Health Politics in the 1990’s After the Health Security Act: Can the Gaps Be Filled?

 

J. Theodore Anagnoson, Ph.D.

Professor of Political Science, California State University, Los Angeles

Los Angeles, CA 90032-8226 anag999@silcom.com (323) 343-2245

 

Abstract

Since President Clinton’s proposed Health Security Act was defeated, many groups in Washington have focused on the possibility of filling in the "gaps" in health insurance. The recently enacted children’s health insurance bill (1997) is a good example of this approach. The purpose of this paper is to explore the possibility of filling in the gaps in health insurance, in particular, whether this approach, even if all the proposed gaps were filled (18-24 year olds, workers between jobs, 55-64 year olds, etc.), would provide health insurance for all or even most of the 42 million people who lack it. The conclusion is that "gap filling" has had some meaningful results, although these are generally modest. For a variety of reasons, the effort that produced the State Children's Health Insurance Program in 1997 seems unique. The political conditions that existed in 1997 seem unlikely to recur; providing health insurance to children has both political appeal and extremely low cost compared to other groups. Other legislation and administrative actions seem to have had modest results. In general, then, incremental approaches, as Marmor stated in 1994, are "politically possible," but are characterized by significant drawbacks, in particular the difficulty of working within the constraints of a system where employers have considerable choice and those without health insurance are both politically inactive and characterized by an extremely heterogeneous makeup.

Prepared for delivery at the 1998 Annual Meeting of the American Political Science Association, Boston Marriott Copley Place and Sheraton Boston Hotel and Towers, September 3-6, 1998. Copyright by the American Political Science Association.

I.  Introduction

In 1996, a 30-year old woman in Hastings, Nebraska needed an operation to replace her pacemaker. Her heart had, according to the Hastings Tribune of November 9, 1996, "what doctors call a congenital third-degree heart block. The top part of her heart has a hole in it. The bottom part doesn't connect properly and doesn't beat unaided." She uses a pacemaker, but it needed to be replaced and the officials at the Bryan Memorial Hospital wanted a $30,000 down payment before they would schedule the $90,000 surgery. Neither she nor her husband had health insurance provided through their jobs. They were too poor to purchase health insurance on the private market and too rich for Nebraska's Medicaid program. The Hastings Tribune termed her "caught in a health insurance gap" (Harms, 1996).

Since President Clinton’s proposed Health Security Act was defeated, many groups in Washington have focused on the possibility of filling in the "gaps" in health insurance, and the term is widely used in the popular literature. The President himself spoke of filling in the gaps: "'What I tried to do before won't work,' Mr. Clinton conceded four months ago in a speech to the Service Employees International Union. "Maybe we can do it in another way. That's what we've tried to do, a step at a time until eventually we finish this'" (Pear, 1998a) Other examples include the Hawaii Star-Bulletin of May 8, 1997, which referred to the group between the very poor and those who can afford full coverage as a group with a health insurance "gap" (Honolulu Star-Bulletin, 1997). The St. Louis Business Journal refers to a health insurance "gap" that a medical savings account can fill (Desloge, 1997). An electronic journal for "twenty somethings" called Whatever discusses the "gap" for those who lack health insurance because they are in between jobs (Klein, 1995). The Children's Action Alliance termed children in Arizona who lack health insurance as the components of a widening "gap" in the state between those with and those without health insurance. An article in the Journal of the American Medical Association in 1995 stated that by age three, 22.5% of all children will have had a period when they were without health insurance; 15% had a gap longer than six months (Alexander, 1995).

Health policy professionals tend to be more skeptical about the ability of the system to close gaps. Marmor, for example, states that incremental approaches "...may indeed be politically possible," but they are characterized by "significant drawbacks" (Marmor, 1994, 135). In particular, they will "only be able to rectify some of the problems of the present system -- though admittedly these are often very important ones." They fail to "set up the kind of program architecture that can be built upon" and use political capital on reforms that often could be far bolder (Marmor, 1994, 135-136). Chait, writing in The New Republic, terms the gap approach "the Clinton Plan chopped up into digestible nuggets," finding that "incrementalism doesn't seek to change the perverse incentives of the current market-driven system, nor does it address the issue of health care costs" (Chait, 1998). Here, we will define health insurance gaps in one of two ways:

For the first meaning, an identifiable group of people, there are many ways to differentiate groups. We will use the age-demarcated groupings conventionally used in Washington to discuss the politics of filling health insurance gaps. Most of this paper deals with these gaps -- gaps that exist because a given group of people, or a proportion of a specified group, does not have health insurance coverage.

The second meaning, when a policy lacks a level or kind of coverage, is more difficult to conceptualize, in as much as the perfect health plan has yet to be devised. What might be a perfectly satisfactory plan at one time might be termed one with a "gap" at some later time. What was satisfactory in 1965 for Medicare may seem unsatisfactory in 1998. For example, Medicare continues to lack drug coverage and coverage of many diagnostic services. For the most part, we do not discuss these gaps in this paper.

The "gap" idea is important politically because of the attempt of the Clinton administration to fill one by one some of the gaps that the Health Security Act of 1994 aimed at. The recently enacted children’s health insurance bill (1997) is a good example. The Kennedy-Kassebaum bill, in addition, attempted to close some of the "gaps" in coverage that affect people as they transition from one job to another. President Clinton's proposed coverage for those over age 55 but not yet eligible for Medicare is another example.

Our hypothesis is that smaller, incremental, and distributive policy changes are successful politically, or at least have a greater chance of being successful politically, but involve substantial limitations on achieving the long-term goal. "Gap filling," in short, allows the political system to pass and implement legislation, but the process cannot ultimately close the total health insurance gap.

Background: Attempting to fill specific gaps in health insurance is typical of the way Americans deal with policy problems. Harry S Truman made National Health Insurance a major item on his agenda; a coalition centered around the American Medical Association and allied groups defeated the proposal. Republicans and Southern Democrats, an alliance with great strength from World War II through the 1960s, defeated the legislation both before and after the election of 1948. In the wake of this defeat, Truman had his advisors draw up a program for health insurance for Social Security recipients (Marmor, 1994, 7). Bills proposing health insurance for the aged were introduced through the 1950s. Even with President Kennedy's strong support, the Senate defeated one such bill during the Kennedy administration. After the Kennedy assassination, President Johnson was able to use the swell of public opinion to pass a bill establishing both Medicare and Medicaid, both of which could be viewed, while enormously significant, as legislation filling in gaps rather than achieving comprehensive coverage for the entire population (Smith, 1995). Medicare aimed at the gap facing the aged; Medicaid, at the poor and disabled. An alternative interpretation of the Medicare legislation in 1965 is that it represented a more substantial change, the "inevitable extension of the New Deal agenda" (Brown, 1996, 163). See Dallek (1998, 203-211) for an account of the enactment of Medicare.

After 1965, those who wanted to expand Medicare believed that "salami tactics" (slicing off small groups of the public step by step) would eventually result in the extension of public benefits to one group after another, along the lines of how Social Security had been expanded since its enactment (Brown, 1996). In the words of Robert Ball:

For persons who are trying to understand what we were up to, the first broad point to keep in mind is that all of us who developed Medicare and fought for it...had been advocates of universal national health insurance. We all saw insurance for the elderly as a fallback position, which we advocated solely because it seemed to have the best chance politically. Although the public record contains some explicit denials, we expected Medicare to be a first step toward universal national health insurance, perhaps with 'Kiddicare' as another step (Ball, 1995, 62-63).

President Richard Nixon's proposal, the Comprehensive Health Insurance Plan (CHIP), another comprehensive overhaul based on required health insurance for all employees, also failed to be enacted in the early 1970s (Marmor, 1994, 8).

Another incremental proposal was the Earned Income Tax Credit (EITC). The EITC was a competing proposal to President Nixon's Family Assistance Plan (FAP), which would have guaranteed a minimum income to families. Both proposals died after an extended debate in 1972. But in 1975, Senator Russell Long (D-LA), the program's originator, managed to insert it into the Tax Reduction Act of that year (Howard, 1994, 47-48).

Politics: The "gap" approach thus has a significant history in health policy. We can view the "gap" approach in another way politically. Much of the politics of the health and welfare area is redistributive -- politics that affects large groups, involves the general public on one side or the other, and involves the perception of being zero-sum, transferring resources from one group to another. In American politics, politicians have often attempted to redefine redistributive political situations into distributive ones, where benefits flow to a specific group that can be mobilized to support them, and costs are spread out across the general society. The gap movement involves the same idea -- focusing on specific groups who can be mobilized in support of policy change, but dampening the impact of the costs and attempting to spread them across society.

One of the goals of this paper is to assess the success of this notion -- is it possible in the process of pursuing change in an incremental way through distributive politics to achieve the same success over time that a comprehensive bill would have achieved?

II.  Measuring Health Insurance "Gaps"

Almost an infinite number of variables are available with which to define a health insurance "gap." Some of the more common variables are included in Table 1, "The Probability of Being Uninsured." Nine different variables are included here, all from the Current Population Survey, and each indicating a substantial amount of difference on being uninsured.

A note on measuring the extent to which the public has health insurance: the Current Population Survey (CPS) does not ask respondents if they do not have health insurance; instead, an "uninsured" person is one who does not say that he or she had one of several forms of health insurance in the previous year: employer-sponsored insurance, Medicare, Medicaid, CHAMPUS, VA or military health care, privately purchased health insurance, or any other kind of health insurance. Alternative sources of information on health insurance include the Survey of Income and Program Participation (SIPP), the National Health Interview Survey (NHIS), and the Medical Panel Expenditure Survey (MEPS). While the framework of the questions asked is similar, the surveys differ in several ways, the most important of which seem to be

Discussions of the different surveys and how they measure health insurance and being uninsured can be found in Lewis, et. al., 1997, and U.S. Department of Health and Human Services, 1997a.

The variables point to a common theme: those who are otherwise in need or whose family structures change substantially are also more likely to be uninsured:

More information on these basic probabilities may be found in Moyer, 1998a. Similar findings can be found for the Medical Expenditure Panel Survey (MEPS) in Vistnes and Monheit (1997).

Table 2 compares the composition of those with health insurance with the composition of those who are uninsured. The insured population is 48% male and 52% female, while the uninsured population is 54% male and 46% female. Thus, females are more likely to be insured than males, but the differences are not very large. The common theme of this table is that needy persons and those near poverty tend to be uninsured. Immigrants, persons of Hispanic descent, young adults, persons not married or not in a traditional family, persons with minimal levels of education and persons who reside in the South are more likely than average to be uninsured.

It is still the case that the uninsured also include a small number of persons in better circumstances. Some 10% of the uninsured are college graduates or have some graduate training; 8% had incomes of five times poverty or higher.

Political Involvement: Significant numbers of the uninsured -- almost half -- cannot vote. Twenty-five percent of the uninsured are under 18 years of age, 10.55 million. Another 14% are adult non-Hispanic, non-citizens, not eligible to register and vote. The two groups total 16.3 million of the 41.72 million who are uninsured, or 39%.

The poor are 28% of the total uninsured group, or 11.68 million. Those who are less than twice the Federal Poverty Line are 59% of the uninsured, or 24.6 million of the 41.7 million uninsured.

III.  Children

Background: In early 1997, the expectation was that the President and the Congress would be gridlocked. Both the President and the Republican congressional leaders wanted the other side to commit to a program first. In August, 1996, the President had signed the welfare reform bill over the objections of many from the more liberal and pro-children interest groups. The President and the Republican leadership had agreed on the Health Insurance Portability and Affordability Act, also signed in August, to make it easier for workers who lose or change jobs to maintain their health coverage.

President Clinton stressed only general themes in his inaugural address. The next day, Senate majority leader Lott introduced 10 bills, but there was no bill on children's health insurance. Senate minority leader Daschle introduced a proposal including tax cuts, capital gains reductions, and children's health insurance in the form of a tax credit for 90% of the health insurance premium for each child in a family earning less than twice the Federal Poverty Line. To claim the credit, the children would have to be ineligible for Medicaid and not covered by employer-sponsored insurance (CQWR, 1/25/97).

In his budget proposal, the President proposed a modest children's health insurance program and a program to cover health insurance for workers between jobs. The children's program was intended to cover up to five million children in three ways: a. by finding those eligible for Medicaid but not enrolled and enrolling them; b. by allowing states to extend Medicaid coverage to a minimum of one year for all children regardless of changes month to month in the family's income; c. by providing states with a total of $750 million per year for five years to work with Medicaid or private insurers to cover more children (CQWR, 2/8/97).

Speculation was that the Republicans would be reluctant to agree to any program that would either be extremely expensive or involve any expansion of federal authority or bureaucracy. The Clinton proposal was deliberately modest; the first priority for both sides seemed to be an agreement on a reconciliation proposal to balance the budget by FY 2002.

There were several competing proposals to provide health insurance to those under 18, of which the most publicized was a proposal from Senators Kennedy and Hatch for a five-year, $20 billion block grant to the states to expand health insurance coverage for as many as five million children. Revenue to pay for this program would be raised by a 43-cent increase in the per package cigarette tax. The Kennedy-Hatch proposal was particularly significant because of its bipartisan sponsorship and the prominence of both senators. In addition, Senator Specter (R-PA) introduced a measure to provide the States with funds so that the working poor would have vouchers to help pay for their children's health insurance.

Need: While analysts differed on the exact numbers, most agreed that around 10.5 million children lacked health insurance at any given point (for a summary of the debate, see U.S. Department of Health and Human Services, 1997a). Crucial points during the analytic debate were

Table 3 contains estimates of the percent lacking health insurance for children in various subgroups. It shows that:

Similar findings from the Medical Expenditure Panel Survey can be found in Weigers, et. al. (1998).

Table 4 shows the composition of the insured and uninsured child populations. It shows:

Analytic and Political Problems: The major analytic and political problem is "crowd-out"; this phenomenon affects all gap-filling efforts that preserve the basic system of employer-sponsored health insurance. While the concept has been known in the design of public policies for some time, concern over its impact in the health insurance area originated with Cutler and Gruber (1995), a paper estimating that "approximately 50 percent of the increase in Medicaid coverage associated with the [recent Medicaid] eligibility expansions was offset by a reduction in private insurance coverage -- a crowding out rate of 50 percent" (Center for Health System Change, 1996a). While Dubay and Kinney (1995) estimated the crowd-out at much lower percentages, and other analysts pointed to changes in question wording and order that suggested much smaller increases in Medicaid enrollments, the issue confronted those attempting to design a health insurance program for children with a fundamental political problem.

"Crowding out" occurs when public programs are liberalized in an effort to increase the number of people with insurance coverage, and either individuals decline more expensive privately supplied insurance for cheaper publicly provided insurance, or employers decline to offer insurance, knowing that the public sector will pick up the slack (Dubay and Kinney, 1995). For instance, there have been arguments that the provision of Social Security reduces the extent to which individuals are willing to save for their retirement (Center, 1996a).

A second problem is the dispute over how many uninsured children there are, with different surveys yielding different results. These seem to vary with the nature of the question (the Current Population Survey does not ask respondents if they are uninsured -- analysts infer uninsured status from respondents who do not report any form of insurance), the time period examined (the Current Population Survey asks respondents in March about their insurance status during the previous calendar year, and other surveys ask about other recall periods), and whether the CPS or other surveys are adjusted for known underreporting of the receipt of Medicaid. For a review of these issues, see U.S. Department of Health and Human Services, 1997a. However, all of the surveys point to at least 7.5 million uninsured children, and probably as many as 10 to 11 million, depending on the survey used for the estimate, the length of time required before the child is counted as uninsured, and other factors.

Interest groups. The children's area contains a number of groups that lobby on their behalf, publicizing the need for American society to do more for children; among them are included the Children's Defense Fund and Families USA. In addition, the research and analyses of the Center for Budget and Policy Priorities and the Alpha Center have often focused on the need to do more for children also.

Result: Both houses of Congress passed similar proposals to balance the budget in May, 1997, including provisions for a children's health insurance package, highway construction, and other priorities. The bill included the following provisions:

The Congressional Budget Office estimates that an average of 2.3 million children a year will be covered by the State Children Health Insurance Plan after 1999. It estimates that the participation of children in Medicaid will also rise (U.S., Congressional Budget Office, 1998).

Concerning the extent to which the "crowd-out" phenomenon will affect those participating in the new children's program: "CBO estimates that 60 percent of the participants...would otherwise have been uninsured. The remaining 40 percent would have had some other form of coverage" (U.S., Congressional Budget Office, 1998).

Lessons: The lesson of the children's health insurance legislation is that children formed a unique group that was relatively easy to cover:

Outcome: the legislation will likely cover 2.3 million children per year for health insurance, about a quarter of the 10 million child gap. This estimate, however, relies on assumptions about what actions the states will take to enroll children in both the new programs and Medicaid and is consequently subject to a good deal of uncertainty.

IV.  Young People (18-24 year olds)

Young adults are the age group most likely to be uninsured; the percentage of those 18-24 with health insurance is 27 percent compared with 16 percent for the population as a whole. The 1996 Medical Expenditure Panel Survey (MEPS) found that 38% of young adults 19-24 lacked health insurance (Vistnes and Monheit, 1997, 4).

Current Situation. The age of 18 is traditionally the age when children are considered to be adults. The age of 25 is the age when most young adults have jobs and are well on their way to longer-term living arrangements. Between those two ages, most adults undergo a number of changes in family, occupation and educational status that traditionally change their health insurance status. The first transition is from high school to training or first job, community college, or four year college/university. A second transition is from training or college to first job. A further transition is to a new family status, either living separately from parents alone or with roommates or forming a new family.

For the college bound, health insurance coverage is usually required during the undergraduate years, optional during any years of graduate school, and then provided with a first job. Parents’ policies often cover young adults while the latter are full-time students until an age between 21 and 23; it may not be usual for them to do so (data are lacking on this question). For those who do not go on to higher education, health insurance coverage from a parent’s policy typically ends at age 18 or 21.

Health insurance gaps between the ages of 18 to 25 are the norm. Many young adults find that their first full-time jobs don’t have any health insurance coverage; others find the coverage too expensive for their incomes. The rate at which employer-sponsored health insurance is declined is highest for those younger than 25 than for any other age group. Evidence from the 1996 Medical Expenditure Panel Survey (MEPS), for example, suggests that only 51% of workers younger than 25 are offered health insurance, and only 70% accept the offer. Comparable figures for those 25 to 34 are 76% and 80%; the figures for those 35-54 and 55-64 are similar (Cooper and Schone, 1997, 145).

There is also evidence that most young adults consider themselves healthy and unlikely to need much medical care, a further incentive not to purchase health insurance if the price of the policy is perceived as expensive relative to income. For those not offered health insurance through their jobs or a parent’s policy, individual policies may be available, but again considered to be expensive relative either to income or to risk or both.

In addition, data from the 1996 Medical Expenditure Panel Survey shows that "over two-thirds of young adults who were full-time students had private health insurance, compared to only half of young adults who were part-time students and less than half of young adults who were not in school" (Vistnes and Monheit, 1997, 4). The MEPS shows striking disparities by race and ethnicity: over half of minority young adults were uninsured, compared to 31% of whites.

Many alternatives exist to increase the proportion of those between 18 and 24 who have health insurance, including:

Additional ideas may be found by analogy in a paper on children's health status (Rosenbaum, 1996).

No enacted legislation has targeted this group, in spite of the low probability of having health insurance within the group.

V.  Working Adults (25-54 year olds)

Background: The inability of a voluntary employer-sponsored insurance program, even with the present tax incentives, to provide health insurance for every one in the United States or for specific groups, has vexed reformers since the modern system of health insurance emerged in the post-World War II period. Numerous proposals have sought to provide insurance for everyone in the United States or for specific groups, for example, the very poor and the disabled who were covered by Medicaid in 1965).

Need: Table 5 presents the percent who have health insurance among adult civilian wage workers 18 and older. These workers, comprising most of the workforce, are non-military workers who work for a wage, excluding workers who work without pay, those who are self-employed in unincorporated firms, very young workers (under 18), and military personnel. The data source is the 1997 Current Population Survey.

The general theme is that high wage workers, especially those who work for large firms, tend to be covered for health insurance through their employers. 73% of all workers have health insurance. Groups that tend to be substantially less insured include:

Those who are most unlikely to have health insurance mirror those who are most poorly paid or least educated in the U.S. economy.

The overall rate by age is significant: 73% of all workers have health insurance. But only 54% of those 18-24 are covered. Those 25-34 are covered at about the average rate (72%), and those 35-44 (79%), 45-54 (82%), and 55-64 (79%) are covered at rates above the average for all workers.

At every age range, however, the proportion of workers with insurance is 82% or below; that is, at least 18% of workers at every age rate are uninsured. There is a gap in every age group.

Figure 1 points to one additional significant point: high wage workers in small firms were more likely to have ESI than low wage workers in the largest firms. Low wage workers in the smallest firms were least likely to have health insurance coverage.

Monheit and Vistnes (1997) present similar findings from the MEPS.

Analytic and Political Problems: The major problem is fear of crowd-out, which affects every age group in this area. In general, employer-sponsored insurance appears to have been declining over the past decade, thus accentuating the fears. However, during the past three years, after a slight rewriting of the questions used to measure health insurance on the Current Population Survey, employer-sponsored insurance has not been declining; we do not know what will happen in September, 1998, when the March, 1998, Current Population Survey is released.

In addition, this group is so large -- literally 50 percent of the uninsured and over 20 million people -- that the costs of covering uninsured working adults can not be spread thinly across society. As a result, programs proposed for working adults have been targeted at more specific problems and smaller groups.

Results: The Health Insurance Portability and Accountability Act, passed in August of 1996 with provisions that went into effect July, 1997, provided that:

The General Accounting Office estimated the number of people who could be helped by HIPAA in four categories:

because of concerns about losing their health insurance coveage 1.0-3.6 m

The 11.5 million is the portion of the 20 million Americans who change jobs each year and have employer-sponsored insurance. The 6.7 million figure consists of the dependents of those who change jobs each year. An unknown proportion of these persons will be helped by national standards for waiting periods and preexisting conditions. The third figure, 1.8 to 2.3 million persons, consists of about 2 million persons who "would be able to convert from employer-based coverage to individual coverage (although at a higher premium) without having to meet preexisting condition exclusions" (U.S., General Accounting Office, 1995). The 1.0-3.6 million figure consists of an estimated "1 million to 4 million additional workers [who] would change jobs if national portability standards were in effect" (U.S., General Accounting Office, 1995).

It is impossible to say whether the HIPAA standards will reduce the 42 million persons who do not have health insurance coverage. Some proportion of the above groups, without the legislation, would otherwise be uninsured, but the size of the proportion cannot be measured without more time since the HIPAA standards went into place in July, 1997.

Workers Between Jobs Proposal: The President's FY 97 and 98 budget proposals included proposals, officially "The Workers' Transition Health Care Initiative" and "Healthy Working Families," to provide health insurance for workers between jobs. The FY 98 proposal suggested spending $9.8 billion over five years to finance six months of coverage for workers who lose their health insurance when they lose their jobs.

This proposal was part of the President's budget in February of 1997, but was not enacted that year. The administration estimated in the FY 1998 budget that 3.3 million people, including nearly 700,000 children, would be helped.

Medicaid Expansion. In July 1998, federal rules were issued for the Medicaid program to allow states to eliminate or raise the limit on two-parent families who work more than 100 hours per month. The rules also allowed states to eliminate the marriage penalty on Medicaid, the provision that cut off Medicaid for many single mothers who married. Prior to the issuance of the new rule, 20 states required families with two parents to be working less than 100 hours per month in order to qualify for Medicaid. The other 30 states had received waivers under the old welfare law and had eliminated the 100-hour rule (Pear, 1998b). Administration sources said that the change would assist 135,000 to 200,000 people.

Lessons:

VI.  The "Near Elderly": 55-64 year olds

The near elderly are a rapidly growing population who face declining coverage through their employers and particular difficulties in purchasing insurance in the individual market. Recent proposals to help this group through a Medicare buy-in would improve access, but would not close most of the gap. Even these modest proposals have been unsuccessful to date, although they may find their way into a larger package of Medicare reforms.

Background: The Clinton Administration included a specific provision in the Health Security Act for early retirees. Most retirees aged 55 to 64 would have been eligible to purchase health insurance at 20% of the average premium. The government would have paid 80% at a cost of $11.6 billion from FY 1998-2000, $11.4 billion was paid for by a three-year assessment on employers that captured some of the money that they had been spending on retiree benefits. High-income retirees would not have been eligible for the subsidy.

Some other proposals to insure early retirees have been attached to the idea of increasing the Medicare eligibility age to match planned increases in the Social Security eligibility age. For example, the Kerrey-Danforth Bipartisan Commission on Entitlement Reform proposed that a Medicare buy-in option be considered along with a gradual increase in the age of Medicare eligibility from 65 to 70. Although the Social Security eligibility age will rise from 65 to 67, workers who choose to retire as early as age 62 are eligible for a reduced level of benefits. A Medicare buy-in would create a similar reduced benefit: Medicare benefits for a higher premium (U.S., Bipartisan Commission..., 1995, 16).

In 1997, the Senate voted to raise Medicare eligibility from age 65 to 67, without a corresponding Medicare buy-in. The provision failed in the House and was not included in the final budget agreement. However, the agreement did include directions for the National Bipartisan Commission on the Future of Medicare to "make recommendations of modifying age-based eligibility to correspond to changes in age-based eligibility under the OASDI program and on the feasibility of allowing individuals between the age of 62 and the Medicare eligibility age to buy into the Medicare program."

In January 1998, the Clinton Administration announced a limited buy-in proposal in the Administration's FY 1999 budget. It had three components:

Rep. Pete Stark and Sen. Daniel Patrick Moynihan introduced similar legislation (HR 3470, S.1789) in March. In June, the Senate Committee on Labor and Human Resources held a hearing on the issue, but no further action has been taken.

Need: The near elderly form one of the fastest growing population groups in the United States. The Census estimates that in 1998 there are 22.6 million people in this age group, or 8 percent of the population. By 2020, when the baby boomers are all over 55, the group will be 41.7 million, and they will comprise 13 percent of the population.

Of the groups addressed in the paper, this age group, on average, is the most likely to have insurance. Table 1 shows that the percent without health insurance is 14% for those aged 55 to 64; the only percentage lower than that is 11 percent for those aged 45 to 54. Those 55 to 64 are about 7 percent of the uninsured population, or about 2.9 million people. Of those who are working (Table 5), 79 percent have health insurance, the second highest percentage among age groups in the workforce (the highest is age 45-54, at 82 percent; the lowest, disregarding those 65 and over, are young workers, aged 18-24, at 54 percent).

Those who do not have insurance, however, face particular problems. Their poor health status puts them at more financial risk if they do not have insurance, but it also makes it harder for them to purchase individual insurance. In addition, many people in this age group leave the workforce, and the prevalence of employer-sponsored retiree coverage is declining.

Poor health status: The potential cost of being uninsured is worst for the near elderly because they are increasingly likely to have serious health problems. In response to health status questions on the CPS, the 55 - 64 year old group has the highest percentage of those reporting fair or poor health status of any group under age 65:

Percent Reporting Fair or Poor Health Status, By Age

Age

Percent

Under 18

3%

18 - 24

4%

25 - 34

6%

35 - 44

10%

45 - 54

15%

55 - 64

23%

65 +

37%

All

12%

Source: March, 1997 Current Population Survey, Tabulations by the authors.

Those in poorest health status are more likely to have Medicare or Medicaid, but they are also more likely to be uninsured.

As shown in Table 6, other sources have also documented the risks that the near elderly face:

The high medical expenditures of this group, estimated at approximately $5,000 on average, exemplify the risk that the near elderly face when they are uninsured. These expenditures also make it more difficult for this group to purchase insurance.

Table 7 presents some basic health insurance information for the near elderly, showing the very high rates of uninsurance among some groups, particularly those who consider their health to be only "fair" or "poor," those who have never been married, and those who are either working part-time or not working. In addition, quite striking differences exist between the insured population in this age group and the uninsured, particularly when the groups are broken down by income or work status.

Individually purchased coverage is expensive and may be hard to obtain: There are several ways in which insurance companies that sell policies to individuals may make it difficult for the near elderly to purchase meaningful insurance. Because individual insurance policies are regulated by the states, insurers use different combinations of the following in different states:

In the ten states studied by Chollet and Kirk (1998), a 60-year-old male purchasing an individual insurance policy could pay two to four times the premium for a 25-year-old male for the same policy. In addition, some insurers might charge as much as 50 to 100 percent more if an applicant has conditions such as obesity or hypertension.

In addition, most insurers regard the willingness to pay very high premiums as an indication that an applicant needs costly health care, so they may be likely to refuse to cover these individuals. The GAO reports that in the states that they studied that allow insurers to refuse coverage, about 15 percent of applicants are denied coverage.

Despite these barriers, "even at 200% of poverty, nearly half of those with no other source of insurance purchase in the individual market" (Schactman, 1998, 21). Many of those, of course, whose incomes are in the range of 200% of the poverty line, may have had a higher permanent or usual income, but had a bad year, which gave them a low income during the year in question.

Declining employer sponsored coverage: The majority of the near elderly continue to access health insurance through their current or former employers. However, two trends may decrease this coverage in the future. First, workers increasingly are retiring before age 65. Second, employers are decreasing their coverage of retiree health insurance.

GAO reports that fewer than half of 55- to 64-year-olds (43%) were employed full-time, full-year in 1996. About two-thirds were employed at least part time. Individuals aged 62 and over are even less likely to work, with only a quarter (26%) of 62- to 64-year-olds working full-time, full-year. This represents an overall decrease over time. Although more women in this age group are working than in 1960 (from under 40% to over 50%), near elderly men are much less likely to work (from 85% to 65%) (Schactman, 1998, 8).

There is evidence that firms are reducing their obligations to provide health insurance to early retirees. Private surveys (Foster Higgins, KPMG), although not necessarily representative of all employers, show that fewer employers are providing coverage, and many who continue to provide coverage are increasing retiree costs or eligibility requirements. Surveys by the Department of Labor and the CPS show similar trends.

Analytic and Political Problems: These trends build the case for a program that would improve access to insurance for the near elderly. However, proposals have faced resistance. We discuss three problems: adverse selection, the status of Medicare reform, and the high cost to enrollees.

Adverse selection: In general, people are more inclined to purchase insurance if they expect to incur costs greater than the premium that they would have to pay. This phenomenon of adverse selection raises concerns that a buy-in program could face continual cost increases. For example, CBO estimated that participants would cost about 45 percent more than the average of all newly eligible people (62- through 64-year olds who are not already eligible for Medicare on the basis of disability or ESRD); the Administration estimated that they would cost 50 percent more. However, the Clinton Administration designed its program for 62- to 64-year-olds to cover these costs in a unique way. Before age 65, enrollees would pay a premium that would cover the costs of an average newly-eligible person. From age 65 through age 85, after enrolling in the traditional Medicare program, these enrollees would pay an additional premium to make up for the additional costs of the group that actually enrolled (U.S., Congress, Congressional Budget Office, 1998a).

Both the Administration and the Congressional Budget Office assumed that potential enrollees in the 62- through 64-year-old group would weight the premium that they would pay before turning 65 more heavily than the additional premium that they would pay after turning 65. Thus, more healthy enrollees would be attracted than if participants had to pay the full cost up front.

There is no similar provision for enrollees in the 55- through 61-year-old program. The premium would be about 50 percent higher than the average cost of all eligible 55- through 61-year-olds, but this would not cover costs. Because of adverse selection, people who would choose to enroll would, on average, always be more expensive than the premium charged. There would be an ongoing cost to the Medicare program to cover this difference.

The context of the Medicare and Social Security "crises": CBO estimated that the Medicare buy-in for 62- through 64-year-olds would cost the Medicare program $1.3 billion over the first five years of the program; these costs would be paid back over time through the additional premiums that enrollees would pay from age 65 through age 84. CBO estimated that net costs of the buy-in for 55- through 61-year-olds would be $130 million over five years (U.S., Congress, Congressional Budget Office, 1998a). The Clinton Administration's estimates were slightly higher. In addition, CBO and the Administration both estimated that a small number of people, about 1 percent of people ages 62 through 64 would retire earlier as a result of the Medicare buy-in. This would increase Social Security benefits by about $0.2 billion per year.

These costs are modest in relation to the Medicare and Social Security programs' budgets. Moreover, in the Administration's budget proposal, all costs in the first five years were offset by a package of savings proposals. Nonetheless, concern over the program's impact on the Medicare program, in particular, was a stumbling block for the buy-in proposal.

In addition, the leadership of the Bipartisan Commission on the Future of Medicare claimed the notion of any Medicare buy-in as part of the scope of their report. They urged the Congress to postpone discussion of the proposal until after the Commission had an opportunity to examine a buy-in as part of their larger deliberations. This resistance was another strong obstacle to the proposal's passage.

Cost to Enrollees: CBO estimated that in the first year, the premium for 62- through 64-year-old enrollees would average $316 per month. (Actual premiums would vary by geographic area.) From age 65 through age 84, these enrollees would pay $10 in addition to their Part B premium for every year that they had participated in the buy-in. (i.e., if they enrolled at 64, $10; if they enrolled at 63, $20; if they enrolled at 62, $30.)

The high cost to enrollees would limit the program's attractiveness. Of the uninsured 55- to 64-year-olds, 46 percent have family income under $20,000; the median income of the uninsured in this age range was $21750 in 1996. (GAO) However, a surprising number of lower-income near elderly purchase individual policies. To the extent that this would increase access to other people who would like to purchase insurance, or lower costs to people who are currently paying for expensive individual policies, it would be a helpful program.

Estimates of Impact of Buy-In: Because of the high cost of premiums and the targeted eligibility rules for people under age 62, the impact of the Medicare buy-in as proposed by the Clinton Administration would be limited. CBO estimated that approximately nine percent of the currently uninsured near elderly would enroll in the program. In addition, they predicted that some individuals would lose access to retiree health insurance, and that by 2003, three percent of this group would also enroll.

In total, CBO estimated that 320,000 people would participate in the 62- through 64-year-old program in 1999, increasing to 390,000 in 2003 and almost 500,000 in 2008. Of the first year's enrollees, two-thirds would otherwise have purchased private individual coverage, and 30 percent would have been uninsured. A small percentage would be people induced to retire by the option.

Of the 1 million people ages 55 through 61 who become eligible for unemployment insurance every year, only half had insurance through their employer for the last year. CBO estimated that only 2,000 would enroll in the first year, increasing to 18,000 by 2003.

Lessons:

We should note in passing that there are alternative ways that might be used to assist in closing this gap: changes to COBRA rules and regulations might assist many forced to leave their jobs before being eligible for Medicare. Similarly, tax incentives to employers might help more employers to retain health insurance for their retirees. Access to group pools, such as the Federal Employees Health Benefits Program (FEHBP) or the Public Employees Retirement Service (PERS) in California might assist in reducing the often high rates for those in the decade prior to 65. And individual market reforms might assist in specific states.

VII.  Conclusions

In general, then, incremental approaches, as Marmor stated in 1994, are "politically possible," but are characterized by significant drawbacks, in particular the difficulty of working within the constraints of a system where employers have considerable choice and those without health insurance are both politically inactive and characterized by an extremely heterogeneous makeup. Each of the incremental programs proposed to date is an important step for the group of people together, but the total does not seem likely to achieve the goal of universal coverage in the forseeable future.

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Table 1
Probability of Being Uninsured, by Demographic Group
    Percent       Percent
    Without       Without
    Health       Health
    Insurance       Insurance
             
Total   16%        
Age       Relationship to Family Head    
  Under 18 15%     Head/Spouse 12%
  18 - 24 29%     Own Minor Child 13%
  25 - 34 22%     Adult Own Child 36%
  35 - 44 16%     Other Relative 36%
  45 - 54 11%     Unrelated to HH Head 38%
  55 - 64 14%     Living Alone 13%
  65 + 1%        
        Income/Federal Poverty Level    
Gender         < FPL 31%
  Male 17%     1 - 1.99 FPL 25%
  Female 14%     2 - 2.99 FPL 15%
          3 - 3.99 FPL 10%
Marital Status         4 - 4.99 FPL 8%
  Married 11%     5 + FPL 6%
  Widowed 6%        
  Divorced 20%   Education    
  Separated 26%     < 8 years 26%
  Never Married 28%     9 - 12 years 19%
          Some College 15%
Race/Ethnicity         College 
Grad + 
8%
  Caucasian 12%        
  African-Am.  22%   Health Status    
  Other 21%     Excellent 13%
  Hispanic (1)  34%     Very Good 16%
          Good 19%
Citizenship         Fair / Poor 14%
  U.S. 14%        
  Other 42%        

Notes:
     1. Hispanics of any race are counted as Hispanic.

Table 2

Composition of the Insured and Uninsured Populations
    Composition     Composition
    of the  of the     of the  of the
    Insured Uninsured     Insured Uninsured
    Population Population     Population Population
               
Total 100% 100%        
Age     Income/Federal Poverty Level    
  Under 18 27% 25%   < FPL 11% 28%
  18 - 24 8% 17%   1 - 1.99 FPL 18% 31%
  25 - 34 14% 22%   2 - 2.99 FPL 18% 18%
  35 - 44 16% 17%   3 - 3.99 FPL 16% 10%
  45 - 54 13% 11%   4 - 4.99 FPL 12% 6%
  55 - 64 8% 7%   5 + FPL 25% 8%
  65 + 14% 1%        
        Education    
Gender       < 8 years 6% 11%
  Male 48% 54%   9 - 12 years 43% 54%
  Female 52% 46%   Some College 27% 24%
          College Grad +  24% 10%
Marital Status            
  Married 60% 39% Health Status    
  Widowed 9% 3%   Excellent 36% 30%
  Divorced,       Very Good 30% 31%
  Separated 12% 17%   Good 23% 28%
  Never Married 20% 42%   Fair/Poor 12% 11%
               
Race/Ethnicity            
  Caucasian 75% 53%        
  African-Am.  12% 17%        
  Other 4% 6%        
  Hispanic (2)  9% 24%        
               
Citizenship            
  U.S. 96% 83%        
  Other 4% 17%        
               
Relationship to Family Head          
  Head/Spouse 49% 34%        
  Own Minor Child 28% 23%        
  Adult Own Child 4% 11%        
  Other Relative 4% 12%        
  Unrelated to HH Head 3% 10%        
  Living Alone 12% 10%        

Source: March, 1997 Current Population Survey. Tabulations by M. Eugene Moyer, Office of the Assistant Secretary for Planning and Evaluation, U.S. Department of Health and Human Services.  See Moyer, M. Eugene, 1998a. 

Notes:

1. Percentages sum down to 100% except in cases of rounding error.

2. Hispanics of any race are counted as Hispanic. 

 

Table 3

Probability of Being Uninsured, Children

Percent Without

Percent Without

Health Insurance

Health Insurance

All

Children

All

Children

Total

16%

15%

Age

Relationship to Family Head

0 - 5

14%

Son or Daughter

13%

13%

6 - 9

14%

Other Relative

36%

45%

9 - 11

15%

Unrelated

38%

44%

12- 14

16%

15 - 17

17%

Income/Federal Poverty Level

Family Adult's Firm Size

< FPL

31%

24%

No Family Adult

19%

1 - 1.99 FPL

25%

23%

Less than 25

23%

2 - 2.99 FPL

15%

12%

25 - 99

16%

3 - 3.99 FPL

10%

7%

100 - 499

13%

4 - 4.99 FPL

8%

5%

500 999

8%

5 + FPL

6%

4%

1,000 +

9%

Race/Ethnicity

Health Status

Caucasian

12%

11%

Excellent

13%

12%

African-Am.

22%

19%

Very Good

16%

16%

Other

21%

16%

Good

19%

20%

Hispanic (2)

34%

29%

Fair

15%

14%3

Poor

12%

Citizenship

Number of Adult Workers in the Family

U.S.

14%

14%

No Adult Workers

45%

Other

42%

45%

One Adult Worker

17%

Two Adult Workers

12%

Source: March, 1997 Current Population Survey. Tabulations by M. Eugene Moyer, Office of the Assistant Secretary for Planning and Evaluation, U.S. Dep't of Health and Human Services.  See Moyer, M. Eugene, and Laura Brice, 1998.

Notes:

1. Hispanics of any race are counted as Hispanic.

2. Category for children includes both Fair and Poor self-reported health status.

 

Table 4 - Composition of the Insured and Uninsured Populations

Children Only

Composition

Insured

Uninsured

Population

Population

Parent or Spouse with Private Insurance

Parent/Spouse Privately Insured

25%

No Privately Insured Parent or Spouse

75%

Total:

100%

Age

0 - 5

34%

31%

6 - 9

23%

22%

9 - 11

11%

11%

12 - 14

16%

17%

15 - 17

16%

18%

Total:

100%

99%

Family Adult's Work History

Full-Time, Full Year

75%

62%

Part-Time, Full Year

3%

5%

Full-Time, Part Year

9%

15%

Part-Time, Part Year

3%

5%

Not Employed

10%

13%

Race/Ethnicity

Caucasian

68%

46%

African-Am.

15%

20%

Other

5%

5%

Hispanic (2)

12%

29%

Citizenship

U.S.

98%

90%

Other

2%

10%

Relationship to Family Head

Son or Daughter

97%

87%

Other Relative

2%

9%

Unrelated

1%

3%

Income/Federal Poverty Level

< FPL

19%

34%

1 - 1.99 FPL

20%

36%

2 - 2.99 FPL

20%

16%

3 - 3.99 FPL

15%

7%

4 - 4.99 FPL

10%

3%

5 + FPL

16%

4%

Family Adult's Firm Size

No Family Adult

10%

13%

Less than 25

24%

40%

25 - 99

12%

13%

100 - 499

13%

11%

500 - 999

6%

3%

1000 +

36%

20%

Health Status

Excellent

51%

41%

Very Good

29%

31%

Good

16%

24%

Fair/Poor

3%

3%

Notes:

1. Percentages sum down to 100% except in cases of rounding error.

2. Hispanics of any race are counted as Hispanic.

Source: March, 1997 Current Population Survey. Tabulations by M. Eugene Moyer, Office of the Assistant Secretary for Planning and Evaluation, U.S. Dep't of Health and Human Services See Moyer, M. Eugene, and Laura Brice, 1998.

 

Table 5

Probability of Being Uninsured, Adult Workers

Percent

Percent

Percent

With

With

With

Health

Health

Health

Insurance

Insurance

Insurance

Total

73%

Age

Relationship to Family Head

Major Industry

18 - 24

54%

Head/Spouse

80%

Agric., Const., Mining

59%

25 - 34

72%

Minor Child of Head

74%

Other Services

59%

35 - 44

79%

Adult Child of Head

56%

Retail

59%

45 - 54

82%

Other Relative of Head

46%

Wholesale

77%

55 - 64

79%

Unrelated to Household Head

48%

Professional Services

80%

65 +

51%

Living Alone

69%

Manufacturing

82%

Finance, Ins., Real Est.

83%

Gender

By Hourly Wage (% of workforce)

Transportation, Comm.

83%

Male

73%

< $7 (32%)

51%

Public Administration

89%

Female

74%

$7 - $13.99 (35%)

77%

$14 - $20.99 (18%)

90%

Class of Worker

Race/Ethnicity

$21 + (15%)

90%

Private

72%

Caucasian

77%

Federal

87%

African-Am.

65%

By Amount of Work in 1996

State

86%

Other

68%

Full-Time, Full Year

82%

Local

87%

Hispanic (1)

54%

Full-Time, Part Year

59%

Self-Employed, Incorp.

57%

Part-Time, Full Year

58%

Citizenship

Part-Time, Part Year

54%

Firm Size (% of workforce)

U.S.

75%

1 - 9 (16%)

51%

Other

49%

By Education

10 - 24 (10%)

50%

Up to 8

40%

25 - 99 (13%)

71%

Marital Status

Some HS

54%

100 - 499 (15%)

78%

Married

82%

HS Graduate

70%

500 - 999 (6%)

82%

Divorced

68%

Some College

75%

1,000 + (40%)

83%

Widowed

58%

College Graduate

84%

Separated

57%

Graduate School

89%

Never Married

59%

By Major Occupation

Health Status

Farm, Fishery

42%

Excellent

78%

Service

56%

Very Good

75%

Labor

57%

Good

68%

Sales

68%

Fair

60%

Transportation, Moving

70%

Poor

50%

Machine Operators

72%

Precision Tools

72%

Administrative Support

80%

Mgr., Professional, Technical

85%

Source:  March, 1997 Current Population Survey.  Tabulations by M. Eugene Moyer, Office of the Assistant Secretary for Planning and Evaluation, U.S. Dep't of Health and Human Services.  See Moyer, M. Eugene, 1998c.

Notes:

2. Hispanics of any race are counted as Hispanic.

3. Category for children includes both Fair and Poor self-reported health status.

 

Table 6

Health Conditions, Hospital Use, and Expenditures, by Age Range

25-34

35-44

45-54

55-64

Conditions per 1,000 Peoplea

Arthritis

41.19

79.85

174.48

294.75

Cerebrovascular or Heart disease

30.06

49.51

99.02

189.75

Diabetes

9.35

20.17

46.74

86.09

Hypertension

40.42

82.45

176.21

285.88

Varicose veins

19.82

31.00

42.07

62.57

Hospital Use per 1,000 Peopleb

Hospital discharges

107.2

82.8

102.6

154.6

Days of care

412.8

425.8

571.6

948.7

Expenditures per Personc

All medical services

$1,220

$2,234

$3,455

$5,024

a GAO tabulations of NCHS 1994 National Health Interview Survey.

b GAO tabluations of 1994 National Hospital Discharge Survey. 

c GAO tabulations of 1987 National Medical Expenditure Survey, aged by AHCPR to represent 1998 dollars.

 

Table 7

Basic Health Insurance Information, Near Elderly, Ages 55-64

Probability of being Uninsured

Composition of the Insured and Uninsured,

  Near Elderly Only, Aged 55-64

Composition

Percent Without

Insured

Uninsured

Health Insurance

Population

Population

(Adds down to 100% except for rounding)

Total

14%

Gender

Gender

Male

12%

Male

49%

42%

Female

15%

Female

51%

58%

Work Status

Work Status

Full Time

10%

Full Time

54%

38%

Part Time

17%

Part Time

12%

15%

Retired

15%

Retired

21%

23%

Non-work

23%

Non-work

12%

23%

Marital Status

Marital Status

Married

12%

Married

72%

60%

Divorced/Separated

19%

Divorced/Separated

8%

10%

Widowed

17%

Widowed

15%

23%

Never Married

20%

Never Married

5%

8%

Health Status

Health Status

Exc/Good

13%

Excellent

20%

15%

Fair/Poor

18%

Very Good

28%

21%

Good

30%

34%

Fair

13%

20%

Poor

8%

9%

Over 200% of Poverty

Income

55-59

8%

< FPL

10%

33%

60-61

8%

1-1.99 FPL

14%

26%

62-64

8%

2-2.99 FPL

15%

12%

3+ FPL

62%

28%

Age

55-59

13%

60-61

14%

62-64

16%

Source:  March, 1997, Current Population Survey.

 

Table 8

Health Insurance Gap-Filling -- Results

Gap

Number

Percent

Legislation / Administrative Actions

Number of People Potentially Obtaining Insurance

of People

of the

(Millions)

Uninsured

Enacted/  Implemented

Proposed

Children

10.4

25%

State Children's Health Insurance Program

2.3 m + **

18-24 Year Olds

7.1

17%

Working Adults

20.9

51%

Health Insurance

****

   25-54 Year

Portability and

   Olds

Accountability

Act

President's

3.3 m***

Workers Bet-

ween Jobs

Program

Medicaid

135,000 -

Expansion (Eli-

200,000

mination of 100

hour rule), 7/98

Near Elderly

2.9

7%

President's

0.5 m*

   55-64 Year Olds

Medicare Buy-in

Proposal

Totals

41.3

100%

3 m +

Notes:

* As of 2008. Number increases gradually from 320,000 to approximately 500,000 in 2008.

** After 1999.

*** Administration estimate in the FY 1998 budget. The 3.3 million people includes 700,000 children.

**** GAO estimates that some proportion of the 11.5 million workers with employer-sponsored insurance who change jobs plus their 6.7 million dependents will be helped by the legislation. Other groups include about 2 million persons helped by the preexisting condition exclusions and other workers who will be more able to change jobs because of national portability standards.