January 2001

Grant Results

National Program

Changes in Health Care Financing and Organization

SUMMARY

From 1995 to 1999, researchers from Harvard University School of Public Health evaluated the effectiveness of New Jersey's 1993 implementation of the Individual Health Coverage Program (IHCP).

The intent of the law was to distribute policyholders and risks among all carriers in the state and make individual coverage more accessible and affordable for residents unable to purchase group health insurance coverage.

This project was part of the Robert Wood Johnson Foundation (RWJF) national program Changes in Health Care Financing and Organization (HCFO) (for more information see Grant Results).

Key Findings
The research team found that:

  • A market for individual health insurance coverage for self-employed and uninsured individuals was created in New Jersey; carriers shared losses and risks, and low premiums remained available.
  • There was no evidence of adverse selection for the IHCP. In other words, IHCP enrollees were not sicker and did not have demographic characteristics that made them more expensive to cover than individuals who purchased employer group insurance or uninsured people with incomes below 250 percent of the poverty level.
  • Most IHCP enrollees comparison-shopped for their coverage, and made choices based on price, recommendations from friends or relatives, and physician/hospital participation with particular plans.
  • Most IHCP enrollees were satisfied with their coverage and said they would recommend their plan to relatives or friends.

Funding
RWJF supported this project through two grants totaling $326,276.

 See Grant Detail & Contact Information
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THE PROBLEM

Since 1990, more than 25 states have changed the basic rules about eligibility for individual insurance coverage and its cost to consumers.

New Jersey was one of the first states to enact reforms of the market for individual health insurance coverage with its 1993 implementation of the Individual Health Coverage Program (IHCP). Under IHCP, all carriers must participate in the market, either through selling coverage that offers a standard benefit plan and price or by paying an assessment to fund the losses of carriers that do sell individual coverage.

For other states interested in following in New Jersey's footsteps, understanding how effectively this program worked in creating a new market and ultimately delivering quality, affordable individual health insurance coverage to the state's residents is critical.

New Jersey also created a subsidy program — called the Access Program — that provided individuals with family incomes less than 250 percent of the poverty level with a subsidy to purchase health insurance coverage through the IHCP market.

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THE PROJECT

The investigators' objective was to answer six questions.

  1. Is there evidence of adverse risk selection among the people who have enrolled under IHCP? That is, are enrollees sicker or more expensive to cover than individuals with other insurance or those who remain uninsured?
  2. Where did the enrollees obtain health insurance before enrolling in an IHCP plan?
  3. Why did people choose to enroll in the IHCP plans?
  4. What factors influenced enrollees' choice among plans?
  5. How have insurers responded to the reforms and which regulations and incentives have had the most impact on their behavior?
  6. Which aspects of the administration and implementation of IHCP do private and public policymakers credit with its meeting (or not meeting) the legislation's objectives?

To answer these questions, the researchers interviewed more than 50 executives and administrators from almost all of the carriers that actively sold policies in the IHCP, several carriers that chose not to sell policies, and insurance agents.

In addition, the team designed and conducted a survey of more than 1,200 IHCP policyholders. The survey gathered demographic, socioeconomic, health status, and previous health insurance information about the policyholders and other family members covered by the plan.

The investigators also used IHCP data and data from the 1996 Current Population Survey (conducted by the Bureau of the Census) and the 1994 Health Interview Survey (conducted by the National Center for Health Statistics) to compare the characteristics of IHCP enrollees with the general New Jersey population.

According to the project team's final report, having the ability to "dig into multiple data sources in one state permitted [them] to understand subtleties about competition by insurers and how regulations affect carriers' behavior. It is highly likely that [they] would have missed what was going on with premium changes and shift in carrier market share if [they] had not spent time interviewing the executives and managers of so many carriers."

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FINDINGS

Their analysis of the data from these four sources revealed the following:

  • A market for individual health insurance coverage for self-employed and uninsured individuals was created in New Jersey. Carriers shared losses and risks, and low premiums remained available. Before the IHCP, Blue Cross and Blue Shield of New Jersey was essentially the only carrier in the state that offered individual health insurance coverage and it became the repository for people who were poor health risks. After IHCP, all carriers in the state either sold individual coverage or paid an assessment to cover the losses of those that did. Although premiums were not as low as premiums for comparable benefits packages offered by large employer groups, at least two and often five carriers offered premiums that were within 10 percent of the lowest available premium.
  • There was no evidence of adverse selection for the IHCP. In other words, IHCP enrollees were not sicker and did not have demographic characteristics that made them more expensive to cover than individuals who purchased employer group insurance or uninsured people with incomes below 250 percent of the poverty level; also, they were less likely to rate their health as only fair or poor than uninsured people. The researchers suggest that the absence of adverse selection, along with the finding that premiums were not as low as people had hoped, implies that perhaps carriers were able to prevent adverse selection by pricing the policies via the market.
  • Most IHCP enrollees comparison-shopped for their coverage, and made choices based on price, recommendations from friends or relatives, and physician/hospital participation with particular plans.
  • Most IHCP enrollees were satisfied with their coverage and said they would recommend their plan to relatives or friends.

Although New Jersey provided easily accessible and easy-to-understand information on health plans offering coverage under the IHCP, consumers still chose to use insurance agents to guide their decision-making process.

The researchers, expecting to see much less use of agents, were surprised by this finding. They contend that if states want to increase the number of people covered by individual policies, different strategies for getting information to people will be needed.

Furthermore, they believe that the information collected on enrollees of the Access Program, and those who applied but did not enroll will be useful to states trying to market Medicaid or children's health insurance programs to low-income families.

The project team found that the qualitative interviews with insurance executives and third-party administrators (organizations that handle the day-to-day administrative aspects of health insurance coverage such as paying or denying claims) helped them enormously in understanding the context of the entire program and its constituents.

They came away with great respect for the people working in the field who are (as stated in their final report) "as a general rule, smart and interested in 'doing the right thing' for people." Through this contact, they learned that "it is a mistake to think that public policy comes only from people whose careers are in government or academia."

Communications

One article was published in Health Affairs and several presentations were made at conferences and meetings.

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CONCURRENT WORK UNDER ANOTHER GRANT (ID# 028732)

This project team was involved in concurrent research funded by RWJF (grant ID# 028732, a grant outside of the HCFO program) to evaluate the Access Program, a subsidy program implemented in 1995 that enabled individuals with family incomes below 250 percent of the federal poverty level to purchase health insurance coverage under the IHCP.

Through analysis of data from a variety of sources — including the Access Program administrative information, telephone surveys of more than 1,200 enrollees and more than 370 households that applied but did not enroll in the program, interviews with executives at the carriers participating in the program, and information from the Bureau of the Census 1996 Current Population Survey and the National Center for Health Statistics 1994 Health Interview Survey — the researchers determined the following:

  • Adverse selection by the Access Program enrollees does not appear to have occurred.
  • Most the Access Program enrollees compared plans among the participating carriers before making a selection.
  • Most the Access Program enrollees were satisfied with their carriers and with the program.

The researchers did not complete the papers that were intended to meet the objective of evaluating the Access Program for two reasons:

  • Political pressure on the state to show the effectiveness of the IHCP spurred the researchers to concentrate their efforts there; there was a widely held perception that without the investigators' evaluation of the IHCP, the program might be substantially altered.
  • Funding for the Access Program was sharply lowered, and after December 31, 1995, no new applicants were accepted to the program. Because the investigators viewed the evaluation of the Access Program as a complement to the evaluation of the IHCP, they prioritized their data analyses and papers so they focused on the IHCP first.

In addition, originally the researchers had intended to combine data sets and papers to look at IHCP and the Access Program in tandem. It became clear that it was better to look at the two separately because the analyses became too lengthy and unwieldy.

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LESSONS LEARNED

  1. The project team encountered significant delays in getting data on IHCP enrollees from insurance carriers. The investigators recommend that other researchers who intend to conduct studies that use data from insurance companies build extra time into their project in order to provide for these delays within the project timeframe.

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AFTER THE GRANT

The data that eventually resulted from the survey and interviews were so informative and "rich," according to the project team, that they sought and were granted additional funding under the HCFO program (grant ID# 034320) to conduct four additional analyses about the effects of New Jersey's IHCP and the Access Program programs. The objective of these studies is to increase policymakers' knowledge of the effects of New Jersey's regulations on its market for individual health insurance and companion subsidy program. The studies will focus on:

  • Lessons from the Access Program on the effect of subsidies on low-income individuals' decisions to purchase health insurance.
  • The effect of subsidies on decisions of families with children to purchase insurance in the individual market.
  • How well people understand how insurance programs or subsidized programs work.
  • Whether price is the determining factor in peoples' choice of insurance in the individual market.

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GRANT DETAILS & CONTACT INFORMATION

Project

Evaluation of the Effectiveness of New Jersey's 1993 Reform of Its Individual Insurance Market

Grantee

Harvard University School of Public Health (Boston,  MA)

  • Evaluation of Reforms of the Market for Individual Coverage in New Jersey
    Amount: $ 266,282
    Dates: September 1995 to November 1997
    ID#:  027809

  • Expansion of the Evaluation of the Effects of New Jersey's Individual Health Coverage and Access Program
    Amount: $ 59,994
    Dates: May 1998 to March 1999
    ID#:  034320

Contact

Katherine Swartz, Ph.D.
(617) 432-4325

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BIBLIOGRAPHY

(Current as of date of this report; as provided by grantee organization; not verified by RWJF; items not available from RWJF.)

Articles

Garnick DW and Swartz K. "Meeting Information Needs: Lessons Learned from New Jersey's Individual Health Insurance Reform Program." Medical Care Research and Review, 56(4): 456–470, December 1999. Abstract available online.

Garnick DW, Swartz K and Skwara KC. "Insurance Agents: Ignored Players in Health Insurance Reform." Health Affairs, 17(2): 137–143, 1998. Abstract available online.

Swartz K and Garnick DW. "Adverse Selection and Price Sensitivity When Low-Income People Have Subsidies to Purchase Health Insurance in the Private Market." Inquiry, 37(1): 45–60, Spring 2000. Abstract available online.

Swartz K and Garnick DW. "Lessons from New Jersey." Journal of Health Politics, Policy and Law, 25(1): 45–70, February 2000.

Swartz K and Garnick DW. "Can Adverse Selection Be Avoided in a Market for Individual Health Insurance?" Medical Care Research and Review, 56(3): 373–388, 1999. Abstract available online.

Swartz K and Garnick DW. "Hidden Assets: Health Insurance Reform in New Jersey." Health Affairs, 18(4): 180–187, 1999.

Manuals and Papers

Garnick DW, Swartz D and Skwara KC. "Satisfaction with Health Plans Among People Insured in the Individual Health Insurance Market in New Jersey. April 1999.

Swartz K and Garnick DW. "Regulating Markets: Lessons from New Jersey's Individual Health Coverage Program." October 1998.

Swartz K and Garnick DW. "The Best of Back-Room Politics: How New Jersey Created a Market for Individual Health Insurance." July 1998.

Swartz K and Garnick DW. "People Who Purchase Individual Health Insurance Policies: What Was Their Previous Experience With and Without Health Insurance?" April 1998.

Swartz K and Garnick DW. "Regulating Individual Health Insurance Markets: Be Wary of Simple Models and Unintended Consequences." January 1998.

Swartz K and Garnick DW. "Unintended But Predictable Outcomes of Regulations of Insurance Markets: The Case of New Jersey's Individual Health Coverage Program." 1998.

Swartz K and Garnick DW. "Implementing Regulations for Individual Health Insurance: Lessons from New Jersey's Experience." Unpublished.

Swartz K and Garnick DW. "Does Adverse Selection Exist in Individual Health Insurance Markets." Unpublished.

Swartz K and Garnick DW. "The Effect of Subsidies on the Decision to Purchase Health Insurance Among Low Income Individual: Lessons from the 'Health Access New Jersey' Program." Unpublished.

Swartz K and Garnick DW. "The Nitty-Gritty of Providing Health Insurance for Uninsured Children." Unpublished.

Swartz K and Garnick DW. "How Well Do People Understand How Insurance Programs or Subsidized Programs Work?" Unpublished.

Swartz K and Garnick DW. "Is Price the Determining Factor in People's Choice of Individual Insurance?" Unpublished.

Presentations and Testimony

Katherine Swartz, "Effects of New Jersey's Individual Health Coverage Program," at the RWJF Health Policy Scholar Program Seminar, University of Michigan School of Public Health, April 3, 1997, Ann Arbor, MI.

Deborah Garnick, "Individual Health Insurance Reform in New Jersey," at the New Jersey Capital Forum, June 10, 1997, Trenton, NJ.

Katherine Swartz, "Predictable but Unintended Consequences of New Jersey's Individual Health Coverage Program." Presentation made at:

  • The Association for Public Policy Analysis and Management Annual Research Conference, November 4–6, 1997, Washington.
  • The RWJF Health Policy Scholar Program Seminar, Yale University, January 26, 1998, New Haven, CT.
  • Stanford University School of Medicine Department of Health Research and Policy, February 18, 1998, Palo Alto, CA.
  • The Harvard-Boston University–MIT Health Economics Seminar, March 11, 1998, Boston.
  • The Association for Health Services Research Annual Meeting, June 21–23, 1998, Washington.
  • The American Economics Association Annual Meeting, January 1999, New York.

Katherine Swartz and Deborah Garnick, "Summary of Findings from an Evaluation of the New Jersey Access Program," at The New Jersey Access Program Meeting, New Jersey Department of Health and Senior Services, November 12, 1997, Trenton, NJ.

Katherine Swartz and Deborah Garnick, "Summary of an Evaluation of the First Four Years of the Individual Health Coverage Program in New Jersey," at the IHCP Board Meeting, New Jersey Department of Health and Senior Services, November 12, 1997, Trenton, NJ.

Deborah Garnick, "The Individual Health Coverage Program in New Jersey: An Evaluation of the First Four Years," at the California Health Policy Roundtable on Individual Health Insurance Market Reform, March 12, 1998, Sacramento CA.

Deborah Garnick, "The Individual Health Coverage Program in New Jersey: An Evaluation of the First Four Years," to the California State Committee on Insurance, March 12, 1998, Sacramento, CA.

Katherine Swartz, "New Jersey's Experience with Regulating the Individual Health Insurance Market," at the Forum of the United Hospital Fund, April 16, 1998, New York.

Katherine Swartz, "Can Adverse Selection be Avoided in a Market for Individual Health Insurance? Evidence from New Jersey," at the Annual Research Meetings of the Association for Policy Analysis and Management, October 1998.

Katherine Swartz, "Lessons from New Jersey's Regulations of Its Individual Health Insurance Market," at the Agency for Health Care Policy and Research Conference on "The Individual Insurance Market: Performance and Potential," May 4, 1999, Atlanta.

Katherine Swartz, "Testimony on New Jersey's Individual Health Coverage Program's effects," before the State of Maryland's Health Care Access and Cost Commission, July 29, 1999.

Katherine Swartz, "Lessons from New Jersey for Increasing Access to Health Insurance," in a session entitled, "Is There a Fix for Individual Insurance? Lessons from Other states," to the 1999 Washington Health Legislative Conference, "Looking Forward to the Future," December 7, 1999, Seattle.

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Report prepared by: Karin Gillespie
Reviewed by: Marian Bass
Reviewed by: Molly McKaughan
Program Officer: Nancy L. Barrand

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