Copyright 1999 Federal Document Clearing House, Inc.
Federal Document Clearing House Congressional Testimony
June 16, 1999
SECTION: CAPITOL HILL HEARING TESTIMONY
LENGTH: 3394 words
HEADLINE:
TESTIMONY June 16, 1999 MARY NELL LEHNHARD HOUSE WAYS AND MEANS
RETIREMENT AND HEALTH RELATED TAX PROPOSALS
BODY:
TESTIMONY OF THE BLUE CROSS AND BLUE SHIELD
ASSOCIATION ON TAX-BASED SOLUTIONS TO THE UNINSURED PROBLEM FOR
THE COMMITTEE ON WAYS AND MEANS U.S. HOUSE OF REPRESENTATIVES PRESENTED BY MARY
NELL LEHNHARD SENIOR VICE PRESIDENT BLUE CROSS AND BLUE SHIELD ASSOCIATION JUNE
16, 1999 Mr. Chairman and members of the committee, I am Mary Nell Lehnhard,
Senior Vice President of the Blue Cross and Blue Shield Association. BCBSA
represents 51 independent Blue Cross and Blue Shield Plans throughout the nation
that together provide health coverage to 73.3 million
Americans. I appreciate the opportunity to testify on the increasing number of
uninsured and what Congress should do to address this problem.
Since the debate over President Clinton's national health plan,
when Congress last engaged in a serious discussion about the
uninsured, Congress has focused much of its
health care reform efforts on those people fortunate to have
access to health insurance (e.g., passing
health insurance portability reforms and debating managed care
regulation). Meanwhile, despite a robust economy and low unemployment rates, the
number of Americans without health coverage has grown to over
43 million. BCBSA and Blue Plans across the country have long supported public
and private initiatives to expand health coverage to more
Americans. Many Blue Plans have created Caring Programs to make available free
health coverage to low-income children and have initiated a
variety of other programs to help the uninsured. In addition,
BCBSA recently joined the White House, other federal officials and children's
advocates to launch a national outreach program promoting the new Children's
Health Insurance Program (CEEIP), which Congress enacted in
1997. But with the number of uninsured continuing to increase,
the Blues recognize the need for additional action. Blue Cross and Blue Shield
Plans have taken their commitment to the uninsured a step
further by creating a two-part program to address this challenging public policy
problem. BCBSA's Board of Directors approved this two-part program in January of
1999, and we strongly urge its adoption by Congress. I will be making three
points during my testimony. First, Congress should enact a tax-based solution to
address the problem of the uninsured. Second, Congress should
carefully assess the impact of alternative tax-based proposals. Third, Congress
should adopt a "new litmus test to reject legislation that would increase
health care costs and, consequently, increase the number of
uninsured. I. Congress Should Enact A Tax-Based Solution To
Address The Problem Of The Uninsured Scope Of The
Uninsured Problem: Before devising its
uninsured proposal, BCBSA gathered and analyzed the latest
information on who the uninsured are and why they lack
coverage. Most Americans receive health coverage through
private health insurance - either through an employer or by
purchasing health insurance on their own. Others receive
health coverage by enrolling in a government program. But over
43 million people are without health coverage. The number of
uninsured has grown steadily during the past decade and,
without legislative action, is expected to continue to increase in the years to
come. While the uninsured fall into very different geographic,
age, and racial/ethnic categories, they do have some common characteristics. One
of the most significant subgroups of the uninsured are working
Americans. The term "uninsured" may conjure up images of people
out of work, but the data suggest otherwise. According to a 1997 study from the
Kaiser Family Foundation, 73 percent of uninsured adults are
either employed or married to someone who is employed. The working
uninsured tend to be those who work in low-paying jobs, those
who work for small firms, and those who work in part-time jobs or in certain
trades. Low- Wage Workers. The cost of health insurance can be
prohibitive for low-wage workers who must purchase it on their own or pay a
significant share of an employer- sponsored health plan. Almost
half (43.5 percent) of the uninsured are in families earning
less than $20,000 a year, and 73 percent of the uninsured are
in families earning less than $40,000. Moreover, low-income workers are less
likely to have access to coverage on the job. Workers in Small Firms. The
working uninsured are likely to be employed by firms with fewer
than 25 employees - 43% of the uninsured employed in the
private sector work for firms with fewer than 25 employees. They are also likely
to be self- employed or dependents of such workers. One of every four self-
employed individuals and nearly 3 5 percent of workers in firms with fewer than
I 0 employees are without coverage. People In Families with Part-time Workers.
Since employment-based coverage is usually only provided to full-time workers,
the risk of being uninsured increases for people who only work
part-time. More than one-quarter of people in families with only part-time
workers are uninsured. Workers in Seasonal Trades. Workers in
the agricultural, forestry, fishing, mining, and construction trades are more
likely to be uninsured, probably reflecting the seasonal
employment and the small firms that are characteristic of these trades. One
third of the 12.5 million workers in these trades are without
health insurance. Other significant subgroups of the
uninsured are young adults and minority racial and ethnic
groups. Adults between the ages of 18 and 24 are more likely to be
uninsured than any other age group, including children. Young
adults are vulnerable to being uninsured because they may no
longer be covered under their families' policy or Medicaid, may not yet be
established in the workforce, and may earn less- than older -adults. Hispanics
and African Americans are also more likely to be uninsured than
the rest of the population. While Hispanics and African Americans represent 12.3
percent and 13.1 percent of the nonelderly population, respectively, they
represent 24.4 percent and 16.5 percent, respectively,. of the
uninsured. Targeted Tax-Based Reforms That BCBS4 Urges Congress
To Enact. BCBSA believes Congress needs to adopt targeted reforms that will
reduce the existing number of uninsured. Extending
health coverage to those without it can be achieved quickly and
most effectively through legislation that is aimed at the specific subgroups of
the uninsured, such as low-income workers, and that builds on
the existing employment- based health system. BCBSA believes
these targeted solutions should include: Tax Credits To Small Employers For
Their Low-Income Workers. Employees in small firms are more likely to be
uninsured than those employed by larger companies. The primary
reason for this higher uninsured rate is that small firms are
more likely to have a larger share of low-income workers than larger firms.
About 42 percent of workers in small firms (0-9 employees) earn less than 250
percent of the poverty level, compared to only 27 percent of employees in firms
with 100 or more employees. Offering tax credits to small firms for their
low-income workers would decrease the number of uninsured by
making health coverage more affordable for small businesses and
their low-wage employees. Focusing on low-wage workers as a subset of those in
small firms targets those most in need of assistance. Workers in small firms
with a high. proportion of low-wage workers are half as likely to be offered
health coverage as workers in small firms with high- wage
workers. Only 38 percent of small businesses with low-wage employees offer
health coverage compared to 78 percent of small businesses with
high-wage employees. A recent analysis by the Alpha Center (see attached graph)
underscores the importance of focusing on low-wage workers in small firms. It
shows that low- wage workers (e.g., those earning less than $20,000) have
considerably lower rates of employer-sponsored health coverage
than those with higher wages and illustrates that low-wage workers in the
smallest firms are least likely to have employer- sponsored coverage. By
limiting the tax credit to only low-income employees of small businesses, the
proposal would avoid subsidizing those who should be able to afford coverage on
their own (e.g., lawyers working for a small firm). BCBSA recommends, given
scarce resources, that Congress focus on low-income workers in businesses with
fewer than 10 employees and then expand the program as resources pen- nit.
Employers would administer the tax credit on behalf of qualifying employees.
Because cash flow is critical for small firms, the proposal envisions that
employers would provide the credit in the form of reductions in the withholding
taxes that the employer would normally pay. The administrative burden of such a
system on the employer would likely be very low since most employers contract
payroll functions to outside firms that are easily able to administer such
credits on behalf of employees. Offering tax credits to small firms with
low-income workers also has the advantage of building on the successful
employer-based health coverage system. The majority of
Americans receive health coverage through an employer. By
building on the current employer- based system, BCBSA's tax credit proposal
could be implemented immediately. Full Tax Deductibility For 7he Self-Employed
Expanding the groups of people who can deduct the cost of
health insurance from their taxable income would assist many of
the uninsured. Enabling the self-employed to fully deduct the
cost of health coverage would help the one in four
self-employed people who have no health insurance. Congress has
already enacted legislation to phase in full deductibility for the
self-employed. BCBSA believes this phase-in should be accelerated. Full Tax
Deductibility For People Without Employer-Sponsored Coverage Some people,
including young adults and early retirees, are uninsured
because they do not have access to employer-sponsored coverage. Making
health coverage more- affordable for those without access to
employer-sponsored coverage would contribute to an increase in the overall rate
of insurance. This can be achieved by allowing them to deduct the full cost of
insurance. It would also address parity concerns regarding the tax treatment of
health coverage received through an employer and
health insurance purchased on one's own. Federal Grants for
Initiatives That Expand Coverage or Provide Care to the
Uninsured Targeted solutions should also be developed for
groups that may remain uninsured despite tax credits and
deductibility, including some non-citizens, minorities, young people and other
low-income groups. These targeted solutions can best be carried out by offering
grants to states to fund a variety of initiatives, including private programs to
expand health coverage, community health
centers that provide health care to the
uninsured, and subsidies to state high-risk pools, which make
coverage more affordable for those requiring extensive medical care. We believe
this proposal, which is based on tax credits and deductibility to targeted
subgroups of the uninsured, is the most appropriate way to
address this problem. BCBSA's proposal has several advantages: It Could Be
Enacted Quickly. BCBSA's proposal does not try to reinvent today's
health coverage system. It recognizes that the current
employment-based system works well for most Americans and would expand coverage
through this system. By building upon the current system, BCBSA's proposed
actions could be implemented quickly. These proposals could be enacted without
the prolonged congressional debate that would be required of more controversial
proposals that seek to restructure the entire system. It Would Be Simple To
Implement. Building on the current employment-based system would also assure
simplicity in the execution of BCBSA's proposed reforms. Employers and employees
are already familiar with the employment-based system. Under BCBSA's proposal,
there would be no need to educate health care purchasers and
consumers about new ways of receiving health coverage. Using
the infrastructure that is already in place would also obviate the need to
create a new, complex bureaucracy to carry out the functions now performed by
employers. It Would Make The Best Use Of Scare Resources. By targeting specific
subgroups of the uninsured (e.g., low-income workers in small
firms), BCBSA's proposed reforms would assure that limited government funds
would be directed to those most in need of assistance and those most likely to
take advantage of such assistance. H.Congress Needs To Carefully Assess The
Impact Of Alternative Tax-Based Proposals Numerous proposals to reduce the
number of uninsured are now being considered in Congress. These
proposals range from modest reforms to comprehensive restructuring of the
market. They should each be carefully evaluated in terms of the potential to
improve our health care financing system as well as the risk of
creating unintended consequences. The most comprehensive proposals are those
that would "de-link" health insurance coverage from employment
and move toward an individual-based system. These proposals embody the powerful
notion of individual empowerment and merit full consideration. However, there
are many issues that must be considered when one contemplates a move that would
fundamentally alter the way millions of Americans now receive
health coverage. Assessing the implications of changing to an
individual-based system in all likelihood will be a long-term process that
involves much debate and analysis. I will limit my comments today to tax changes
that could be enacted this year since Congress is expected to move forward with
incremental tax provisions to improve the affordability of
health coverage this year. We are encouraged by many of the tax
proposals that are under development. For example, there appears to be growing
interest in accelerating the full deductibility of coverage for the
self-employed and providing full deductibility for those who do not have access
to employer-sponsored health coverage, both of which we
support. Many in Congress are also considering proposals to provide for "parity"
in coverage between the individual and group markets. These proposals range from
providing full deductibility of individual coverage for those who have access to
employer- sponsored plans - to requiring that employers provide the equivalent
value of employer-provided benefits to employees who "opt out" of their
employer-sponsored plan and purchase their own health coverage
in the individual market. We are concerned, however, that, while the intent of
the parity proposals is to provide individuals with more choice, they would
create unintended consequences for the current employment-based system. We are
concerned that proposals that would allow individuals to opt out of the
employment-based system in favor of individual coverage would undermine the
advantages of the natural pooling that occurs in the group
health insurance market. Given the opportunity to opt out of
employer-sponsored plans, low- cost workers may be more likely to leave these
group health plans, resulting in premium increases in these
groups' rates. The result would be adverse selection, which would destabilize
group plans. While not perfect, the current employment-based system is
successfully providing health coverage to the majority of
Americans. For example, one of the advantages of the current employment-based
system is that it facilitates significant cross subsidies. To illustrate, an
employer who has a mix of young and old, healthy and not so healthy employees
will not vary the contribution based on expected use of medical services. This
represents an accepted mechanism for creating the cross subsidies that are
essential for providing health insurance. Without a strategy to
assure stable cross subsidies, the insurance market would deteriorate. To avoid
the problems with the parity provisions, BCBSA strongly believes Congress should
provide tax breaks for the purchase of health coverage in the
individual market only if the individual does not have access to
employer-sponsored coverage. For example, eligibility for the tax breaks could
be limited to those whose employers have not offered coverage for some defined
period of time, have retired or are unemployed. Congress must be aware that
changes - even seemingly minor changes - that affect the employment-based system
could make the current problem of the uninsured worse. To avoid
these unintended consequences, BCBSA's short-term proposal strengthens the
employment-based system. We believe that Congress should move quickly on some of
these proposals while debate continues on more comprehensive reform strategies.
III. Congress Should Adopt A "New Litmus Test" To Reject Legislation That
Increases Health Care Costs And The Number Of
Uninsured In addition to looking at tax-based solutions to the
uninsured problem, Congress should consider other ways to
preserve the affordability of private health insurance. BCBSA
believes Congress should adopt a "new litmus test" to reject legislation that
would increase premiums and, consequently, the number of
uninsured. Federal managed care legislation, new benefit
mandates and antitrust exemptions for health professionals are
examples of proposals that would make health coverage less
affordable for employers and consumers. Congress should reject these proposals
so that it will not exacerbate the uninsured problem. In
analyzing the uninsured issue, BCBSA found that the cost of
health coverage is the key determinant of whether working
Americans have employer-sponsored coverage. We found that high annual premium
increases were associated with drops in employment- based coverage and flat
premiums were associated with improvements in employment- based coverage.
Examining premium increases and coverage rates over the past decade illustrates
this point. When health care costs were rising at double-digit
rates during the late 1980s, the percentage of nonelderly Americans with
employment-based coverage declined. While 69.2 percent of workers had
health coverage through an employer in 1987, only 64.7 percent
had employment-based coverage in 1992. According to the nonpartisan Employee
Benefit Research Institute (EBRI), employers have been more likely to offer
workers health coverage in recent years when
health care cost increases have been relatively flat. Since
1993, there has been an increase in the percentage of people receiving
employer-sponsored health coverage. While approximately 63
percent of nonelderly Americans received health coverage
through an employer in 1993, that figure increased to 64.2 percent by 1997. Not
surprisingly, the average annual increase in health benefit
costs during this period was only 2.3 percent. The first step in addressing the
uninsured is to not make the problem worse. Given the link
between higher costs and reduced coverage, Congress should pledge to enact no
law that will make health coverage more expensive. IV.
Conclusion Expanding the number of Americans with health
coverage should be our nation's top health care priority. No
single solution will solve the uninsured problem, but the
targeted solutions advocated by BCBSA would effectively reduce the number of
uninsured. We urge Congress to take a series of actions to
reduce the number of uninsured, including providing tax credits
to small firms for their low-wage workers, full tax deductibility for the self-
employed and those without access to employer-sponsored coverage, and federal
grants to states to fund targeted initiatives to expand health
coverage. We also believe Congress should not enact legislation that would
increase health care costs. Increasing health
care costs will only increase the number of uninsured. BCBSA's
tax-based proposal could be enacted quickly, implemented simply and would make
the best use of scare resources. It also avoids the problems that could be
created by alternative proposals, such as tax proposals that would all employees
to opt out of employment-based health plans. Thank you for the
opportunity to speak to you on this important issue. BCBSA looks forward to
working with Congress to address the needs of the uninsured.
LOAD-DATE: June 18, 1999 
