Prepared for The Economic Policy Institute
The Lewin Group (an Ingenix company)
February 15, 2008
Executive Summary
Under the Health Care for America Proposal, employers would be required to provide coverage or pay a payroll tax to have their workers covered under a newly created national health insurance pool called Health Care for America (HCA). Modeled on Medicare, Health Care for America would offer a single Medicare-like fee-for-service option (public HCA plan) and a selection of Health Maintenance Organizations (HMOs) or other private managed care plans (private HCA plans). People who do not have employer-sponsored insurance (ESI) would be covered under HCA, including those now covered under Medicaid and the State’s Children’s Health Insurance Program (SCHIP). The Proposal would provide subsidies for worker HCA premiums for those living below 300 percent of the Federal Poverty Level (FPL), and premium subsidies for non-workers enrolled in HCA who are living below 400 percent of the FPL.
We estimate that there were about 47.8 million uninsured people in the country in 2007. The Health Care for America (HCA) Proposal would reduce the number of uninsured by 46.5 million people (i.e., 97.3 percent of the uninsured), leaving only about 1.3 million people uninsured. Coverage under the proposal would be as follows:
* We estimate that 122.2 million people would be covered under ESI, compared with 157.0 million people under current law;
* About 128.6 million people would be covered through the newly created HCA pool; and
* Enrollment in Medicare and the TRICARE program (i.e., military retirees and dependents) would remain the same as under current law.
The Health Care for America Proposal would cover 46.5 million uninsured people without increasing national spending for health care, largely through lower provider reimbursement, administrative simplification and other features of the proposal. The spending effects of the Proposal include:
* Spending for health care services and prescription drugs nationally would increase by $53.2 billion in 2007 as the uninsured become covered;
* Administrative simplification would reduce administrative costs by about $25.4 billion in 2007;
* There would be additional savings of $27.9 billion due to changes in provider payments, requiring people to have and use a medical home, and government negotiation of prescription drug prices for people covered through HCA.
Federal government health spending would increase under the Health Care for America Proposal by $49.3 billion, after accounting for all offsets. Total program spending under HCA would be $417.7 billion in 2007 including benefits and administration. These costs would be offset by the following:
* Employer payroll taxes for firms that do not provide coverage ($106.8 billion);
* Premiums for individuals covered through HCA ($80.3 billion);
* Federal and state government savings to Medicaid and SCHIP that would be transferred to HCA ($160.1 billion); and
* Other savings and new federal revenues under the Proposal ($21.2 billion).
We estimate that state and local governments would save $21.2 billion as a result of savings to programs that traditionally serve the uninsured (i.e., safety net programs). There would be no immediate net savings to Medicaid and SCHIP for states because they are required to pay the amount saved to HCA to help fund the program (i.e., maintenance of effort for Medicaid SCHIP only). Over time, however, savings achieved by HCA would be shared with the states.
Overall we estimate that private employers spent about $442.7 billion on health care for workers and retirees in 2007 (excludes employee contribution). Under the Health Care for America Proposal, private employer health spending would decrease by $10 billion, reflecting that many firms will find it less costly to discontinue their health plans and pay a six percent payroll tax to enroll their workers in HCA. Changes in private employer spending include:
* Private employers who currently offer coverage would save $65.6 billion by discontinuing their insurance and enroll their workers in HCA by paying the tax;
* Private employers that currently do not offer coverage would spend $55.6 billion more due to the requirement that they either provide coverage or enroll their workers in HCA by paying the payroll tax;
* On average, firms that currently offer coverage would save $809 per worker and those that do not currently offer coverage would spend $1,568 more per worker.
The Health Care for America Proposal requires that individuals obtain coverage and automatically enrolls people who do not have insurance into the public HCA plan. It also provides subsidies to help low-income people pay premiums. Overall, families would save $23.3 billion primarily from lower out-of-pocket payments. However, other financing mechanisms that would be needed to fully fund the proposal (i.e., $49.3 billion) would reduce these savings to families.
The Health Care for America Proposal would control the growth in health spending as enrollment increases, by restricting provider payment increases, negotiating deeper drug discounts, and simplified administration. Thus, national health spending under the HCA Proposal will be lower than under current law. We estimate that under these cost controls, total national health spending over the 2008 through 2017 period would be about $1.04 trillion less than under current law over that same period.
http://www.sharedprosperity.org/hcfa/lewin.pdf
Health Care for America:
http://www.sharedprosperity.org/bp180.html
Comment:
By Don McCanne, MD
Why is this important? The “Health Care for America” proposal of Jacob Hacker provides the general basis for the health care reform proposals of the leading Democratic candidates.
Since this report was just released I have not had time to do an analysis of it. But I did take a quick look to see what it said about one of our most important concerns. How would the proposal make reasonably comprehensive health insurance affordable for average income families?
Regarding benefits covered: “Covered services under Health Care for America would include the services under the current Medicare program as well as comprehensive mental health, maternal and child health services and comprehensive prescription drug coverage, subject to a formulary.” So the benefits are better than Medicare.
What about family costs? The monthly HCA premium for a two-parent family at 400 percent of the federal poverty level ($84,800 for a family of four) would be $670 ($8040 for the year). A 6 percent payroll tax (nominally paid by the employer, but as a reduction in the employee’s income) paid into the HCA pool would be $5088. The maximum out-of-pocket spending ($500 deductible and 20 percent coinsurance) would be $5000.
If the family used no medical care, they would be responsible, directly and indirectly, for $13,128 just for their share of the coverage. That’s 14.6 percent of their income. If they also had $5000 in out-of-pocket spending, that would total $18,128 or 20.2 percent of their income. (The percentages would be worse if I hadn’t calculated the total income as $84,800 plus the $5088 payroll tax.)
Many policy experts consider 15 to 20 percent of income for health care to constitute a financial hardship. A single payer national health program could do better than that.
CORRECTION for the Quote of the Day, February 15, 2008, “Lewin Group Analysis of ‘Health Care for America'”
As I mentioned in my last comment, I had not done an analysis of the full Lewin Group report but had taken only a quick look to pull out some of the numbers to see whether insurance under the proposal would be affordable.
In the calculation I added to the 6 percent payroll tax a premium of $670 per month (for a two-parent family at 400 percent of the federal poverty level). That was incorrect since that is the premium that non-workers would pay. The correct premium for a worker whose employer is paying the payroll tax would be $200 for a two-parent family at 300 percent of the federal poverty level. Obviously my quick look was too quick.
The calculations are revised for a two-parent family at 300 percent of the federal poverty level or $63,600 (the income level at which the premium is fully phased in). A family that used no medical care would be directly responsible for the $2400 premium plus indirectly responsible for $3816 in payroll taxes, or a total of $6216. That is 9.2 percent of their total income of $67,416 ($63,600 plus the employer payment of $3816 on the employee’s behalf). If they also had out-of-pocket expenses of $4770 (capped at 7.5 percent of $63,600 in direct income) that would be 16.3 percent of their total income of $67,416.
For non-workers, premiums are fully phased in at 400 percent of the federal poverty level or $84,800. For a two-parent family the annual premium would be $8040 or 9.5 percent of their income. If they too had out-of-pocket expenses of $5000 (plan cap on cost sharing) that would total 15.4 percent of their income.
When the average premium for employer-sponsored coverage is already over $12,000 per year, these family payments of $6216 and $8040 seem low. In fact, for an individual, the report states, “We estimate average enrollee costs in Health Care for America would be about $3250 compared to $4230 under a private insurance product in 2007.”
Does that seem reasonable? They state, “Health Care for America premiums would be lower than comparable private insurance due to lower provider payment rates, administrative costs and low-income subsidies.” The low-income subsidies do not apply to the two examples above, both middle-income families. Although they do discuss administrative savings in the report, it is likely that the amount is much smaller than they suggest because they fail to recover much of the waste inherent in a multi-payer system. And the lower provider payment rates? I’ll let you think about that one.
I do wish to express my profound apologies for having used incorrect numbers in my last message. It is important that we make every effort to maintain full credibility in our dialogue. But even the corrected numbers still pose significant problems.
It reminds me of the mathematician, the accountant and the economist who were each asked to solve the problem of two plus two. The mathematician said four, the accountant said four, plus or minus ten percent, and the economist asked, “What do you want it to be?”
Rather than crafting health care financing based on individual plans, whether public or private, it would be far more efficient and equitable to totally separate health care financing from the delivery of health care services. Establish a single, universal risk pool, funded equitably through the tax system, and then use that common pool to fund health care.
Then we would no longer have to tell the economists that we want a plan that provides comprehensive benefits, but it has to have a premium that’s affordable. That may be what we want the plan to be, but we can’t ignore the simple math behind the program.
Finally, I wish to express my profound admiration and respect for the individuals supporting the “Health Care for America” proposal. They share precisely the same goal as ours – comprehensive, high-quality, affordable health care for everyone. With the most noble of intentions, they have crafted a proposal that they believe meets the test of political feasibility while accepting what they would hope to be only temporary, modest compromises on the path to reform.
Our only substantial difference is that we believe that we should not begin from a position of compromise. The private insurance industry has to go.
