eHealthInsurance
Public Policy Briefing with Dick Armey and Congressional Health Care Staff
Washington D.C., December 7, 2000
Vip Patel, Chairman and Founder

This briefing was the latest in a series of meetings and briefings held between members of Congress and Vip Patel, chairman and founder of eHealthInsurance, over the last year. These meetings are non-partisan, open discussions about the issues facing both the public and private sectors in working toward solutions for the 44 million uninsured Americans.

Following are the prepared remarks of Vip Patel. Part of this briefing was a demonstration of the eHealthInsurance.com website at www.eHealthInsurance.com. Also presented was a video produced by eHealthInsurance with testimonials of individuals and small business owners about their experience in seeking and finding health insurance.

For more information, or a copy of this video, please contact Emily Fox at 408/542-4840 or via email at emily.fox@ehealthinsurance.com.

Introductory Comments

Thank you, Dick Armey and staff, for hosting our event here today, and for your initiative on the uninsured problem.

Coming from the business world, we're required to set goals. If we don't have a goal, then we're sure to hit it. When it comes to the uninsured, I'd like to suggest that together, private and public sector, we set, as a Stanford business school author put it, 'an aggressive, big, hairy, audacious goal':

TO CUT THE PECENTAGE OF UNINSURED AMERICANS
(20% OR 44 MILLION IN 2000) IN HALF BY THE YEAR 2010.

With a goal in mind, it will help us evaluate our proposals and measure the effectiveness of our actions toward achieving the goal.

In our brief time today, I'll introduce my company, eHealthInsurance. Then, I'd like to give you a brief demonstration of our site and show a video that will help you to see how the Internet has been effective, at least in part, in addressing the uninsured. Then I thought I would offer you our public policy perspective, given eHealthInsurance's national experience with the uninsured. And before our time is up, we can open up the floor for questions and discussion.

For those of you who are unfamiliar with eHealthInsurance, our company provides health insurance to individuals and small businesses over the Internet, essentially acting as an online broker. eHealthInsurance.com is the number one place where Americans are purchasing health insurance over the Internet. We also believe that eHealthInsurance directly sells more individual and small business policies combined than any other company, online or offline. We're licensed in all 50 states and D.C, covering 95% of the population.

eHealthInsurance is one of the only national health insurance brokers. We are not a health insurance company. We represent our customers, the thousands and thousands of individuals, families and small businesses, whom we have helped select health insurance from over 3500 health insurance plans nationwide. This reach enables us to have an objective and knowledgeable understanding of the plight of the uninsured and of how programs in various states are working -- or not working, as the case may be.

I'm here today because eHealthInsurance seeks to be a catalyst, if not a lightning rod, to encourage both sides of an equally balanced Congress to take near-term steps that can make a real difference for the uninsured, now.

* Show Demo of eHealthInsurance.com, highlighting how the online process is superior to the current world.
* Show Video with testimony from previously uninsured.

eHealthInsurance's Public Policy Perspective

Republicans and Democrats alike can celebrate that the Internet is starting to make an impact on the uninsured. eHealthInsurance will continue to do its part to address the uninsured problem. However, cutting the uninsured population in half clearly requires all the political and economic muscle both the public and private sectors can apply to this effort.

As you know, there are many ideas out there about how to attack the problem of the uninsured. In order to make sense of it, we've adopted a method of evaluation that smart venture capital investors in Silicon Valley utilize. It helps them sort between the thousands of business plans on their desk from the handful that they actually invest in. The method is an acronym: PIE -- "P-I-E".

P - Is the Problem important and big enough to be worth tackling? Is it worth going after, and of concern to a big enough market?
I - Is there an Impactful Idea that will actually solve the problem, not an idea that if achieved will leave the problem unresolved?
E - Will there be entrepreneurial Execution that can turn the idea into reality? Many of the best ideas are not possible to achieve, and it's best to identify this early.

So as eHealthInsurance looked out at the wide gamut of public policy proposals for the uninsured, we prioritized them by scoring factors of PIE on a scale of 0 to 10 (with 10 as high and 0 as low). Then we multiplied the three factors of PIE to come up with the overall score for the proposal.

Public Policy Proposals

Today, I'd like to share with you the three public policy proposals we rate the highest and how we scored them.

First off, let me say that for all of the proposals, we rate the "P," the Problem of the uninsured, as a 10 out of 10. The fact that you are here today means that you recognize that the Problem is a big one. It's the plight of 1 in 5 Americans. Election polls showed healthcare as a top national issue, and the uninsured the top issue of all the issues related to healthcare.

TOP PROPOSAL #1: Tax credits for uninsured individuals (10 x 10 x 8 = 800)
1a) The idea's impactfulness scores a 10 for its direct impact on the uninsured.

Most of you already understand this proposal, but let me tell you why I think tax credits are a great idea.

1-a-i) First, the proposals I'm aware of offer a credit large enough to pay a significant proportion of a reasonable policy. I think policymakers have tended
to overestimate the cost of a "reasonable policy." Check our site…

1-a-ii) Tax credits constitute direct impact on affordability in a time when economic aid (like Medicaid) is still not available to the majority of the uninsured. Did you know that roughly 75% of the uninsured population has income above the Federal Poverty Level (FPL)? By focusing on the poorest of the poor alone, we may cut the uninsured by 25%, but not the targeted 50%.

1-a-iii) The introduction of a tax credit would shake up the uninsured and cause them to re-evaluate their economic scenario and explore the facts in the light of the new credit. One study showed that roughly 75% of the uninsured population in California don't believe they can afford health insurance, however, upon review of actual information, most discovered they could afford it.

1b) Execution of tax credits scores an 8.

Everywhere I turn it seems like the tax credit continues to draw increasingly strong bi-partisan support. Breaux-Frist is one example. Another example is the joint Washington Post article from last year where Leader Dick Armey, R-TX, and Representative Pete Stark -- the Democratic Congressman representing eHealthInsurance headquarters in Sunnyvale -- both promoted the idea of refundable tax credits as "a bipartisan remedy." Democrats Sen. Boxer, D-CA, and Rep. McDermott, D-WA, introduced tax credit bills. It's hard to argue with an effective idea that both helps the lower income population and supports the private sector.

TOP PROPOSAL #2: High-risk pools for the hard-to-insure (10 x 9 x 8 = 720)
A significant number of individuals in America cannot get health insurance today because of pre-existing conditions. And high-risk pools are a solution that can really help those who can't qualify in the private market.

2a) This idea scores a 9 for impactfulness -- why?

2-a-i) High-risk pools are not just an idea, but they are at work in 26 states. Yes, the majority of U.S. states have implemented such programs without federal support. In many of those states, high-risk pools are in such high demand that people are being turned away, or -- like in California -- they are being placed on one-year waiting lists.

2-a-ii) The coverage is standard and reasonably affordable. Typically it is a private health insurance policy similar to the open market, with rates that are 125% to 200% of the private market price. The main difference is that the maximum benefit caps out sooner. The state or subsidized funds do not pay for the entire insurance policy, but typically bring the premium down to normal cost levels.

2-a-iii) One of the states most supportive of universal health care tried a flavor of it and learned a very hard lesson. That state, Washington, is now focusing on high-risk pools. Several years ago it passed a law forcing health plans to accept individuals independent of their health status (a.k.a. guaranteed-issue). Every single for-profit and non-profit health plan pulled out of the market, leaving individuals nowhere to go to purchase insurance. According to a press release by Blue Cross, state policies enacted in the mid-1990s led the company to lose more than $70 million in the individual market. By the way, other states, primarily in the Northeast (NY, NJ, MA, NH, VT), have legislated guaranteed issue and community rating for individual insurance and have effectively shut down the free market for health insurance in those states.

Earlier this year, Washington Governor Gary Locke signed broad reform legislation to restore an individual market he had characterized as "out of whack," analogous to being able to sign up for fire insurance after your house burns down. The new law uses the state-administered high-risk pool (called WSHIP) to cover people with the costliest medical conditions.

b) Execution of high-risk pools scores an 8:

In a series of interactions with some Democratic leaders, I found that they would firmly support high-risk programs. In my presentation to a group of senior Democratic leaders where I was seeking to illuminate the barriers for the uninsured, I was posed with an excellent question by a Senator - "How does someone with a difficult medical condition (e.g. an 18 year old who has juvenile diabetes) obtain health insurance?" Several personal emails flowed back and forth between us, and in one he wrote:

"I was only marginally aware of the MRMIP program in California. I appears to be a good start. Unfortunately, there are not many states with such a program right now. My state, for example, has nothing."

I wrote back that a number of states have high-risk programs and suggested that they serve as models for a national program. Again, the response was positive.

You may see some resistance to high-risk pools by anti-health insurance skeptics who complain that high-risk pools could lead to exorbitant profits for health plans because their most expensive healthcare users are now taken care of by the government. However, such concerns will go away once they realize that the opposite will happen. Exorbitant profits occur under monopoly-like conditions. Today, the market mechanism for individual and small business markets is stifled, leading to monopoly-like structures in a number of states.

The juggernaut and the solution lies in the answer to "Where are you going to place the person with the known high medical costs?" -- which is a lot like the game "hot potato." It has been repeatedly proven that if you force the insurance carriers to hold the hot potato, they will get burned and stop playing the game. If you force any one small business to hold the hot potato, they could go out of business. If you force the hot potato in the private market "pool" like it is today, the whole pool becomes hotter and more expensive for everyone.

High-risk pools have the potential to open up the free market, invite in more competition and lead to lower insurance prices for everyone.

Now before I get to the third top proposal, let me stop and ask you a few trivia questions.

Q. - What % of US businesses have less than 10 employees? (75%)

Q. - We know that 50% of businesses with less than 50 employees are uninsured, and that 70% of businesses with less than 25 employees are uninsured. What % of business with less than 10 employees would you guess are uninsured? (85% is a good guess).

The point here is that the about 75% of U.S. businesses have less than 10 employees, and that about 85% of them are uninsured.

TOP PROPOSAL #3: Create safe harbors so uninsured employers offering reimbursement of individual health insurance is not deemed a group plan (10 x 10 x 7 = 700)

I believe the #1 most impactful solution for insuring uninsured small businesses is enabling employees to go buy their own individual plan and get reimbursed by their employer. This proposal is like a winning lottery ticket inside a gift box with a bow on it -- but today we're not able to open it. Small businesses have asked eHealthInsurance to facilitate this for them, but insurance carriers won't participate because of some unintended consequences of existing federal laws. The federal law appears muddy, but it strongly implies that if the employer reimburses any portion of an individual policy, then it may be deemed a small business policy, and all the restrictions apply.

Legislatively, we need to clarify existing laws to create a safe harbor for uninsured small businesses, and their insurance carriers, so that partial reimbursement by employers to employees for the purchase of individual health insurance does not constitute a group plan.

A) Idea's impactfulness scores a 10+, and there are many reasons why.

3-a-i) It encourages small businesses to participate in helping their employees pay for health insurance at whatever level the employer can afford to contribute, rather than the 50% typically mandated by a group health plan.

3-a-ii) This would introduce employee and consumer choice for the first time in the small business market. Whereas today, due to administrative costs, health plans typically require businesses with less than 10 employees to pick only one insurance company.

3-a-iii) It eliminates the administrative burden that prevents small businesses from purchasing health insurance. Businesses with less than 10 employees usually have no benefits administrator to deal with selecting the one health plan, setting eligibility guidelines, facilitating adds/changes/deletes, paying and reconciling premiums, and ensuring compliance upon termination.

3-a-iv) This gets around the supply problem for the smallest of small businesses. Similar to the reaction of health insurance companies that were forced to accept guaranteed issue for individuals, the passage of guaranteed issue for small businesses had a dampening effect on the supply of insurance carriers. Study the nation's largest carriers, and you will find they actively market to small businesses in only a handful of states. Who cares if you can finally afford a Chevy, if there are no cars in the lot?!!

3-a-v) The IRS already encourages this -- Section 106 and subsequent rulings clarify that reimbursement for health insurance is tax deductible and pre-payroll for employers, and not taxable for employees.

3-a-vi) If partial reimbursement no longer constitutes a group plan, it allows individuals to participate in a high-risk pool and still receive some help from their employer. Today, high-risk pools preclude individuals if their company offers a group plan.

B) Execution on reimbursement safe harbors for uninsured businesses scores a 7.

3-b-i) Historically, skeptics have validly argued that allowing employees to buy their own insurance could result in small businesses dropping their health insurance or it might leave several unhealthy employees without insurance. However, the skeptics' concern can be addressed if the law only applies to currently uninsured small businesses.

Instead of focusing on the people that are still on the Titanic, I think we can agree quickly to pull out the uninsured groups who are already in the arctic waters -- The rescue boat is open and waiting.

3-b-ii) From an execution standpoint, adopting this proposal costs the government nothing, and requires no change in tax laws, only a clarification of current labor or insurance law.

3-b-iii) Politicians will hit an easy home run, since this will be highly popular with constituents -- individuals and small businesses alike.

Consumer empowerment and consumer choice is a popular theme. It's a hot button for one of the leaders of the house ways and means sub-committee on health who rolled up his sleeves to go screen-by-screen though our site. Many small businesses want this, according to a recent Hewitt survey. Current laws inadvertently restrict freedom for small businesses, and small businesses are the ones who need maximum flexibility with health insurance.

Conclusion

Your investment portfolio in health care requires focus on 2-3 winning proposals in the uninsured debate, leaving the rest behind. If we are TO CUT THE PERCENTAGE OF UNINSURED AMERICANS (20 PERCENT OR 44 MILLION IN 2000) IN HALF BY THE YEAR 2010, then we all need to focus on those programs that are most likely to solve the problem of the uninsured, that are very impactful ideas and can be executed quickly and effectively. I believe the best bets are to:

1) Pass tax credits for the uninsured -- This is the most likely, near-term, positive action step to help the uninsured.
2) Subsidize existing high-risk pools to end the "hot potato" game, and encourage the rest of the states to follow suit.
3) Create safe harbors for uninsured small groups, and their carriers that encourage reimbursement of employees for an individual plan and avoid all the restrictions of a group plan.

The nation really needs your investment to provide a good return - sooner rather than later.

- End -