AHIP Recommends Universal Health Accounts

Published February 1, 2007

Health care analysts say a push for a federal universal health insurance program is increasingly likely as Democrats have assumed control of Congress.

Anticipating such a proposal, America’s Health Insurance Plans (AHIP)–a national association representing more than 1,300 of the nation’s insurance companies–suggests one way to preserve a competitive market under such a program would be for the federal government to create universal health accounts (UHAs).

Pre-tax Funding

Like the increasingly popular health savings accounts (HSAs), the new UHAs would allow pre-tax deposits to be made by employers and employees. Employees would own the UHA funds, so a person who loses a job would continue to have access to all of the funds in the account.

Individuals with UHAs would be allowed to purchase insurance coverage in the group and non-group markets. This provision enhances portability, because a person who loses a job need not also lose employer-provided health insurance. The UHA could be paired with any health plan–or none at all, if the UHA owner opted not to purchase insurance.

Moreover, the UHA plan described by AHIP would allow contributions to be made into the accounts by the federal government. For persons with incomes less than 300 percent of the federal poverty level, the federal government would make matching contributions up to $1,000 for individuals and $2,000 for families. AHIP suggests the federal government should also create rules to allow states to contribute to the UHAs as well.

Currently, individuals whose employers do not offer insurance must buy coverage out of their take-home pay–that is, with after-tax dollars. AHIP spokesman Mohit Ghose noted, “UHAs would help uninsured people buy health insurance on a pre-tax basis, and they can’t do that right now.”

Additional Reforms

In “A Vision for Reform,” an AHIP report released in mid-November, the group suggests that in addition to creating UHAs, the federal government should expand the State Children’s Health Insurance Program (SCHIP) and create a tax credit for low-income families who can show they have health insurance for their children.

Creating UHAs would be more effective than expanding government programs, said Devon Herrick, a senior fellow and health care policy analyst at the Dallas-based National Center for Policy Analysis.

“The Democrats traditionally want to push for what amounts to Medicaid expansion,” Herrick said. “The problem with Medicaid expansion or expansion of SCHIP is that it tends to crowd out private coverage. People who were paying their own way with private insurance through their work or individual coverage will see they qualify for Medicaid and will drop their private coverage.

“Or, in some cases, employers who have a lot of low-wage workers or primarily low-wage workers will just drop their health plan,” Herrick added, “because they see their workers would qualify for Medicaid and would thus prefer higher wages and no benefits, because they can get benefits for free.”

Debunking Myths

Herrick said UHAs and HSAs can “preserve the private health insurance market” because “you could give a low-income person a tax credit that could go into a health savings account or a personal health care account” to help buy a private plan.

Although UHAs may help more people cover medical expenses, Herrick said, “There’s no policy that will ever cover all of the uninsured.”

It is widely reported that 47 million people in the United States are uninsured, but Herrick explained that figure is not especially useful for policy-making. Many people make enough money to buy health insurance but don’t consider it a good use of their money, Herrick noted. Morever, some of those 47 million people are only temporarily uninsured, perhaps while changing jobs or going from coverage under a parent’s policy to personal coverage. Other uninsured Americans already qualify for federal insurance programs but simply haven’t enrolled.

According to the U.S. Census Bureau, in 2005

  • 17 million Americans lived in households with annual incomes exceeding $50,000, and could likely afford health insurance, but chose not to purchase it;
  • between 10 million and 14 million Americans qualified for a government health program but had not enrolled; and
  • 247.3 million Americans were either enrolled in a government health care program or were privately insured.

Spending More Wisely

Herrick also noted the government could spend more wisely the funds it currently allocates for charity care for the uninsured.

“If we could take that money and apply it to, say, private health insurance, we theoretically wouldn’t need to have charity care because everyone would already have health insurance,” Herrick explained.

“We’re already spending $4,000 to $6,000 on every uninsured family of four,” Herrick continued. “That’s nearly enough to get private health care coverage.”

Herrick also pointed out that federal funds spent on Medicaid could help subsidize the purchase of private health insurance for people who choose not to buy insurance because they feel they can’t afford it.

Opposed to UHAs

Paul Fronstin, a senior research associate at the Employee Benefit Research Institute in Washington, DC, told the Los Angeles Times on November 14 that UHAs don’t go far enough.

“[AHIP’s] thinking is to try to make health insurance more affordable,” Fronstin said, “but that still isn’t enough when the cost is going up at more than twice the rate of overall inflation.”

Newspaper editorials have expressed similar concerns.

A November 15 Las Vegas Sun editorial argued that while AHIP’s plan sounds promising, it “raises many of the same unanswered questions that have sidetracked previous efforts to extend insurance coverage, such as how we are going to pay for it” and “fails to impose penalties on employers who fail to offer health insurance and people who refuse to buy it.”

A November 20 Wall Street Journal editorial criticized AHIP for suggesting the federal government make major matching contributions to help people get UHAs, saying doing so would further raise health care costs.

However, the Journal editors noted favorably that UHAs “would end the tax bias that lets employers deduct health care expenditures but doesn’t let individuals do the same.”

Mary Susan Littlepage ([email protected]) is a writer in Chicago.

For more information …

“A Vision to Reform,” http://www.ahipbelieves.com/

“Health insurance for all: Industry plan to provide coverage offers hope but raises many questions, too,” Las Vegas Sun, November 15, 2006, http://www.lasvegassun.com/sunbin/stories/sun/2006/nov/15/566643699.html?Health%20Insurance%20for%20all

“AHIP Hop,” Wall Street Journal, November 20, 2006, http://online.wsj.com/article/SB116397846191127818.html

“Insurers propose to close gap: With Democrats’ rise, the industry crafts a plan for 47 million who lack health coverage,” by Ricardo Alonso-Zaldivar, Los Angeles Times, November 14, 2006, http://www.latimes.com/news/nationworld/nation/la-na-insure14nov14,0,5501993,full.story?coll=la-home-headlines

“Survey of American Adults Regarding Universal Health Care Coverage,” by Ayers, McHenry & Associates, Inc., and the Glover Park Group, AHIP, November 13, 2006, http://www.ahipbelieves.com/Default.aspx?tabid=64.