Tuesday, May 31, 2005
By Sarah Lueck, The Wall Street Journal
John Craig, a 46-year-old software consultant in Orem, Utah, plays racquetball twice a week, doesn't smoke or drink and isn't overweight. But when he tried to get an individual health-insurance policy three years ago, he was rejected.
The insurance company cited sinus infections and depression, two conditions that Mr. Craig felt were well under control. The sinus infections stopped when he quit eating wheat in 1992, and medication has kept depression at bay for years. Frustrated, he ended up pursuing coverage through various state programs. For people with health problems in the private market, he says, "if you have a job with health coverage, then you get health coverage. If you don't, you're simply out of luck."
Mr. Craig has gotten an unwelcome education in the vagaries of individual insurance -- the private option of last resort for many of the roughly 60 million Americans who don't get health insurance from their jobs or the government. About 17 million people, or 10 percent of Americans under age 65, buy individual health policies in a market that even proponents agree has a big problem: Sick people often can't get insurance, or if they can, it's prohibitively expensive.
Now, the individual insurance market is at the center of a debate about how to extend health coverage to more people, a crucial point of disagreement among the politicians who are pushing to solve the issue of the uninsured in the next few years. President Bush and other prominent Republicans want to expand the market to cover more of the 45 million people who are currently uninsured and to provide an alternative to employer-based and government programs. But it's not clear how they would help people whose health isn't perfect and who, arguably, are most in need of help with medical costs.
Bush officials say simply broadening the pool of people who are buying individual policies -- through tax incentives -- will go a long way toward improving the market. Some of the uninsured, such as college students, are undeniably attractive to insurers and might be more likely to purchase coverage with such help. In addition, Mr. Bush wants to create a national market by allowing people to buy individual policies anywhere in the country -- not just from insurers in their own state, as required by current law.
The focus on individual policies fits with Mr. Bush's vision of an "ownership society," in which Americans would save and invest for items now supported by government programs, such as retirement expenses, home ownership, college education and job training. In Mr. Bush's vision of individual health insurance, more people would own their medical coverage and take it from job to job.
Democrats argue that Mr. Bush's ideas would benefit some people but end up leaving others behind -- widening the gap between haves and have-nots.
Mr. Bush's tax credits "would help out the vast majority of people who don't have coverage now and don't have access to employer plans," says Mark McClellan, a physician and economist hired by Mr. Bush to run Medicare and Medicaid. To bring an element of group-buying to the individual market, Mr. Bush wants to give grants to states for purchasing pools. States could bargain with insurers for affordable premiums and give extra subsidies to people with health problems.
"There's no one single magic bullet for effective, affordable coverage for everyone in our health-care system," Dr. McClellan says.
At the center of the debate over the uninsured are fundamental differences between individual and group insurance. In group policies offered by large employers, everyone must be admitted under federal law. That spreads the risks among a large group of people. Healthy people might have to pay a little more than they would if they only paid for the health care they actually received, but everyone is covered for routine care and even the most costly catastrophic illnesses. Most people sign up for these programs when they first take a job.
In the individual market, people are more likely to buy coverage when they need it -- that is, when they're sick or suspect they may need costly health care. That gives insurers an incentive to be choosy about who they cover. In many states, they can also issue policies that exclude certain conditions people already have, or impose waiting periods on when they will begin to cover those conditions. Employer plans, too, can impose waiting periods, but typically are more restricted.
"Insurance is for an unforeseen risk," says Brad Bowlus, chief executive of the health-plans division at PacifiCare Health Systems Inc. "It's no different than getting car insurance -- I can't get coverage for an accident I already had."
PacifiCare, based in Cypress, Calif., says it approves individual policies for about 70 percent of applicants without restrictions and to an additional 10 percent-20 percent with restrictions -- such as a refusal to cover an existing health problem for a certain period of time. The rest of the applicants are denied coverage. If too many sick people were insured without restriction, premiums would be higher for everyone and healthy people might stop buying coverage, says Mr. Bowlus. "That's the tradeoff," he says.
About 20 percent of nonelderly Americans aren't eligible either for employer plans or public programs like Medicaid, the state-federal health program for the poor, according to researchers at RAND Corp. and the California HealthCare Foundation, writing last year in the journal Health Affairs. Denial rates on the individual market range from 8 percent to 18 percent, they wrote.
Mr. Craig, the software consultant, began looking for an individual policy in the spring of 2002, after buying his former employer's coverage got too expensive. He applied for a policy that would cover him, his wife, Elaine, and their three children, but the family was rejected. Mr. Craig suspects it was because his wife had been diagnosed with lupus years before. When he applied to American Medical Security, he didn't include his wife on the application. But that company rejected the family, too, saying in a letter that his past bouts with depression and sinus infections, which for a time had sent him to the doctor for antibiotics every few weeks, were to blame. "This constitutes a health history too substandard for an individual plan," wrote the company, acquired last year by PacifiCare. Mr. Bowlus, of PacifiCare, declined to comment on the specific case, citing privacy rules.
For Marilyn and Paul Usinowicz of Powell, Ohio, getting individual insurance proved impossible. The couple began shopping for an individual policy in 2001 after Mr. Usinowicz left his job as an environmental engineer at the research firm Battelle Memorial Institute to start a consulting business. It quickly became clear that Mrs. Usinowicz's past battle with ovarian cancer, which had been diagnosed three years earlier, would be a big obstacle, even though she no longer had signs of disease. Insurers said his wife would have to be cancer-free for 10 years before she'd be considered healthy.
"It was like you were putting up the cross in front of Dracula," Mr. Usinowicz says. "They just kind of choked on it. I was basically told, 'Forget it.' "
To get around the problem, he added his wife to his business as an employee. In Ohio, state law generally requires insurers to grant policies to small businesses with at least two employees regardless of workers' health conditions. Mr. Usinowicz ended up with a policy that cost $1,000 a month in premiums and had a $5,000 annual deductible. Then, Mrs. Usinowicz's cancer came back, requiring chemotherapy. When premiums, deductibles and other costs were added up, Mr. Usinowicz ended up paying about $21,000 with the small-business health insurance.
In 2002, he went back to work at Battelle, partly because of his wife's mounting health bills. Now he and his wife pay about $150 a month in total premiums. Even with another round of chemo for Mrs. Usinowicz last year, their out-of-pocket costs, including premiums, totaled about $1,800. In early March, Mrs. Usinowicz, now 59 years old, got a clean bill of health. "We're lucky," her husband says.
Many of the individual market's peculiarities result from the dominance of job-based coverage, which became a popular way for employers to boost compensation for workers despite wage controls during World War II. In 1943, the Internal Revenue Service ruled that employer-sponsored group health insurance wouldn't be counted as taxable income for their workers. That $189 billion annual tax break for employers and workers is a powerful reason for companies to offer health insurance, leaving a smaller pool of possible customers for the individual market.
As the number of uninsured people grew throughout the 1990s, the states and the federal government tried to address the problem. Some states passed aggressive regulatory changes aimed at improving access. New York and New Jersey, for example, began requiring individual-market insurers to offer all applicants a policy, regardless of past health conditions -- a requirement called "guaranteed issue." Such rules typically came with pricing restrictions, such as barring insurers from varying premiums based on health status or limiting their ability to do so. Most states limited the time insurers could exclude existing medical conditions from coverage.
In 1996, after President Clinton's plan to provide universal health coverage failed, Congress passed federal protections for people moving from employer-based plans to individual policies.
These moves still left big holes in the system. The federal changes didn't do anything to protect people who are already in the individual market or who don't have insurance and are trying to buy it. And in states with tougher insurance regulations in the individual market, the tradeoff is higher premiums across the board. Guaranteeing that sicker and older people have access to health insurance makes it more expensive for everyone, which critics say means younger, healthier people often go without coverage rather than fork over hundreds of dollars a month.
Now Republicans are pushing additional steps to shore up the individual market by reducing regulation and increasing demand. Mr. Bush has proposed $74 billion in tax credits over 10 years to help low-income people buy insurance, plus credits for small businesses that contribute to workers' health-savings accounts. Mr. Bush wants to give states $4 billion in federal grants to help states set up the purchasing pools supporters say will make individual coverage easier and cheaper to buy.
Some people, including Newt Gingrich most recently, are reviving an idea that was part of President Clinton's failed overhaul of the health system. The notion is to mandate that everyone must get health insurance, much like they must have car insurance. If everyone has to buy a policy, the reasoning goes, insurers won't need to be so careful about who they accept.
Some Republicans, in an effort to make the tax code less biased in favor of employer-provided coverage, also want to either reduce the employers' tax breaks or increase tax breaks for individuals and the self-employed who pay for their own coverage. Health savings accounts, passed by Congress in 2003, are a step in that direction because they provide tax incentives for people to save for their own medical expenses, whether their insurance comes from an employer or they buy it on their own.
Republicans and industry officials say there's a solution for people whose medical conditions make it difficult or impossible to get individual policies -- state-run high-risk pools. These pools, which exist in more than 30 states, are designed to provide access to individual coverage for people who can't otherwise get it. They're usually funded by general-revenue funds or a tax on insurers, as well as by higher-than-average premiums paid by individuals.
For some people, the high-risk pools have indeed been a blessing. For example, Mr. Craig's wife, Elaine, who has lupus, is getting insurance through the Utah pool for about $360 a month. Mr. Craig also recently found out that he got into the pool for a premium of about $380 a month. His health problems are excluded from coverage for six months.
But the risk pools have their own problems. Florida's has been closed to new enrollment since 1991. Throughout the country, just 181,000 people are enrolled in risk pools, and most of that population is located in a handful of states, such as Minnesota, Texas and Wisconsin, according to Communicating for Agriculture and the Self-Employed Inc., a Fergus Falls, Minn.-based group that monitors the pools. In 2003, the pools' losses were $540 million.
The premiums can also be too high for some people. Fred Whyte, a Methodist minister and 62-year-old diabetic, says he can't enroll in the pool in his home state of Wisconsin because the premium would be $800 a month for a policy that wouldn't cover his diabetes for the first six months. He and his 60-year-old wife struggle to find the $80 a quarter they need for test strips to monitor blood sugar. They both take blood-pressure medicine, which they pay for themselves, along with the drug Mr. Whyte takes to control his blood sugar.
Mr. Whyte, when looking recently for a new church to lead, pledged to go "wherever the Lord would send me." But he added, "It would be nice if they had insurance." His new job, as a pastor in Eastman, Wis., didn't come with health benefits.
Holes in the Net
A breakdown of insurance coverage in the U.S. for 2003:
Employment-based 60.4 percent Government programs 26.6 Individual 9.2 Uninsured 15.6
Note: Total is more than 100 percent because many people combine government coverage with some form of private or employer-based coverage.
Source: U.S. Census Bureau
Seeking insurance, individuals face many obstacles
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