For the 25,000 low-income Hoosiers on a waiting list for Indiana's health insurance program, there might be some good news in the next few weeks. Indiana has about 4,000 slots opening up in its popular Healthy Indiana Plan.
Lessons from the Hoosier State
Medicaid expansion plan might offer glimpse of results under reform
Launched in January 2008, the plan has proved so successful that 14 months into the program, all 25,000 slots for childless adults were full. Space is only now opening up as some people dropped out of the program after their income or employment situation changed, according to state officials.
Demand for the Healthy Indiana Plan offers a sign of just how much the uninsured want health coverage. And, some say, Healthy Indiana offers important lessons for national healthcare reform, warning that the country could face a tsunami of demand for health services in the first few years of universal coverage. It also shows that without the right mix of healthy and sick people enrolled, costs can quickly rise.
Healthy Indiana is a Medicaid expansion program whereby the state uses a portion of disproportionate-share hospital funding to finance coverage to people who don't qualify under the traditional Medicaid plan.
The plan covers parents with dependent children and childless adults between ages 19 and 64 years old who have been uninsured for at least six months and are not eligible for employer-sponsored coverage.
Enrollees can earn up to 200% of the federal poverty level annually, or $44,100 for a family of four and $21,660 for an individual. Enrollment is always open to parents with dependent children, but thousands of childless adults are waiting to join the program.
Most Medicaid programs nationwide cover children, families and pregnant women with incomes up to 100% of the federal poverty level—select groups with incomes half of what Healthy Indiana allows. Medicaid in Indiana, called Hoosier Healthwise, covers adults with incomes of only up to 22% of the federal poverty level—meaning the program covers only the truly indigent.
The Healthy Indiana Plan gained national attention because it includes an initial deductible of $1,000 and a health savings account. In order to maintain coverage, enrollees must make monthly payments to the account, depending on family income and ranging from 2% to 5% of total income, or up to $105 for a family of four and $85 for childless adults. Preventive care is free up to $500 a year and not subject to the deductible.
While the jury is still out on how well the health savings account and preventive-care incentive are working, analysts have looked at utilization trends among the newly insured and found that those signing up for the program are sicker and more frequent users of healthcare than those enrolled in commercial, employer-sponsored health plans.
The Healthy Indiana Plan “population used more care than the typical commercial population in Indiana with the same age and gender characteristics,” says Rob Damler, principal at Milliman, a consulting and actuarial firm. Damler is the consulting actuary to the state of Indiana on the health plan.
Childless adults enrolled in Healthy Indiana, for instance, had nearly three times as many inpatient services as private plan members in the first year. And pharmacy use was nearly 50% higher than a typical commercially insured population.
This newly enrolled group was also sicker than the general population. Their relative morbidity was 65% greater than their peers covered by private health insurance. The earliest enrollees to the program also proved to be the sickest, with the highest healthcare costs, Damler says.
This phenomenon is called anti-selection, where the least healthy population seeks healthcare coverage available to them, driving up the costs to insurers and the population covered. The Healthy Indiana Plan offers some considerations for national reform, Damler says.
“One of the issues that needs to be understood is pent-up demand,” he says. “We need to be prepared that the newly insured may cost more in the first 12 to 24 months than the insured population.”
Not surprisingly, insurance companies say that without a federal law requiring everyone to carry health insurance, national healthcare reform won't work because the chronically ill will sign up for coverage in large numbers, driving up costs, while the healthy will stay on the sidelines.
“It only works if everyone's covered,” says Alissa Fox, senior vice president of policy at the Blue Cross and Blue Shield Association.
What's still unknown is the right balance between the requirement to carry health insurance, the proposed subsidies to help people afford coverage, and the penalties for not buying coverage, experts say.
All Americans would be required to carry health insurance under the recently passed House bill and the Senate Finance Committee bill. Subsidies would be available to people up to 400% of the federal poverty level, or $88,200 annually for a family of four and $43,320 for individuals, to help purchase health insurance under both bills.
Medicaid would also cover more people with higher incomes. Under the House bill, Medicaid eligibility would rise to 150% of the federal poverty level, or $33,075 for a family of four and $16,245 for individuals. Childless adults could qualify for Medicaid coverage. The Senate Finance Committee bill would expand Medicaid up to 133% of the federal poverty level.
Ron Pollack, executive director of Families USA, a Washington-based advocacy group, says the Medicaid expansion is enormously important.
“I don't think you can overstate the significance of the Medicaid eligibility improvements,” Pollack says. Under the House-proposed expansion, about 27 million people would become newly eligible for Medicaid, he says. But will the proposed subsidies be enough for middle-income families to afford health insurance? Pollack and others say it's hard to know for sure.
A middle-class family of four could still end up paying thousands of dollars per year for health insurance under both the House and Senate bills. For instance, a 40-year-old man with a stay-at-home wife and two children—with family income of $66,150 annually, or 300% of the federal poverty level—would receive a government subsidy of about $2,800 toward health insurance. The family would pay $6,615 a year in healthcare premiums, or about 10% of income.
That's close to double what employees typically pay toward premiums, according to the Kaiser Family Foundation's annual employer health benefit survey. In that survey of employers, the average worker pays $3,515 annually toward health premiums, while the employer picks up $9,860 of the total cost.
What about total costs to cover the nation's 46.3 million uninsured? Enrollees' healthcare spending under the House bill is projected to be higher than under the Senate bill, according to the Congressional Budget Office. That's because the House bill offers greater subsidies for cost-sharing, such as copayments and coinsurance, which the CBO estimates would attract a less-healthy mix of enrollees.
The House bill also restricts age-rating, which would make insurance exchanges—the place where people without employment coverage would purchase health insurance—less attractive to younger people, who tend to have lower healthcare costs, according to the CBO.
Cost-sharing and premiums could be very expensive for the middle class, says John Rother, executive vice president of policy and strategy for AARP. “You're going to see a lot of middle-income people paying 15% of income for health insurance,” he says.
Will people pay it? In Massachusetts, the only state with an individual mandate, nearly everyone who must carry health insurance does. Of the 2.6% of state residents who still lack health insurance, only 3% of those are those deemed to have access to affordable coverage but who choose not to buy it, according to the Kaiser Family Foundation.
Massachusetts residents who fail to buy health insurance must pay a $912 penalty on their state tax returns. “It's not just about dollars, but the value of what you get,” says Jennifer Tolbert, principal policy analyst at the Kaiser Family Foundation. “You can pay a penalty and get nothing, or pay a bit more and get health insurance.”
The penalties for not buying coverage differ in congressional bills. Under the House legislation, the penalty is 2.5% above adjusted income through income tax filing, though some people could qualify for hardship exemptions. Under the Senate Finance Committee bill, the tax penalty for not carrying health insurance would be phased in, starting with a penalty of $200 in 2014, and climbing to $750 in 2017. Hardship exemptions would also apply. The Senate bill has a permanent exemption for American Indians.
Finding the right mix of penalties and incentives is crucial, Rother says. “The incentives and penalties have to be strong enough to spread the risk or you are going to have a problem.”
Congressional Democrats have provisions to bring the “young invincibles”—young adults who choose to go without health coverage—into the fold. The House bill allows young people to stay on their parents' health insurance plan until age 27, while the Senate Finance Committee bill offers special low-cost coverage to youth.
In truth, Tolbert says, under both proposals many youth would qualify for Medicaid coverage. About 42% of young Americans have incomes below 104% of the federal poverty level. “Many don't have access to Medicaid today because they don't have children,” Tolbert says.
In Massachusetts, costs of healthcare remain a barrier to care. About 21% of state residents went without needed care in 2008 because of costs, according to the Urban Institute.
House Democrats in early November released a so-called “managers mark” on their reform bill, which added provisions aimed to prevent price gouging by health insurers, and require insurers to report planned premium increases.
The recession is also a wild card. The recession hit Indiana just as the Healthy Indiana Plan launched and it has not let up, making it difficult to tease out the poor economy's effect on enrollment and medical cost rates, Damler says.
Right now, the proposed individual insurance requirement, subsidies and penalties are sleeper issues, says Robert Blendon, professor of health policy and political analysis at the Harvard School of Public Health. “This was a huge issue in Massachusetts,” he says. “Today, we're in a terrible economic downturn and the cost of new coverage could seem very high to people.”
Blendon says the Obama administration will have to work hard to educate people about the new programs and requirements, as leaders did in Massachusetts. “There's a cultural change that I believe occurs, and that takes between two and three years,” he says. “There's no question that you will have high costs at the beginning.”
But in order for healthcare reform to work, a requirement that everyone carry health insurance is necessary to keep the coverage pool from skewing toward the very sick, Damler says, which so far has been the experience of the Healthy Indiana Plan.
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