Lewin Group: Uninsured May Represent New Market for Private Insurers

The U.S. Census Bureau announced in late August that the number of people without health insurance increased from 44.8 million in 2005 to 47 million in 2006. If even half of these uninsured people enter the private insurance market as a result of health care reform legislation, the insurance industry would benefit significantly, according to The Lewin Group’s Senior Vice President John Sheils.

“Any legislative provision that builds on the private insurance market will result in a huge increase in that business,” Sheils said. “A lot of the proposals currently on the table include provisions or subsidies that would allow people to enter the individual insurance market.”

The Lewin Group, a national health care and human services consulting firm acquired by Ingenix in June, helps health care stakeholders parse bills’ language, analyze the costs of specific provisions and describe the potential impact of legislative provisions – without taking sides.

“The hallmark of our work is that we are bipartisan – we are not for or against any piece of legislation and we generally don’t make recommendations or advocate one approach versus another,” Sheils explained. “Our job is to identify the implications for various entities in a way that people can trust.”

Lewin uses modeling to evaluate costs, coverage

To analyze the impact of proposed legislation on coverage expansion, The Lewin Group uses a model – the Health Benefits Simulation Model (HBSM) – designed by Sheils to model the effects of proposals that would subsidize the cost of insurance to employers, workers and families. These include deductions, tax credits, premium subsidies and other measures. HBSM was first used in 1989 to estimate the cost of alternative universal coverage proposals for the Bipartisan Congressional Commission on Health Care.

This model, which is refined continually, has been used to analyze a broad range of health reform proposals at both the state and federal levels. Most recently the model was used to analyze President George W. Bush’s health insurance proposal and the Healthy Americans Act (S. 334, introduced by Sen. Ron Wyden (D-OR)).

“Everyone has a right to be heard,” Sheils said. “Much of the time, the people who come to us are pretty certain that we’ll find that the legislation or plan we analyze will have the effect that they think it will have,” he remarked. “But you can end up with results that differ from what they expected.” Although clients have the option of not releasing a report issued by The Lewin Group, it is the firm’s policy that if a client does make any part of the report public with attribution to The Lewin Group, the company has the right to publish the entire report.

In one instance, a client released part of a Lewin report describing the benefits of a program without including any of the cost-benefit analysis, which showed that the program would not save money. “We stepped in to help the press and others to properly understand the full report,” Sheils said. “We work very hard to guard against misrepresentation.”

The Lewin Group recently analyzed 10 pieces of legislation introduced in Congress last year that would expand coverage to the uninsured using different approaches. With politicians and presidential hopefuls planning to issue their own plans in the near future, more analysis is sure to follow. “Every 15 years or so we have a president pushing for universal coverage,” Sheils said. “We are coming up on the 15-year mark and all indications are that it will happen again.”

Legislation leans toward nongroup coverage

Although the proposed bills are diverse in many ways, the major trend among them is a push toward putting more people in individual plans, he said, through providing tax subsidies for the purchase of nongroup insurance and by other means. “If you provide incentives for individual coverage, more people will apply for it, and when that happens, because many uninsured are young and healthy, the individual market will represent a broader range of cases.”  

Wyden’s Healthy Americans Act establishes a centrally financed system of private health insurance for most Americans (excluding those in the military or covered by Medicare). Participants would choose from private plans offered through regional purchasing organizations referred to in the bill as “Health Help Agencies” (HHAs), with premiums being paid via annual income tax filings. The HHAs effectively would organize regional populations into a large, single group for each insurer.

Although coverage of this group would be similar to coverage of existing large groups, in its report, “Cost and Coverage Estimates for the ‘Healthy Americans Act,’” The Lewin Group stated that “insurers would be at-risk for losses in excess of premium revenues. This loss exposure would maintain existing incentives for insurers to establish the most efficient provider networks possible. However, insurers would need to be compensated for accepting this risk exposure or else none would participate.”

Under the president’s Health Care Tax Deduction Proposal, the existing tax exemption for employer-sponsored insurance would be replaced with a single tax deduction, with the goal of reducing the number of uninsured by giving people in the individual market the same tax breaks as those provided to people with employer-sponsored insurance. The Lewin Group predicts that one result of this approach would be that roughly 12.1 million workers and dependents would lose employer coverage; of those, an estimated 8.7 million would buy individual, nongroup coverage with the tax deduction.

Lewin considers many variables

Regardless of a proposal’s author, The Lewin Group helps to identify whether certain provisions will lead to problems down the road, such as selection effects, the implications of eliminating underwriting and the impact of changes in the regulation of the insurance industry.

“There may be restrictions included that insurance companies do not want,” according to Sheils. “So, there may be an expanded market, but the price to pay for that could be expanded controls as well.”

Whichever health care reform measure eventually gets passed, chances are good that the individual insurance market – currently estimated at 8 million people – could open up to nearly 20 million people. How stakeholders will be affected by this increase is still being studied. “Clients want to understand what impact a particular piece of legislation will have on them,” he said. “We are headed into an interesting time.”

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