Defining Affordability for Massachusetts Christine Barber Community Catalyst Connector Board Meeting April 2007 How can research inform the individual mandate?

(c) Community Catalyst April What is Affordability? Why is defining affordability important? Do not want to cause unintended financial harm to families Maintain political legitimacy of health reform Why did we conduct this analysis? Not literature available; other studies assume affordability How do we define affordability? Affordability: The percentage of income a household can devote to health care, while having sufficient income to address other necessities. We include total health costs.

(c) Community Catalyst April What does affordability mean? Methodology Guiding Principles: An affordability scale should be a conservative measure. The scale should be progressive as income increases. Methods: Analyzed available research: 1.Existing public programs 2.Current spending on health care 3.Household budgets 4.“Take-up” rates and price sensitivity 5.Public opinion research

(c) Community Catalyst April Existing Public Programs What we looked at: State Children’s Health Insurance Program (SCHIP): 5% maximum of income (federal) Free Care Pool: No cost sharing for people below 200% FPL What this tells us: Not very useful. Often arbitrary, specific to population, voluntary programs

(c) Community Catalyst April Current Spending on Health Care What we looked at: Urban Institute for Blue Cross Blue Shield Foundation National data on health care spending Non-group total spending What this tells us: Middle income people pay average of 8.5% of income for total health costs At 600% FPL, people can afford unsubsidized, non- group health plans, at 8.5%/income after meeting other basic needs.

(c) Community Catalyst April Building a Standard of Affordability 1.At 600% FPL and above, people can afford total health costs at about 8.5% of income.

(c) Community Catalyst April Household Budgets What we looked at: Greater Boston Interfaith Organization Study MassFESS (Family Economic Self-Sufficiency Standard) Economic Policy Institute Basic Family Budget What this tells us: More than what’s affordable, show us what is unaffordable People earning below 300% FPL barely have enough income to cover basic needs (before health care costs) Given how many people can only nominal amounts toward health care, and variation in circumstances, should not impose penalties for not buying insurance.

(c) Community Catalyst April Building a Standard of Affordability 1.At 600% FPL, people can afford total health costs at about 8.5% of income. 2.For people under 300% FPL, who can only afford nominal amounts toward health care, no penalties should be imposed.

(c) Community Catalyst April “Take-up” rates and Price Sensitivity What we looked at: Economist Kenneth Thorpe’s work on “take-up” and price elasticity for Vermont’s Catamount Health Reform. Taking into account price of insurance as percentage of income, what would people purchase voluntarily? What this tells us: People just above 300% FPL would purchase insurance at about 4% of income. Therefore, set “lower-bound” of affordability scale at 4% of income.

(c) Community Catalyst April Building a Standard of Affordability 1.At 600% FPL, people can afford total health costs at about 8.5% of income. This is an “upper- bound” of affordability. 2.For people under 300% FPL, who can only afford nominal amounts toward health care, no penalties should be imposed. 3.For people just above 300% FPL, set “lower- bound” of affordability scale at 4% of income.

(c) Community Catalyst April Public Opinion Research What we looked at: Robert Blendon, Harvard School of Public Health, for Blue Cross Blue Shield Foundation. As a check on our findings, what do respondents find “reasonably” affordable? What this tells us: Blendon’s findings are generally in accord with our analysis.

(c) Community Catalyst April Building a Standard of Affordability 1.At 600% FPL, people can afford total health costs at about 8.5% of income. This is an “upper- bound” of affordability. 2.For people under 300% FPL, who can only afford nominal amounts toward health care, no penalties should be imposed. 3.For people just above 300% FPL, set “lower- bound” of affordability scale at 4% of income. 4.A sliding scale of affordability is needed. For people between 300% - 600% FPL, create progressive scale from 4% to 8.5% of income.

(c) Community Catalyst April Building a Standard of Affordability Any affordability schedule should be a conservative measure. The scale should utilize a progressive scale as income increases. What is affordable may not be available.

(c) Community Catalyst April Building a Standard of Affordability What are limitations of this paper? We only looked at affordability for an individual Affordability “curve” can be drawn in a number of ways