Premium Assistance Programs: What are they and could they help Connecticut Families without Health Insurance?

Revised: January 2002

Last year Connecticut passed legislation directing the Department of Social Services, the Office of Health Care Access and the Office of Policy and Management to prepare a plan "for the purchase of employer-sponsored health insurance for adults and children." The plan is to include analyses of sliding scale fee schedules for coverage, minimum benefit standards, the fiscal impact on the state, maximization of federal funds, unemployment subsidies, assessment of impact on the current HUSKY program, a timeline, infrastructure and resource requirements to implement on January 1, 2003. The report is due no later than March 1, 2002.

What are premium assistance programs and how do they work?

Premium Assistance (PA) programs allow the state to subsidize health coverage for low-income residents whose employers offer health insurance. In other states with PA programs, applicants and enrollees are screened for access to employer-sponsored health coverage. The state requests detailed information from potentially participating employers regarding costs, benefit package, employer share of costs and employee eligibility. If the employer responds and the coverage meets state and federal standards for both benefits and costs, consumers are enrolled in their employer's plan. The state pays the consumer, insurer, and/or employer a subsidy. Services missing from the employer package would be covered through a state-sponsored "wrap around" program; consumer costs above HUSKY levels are reimbursed by the state.

The goals of PA programs are

1. to reduce the number of uninsured state residents,
2. support existing employer coverage,
3. leverage private health care spending to maximize the effectiveness of public funds,
4. keep families together in the same plan, and
5. provide consumers the dignity of participating in the plan their coworkers enjoy, while keeping costs reasonable.

Do any other states have premium assistance programs, how do they pay for it and how do they work?

Premium assistance programs are very new. Only a handful of states have implemented programs; all are very small and early results have not been encouraging. Many more states are exploring the idea of premium subsidies; several have approved federal waivers for PA programs. Unlike Connecticut, states considering PA programs have a record of success in reaching residents eligible for their traditional public programs. These states are trying to further improve their enrollment numbers after successfully exhausting more traditional, proven options. Colorado conducted an extensive analysis of potential costs and risks vs. potential benefits, and decided not to implement a PA program now, pursuing instead other options to address the uninsured. PA programs are funded with Medicaid and SCHIP funding in all states; Massachusetts also uses additional state dollars for their program.

Massachusetts' PA program is the oldest, implemented in 1998. Massachusetts includes both a subsidy of premiums for consumers and a direct subsidy to employers in their program. Enrollment has been disappointing, far below initial projections. What's more, over one third of enrollees already had insurance. Administrative costs have been extremely high.

Wisconsin's BadgerCare includes both the traditional Medicaid/SCHIP program (similar to Connecticut's HUSKY) as well as a PA program. In contrast to HUSKY, BadgerCare's traditional program has been extremely successful, having reached 70% of Wisconsin's eligible uninsured children as of June 2001. One year after implementation, however, the PA program had enrolled only 5 families for a total of 20 people. Reasons given for poor enrollment include low employer response rate to the questionnaire, frequent job transitions common for low-wage workers, employer contributions are too low (under 60%), employer packages that do not meet minimal standards, and subsidies were not cost-effective to the state, meaning that the state could purchase traditional BadgerCare for a family for less.

What federal rules apply, if Connecticut wants to apply for a premium subsidy waiver?

In early August, the rules changed dramatically. CMS, formerly HCFA, issued new guidance that "strongly encourages" states to integrate or coordinate public programs with private health insurance. States are given license under PA to reduce benefit packages below HUSKY Part A or even Part B levels. Limits on costs for families were eliminated - premiums and copayments are a significant barrier to accessing care for even moderate income families in Connecticut. Minimal standards on the share of costs that must be borne by employers were eliminated. Under the new system, employers who pay a better share of costs would have an incentive to reduce their contribution, secure in the knowledge that the state will pick up the difference.

Most surprisingly, the new guidance significantly loosens the cost effectiveness requirement. PA programs can operate as long as costs are not "significantly higher." Connecticut could end up spending more under a PA program than traditional HUSKY is already the most expensive Medicaid managed care coverage in the US. Potentially, families could find themselves enrolled in plans with fewer benefits and higher costs than HUSKY, and the state could be spending more for this weaker program.

What barriers to implementation might a Connecticut premium assistance program encounter?

• Administrative burden - The current HUSKY application process is far from smooth. The addition of employer paperwork would unduly tax an already overburdened system. The state would also have to create a wrap around program to address costs to families and services not covered by each employer's package. Administrative costs would be very high.
• Narrow eligible population - Nationally only 19% of the uninsured have access to employer-sponsored health insurance. Of that number, even fewer are eligible for HUSKY. Of that number, far fewer work for employers who might agree to participate, and even fewer are offered packages that meet even minimal standards. The total pool of Connecticut families who could benefit from a PA program is very small.
• Could be a "bad buy" for both families and the state - Employer contributions to health benefits are far lower and declining far faster for low-wage workers. Some plans offered to employees are just not a good value.
• Stigma - There is a very real danger that creation of an employer-based option would strengthen the stigma against enrolling in the traditional HUSKY program. Families without the option of employer-sponsored coverage might be even less inclined to apply for a program that is too often characterized as "welfare".
• Crowd out - Creating a PA program could lead a significant number of employers to reduce their benefit levels and/or contributions toward coverage. Without controls, the program could end up covering a large number of currently insured people, as happened in MA. While crowd out has not been a problem in Connecticut's HUSKY program, that is largely due to very low enrollment.
• Adverse selection - As consumer costs increase, employees with greater health needs would be more likely to participate and healthier employees would have less incentive to pay the costs. As the health care needs of the pool increase, costs for all employer-based coverage could increase. As these costs rise, fewer consumers and employers would be able to afford coverage, increasing the number of uninsured.
• Unfair eligibility - If the state increases eligibility for only the PA portion of HUSKY, uninsured residents lucky enough to have an employer offer of coverage that meets program standards would benefit over those at lower incomes without an offer. Conversely, a worker with a family would be able to afford coverage while a coworker at the same job, same income (or even lower) without children, would be out of luck. Large employers would be more likely to have personnel departments to respond to the PA paperwork, so a child whose mom works at McDonalds could fare better than another whose mom works at a corner deli.
• Employer reluctance - Beyond the paperwork hassle, employers have expressed concern about the stability of PA programs. Employers are understandably wary of starting to offer benefits, becoming dependent on state subsidies that are subject to the volatility of each year's state budget process. If the program were cut, participating employers would be placed in the difficult position of either cutting benefits, raising costs to employees or shouldering the costs themselves.
• Fairness to employers - If Connecticut chooses to include an employer subsidy, a choice between fairness and effectiveness of funding will have to be made. If the state chooses only to offer the subsidy to employers who begin to offer benefits, funding will be effectively targeted to the uninsured. However, in fairness it will difficult to exclude those employers currently doing the right thing and offering their employees insurance. Under this broader offer, a great deal of the new money will target workers who already have insurance, as is the case in MA.

What should Connecticut consider if we decide to build a premium assistance program?

• Public process - Initial and continuing public involvement is critical to success.
• Good value - Be sure the state only buys decent coverage that is worth its cost. Between employer plans and wrap around coverage, ensure that families have access to a comprehensive benefit package that covers all medically necessary services to protect both physical and mental health.
• Reasonable costs to consumers - As a significant barrier to accessing preventive care, keeping consumer costs reasonable is a good investment of public funds. High costs to consumers could also trigger adverse selection.
• Cost effectiveness - Ensure that the state is not paying more for PA coverage than for HUSKY. Determine if new funding from employer contributions are mitigated by high administrative costs and crowd out. One is reminded of the comment by an OPM staffer, "We can't afford any more of your savings."
• Crowd out - While the state should maximize the effectiveness of public funds, policies must be balanced with barriers to enrollment for families. Requirements that employers not reduce current spending are prudent.
• Capacity - Ensure all systems are in place and functional, before implementation. Pilot the program first. Build consensus with consumers, employers, insurers, and policymakers. Provide DSS with sufficient resources to effectively administer the program.
• Significant consumer supports - Aggressive outreach and education to empower consumers' good sense to do what works for their families. Ensure that consumers fully understand the complex system and where to go for help.
• Privacy - Protect sensitive employee personal information from disclosure to employers.
• Smooth linkage with traditional HUSKY - Ensure that families who apply for premium subsidy, but are eventually found to be ineligible, are smoothly transitioned into HUSKY. Minimize application timelines.
• Minimize stigma - Ensure that all communications, policies and processes are designed to reduce stigma for traditional HUSKY.
• Significant employer supports - Devote resources to encourage employer participation. Aggressive outreach emphasizing benefits to employers such as:
• Healthier, happier, more productive employees
• Improved employee retention
• Cover all family members in one plan
• Improve employee participation rates in company plan
• State assistance to business with benefit costs
• Financial commitment - Ensure a stable, long term source of funding to inspire confidence among employers and consumers.
• Evaluate and modify the program in response - Monitor at least:
• Administrative costs
• Consumer and employer satisfaction
• Service utilization
• Employer contributions and costs
• Crowd out -- the number of previously insured enrollees
• Adverse selection - health status of enrollees
• Outreach effectiveness - to consumers and employers
• Fairness of application system
• Effectiveness in reducing the number of uninsured (relative to other policy options)

What else can Connecticut do that would be likely to reduce the number of uninsured?

The problem of the uninsured is complex with many causes. No single option alone will solve the problem. Several simpler options are available to Connecticut that have proven to effectively reduce the number of uninsured.

• Evaluate HUSKY outreach -- Thousands of uninsured Connecticut residents are eligible but not enrolled in HUSKY as it exists now. Connecticut is far behind other states in enrollment. Connecticut spends a great deal of money on HUSKY outreach over a multitude of programs and initiatives, but there is no evaluation of the effectiveness of spending. In the absence of objective information, funding decisions are motivated by intuition and politics. Efforts are so fragmented that some community groups get numerous calls offering HUSKY presentations, while others have never been contacted. Consumers have great difficulty getting effective assistance throughout the complex and lengthy application process. An evaluation could provide guidance to improve the performance of all outreach activities. For more on barriers to HUSKY enrollment, see the Connecticut Health Policy Project's report: HUSKY Focus Groups: What Parents Are Saying.
• HUSKY parents' expansion - Currently, Connecticut only provides assistance to parents in families up to 150% of the Federal Poverty Level ($21,945 for a family of three). However, the state has determined that families up to twice that income level need assistance in purchasing health care for their children. As it takes healthy parents to raise healthy children, it makes sense to provide assistance to HUSKY parents up to the same income levels as their children. By accessing federal matching funds, the state would shoulder less than half the cost of such an expansion. With better outreach, this option offers the best hope of cost-effectively reducing the number of uninsured.
• HUSKY endowment fund - Allow anyone, individuals and businesses, to buy-into the HUSKY program at full cost. This would provide a source of affordable coverage to every uninsured Connecticut resident. Recognizing that many low-income uninsured would still need subsidies to make a HUSKY buy-in option affordable, a separate HUSKY Endowment Fund could be established. The Fund could accept both public and private funds; companies, generous individuals, foundations, etc. that wish to contribute to the problem of the uninsured would have a mechanism. The application process for consumers would mirror college applications. HUSKY applicants could fill out an application just for coverage and pay the full freight (no stigma). However if they choose, they could fill out a bit more information on income levels, etc. to apply for assistance from the Fund. As it piggybacks on HUSKY, the program could be implemented with a minimum of administration.
• Other options to help the uninsured include local programs building on existing community resources with public and/or private funding, programs utilizing volunteer and subsidized health care expertise, expansion of the community health center system that currently serves the uninsured, purchasing pools to provide affordable options to the uninsured, making bulk-purchasing arrangements used by managed care organizations available to the uninsured, market reforms to ensure fair pricing in health insurance, care coordination for the uninsured, and consumer and purchaser information campaigns to provide the tools for effective purchasing. Variations on all these options have been successful in other states.

Overall, a well-designed PA program has the potential to provide some relief for Connecticut's uninsured. However, it will not solve the problem alone. Connecticut should pursue many options, evaluate the progress of each in reaching both fiscal goals and in reducing the number of uninsured, and modify policies in response.

Comparison of Connecticut Options for the Uninsured

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