Incremental Universalism: The Policy Issues

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Incremental Universalism The Policy Issues

• Jonathan Gruber
• MIT

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Setting the Stage

• 3 key features of any move to universal coverage
• Pooling
• Affordability
• Mandates
• One extreme single payer
• Other extreme tax credits

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Massachusetts Cleaving the Middle

• Privatized public insurance below 300 of poverty
  Commonwealth Care
• Choice of four MMCOs
• Heavily subsidized
• Very generous benefits package no deductibles,
  low copays

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Massachusetts Details, Continued

• Above 300 poverty
• Merged small group and non-group markets into
  age-rated pool
• Facilitate insurance purchase through Connector
• Section 125 mandate

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Massachusetts Details, Continued

• Individual mandate
• All eligible for commonwealth care
• Everyone above five times poverty
• Affordability schedule between 3-5 times poverty
  exclude from mandate older persons families
• Enforced through tax penalty

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Issue 1 Integration with ESI

• Low income pool how to treat those with ESI?
  Three alternatives
• 1) Firewall MA approach but 30,000 are
  excluded from affordable coverage
• 2) Premium assistance
• sounds attractive, since many uninsured are
  offered ESI leverage employer dollars
• But it is actually incredibly expensive

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Premium Assistance Facts

• Fact 1 Among those who are offered ESI below
  300 of poverty, vast majority take it
• Below 100 of poverty of all offered, only 25
  uninsured
• 100-200 of poverty 13 uninsured
• 200-300 of poverty 6 uninsured
• Implication if you offer premium assistance to
  low income populations, most of those eligible
  already have coverage!
• Great for horizontal equity not for coverage

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Premium Assistance Facts

• Fact 2 Among those offered ESI who are
  uninsured, price sensitivity is very low
• After all, these individuals were already offered
  a very large subsidy and declined!
• These are folks who dont want insurance
• Fact 3 If you subsidize employee contributions
  for a sizeable share of employees, employers will
  raise those contributions!

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Premium Assistance Implications

• Simple example 1000 persons below 300 of
  poverty offered insurance at 2000/year 100 of
  them are uninsured
• Offer premium assistance of 1000/person
• 750 of 900 already taking ESI take assistance
• 25 of 100 not offered ESI take assistance
• Cost 775,000
• Newly covered 25 persons
• Costs/Newly covered 31,000!
• Not unreasonable my study of impact of Section
  125 for Federal employees found cost per newly
  insured of 31,000 to 84,000

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Another Alternative Vouchers

• Allow employees to come to the pool with employer
  dollars
• In theory, same as premium assistance
• In practice, perhaps less expensive because
  employees who are covered are reticent to drop
  that coverage and move to the pool
• But still expensive per newly insured
• Hard choices on low income ESI eligible

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Issue 2 Affordability and Benefits

• Central question in mandate context what is
  affordable
• Three tools available to policy makers
• Subsidies
• Minimum benefits
• Mandate exemptions
• Massachusetts used all three

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Affordability Subsidies

• My analysis suggests fairly high levels are
  affordable (see report on my website)
• Even low income individuals devote sizeable share
  of budget to non-necessities
• Even low income individuals buy ESI if it is
  offered even when expensive
• We ended up free below 150 of poverty, rising to
  typical cost of ESI at 300 of poverty
• Remember health care is 16 of GDP! Someone has
  to pay

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Affordability Minimum Benefits

• Evidence is clear the ideal cost-effective
  insurance plan has three features
• High initial cost-sharing (deductible or
  coinsurance)
• Income-related out of pocket cap
• Up front coverage of chronic care maintenance
  (maybe prevention)
• All available evidence suggests that such a plan
  will minimize costs without sacrificing health
  see my RAND HIE study for KFF
• MA 2000 deductible, 5000 OOP max, doc visits
  generic drugs with copay only

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Affordability OOP Costs

• Should OOP costs count towards affordability
  standards? No
• Uninsured individuals typically have little OOP
  costs 0 is median for individuals
• So any new OOP costs are simply because they are
  using more care
• Cant say insurance is unaffordable simply
  because individuals get more care!
• But need to have OOP limits that are reasonable
  relative to income e.g. 2000 deductible plan
  not sensible for someone earning 10,000

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Affordability Exemptions

• Compromise on initial schedule
• Comm Care premiums to 300 of poverty 4.5 to
  6.7 of income
• Rises to 8.6 of income at 400-500 of poverty
• Affordable for all above 500 of poverty
• Probably too conservative in long run as premiums
  rise
• Exempt 60,000 persons (15 of uninsured)
• 30,000 below 300 offered ESI
• 30,000 above 300
• But nice feature exemptions apply to older
  individuals and large families who will most
  value insurance still mandating the young
  healthies

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Issue 3 Role of the Connector

• Lot of attention to the Connector
• But this is really only important as an element
  of reform not as the only reform
• Connector is just a portal through which
  individuals purchase insurance in reformed market
• Anchor store in new insurance mall
• Sets standards and offers choice, but nothing
  transformative

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Connector Only?

• Is the Connector alone enough?
• Would help small businesses and individuals shop
• But unlikely to do much without subsidies and,
  especially, mandate
• In the end, it is about price compulsion
• Voluntarism alone hasnt been very successful in
  general across states

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Issue 4 Governance

• Bill that passed in MA very vague
• Subsidies to 300 of poverty, but levels not
  specified
• Affordability exemption from mandate, but levels
  not specified
• Minimum benefit level not specified
• Decisions left to 10 person connector board
• Three appointees by Republic governor
• Three by Democratic AG
• Four administration ex-oficio
• Thus far, complete consensus

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Issue 5 Cost Control

• States are moving ahead on coverage without
  fundamental cost control
• Im here to say that is OK!
• We know how to move to universal coverage we
  dont know how to significantly control costs
• Dont let comprehensive reform be the enemy of
  (politically acceptable) universal coverage

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Final Message Im Here to Help!

• Modeling 10 years of experience critical role
  in MA and CA debates
• Economics understanding and explaining the role
  of key policy levers
• Policy making member of Connector board
• Let me know how I can help!