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State Revenues, Medicaid & National Health Reform: Issues for Texans and State

Government

Teaching Hospitals of TexasApril 9, 2010

Anne Dunkelberg, Assoc. Director, dunkelberg@cppp.org

Center for Public Policy Priorities900 Lydia Street - Austin, Texas 78702

Phone (512) 320-0222 (X102) – www.cppp.org

www.texasvoiceforhealthreform.org

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LBB’s Best Case ScenarioAssuming revenue growth matches growth in expenses

Current Budget

2012-13 Budget

General Revenue $75.0 billion $75.0 billion

ARRA (instead of GR) $6.4 billion $0

Cash on hand $2.4 billion $0

Property Tax Relief Fund carryover

$3.0 billion $0

Permanent School Fund $0 $1.2 billion

Other adjustments $0.2 billion -

TOTAL GR BUDGET $87.0 billion $76.2 billion

GAP $10.8 billion

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Budget Scenario for 2012-13

$0

$25

$50

$75

$100

2002-03 2004-05 2006-07 2008-09 2010-11 2012-13

Local School Tax Cut (GR and PTF)

GR for Higher Ed

ARRA instead of GR

Other GR*

GR for HHS

Other GR for K-12

GR for Prisons

Additional GR Needed

$7 b

$1 b

None

$3 b

$3.3 b

$300 m

$700 m

4

Sources of State Revenue 2009Total $84.5 billion

Lottery, 2%

Licenses, Fees, Fines, Penalties, 9%

Interest,Investment Income, 2%

Other, 5%

Taxes, 45%

Federal Funds, 37%

Source: Comptroller of Public Accounts, Annual Cash Report

5Sources: Comptroller of Public Accounts, Annual Cash Report, Annual Property Tax Report.

Major State & Local Taxes in Texas, 2009

School26%

Special Districts

6%

County8%

City8%

Other State20%

Local 7%

State 25%

Sales Tax – 32%

Property Tax – 48%

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How to Balance 2012-2013?Options for a Balanced Approach:

“Easy Money”

Potential Revenue for 2012-13

Economic growth with no change in revenue system

$800 million for each 1% growth

Smoke and mirrorsPayment delays, etc.

$1.5 billion

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Funding a Balanced Approach: Rainy Day Fund

Rainy Day Fund Potential Revenue for 2012-13

Beginning balance $8.2 billion

Growth during 2012-13 $1.4 billion

TOTAL AVAILABLE $9.6 billionCurrent Balance: expected to reach $8 billion by end of fiscal 2011; another $922 million deposit slated for Fall 2011Uses in Past:

1991: $29 million for public schools1993: $200 million for prisons2003: $1.2 billion — the entire balance that was projected at the time — was appropriated for CHIP and Medicaid shortfalls, retired teacher health care, and for brand-new Governor’s Enterprise Fund2005: $1.9 billion, for existing shortfalls, and for 2006-07 child protective services reforms and new Emerging Technology Fund

 • 2/3 vote of each chamber needed to spend RDF “at any time and for any purpose”; slightly less (3/5 vote) required when state revenue is expected to drop in upcoming biennium

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Options for a Balanced Approach:Potential Revenue for 2012-13

Eliminate Current Exemptions:

• Sales tax on business, professional services (Legal, stock & real estate broker, accounting, management consulting – except health care)

$5.6 billion

• Eliminate high-cost natural gas exemption $2.3 billion

• Eliminate recognition of optional % homestead exemption: $1.0 billion

• Eliminate freeport property tax exemption (constitutional) $850 million

• Eliminate 10% property tax appraisal cap (constitutional) $650 million

• Eliminate sales-tax timely filer and prepayment discounts $425 million

• Eliminate sales tax holiday $100 million

• Eliminate gasoline-tax collection allowance $100 million

• Eliminate CAPCO credits$100 million

• Eliminate ineffective tax exemptions $100 million

• Eliminate reimbursement of school taxes for local tax abatements $20 million

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Options for a Balanced Approach:Potential Revenue for 2012-13 (more)

Increases to Existing Taxes:• Raise sales tax ½% (to 6.75% state/8.75% total, with

rebate for families in bottom 20% of income; 8 states would have

higher state rates) $3.0 billion• Increase franchise tax rate from 1% to 1.25%

(Retail from 0.5% to 0.625%) $2.1 billion• Raise gasoline tax by 5 cents per gallon (From 20¢

to 25¢ – 23 states now at 25¢ or higher) $1.6 billion– ($400 million to Available School Fund; $1.2 billion to State

Highway Fund)

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Options for a Balanced Approach:Potential Revenue for 2012-13 (more)

Increases to Existing Taxes:

Raise cigarette tax From $1.41 to $2.00 per pack

15 states now at $2.00 or above $1.2 billion*Raise motor vehicles sales tax by ½%From 6.25% to 6.75% $450 millionRaise beer taxFrom 11 cents to 17 cents per six-pack

Last raised in 1984; 15 states would be higher $100 million*ACS estimates $840 million for $1 increase

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Options for a Balanced Approach:Potential Revenue for 2012-13 (more)

New Tax Options:

Quality Assurance Fee

1% on revenues of hospitals, surgery centers $350 million

Plus federal match of $550 million

Soda tax

1 cent per 12 oz can of sugared soft drink $145 million

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Funding a Balanced Approach: Beyond this Session

Potential Revenue for Future Budgets

State personal income tax $14 billion net

(dedicated to education)

Eliminate school property tax abatements - Chap 313

$1.2 billion

Sales tax on Internet sales $1.2 billion

Sales price disclosure $350 million

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Medicaid in 2010-2011 TX Budget• No National Reform COVERAGE costs (Medicaid expansion begins

2014; no state share $$ until 2017)

• Avg. Budgeted Caseloads in SB 1 3,105,445 for 2010, 3,168,320 2011 “recipient-months”

• Actual January 1 enrollment 2,918,958; converts to 3.3 million

• Over 800 eligibility staff added since 9/1/09.

• Feb 1 HHSC report to LBB projects HHSC Medicaid about $387 million GR over budget by end of FY 2010 (i.e., just for current year).

• Texas getting 70.94% match now; 69.85% Jul-December. IF Congress extends 2 more quarters, worth ~ $925 million to Texas.

• HHSC has avoided “official” projection of current biennium budget shortfall.

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Medicaid in 2012-2013 TX Budget• NO health reform expansion costs, but admin costs at TDI & HHSC

• Revenue shortfall numbers make it obvious: without more revenue, there WILL be deep cuts.

• In 2003, Provider Rates were the largest category of cut. After partial restorations, the total projected reduction in Medicaid and CHIP rates was about $599 million.

• Federal law Medicaid and CHIP maintenance of effort requirements mean provider rates are the largest program area that states can cut. Health reform MOEs: no eligibility cuts for Medicaid adults until Exchange opens in 2014; no cuts for children in Medicaid and CHIP through 2019.

• “Optional” adult benefits may also be cut

– 2003 Lawmakers rejected certain cuts: cutting off community care and nursing home care; eliminating Rx coverage for aged, disabled, and adult clients

– They DID eliminate services of LPCs, SWs, psychologists, LMFTs, podiatrists, and chiropractors; and adult eyeglasses and hearing aids. (Restored in 2005)

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How National Health Reform Fits In: Texas Update

16

Uninsured Texans by Age Group, 200865+

0-18

19-64Rate: 32% of

19-64 are Uninsured

Rate: 20% of 0-18 are uninsured

~2/3 are below

200% FPL57% are below

200% FPL

Source: U.S. Census

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Almost All Congressional Districts Worse than U.S. Average

% Uninsured (All Ages) by U.S. Congressional District, 2008

U.S. average: 15.1% — Texas average: 24.1%

Inset: Dallas/ Fort Worth

Inset: Houston Area

District 3

District 26

2432

7

District 16

2815

27

2520

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57.4 56.253 53 54 53.1 52.2

50.4 49.5

64.2 63.2 61.9 61 60.5 60.2 59.7 59.3 58.5

30

45

60

75

2000 2001 2002 2003 2004 2005 2006 2007 2008

% of Residents With Job-Based Insurance

Employer-Sponsored Coverage Declining in Texas and Nationwide, Even Before Recession

U.S. Average

Texas

Source: CPS Annual Social & Econ. Supplementwww.census.gov/hhes/www/hlthins/hlthins.html

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Income Caps for Texas Medicaid and CHIP, 2009

0%

50%

100%

150%

200%

250%

PregnantWomen

Newborns Age 1-5 Age 6-18 TANFparent of

2, noincome

WorkingParent of

2

SSI (agedor

disabled)

LongTermCare

CHIP

Mandatory Optional

$24,352/yr

$33,874/yr $33,874/yr

185% 185%

133%

$18,310

100%$2,256 $3,696

12.3% 20.2%74%

$7,884

222%

$24,264$36,620

200%

Income Limit as Percentage of Federal Poverty IncomeAnnual Income is for a family of 3,

except Individual Incomes shown for SSI and Long Term Care

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Texas Medicaid: Who it Helps

Children, 2,131,511

Disabled, 359,937

Elderly, 375,375

Poor Parents, 91,838

TANF Parent, 35,158

Maternity, 96,036

January 2010, HHSC data.

Total enrolled 1/1/2010: 3.2 million

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U.S.-born citizen

68%

Naturalized U.S. Citizen

6%

Not a U.S. Citizen

26%

Uninsured by Citizenship Status, 2007-08 Average

Most Uninsured Texans are U.S. Citizens(6.1 million Uninsured in 2008)

Source: CPS Annual Social & Econ. Supplementwww.census.gov/hhes/www/hlthins/hlthins.html

4.1 million352,000

1.6 million (~40%

legal immigrants)

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• Key coverage elements:– Build on current system: Senate bill “grandfathering” leaves much current coverage

potentially unchanged for years

– Medicaid expansion: cover all up to 133% FPL ($14,404 for one; $29,327 for 4).

– Reform Private Health Insurance: standardize benefits, no price variation for gender or occupation, limited age variation, no denial of coverage, no excluding pre-existing conditions, no annual or lifetime maximums. Changes first for uninsured, individual, small employer coverage.

– New Health Insurance Exchanges where private insurers’ options can be compared and purchased (like Amazon or Travelocity for insurance).

• Includes OPM Non-profit plan option; All members of Congress and staff get coverage thru Exchange;

• Exchanges’ effectiveness depends on subsidies, market reforms, standardized benefits, individual mandate, negotiating powers.

– Premium assistance up to 400% of FPL ($88,200 for family of 4)

– Out-of-pocket subsidies (reduces out of pocket for all consumers) and stop-loss caps, too, to increase affordability reduce medical bankruptcy

– Individual mandate to have coverage (with major exemptions)

– Some Requirements for employers to contribute, with exemption for all employers with 50 or fewer workers.

Health Reform Basics

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• Medicaid for very low-income adults: cover all U.S. citizen adults up to 133% of the federal poverty level (< $14,404 for one person; $29,327 for a family of 4). Texas does not cover most parents or adults without children today, no matter how poor.

• CHIP Program Preserved: CHIP program extended to 2019, and CHIP block grant funded through end of FY 2015.

– In 2014, all kids up to 133% FPL in Medicaid; above that in CHIP (brings some 6-18 yr-old kids into Medicaid)*

• MOE:

– States serving adults above 133% FPL may not reduce their income limits until 2014 when Exchange opens

– States may not change CHILDREN’S income levels for Medicaid or CHIP through 2019.

– Entire Medicaid funding at risk.

• Sliding-scale premium assistance: Uninsured above Medicaid limit and < 400% FPL ($43,320 for a single person, $88,200 for family of 4) can buy insurance through Exchange, protected from having to spend more than a set % of income on premium (ranging from 2% to 9.5%); also out-of-pocket help, caps.

Affordable Coverage

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The Individual Mandate• Requires citizens and legal residents to have coverage,

enforced through tax penalties (effective 2014)

• Penalties begin at $95 in 2014 and increase to $695 by 2016 (or up to 2.5% of income); penalties for children are half the adult amount

• Penalties are about 1/6 of the cost of insurance

• Does not apply to most Medicaid-Eligible persons, but will apply in CHIP income range– Exemptions for all persons w/income below the tax

filing threshold ($9,350 for singles and $18,700 for couples);

– If premiums > 8% of income; – Other “financial hardship”, and more.

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• Out-of-pocket subsidies: – lower out-of-pocket costs (co-payments, co-insurance and deductibles)

for families up to 250% FPL (< $27,075 for one person, and $55,125 for a family of 4) covered through Exchange.

• Out-of-pocket caps for ALL persons with high medical expenses: – New individual and group coverage, including new self-insured plans,

must include annual out-of-pocket caps $5,950 individual, $11,900 family, setting upper limit for families 400% FPL.

– Based on fed HSA law caps, $5,950 indiv./$11,900 family in 2010 and updated annually.

– For individuals/families <400% FPL, OOPC is set as a fraction of the HSA cap.

• Families 133-400% FPL still have 17-20% of income/yr. at risk

Affordable Coverage, Continued

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Texas Uninsured by Income Today… 6.1 million uninsured in 2008

300-400% FPL$66,200-$88,200

200-250% FPL$44,100-$55,100

250-300% FPL$55,100-$66,200

150-200% FPL$33,100-$44,100

>400% FPL>$88,200 <100% FPL

<$22,100/yr for family of four

100-150% FPL$22,100-$33,100

682K

622K

751K1.06

Million

1.611 Million

484K

Annual income limits given for a family of four, 2009 federal poverty level U.S. Census, CPS

898K

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Who Gains Coverage in Texas

300-400% FPL

>400% FPL<100% FPL

200-250% FPL

150-200% FPL

250-300% FPL

100-150% FPL

682K

622K

1.6 Million

1.611 Million

751K

484K

898K

• CBO: 92% of under 65, or 95% of < 65 excluding undocumented covered in 2019.

• Using latest Texas uninsured data, this would mean the number of uninsured would be reduced by 4.3 to 4.6 million (from 6.1 million)

•Of course, population AND uninsured will increase between now and 2014-2019.

In Exchange • About 2.5 million 133-400% FPL qualify for help w/premiums, out-of-pocket (citizens & legal residents)

• Another 680,000 >400% FPL qualify for full-cost coverage thru Exchange.

UNKNOWN: How quickly, what % of eligible persons enroll. CBO and HHSC assumptions VERY far apart.

Medicaid, based on current Texas uninsured:• ~1 million uninsured US citizen adults would qualify for expansion to 133% FPL (adults)

•~500K already-eligible kids (100-200K more CHIP)

•HHSC numbers to date only provide average increase over the 2014-2023 period (no near-term estimates yet)

6.1 millionUninsured 2008

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Who Remains Uninsured?

• CBO assumes small percentage opt not to be covered (no penalty for lowest income and penalties are much lower than cost of coverage)

• The lower the premium subsidies, the larger the share of low- & moderate-income Texans who may stay uninsured.

• Undocumented: – no Medicaid/CHIP, – no premium subsidy, possibly cannot buy @ full cost from

exchange– Best estimates say 40% of undocumented in US TODAY have

private coverage

• Legal Permanent Residents: – continued exclusion from Texas Medicaid, – Can purchase from exchange and qualify for subsidy

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• Medicaid expansion—up to 133% FPL; “Static” Illustration based on current US Census data and Texas Medicaid costs: 

• Reconciliation:– in 2008, ~1.0 million uninsured Texas adults aged 19-64 who (a) are U.S. citizens and (b)

have incomes below 133% FPL.  – At 2009 cost of ~ $305 per adult/mo., covering 1.0 million more adults = about $3.7 billion in

new health care spending.  – Under bill, Feds pay 100% of costs for 3 years: 2014, 2015, 2016. In 2017 the Texas would

pay 5%, in 2018 Texas would pay 6%; in 2019 7%, and in 2020 and thereafter, Texas would pay 10%.

• Using the static illustration, covering 1 million adults at an all-funds cost of $3.7 billion in 2020: feds 90% $3.33 Billion; state $370 million (10% share)

• Feds pay 100% of Medicaid primary care provider rate increase in 2013 and 2014, but not thereafter. Unless Congress changes this, additional costs to state Medicaid budget– or rates get reduced again.

Fiscal Benefit/Cost of Health Reform to State

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• “Welcome Mat” effect– Based on other states’ experiences, over time more currently-eligible Texas children will enroll

in Medicaid.

– (Because Texas has very limited eligibility for adults today, there will be very little welcome mat effect for adults.)

– State will be responsible for standard Medicaid share of just under 40% for welcome mat enrollment by already-eligible uninsured Texas children, adding another significant cost to the state budget.

– To illustrate, covering 400,000 more kids could cost about $1 billion for a year, and the state would pay $400 million of that.

– These costs start affecting budget 2014, though will take time to ramp up.

• Economic multiplier of 3.25 per Dr. Ray Perryman, other economists. (↑State

tax revenues + ↓Local taxes avoided) nearly = GR costs

• Texas economy will also benefit from federal premium assistance and out-of-pocket cost help to families from 133-400% FPL, which will not require any state budget contribution at all. (Estimates expected soon)

Fiscal Benefit/Cost of Medicaid, Exchange Coverage to State

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Illustration: How Adult Expansion Could Change Texas Medicaid Budget

Fed Share Expansion

Adults$3.33 Billion

State Share Expansion

Adults$370 million

Fed Share 2008

$10.8 Billion

State Share 2008

$7.0 Billion

State Share Welcome Mat

Kids: $400 million

Fed Share Welcome Mat

Kids : $600 million

Baseline = Texas Medicaid Services Spending, 2008 (Texas HHSC)

Likely 2+ years to enroll this many additional

Note: this does NOT model increased admin costs.

If Covered 1.0 million new adults; 400K kids, @ Current costs and demographics

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More Fiscal Effects for State

• Admin costs for state of expanded enrollment presumably @ 50%; financing of Exchange interface costs unclear but may also be 25% to 50% state

• Some increased costs of doing business passed through in Medicaid rates.

• Medicaid expansion, while not “free” for Texas, will yield substantial economic benefits, but require new sources of revenue to fund state share. 

• Even HHSC preliminary cost estimate thru 2023 shows 6:1 ratio of federal dollars to state costs.

• Medicaid cost share --even if offset 6-to-1 with federal funds--must be funded in state budget to some degree as soon as 2014, and in context of a severe structural deficit in our state tax system and current leadership unfavorable to increasing revenue capacity.

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HHSC’s Preliminary Model• The 10-year state General Revenue (GR) cost from 2014 to 2023 is estimated at $27 billion.

• The 10-year state GR cost for 2010 to 2019 is estimated at $9.2 billion.

• On average (2014-2023), annual Medicaid enrollment will grow by 2,276,000 people 1,709,000 due to the Medicaid expansion and 567,000 children currently eligible, but not enrolled.

• CHIP enrollment over this time period will drop by 149,000 children (237,000 transferred to Medicaid, offset by 88,000 currently eligible, not enrolled).

• Of the $27.0 billion GR,– $13.1 billion is attributable to currently eligible, but not enrolled;

– $13.1 billion is due to the Medicaid expansion;

– $7.1 billion is for administration (e.g., eligibility determination);

– Savings are expected from CHIP ($2.0 billion) and increased drug rebates ($4.3 billion).

• The Federal Funds gain is $164.2 billion, or more than 6 times the state dollar (GR) cost.

• Costs for replacing federal Disproportionate Share Hospital reductions were not included (as they had been in the older estimate).

• HHSC assumed that the primary care physician rate increase would continue beyond two years AT STATES’ EXPENSE (as a necessary step to address capacity), but did not assume the rates would be extended to CHIP or that other procedure codes would get a similar increase.

Caveats:

• Assumes 95% take-up rate

• Not same period as CBO scores, so don’t compare them (CBO scores run 2010-2019, then 2020-2029)

• Assumes favorable FMAPs disappear in 2020

• Year-by year impact estimates have not been released yet (expected soon)

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New State Roles; Eligibility and Enrollment Issues

• Improved potential for continuous coverage, greater continuity in medical care

• Capacity of state eligibility system?– Must accommodate both expansion & increased participation– Smooth interface with HIE system– HIE may pay state to do income eligibility for subsidies– Medicaid MUST offer online, in person, telephone and mail application options. – “No Wrong Door” coordination between Exchange and Medicaid required,

including joint application and enrollment website that functions for Medicaid, Exchange, and CHIP.

• Administration of Health Insurance Exchange– State or NFP must operate 1/2014; if not on track by 1/2013 feds will do it; grant $

$ available

– Likely includes major enrollment/subsidy eligibility function

– HIEs are to be $$ self-sustaining after first year

• Much Greater Role for TDI in Regulation

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Medicaid DSH• Given Texas’ relatively large share of both uninsured U.S. citizens and

undocumented residents (the latter ineligible for Medicaid, CHIP, or premium subsidies), Texas is likely continue to have one of the highest uninsured rates relative to other states.

• Reduce national Medicaid DSH allotments by $0.4 billion in 2014; $0.6 billion in 2015; and $1.8 billion in 2017, $5 billion in 2018; $5.6 billion in 2019; $4 billion in 2020.

• Worst case: If cuts are allocated in proportion to a state’s share of the total federal DSH funding, then Texas’ share would be reduced by $35 million in 2014, $52 million in 2015, $156 million in 2016, $434 million in 2017; $487 million in 2018; and $348 million in 2019.

• Because DSH cuts are targeted to states with the lowest uninsured rates, Texas should expect smaller cuts than this.

• DSH revenue today is small relative to hospitals’ uncompensated care burden; substantial gains in coverage—e.g., covering a million adults in Medicaid--would increase patient revenues for most hospitals by a much larger amount than the capped DSH pot.

• UPL????

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Advocate’s Policy Concerns with Final Bill

1. Adequacy of premium assistance for people under 400% FPL;

2. Adequacy of cost-sharing subsidies (which reduce out-of-pocket costs) for all incomes.

3. Sustaining Medicaid primary care payment rate increases after 2014

4. Adequacy of Exchange structure in final bill: minimum standards and federal oversight

5. Need for state and federal additional actions to ramp up provider workforce, infrastructure.

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Sweeping reforms that guarantee access to good coverage at a fair price take effect in 2014:

Private Health Insurance Reforms– Bans pre-existing condition exclusions for everyone (All, incl.

grandfathered, ERISA).– No one can be denied coverage or charged more because of health status.

Wellness penalty loophole?– Insurers must offer coverage to everyone and renew all policies in the

individual and small employer market. – Premiums for individuals and small businesses cannot be based on

gender, number of people in group, occupation, etc. – Premiums for individuals and small businesses can vary based on age (3:1

limit), tobacco use (1.5:1 limit), geographic area, and family composition.– Coverage for individuals and small businesses must include “essential

benefits.”– No annual limits (incl. Grandfathered).

Good Coverage at a Fair Price

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Sweeping reforms that guarantee access to good coverage at a fair price take effect in 2014:

New Health Insurance Exchanges• Competitive markets for health insurance with clear and comparable information

on coverage options (like Travelocity, but for insurance).• State-based, with federal fallback. • All members of Congress and their staff would get coverage in Exchange.• Open to:

– Individuals: U.S. citizens or legal immigrants and are not incarcerated– Small businesses with <100 employees, 2014-2016. States may open up to firms

with >100 employees in 2017.

• Office of Personnel Management multi-state plan in Exchange. • Premium credits available only in Exchange.• Plan in Exchange must meet standards, and each plan will have a rating

indicating relative value.• Coverage offered in four benefit tiers.

Good Coverage at a Fair Price

More on Exchanges in CPPP’s Health Reform Side-by-Side Analysis.

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Premium Help: Max % of Family Income for Premiums in Exchange

Income for a Family of Four

Max % Income for

Premiums

From: To:

$22,000

(100% FPL)

$29,000

(133% FPL)2.0-3.0%

$29,000 $33,000

(150% FPL)3.0-4.0%

$33,000 $44,000

(200% FPL)4.0-6.3%

$44,000 $55,000

(250% FPL)6.3-8.1%

$55,000 $66,000

(300% FPL)8.1-9.5%

$66,000 $77,000

(350% FPL)9.5%

$77,000 $88,000

(400% FPL)9.5%

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• Out-of-pocket subsidies: – lower out-of-pocket costs (co-payments, co-insurance and deductibles)

for families up to 250% FPL (< $27,075 for one person, and $55,125 for a family of 4) covered through Exchange.

• Out-of-pocket caps for ALL persons with high medical expenses: – New individual and group coverage, including new self-insured plans,

must include annual out-of-pocket caps $5,950 individual, $11,900 family, setting upper limit for families 400% FPL.

– Based on fed HSA law caps, $5,950 indiv./$11,900 family in 2010 and updated annually.

– For individuals/families <400% FPL, OOPC is set as a fraction of the HSA cap.

• Families 133-400% FPL still have 17-20% of income/yr. at risk

Affordable Coverage, Continued

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Out-of-Pocket Costs: Share of Health Costs Covered

under Exchange Plans

Income for a Family of Four

Avg. Share of

Costs Covered

Out of Pocket MAX as %

of income (not incl.

premiums)From:

To:

$29,000$33,000

(150% FPL)94%

1/3 of HSA: $1,983/indiv.

$3,967/family$33,000

$44,000

(200% FPL)85%

$44,000$55,000

(250% FPL)73% ½ of HSA:

$2,975/indiv.

$5,950/family$55,000$66,000

(300% FPL)70%

$66,000 $77,000

(350% FPL)70% 2/3 of HSA:

$3,987/indiv.

$7,973/family$77,000 $88,000

(400% FPL)70%

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• Keeping coverage affordable requires spreading risk over large pool that includes healthy people; individual responsibility to get insurance makes this possible.

• Individual mandate: Starting 2014, most U.S. citizens and legal residents will be required to obtain coverage meeting minimum standards for themselves and for their dependents.

• Who Is Exempt? No penalty for these:

(1) uninsured if lowest-price Exchange plan costs > 8% of family income;

(2) anyone with income below the tax filing threshold ($9,350 indiv./$18,700 couple in 2009)

(3) excused for financial hardship (to be defined);

(4) religious objectors;

(5) Native Americans;

(6) undocumented immigrants (also ineligible for Medicaid or premium help);

(7) incarcerated persons; and

(8) those with a gap in coverage of less than 3 months.

Individual Responsibility

44

• Penalties in Senate and President’s proposals are small fraction of cost of insurance.

• Penalty concept to create incentive to take responsibility; funds collected also help support safety net that uninsured rely on when sick or injured.

How it Works. Unless exempt: – federal income tax penalty is based on # uninsured in a family.– but family max is greater of: 3X individual penalty, or 2.5% of

family income, when fully phased in.– penalties phase in from 2014 to 2016: $95/1% in 2014, $325/2%

in 2015; $695/2.5% 2016.– from 2016 on $695 for adults and $375 for children under age 18.– maximum of $2,085 per family or 2.5% of income. – Annual inflation updates to penalty amounts after 2016.

Individual Responsibility

45

Penalties for the uninsured are a fraction of the cost of getting insurance.

• average annual cost of a family group insurance premium in Texas today about $13,000, so:

• the maximum family penalty of $2,085 would be less than one-sixth of the cost of insuring a family; and

• a family would have to make more than $520,000 a year before 2.5% of income would equal the costs of getting the family insured.

Individual Responsibility

46

Employer-sponsored insurance is the foundation for coverage today. Employer responsibility provisions encourage employers to maintain existing coverage.

• Strictly speaking, the law does not require employers to offer coverage.

• But does require larger employers to contribute financially if their employees get subsidized coverage in the Exchange.

• Penalties are a fraction of the cost of coverage.

• Small employers (50 or fewer full-time workers) have no obligation to provide coverage, and are exempt from penalties if they choose not to offer coverage and their workers get help in the Exchange.

Employer Responsibility

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Penalties for firms with more than 50 full-time workers:

Employer Responsibility

Penalty Situation Assessment

If NO coverage offered and at least 1 employee get

subsidized coverage in the Exchange.

Annual assessment of $2,000 per full-time worker, excluding the first 30 workers from the penalty

calculation.

$2,000 penalty is ≈23% of employer’s cost for family coverage*

If coverage is offered, but at least 1 worker gets subsidized

coverage in the Exchange (allowed if worker’s premium share exceeds 9.8% of family

income).

The lesser of $3,000 per subsidized employee OR $2,000 for each full-time employee.

*On average, Texas employers today pay 68% of the cost of family coverage, or $8,840 of a $13,000 family premium.

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• Only one-in-three small businesses in Texas offers health insurance today.

• Texas small employers cite cost as the primary reason they cannot provide coverage.

• The Senate health reform bill provides tax credits to small businesses to help them afford coverage.

– Eligibility: Small firms with 25 or fewer employees, average annual wages under $50,000, and employer covers 50% of the premium cost.

– Phase I, 2010-2013: Max credit of 35% of employer’s cost for businesses, and 25% for nonprofits.

– Phase II, 2014 and on: Max credit of 50% of employer’s cost for coverage through the Exchange, and 35% credit for nonprofits. Available for two years.

– Max credit is available to small employers with 10 or fewer employees and average wages under $25,000, with phase out as size and wages increase.

Tax Credits for Small Businesses

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• Options and peace of mind– Small firms that want to sponsor health benefits will

have a guaranteed source of stable, quality coverage, that is priced like coverage for large firms.

– Small firms that prefer not to sponsor a heath plan will not be penalized for that choice AND will know that their workers are guaranteed access to the same good coverage through the Exchange.

• Ends “job lock”– Increases pool of employees available to small

businesses.– Frees entrepreneurs to start their own small

businesses.

Other Benefits for Small Businesses

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New law contains a wide range of measures to improve the quality of care and slow the growth in health care costs.

“The bills contain no shortage of ideas for reforming the delivery system, enhancing the quality of care, and slowing spending. Pretty much every proposed innovation found in the health policy literature these days is encapsulated in these measures.”

John Iglehart, founding editor of Health Affairs New England Journal of Medicine, November 11, 2009

• Will result in measurable economic benefits to governments, employers, and families.• Ex: By 2019, the average cost of family coverage is projected to be $1,900 a year less

than it would have been without reform.

Bending the Health Care Cost Curve

More information at:•Why Health Reform Will Bend the Cost Curve, The Commonwealth Fund and the Center for American Progress Action Fund, December 2009.

•Side-by-side Comparison of Major Health Reform Proposals, Kaiser Family Foundation.

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Congressional Budget Office (CBO) score says new law reduces federal deficit, both short-term and in long run.

Health care provisions reduce federal deficit by $124 billion from 2010 through 2019 (reduction score of $143 billion includes addl. $19 billion saved from higher ed. portions of reconciliation);

• Further reduces deficits in 2020-2029 decade, by an estimated one-half of 1 percent of gross domestic product (GDP), or about $1.3 trillion.

• CBO also anticipates that health reform “would probably continue to reduce budget deficits relative to those under current law in subsequent decades, assuming that all of its provisions continue to be fully implemented.” and

• Slows the rate of growth in health care costs over time.

– Medicare is largest component of federal health spending.

– CBO projects that the bill will reduce annual growth rate in Medicare spending per beneficiary over the next two decades to 2%, compared to 4% experienced over the past two decades.

Reform Fully Offset & Reduces Deficit

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Pay-Fors High on List of House-Senate Differences

• Both bills save $396-$438 million/10 years by slowing Medicaid and Medicare GROWTH

• Senate opposed House tax on High-income households

• House opposed Senate excise tax on high-priced plans

• President’s proposal (1) reduces excise tax and delays it until insurance reforms have already eliminated much price variation; (2) Increases Medicare tax for over $200K/$250K, and extends their Medicare tax to UNEARNED income like interest, dividends, royalties, etc.

When “Pay-Fors” are Cut, so are premium subsidies and help for states with Medicaid.

Reform Fully Offset & Reduces Deficit