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) 1)Even low income individuals devote sizeable share of budget to non-necessities 2)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!