Statement

Statement of Ev Liebman, Director of Organizing and Advocacy

On 1557 — Expands NJ FamilyCare, Establishes Mandate for Health Care Coverage of Children and Makes Various Reforms to Individual and Small Employer Insurance Markets

Before the Senate Health, Human Services and Senior Citizens Committee
May 15, 2008 10:30 a.m.

Good morning, Chairman Vitale and members of the Committee. My name is Evelyn Liebman and I am the Director of Organizing and Advocacy for New Jersey Citizen Action. Thank you for giving us this opportunity to testify on S-1557. Citizen Action is the State's largest citizen watchdog organization, representing more than 100 labor, tenant, religious, community, women's, environmental, civil rights and senior organizations and 60,000 family members who live throughout New Jersey. For our entire organizational history we have worked to improve the quality of life for NJ's working families and seniors including fighting for guaranteed access to high quality and affordable health care for every resident.

Citizen Action fully embraces the goal of reducing the number of uninsured residents in our state, establishing affordable and high quality coverage for everyone and creating a program that is sustainable and cost effective. We commend Senator Vitale for being an avid and active champion for health care reform and for his efforts on behalf of all New Jerseyans — both those with insurance and those without. We look forward to continuing to work with you and all of the members of this Committee, the full legislature and the Governor to achieve these critical goals.

As with many important and complex social and economic issues, there are sometimes significant differences in and consequences of the paths chosen to achieve these goals, which is in part what I will discuss today, and the reason Citizen Action is not able to support many of the components of S 1557 at this time. We urge this Committee to amend the bill in a manner that will provide needed protections for health care consumers and still expand coverage to the uninsured, increase health security by creating more affordable insurance for everyone and control costs.

We are particularly concerned about those components of this proposal that seeks to expand coverage for some at the expense of others, rather than seeking to broaden affordable coverage for everyone. I am also distributing to the Committee an analysis of the bill prepared for our Coalition by Community Catalyst, a national consumer health care advocacy organization that outlines our concerns in more detail.

NJ Citizen Action, in partnership with the NJ for Health Care Campaign, a broad alliance consisting of over 40 health care, consumer, senior, student, disability, women's, labor, faith-based, civil rights and social justice organizations, is dedicated to bringing guaranteed, high quality, affordable health care to all New Jersey residents. The NJ for Health Care Campaign is committed to evaluating any health reform proposal through the lens of five Core Principles:

  1. Guaranteed access to affordable, comprehensive health care for all
  2. Improve the quality of care for all
  3. Shared responsibility among all stakeholders including individuals, employers & government
  4. Reduce and contain costs to assure affordable coverage
  5. Emphasis on preventive care

S1557 includes an incremental step toward expanding access to affordable, comprehensive coverage for all and reducing the number of uninsured residents in our state. We wholeheartedly support resuming that component of the NJ FamilyCare program that permits parents of children up to 200% of the Federal Poverty Level to enroll in NJ FamilyCare and would like to see this adopted yesterday.

S1557 proposes to establish a legal mandate requiring the purchase of health insurance for children. It has been characterized as a 'soft' mandate, meaning that at least in this go-round it won't be enforced, no one will suffer a penalty if they don't buy insurance, etc. The question is then, why have it at all.

S1557's Kids First Mandate creates a legal requirement that all children 18 years of age and younger in the state have health insurance, i.e., it will now be the law that someone has to buy health insurance through either a public program or private insurer. However, the bill does not require that the legal requirement to purchase health insurance apply only to insurance that is AFFORDABLE, the most important part of the equation. While Citizen Action is not ideologically opposed to a health insurance mandate, we are opposed to requiring people to buy anything that isn't affordable — most importantly because if the mandate is not affordable, it simply won't work — people can't and won't, (and shouldn't have to), buy something they cannot afford. And if they can't afford the coverage we won't realize the end result we are all trying to achieve — more people who are healthier because they have good insurance. Moreover, forcing consumers to buy unaffordable health insurance for their children could very well result in those same parents having to drop their own coverage so they can abide by the law and keep food on the table, have a roof over their heads, etc.

There is no analysis that has been provided to us that establishes that our current subsidized public insurance programs are in fact affordable for families at various income levels. There is evidence to suggest however that the current premium sharing schedule in the NJ FamilyCare program may not be affordable for some families and it is the unaffordability of the premiums that serves as a significant barrier to enrollment. For example and according to a recent study conducted by New Jersey Policy Perspective:

For many reasons, not the least of which is that the number of children without health insurance is rising in New Jersey (contrary to the national trend of decreasing numbers of uninsured children), we need to get this right. S 1557 should be amended to require that any legal mandate, (enforceable or not), apply only to coverage that is deemed affordable. We should also carefully review the experience in Massachusetts — the only state in the country to actually has a health insurance mandate — to determine whether or not the legislation needs to include exemptions to the mandate. In Massachusetts, which does provide for exemptions (and only requires residents to purchase insurance that is deemed affordable), it is estimated that 60,000 are exempted from that state's mandate as of today.

The establishment of an affordability threshold should be done through an open, public and deliberative process that allows for participation by all stakeholders and should address all consumer out-of-pocket costs including premiums, co-pays and deductibles. The affordability threshold should be based on NJ's cost of living, not the federal poverty level, as it is a truer reflection of what is and what is not affordable for those who live in the Garden State. The bill should be amended to require that the affordability threshold be progressive, i.e., based on one's ability to pay. Finally, the bill should be amended to require the establishment of an overall affordability cap which will address the problem presented by Senator Vitale's two phased approach and would therefore apply to the cost of covering children in phase 1 and adults in phase 2.

Regrettably, S1557 does not guarantee access to affordable, comprehensive health care for all children. Currently, NJ FamilyCare provides subsidized coverage to some lower income families. Yet, A1557 does not guarantee that the NJ FamilyCare program will be funded from year-to-year. As in the past when program funding has been eliminated or cut, access to affordable care is denied, the very problem created when the state could not afford to continue to enroll parents of children up to 200% of poverty. However, what S 1557 now does is require that insurance be purchased even if the program is not funded. It is not fair to mandate that residents buy insurance yet not mandate or obligate the state to fund the program.

And we are very concerned about the long term financing and sustainability of this proposal. The proposal lacks shared responsibility among all players, including employers, who are not required to contribute to the overall cost of the proposed reforms. This proposal requires that only consumers and taxpayers share in the costs of these programs despite that fact that all stakeholders, including employers and providers will realize benefits by increasing the number of insured residents in our state.

  1. A lack of shared responsibility is wrong as a matter of public policy. The health care crisis affects everyone — individuals, employers, insurers, government, and health care providers — and everyone has a responsibility to play a meaningful role in its resolution.
  2. Without shared responsibility, particularly on the part of employers, there could be the unintended consequence of providing an incentive for employers to drop coverage.
  3. A play-or-pay system should be implemented that requires employers either provide health insurance to their workers or make a modest pay-roll based contribution to support public programs.

We have many significant concerns regarding some of the market reform proposals contained in S1557 and urge that they be severed from S1557 and considered in Phase 2 of Senator Vitale's proposal.

Health insurance market reform efforts are characterized by two competing orientations. One holds that risk should be pooled and spread, so that everyone pays approximately the same regardless of age, health status, or any other factor. This is called "community" rating. The other asserts that each individual or group should be charged according to its own risk profile. Thus, the person with cancer, or the group that has a lot of older individuals, should pay a higher premium than someone who is healthy or a group with consisting of mostly 22-year old employees. This is called "experience" rating.

If our goal is to provide access to affordable, high quality health care for everyone, insurance rates must be based on ability to pay not on health status. We should not be pitting one group of consumers against another, covering some at the expense of others. The health care crisis facing our state and the nation can only be solved by spreading risk broadly and thus stabilizing and lowering costs.

Our primary concern with the insurance market reforms in the proposed legislation is its movement in the wrong direction — away from our system of pure community rating to a system of modified community rating in NJ's individual health insurance market by introducing a 3.5 to 1 rate-band based on age. This proposal means that an older person purchasing insurance in NJ's could be charged up to 350% more than a younger individual. We should not be creating more separation and segmented markets but instead establish policies that spread risk more broadly.

NJ's individual health insurance market — the Individual Health Coverage Program (IHCP) — was established in 1993 with the intent of providing New Jerseyans with access to private health insurance products regardless of their health status. Since the mid-1990s, a cycle of increasing premiums and decreasing membership has left the individual market unattractive and arguably unaffordable for young, healthy subscribers leading to what many label an "adverse-selection death spiral". We agree that something should be done to stabilize the individual market and provide New Jerseyans who lack employer sponsored health care access to an affordable insurance product. But S 1557's proposal to further separate markets is not the answer.

We have not found strong evidence to support the notion that young, healthy individuals will actually enter the individual market, lowering overall premiums, if age is introduced as a rating factor. Private insurers are already permitted to charge different rates based on age, sex and geography for "basic and essential" plans in NJ's individual health insurance market. It is in no way certain that large numbers of young, healthy people — it has been suggested up to 40,000 individuals — will enter the individual market once age-rating is introduced.

Basic economic theory predicts that risk-averse consumers will purchase insurance coverage if they are economically "better off" paying a premium with certainty rather than bearing the expected cost of uninsured losses. However, people do not consistently behave with the economic rationality theory predicts. Young, healthy individuals may not purchase coverage even if it is in their economic self-interest to do so. Being young and healthy leads many to forgo health insurance because they do not expect to become ill or injured however irrational this philosophy might be. Young and healthy individuals may simply hold-off on purchasing insurance, believing that they will eventually have access to employer-sponsored health benefits. We cannot assume that young people will decide to purchase insurance in the individual market simply because prices are lowered.

But, introducing modified community rating based on age will undoubtedly increase costs for older people in the individual insurance market, perhaps pricing the very people who need the insurance most right out of the market. And the rating bands proposed, 3.5 to 1 are higher than those that exist in the small group market (2 to 1). Why are we not, at a minimum, treating these two markets in the same way?

The proposed legislation would cap premium increases for people currently enrolled in the individual market at 15% over the next 5 years. Double digit rate increases are nothing to write home about.

Instead of further segmenting consumers, a better solution to consider is merging the individual and small employer markets, increasing the size of the risk pool and thus bringing down costs. . Severing these reforms from S 1557 would give consumers, tax payers, employers, insurers and policy makers the opportunity to more fully analyze the impacts of this type of market reform.

S1557/A2624 should be amended to require benchmarks or indicators to determine if the major objectives of the legislation, including increased enrollment in NJ FamilyCare, increased enrollment in the individual market and lower costs for consumers, are being achieved. What will happen if young, healthy people do not enter the individual market once age-rating is introduced and older individuals continue to experience increased premiums? At what point will an assessment of these reforms take place? Evaluative benchmarks should be incorporated into this legislation before it is passed into law to make certain that any unintended negative effects are mitigated in a timely fashion.

Thank you very much for your careful consideration of our views.

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