How States Are Trying To Expand Employer Sponsored Health Coverage

1. How States Are Trying To Expand Employer Sponsored Health Coverage John M. Colmers Secretary Department of Health and Mental Hygiene

2. Percentage of All Firms Offering Health Benefits, 1999-2007*

3. Background • Majority of individuals get their health insurance from their employers • Recent declines in employer sponsored insurance (ESI) account for much of growth in the uninsured • ESI still centerpiece of nation’s health financing system • $200 billion in federal tax incentive to purchase insurance through employers • ERISA has made it difficult for states to mandate employer coverage • Voluntary measures to increase number of individuals who get ESI have had limited success

4. ERISA • Adopted in 1974 to allow multi-state employers to offer comparable benefits across state lines • Preempted state regulation of employee benefits plan • Federal DOL did not issue regulations for health coverage as it did for pensions • Net effect: exempted health benefits offered by self-funded employers from any regulatory oversight • Does not allow for state waivers

5. ERISA Legal Framework • Preemption • ERISA preempts any state law that either refers explicitly to ERISA plans or have substantial financial or administrative impact • “Savings” Clause • States can regulate the terms and conditions of health insurance among traditional insurance carriers conducting traditional insurance business • “Deemer” Clause • Statute prohibits states from regulating plans that “self-insure” i.e. bearing primary insurance risk

6. Employer Mandates • Most unlikely to withstand an ERISA challenge • Border issues • Massachusetts and Vermont have modest “fair share” assessment

7. Pay or Play • Requires an employer to pay an assessment (whose proceeds partially finance a publicly-administered health coverage program). • But will provide a credit against that assessment for the amount of employee health care costs. • Doesn’t bind plan administrators to a particular choice

8. Maryland Fair Share Share Health Care Fund Act • Gave employers with 10,000 or more employees a choice: • Spend at least 8% (6% for non-profits) of payroll on health insurance costs or • Pay the difference into a fund that supports Medicaid program • Challenged in court by Retail Industry Leader Association (RILA) • Struck down by federal district court and upheld by fourth circuit • Retail Industry Leaders Ass'n v. Fielder, 4th Cir., No. 06-1840 (January 17, 2007).

9. Massachusetts and Vermont • Employers with more than 8-10 employees must set up tax code section 125 plans • Contribute “fair share” assessment if do not offer fair and reasonable amount toward employee health insurance • Pay free rider surcharge for uncompensated care costs their employees or dependents incur

10. Recommendations for Modifications to ERISA • Explicitly allow states to apply premium taxes to employer plans.

11. Recommendations for Modifications to ERISA • Allow states to collect data from ERISA plans.

12. Recommendations for Modifications to ERISA • Set a federal floor on benefits. Because of ERISA preemption states are not able to define the scope of benefits provided by ERISA plans.

13. Recommendations for Modifications to ERISA • Strengthen consumer protections for those covered by ERISA plans.

14. State efforts to increase ESI through subsidies • Most other state efforts to increase ESI have spotty record • Key points • Any subsidy must be significant • Subsidy must be seen as secure over time • Program design must be simple and straightforward • Minimize impact on current distribution system

15. What is Maryland Doing?Working Families and Small Business Health Coverage Act • Assist very small low wage firms to offer insurance • To be eligible for a subsidy to purchase insurance, the employer must be: • A very small firms (2-9 full time employees) • Have average wages below about ~$50K • Have not offered insurance to their employees in the previous 12 months • Willing to offer health insurance benefits that include the wellness benefit design and Section 125 premium-only plan so that the employee’s contribution to premium is excluded from income and not taxed • Benefits • Maximum premium subsidy for each low wage employee will be the lower of $2000 or 50% of the premium • Subsidy will be divided between the employer and the employee based on the contribution each makes toward the premium • Enrollment is capped to stay within a budget of $30 M

16. What is Maryland Doing?Working Families and Small Business Health Coverage Act • Expand Medicaid Coverage for very poor adults • Year 1: Expand coverage to parents with family incomes up to 116% FPL ($20K/family 3) • Year 2-3: Expand services to Primary Adult Care program – childless adults under 116% FPL ($12K for individual) • Year 4: Full Medicaid coverage for all poor adults to 116% FPL

17. Final Remarks • More employers are moving to self-funded plans • Increase in the number of individuals who are in plans that have no state and limited federal regulation • ERISA makes health reform strategies all the more challenging • All eyes on MA and VT