Private Health Insurance: Employer Coverage Trends Signal Possible
Decline in Access for 55- to 64-Year-Olds (Testimony, 06/25/1998,
GAO/T-HEHS-98-199).

Too young to qualify for Medicare, many near elderly (55- to
64-year-olds) are considering retirement or gradually moving out of the
workforce. These events may be related to declining health, job
displacement, or simply the desire for more leisure time. Because health
insurance for most Americans is an employment-related benefit,
retirement may necessitate looking for another source of affordable
coverage. However, insurance bought directly in the individual market or
temporary continuation coverage purchased through an employer are
typically expensive and may not always be available. Affordability,
moreover, may be exacerbated by both 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.
This report assesses the ability of Americans aged 55 to 64 to obtain
health benefits through the private market--either employer-based or
individually purchased. GAO discusses the near elderly's (1) health,
employment, income, and health insurance status; (2) ability to obtain
employer-based health insurance if they retire before becoming eligible
for Medicare; and (3) use of and costs associated with buying coverage
through the individual market or employer-based continuation insurance.

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

 REPORTNUM:  T-HEHS-98-199
     TITLE:  Private Health Insurance: Employer Coverage Trends Signal
	     Possible Decline in Access for 55- to 64-Year-Olds
      DATE:  06/25/1998
   SUBJECT:  Employee medical benefits
	     Health insurance cost control
	     Insurance premiums
	     Insurance regulation
	     Health insurance
	     Health care services
	     Elderly persons
	     Retirement benefits
	     Surveys
IDENTIFIER:  Medicaid Program
	     Medicare Program
	     Census Bureau Current Population Survey

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GAO/T-HEHS-98-199

Cover
================================================================ COVER

Before the Committee on Labor and Human Resources, United States
Senate

For Release on Delivery
Expected at 10:00 a.m.
Thursday, June 25, 1998

PRIVATE HEALTH INSURANCE -
EMPLOYER COVERAGE TRENDS SIGNAL
POSSIBLE DECLINE IN ACCESS FOR 55-
TO 64-YEAR-OLDS

Statement of William J.  Scanlon, Director
Health Financing and Systems Issues
Health, Education, and Human Services Division

GAO/T-HEHS-98-199

GAO/HEHS-98-199T

(101756)

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

  CHAMPUS - Civilian Health and Medical Program of the Uniformed
     Services
  COBRA - Consolidated Omnibus Budget Reconciliation Act of 1995
  CPS - Current Population Survey
  HIPAA - Health Insurance Portability and Accountability Act of 1996

PRIVATE HEALTH INSURANCE:
EMPLOYER COVERAGE TRENDS SIGNAL
POSSIBLE DECLINE IN ACCESS FOR 55-
TO 64-YEAR-OLDS
============================================================ Chapter 0

Mr.  Chairman and Members of the Committee:

We are pleased to be here today as you explore access to health
insurance by near-elderly Americans aged 55 to 64.  Increasingly,
public attention has focused on the health insurance status of the
near elderly.  A series of age-related transitions heightens the
importance of health insurance to 55- to 64-year-olds and could place
them at greater risk of losing coverage or paying considerably more
than younger age groups.  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,
disengagement from the labor force may necessitate looking for
another source of coverage.  The alternatives to employer-based
coverage for the near elderly are (1) individually purchased
insurance, (2) temporary continuation coverage through an employer,
(3) public programs such as Medicare and Medicaid, and (4) becoming
uninsured.  Among those aged 55 to 64, Medicare and Medicaid are
available only to disabled or some very poor persons.

My comments today are based on our report, prepared at your request,
that examined the evidence on the near elderly's

  -- health, employment, income, and health insurance status;

  -- ability to obtain employer-based health insurance if they retire
     before they are eligible for Medicare; and

  -- access to individually purchased coverage or employer-based
     continuation insurance and the associated costs.\1

In preparing that report, we analyzed the March 1997 Current
Population Survey (CPS); 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 our previous reports.

In summary, the overall insurance picture of the near elderly is no
worse than that of other segments of the under-65 population and is
better than that of some younger age groups.  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 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.

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 continuation coverage under the Consolidated Omnibus
Budget Reconciliation Act of 1985 (COBRA) and the individual market.
From a retiree perspective, COBRA, which allows a former worker to
continue employer-based health coverage, has certain limitations.  It
is only available to retirees whose employers offer health benefits
to active workers, and coverage is temporary, ranging from 18 to 36
months.  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.  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 is relatively low.

With respect to individual insurance, the cost may put it out of
reach for some 55- to 64-year-olds--an age group whose health and
income is in decline.  The near elderly who are in poor health may
pay even higher premiums than healthy 55- to 64-year-olds, be offered
less comprehensive coverage, or be denied coverage altogether.  Some
states have taken steps to make individual insurance products more
accessible by either limiting the variation among premiums that
insurers may offer to individuals or guaranteeing individuals the
right to purchase coverage.  Without such guarantees, we found that
conditions such as chronic back pain and glaucoma are commonly
excluded from coverage or result in higher premiums.  For eligible
individuals leaving group coverage who exhaust any available COBRA or
other conversion coverage, the Health Insurance Portability and
Accountability Act of 1996 (HIPAA) guarantees access to the
individual market, regardless of health status and without coverage
exclusions.  Since the new federal protections under HIPAA hinge on
exhausting COBRA, the incentives for enrolling and the length of time
enrolled could change.  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.

--------------------
\1 Private Health Insurance:  Declining Employer Coverage May Affect
Access for 55- to 64-Year-Olds (GAO/HEHS-98-133, June 1, 1998).

   CHANGES IN EMPLOYMENT, HEALTH,
   INCOME, AND INSURANCE STATUS
   TYPIFY THE NEAR ELDERLY
---------------------------------------------------------- Chapter 0:1

About 14 percent of the near elderly are uninsured--a rate comparable
to that of 45- to 54-year-olds and lower than that among the entire
nonelderly population.  Differences in labor force attachment, health
status, and family income, however, distinguish the near elderly from
younger Americans and foreshadow some of the difficulties this age
cohort could have in accessing health insurance other than that
offered by an employer.

The near elderly are a group in transition from the active workforce
to retirement.  Almost three-quarters of those between the ages of 55
and 61 were employed in 1996, and about half worked full time.  In
contrast, however, less than one-half of those between the ages of 62
and 64 were employed at all during 1996, with only about one-quarter
working full time.  Concurrent with leaving the workforce, both the
health and income of this group are beginning to decline (see app.
I).  Compared with individuals between the ages of 45 and 54, the
near elderly are more likely to experience health conditions such as
diabetes, hypertension, and heart disease.  In addition, the near
elderly are the most frequent users of many health care services.
Their hospital discharge rates and days of hospital care were 51
percent and 66 percent higher, respectively, than those of 45- to
54-year-olds.  Furthermore, their expenditures on health care
services are estimated to be about 45 percent higher than those of
the younger group, while their median family income is about 25
percent less.

The near elderly are no more likely to be uninsured than younger age
groups; in fact, their uninsured rate is lower than for the entire
under-65 population (see fig.  1).  A key difference between the near
elderly and younger age groups, however, is their source of
insurance.  Sixty-five percent of 55- to 64-year-olds had
employer-based insurance in 1996, compared with about 74 percent of
the next younger cohort.  As the near elderly transition out of the
workforce, they may sever the link to employer-based health
insurance.  As a result, compared with younger age groups, the near
elderly were the most likely to obtain health insurance through the
individual market and Medicare.  It is not surprising that the near
elderly are among the most likely age groups to have insurance and
the least likely to be uninsured.  Because aging is associated with
greater use of health care services, the importance attached to
having health insurance should increase with age.  In fact, the
extent to which the near-elderly purchase individual insurance
suggests that this is the case.

   Figure 1:  Percentage of
   Insured and Uninsured
   Individuals, by Source of
   Insurance and Age Group, 1996

   (See figure in printed
   edition.)

Note:  The March 1997 CPS asked whether individuals were covered by
the Department of Defense (DOD) through its direct care system or the
Civilian Health and Medical Program of the Uniformed Services
(CHAMPUS), or the Department of Veterans Affairs.  However, responses
to this question do not distinguish among the three.  The military
health care system is composed of hospitals and clinics of the Army,
Navy, and Air Force, called the direct care system; and CHAMPUS.
Active duty military members receive all medical services through the
direct care system.  For active duty family members and retirees and
their family members under age 65, CHAMPUS, an insurance-like program
administered by DOD, pays for a portion of the care they receive from
private sector health care providers when military facility care is
not available or too distant.  DOD administers the CHAMPUS benefit
under the new TRICARE program, which offers eligible beneficiaries
health maintenance organization, preferred provider organization, and
fee-for-service options.  The Department of Veterans Affairs provides
medical services to all veterans, subject to the availability of
resources.  Priority is given to veterans with service-connected
disabilities, low incomes, or special health care needs.

Whether the near elderly obtained their health insurance through the
individual market or through public sources was related to their
employment, health, and income status.  For example, a relatively
high percentage of the near elderly with individual insurance
reported that they worked (67 percent) and had excellent or good
health (85 percent).  In contrast, those with public sources of
coverage were more likely to report that they were unemployed (87
percent) or in poor health (69 percent).  And compared with those who
purchased individual insurance, twice as many with public coverage
had incomes under $20,000.  The relationship between insurance status
and income is not entirely predictable, however, since about 20
percent of the uninsured near elderly had family incomes of $50,000
or more, while almost one-third of those with individual insurance
earned less than $20,000.  Despite their limited resources, about the
same share of the near elderly with low incomes purchased individual
insurance as did those with higher incomes.  Given the cost of
comprehensive coverage in the individual market, those with lower
incomes may be purchasing less expensive, limited-benefit products.
At the same time, however, income alone may not be the only resource
available to individuals.

Table 1 profiles 55- to 64-year-olds by source of insurance.  In
general, those with individual insurance appear to have more in
common with recipients of employer-based coverage than with the near
elderly who had public sources of coverage such as Medicaid or
Medicare.  Specifically, a smaller percentage of those with employer
and individual coverage had low incomes, were minorities, were not
working, or were in poor health.  Key differences between those with
individual and employer-based coverage, however, are that a larger
percentage of the former were women, unmarried, unemployed, or had
low incomes.  There is also a similarity between the 55- to
64-year-olds who had public insurance and those who were uninsured.
As compared with those with private coverage, a higher percentage of
both groups had low incomes, were minorities, were not working, or
were in poor health.  Again, however, there were important
differences, as the uninsured were more likely to work, be married,
have better health, and have higher incomes than those with public
insurance.

                                Table 1

                Demographic Profile of Vulnerable Near-
                Elderly Americans, by Insurance Status,
                                  1996

                                             Percentage with each
                                                characteristic
                                        ------------------------------
                                        Employ
                                           er-  Indivi          Uninsu
Characteristic                           based    dual  Public     red
--------------------------------------  ------  ------  ------  ------
Family income under $20,000\a             10.9    29.8    68.8    46.3
Female                                    49.7    58.7    56.8    57.5
Minority                                  16.3    13.0    38.8    38.0
Not working                               25.0    33.4    87.1    46.5
Poor health                               14.8    15.4    68.9    29.2
Unmarried                                 21.3    34.2    60.8    38.0
----------------------------------------------------------------------
\a Median family income in 1996 for the near elderly was $50,700 for
those with employer-based coverage, $30,920 for those with individual
coverage, $12,813 for those with public insurance, and $21,750 for
the uninsured.

   FUTURE DECLINE EXPECTED IN
   EMPLOYER-BASED HEALTH INSURANCE
   FOR 55- TO 64-YEAR-OLDS
---------------------------------------------------------- Chapter 0:2

While an estimated 60 to 70 percent of large employers offered
retiree health coverage during the 1980s, fewer than 40 percent do so
today, and that number is continuing to decline despite the recent
period of strong economic growth.  Surveys from two benefit
consulting firms show that the number of employers offering coverage
to early retirees dropped by 8 to 9 percentage points between 1991
and 1997 (see fig.  2).  Concurrently, employment has shifted away
from firms more likely to offer coverage, that is, from manufacturing
to service industries.  The decision by some large employers not to
offer retiree health benefits will primarily affect future retirees.
In fact, one survey sponsored by the Department of Labor suggests
that very few of those who were retired in 1994--only about 2
percent--had lost coverage as a result of an employer's subsequent
decision to terminate retiree coverage.

   Figure 2:  Percentage of Medium
   and Large Employers Offering
   Retiree Health Coverage,
   1991-97

   (See figure in printed
   edition.)

Note:  The Foster Higgins survey was not based on a random sample
prior to 1993, and consequently the results are not comparable with
data collected in subsequent years.  Peat Marwick's 1994 and 1996
reports did not include data on retiree coverage.  Although Foster
Higgins only reported on the extent to which employers with 500 or
more workers provide retiree coverage, its sample included firms with
as few as 10 employees.  In 1996, only 8 percent of all firms with 10
or more workers offered health insurance to early retirees.  As
shown, the 1996 offer rate was 40 percent for firms with 500 or more
workers.

The decline in the number of large firms that offer retiree health
benefits has been accompanied by cost-control efforts stimulated by
dramatic premium increases during the 1980s and early 1990s.
Commonly cited changes involve cost sharing and eligibility
requirements.  Although firms often made similar changes for active
employees, the limited evidence available indicates that retirees are
being asked to shoulder a higher portion of the health benefits
premium when they leave the workforce.  On average, retirees
contributed $655 more for the cost of family coverage than did active
workers in 1995.  The retiree contribution is 4.7 percent of the 1996
median family income of 55- to 64-year-old married couples.
Typically, Americans under age 65 spent about 4 percent of household
income in 1994 on health care--an amount that includes not only
insurance premiums or employer-required cost sharing but also
out-of-pocket expenses for copayments, deductibles, and services not
covered by health insurance.  (App.  II compares the affordability of
employer-based early retiree health insurance with that purchased in
the individual market.) At the same time employers have increased
retiree cost sharing, they have also tightened the eligibility
requirements for participation in postemployment health benefits.
Most firms now have a minimum service and age requirement, and some
tie their own contribution to these minimums.  For example, one
employer we interviewed required retirees to have 35 years of service
to qualify for the maximum employer contribution of 75 percent.  In
contrast, retirees with 19 years of service are eligible for only a
30-percent employer contribution.  Furthermore, if workers change
jobs frequently, especially as they become older, they may not
qualify for retiree health benefits in the future.

According to surveys sponsored by the Labor Department in 1988 and
1994, higher costs for individuals could result in fewer
participating in employer-based retiree health plans when such
coverage is available.  Between 1988 and 1994, the proportion of
workers who continued coverage into retirement declined by 8
percentage points.  Among those already retired, the proportion
covered also declined, falling 10 percentage points over the same
6-year period.  Of the approximately 5.3 million retirees who
discontinued employer-based benefits in 1994, an estimated 27 percent
cited the expense as a factor--up by over one-fifth from the earlier
survey.  For some retirees, coverage with lower cost sharing through
a working or retired spouse may have influenced their decision to
decline health benefits from a former employer.

   COBRA PROVIDES TEMPORARY ACCESS
   FOR SOME NEAR ELDERLY
---------------------------------------------------------- Chapter 0:3

Federal legislation enacted in 1986 provides temporary access to
employer-based health insurance under certain circumstances.  Though
such continuation coverage, which is known by the acronym COBRA, is
not limited to the near elderly, it may be particularly valuable to
55- to 64-year-olds who lose access to employer-based coverage before
they become eligible for Medicare.  Categories of near-elderly
individuals who could benefit from continuation coverage include
those who (1) are laid off, (2) experience a cut-back in hours that
makes them ineligible for health benefits, (3) retire, or (4) lose
benefits when their spouse becomes eligible for Medicare.  The near
elderly and others in such circumstances are eligible to elect
continuation coverage if their former employer had 20 or more workers
and offered health insurance.

Because the employer is not required to pay any portion of the
premium, COBRA may be an expensive alternative for the near
elderly--especially since the loss in employer-based coverage is
probably accompanied by a decrease in earnings.  In 1997, the annual
per-employee cost of health insurance for employer-based coverage was
about $3,800.  However, there is significant variation in premiums as
a result of differences in firm size, benefit structure, locale,
demographics, or aggressiveness in negotiating rates.  For early
retirees in one company, annual premiums in 1996 for family coverage
ranged, depending on the plan, from about $5,600 to almost $8,000.
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.

The limited information available on eligibility for and use of COBRA
by Americans in general and the near elderly in particular leaves
many important questions unanswered.  On the one hand, the data
suggest that relatively few near elderly use COBRA; on the other
hand, compared with younger age groups, 55- to 64-year-olds are more
likely to elect continuation coverage.  One database suggests that,
on average, 61- to 64-year-olds only keep continuation coverage for a
year.

The fact that it makes sense for the near elderly who lack an
alternate source of coverage and can afford the premium to elect
COBRA raises concerns among employers about the impact on overall
employer health insurance costs.  Employers contend that COBRA's
voluntary nature and high costs that result from the lack of an
employer subsidy or contribution could result in the enrollment of
only those individuals who expect their health care costs to exceed
the premium.  The costs of near-elderly COBRA enrollees in excess of
the premium would, in turn, push up the employer's overall health
care expenditures.  However, there is no systematically collected
evidence on the extent to which such elections affect employer costs.
The election of COBRA coverage by some near elderly as well as
younger individuals may simply reflect an antipathy to living without
health insurance.  On the other hand, since COBRA election is
associated with job turnover, the demographics of a firm or industry
will also affect an employer's insurance costs.  For example, a firm
with an older workforce that does not offer retiree health benefits
may indeed experience higher insurance costs as a result of COBRA
elections.

   AGE AND HEALTH STATUS MAY LIMIT
   ACCESS OF NEAR ELDERLY TO
   INDIVIDUAL COVERAGE
---------------------------------------------------------- Chapter 0:4

In the majority of states, some individuals aged 55 to 64 may be
denied coverage in the individual insurance market, may have certain
conditions or body parts excluded from coverage, or may pay premiums
that are significantly higher than the standard rate.  Unlike
employer-sponsored coverage, in which risk is spread over the entire
group, premiums in the individual markets of many states reflect each
enrollee's demographic characteristics and health status.  For
example, on the basis of experience, carriers anticipate that the
likelihood of requiring medical care increases with age.  Thus, a
60-year-old in the individual market of most states pays more than a
30-year-old for the same coverage.  Likewise, a carrier may also
adjust premiums on the basis of its assessment of the applicant's
health status.  This latter process is called medical underwriting.

Since health tends to decline with age, some near elderly may face
serious obstacles in their efforts to obtain needed coverage through
the individual market.  On the basis of the underwriting results, a
carrier may deny coverage to an applicant determined to be in poorer
health.  Individuals with serious health conditions such as heart
disease and diabetes are frequently denied coverage, as are those
with such non-life-threatening conditions as chronic back pain and
migraine headaches.  The most recent denial rates for carriers with
whom we spoke in February 1998 ranged from zero in states where
guaranteed issue is required to about 23 percent, with carriers
typically denying coverage to about 15 percent of all applicants.
Carriers may also offer coverage that excludes a certain condition or
part of the body.  A person with asthma or glaucoma, for example, may
have all costs associated with treatment of those conditions excluded
from coverage.

To increase access to the individual market, a number of states as
well as the federal government have undertaken a wide range of
initiatives.  Obtaining coverage, however, may remain expensive,
especially for those with health problems and high expected costs.
For example, 20 states have enacted individual market insurance
reforms that attempt to limit premium rate variation and the
demographic characteristics that insurers use to vary these rates,
and 13 states require carriers to guarantee-issue certain products to
all applicants.  Even in the states that have enacted rate
restrictions, however, premiums may still vary considerably.  One
state that restricts rates permits variation of 300 percent or more.
(App.  III shows selected carriers' monthly premium variations
attributable to age and specified health characteristics.) Given the
median income of the near elderly, rates in the individual market may
pose an affordability problem to some.  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 of married
near-elderly couples.  In contrast, the average retiree contribution
for employer-subsidized family coverage is about one-half of these
percentages.  While at least 27 states have high-risk insurance pools
that act as a safety net to help ensure that individuals with health
problems can obtain coverage, the cost is generally 125 to 200
percent of the average or standard rate charged to healthy
individuals in the individual market for a comparable plan.\2
Individuals who have been rejected for coverage by at least one
carrier generally qualify for their state's high-risk pool.  However,
participation in some state pools is limited by enrollment caps.

In addition to state initiatives, federal standards established by
HIPAA guarantee some people leaving group coverage access to the
individual market--a guarantee referred to as group-to-individual
portability.  Each state establishes a mechanism so that these "HIPAA
eligibles" have access to coverage regardless of their health status,
and insurance carriers may not impose coverage exclusions.  To be
eligible for a portability product, however, an individual must have
had at least 18 months of coverage under a group plan without a break
of more than 63 days, and have exhausted any COBRA or other
conversion coverage available.  One survey estimates that 61- to
64-year-olds typically remain enrolled in COBRA for only 12 months--6
to 24 months short of exhausting COBRA coverage.  Since HIPAA changes
the incentives for electing and exhausting COBRA coverage, past
evidence may not be a guide to future use.  However, depending on
their state's mechanism, the premiums faced by unhealthy individuals
who are eligible for a HIPAA product, like those faced by unhealthy
individuals who have always relied on the individual market for
coverage, may be very expensive.

--------------------
\2 The premium in a high-risk pool, however, may still fall short of
covering the expected cost of high-risk enrollees.  A subsidy
mechanism is commonly in place to cover these shortfalls.

   CONCLUSION
---------------------------------------------------------- Chapter 0:5

Forecasting the insurance status of future generations of near
elderly is inherently risky.  Since it is not entirely clear why
employers are continuing to reassess their commitment to retiree
health insurance, it is possible that unforeseen developments will
halt or even reverse the erosion that has occurred over the past
decade.  A major unknown that could also affect the continued
commitment of employers to retiree coverage is the federal
government's response to the Medicare financing problem--a dilemma
created by the imminent retirement of the baby-boom generation.
Experts are divided about the impact on employer-based coverage of
actions that increase costs for the private sector, such as
increasing the eligibility age for Medicare.  In responding to
Medicare's financial crisis, policymakers need to be aware of the
potential for the unintended consequences of their actions.

In addition to events that could affect the erosion in employer-based
retiree coverage, use of the HIPAA guaranteed-access provision by
eligible individuals may improve entry into the individual market for
those with preexisting health conditions who lack an alternative way
to obtain a comprehensive benefits package.  Depending on the manner
in which each state has chosen to implement HIPAA, however, cost may
remain an impediment to such entry.  Since group-to-individual
portability is only available to qualified individuals who exhaust
available COBRA or other conversion coverage, HIPAA may lead to an
increased use of employer-based continuation coverage.  Moreover,
additional state reforms of the individual market may improve access
and affordability for those who have never had group coverage or who
fail to qualify for portability under HIPAA rules.

-------------------------------------------------------- Chapter 0:5.1

Mr.  Chairman, this concludes my statement.  I will be happy to
answer your questions.

COMPARISON OF THE HEALTH STATUS
AND EXPENDITURES OF 55- TO
64-YEAR-OLDS WITH THE EXPERIENCE
OF YOUNGER AMERICANS
=========================================================== Appendix I

                               Table I.1

                Number of Health Conditions per Thousand
                      People Among Four Age Groups

                                                  Age group
                                        ------------------------------
                                          25 -    35 -    45 -    55 -
Condition                                   34      44      54      64
--------------------------------------  ------  ------  ------  ------
Arthritis                                41.19   79.85  174.48  294.75
Cataract                                  3.42    3.21    5.85   33.73
Cerebrovascular disease                   1.98    3.30   11.62   27.73
Diabetes                                  9.35   20.17   46.74   86.09
Gallbladder disease                       6.34    3.04    5.49   11.17
Glaucoma                                  1.95    5.30    7.63   17.70
Ischemic heart disease                    2.71    7.90   29.23   72.30
Heart rhythm disorders                   21.75   30.43   38.82   53.25
Other heart disease                       3.62    7.88   19.35   36.47
Hernia                                    7.40   17.06   25.27   39.80
Hypertension                             40.42   82.45  176.21  285.88
Ulcer                                    19.45   22.79   17.26   36.01
Varicose veins                           19.82   31.00   42.07   62.57
----------------------------------------------------------------------
Source:  Data derived from the National Center for Health Statistics
(NCHS) 1994 National Health Interview Survey.

                         Table I.2

            Use of Health Care Services, by Age
                           Group

                                  Age group
                    --------------------------------------
                      25 -34    35 -44    45 -54    55 -64
------------------  --------  --------  --------  --------
Hospital discharges\a
----------------------------------------------------------
Rate per 1,000         107.2      82.8     102.6     154.6
 people per year

Days of care\a
----------------------------------------------------------
Rate per 1,000         412.8     425.8     571.6     948.7
 people per year
Average length of        3.8       5.1       5.6       6.1
 stay (days)

Physician visits\b
----------------------------------------------------------
Rate per 1,000         2,140     2,274     2,973     3,545
 people per year

Outpatient department visits\b
----------------------------------------------------------
Rate per 1,000           227       218       264       305
 people per year

Emergency department visits\c
----------------------------------------------------------
Rate per 1,000           378       297       255       263
 people per year
----------------------------------------------------------
\a Data reproduced from "National Hospital Discharge Survey:  Annual
Summary, 1994," Vital and Health Statistics, Series 13, No.  128
(Hyattsville, Md.:  NCHS, May 1997).

\b Data derived from "1996 National Ambulatory Medical Care Survey,"
Advance Data (Hyattsville, Md.:  NCHS, Dec.  17, 1997).

\c Data derived from "1996 National Hospital Ambulatory Medical Care
Survey," Advance Data (Hyattsville, Md.:  NCHS, Dec.  17, 1997).

                               Table I.3

                Average Health Care Expenditures by Age
                                 Group

                                                  Age group
                                        ------------------------------
                                          25 -    35 -    45 -    55 -
Expenditures                                34      44      54      64
--------------------------------------  ------  ------  ------  ------
Emergency room                          $78.60  $55.81  $48.46  $80.17
Hospital room and board                 732.34  644.61  1,151.  2,187.
                                                            05      09
Inpatient physician services            196.02  208.81  386.32  463.17
Outpatient hospital services             68.51   67.62  124.28   73.13
Physician office services               555.23  573.60  881.42  1,074.
                                                                    00
Prescription drugs                      109.46  181.72  340.54  513.62
All medical services                    $2,110  $2,233  $3,454  $5,023
                                           .55     .91     .93     .58
----------------------------------------------------------------------
Note:  Expenditures are based on the 1987 National Medical
Expenditure Survey and were aged by the Agency for Health Care Policy
and Research to represent 1998 dollars.  Since the late 1980s,
medical care has shifted away from hospital inpatient settings.

AFFORDABILITY OF HEALTH INSURANCE
FOR THE NEAR ELDERLY
========================================================== Appendix II

Using data from the March 1997 CPS and 1995 and 1996 information on
insurance premiums, we estimated the percentage of median income that
a 55- to 64-year-old would have to commit to health insurance under a
number of possible scenarios, including

  -- purchasing coverage through the individual market in a
     community-rated state (Vermont) as well as one that had no
     restrictions on the premiums that could be charged (Colorado),
     using 1996 rates for a commonly purchased health insurance
     product; and

  -- cost sharing under employer-based coverage using 1995 Peat
     Marwick estimates of the lowest, highest, and average retiree
     contribution.

While no official affordability standard exists, research suggests
that older Americans commit a much higher percentage of their income
to health insurance than do younger age groups.  Congressional Budget
Office calculations based on data from the Bureau of Labor
Statistics' Consumer Expenditure Survey indicate that between 1984
and 1994, spending by elderly Americans aged 65 and older on health
care ranged from 10.2 percent to 12.9 percent of household income.
In 1994, elderly Americans spent 11.2 percent of household income,
about three times as much as younger age groups.  These estimates
include costs other than premiums or employer-imposed cost
sharing--for example, copayments, deductibles, and expenditures for
medical services not covered by insurance.

Table II.1 compares the cost of health insurance purchased in the
individual market and employer-imposed cost sharing for early
retirees with the median income for the near elderly in 1996.

                         Table II.1

            Individual Market Premium and Early
          Retiree Share of Employer-Based Premium
          Compared With 1996 Median Income of the
                        Near Elderly

                          Annual cost of
Source and type of          coverage for     Percentage of
coverage                    near elderly   median income\a
----------------------  ----------------  ----------------
Individual market--Colorado
----------------------------------------------------------
Single person aged 55-    $2,484 -$2,520        11.7 -11.8
 64
Married couple aged       $4,968 -$5,040        10.0 -10.1
 55-64

Individual market--Vermont\b
----------------------------------------------------------
Single person                     $2,100               9.9
Married couple                    $4,200               8.4

Employer-imposed premium sharing
----------------------------------------------------------
Family--lowest cost                 $972               2.0
Family--average cost              $2,340               4.7
Family--highest cost              $3,012               6.1
----------------------------------------------------------
\a In 1996, the median income for a near-elderly single person was
$21,314.  For married individuals, it was $49,774.

\b One carrier's community-rated premium.  With limited exceptions,
all those who purchase individual insurance pay the same rate.

As demonstrated by table II.1, the near elderly's share of
employer-subsidized coverage is generally lower than that for
coverage purchased through the individual market.  For example, on
average, employer-based family coverage for retirees at $2,340
annually represents 4.7 percent of median family income.  In
contrast, costs in the individual market can be significantly
higher--in part because they lack an employer subsidy.  In Colorado,
the annual premium for a commonly purchased individual insurance
product in 1996 was about $2,500 for single coverage and $5,000 for a
couple--representing about 12 percent and 10 percent, respectively,
of median income for 55- to 64-year-olds.\3 While less expensive than
the Colorado example, premiums for health insurance through the
individual market in Vermont--a community-rated state--would
represent 9.9 percent of median income for single coverage and 8.4
percent of median income for a couple.\4 For more than one-half of
the near elderly, these individual market costs typically exceed
average health care spending for Americans under age 65--in some
cases significantly.  In April 1998, the Center for Studying Health
System Change reported that older adults who purchased individual
coverage typically spent a considerably higher proportion of their
income on premiums than other adult age groups--about 9 percent for
the 60- to 64-year-old group.\5

--------------------
\3 The Colorado carrier significantly increased rates between 1996
and 1998.  The single and family premiums for 55- to 64-year-olds in
1998 were $3,024 to $3,624 and $6,048 to $7,248, respectively.

\4 Between 1996 and 1998, this carrier's premium only increased by
$204 a year.

\5 Peter J.  Cunningham, "Next Steps in Incremental Health Insurance
Expansions:  Who Is Most Deserving?" Issue Brief, No.  12
(Washington, D.C.:  Center for Studying Health System Change, Apr.
1998), pp.  3-4.

SELECTED CARRIERS' MONTHLY PREMIUM
VARIATIONS ATTRIBUTABLE TO AGE AND
SPECIFIED HEALTH CHARACTERISTICS
========================================================= Appendix III

                                       Gender, age                   Gender, age                    Preexisting condition or characteristic
                                --------------------------  -----------------------------  ----------------------------------------------------------
                                                                                                                         Cancer
                                Baseline                                                                                 within 3
                                healthy       Healthy       Healthy female,  Healthy       Chronic back    Preexisting   years of      High-risk
Plan type/deductible            male, 25      male, 55      60               male, 64      pain            diabetes      application   pool, male, 60
------------------------------  ------------  ------------  ---------------  ------------  --------------  ------------  ------------  --------------
Arizona
-----------------------------------------------------------------------------------------------------------------------------------------------------
Preferred provider              $66           +$153         +$177            +$187         Exclude         Exclude       Deny          Not available
organization/$250                                                                          condition or    condition or  coverage
                                                                                           deny coverage   deny
                                                                                                           coverage

Colorado
-----------------------------------------------------------------------------------------------------------------------------------------------------
HMO                             $105          +$147         +$197            +$197         Deny coverage   Deny          Deny          +$445\b
                                                                                                           coverage\a    coverage

Preferred provider              $51           +$95          +$94             +$110         Not available   Exclude       Deny          +$499\b
organization/$500                                                                                          condition     coverage

Illinois
-----------------------------------------------------------------------------------------------------------------------------------------------------
Preferred provider              $87           +$212         +$206            +$286         Charge higher   Charge        Deny          +$638
organization/$500                                                                          premium         higher        coverage
                                                                                                           premium

New Jersey
-----------------------------------------------------------------------------------------------------------------------------------------------------
Fee-for-service/$1,000          $214-$602     0             0                0             0               0             0             Not applicable
                                (low end and
                                high
                                end)\c

New York
-----------------------------------------------------------------------------------------------------------------------------------------------------
HMO                             $160-$309     0             0                0             0               0             0             Not applicable
                                (rural/
                                urban)\d

North Dakota
-----------------------------------------------------------------------------------------------------------------------------------------------------
Fee-for-service/$250            $80           +$112         +$156            +$156         Deny coverage   Deny          Deny          +$316\e
                                                                                                           coverage      coverage

Vermont
-----------------------------------------------------------------------------------------------------------------------------------------------------
Fee-for-service/$1,000          $192          0             0                0             0               0             0             Not applicable
-----------------------------------------------------------------------------------------------------------------------------------------------------
\a Coverage is denied if the applicant is insulin dependent and
acquired his/her diabetes after the age of 55.

\b This is for an applicant who selects the $300 deductible option
and lives in Denver.  For the Colorado HMO plan, the premium price
differential may be understated, since, unlike the high-risk-pool
plan, it has no deductible.

\c The range represents the lowest and highest premium prices for the
most popular plan in the state's individual insurance market.  The
premium prices charged by all carriers who sell this product fall
within this range.

\d The premiums listed represent the range in prices for the standard
HMO product in different geographic areas in New York.  The lower end
of the range represents one carrier's price for this product in a
rural county in the state, while the upper end represents one
carrier's price for this product in the New York City metropolitan
area.

\e This difference may be understated because the high-risk-pool plan
has a $500 deductible, whereas the plan with which we compared it has
a $250 deductible.
*** End of document ***