Given the widespread interest in premium subsidy programs, ASPE worked with The Lewin Group to design and model a national premium subsidy program. The premium subsidies, including individual/family contribution requirements, reflect the Massachusetts program’s premium subsidy schedule, and the benefits mimic those included in the Massachusetts Commonwealth Care plans (see descriptions above).
For this analysis, subsidies could only be used for the purchase of coverage on the individual market; they could not be used toward the purchase of ESI. We assume the subsidies are funded in full by the Federal government, in order to provide cost estimates for a nationalized premium subsidy program. In addition, we include two variations of the program – one including a “crowd-out” provision and one without; both presenting coverage and cost results. A crowd-out provision is a mechanism designed to keep people from dropping private coverage in order to enroll in subsidized public coverage. This crowd-out provision utilized a requirement that individuals must be uninsured for at least six months prior to enrolling in the program (referred to as a waiting period). This eligibility requirement is meant to be a deterrent from dropping coverage, as it would require individuals to “go bare” for six months. While most premium subsidy programs include some kind of crowd-out provision to ensure they are not substituting public coverage for private coverage, we have also included coverage and cost estimates of a subsidy program without any such provisions in order to see the impact of the crowd-out provision.
A national premium subsidy program that includes the crowd-out provision described above would reduce the number of uninsured by approximately 15.5 million (Figure 1). Of the 18.2 million who enroll, 15.5 would have been previously uninsured, 1.5 million would drop non-group coverage and endure 6 months “bare” before enrolling, and 1.2 would drop group (employer) coverage and endure 6 months “bare” before enrolling. While the crowd-out provision does not entirely eliminate the phenomenon of people dropping private coverage for subsidized public coverage, these individuals make up less than 15% of the participating population.
A national premium subsidy program that does not include the crowd-out provision would result in a net reduction in the number of uninsured of only 7.5 million. This is because employers would be more inclined to drop their insurance coverage since there is no waiting period of uninsurance required before enrolling. As a result, while 15.5 million people who were previously uninsured will enroll in the program, 8 million people will become newly uninsured and not be eligible to enroll in the subsidy program or other public insurance programs. Overall, it is estimated that 43 million people will participate in the program, over 22 million of whom previously had employer coverage. Without the crowd out provision, previously insured people make up almost 64% of the participating population.
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.