technical comments, which we incorporated as
appropriate. 


---------------------------------------------------------- Letter :7.1

As agreed with your offices, we plan no further distribution of this
report for 30 days.  At that time, we will make copies of this report
available on request.  Please contact me at (202) 512-7114 if you or
your staff have any further questions.  This report was prepared by
Mary W.  Freeman, Susan T.  Anthony, Randy M.  DiRosa, and Betty J. 
Kirksey under the direction of Sheila K.  Avruch. 

Kathryn G.  Allen
Associate Director, Health Financing and
 Systems Issues


SELECTED STATE AND FEDERAL
INITIATIVES THAT MAY MITIGATE THE
EFFECT OF MEDICAL UNDERWRITING
==================================================== Appendix Appendix

Recent state and federal initiatives may have mitigated the effect of
medical underwriting in many states in several ways.  For example, 13
states that require all carriers to guarantee-issue one or more
health plans to all applicants have effectively prohibited carriers
from declining to provide coverage to applicants on the basis of
their health status.  In addition, 27 states have created high-risk
insurance pools\10 to act as a safety net to ensure that otherwise
uninsurable individuals can obtain coverage, although at a cost that
is generally at least 50-percent higher than the average or standard
rate charged in the individual insurance market for a comparable
plan. 

In addition to state-level initiatives, recently passed federal
legislation also guarantees access to coverage to certain
individuals.  Under HIPAA, individuals who lose group coverage,
exhaust their Consolidated Omnibus Budget and Reconciliation Act of
1985 (COBRA)\11 coverage or other continuation coverage available,
and meet several additional criteria have guaranteed access to
individual market coverage.  Thus, a child who was covered as a
dependent under a parent's group coverage (and who meets the
eligibility criteria) typically would be eligible for HIPAA's
guarantee of access to coverage.  In contrast, a child who never had
access to group coverage, because the parent's employer did not offer
dependent coverage or any health coverage, would not be eligible for
the access guarantee.  Further, HIPAA's guarantee applies only to
those losing group coverage--not to those who have always relied on
the individual market for coverage.  In addition, HIPAA does not
explicitly restrict the premiums carriers may charge for this
coverage. 


--------------------
\10 Alabama's high-risk pool is available only to individuals
eligible under the Health Insurance Portability and Accountability
Act of 1996 (HIPAA). 

\11 COBRA applies to individuals leaving group health plans of 20 or
more workers.  Carriers are required to offer individuals leaving
group coverage the option of continuing to purchase that coverage at
no more than 102 percent of the total policy cost for 18 to 36
months. 


*** End of document. ***