Cost and Coverage Impacts of the President’s Health Care Reform Proposal and a Congressional Tax Credit Proposal. Description of the Lewin Health Benefits Simulation Model


HBSM was created to provide comparisons of the impact of alternative health reform models on coverage and expenditures for employers, governments and households.   HBSM facilitates comparisons of alternative health reform initiatives by using uniform data and assumptions.  For example, take-up rates for Medicaid and various tax credit/premium proposals are simulated using uniform take-up equations and modules.  Uniform methods are also used to simulate changes in health services utilization attributed to changes in coverage status and cost-sharing parameters.  This uniform approach assures that we can develop estimates of program impacts for very different policies using consistent assumptions and reporting formats. The use of uniform processes also enables us to simulate the impact of substantially different policy options in a short period of time.

The key to the design of the HBSM is a “base case” scenario depicting the distribution of health services utilization and expenditures across a representative sample of households under current policy for a base year such as 2009.  We developed this base case scenario based upon recent household and employer data on coverage and expenditures. We also “aged” these data to be representative of the population in 2009 based upon recent economic, demographic and health expenditure trends. The resulting database provides a detailed accounting of spending in the U.S. health care system for stakeholder groups.  These base case data serve as the reference point for our simulations of alternative health reform proposals.

The model first simulates how these policies would affect sources of coverage, health services utilization and health expenditures by source of payment (Figure 1).  For instance, the model simulates enrollment in voluntary programs, such as tax credits for employers and employees, based upon multivariate models of how coverage for these groups varies with the change in the cost of coverage (i.e., modeled as the premium minus the tax credit).  In addition, the model simulates enrollment in Medicaid and SCHIP expansions based upon a multivariate analysis of take-up rates under these programs, including a simulation of coverage substitution (i.e., “crowd out”).

Once changes in sources of coverage are modeled, HBSM simulates the amount of covered health spending for each affected individual, given the covered services and cost-sharing provisions of the health plan provided under the proposal.  This includes simulating the increase in utilization among newly insured people and changes in utilization resulting from the cost sharing provisions of the plan.  In general, we assume that utilization among newly insured people will increase to the level reported by insured people with similar characteristics. We also simulate the impact of changes in cost sharing provisions (i.e., co-payments, deductibles, etc.) on utilization.

Changes in employer costs are assumed to be passed-on to workers in the form of changes in wage growth over time.  For example, policies that increase employer costs would result in a corresponding reduction in wages for affected workers, with a corresponding reduction in income and payroll tax revenues.  Similarly, reductions in employer costs are assumed to be passed on to workers as wage increases.  HBSM includes a tax module that simulates tax effects due to these changes in wages as well. The model will simulate wage pass-through under varying assumptions on how long it would take for the labor markets to adjust.

The model includes a simulation of health insurance premiums in the private small group and individual markets using the range of rating practices permitted in each state.  This permits us to simulate the impact of options for implementing rate compressions proposals. It is also designed to simulate “adverse selection” that may result under policies that give employers and/or individuals a choice of alternative insurance pools with their own unique rating practices.  For example, some of the proposals analyzed in this study would give employers the option of enrolling in a public insurance pool at a community-rated premium.  This would tend to attract employers and individuals with high health care costs who find that the community-rated premium is less than the cost of an experience-rated plan for that group in the private market.

We present our summary of how the Lewin Health Benefits Simulation Model was used to estimate the cost and coverage impacts due to both proposals in the following sections:

  • Baseline (i.e. Current-Law) Development;
  • Key Modeling Assumptions for the Affordable Choices Health Insurance Program;
  • Key Modeling Assumptions for Tax Deduction and Tax Credit; and
  • Assumptions used for the State-level Estimates

Figure 1 Flow Diagram of the Health Benefits Simulation Model (HBSM)
Figure 1 Flow Diagram of the Health Benefits Simulation Model (HBSM)

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