The Insurance Thicket

Gov. Gray Davis recently signed several modest but important laws that put California at the forefront of HMO reform. Last month in Los Angeles, presidential candidates Al Gore and Bill Bradley unveiled their national plans for advancing health care reform. It’s refreshing that the two Democratic hopefuls are willing to take on the topic, once poison. But one plan is, as the fairy tale says, too big and the other too small.

The centerpiece of both candidates’ plans is expansion of the federal Children’s Health Insurance Program to cover children in families with incomes below $41,000 for a family of four. Congress and the Clinton administration enacted the program in 1997 to help states provide insurance to children in families with incomes near or below the federal poverty level.

Both candidates also make passing stabs at covering adults. Gore would expand that program to cover low-income adults too. But that wouldn’t do much for the 38% of uninsured American adults who have family incomes above $30,000.

Bradley would let all Americans join the same health program that Congress enjoys, the Federal Employee Health Benefits program. He claims his overall proposal would cost no more than $65 billion, but leading health economists say it would cost at least three times that.

Premiums for the Federal Employee Health Benefits program have been soaring far above other health plans, rising 18.7% in 1997 and 1998 alone. In short, while Bradley says his plan would extend benefits to 95% of uninsured Americans and Gore promises to “work toward” universal coverage, both candidates dance around the core problems.

Gore and Bradley’s plans are marred by insufficient incentives to encourage individuals and employers to purchase health insurance. Health experts say Bradley’s plan could actually erode current health coverage by leading employers to simply drop the modest plans they now buy for their workers, knowing that their workers could simply get a “Rolls-Royce” plan from Washington.

If the candidates choose to look at the huge gaps in the U.S. health care system, they will see the largest insurance coverage problems are not for the poorest, who receive Medicaid or other help. Nor are there large coverage problems for employees of large corporations, since 98% of companies with more than 200 employees insure their workers. The coverage gap is most acute for those who work for smaller firms, because nearly half of those companies don’t offer any health insurance for employees. Small businesses typically pay higher premiums, and administrative costs may consume as much as 40% of premium dollars.

What’s needed is a revival of the insurance principle of shared risk: When more people are covered by insurance, the risk--paying for the high costs of the sick--is shared more broadly.

Practically, that means expanding “shared risk pools”--purchasing coalitions like California’s effective but grossly underfunded Managed Risk Insurance Board, a state-managed health fund that currently offers insurance to some 150,000 employees, spouses and dependents at 8,000 small firms statewide.

Even more critical is the need for Congress to put additional incentives into a federal law that allows employers with two to 50 employees to buy insurance in the “small group market” at rates no more than 10% higher than health insurance industry averages. Small businesses choosing to subsidize their workers’ health insurance can take tax deductions, but a stronger incentive, perhaps in the form of a tax credit, is in order. In health care reform, the nation and the candidates who seek to lead it can get a good--and politically realistic--start by focusing on the challenges faced by small business and its growing number of uninsured.