Congress should enact legislation that makes health insurance for children more affordable and more accessible, without fragmenting the market through anti-consumer provisions such as expanded medical savings accounts or multiple employer welfare associations.

Children's health reform legislation should be built on the following principles:

• universal coverage of children;
• adequate safety net (Medicaid's guarantee of a comprehensive benefits package);
• seamless coverage that provides continuous care;
• expeditious phase-in;
• incentives for employers to provide dependent's coverage;
• broad risk sharing;
• fair financing (with costs shared among employers, families and taxpayers);
• adequate benefit package (including prenatal care, preventive care, hospital care, and doctor care);
• family-friendly (with consumer choice of plan and provider, and access to providers who specialize in children); and
• no financial barriers to care.

Congress should reject options that would fragment the health care system by separating high risks from low risks. Congress should reject expansion of medical savings accounts for children for the following reasons:

• many children will not get preventive care;
• most families with uninsured children will face financial barriers to care if the children are enrolled in a high deductible health insurance policy;
• MSAs for children will separate the healthy from the sick, appealing to the healthy, and leaving the sick with higher out-of-pocket costs;
• families of all income levels will face higher premiums for low deductible health insurance;
• in the long-run, MSAs would drive low-deductible policies out of the market;
• families with a child with a chronic illness will face sizeable out-of-pocket costs if they have an MSA plan; and
• children's MSA accounts are likely to be empty.

Consumers Union¹ appreciates the opportunity to submit written testimony on the subject of increasing children's access to health care.

The failure of the U.S. health care system to provide coverage to ten million children is one of its most embarrassing shortcomings. Too often, children with serious illness are victims of their parents' changing circumstance (such as job change), and find their access to consistent, quality care is denied. To be sure, we need health care reform that provides access to health care coverage for all Americans, regardless of age. Ideally, health legislation should establish a blueprint for meeting this goal. We also need to build protections into the system which assure that all health plans -- whether they be traditional fee-for-service or managed care -- provide high quality care.

We are pleased that Congress is considering various options of expanding health insurance coverage for children. We believe it is crucial that Congress adopt steps that make health insurance for children more affordable and more accessible, without fragmenting the market through anti-consumer provisions such as expanded medical savings accounts or multiple employer welfare associations.

We believe that sound children's health care reform measures should adopt the following principles:

• Universal coverage: All children who live in the United States should have high quality health care coverage.
• Adequate safety net: Medicaid's guarantee to health care -- and its comprehensive benefits package -- should be preserved as a safety net for the poor until such time that a universal, comprehensive program exists for all consumers.
• Seamless coverage: Children should have seamless health care coverage that provides consistent care regardless of their parents' employment status or income.
• Expeditious phase-in: The transition to full coverage to health coverage for children should be carefully planned, and should culminate in universal coverage for children as quickly as possible.
• Employers' incentives: Employers should be encouraged to provide health care coverage for their employees' children.
• Broad risk sharing: Risks should be pooled broadly to reduce individual costs, with less fragmentation of the population into low risk and high risk pools.
• Fair financing: Health care coverage for children should be financed fairly, with the cost shared among employers, families with children, and taxpayers.
• Adequate benefits package: Congress should establish a benefits package for children's coverage that includes prenatal care for mothers, preventive care, hospital care, and doctor care, including benefits that meet the special needs of disabled children.
• Family-friendly: To the extent possible, families should be able to have health care coverage through one health plan -- rather than different plans for different members of the family. Consumer choice of health plan and choice of providers should be facilitated, and should include access to providers who specialize in children. The needs of disabled children for family-centered care should be met.
• No financial barriers to care: Cost-sharing (such as deductibles and coinsurance) should not be so high that it presents a financial barrier to receiving medically appropriate health care.

There are a variety of ways to meet these principles, for example through expansion of Medicaid or subsidization of private insurance by the working poor. It is clear, however, that some public policy options under consideration would be inconsistent with these principles. For example, the expansion of medical savings accounts (MSAs) and expansion of multiple employer welfare associations (MEWAs) could fragment the health insurance market and make traditional low-deductible health insurance more expensive for families with sick children. We urge you to reject expansions of MSAs and MEWAs.

Below, we outline several of the reasons why we believe that expanded MSAs would work to the detriment of children.

Many children will not get preventive care.

MSAs for children are likely to be packaged with health insurance policies with high deductibles of $1,500 to $4,500. Even if the health insurance policies covered preventive benefits, insurance will actually pay the preventive care costs for a small percent of children, since few have costs high enough to meet the deductible. Families with unfunded MSAs will have to pay the full cost of preventive care (e.g., check-ups and immunizations) out-of-pocket. Many will be unable to afford to do this.

70 percent of children who are presently uninsured come from families that earn $31,000 or less, and therefore will face financial barriers to care if they enroll in a high deductible health insurance policy.

Few of these families will be able to pay $1,000 or more per child to fund an MSA. Most of these families will be hard pressed to pay medical bills before a $1,500 (or higher) deductible is met. What this means is that their children will be denied medical care because of the financial barrier faced by their parents.

MSAs for children will separate the healthy from the sick, appealing to the healthy, and leaving the sick with higher out-of-pocket costs.

Health costs are not spread evenly across the children's population. They are spread very unevenly, with 5 percent of children accounting for more than 59 percent of expenditures.² MSAs will appeal to the healthy 95 percent more than the unhealthiest 5 percent. They will also appeal to relatively wealthy families who can afford high deductibles. If introduced as an option for all, the migration of the healthy children to MSA plans will severely erode the premium dollars in the risk pool to pay the costs of health care for the unfortunate 5 percent of relatively unhealthy children. This is a double whammy for these families who must then deal not only with a very sick child, but also with the unwillingness of society to help share the cost of medical care.

Families of all income levels will face higher premiums for low deductible (e.g., $250 deductible) health insurance.

It is important to look beyond the impact on the families who have MSAs. Analysts who have studied the total under-65 health insurance market have demonstrated that MSAs have a greater appeal to the healthy than they do to the sick. They have estimated that premiums for traditional health insurance (e.g., with deductibles of $250) will increase as much as 300 percent if MSAs are introduced on a large scale in the health insurance market.³ The same will be true for children's MSAs; premiums for traditional (low-deductible) health insurance will skyrocket if MSAs are an option.

In the long-run, MSAs would drive low-deductible policies out of the market.

If premiums for health insurance with low deductibles (e.g., $250) increased between 60 percent and 300 percent (as predicted), these policies will be unaffordable for many. It is only a matter of time before insurers would decide to leave the traditional market in order to market high-deductible only policies. This means less choice of policies for families.

Families with a child with a chronic illness will face sizeable out-of-pocket costs if they have an MSA plan.

Consider the case of a child with a serious disability such as cerebral palsy. While the average annual health care cost for an infant (under 1 year old) receiving Medicaid was $2,284 (in 1992), the average annual health care cost for a disabled child of this age was $16,227, seven times as much.⁴ If health care costs for a disabled child (who is not eligible for Medicaid) were $16,227, then this child's family would face sizeable out-of-pocket costs if they have a high-deductible health insurance policy: The deductible could be $2,000; coinsurance (at 20 percent) after meeting the deductible could be $2,845. The family's total out-of-pocket health care costs for this child (alone) would be $4,485. It is extremely unlikely that this family would have any balance in an MSA, since the baby is so young.

Children's MSA accounts are likely to be empty.

The 1996 Kassebaum-Kennedy health bill did not require employers to put money into employees' MSAs. Since children don't have employers, it is even less likely that there would be any funding for MSAs outside the family. This is the case especially since fewer employers are providing health insurance coverage for employees' dependents, with the percent of children covered by their parents' employer-based plans decreasing from 67 percent in 1987 to 59 percent in 1995. Since most uninsured children live in families with modest incomes, it is very unlikely that their families could contribute money to a savings account for health care. Even if they could, they would find that tax benefits would be modest because of their low tax bracket.

In conclusion, we urge you to enact legislation that will expand health care coverage for children, without creating side effects that will make some families and their children worse off.

1 - Consumers Union is a nonprofit membership organization chartered in 1936 under the laws of the State of New York to provide consumers with information, education and counsel about goods, services, health, and personal finance; and to initiate and cooperate with individual and group efforts to maintain and enhance the quality of life for consumers. Consumers Union's income is solely derived from the sale of Consumer Reports, its other publications and from noncommercial contributions, grants and fees. In addition to reports on Consumers Union's own product testing, Consumer Reports with approximately 5 million paid circulation, regularly carries articles on health, product safety, marketplace economics and legislative, judicial and regulatory actions which affect consumer welfare. Consumers Union's publications carry no advertising and receive no commercial support.

2 - "Children Without Health Insurance: Use of Health Services in 1977 and 1987, Intramural Research Highlights NMES: National Medical Expenditure Survey, Agency for Health Care Policy and Research, February 1994, No. 30.

3 - See, for example, "Medical Savings Accounts -- Cost Implications and Design Issues," American Academy of Actuaries, Washington DC, May 1995, p. 6; and Len M. Nichols, Marilyn Moon, & Susan Wall, "Tax-Preferred Medical Savings Accounts and Catastrophic Health Insurance Plans: A Numerical Analysis of Winners and Losers," The Urban Institute, Washington DC, April 1996, p. 12.

4 - Marsha Regenstein and Jack A. Meyer, "Low Income Children with Disabilities: How Will They Fare Under Health Care Reform?" The Economic and Social Research Institute, National Academy for State Health Policy, August 1994.

 
This article was written by the Consumers Union Washington D.C. office.

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