Cost and Coverage: The Impact of Implementing Various State Health Care Reform Proposals Nationally. Cost Impact


A national premium subsidy program that includes the crowd-out provision described above would have a net federal cost of $91.8 billion dollars and a net state savings of $10.1 billion, for a total program cost of $81.7 billion (Figure 2).  States achieve savings as a result of reduced costs for state programs for the uninsured due to the decrease in the number of uninsured.  In addition, both the federal and state governments achieve savings in the form of increased tax revenue.  This tax revenue gain is the result of increased wages for employees as employers experience increased savings due to employees shifting from ESI to public coverage.  Previously uncompensated care costs, born by federal and state governments as well as providers, are also reduced, achieving an additional $15.7 billion in savings.  These savings are achieved as a result of the reduction in hospital uncompensated care for un- and underinsured individuals, as well as a reduction in free care provided by heath care professionals.

A national premium subsidy program that does not include the crowd-out provision would have a net federal cost of $152.6 billion and a net state savings of $8.3 billion, for a total program cost of $144.3 billion.  The state savings is less than with the crowd-out provision because the corresponding loss of ESI due to the lack of a waiting period for enrollment causes many people to lose coverage and subsequently enroll in Medicaid or SCHIP.  This increased enrollment in Medicaid and SCHIP results in higher state program costs, reducing the savings achieved from lower state program costs and tax revenue gains.  Previously uncompensated care costs are reduced by $11.4 billion, which is less than the estimate for the subsidy program with the crowd out provision.  Again, because employers are expected to drop coverage if there is no waiting period, some individuals will lose coverage and become uninsured because they would not be eligible for the subsidy or other public insurance programs.

  With Waiting Period Without Waiting Period
Figure 2. Summary of Public Program Costs under a Voluntary Subsidy Program With and Without a Waiting Period Requirement (in billions)
Total Program Costs $81.7 $152.6
Spending by Program
Federal Government Costs $91.8 $160.9
  Medicaid/SCHIP Programs     N/A     $8.0
  Premium Subsidies a/ $94.8 $188.8
  Tax Revenue Loss/(Gain) Due to Wage  Effects ($3.0) ($35.9)
State and Local Government Costs ($10.1) ($8.3)
  Medicaid/SCHIP Program     N/A    $6.1
  Other State Programs ($9.8) ($10.7)
  Tax Revenue Loss/(Gain) Due to Wage Effects ($0.3)   ($3.7)
Uncompensated Care
Net Reduction in Previously Uncompensated Care ($15.7) ($11.4)

a/ Includes $171 annual cost per family for determining eligibility and administering premium subsidies.

Source: Lewin Group estimates using the Health Benefits simulation model (HBSM).

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