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Modeling Health Reform in Massachusetts
John Holahan
June 4, 2008
THE URBAN INSTITUTE
THE URBAN INSTITUTE 2
Roadmap to Coverage in Massachusetts
Goals
1) Develop plans to expand coverage to estimated 532,000 Massachusetts residents without coverage;
• Create more affordable coverage for low-wage workers and small firms;
2) Minimize disruption of employer sponsored coverage and existing insurance market;
3) Minimize expansion of government and need for new tax revenues.
THE URBAN INSTITUTE 3
The Uninsured in Massachusetts
Nearly three-quarters of the uninsured were from low and moderate income families;
Young adults (ages 19-34) made up the largest share (43%) of the uninsured;
More than 85% of the non-elderly uninsured came from working families;
Workers in small firms made up nearly half of the working uninsured.
THE URBAN INSTITUTE 4
Advantages of Massachusetts
State had a strong base of employer and public coverage and a relatively low uninsurance rate;
Increasing health care costs were likely to continue to increase the number of uninsured;
A high level of current spending on the uninsured through the uncompensated care pool and other programs, providing resources that could help fund new coverage;
Waiver renewal potentially made a substantial amount of federal and state funds available.
THE URBAN INSTITUTE 5
Roadmap to Coverage: Building Blocks
Each expansion option has common building blocks MassHealth Expansions to 200% FPL for children and
parents and 133% of FPL for childless adults; Tax credits for difference between premiums and
specified percentage of income (sliding from 6% to 12% of income) for those up to 400% of FPL;
Government reinsurance which pays 75% of costs above $35,000 in individual and small group markets;
Voluntary purchasing pool open to all; would ease access to, and increase choice of plans for small firms and low income individuals.
THE URBAN INSTITUTE 6
Steps Needed to Achieve Universal Coverage
Individual Mandate Builds on all other components of reform; All residents would be required to purchase at
least a high deductible plan; No change in tax treatment of employer
sponsored insurance; no change in incentives for employers to provide coverage;
Enforcement through tax system.
THE URBAN INSTITUTE 7
Steps Needed for Universal Coverage
Employer Mandate Employer required to pay tax but would receive credit
against tax liability for contributions to worker and dependent health insurance;
Tax rate and tax base can be set at different levels, e.g., 10% on large base vs. 5% on smaller base;
Small firms and part time workers can be exempt or included;
Employer mandate combined with individual mandate would achieve universal coverage.
THE URBAN INSTITUTE 8
Modeling Challenges
Current Coverage Distribution
– Survey data issues Current Expenditures/Premiums
1. Establish the baseline
THE URBAN INSTITUTE 9
2. Estimate Behavioral Responses
How will individuals and firms respond to change in eligibility, prices, subsidies
– Eligibility for public programs
– Subsidies to firms
– Tax credits or subsidies in individual market
– Merger of individual and small group market How do individual take-up responses vary
with health status, age, incomes? How do employer responses vary with firm
size and firm wage distribution
THE URBAN INSTITUTE 10
Modeling a Policy ChangeExample – A Public Expansion
Uninsured – estimate take up models that show how previous changes in policy have affected participation– How many newly eligible choose to participate– Variation in take up by age, income, race-ethnicity, region
Private - ESI and Non Group – how are firm offer rates and worker take up rates affected by Medicaid expansion– Employee dropping of coverage, by income and health
status– Firm dropping of coverage, by firm size and firm wage
distribution; what share drop coverage if workers gain eligibility for public coverage
THE URBAN INSTITUTE 11
3. Issues Harder for Modeling
Changes in benefit packages & cost sharing
Reducing stigma in public programs
Use of waiting periods to prevent crowd-out
Higher or lower provider payment rates
Managed care
THE URBAN INSTITUTE 12
Results
We (The Urban Institute) modeled the coverage and cost impacts of several approaches
The following presents results for:
–A voluntary expansion;–An individual mandate;–An employer mandate (8% tax with
exemptions) with an individual mandate.
THE URBAN INSTITUTE 13
Voluntary Approach Would Leave 321,000 Uninsured;Only a Mandate Achieves Universal Coverage
0.0%0.0%
5.7%
9.4%
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
Baseline Voluntary Employer/ Individual Mandate
Individual Mandate
THE URBAN INSTITUTE 14
Employer Coverage Remains Stable Under Voluntary Approach and Individual Mandate, but Drops Under
Employer Mandate Due to the “Pay” Option
61.6%53.9% 50.8%
8.5%17.4%
15.0%
70.8%
0%
10%
20%
30%
40%
50%
60%
70%
80% ES/in pool
ES/non-pool
Baseline Voluntary Employer/ Individual Mandate
Individual Mandate
70.1% 71.3%65.8%*
*Excludes those whose employers “pay”
THE URBAN INSTITUTE 15
Direct Purchase of Coverage Increases Under Each Reform Due to the Purchasing Pool;
Pool is Largest Under the Employer Mandate
5.3%6.7%
14.0%2.6%
2.2%
4.7% 0.5%
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%DP/non-pool
DP/in pool
Baseline Voluntary Employer/ Individual Mandate
Individual Mandate
9.3%
5.8%
16.2%*
* Includes those whose employers “pay”
THE URBAN INSTITUTE 16
MassHealth Enrollment Grows with New Eligibility Rules;
Under Employer Mandate, More Eligibles Opt for Pool
16.8%18.2%
16.9%
13.8%
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
Baseline Voluntary Employer/ Individual Mandate
Individual Mandate
THE URBAN INSTITUTE 17
Government Spending Increases Under Reform;As Pool Grows, So Do Costs of Tax Credits and Public
Reinsurance, Making Employer Mandate Most Expensive
462 616390
446484
632
719
927 1201
0
500
1000
1500
2000
2500
Voluntary Individual Mandate Employer/IndividualMandate
MassHealth Reinsurance Tax Credits
1626
20272223
(millions of 2005 $)
THE URBAN INSTITUTE 18
243349
637
-23
210
765
-140(-1%)
128(1%)
-400
-200
0
200
400
600
800
1000
Not Offering
Offering
Total
Employer/Individual Mandate
IndividualMandateVoluntary
Note: Percentage Change in Parentheses
Employer Spending Increases for Firms that Do Not Currently Offer Coverage and Falls for Firms that Do;
Largest Effect for Small Firms
(millions of 2005 $)-266(-3%)
THE URBAN INSTITUTE 19
All Options Provide Savings to the Low Income; Mandates Lead to Modest Health Spending
Increases for Higher Income Families.
-403(-33%)
-411(-34%)
-540(-45%)
62(2%)
188(7%)
-289 (-10%)
110(2%)
301(5%)
-332(-6%)
-600
-500
-400
-300
-200
-100
0
100
200
300
400
<200% FPL
200-399% FPL
400%+ FPL
Employer/Individual Mandate
IndividualMandateVoluntary
(millions of 2005 $)
THE URBAN INSTITUTE 20
Employer Mandates with Higher Payroll Tax Rates Lower Government Costs But Increase Spending for Employers
-2988
2866
16
5437
7197
1232
2757
-231
765
2223 2660
-223
-4000
-2000
0
2000
4000
6000
8000
10% No Exempt.
8% Exempt.
5% Exempt.
Government EmployersIndividuals/
Families Total
(millions of 2005 $)
THE URBAN INSTITUTE 21
Voluntary Plan:– Government Cost = $1.6 billion, but 321,000 uninsured– Savings at all income levels; greatest savings to low income
Individual Mandate:– Government Cost = $2.0 billion– Small aggregate increases in employer & individual spending– Spending by low income people falls significantly
Employer/Individual Mandate:– Government Cost = $2.2 billion– Little change in individual spending; employer spending
increases in aggregate, sharply for those not now offering– Pay option leads to larger pool, resulting in more tax credits &
public reinsurance– Measures that would lower government costs would increase
employer or individual spending or both
Overview of Findings
THE URBAN INSTITUTE 22
The Compromise MassHealth expansion for children to 300% FPL MassHealth rate increases, adult benefits restored Individual mandate, with affordability provision Mandatory offer, mandatory take up Employer assessment ($295 if employer doesn’t
contribute) Free rider surcharge Significant transitional support for safety net
providers Connector
THE URBAN INSTITUTE 23
Connector Links individuals and firms under 50 with plans Determines affordability; income related subsidies Operates Commonwealth Care Plan
– Premium subsidies for those under 300% FPL for those without minimum employer contribution
– No deductibles, limits on cost sharing
– No premiums below 100% FPL
– Only current Medicaid plans can provide coverage
Unsubsidized component
– Deductibles and limited network but mandated benefits
– Employees can buy with pre-tax dollars