National Governor’s Association Health and Human Services Committee Meeting July 17, 2005

1. National Governor’s AssociationHealth and Human ServicesCommittee MeetingJuly 17, 2005 State Strategies for Covering the Working Uninsured Rick Curtis, President Institute for Health Policy Solutions

2. Continuum of Approaches for State-Level Coverage of All Workers and Their Families But . . . ERISA Constraints . . .

3. Because of ERISA, States cannot directly require employers to offer health coverage, or regulate the benefits employers offer. • Existing public program policies can provide a competitive advantage to employers who do not offer coverage, and disadvantage those who do. • But, particularly at the State level, there is a legitimate concern over potential loss of employers and jobs where industries and products are geographically mobile. Further: • requiring low-wage employer groups to bear disproportionate costs can translate to reduced jobs, hours and wages. • Low-income groups need assistance to afford coverage.

4. Traditional Incremental Approaches Often Expensive and Counter-Productive Over Time • Reaching modest-income uninsured on voluntary basis means very low contributions. • Virtually free coverage invites shifts from employer to public coverage. • “Firewalls” generally don’t work over time. • State budgets often can’t accommodate the results.

5. Always Mixed Signals, All Ways This Way? “Promising Strategies” (for S-CHIP outreach) • A “Statewide Partnership with Wal-Mart” • Employee check stuffers with information about low-cost and free health care coverage. • Covering Kids & Families website Or That Way? “Wal-Mart” bills in 23 States • “We need this information so we know what to do policy-wise. Taxpayers are subsidizing health care. ... Big companies have enough profits but don’t offer health care.” • Minnesota legislator, chief author of disclosure bill

6. Transitioning Towards Coverage of All If incremental approaches are to transition towards Coverage of All: • They should create incentives that are consistent with the roles, responsibilities envisioned for individuals, employers and government. • One opportunity is to develop hybrid coverage structures for the kinds of employer groups that cannot afford traditional employer coverage. • These hybrid opportunities can incorporate elements of individual, employer and public coverage approaches.

7. Four out of five workers whose employer does not offer coverage to any workers are in small (size 2-49) firms. • Over half of such workers are in a firm where the majority of workers earning less than $9.50 per hour.) • Thus, small low-wage & uninsured firms are one very sensible target for purchasing pools intended to cover the uninsured • Third-share programs in Michigan have targeted these populations--and demonstrated critical factors for reaching them. • Proposed individual tax credits might be harnessed for similar approaches. • would need to authorize states to combine with small low-wage employer contribution • Proposed tax credits are based on income, rather than wage • Federal matching dollars can be used for premium assistance for low income workers in such groups (e.g., through HIFA) • defined modest employer contribution and sliding scale tax credits or premium assistance for workers/families could make sense

8. Critical Characteristicsfor reaching uninsured low-wage small employer groups. • Equity among similarly situated workers; • Group coverage (with attractive benefits and provider networks) available for the business owner and for all full-time workers in the group • whether or not they are subsidy eligible; and • whether they are childless or parents with children. • Employer’s contributions reduce costs for their workers (and families) below what coverage would cost workers to obtain on their own.

9. Critical Characteristicsfor reaching uninsured low-wage small employer groups. Experience to date indicates: • Affordable, predictable and easily understood employer contribution requirements (e.g., $60 per worker per month); • A stable source of subsidies for low-income workers that will not leave employers “holding the bag” for coverage they otherwise cannot afford to maintain; • Simple employer roles that minimize burden, e.g.do not involve them in family income tests or subsidy administration;

10. What Doesn’t Work? Examples • Involving Employers in Family Income Testing: Neither workers nor their employers want this; Several states learned this the hard way with premium assistance approaches • Varying Employer Contributions with Individual Worker’s Family Income: What they don’t know can hurt them. Employers know wages, not family incomes. (One difficulty with SacAdvantage plan) • Employer Contributions Don’t Reduce Their Workers’ Costs: Past State employer contribution schemes for coverage already available to workers at no employer cost-- You Gotta Get Incentives Right

11. Limited State and Employer Contributions Can Leverage Multiple Existing Financing Sources for Coverage of Uninsured Small Employer GroupsExample includes some non-subsidized group membersIllustrative % of Total Program Premium Cost Paid by Different Sources

12. Many States Interested in Small Employer Pools:Some Critical Factors for Any Pool’s Success • Sensible/Workable Target Population • Level playing field for pool’s vs. outside market rating of (unsubsidized) population • Reality / appearance of stability • Credibility of sponsoring organization in market • Clear and workable purchasing role • Competent, responsive operations • Cohesion • Avoiding a difficult problem: “Adverse Selection”

13. Critical to Understand Difference Between a Large Employer and a Pool for Small Employers and/or Individuals • A large employer group constitutes an attractive pool of people to insure because it is what carriers often refer to asa “natural group”—a group that is constituted for purposes other than health insurance. • Such a “natural group” includes a healthy share of low-risk persons. They participate in the pool largely because the employer contribution is applicable only there and the workers net cost of coverage is lowest there. • Individual small employers by definition do not have large populations, so a given small employer is more likely to have a disproportionate share of low or high risks. • A group of small employers, and/or individuals each having choices about where, how, and whether they obtain health insurance is not a “natural group.”

14. Broader Risk Spreading Is Important: The Most Expensive 5% of the Population Accounts for Over Half of Total Health Care Costs (Percent of Total Expenditures Incurred by Top x%of Population, Ranked by Total Payments for Health Services) * Includes only HMO enrollees under age 65 with employment-based coverage. Source: Marc L. Berk and Alan C. Monheit, “The Concentration of Health Care Expen-ditures, Revisited,” Health Affairs 20:3 (March/April 2001), pp. 9-18, Exhibits 1, 2 and 3.

15. Pools, Market Rules and Risk Spreading • If only the pool charges those presenting high risk the same as those presenting low risk-- • Those who are currently healthy and can obtain a lower price elsewhere will do so. • Those who present higher risks and would be charged more elsewhere would come to (and often be aggressively referred to) the pool. • As a result, the pool’s costs would be higher, not lower, than those in the open market-- leading to “death spiral” • This dynamic played out due to policy constructs in a number of states.

16. Avoid “Poolish” Pricing Policies: Pooled Rates Won't Work If Healthy People Can Get Preferred Rates Elsewhere HEALTHY PLAYERS CLUB $4 per worker per day “This Pool Sinks” COME ONE, COME ALL TO OUR POOL! $7 $9 $12 per worker per day

17. A Win-Win Option: Target Subsidies / Tax Credits exclusively through the pool. • Large employer groups and federal/state employee programs "work" because employer contributions cannot be used to buy insurance elsewhere. • If, per NGA, States were able to channel subsidies / tax credits for low-wage small-firm workers and/or individuals only through the pool: • A sizeable new group could be reached through the pool, making it an attractive competitive opportunity for health plans. • The subsidies would play the role that large employer contributions play for their employee plans (create cohesion similar to that which a “natural” group enjoys).

18. So . . . • Traditional approaches may well result in a continuing increase in the uninsured population, associated mortality rates, and further closures of trauma care providers critical to us all. • While health care and coverage costs must also be addressed, the first elemental requirement for any form of cost discipline is cost accountability. • Cost Accountability is not possible so long as we rely on cost shift to finance care for the growing population of uninsured. • If there are no solutions forthcoming on the federal level, federal policies could at least encourage rather than impede State movement towards coverage of all.

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