The Uninsured: How Health Plans Can Do Well By Doing Good

While health plans battle for market share, 38 million Americans are uninsured. At least some could be signed up, but pursuing them is not without risk.

Michael D. Dalzell
Managing Editor

Policy makers tend to want to put any group with a pressing social need in a neat little box, then work up solutions. Solving the problem of the uninsured has proven vexing due to its complexity, but that hasn't stopped repeated attempts to try to pigeonhole the uninsured.

Then along came a couple of party poopers: the Institute of Medicine and Uncle Sam.

When the IOM presented its demographic summary of the uninsured on Oct. 11, it set out to dispel several myths — one of which characterizes the uninsured as belonging to families where nobody is employed. "More than 80 percent of the uninsured have jobs or are in working families," said Arthur Kellerman, MD, MPH, co-chair of the IOM's Committee on the Consequences of Uninsurance.

Two weeks earlier, the Census Bureau weighed in with findings that seemed counterintuitive. While the strong economy fueled a drop of 600,000 in the ranks of the uninsured from 1999 to 2000, the percentage of people without coverage increased for those who make $50,000 to $75,000 a year and for some of the healthiest age groups: 18-24 and 35-44.

If that doesn't spill a paint can all over your portrait of the uninsured, consider this: Ninety percent of those without insurance consider themselves in good or excellent health, according to findings by the Kaiser Commission on Medicaid and the Uninsured.

In short, the uninsured are like any sample of Americans: anything but homogenous. Though most have low incomes and unmet health needs, a sizable portion is relatively affluent and in good health. It should come as little surprise, then, that public policy initiatives have failed to have much of an impact on this group. These facts raise questions of how the private market fits into the equation.

While health plans fight each other for marginal market-share improvements, there lies in wait an untapped market comprising at least some of the 38 million without insurance. From a business perspective, is this group worth chasing? In piecing studies together with a few private initiatives, a persuasive argument can be made that, yes, the uninsured can be a gold mine. Health plans could do very well by doing good.

But this is a market fraught with danger. "You can't lump all of the uninsured into one pot and ask if this is a good or bad book of business," says Richard W. Kaplan, president and CEO of New York Health Providers IPA and Subacute Network. "Every book has good and bad attributes."

Understanding the market

The market has the muscle to improve coverage status. In an Employee Benefit Research Institute issue brief last December analyzing the unprecedented drop in the number of uninsured from 1998 to 1999, Paul Fronstin noted that expansion of employer-based coverage had an even greater effect than the growth of enrollment in the Children's Health Insurance Program (CHIP). "The increase in employment-based coverage is surprising ... because 1998 saw the return of health care inflation," he wrote.

Determining whether health plans can profit by covering the uninsured starts with a solid sense of what the market is. The tables and charts herein convey a basic understanding of the uninsured in terms of age, income, and health status. Kaplan — a former executive at Cigna who spent 17 years in the managed care industry — divides the uninsured into three distinct groups: those who decline coverage, those whose benefits have run out, and those who have never been insured.

Of the three, the first group may be the most attractive to private insurers. In a 1999 paper, "Choosing To Be Uninsured," Peter J. Cunningham of the Center for Studying Health System Change found that 20 percent of workers who are offered and are eligible for coverage decline it. Of this subset, most take a pass in favor of other coverage, such as that of a spouse — but one fifth of those who decline it make a conscious decision to be uninsured.

"There is a large number of people who say, 'I'm healthy. I don't want to spend the money. I'll take my chances,'" says Kaplan. "They know what their health status is, so that pool could be a good risk."

Policy proposals have focused on expanding existing programs or using tax breaks to subsidize the purchase of individual policies. Given that those who have access to employer-sponsored coverage (more than 7 million people, including dependents) make up a fifth of the uninsured, Cunningham argues that incentives to boost take-up, or acceptance, rates — which have slipped from 88 percent since 1987 — would be more effective.

"[Full] acceptance of employer coverage would do more to decrease the number of uninsured than the incremental expansions that have been passed or are under consideration ... such as CHIP and Medicare buy-ins for the near elderly."

Out of pocket

Health plans that make a run at the uninsured have a common trait: They ignore prevailing wisdom when designing products for those without coverage. Are they models for the industry?

One reason commonly cited for low take-up rates is out-of-pocket cost; low-wage earners, in particular, would rather have the cash than the benefits. With employers relying more on cost sharing, there would seem to be even less incentive for workers on a budget to take the benefits.

This year, WellPoint Health Networks launched two plans intended to reach people without coverage: FlexScape, for small groups, and PlanScape, for individuals. FlexScape offers a menu of packages that require employee contributions of $5 to $100, while individuals in PlanScape choose packages that run from $30 to $100 per month; the higher the contribution, the richer the benefit. "This is very different from the way people would shop 10 years ago," says Mark Weinberg, president of WellPoint's individual and small-group division. "Now we ask, 'At what level are you comfortable writing a check every month?' We're trying to be very retail about this."

Marketing materials for FlexScape and PlanScape focus heavily on the uninsured. WellPoint hasn't sorted out what share of the 50,000 new policies it sells every month cover people who were uninsured, but Weinberg suspects it's close to half.

"Frankly, the uninsured are good business for us," Weinberg says. "Eighty percent of those who are uninsured and who earn over 200 percent of the federal poverty level have a health status that is better than those we already cover. Long term, that will bring our premiums down."

Real crapshoot

Estimating health status gets tricky when the uninsured are thrown into the mix. Going back to Kaplan's three groups of the uninsured, the second bunch — those who were once insured but are no longer — could be healthy. Or not. "If I lose coverage," he says, "will anything happen in three months? Probably not. But if I go through my COBRA benefits and I'm still not working two years later, will anything happen? Probably, depending on my health before I lost coverage. If you've been laid off, you're more apt to be at risk than those who are working. That's a difficult underwriting decision."

The third group — the chronically uninsured — is an enigma. "I don't think we know anything about that group, good or bad risk," says Kaplan.

In the end, all best estimates of health status boil down to a pricing decision.

"In a lot of cases, the prices for these products are lower than previous products. It will take a year of shaking out the right mix of price and product mix before this comes into balance," Weinberg says. "We're seeing more people than we thought purchase lower-priced plans, which means people are looking for ways to afford health insurance."

Only a smattering of published research exists about the health status of the uninsured. Catherine Hoffman, ScD, of the Kaiser Commission on Medicaid and the Uninsured, says studies of health status rely primarily on self-reported information — which doesn't always tell the whole story.

"From what we know of other research, you might think that people who are wheelchair-bound, for example, would characterize their health as only fair. Well, a lot don't consider themselves in fair or poor health. They lead normal lives, hold jobs, and might say, 'I'm in good health. I haven't needed to see a doctor for anything in a year.' But in the eyes of an insurance company, a person who is in a wheelchair would be a high-risk person."

Cultural, political considerations

A University of Southern California study last month identified customs as another reason that benefits are declined. Howard Greenwald, professor of management and policy, says that about 40 percent of insured and uninsured Latinos in California think insurance is not a good value.

"The USC study confirms what we have known for some time, that preventive medicine and health insurance are not well understood in the Latino community," says Ana Andrade, vice president for Latino programs at Health Net. The insurer in April expanded Salud Con Health Net, a program that serves 4,000 Latino workers and caters to an ethnic group that in California is 35 percent uninsured.

Salud offers small-group coverage to Latino employees in Los Angeles County through provider networks in the L.A. area and in Mexico. Andrade notes that many Latinos prefer to see a doctor who speaks Spanish and understands their culture. "It's estimated that 15 percent of Latinos in L.A. County cross the border to Tijuana each year seeking medical care that is more familiar to them," she says.

Many small-to-midsize companies with high percentages of Latino workers — some of which have not offered benefits in the past — have been receptive. It's too early to tell whether enrollees who had been without coverage now get regular care or whether their health status has improved.

Few studies document what happens when the uninsured obtain health coverage. The length of time that must elapse before steady coverage results in health improvement, the quality of care received, and a person's baseline health status are factors that make generalizations difficult.

"We found changes in the direction you might expect — that many of those gaining insurance reported improved health — but it wasn't statistically significant," says Hoffman, who conducted a three-year study, part of which examined effects of gaining coverage. "We saw the pattern, but it wasn't substantial enough given the size of the study group."

What is known is that there is not pent-up demand for services when coverage is obtained. A 1998 Rand study in the Journal of Health Economics found little support for the hypothesis that people put off paying for care in the expectation that they will soon obtain insurance.

If there is a final reason for health plans to take a long look at the uninsured, it could be political. Whether it's the job of the market and the managed care industry to reduce the national burden that the high number of uninsured poses is debatable; while managed care has an obligation to elevate health status, most industries aren't forced to expand into markets that don't suit their business objectives.

But more than just a business decision is at stake. A place at the policy table gains political points for a PR-battered industry that has long ignored the uninsured at its own peril — the alternative being forced coverage through government mandates.

But, as the aftermath of the Clinton health-plan debate showed, health policy issues once thought dead have a way of being resurrected. Whether plans define their role relative to the uninsured or are manipulated by others may depend on private models' successes in the uninsured market.

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