modeling health reform in massachusetts john holahan june 4, 2008 the urban institute

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 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.


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.


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.


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.


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.


Modeling Challenges

Current Coverage Distribution

– Survey data issues Current Expenditures/Premiums

1. Establish the baseline


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


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


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


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.


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


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


Individual Mandate

70.1% 71.3%65.8%*

*Excludes those whose employers “pay”


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


Individual Mandate

9.3%

5.8%

16.2%*

* Includes those whose employers “pay”


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%


Individual Mandate


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 $)


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%)


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



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



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 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


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