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WHY DO SOME PEOPLE DECLINE OFFERS OF HEALTH INSURANCE?
Rising health care costs and people's perception of the merits of health insurance coverage are two major reasons why some people embrace offers of health benefits, while others reject them. To what degree policymakers understand these and other factors related to "take up" could affect the success or failure of policy proposals and market-driven insurance trends.

Interview with Thomas Buchmueller, Waldo O Hildebrand Professor of Risk Management and Insurance and Professor of Business Economics and Public Policy, Stephen M Ross School of Business, University of Michigan

In terms of private coverage, what aspect of take up is of greatest concern to policy makers?

BUCHMUELLER: I think policymakers are concerned that a significant number of people who are eligible for both public and employer-sponsored coverage will decline coverage through their employer to enroll themselves or, more likely, their kids in Medicaid or the State Children's Health Insurance Program (SCHIP). That's the discussion that has been happening around Wal-Mart, as many of their employees are covered by Medicaid. The more that happens, and costs are shifted from the private sector to the public sector, policymakers' concerns grow. It is not clear, from a societal perspective, that this is a terrible thing. We are talking about low-wage workers who would pay fairly high monthly contributions for that private coverage, with fairly high cost sharing at the point of service. For them, they are better off financially and will likely have access to richer benefits if they go with public coverage.

More firms seem to be offering employer-sponsored insurance but take up seems to be down. What is the reason for take-up rates falling off?

BUCHMUELLER: A number of sources show that employer offers of coverage from the mid-1980s to the mid-1990s were either flat or slightly increasing, and that any decline in coverage was coming from declining take up. More recently, there's been a slight decline in employer offers from small firms. Among larger firms-those with more than 100 employees - all firms offer coverage. We've also seen a slight decline in take-up in recent years. For smaller firms, we've seen both a slight decline in offers and a slight decline in take-up. In both cases, the driving factor is rising health care costs. Small employers are choosing to drop benefits altogether or employees are increasingly declining coverage offered to them, because employers are passing much of that premium increase directly onto workers via higher employee contributions.

Who are those employees who are spurning offers of employer-sponsored insurance?

BUCHMUELLER: Generally, the characteristics of those declining coverage are similar to the characteristics of those who do not have offers in the first place, lower-skilled workers and younger workers. People also decline coverage from their own employer because their spouses' plan is more attractive.

Are they bolting to public coverage or choosing to be uninsured? What's happening?

BUCHMUELLER: It's a mix. A feature of the current system is that you have parents who are not eligible for public coverage but their kids are. You see different behaviors. Parents enroll in private coverage for themselves and choose to cover their kids on SCHIP. You also see parents declining coverage and then signing up their kids for SCHIP. Furthermore, some studies show that in states where you have SCHIP and Medicaid eligibility for parents, more kids sign up.

What needs to happen in order for more people to take up offers of employer sponsored insurance? Is it essentially to make it more affordable by moving toward thinner, cheaper coverage, or moving to catastrophic coverage?

BUCHMUELLER: Some people claim coverage would be extended if companies could offer stripped-down bare-bones plans that were really cheap. There is not a lot of empirical evidence to support that argument. From the perspective of economic theory, these plans make sense: they protect against catastrophic risk - which the main purpose of insurance - andthey are less costly. But, it is not clear that a lot of consumers see things that way. For a middle income family, these policies still seem expensive. And then, if someone in the family gets sick, they are still looking at a couple of thousand dollars of out-of-pocket spending before the insurance kicks in.

What aspects of take-up in the public coverage arena are policymakers most preoccupied with?

BUCHMUELLER: I think the biggest concern here is the large number of children who are eligible for public coverage but are not enrolled. Since the implementation of SCHIP, states have been paying a lot more attention to outreach and there have been some real successes. So, the goal is to build on those success stories. It is also important to tailor outreach efforts to different populations. Simplifying the application process is part of this. Maintaining high levels of enrollment also depends a lot on retention. Even if you have people who sign up initially, the program must have a process to reassess eligibility. And that can vary in terms of how often that is done, and how much of a burden it is. How easy is it to maintain coverage?

With budget shortfalls in recent years, have states tightened up recertification processes?

BUCHMUELLER: With the introduction of the SCHIP program in 1997, administrative reforms made it easier to sign up and retain coverage. I think the evidence suggests that changes were generally successful. More recently, with budget problems and high enrollment prompting fiscal consequences, states looked to reverse some of those reforms and thin the rolls to save money.

Research suggests about 5 million kids are eligible for public coverage but aren't enrolled. Why aren't they enrolling?

BUCHMUELLER: Administrative complexity and the hoops people have to jump through is part of the reason. Also, 20 years ago Medicaid eligibility was tightly linked to eligibility for cash welfare. One of the biggest policy developments in recent years has been breaking that link between cash welfare and health insurance. So, there are a lot of eligible families who aren't otherwise in contact with the system. It is really important that states and local governments have a way to reach out to and market to those people. One of the things you see with SCHIP is the amount of attention and resources devoted to outreach and to marketing. In California, a recent study showed that television ads were very effective in getting parents to sign kids up. So, it is partly a matter of getting information and partly a matter of helping eligible people navigate the system. This is complicated by the fact that many of these people are the working uninsured and they don't have a lot of experience or contact with social service agencies.

Can you illustrate what we know about the extent of eligible kids and others that do take up offers of public coverage? Who are they and why are they more likely to embrace public coverage?

BUCHMUELLER: There are a lot of kids who at a point in time are eligible and not enrolling in public coverage. But if they were to get sick, go to an emergency department or clinic, they could sign up on the spot if their eligibility was determined. That means two things. One, you can think of those kids as having some form of coverage, whether or not they carry a card, because in an emergency they're going to get it. From a managed care perspective, however, that is not ideal because these kids are less likely to obtain preventive care. But this conditional coverage is better than no coverage at all, because in the case of an emergency the program will pay for care. The second implication is that the kids who have Medicaid or SCHIP cards are likely to have greater health needs than the average eligible child.

Are the people most in need of coverage - the uninsured - getting targeted by the public insurance programs?

BUCHMUELLER: Yes. The SCHIP program, in most states, has requirements that you must be without insurance for a certain period of time to prevent people shifting from private insurance to public insurance. That's in addition to income and age eligibility. In that sense, the policies are targeting the uninsured very explicitly. But the time frame varies, so it affects the number of kids who are income eligible but aren't actually signing up because of this extra condition. Some states don't have this condition, so kids get covered immediately. In other states, it takes kids up to a year to become eligible so fewer kids sign up for SCHIP. This requirement defines the line between private and public coverage.

How much do public programs enroll people who perhaps shouldn't be because they already have employer-sponsored insurance or at least access to it?

BUCHMUELLER: Does it make sense to draw a distinction between people who are in a firm that provides health insurance but who still can't afford to buy it? Remember, the worker is also paying in terms of reduced wages because his employer is offering health insurance. If they don't get insurance, the worker's employer would pay them more. That's a questionable distinction, between an individual whose employer provides health insurance and somebody else in the same income category whose employer doesn't provide it. Is one more worthy?

So policymaker, at least in the last two or three years, may have over-focused on the issue of public programs misdirecting?

BUCHMUELLER: You could make that case. Keep in mind that a lot of people who would most likely want to switch from their private corporate-sponsored plan to Medicaid or SCHIP are coming from pretty thin private plans, where the insurance value is limited.

So, how can we sustain higher take up rates?

BUCHMUELLER: With the SCHIP experience, we have a better understanding of what works and what doesn't than with the earlier Medicaid expansions. There is evidence that marketing works; simplification of the process works; and making it easier to retain coverage over time without constantly having to re-apply works. There is a lot of evidence from employee benefits in general that how you structure the default option really influences behavior. If the default is like it is in most employer-sponsored plans - do nothing and your coverage stays the same - that will lead to high coverage rates. If the default is like the way contributions to United Way work - where every year you have to re-state what you want to do - fewer people will be covered.

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