Incremental Universalism: The Policy Issues

Jonathan Gruber

MIT

Setting the Stage

• 3 key features of any move to universal coverage– Pooling– Affordability– Mandates

• One extreme: single payer

• Other extreme: tax credits

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

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

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

Issue #1: Integration with ESI

• Low income pool – how to treat those with ESI? Three alternatives1) 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

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

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 don’t want insuranceFact #3: If you subsidize employee

contributions for a sizeable share of employees, employers will raise those contributions!

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

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

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

Affordability: Subsidies

• My analysis suggests fairly high levels are affordable (see report on my website)1)Even low income individuals devote sizeable share of

budget to non-necessities

2)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…

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

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

• Can’t 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

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

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

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 hasn’t been very successful in general across states

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

Issue #5: Cost Control

• States are moving ahead on coverage without fundamental cost control

• I’m here to say that is OK!• We know how to move to universal

coverage – we don’t know how to significantly control costs

• Don’t let comprehensive reform be the enemy of (politically acceptable) universal coverage

Final Message: I’m 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!