Increasing Access to Private
Coverage

State Health Reform and the Private Market
Rick Curtis

Institute for Health Policy...
Increasing Access to Private Coverage
(in the context of a broad “sea-
change” coverage expansion)

° Affordability Concer...
“Broad Coverage Expansions” Are a Sea-
Change. 

- Exposure to cost shift from “crowd-out” of employer coverage I
contribu...
Affordability Concerns

* Affordability is different issue re: 

— Lower income workerslfamilies eligible for employer
cov...
Increasing Access to Private Coverage
(in the context of a broad “sea-
change” coverage expansion)

° Affordability Concem...
Difficult Issues Regarding Low- Income
Adults Eligible for Employer Coverage

‘ Are they eligible for subsidies (cost & eq...
How much does employer coverage
really cost a low-wage worker? 

- Premiums per KFF-HRET Employer
Health Benefits Survey,  ...
Traditional Premium Assistance (“H| PP”)

Multiple Difficult Tasks

° Identifying who has access to employment-based
healt...
Traditional Premium Assistance (“H| PP”)

Cumbersome Tasks,  Tasks,  Task

*' Handling “wrap-around” services and cost-sha...
Alternatives to Traditional Premium Assistance
for states seeking to bring all workers into coverage
(Since the box don’t ...
Alternatives to Traditional Premium
Assistance (cont’d)

-- andlor --
— Actuarial valuation (relative to state benchmark)
...
Increasing Access to Private Coverage
(in the context of a broad “sea-
change” coverage expansion)

° Affordability Concer...
Access/ Affordability Reforms &
Individual Mandate Synergies

° If effectively implemented,  Individual Mandate Can Mean

...
Some Individual Market Rule
Considerations

° Where a state would require individuals to have health
insurance, 

— health...
Market Rule Considerations (2)

- Whether to limit age rating.  Considerations: 
— What current rating rules allow
— How m...
Market Rule Considerations (3)

* Other sensible restrictions: 

— Health plans must offer comprehensive plans
desired by ...
Affordability Measures-
Interactive effects are important

(even when you don’t want them to be)

Example: 

II-IPS

Goal—...
Effects on a Working Couple at 300% FPL

IHPS

with an Illustrative Tax Credit

Annual

Age Premium

1 9-29
30-34
35-39
40...
Tax Credit-Interactive Effects

* Perhaps more critical than immediate costs would
be unintended consequences-

* i. e.,  ...
Taking interactive Effects Into Account

* State tax credit with same 5% affordability but tied
to “net” premium (i. e.,  ...
Affordability:  Average spending on
health care premiums and cost-

sharing vs.  health insurance limits on
maximum out-of...
Affordability:  Average spending vs. 

limits on out-of-pocket costs (cont’d)

An analysis of the California Employer Heal...
Employer Pay-or-Play Alternatives

° Reasons to consider an employer pay-or-play
approach include: 

— Reduce cost-shift a...
Pay/ Play
Difficult Considerations

- Re:  basis and amount of employer “paylp| ay” threshold fee etc: 
° ERISA issue

— F...
Distribution of CA Employers by Health
Insurance Contributions as a Percent of
Payroll

1000/“ .  . .  . .  . .  . .  . , ...
Increasing Access to Private Coverage
(in the context of a broad “sea-
change” coverage expansion)

- Affordability Concer...
Exchanges/ Pools,  Market Rules and
Risk Spreading
* Where an Exchange is an option to the market, 
access and rating rule...
Related:  What is the role of the
Exchange(s) (or Pool) for which
populations it serves? 

° Purchaser I selective contrac...
Why an Exchange for Tax Benefits? 

Why have a health exchange to extend IRC Section 125
to all employed workers? 

E work...
Soooo .  . .  What’s the take-away? 

- If your state .  . . 
— Seriously intends to bring the uninsured into coverage
— D...
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Increasing Access to Private Coverage: State Health Reform and the Private Market

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Presented at the National Academy for State Health Policy's 20th Annual State Health Policy Conference in Denver, Colorado. Author: Rick Curtis

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Increasing Access to Private Coverage: State Health Reform and the Private Market

  1. 1. Increasing Access to Private Coverage State Health Reform and the Private Market Rick Curtis Institute for Health Policy Solutions 20"‘ Annual State Health Policy Conference: “Mile-High Expectations . . . ” Denver, CO HP October 14, 2007
  2. 2. Increasing Access to Private Coverage (in the context of a broad “sea- change” coverage expansion) ° Affordability Concerns and Approaches — For workers — For se| f-emp| oyed / non-employed ° Employer Pay-or-Play Alternatives ° Exchanges / Pools - Considerations and Roles
  3. 3. “Broad Coverage Expansions” Are a Sea- Change. - Exposure to cost shift from “crowd-out” of employer coverage I contributions is greater than under incremental expansions. - This is not necessarily bad for economy, but state budget-wise . . . - Much greater risk than Medicaid expansions, i. e., because subsidized coverage is: — available to higher income groups — available to all lower income workers (including childless); — very visible, known to all. - Especially in this context, “firewalls” alone not a long-term solution. — Individuals can switch jobs to increase pay and access state- subsidized coverage. — Employers can shift arrangements for low-wage workers. Those who don’t will have higher costs andlor lower paid workers than II-I their competitors who do
  4. 4. Affordability Concerns * Affordability is different issue re: — Lower income workerslfamilies eligible for employer coverage — Modestlmiddle income individuals (not eligible for employer coverage) who cannot afford premiums- e. g. older self-employed or early retirees in state with age rating IHPS
  5. 5. Increasing Access to Private Coverage (in the context of a broad “sea- change” coverage expansion) ° Affordability Concems and Approaches — For workers For self-employed / non-employed - Employer Pay-or-Play Alternatives ° Exchanges lPoo| s — Considerations and Roles ML-Lin l'uu. r.r
  6. 6. Difficult Issues Regarding Low- Income Adults Eligible for Employer Coverage ‘ Are they eligible for subsidies (cost & equity considerations) > If not, are they subject to mandate? Always? Sometimes? Depending on cost? > If so, for whom, under what conditions? > And is it restricted, e. g., to premium assistance towards employer coverage? Or a new approach, e. g.: — Access to state program only if employer contribution “comes with” (can state require such contribution? ), other approaches using state insurance regulations? > Should currently uninsured people who declined employer coverage be treated differently from similar people enrolled in employer coverage? II-IPS
  7. 7. How much does employer coverage really cost a low-wage worker? - Premiums per KFF-HRET Employer Health Benefits Survey, 2007. These are average premiums and contributions. Total Premium* Many workers pay substantially more. Employer Share* Worker Share* Income at 200% FPL Apparent Worker Share " I_e. . including foregone wage increase assoc/ gitcd witlr employer corrtrrbt/ tlorr Worker Share after (Federal) Tax-Sheltering Savings Income Plus worker-specific ER Contribution Direct + Indirect Worker Share ** Worker Share after (Federal) Tax-Sheltering Savings OR, if Employer Contribution Averages 10% of wages II_1 PAS Direct + Indirect Worker Share “ _ _ orker Share after (Federal) Tax-Sheltering Savings 3-Person Families 12,106 8,824 3,281 34,340 9.6% 7.4% 43,164 28.0% 26.3% 37,774 17.8% 15.8% ? ? Singles 4,479 3,785 694 20,420 3.4% 2.6% 24,205 18.5% 17.9% 22,462 12.2% 11.5%
  8. 8. Traditional Premium Assistance (“H| PP”) Multiple Difficult Tasks ° Identifying who has access to employment-based health insurance — Need good information at initial application ° Collecting infonnation about the employer coverage. — Cost, content ° Evaluating the employer coverage. — Benefits meet minimum requirements? — Cost-effective?
  9. 9. Traditional Premium Assistance (“H| PP”) Cumbersome Tasks, Tasks, Task *' Handling “wrap-around” services and cost-sharing It ' ' I! frll-In. — Possible under Medicaid FFS, but often problems with provider access and continuity of care (different networks, payment rate issues) — Very hard for separate SCHIP programs with no FFS * Notifying applicant to enroll; verifying they did so. — Open enrollment period problem * Paying premium subsidies to families regularly — (verify they are still enrolled). II-IPS
  10. 10. Alternatives to Traditional Premium Assistance for states seeking to bring all workers into coverage (Since the box don’t fit, let’s think outside of it) 1. Use alternative “benchmark plans” — But still involves assessing each employer’s plan 2. Provide flat credits toward employer coverage (with option for worker to enroll in public program if they “bring with them” their employer contribution) 3. Use state insurance rules to require that, for all group health insurance products, carriers: — Collect and share with the state information about employer and worker premium contributions for offered family sizes (at initial contract and at renewal) -- andlor -- IHPS
  11. 11. Alternatives to Traditional Premium Assistance (cont’d) -- andlor -- — Actuarial valuation (relative to state benchmark) -- andlor -- — offer benchmark-equivalent benefit plans toward which the normal employer contribution amounts are to be made available . .0r . - — Offer a benchmark-equivalent plan at state-approved rates or, if the carrier chooses, offer direct enrollment in the applicable state low-income pool or program . .of . - — (to the extent permissible under federal law) collect normal employer contributions for “dual-eligible” workers and dependents choosing to enroll in the state poollprogram and | - _v -; convey those contributions toward their coverage.
  12. 12. Increasing Access to Private Coverage (in the context of a broad “sea- change” coverage expansion) ° Affordability Concerns and Approaches For workers — For self-employed / non-employed ° Employer Pay-or-Play Alternatives ° Exchanges lPoo| s — Considerations and Roles
  13. 13. Access/ Affordability Reforms & Individual Mandate Synergies ° If effectively implemented, Individual Mandate Can Mean — Everyone is in the insurance Pool” including e. g., low-risk “immortals” — This allows guaranteed access — It also means that most modest-income immortal individuals’ contribution requirements can fairly include insurance costs for when they 1*‘ time guaranteed affordable access means subsidies andlor tax benefits are needed for lower income folk Participation requirement can be far more palatable at same time when benefit from access/ affordability — Those who now pay more (e. g., wlo tax benefits) Those who have been unable to find affordable coverage, & — those suffering under “job Iock" II-IPS
  14. 14. Some Individual Market Rule Considerations ° Where a state would require individuals to have health insurance, — health plans should be available to all, and people should not have to pay more when they’re sick ' Whether and when to combine with the small employer market? Considerations: — Size of the individual market relative to the employer market: V Massachusetts ranks about 48"‘. / E. g., California ranks 4""Wthe same measure. IHPS
  15. 15. Market Rule Considerations (2) - Whether to limit age rating. Considerations: — What current rating rules allow — How much “rate shock” for how many people — What is “fair” for individuals, and — Whether other measures (e. g., tax credit) can assure affordability for modest-income older individuals. IHPS
  16. 16. Market Rule Considerations (3) * Other sensible restrictions: — Health plans must offer comprehensive plans desired by high-risk folk, as well as lower cost high- deductible plans. — Individuals can't switch between low-cost high- deductible plans and comprehensive plans at will. IHPS
  17. 17. Affordability Measures- Interactive effects are important (even when you don’t want them to be) Example: II-IPS Goal—state “affordability” tax credit for middle income individuals not eligible for employer or state low income pool coverage If designed to itself cover premium costs above 5% of income for an age-related benchmark plan > Total cost estimate for California: $820 million > Of which, cost for employed workers: $400 million But, unintended effects 9
  18. 18. Effects on a Working Couple at 300% FPL IHPS with an Illustrative Tax Credit Annual Age Premium 1 9-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 3,396 4,452 5,268 5,976 6,960 8,748 10,956 13,296 Initial Net Payment Percent of Family Income 8.3% 10.8% 12.8% 14.5% 15.9% 21.3% 25.7% 32.4% after Tax Credit and 125 Savings 1,139 872 666 437 239 -171 -618 -1,092 Net Cost as Percent of Family Income, After Tax Savings 2.77% 2.12°/ o 1.62% 1 .19% 0.58°/ o -0.42% -1.51% -2.66%
  19. 19. Tax Credit-Interactive Effects * Perhaps more critical than immediate costs would be unintended consequences- * i. e., many workers and families would realize combined tax subsidies that exceed typical employer contributions. * Both such workers in this income range and their employers would have strong incentives to shift to state tax-credit financed coverage. -- Katy, Bar the Doors! -- IHPS
  20. 20. Taking interactive Effects Into Account * State tax credit with same 5% affordability but tied to “net” premium (i. e., reduce premium cost basis to approximate sec. 125 savings) > Net costs to workers are as intended -- > State tax credit cost estimate = $590 million > Cost for employed workers = $Jfil_r_n_ (55% lower) ° Similar net effects could be achieved by: > basing a “unidimensional” tax credit on a lower cost plan, or > setting the affordability standard at a higher percent of income. IHPS
  21. 21. Affordability: Average spending on health care premiums and cost- sharing vs. health insurance limits on maximum out-of-pocket costs. ° Some have used data on median out-of-pocket (OOP) spending levels to argue that health care reform proposals should limit maximum OOP costs to similar amounts. Urban Institute researchers find that median spending totaled: — 3.2% of income for singles with job-based coverage in the 300%-399°/ o FPL income range, and — 6.9% of income for families in that income range. (Includes OOP premium contributions. ) ° But health care use varies greatly, so looking at what workers actually spend on premiums and cost-sharing gives no clue as to maximum ys health insurance protects workers from exceeding. . . I1|. .ILl I lug I 1
  22. 22. Affordability: Average spending vs. limits on out-of-pocket costs (cont’d) An analysis of the California Employer Health Benefits Survey 2006 gives more realistic figures. Across all employment-based plans: — 47% of workers faced maximum OOP cost-sharing limits of more than $2,500 for single coverage and $5,000 for family coverage (E including premium contributions). — $2,500 equals 8.5% of income for a single worker at 300% FPL (in 2006). — $5,000 represents about 10% of income for a family of 3 at 300% FPL. — Adding average worker premium contributions of $547 and $2,824 would increase these averages to 10.4% and 15. 7% of income, respectively. IHPS
  23. 23. Employer Pay-or-Play Alternatives ° Reasons to consider an employer pay-or-play approach include: — Reduce cost-shift among employers — Protection against “crowd-out” of employer contributions — Revenues toward state coverage of lower income workers But it’s not easy
  24. 24. Pay/ Play Difficult Considerations - Re: basis and amount of employer “paylp| ay” threshold fee etc: ° ERISA issue — For example, the higher the threshold is set, the more its effects are employers’ plans vs. fee revenues from non-offers - Selection issue All other things being equal, settling threshold as percentage of wages avoids risk selection endemic to a per worker dollar amount - Crowd out issue — If the proposal is a good deal for mainstream employers and workers it may not be viable A Considerations here include what plans with what provider rates can be viably offered to whom—related concern—cost II implication for low income programs
  25. 25. Distribution of CA Employers by Health Insurance Contributions as a Percent of Payroll 1000/“ . . . . . . . . . . , . . . , . . . , . , . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 900/. .. .. . . . . . . .. ao%+ IFirms with 10+. EEs—(rightbar). . it 2 — l . . 4 V l . ,. ,., , , .., .!F. i.rms. w.iIh. .2#. EES. (Cu. mu, lat. ive: :lin. e) . ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... .. 50% ~ - 40% 30% 20% 1o-/ . 07¢, Q‘; -l-4-I En, -4., -4-. LT 1‘? -"n 1—2‘iii 2-3% 34% 4-5% 56"A'a 6-7% T-8% 8-9% S¥‘l0“a“a 1(}‘l1". 'i 11-12"! » 12% ‘ source: RAND Califomia database
  26. 26. Increasing Access to Private Coverage (in the context of a broad “sea- change” coverage expansion) - Affordability Concerns and Approaches For workers For self-employed / non-employed ° Employer Pay-or-Play Alternatives ° Exchanges / Pools — Considerations and Roles !1L| L|lI Put. -.i
  27. 27. Exchanges/ Pools, Market Rules and Risk Spreading * Where an Exchange is an option to the market, access and rating rules must be the same * If only the exchange charges those presenting high risk the same as those presenting low risk-- — Those who are currently healthy and can obtain a lower price elsewhere will do so. — Those who present higher risks and would be charged more elsewhere would come to (and often be aggressively referred to) the exchange — This dynamic played out under earlier pool constructs in a number of states II-IPS
  28. 28. Related: What is the role of the Exchange(s) (or Pool) for which populations it serves? ° Purchaser I selective contractor (Purchasing Pool. ..) — E. g., for subsidized populations in Massachusetts and California proposals. — Can negotiate proposal premiums reflecting provider rates not achievable for higher use group ° Market organizer ° Efficientl user-friendly I accountable access venue for all health insurance products on same terms Related: What role could I should a risk adjuster or reinsurance play so that health plans are made whole.
  29. 29. Why an Exchange for Tax Benefits? Why have a health exchange to extend IRC Section 125 to all employed workers? E workers who are eligible for neither employer contribution nor employer group coverage are to have choice of competing p ans. And this is to be easy for the employer to manage Then an exchange — allows an employer to convey worker contribution and enrollment information to a single source and, — pay respective health plans applicable premium amounts. Whaft mile might it play for tax credits for modest income 0 . Refundable and advance-able tax credits are difficult and expensive to administer and subject to abuse An exchange can — Automatically verify health insurance enrollment and payment for state tax authority — Be designed to combine tax with other contributions to make net premium system affordable
  30. 30. Soooo . . . What’s the take-away? - If your state . . . — Seriously intends to bring the uninsured into coverage — Desires to continue a private market role, and — Want to assure the state and its residents can afford the resulting system . . . ° Policies need to be carefully designed, keeping key dimensions and their interaction in mind. — If so, program implementation and management will be much easier and more effective. — If not, it’s unlikely to work.

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