Incremental Universalism: The Policy Issues

1. Incremental Universalism: The Policy Issues Jonathan Gruber MIT

2. Setting the Stage • 3 key features of any move to universal coverage • Pooling • Affordability • Mandates • One extreme: single payer • Other extreme: tax credits

3. 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

4. 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

5. 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

6. 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

7. 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

8. 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 insurance Fact #3: If you subsidize employee contributions for a sizeable share of employees, employers will raise those contributions!

9. 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

10. 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

11. 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

12. 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…

13. 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

14. 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

15. 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

16. 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

17. 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

18. 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

19. 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

20. 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!