Expanding Health Care Coverage for the Uninsured: Lessons Learned From States

Expanding Health Care Coverage for the Uninsured: Lessons Learned From States

Order Code RL32385
CRS Report for Congress
Received through the CRS Web
Expanding Health Care Coverage for the
Uninsured: Lessons Learned From States
May 17, 2004
Stephanie Lewis
Consultant to CRS
Institute for Health Care Research and Policy
Georgetown University
Jean Hearne and Hinda Chaikind
CRS Project Coordinators
Domestic Social Policy Division
Congressional Research Service ˜ The Library of Congress

Expanding Health Care Coverage for the Uninsured:
Lessons Learned From States
Summary
State policymakers have been concerned about the uninsured for a number of
years and have pursued many strategies to help expand health care coverage. To
understand the strategies undertaken by states and their successes and failures, CRS
contracted with the Institute for Health Care Research and Policy at Georgetown
University to conduct a 50 state survey. The findings of that survey are presented
here.
In 2002, all states subsidized comprehensive health care for at least some of
their low-income residents. Medicaid and the State Children’s Health Insurance
Program (SCHIP) — programs which enable states to augment their resources with
federal matching funds — were the principal means of subsidizing health coverage
in states. In addition to Medicaid and SCHIP, a number of states used state-only
funding to subsidize health insurance or pay the cost of health care services for the
uninsured or low-income populations. Three states, for instance, had tax credits for
small employers or individuals. Six states and the District of Columbia had other
state-funded programs to either subsidize health insurance or provide direct coverage
for the uninsured. Twenty nine states had established high-risk pools for individuals
rejected from traditional insurance for health reasons.
The variety of approaches used by the states that have engaged in these
initiatives can yield some useful information for Congress. Many have been in place
for a number of years so state program officials are knowledgeable about the
strengths and weaknesses of the initiatives. While many of the states’ efforts are
small in scale, they provide an opportunity to track their impact and any
administrative challenges they pose. A caveat for the reader is that the changing
fiscal conditions reflected in many states’ budgets in the years since 2002 may have
changed the priorities of states and impacted the size or generosity of some of the
programs that were in effect at the time of the survey. Understanding how states
regulated insurance markets and improved the availability of insurance for the sickest
and poorest before feeling the full impact of the recent recession remains valuable,
nonetheless, by providing insight into the various choices that are available and their
implications for federal initiatives.
At the same time, we know that in a few states, dramatic changes in state health
policies to increase coverage have occurred since 2002. This includes initiatives in
Maine and California as well as several other states that have established high risk
pools using funds made available under the Trade Adjustment Act of 2002. This
report will not be updated.

Contents
The Uninsured . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
State Coverage Initiatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Public Initiatives to Subsidize Health Coverage . . . . . . . . . . . . . . . . . . . . . . 4
Tax Credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Public Programs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Group Health Insurance Initiatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Small Group Health Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Individual Health Insurance Initiatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Individual Health Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
High-Risk Pools . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Related Federal Initiatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Tax Credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Public Programs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Association Health Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
The Trade Act of 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Implications for the Future . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
List of Tables
Table 1. Number and Percentage of Uninsured Individuals by State, (2002) . . . . 2
Table 2. Number of States with Selected Program Initiatives in 2002 . . . . . . . . . 4
Table 3. Key Features of State Tax Credit Programs (2002) . . . . . . . . . . . . . . . . . 7
Table 4. State-Funded Programs (2002) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Table 5. Key Features of State-Funded Programs (2002) . . . . . . . . . . . . . . . . . . . 9
Table 6. Selected State Coverage Programs:
Enrollment and Appropriations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Table 7. Approaches to Rating Reform for Small Group Health Insurers . . . . . 13
Table 8. State-Sponsored Purchasing Pools, 2002 . . . . . . . . . . . . . . . . . . . . . . . 15
Table 9. Comparison of Rating Rules for State-Sponsored Purchasing
Pools and Small Group Health Insurance, 2002 . . . . . . . . . . . . . . . . . . . . . 15
Table 10. Number of States and D.C. with Selected Market Reforms (2002) . . 17
Table 11. State Individual Health Insurance Rating Rules Applied
Market-Wide (2002) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Table 12. State High-Risk Pools . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

Expanding Coverage for the Uninsured:
Lessons Learned From States
State policymakers have been concerned about the uninsured for a number of
years and have pursued many strategies to help expand health insurance coverage in
their states. Some of these initiatives have involved creating new or expanding
existing state-operated and state-funded programs. Other states have increased
access to health insurance coverage through the regulation of the private health
insurance market. Because the states serve as ‘laboratories of innovation,’ their
activities may give federal policymakers examining this issue some insight into how
different approaches to public program expansions and private insurance initiatives
may or may not work.
This report explores a range of state coverage initiatives by reviewing what
states have done through public initiatives and private health insurance. It is based
on data from a 50 state survey conducted in 2003 by the Institute for Health Care
Research and Policy at Georgetown University under contract to CRS. More
specifically, it examines the states’ experience expanding health insurance to the
uninsured through:
! state tax credit programs;
! state-funded public programs;
! group health insurance rules (with an emphasis on standards for
small group health insurers);
! state-sponsored purchasing pools;
! individual health insurance rules; and,
! high-risk pools.
This paper does not, however, discuss Medicaid expansions in detail because
of the considerable literature already available on that topic. In addition, related
federal initiatives are reviewed briefly. Finally, it doesn’t describe in detail programs
enacted or signed into law since 2002. This includes initiatives in Maine and
California as well as several other states that have established high risk pools using
funds made available under the Trade Adjustment Act of 2002. California passed
legislation mandating that medium and large size employers offer health insurance
coverage as a benefit beginning in 2006, although the press reports that this bill may
be repealed before implementation. In addition, Maine has established a universal
health program called Dirigo Health. Small employers are scheduled to begin
purchasing the state-sponsored coverage beginning in the summer of 2004. The final
major change since 2002 is that grant funds made available under the Trade
Adjustment Assistance Act of 2002 has prompted several additional states to
establish high risk pools.

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The report concludes with a discussion about what Members of Congress might
be able to learn from the states’ experiences and the key challenges states face
reducing the number of uninsured in their state.
The Uninsured
In 2002, about 43.6 million Americans, or about 15.2% of the U.S. population,
were uninsured.1 The percentage of uninsured individuals among states varies
widely. As illustrated in Table 1, in 2002, 7.9 % of the residents in Minnesota were
uninsured in contrast to almost 21.1 % of the residents of New Mexico.2
Table 1. Number and Percentage of
Uninsured Individuals by State, (2002)
Number of
Percentage
Total Population
Uninsured
Uninsured
U.S.
285,934,000
43,574,000
15.2%
Alabama
4,440,000
564,000
12.7%
Alaska
635,000
119,000
18.7%
Arizona
5,442,000
916,000
16.8%
Arkansas
2,692,000
440,000
16.3%
California
35,159,000
6,398,000
18.2%
Colorado
4,476,000
720,000
16.1%
Connecticut
3,383,000
356,000
10.5%
Delaware
798,000
79,000
9.9%
District of Columbia
572,000
74,000
12.9%
Florida
16,429,000
2,843,000
17.3%
Georgia
8,426,000
1,354,000
16.1%
Hawaii
1,224,000
123,000
10.0%
Idaho
1,300,000
233,000
17.9%
Illinois
12,504,000
1,767,000
14.1%
Indiana
6,100,000
797,000
13.1%
Iowa
2,903,000
277,000
9.5%
Kansas
2,684,000
280,000
10.4%
Kentucky
4,046,000
548,000
13.5%
Louisiana
4,447,000
820,000
18.4%
Maine
1,269,000
144,000
11.3%
Maryland
5,458,000
730,000
13.4%
Massachusetts
6,471,000
644,000
10.0%
Michigan
9,910,000
1,158,000
11.7%
Minnesota
5,054,000
397,000
7.9%
Mississippi
2,787,000
465,000
16.7%
Missouri
5,585,000
646,000
11.6%
Montana
,906,000
139,000
15.3%
Nebraska
1,704,000
174,000
10.2%
Nevada
2,121,000
418,000
19.7%
New Hampshire
1,266,000
125,000
9.9%
1 CRS Report 96-891, Health Insurance Coverage: Characteristics of the Insured and
Uninsured Populations in 2002, by Chris L. Peterson
2 CRS Report 96-979, Health Insurance: Uninsured by State, 2002, by Paulette Morgan.

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Number of
Percentage
Total Population
Uninsured
Uninsured
New Jersey
8,605,000
1,197,000
13.9%
New Mexico
1,840,000
388,000
21.1%
New York
19,283,000
3,042,000
15.8%
North Carolina
8,162,000
1,368,000
16.8%
North Dakota
633,000
69,000
10.9%
Ohio
11,282,000
1,344,000
11.9%
Oklahoma
3,477,000
601,000
17.3%
Oregon
3,510,000
511,000
14.6%
Pennsylvania
12,189,000
1,380,000
11.3%
Rhode Island
1,056,000
104,000
9.8%
South Carolina
3,997,000
500,000
12.5%
South Dakota
744,000
85,000
11.4%
Tennessee
5,672,000
614,000
10.8%
Texas
21,529,000
5,556,000
25.8%
Utah
2,310,000
310,000
13.4%
Vermont
619,000
66,000
10.7%
Virginia
7,118,000
962,000
13.5%
Washington
6,001,000
850,000
14.2%
West Virginia
1,751,000
255,000
14.6%
Wisconsin
5,476,000
538,000
9.8%
Wyoming
488,000
86,000
17.6%
Source: Based on the March 2003 Current Population Survey; computed by the Congressional
Research Service and published in CRS Report 96-979. Health Insurance: Uninsured by State, 2002,
by Paulette Morgan.
State Coverage Initiatives
States have pursued different coverage initiatives to varying degrees to make
health insurance more affordable and/or accessible. All states subsidize health
insurance for at least some of their low-income residents. Medicaid and the State
Children’s Health Insurance Program (SCHIP) — programs which enable states to
augment their resources with federal matching funds — are the principal means of
subsidizing health insurance in states. As Table 2 illustrates, few states have used
state-only funding to go beyond Medicaid and SCHIP to establish initiatives that
subsidize health insurance or provide coverage directly to the uninsured. In 2002,
three states, for instance, used tax credits for small employers or individuals and six
states and the District of Columbia had established state-only funded programs to
subsidize health insurance or provide direct coverage for the uninsured.
States have also tried to make health insurance more available to employers and
individuals by setting rules for private health insurers. These rules seek to stabilize
coverage for those who have it, such as when people change jobs or family
circumstances change. Many states’ rules minimize the number of uninsured by
removing barriers people face in obtaining and keeping health insurance, and place
limits on how much insurers can charge for insurance. All states have
comprehensive rules for insurers that sell health insurance to small firms with two
to 50 employees — called small group health insurers. These rules are a product of
state efforts in the early 1990s and a federal law (the Health Insurance Portability and

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Accountability Act (HIPAA) of 1996, P.L. 104-191) that made these state reform
efforts more uniform. To a lesser degree, states have used other strategies. A few
states have tried to enhance the availability and accessibility of health insurance for
small employers through purchasing pools. For individuals without job-based health
insurance, some states have pursued market reforms affecting individuals seeking to
purchase coverage independently intended to make coverage more accessible and
stable. Many more states have opted against individual market reforms, instead
pursuing another option — high-risk pools — for individuals whom insurers will not
cover. The following sections elaborate on this landscape of states’ efforts to expand
coverage options for employers and individuals, how they have done so, and what
has been learned from their activities. Table 2 reflects a snapshot of their activities
in 2002.
Table 2. Number of States with
Selected Program Initiatives in 2002
State initiative
Number of states and D.C.
Tax credit programs
3
State-only funded public programs
7
Comprehensivea small group health insurance rules
51
State-sponsored purchasing pools
3
Comprehensive individual health insurance rules
5
High-risk pools
29
Source: Georgetown University Institute for Health Care Research and Policy 2002.
a. Comprehensive reform of the small group health insurance market includes reforms aimed at
improving access to health insurance products (guaranteed issue, limits on pre-existing condition
exclusion periods, and credit for prior coverage) and rules regarding the setting of premiums
(rating rules).
Public Initiatives to Subsidize Health Coverage
A few states have established public programs outside of Medicaid or SCHIP
with state-only funds. These programs usually provide insurance directly to program
participants or provide enrollees with subsidies for work-based insurance. Fewer
states yet have enacted tax credits toward the cost of privately sponsored insurance.
Tax Credits. State experience with tax credit programs has been very limited.
In the late 1980s and early 1990s, at least four states — California, Kentucky,
Massachusetts and Oregon — introduced tax credit programs for small employers.3
Each of these programs has been discontinued. As noted in a study of such state
initiatives, they appeared to have had very little impact on the number of small
employers offering benefits to their employees. The study authors noted that the
small size of the credits may have provided an insufficient incentive to the relatively
3 Debra J. Lipson, Daniel M. Campion and Michael Birnbaum, Approaches for
Providing/Financing Health Care Financing for the Uninsured: An Assessment of State
Options and Experiences, Alpha Center, Aug. 1997, p. 31. (Hereafter cited as Lipson,
Approaches for Providing.)

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few small employers who qualified and were not already offering coverage.4 In 2002,
two states had tax credits for small employers — Kansas and Maine.5 As with the
aforementioned programs, both had strict eligibility criteria and low participation
rates. Kansas’ program was implemented in December 1999. By the beginning of
2002, 175 companies had applied for certification but the state received only 50
claims from employers for coverage. Maine’s program is newer ( it began in 2001)
and smaller. It’s benefits are limited to employers with fewer than five employees
who offer dependent coverage. As of 2002, 14 small employers were participating.
Colorado was the only state that had an individual health insurance tax credit
in place in 2002. Individuals who meet certain income eligibility limits can claim a
$500 credit for group or individual health insurance. The program was implemented
in 2000 and had 7,544 participants for tax year 2000 at a program cost of $2.7
million. North Carolina had an individual tax credit for child health insurance that
was repealed in 2001 to devote greater resources to another public coverage program.
The later repealed tax credit was passed by the state’s legislature in 1998 and was
provided to 125,199 people in 2001 at a program cost of $21.1 million. Interestingly,
this program was not limited to the low-income. Households with adjusted gross
income under 225% of the federal poverty level (FPL) ( just under $41,000 for a
family of three in 2001) received a $300 credit. Those with income over that amount
and up to $100,000 (for a family of three or about five times the 2001 FPL) were
eligible to receive a $100 credit.
Public Programs. Public programs are another way to offer subsidized
coverage to the uninsured.6 Tables 4, 5, and 6 describe the various public programs
in place by states in 2002. The number of states that have funded public coverage
initiatives without federal support is small. In 2002, six states — Arizona,
Massachusetts, Minnesota, New York, Pennsylvania and Washington — and the
District of Columbia, had programs in place to reach the uninsured that were funded
outside of Medicaid and SCHIP.
These programs differ dramatically both in terms of who is eligible and how
coverage is provided, reflecting a number of factors including the availability of
funding and the availability of a safety net system in each state. For example,
Washington’s Basic Health Plan was by far the largest program in terms of
enrollment and financial support with a 2002 monthly average of about 122,250
enrollees and an appropriation of $499 million for FY2002-2003. It uses two
strategies to reach low-income residents with income below 200% of the federal
poverty level. For those without access to employer-sponsored coverage, the state
arranges for access to health services directly. For those with access to employer-
sponsored coverage, it provides premium support for the worker’s share of the
premium. In either case, participants are responsible for a share of the premium
4 Lipson, Approaches for Providing, p. 31.
5 There are a few states such as CO, NC and UT that have tax credit programs for business
enterprise zones and emerging businesses. They are extremely limited in scope and were
not reviewed for this report.
6 As previously noted, because there are many other reports on state initiatives under
Medicaid and SCHIP this report will largely focus on initiatives funded only by the states.

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according to a sliding scale. Arizona’s Premium Sharing Program, on the other hand,
offered direct coverage only to uninsured residents with income below 275% of the
federal poverty level or to people who have one of 19 chronic conditions whose
incomes are below 400% of the federal poverty level. The demonstration program,
now dismantled, paid up to 97% of the premium based on a sliding scale for coverage
provided through contracts with three health insurers for enrollment that reached just
over 3,600 people in 2002.
While these programs have helped expand coverage to people without
affordable alternatives, enrollment is limited relative to demand primarily because
of funding constraints. The Massachusetts Children’s Medical Security Plan, which
began in 1994, had to close enrollment temporarily in its first year because of high
demand. At the end of June 2002, it had 25,680 children enrolled who were not
eligible for Medicaid/SCHIP. Enrollment rises by almost 650 new people each
month. Pennsylvania began its new direct coverage program in July 2002 using
tobacco settlement dollars. AdultBasic, which provides direct coverage through four
Blue Cross and Blue Shield plans, ended its first month with over 6,000 enrollees.
By the next month enrollment had nearly doubled. In 2002, the state estimated that
it has enough funding for about 40,000 enrollees, taking into account the $30 per
month contribution by each enrollee. Enrollment, however, reached this threshold
quickly, and the state was required to later institute a waiting list7. New Jersey had
a program for childless adults with incomes under 50% of the federal poverty level
but discontinued enrollment in September 2001. Within a few months of its
operation, the program’s enrollment exceeded estimates and funding.8
7 Pennsylvania Department of Insurance, adultBasic website at[http://www.ins.state.pa.us/
ins/cwp/view.asp?a=1336&Q=543301&PM=1.]
8 John Holahan and Mary Beth Pohl, States as Innovators in Low-Income Health Coverage,
Assessing the New Federalist Project, Urban Institute, June 2002, p. 16.

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Table 3. Key Features of State Tax Credit Programs (2002)
Year
Target
Number of
State
began
population
Eligibility standards
Size of credit
participants
Program costs
Income may not exceed $25,000, $30,000
or $35,000 depending on marital and
7,544
parental status. Credit can be claimed for
individuals (tax
Colorado
2000
Individual
an unlimited number of years.
$500 (non-refundable)
year 2000)
$2.7 million tax year 2000)
Employer could not have provided
Range from the lesser
insurance within past two years (or less
of $35 per month per
than two years in case of new employee)
eligible covered
50 small
and can claim credit for employees who
employee or 50% of
employers (tax
Small
work at least 30 hours per week. Credit can
total amount paid by
year 2000 and
Kansas
1999
employers
be claimed for five years.
employer (refundable)
2001)
$79,000 (2000 and 2001)
Employer can claim credit for employees
who work at least 30 hours per week or
1,000 hours per year and must meet
Small
contribution requirements. Credit only
employers
available if employer provides health
The lesser of 20% of
with under
insurance for dependents (under the age of
coverage or
14 small
five
19) of low-income employees. Credit can
$125/person
employers (tax
Maine
2001
employees
be claimed for two years.
(nonrefundable)
year 2001)
$5,774 (tax year 2001)
Source: Georgetown University Institute for Health Care Research and Policy, 2002. Information gathered through survey of state program officials.

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Table 4. State-Funded Programs (2002)
Year
Eligibility
State
Program
began
Type of program
categories
Arizona
Premium-Sharing
1997
Direct Coverage/
Uninsured residents
Program
Subsidy Program
with incomes below
275% of the federal
poverty level (FPL).
Chronically ill with
one of 19 specific
conditions.
District of
Healthcare
2001
Direct Coverage
Uninsured residents
Columbia
Alliance
Program
with incomes below
200% FPL.
Massachusetts
Children’s
1994
Direct Coverage
Uninsured children
Medical Security
Program
not eligible for
Program
MassHealth (the
state’s Medicaid
program).
Healthy Start
1985
Direct Coverage
Uninsured pregnant
Program
women with incomes
below 225% FPL.
Center Care
1989
Direct Coverage
U n i n s u r e d l o w-
Program
i n c o m e a d u l t
r e s i d e n t s w i t h
incomes below 200%
FPL.
Minnesota
MinnesotaCarea
1992
Direct Coverage
Childless adults with
Program
incomes below 175%
FPL.
New York
Healthy NY
2001
Stop-Loss Program
Working uninsured
residents and sole
proprieto rs with
incomes below 250%
FPL.
Small employers
with 1/3 employees
making less than
$31,000.
Pennsylvania
AdultBasic
2002
Direct Coverage
Nonelderly adults
Program
with incomes below
200% FPL.
Washington
Basic Health Plan
1993
Direct
L o w - i n c o m e
Coverage/Employer
r e s i d e n t s w i t h
Buy-In Program
incomes below 200%
FPL.
Source: Georgetown University Institute for Health Care Research and Policy, 2002. Information
gathered through survey of state program officials.
a. MinnesotaCare has several populations eligible for coverage. Childless adults with incomes under
the specified federal poverty level are covered exclusively through state funding. The other
eligibility categories are supported through Medicaid funds.

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Table 5. Key Features of State-Funded Programs (2002)
Pre-existing
exclusion
Minimum
Participants
Basis of
period
benefit
pay share of
premium
Co-
State
allowed
standards
premium
share
insurance
Arizona Premium
Sliding
Sharing Program
No
Yes
Yes
scale
Yes
DC Healthcare
Not
Not
Alliance
No
Yes
No
applicable
applicable
Massachusetts
Yes (except
Children’s Medical
for
Security Plan
participants
under 200%
Sliding
No
Yes
FPL)
scale
Yes
MinnesotaCare
Sliding
No
Yes
Yes
scale
Yes
Healthy New Yorka
Premium
Yes
Yes
Yes (100%)
amount
Yes
Pennsylvania
$30 per
AdultBasic
member per
No
Yes
Yes
month Yes
Washington Basic
Sliding
Health Plan
Yes
Yes
Yes
scale
No
Source: Georgetown University Institute for Health Care Research and Policy, 2002. Information
gathered through survey of state program officials.
a. Healthy New York is a stop-loss program. The state does not contribute to any individual
participant or small employer’s premium. It reimburses the health plan for the cost of care
for participants in excess of a specified amount.
Table 6. Selected State Coverage Programs:
Enrollment and Appropriations
Number of enrollees
Program appropriations
Arizona Premium Sharing
$10.5 million
Program
3,623 (10/02)
(FY2002)a
Massachusetts Children’s
$15.3 million
Medical Security Plan
25,680 (6/02)
(FY2002)
$499 million
Washington Basic Health Plan
122,250 (6/02)
(FY2002-03)
Source: Georgetown University Institute for Health Care Research and Policy, 2002. Information
gathered through survey of state program officials.
a. Arizona PSP’s enrollment figures do not include those reimbursed by the Arizona Health Care Cost
Containment System, the state’s Medicaid-type program. Its appropriation is supplemented
by funds remaining from the previous fiscal years’ appropriations.
Obtaining the resources needed for these programs to reach a large number of
people presents significant challenges for states. Further, in the recent budget
environment, states were concerned about their ability to maintain these programs at
their existing levels, prompting many to look for ways to maximize resources from
the federal government. Minnesota, for example, developed a broad state-only
funded program in the early 1990s. With the exception of coverage for childless

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adults, the cost of MinnesotaCare is now shared with the federal government. Not
long before the completion of the survey, two states, Oregon and Illinois, had
received approval of Medicaid research and federal demonstration waivers that will
enable the states to augment state resources with Medicaid funding for Oregon’s
Family Health Insurance Assistance Program and Illinois’ KidCare Rebate program.9
Another way states leverage their resources is by encouraging employers to enroll
in their programs. Since employer-sponsored group coverage tends to be more
affordable than individual coverage and since most employers contribute to the cost
of their workers’ health insurance, states may reach more people with fewer state
funds. But, as indicated by the enrollment in several state programs, they have faced
challenges in doing so. Group health insurance is a major focus of programs in
Washington and New York. These states’ programs serve both individuals and
employer groups but the majority of their enrollment is from individuals. The
Washington Basic Health Plan’s average monthly enrollment of 122,250 in FY2002,
for instance, includes 808 enrollees from 237 employer groups. The remaining
enrollees are individuals. New York also experienced an unexpected surge in
individual enrollment. Unlike a number of the other public programs, New York’s
does not provide direct coverage or subsidies to program participants but provides
stop-loss coverage to insurers whose costs fall within a specified range for
individuals, sole proprietors or small employers who purchase a package of benefits
under the Healthy NY program. In other words, the state does not help pay for any
specific individual’s coverage but reimburses the health plan if the cost of health care
for a particular individual reaches a certain amount. In September 2002, this young
program had about 13,430 active enrollees of which 7,400 were individuals, 3,430
were sole proprietors and 2,600 were workers covered through 835 participating
small employers.10
Consistent with the desire to build on job-based health insurance, some states
have created, or built into other existing programs ways to help subsidize health
insurance offered by employers. In 2002, seven states were planning to offer, or are
currently offering premium assistance through SCHIP to enroll children in their
parent’s job-based health insurance.11 Medicaid also permits states to help pay the
cost of employer-sponsored insurance available to those who are Medicaid-eligible
(and their families) — when it is cost-effective to do so — through the Health
Insurance Premium Payment Program (HIPP).
9 Oregon’s Family Health Insurance Assistance Program (FHIAP) covered about 3,300
people and had a waiting list of approximately 27,000 residents in June 2002. With the
federal waiver, it plans to ultimately cover between 20,000 and 25,000 people.
10 For an analysis of New York’s Healthy NY program and other state initiatives, see Heidi
Whitmore, Kelley Dhont, et al., “Employer Health Coverage in the Empire State: An
Uncertain Future,” The Commonwealth Fund, 2001.
11 Jennifer Ryan, Health Insurance Family Style: Public Approaches to Reaching the
Uninsured, National Health Policy Forum, Sept. 24, 2001, p.5.

CRS-11
Group Health Insurance Initiatives
Because most people — two-thirds of nonelderly Americans — get health
insurance through their job and most of the nonelderly uninsured are employed,
group health insurance has been the cornerstone of many initiatives and proposals
intended to expand coverage. While these efforts principally seek to stabilize
coverage, they are also intended to reduce or prevent an increase in the number of
uninsured by removing barriers to accessing health insurance and helping workers
keep their health insurance.12 Federal and state portability statutes and other market
reforms created for private group health insurance have removed many of the access
barriers to health insurance. For example, insurers are prohibited from denying or
canceling health insurance because an employee is in poor health and, for most
people, there are limits on how long insurers can deny them coverage for pre-
existing conditions. A few states have gone a step further and sponsored purchasing
pools for small employers to buy health insurance.
Small Group Health Insurance. Prior to the early 1990s, state regulators
identified a number of problems in the small group market for health insurance.
Some insurers were rejecting small employers who had an employee with poor health
status. Others would accept the group but refuse to cover any employees or
dependents with a history of illness. In some cases, insurers would refuse to renew
health insurance or dramatically increase the price of health insurance for groups with
high claims.
Access Rules. Beginning in the early 1990s, the states moved to address these
barriers to health insurance by setting rules for small group health insurers. Later, in
1996, HIPAA established national standards for private health insurance based in
large part on these state efforts. Although almost all of the states had small group
reforms by the time HIPAA was enacted, there was inconsistency in the degree of the
protections among the states. Some states, for example, required insurers to make
all of their products available to small employers. But in many other states, insurers
were only required to make one or two products available. These products tended to
have many more sick people than healthy people and were usually very expensive.
HIPAA provided greater uniformity and breadth to these protections. It also
expanded them to self-funded group health plans that state law does not reach and
12 Within group health insurance, there are large group and small group health plans. Large
group health plans are those offered by employers with more than 50 employees. Small
group health plans are those offered by employers with two to 50 employees. In about 10
states the definition of small employer has been expanded to include groups of one — that
is, self-employed persons with no other employees. In 2002, in five states — CO, DE, MA,
VT, WA — groups of one had guaranteed access to all products offered by a small group
health insurer year-round. But some states — CO, FL, MD, NH and NC — had carved out
an exception for groups of one on a limited basis. For instance, they may have guaranteed
access during one month out of the year or may be limited to standardized plans. In AZ and
NM groups of one have been guaranteed access to small group health insurance through
state-sponsored purchasing pools.

CRS-12
fully-insured large group health plans, which states had not previously regulated.13
In other words, it created a federal floor of protections for all group health plans of
all sizes across all of the states.14
This federal floor:
! prohibits all group health plans, regardless of size and whether they
are insured or self-funded, from imposing pre-existing condition
exclusion periods for longer than 12 months (18 months for late
enrollees);
! requires insurers to credit certain prior coverage against any new
pre-existing condition exclusion period for certain individuals who
change jobs;
! requires insurers to give all small employers access to all of their
small group products (called guaranteed issue);
! prohibits insurers from cancelling coverage because an employee
gets sick or makes claims (called guaranteed renewability);
! prohibits all group health plans from denying or limiting an
employee’s coverage or charging an employee more because of
health status (called nondiscrimination); and
! requires group health plans to allow employees and their dependents
to sign up for coverage at times other than the open enrollment
period if certain changes in family status occur (called special
enrollment periods).
Rating Rules. While HIPAA helps make health insurance more accessible to
all small employers without regard to their employees’ health status and stabilizes the
market somewhat, the federal law does not address what many employers see as the
major barrier to coverage for small employers — its cost.15 Most states have tried to
13 Over 64% of the nonelderly U.S. population obtains private health insurance through their
employers. Only 6% buy it directly from insurers. When employers provide the insurance,
they do so on either an “insured” or “self-funded” basis. In other words, they either buy the
insurance from a state-regulated insurer (‘insured’) or they pay for the cost of their
employees’ care out of their own general assets (‘self-funded’). The Employee Retirement
Income Security Act of 1974 (ERISA), a federal law, governs both insured and self-funded
plans and does not allow states to regulate the employer’s health plan. As a result, self-
funded plans are not affected by any of the state laws we discuss in this report. States can
and do, however, regulate insurers and thus indirectly affect insured health plans. For a
primer on private health insurance and how it is regulated; see CRS Report RS20315, ERISA
Regulation of Health Plans: Fact Sheet, by Hinda Chaikind; and Gary Claxton, How Private
Health Insurance Works: A Primer, Kaiser Family Foundation, Apr. 2002.
14 For more reading on HIPAA, see CRS Report RL31634, The Health Insurance Portability
and Accountability Act (HIPAA) of 1996: Overview and Guidance on Frequently Asked
Questions, by Hinda Chaikind, Jean Hearne, Bob Lyke, Stephen Redhead and Julie Stone
and Karen Pollitz, Nicole Tapay, et al., “Early Experience with ‘New Federalism’ in Health
Insurance Regulation,” Health Affairs, vol. 19, no. 4, July/Aug. 2000, pp. 7-22.
15 Jon Gabel, Larry Levitt, et al., “Job-Based Health Benefits in 2002: Some Important
Trends,” Health Affairs, vol. 21, no. 5, Sept./Oct. 2002, pp. 143-151. (Here after cited as
(continued...)

CRS-13
address this issue through rating rules but the extent to which they have done so
varies.
Table 7. Approaches to Rating Reform for
Small Group Health Insurers
Pure Community Rating: Insurers cannot set premiums for policies sold to a small group
based on the health status or case characteristics (demographics) such as age, gender, or
industry of the group’s membership. Those buying the same benefits are charged the
same premium.
Adjusted Community Rating: Insurers cannot set premiums based on health status. The
state might allow insurers to vary premiums based on factors such as age, gender or
industry.
Rate Bands: Insurers can set premiums based on factors such as health status, age, gender
or industry but the state limits how much the premium can vary among those receiving
the same benefits based on some or all of these factors.
Health status and claims experience are the primary factors influencing rates and
the focus of most state rating rules. Most states place some limits on their use in
setting premiums by group insurers but in 2002, only 13 states prohibited their use
altogether as rating factors. For small group health insurance, the most stringent
form of rating restriction — pure community rating (see Table 7) — can be found
only in the states of New York and Vermont.16 In those states, small group insurers
cannot charge more because of the health status, age, gender or occupation of
members of the group. As a result, the cost of health insurance is spread more
broadly across the entire market and premium variations are based only on benefits
and not health status or demographics (called ‘case characteristics’). This makes the
cost of health insurance more predictable for small employers. It also spreads the
cost of health insurance among all groups making it more affordable for groups with
sicker employees and dependents. As a result, groups that have more employees with
poor health status may pay less than they otherwise would while healthier groups are
likely to pay more. In some states, pure community rating requirements may apply
to certain insurers. For instance, in 2002, Blue Cross/Blue Shield was required to use
pure community rating in Michigan. Another 11 states (California, Colorado,
Connecticut, Florida, Maine, Maryland, Massachusetts, New Hampshire, New Jersey,
Oregon, and Washington) required that small group insurers use a method called
adjusted community rating which prohibits them from charging groups more due to
health status. They are able, however, to charge more for other factors such as age
or gender. One of these states, Oregon, applied this rule to products purchased by
groups of two to 25 instead of more common small group size of two to 50 workers.
Most of the remaining states place looser limits on the use of health status and/or
15 (...continued)
Gabel, Job-Based Health)
16 In VT, insurers other than Blue Cross/Blue Shield may deviate from the community rate
for small group plans issued before Jan. 1, 2000 to a limited extent for age and gender.
However, as of Jan. 1, 2003, all small group health insurance policies in the state will be
community-rated.

CRS-14
case characteristics such as age, gender or occupation allowing for much greater
variation in premiums.
Almost all of the remaining states had some form of rate bands required under
small group market laws or regulations. When states restrict premiums by setting
rate bands, premiums are allowed to vary by demographic factors, but only by a
limited amount. For example, a state may allow premiums for an insurance product
to vary based on the health status of the employer groups purchasing the insurance,
but the amounts can vary by no more than a 2 to 1 ratio.
Purchasing Pools. In 2002, two states — Arizona, New Mexico — and New
York City operated health insurance purchasing arrangements, also known as
purchasing pools.17 Purchasing pools allow small businesses to band together to
purchase health insurance. Some argue that they expand access to health insurance
for small businesses by offering health insurance at a lower cost than would
otherwise be available to a small firm purchasing coverage independently in the
private market. It is argued that the cost savings is achieved through volume
purchasing and discounts negotiated with insurers.18 Cost savings may also be
achieved through favorable selection of purchasing pool members who are healthier
than average. Such savings, however, may be directly offset by increases in the cost
of health insurance for sicker groups who are left outside of the pool. Although
achieved costs savings are debatable, pools can improve choice for small businesses
and their workers. Generally, employees of participating small businesses choose
among different insurance companies, health insurance policies, and benefit levels.
Such choices are not typically available to employees of small businesses outside the
purchasing pool.19 Additionally, purchasing pools may fill an unmet need by serving
a population that has limited access to health insurance. For example, as discussed
earlier, it is more difficult for small businesses with fewer than 10 employees to buy
health insurance directly from private health insurers.
For state-sponsored purchasing pools, states establish eligibility rules, design
benefit offerings, sometimes regulate the premium that may be charged, and negotiate
with insurers. The existing state-sponsored purchasing pools are subsidized by state
17 There are several states that have created state-sponsored purchasing pools. Some of them
have been discontinued, such as those created in FL, NC, and TX. The flagship state-
operated purchasing pool and the pool attaining the largest size, California’s Health
Insurance Plan, was established in 1989. The now privately operated, Pacific Health
Advantage (PacAdvantage) has enrollment of more than 11,000 small businesses and almost
150,000 individuals. It was established by the state but its authorizing legislation provided
for its administration to be taken over by a private entity after three full years of operations.
It is currently operated by the Pacific Business Group on Health, a coalition of large
employers, [http://www.PacAdvantage.org]. The three purchasing pools discussed in this
report continue to be state arrangements. Over 20 states also have laws enabling private
entities to form purchasing pools.
18 Eliot K. Wicks, Mark Hall and Jack A. Meyer, “Barriers to Small-Group Purchasing
Cooperatives,” Economic and Social Research Institute, Mar. 2000, p. 10.
19 Stephen H. Long and M. Susan Marquis, “Have Small-Group Health Insurance Purchasing
Alliances Increased Coverage?” Health Affairs, vol. 20, no. 1, Jan./Feb. 2001, pp. 154-163.

CRS-15
taxes (general or specific appropriations) and/or assessments on insurers. Key
features of such programs include offering a choice of health plans on a guaranteed
issue basis, not basing premiums on health status, and not excluding existing health
conditions from coverage when an individual has had other health insurance.
Table 8. State-Sponsored Purchasing Pools, 2002
Number of
Number of
Number of
Implementation
participating
covered
participating
date
employers
lives
plans
Arizona
1998
3,859 (4/02)
11,985
2
New Mexico
1995
1,036 (7/02)
5,200
11
New York City
1999
810 (6/02)
7,290
4
Source: Georgetown University Institute for Health Care Research and Policy, 2002. Information
gathered through survey of state program officials.
These key features — guaranteed issue, adjusted or community rating, and
portability — are designed to make it easier for small businesses to participate by
eliminating hurdles that some small businesses may face in the private market outside
the purchasing pools. The Healthcare Group of Arizona, in existence since 1988,
offers coverage to nearly 4,000 small businesses and self-employed individuals
covering nearly 12,000 people. The New Mexico Health Insurance program
established in 1995 covers over 5,200 people and over 1,000 employers. New York
City’s HealthPass, established in December of 1999, insures over 7, 200 individuals
(over 3,200 were previously uninsured) and over 800 employers.
State purchasing pools may improve access to health insurance for some small
businesses by making health insurance more affordable to businesses with sick
employees, when premiums are not based on health status. Such arrangements may
attract a disproportionate share of businesses with high claims individuals (further
taxing state budgets which help subsidize some of these programs), however, if such
rules also do not apply to private health insurance outside the purchasing pool. The
rules in New York are the same inside and outside of the purchasing pool. But the
other pools in place in 2002 did not impose rules that were parallel to those outside
of the pool, as shown in Table 9. If states continue to establish new purchasing
pools, such arrangements may work best when subject to the same rules as the private
market.
Table 9. Comparison of Rating Rules for State-Sponsored
Purchasing Pools and Small Group Health Insurance, 2002
Purchasing pools
Small group health insurance
Arizona
Adjusted community rating
Rate bands
New Mexico
Adjusted community rating
Rate bands
New York City
Pure community rating
Pure community rating
Source: Georgetown University IHCRP 2002. Interviews with program officials.

CRS-16
Despite these efforts, many small groups do not offer health insurance at all. In
a 2002 survey, firms with fewer than 199 employees are less likely to offer coverage
than medium or large-size employers. Among small firms, those with fewer than ten
are even less likely to offer coverage.20 While a number of complex factors are
involved, one of the most important reasons is sensitivity to price. In the same
survey, 84% of employers with between three and 199 workers cited high premiums
as an important reason for why they do not offer health benefits.
Individual Health Insurance Initiatives
Individual health insurance is an alternative for some people who cannot obtain
job-based insurance or who do not qualify for public programs. Others however,
cannot buy individual policies either because their application is denied because of
health status or other risk factors or because they cannot afford it. Many states have
set up high-risk pools for those who cannot purchase private health insurance on their
own.
While only 5 to 6% of the population has individual coverage at any given time,
many more people move in and out of the individual market over time. A recent
study found that one in four adults had been insured through individual health
insurance at some point during a three-year period.21
Individual Health Insurance. As illustrated in Table 10, many of the state
laws in effect in 2002 intended to preserve access to insurance apply to small
employers, but did not apply to people buying individual health insurance. Although
50 states and the District of Columbia required small group health insurers to
guarantee issue coverage, only five states required insurers to guarantee access to
individual health insurance while another 14 states require it under limited
circumstances. In other words, most states didn’t require insurers to make their
individual products available without regard to health status. Instead, individual
health insurers were able to “medically underwrite” applicants — researching
applicants’ health status and health history before deciding whether to sell insurance,
and if they do sell it, at what price and under what terms. In 13 states, individual
health insurers were not allowed to permanently exclude coverage for a health
condition, body part or body system — called an elimination rider but they are
permitted to do so in 38 states.
20 Jon Gabel, Larry Levitt, Erin Holve, Jeremy Pickreign, et al., Job-based Health Benefits
in 2002: Some Important Trends, Health Affairs, Sep/Oct 2002, Vol. 21, Issue 5, p. 148.
21 Lisa Duchon and Cathy Schoen, et al., “Security Matters: How Instability in Health
Insurance Puts U.S. Workers at Risk: Findings from the Commonwealth Fund 2001 Health
Insurance Survey,” Commonwealth Fund, Dec. 2001, p. 24.

CRS-17
Table 10. Number of States and D.C. with
Selected Market Reforms (2002)
Small group market
Individual market
reforms
reforms
All products guaranteed
issue
51
5
Limited pre-existing
condition exclusion period
51
29
Elimination riders
prohibited
51
13
Credit for prior coverage
applies to new plan’s pre-
existing condition
exclusion period
51
27
Guaranteed renewability
51
51
Source: Georgetown University Institute for Health Care Research and Policy, 2002.
Access Rules. The states have taken a variety of approaches to improve access
to individual health insurance. These approaches can be summarized as follows:
All Products Guaranteed Issue. Five states — Maine, Massachusetts, New
York, New Jersey, and Vermont — required individual health insurers to make all
of the individual products available to all comers.
The experience of the states guaranteeing access to all products has been mixed.
All five states have preserved this requirement for a number of years (although not
necessarily without a political struggle). Other states that used to have these rules no
longer do. New Hampshire and Washington, for example, had both repealed many
of their individual health insurance reforms by 2002.
Selected Guaranteed Issue. Some states required insurers to make individual
health insurance available only if the applicant is ‘federally eligible’ as narrowly
defined in HIPAA.22 While HIPAA required guaranteed access to those individuals
who are federally eligible, it allowed states to choose how to implement this
guarantee. Most states used options that already existed such as high-risk pools. As
a result, in most states, HIPAA protections do not change people’s options for
coverage when they do not have job-based health insurance or do not qualify for
Medicaid.
22 A person is federally eligible if he meets several criteria. He has to have 18 months of
continuous coverage ending with a group health plan. He must use up any COBRA or state
continuous coverage for which he was eligible and he must apply for health insurance for
which he was federally eligible within 63 days of losing his prior coverage. He cannot be
eligible for Medicare, Medicaid or a group health plan and cannot have other health
insurance. (An exception is if the other insurance is about to end, then he may apply for
guaranteed issue coverage while still insured.)

CRS-18
There are a few states that required individual health insurers to guarantee issue
coverage to non-federally eligible individuals under certain circumstances or during
certain times of the year. How they structured this requirement differs considerably.
Ohio, for instance, required insurers to take turns holding an open enrollment period
throughout the year. Oregon required insurers to make available certain plans to
those who have had six months of prior coverage. Rhode Island required insurers to
guarantee issue all products to individuals who have had 12 months of prior coverage
with no gap in coverage.
Insurer of Last Resort. In 2002, four states — Michigan, North Carolina,
Pennsylvania, and Virginia — and the District of Columbia required certain health
insurers selling plans in the individual market in their state, usually Blue Cross and
Blue Shield plans, to cover individuals who cannot get insurance elsewhere.
In addition to the above protections, Congress and the states enacted laws in the
1990s to make health insurance more secure by prohibiting insurance companies
from canceling policies once an individual became sick. As a result, insurers can no
longer cancel individuals because of their medical claims.23
Rating Rules. As shown in Table 11, some states limited insurers’ ability to
base individual health insurance premiums on health status. Three states required
pure community rating while four states required adjusted community rating. In
another three states, some dominant insurers community rated individual health
insurance as a matter of law or longstanding practice. Another 11 states relied on
rate bands to temper premium rates for individual health insurance.
Table 11. State Individual Health Insurance Rating Rules
Applied Market-Wide (2002)
Number of
states
Pure community ratinga
3
NJ, NY, VT
Adjusted community ratinga
4
ME, MA, OR, WA
Rate bands
ID, IA, KY, LA, MN, NV, NH,
11
NM, ND, SD, UT
No rating limitsb
33
Source: Georgetown University Institute for Health Care Research and Policy, 2002.
a. In a few states, certain insurers were required to community rate. In MI and PA, for example —
Blue Cross/Blue Shield — was required to community rate individual health insurance. In HI,
while there were no requirements to do so, it is our understanding that Kaiser and other large
insurers community rate as a matter of practice.
b. A few states that do not apply rating limits market-wide do apply them on a very limited basis to
certain products such as conversion policies.
23 There have been recent concerns that some insurers are charging substantially higher
premiums, when the policy is renewed, to people who have been diagnosed with an illness
or had medical claims. Chad Terhune, “Insurer’s Tactic: If You Get Sick, the Premium
Rises,” The Wall Street Journal, Apr. 9, 2002.

CRS-19
High-Risk Pools. Most states allowed insurers to reject people with pre-
existing health conditions who apply for individual health insurance and, as an
alternative, set up a high-risk pool for people who are “medically uninsurable.”
Individuals could purchase insurance through the pool if they:
! have a chronic health condition;
! have been turned down by a private individual health insurer; and/or,
! have been charged a premium that is higher than the high-risk pool
premium.
In 2002, 29 states had high-risk pools. In all but a few of the states, these
programs are small and nationally, high-risk pools have enrolled a small percentage
of the uninsurable population.24 As of June 2002, these pools were estimated to have
provided health insurance to fewer than 154,000.25
Table 12. State High-Risk Pools
(most recent year available)
State
Implementation year
Number of enrollees
Alabamaa
1998
3,545 (6/02)
Alaska
1993
456 (6/02)
Arkansas
1996
3,167 (12/01)
Californiab
1991
16,971 (6/02)
Colorado
1991
3,886 (6/02)
Connecticut
1976
2,553 (5/02)
Floridac
1983
638 (12/01)
Illinois
1989
13,123 (6/02)
Indiana
1982
8,317 (12/01)
Iowa
1987
178 (6/02)
Kansas
1993
1,577 (12/01)
Kentucky
2001
1,282 (5/02)
Louisiana
1992
1,635 (12/01)
Minnesota
1976
29,385 (5/02)
Mississippi
1992
3,011 (12/01)
Missouri
1992
1,750 (6/02)
Montana
1987
2,635 (6/02)
24 Steven Pizer, Ph.D., Austin Frakt, Ph.D., et al., “Evaluation of High Risk Pools Draft Final
Report to CMS,” Abt Associates, July 6, 2001, p. 39. (Hereafter cited as Pizer, Evaluation
of High Risk.)
25 Communicating for Agriculture, Inc., Comprehensive Health Insurance for High-Risk
Individuals: a State-by-State Analysis, 16th ed., 2002/2003. High-risk pool enrollment has
been growing over the years. In 1999-2000, there were fewer than 130,000 people covered
by high-risk pools.

CRS-20
State
Implementation year
Number of enrollees
Nebraska
1986
6,008 (6/02)
New Hampshire
2002
25 (8/02)
New Mexico
1998
1,128 (6/02)
North Dakota
1982
1,407 (6/02)
Oklahoma
1996
2,848 (12/01)
Oregon
1990
8,762 (6/02)
South Carolina
1990
1,610 (12/01)
Texas
1998
19,822 (6/02)
Utah
1991
2,087 (6/02)
Washington
1988
2,348 (6/02)
Wisconsin
1981
12,606 (12/01)
Wyoming
1991
725 (5/02)
Sources: Communicating for Agriculture, Comprehensive Health Insurance for High-Risk
Individuals, 16th ed. (2002/2003). New Hampshire enrollment figures obtained from conversation
with state program officials.
Note: Maryland implemented a high-risk pool in 2003.
a. Alabama’s high-risk pool is limited to persons who are federally-eligible under HIPAA.
b. California has a waiting list. The average wait is 12-18 months.
c. Florida closed its high-risk pool to new enrollment in 1991.
There are a number of reasons for the small enrollment numbers. The most
prominent reason is that these programs have lacked funding to enroll a larger
number of people.26 States and enrollees generally share in the cost of the insurance.
Funding for states’ high risk pools came from a variety of sources including general
revenue, tobacco settlement funds, state taxes, assessments on insurers and taxes or
service charges on providers.27 At the time of the survey, participants were also
required to pay a premium for their coverage. While states often offered a variety of
levels of coverage, high-risk pool coverage is still, nonetheless, expensive and
unaffordable for many uninsurable individuals.28 This may have discouraged some
people from applying. Some of the features of high-risk pools may also have
contributed to low enrollment levels. While individuals meeting the eligibility
requirements could not be turned down, the high-risk pools could use many of the
same features as private individual health insurers. For example, to protect against
individuals waiting until they get sick to purchase coverage, called adverse selection,
high-risk pools had pre-existing condition exclusion periods. However, these
strategies, used to protect against overwhelming the pool, may also deter the
seriously and chronically ill from buying coverage.
26 Pizer, “Evaluation of High Risk,” p. 39.
27 Communicating for Agriculture, pp. 29-33.
28 Pizer, “Evaluation of High Risk,” pp. 47-49.

CRS-21
Despite these challenges, some states have made a significant commitment to
these programs reflecting their desire to offer a safety net to those residents who have
nowhere to turn for coverage. A few states — Colorado, Connecticut, Montana, New
Mexico, Oregon, Utah, Washington and Wisconsin — have created subsidy programs
for low-income enrollees in the pool. From time to time, a few states have had to
institute a waiting list. In 2002, only California was placing applicants on a waiting
list because of a lack of funds.29/30 Florida has been closed to new enrollment since
1991.31
Minnesota has the largest and one of the oldest high-risk pool programs, with an
enrollment of 29,385 in May 2002.32 Applicants can become eligible for high-risk
pool coverage in Minnesota in a number of ways, including if they:
! have a condition that has been specifically determined by the pool to
make one medically uninsurable;
! are federally eligible under HIPAA;
! have lost their coverage;
! have been turned down;
! were quoted a premium for a policy that was higher than the typical,
standard rate for that policy; or,
! were offered a policy that had an exclusionary rider.
Once accepted into the pool, Minnesota applies a six-month pre-existing
condition exclusion period but credits time spent in any prior coverage against that
exclusion period. Minnesota also caps its high-risk pool premium at 125% of the
standard rate in the individual health insurance market. By contrast, the premiums
for most other state high-risk pool premiums are between 150 to 200% of the
standard rate for individual health insurance. This makes Minnesota’s high-risk pool
premiums, even for an elderly enrollee, lower than many of the other states.
Related Federal Initiatives
In the 1990s, efforts to expand coverage to the uninsured largely focused on
public programs in partnership with the states. The State Children’s Health Insurance
Program (SCHIP) is the latest major example. More recently, the Bush
Administration and Congress have focused on how to use private health insurance
29 Communicating for Agriculture and discussions with high-risk pool program
representatives.
30 In 2002, CA passed Assembly Bill 1401 requiring that high risk pool subscribers be
disenrolled after 36 months of continuous enrollment. Implemented in 2003, this change
was intended to reduce the waiting list. Disenrolled subscribers are given the opportunity
to enroll into guaranteed coverage in the individual insurance market. As of 2004, there is
effectively no waiting list.
31 In Jan. 2004, the FL Governor’s Task Force on Access to Affordable Health Insurance
recommended re-opening enrollment. Mary Ellen Klas, “Panel Urges State Pool for Health
Insurance” Palm Beach Post, Jan 10, 2004. pg. 1.A.
32 Communicating for Agriculture, p. 23.

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to expand coverage. This section highlights some of the recent federal initiatives that
affect or relate to state activities.
Tax Credits. In each of the years that President Bush has been in office, the
Administration’s budget proposals have included, as a central component of his
health care agenda, a proposal to establish health insurance tax credits for the
uninsured. In addition, various members of Congress have introduced their own
health insurance tax credits bills. Some of those bills include credits for employers,
but most of the national debate has focused on credits for individuals.33 There has
been much discussion among policy analysts about how large a tax credit has to be
to make individual health insurance affordable and a growing consensus that it will
have to be large to substantially lower the number of uninsured.34 Analysts have
struggled with the difficult question of how a tax credit could be structured so that
it really reached the uninsured.35 There has also been discussion about how a tax
credit could be structured to minimize any adverse impact on job-based coverage.36
This discussion includes, for instance, the extent to which younger and healthier
workers who qualify for the tax credit will drop their job-based health insurance and
make health insurance more expensive for those who remain. The impact of tax
credits on people with chronic conditions or a history of illness has also been a
subject of concern since as discussed above, most states currently do not have the
protections in place to make individual health insurance accessible to a broad range
of people.
Public Programs. The Health Insurance Flexibility and Accountability
Demonstration Initiative (HIFA) gives states options to expand coverage to the
uninsured by allowing them more flexibility in designing eligibility, benefit packages
and cost-sharing requirements than under current Medicaid and SCHIP rules. It also
encourages states to offer premium assistance through SCHIP to enroll children in
their parent’s job-based health insurance.37 While this may expand coverage, some
have expressed concern about the effect on Medicaid beneficiaries should states
reduce benefits packages or increase cost-sharing as allowed under the initiative.38
Other proposals have been introduced to expand coverage through public programs.
33 For more on tax credits see CRS Issue Brief IB98037, Tax Benefits for Health Insurance:
Current Legislation, by Bob Lyke and Beth Fuchs, Mark Merlis and Julie James,
Expanding Health Coverage for the Uninsured: Fundamentals of the Tax Credit Option,
published by The National Health Policy Forum, Aug. 28, 2002 .
34 Bowen Garrett, Len Nichols and Emily Greenman, Workers Without Health Insurance:
Who Are They and How Can Policy Reach Them?, W. K. Kellogg Foundation. (Hereafter
cited as Bowen, Workers Without Health Insurance.)
35 Garrett, Workers Without Health, pp. 22-28.
36 Institute for Health Policy Solutions (IHPS), “Individual Tax Credits and Employer
Coverage: Assesing and Reducing the Downside Risks: Expert Forum,” Aug. 2002.
37 Jennifer Ryan, Health Insurance Family Style: Public Approaches to Reaching the
Uninsured, National Health Policy Forum, Sept. 24, 2001, p.5.
38 Jennifer Ryan, Health Insurance Family Style: Public Approaches to Reaching the
Uninsured, pp. 6-8.

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The HealthCARE Act of 2003 (H.R. 2402/S. 1030), introduced in the House by
Representative Kaptur and in the Senate by Senator Bingaman, is one example.
Association Health Plans. Because small employers continue to have
difficulty affording health insurance, Congress continues to debate other strategies
to make insurance affordable. One strategy that has been discussed for a number of
years is to change federal law so that many association-sponsored plans would not
be subject to state small group health insurance rules including some benefit
mandates and rating rules. The bills would establish Association Health Plans
(AHPs) as legal entities that allow small employers to pool together to buy coverage
that is priced below plans that must meet state regulations. This approach has been
the subject of heated debate for many years. Three bills, H.R. 4281, H.R. 660 and
its companion bill, S. 545, have been introduced in the 108th Congress.39
The Trade Act of 2002. Some of the approaches discussed in this report were
incorporated into the Trade Adjustment Assistance Reform Act of 2002 (P.L. 107-
210). This act included an individual tax credit that applies only to individuals who
are receiving trade readjustment assistance or benefits from the Pension Benefit
Guaranty Corporation. They will be able to use the credit to subsidize 65% of their
cost for COBRA or other qualified health insurance. The act relies on states to
establish these other qualified health insurance arrangements. It also provides some
resources to states to create or expand high-risk pools. The act included seed money
in the amount of $1 million for each state that had not yet started a high-risk pool and
limited matching funds to help states with existing pools defray some of their costs.
The matching funds available amount to a total of $40 million in each of fiscal years
2002 and 2003. Three states, New Hampshire, Maryland and South Dakota, have
qualified for grants under the TAA to establish risk pools.
Implications for the Future
The federal government continues to look to the states as its laboratories of
innovation. States have spent many years exploring ways to expand private health
insurance and public programs to the uninsured. Medicaid and SCHIP are the
primary vehicles through which they have pursued this goal. States have also made
progress designing rules to better stabilize group health insurance and promoting
access for those who can afford to pay. But they have been largely unable to reach
those who are not eligible for public programs, or those who are declined or cannot
afford private insurance. For those who lack access to group health insurance, the
states have faced greater challenges. Access to and affordability of individual health
insurance and alternative forms of coverage, such as high-risk pools, in particular,
remains problematic. Creating stable coverage options for small employers and
individuals who cannot access or afford private health insurance has proven a
difficult task for states.
39 For more information on Association Health Plans see CRS Report RL31963, Association
Health Plans, Health Marts and the Small Group Market for Health Insurance, by Jean
Hearne.

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Probably the most important lesson learned from the states’ experience is that
they cannot easily do this alone. The most comprehensive initiatives that states have
undertaken involved significant federal involvement — federal standards and/or
federal dollars. The SCHIP program and the small group health insurance rules
established under HIPAA are the most recent notable examples. While states had
begun to enact many of the market reforms later included in HIPAA, the federal
law’s passage created uniformity across states so that all small employers have the
opportunity to buy group health insurance. SCHIP helped states make significant
headway in reducing the uninsurance rate for children.
States have been uneven in their efforts to expand coverage to the uninsured
reflecting, at least in part, the significant financial costs associated with many of
these initiatives and the demands of different priorities. Only six states and the
District of Columbia, for instance, had public programs in place in 2002 providing
access to health insurance funded without federal dollars. Very few states have
attempted to extend tax credits to subsidize the cost of health insurance coverage.
Further, with few exceptions such as Minnesota’s high-risk pool or Washington’s
Basic Health Plan — the states have not reached appreciable numbers of uninsured
through these initiatives. Even in the case of high-risk pools, which 29 states have
created, states have struggled to garner sufficient resources to reach a large number
of residents or to make such coverage affordable. They are further challenged by the
rising number of people without insurance and the declining number covered by
employer-based coverage. Given competing priorities for limited state budgets
questions remain about how states can maintain their current public programs much
less begin new ones.
Nevertheless, the variety of approaches used by those states that have engaged in
these initiatives can yield some useful information for Congress. Many have been
in place for a number of years so state program officials are knowledgeable about the
strengths and weaknesses of their initiatives. Understanding how these public and
private programs have been designed can provide insight into the various choices that
are available and their implications. While many of the states’ efforts are small in
scale, they provide an opportunity to track their impact and any administrative
challenges they pose.