It has been one of the most intractable problems facing public-policy makers for years: How to provide health coverage to millions of uninsured Americans in a way that is effective and affordable. But if politicians continue to fail to take action, it will not be for lack of ideas.
Mark V. Pauly, an economist and chairman of Wharton’s health care systems department, and other health insurance experts around the country have developed a variety of proposals that will provide plenty of food for thought for lawmakers seeking solutions to the problem. The proposals are contained in a new book titled Covering America: Real Remedies for the Uninsured, which was unveiled at a news briefing on June 20.
For his part, Pauly has proposed a program of tax credits that people could use to offset a large part of the cost of buying policies from insurance companies or from public insurance plans. He says his proposal would not only address the issues of effectiveness and affordability but would be implemented in two phases to allow for modifications as the program’s strengths and shortcomings emerge over the years.
Under the proposal, the federal government would provide tax credits of $1,500 per person, or $3,500 per family, to individuals and households with incomes ranging from 125% to 300% of the poverty threshold. Recognizing that some people may be financially unable to pay premiums out-of-pocket and wait months to receive the benefit of a credit on their tax returns, Pauly says these individuals could obtain government coupons that they could present to insurance companies.
The government-established poverty threshold is $17,500 for a family of four, so Pauly’s proposal would cover families with annual incomes ranging from $21,875 to $52,500. People in this category comprise 40% of the estimated 42 million uninsured U.S. residents, the largest of three subgroups of uninsured Americans under 65 that Pauly delineates in his plan. The other two subgroups are families with incomes less than 125% of the poverty level (33% of the uninsured) and incomes greater than 300% of the poverty line (27% of the uninsured). Pauly says the income levels he recommends for initial inclusion in the program are tentative and could be revised before implementation. In addition, the government would provide Medicaid-type coverage for people with family incomes below 125% of the poverty threshold who did not use the credits.
Once it is determined how well things are working, the program could be adjusted in a second phase. If using private markets to insure the uninsured works out well, the private insurance plan could be expanded to include other people without insurance. The poor would be eligible for private insurance credits that would cover the full premium of a comprehensive plan. In addition, as part of the second phase, participation in the credit program might be made mandatory for uninsured people with incomes greater than 300% of the poverty threshold.
“Most Americans in the income group that my proposal initially targets have private insurance through their jobs, or they pay for insurance themselves out of pocket,” Pauly said in an interview before the press briefing. “But many Americans in this group don’t have any coverage at all. They have some resources – they’re not the poorest citizens – but they need help. These lower-middle income people are the people my proposal deals with initially.”
Pauly’s ideas are outlined in a paper that is one of 10 collected in Covering America. The book was commissioned and published by the Economic and Social Research Institute, a Washington research group, with a grant from the Robert Wood Johnson Foundation.
The proposals in Covering America cut across the ideological spectrum. One plan calls for a social insurance program, not subject to means-testing, that would give all U.S. residents a “right” to comprehensive health insurance coverage. Others, like Pauly’s, rely more heavily on involvement by the private sector.
Although the expansion of health coverage to uninsured Americans is not a new topic, there is renewed impetus to tackle the problem. Both President Bush and members of Congress have said they want to address the issue this year.
Under Pauly’s proposal, households with income between 125% and 300% of the poverty level would receive a credit that would cover part of the premium for complete and comprehensive coverage. As a rule of thumb, Pauly thinks the credit should be somewhere between one-half and two-thirds of the premium for a “decent, basic policy.”
Pauly estimates that the average annual health-insurance premium for such a policy is about $2,500 for an individual considered an average risk by an insurer. Hence, a $1,500 tax credit would cover more than half of that person’s premium cost. The average annual premium for a family of four is $6,000 to $7,000, so a $3,500 credit would cover about half the cost, perhaps a little more.
Pauly structured his plan to be rolled out in stages because it offers the kind of flexibility that is essential for success. For one thing, the availability of tax credits will transform private insurance markets in ways that will eventually change how credits might be used. In addition, it is unknown how many people will use credits to obtain insurance.
“One of the strengths of my proposal is that it proceeds in stages, because we don’t want to make the perfect the enemy of the good,” says Pauly. “If there are problems, we can fix them later.”
From the consumer’s point of view, Pauly says his plan is easy to understand, to administer and to sign up for. Unlike bureaucracy-laden government programs, it places no complex or intimidating roadblocks in the way of people who need health insurance. Such ease of use is vital. Pauly notes that one-third of the people eligible for Medicaid coverage do not take it, either because of the off-putting application process or because they are not sick at the moment.
Pauly’s plan relies as much as possible on private markets because they are best positioned to satisfy non-poor customers’ various needs. What is more, his plan places minimal restrictions on the kind of coverage people could buy, but all policies would be required to include a provision guaranteeing that they are renewable.
Official estimates of the budgetary costs of the proposals have not been completed, but Pauly thinks that the tax credits would total $30 to $40 billion per year. “But remember that a tax credit is a kind of tax cut,” he says. “My plan may seem expensive, but it really is just a way for government to give taxpayers’ money back to taxpayers.”
How to provide health-care coverage to the uninsured has been a contentious issue for years. In the 1990s, there was heated discussion about such fundamental questions as how large the number of uninsured really was and to what extent the uninsured were suffering due to lack of coverage. Proponents of government-sponsored coverage pointed to tragic examples of seriously ill people with no way to pay for needed care. Others noted, however, that the problem was not as dire as sometimes pictured. For example, they said that many uninsured people, such as recent college graduates, may lack health coverage but only because they have yet to find a job.
Pauly says such disagreements are beside the point. “We’ve been talking about insuring the uninsured for 30 years and we haven’t done anything. The positive thing about the press briefing was that there was a consensus that something has to be done.”
