Guaranteed Coverage with Multiple Insurers: Closing Gaps and Easing Transitions

Abstract

The U.S. health insurance system today rests overwhelmingly on employment-based coverage for children as well as adults. However, gaps in the system make it difficult to ensure adequate and continuous coverage. Because of these gaps, previously insured families may find themselves uninsured or underinsured. Coverage problems result from insurance industry practices such as exclusions and limitations, medical underwriting, waiting periods for people changing jobs, and disputes over coordination of benefits. Although many of these gaps in coverage may affect all people, a few primarily affect children, whose insurance coverage may be particularly sensitive to changes in family status, parental employment, and other factors. In this article, Kevin Haugh of the Institute for Health Policy Solutions and Gary Claxton, formerly with the National Association of Insurance Commissioners (NAIC), explore the causes and consequences of a number of the more important gaps in the employment-based health insurance system. They also examine a number of proposals to close these gaps, ranging from insurance reforms aimed at the small-group/small-employer health insurance market to broader and more fundamental reforms intended to restructure the way health care is financed and delivered. This paper grew out of a seminar held for U.S. congressional staff in which Claxton was joined by Mark Peavy, an NAIC actuary, and Kim Bellard of the Prudential Insurance Company. Although a substantial number of uninsured children have ties to the work force, Haugh and Claxton identify some important limitations for expanding coverage based solely on reform of the present employment-based health insurance market. First, because inadequate financial resources are the key reason many children are uninsured or inadequately insured, simply encouraging or requiring employers to offer coverage for employees and their dependents may have limited impact. Subsidies for employers and employees may be required if insurance premiums are to be affordable for low-wage workers disproportionately represented among the uninsured. Second, reforms that seek to expand coverage by restricting insurance company practices which limit coverage for sick people will likely increase the cost of coverage for healthy individuals. This increase in cost may cause some firms and individuals to reduce their coverage, although in the long run the hope is that expanding coverage will help keep costs down. Third, many reform proposals apply only to health insurance provided by small employers. Large employers tend to self-insure and, under federal ERISA legislation, are immune from most insurance regulation, which is the province of state governments. Finally, the movement of employment