LINKING PUBLIC AND PRIVATE: OPTIONS FOR BUYING-IN TO EMPLOYER- SPONSORED HEALTH INSURANCE COVERAGE WITH MEDICAID AND S-CHIP FUNDS

Transcription

1 LINKING PUBLIC AND PRIVATE: OPTIONS FOR BUYING-IN TO EMPLOYER- SPONSORED HEALTH INSURANCE COVERAGE WITH MEDICAID AND S-CHIP FUNDS Danielle Holahan Kathryn Haslanger December 2000 This paper was prepared by United Hospital Fund staff. Portions of this paper were adapted from Purchasing Private Health Insurance through Government Health Care Programs: A Guide for States 1999, a paper written by Laura Tollen, Institute for Health Policy Solutions, Inc. June 1999.

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3 EXECUTIVE SUMMARY Under current federal law, states have the option of using Medicaid and/or State Children s Health Insurance Program (S-CHIP) funds to subsidize the health insurance coverage of certain children and adults with access to employer-sponsored coverage. The federal conditions for using Medicaid and/or S-CHIP funds for a buy-in to employer-sponsored coverage require that the buy-in be cost effective and the benefits be comparable to the Medicaid and/or S-CHIP benefits. Conditions for using S-CHIP funds also include provisions to discourage employers and employees from discontinuing existing coverage. To be cost effective, the cost of premiums, deductibles, and other cost sharing must be less than the cost of covering persons in the public program. To meet the benefit comparability test, states can supplement employersponsored benefit packages. By providing premium assistance for employer-sponsored coverage, states can help certain low-income children and working parents obtain private coverage that is available to them but might not otherwise be affordable. It could also help families access a single source of coverage for all family members. A buy-in could also encourage employers to continue offering coverage because the buy-in is contingent upon this offer. Furthermore, there is potential to realize modest savings from these programs because the cost of the premium assistance must be less than the cost of coverage in the public program. There are, however, many administrative challenges associated with designing and implementing buy-in programs. First, states will need an administrative mechanism to pay the employees share of the premium. In addition, states will need to develop benefit and cost-sharing wraparounds to fill the gaps in the employer-sponsored coverage relative to Medicaid and/or S-CHIP coverage. Experience from states with buy-in programs has shown that these can be administratively burdensome for government and for employers. New York s recent coverage expansions and an emphasis on moving families from welfare to work mean that there may be more working families eligible for Medicaid and other public insurance programs. As a result, the need to coordinate between public and employer-sponsored coverage becomes more pressing. There are an estimated 60,000 uninsured persons who could be eligible for a buy-in to employersponsored coverage in New York. While this is a small number relative to the total number of uninsured, for reasons discussed above, a buy-in may be an important component in New York s strategy to draw on public and private efforts to increase insurance coverage.

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5 CONTENTS INTRODUCTION 7 Public Policy Context 7 MEDICAID: HEALTH INSURANCE PREMIUM PAYMENT PROGRAM 8 Conditions for Using Medicaid Funds 9 New York Legislative Framework 10 STATE CHILDREN S HEALTH INSURANCE PROGRAM (S-CHIP) 10 Conditions for Using S-CHIP Funds for Children s Coverage 10 Conditions for Using S-CHIP Funds for Family Coverage 11 New Coverage Option for Parents and Pregnant Women 12 New York Legislative Framework 13 ADVANTAGES OF A BUY-IN TO EMPLOYER-SPONSORED COVERAGE 13 ADMINISTERING A BUY-IN TO EMPLOYER-SPONSORED COVERAGE 15 State Examples of Program Design 16 Administering Premium Subsidies 16 Benefit Wraparound 17 Supplementing Cost Sharing 17 Work with a Health Insurance Purchasing Alliance 18 NEW COVERAGE OPTIONS FOR NEW YORK 18 STATE EXAMPLES OF EMPLOYER-SPONSORED COVERAGE BUY-IN PROGRAMS 20 MassHealth Family Assistance Program 20 Wisconsin s BadgerCare 21 MAKING BUY-INS WORK IN NEW YORK 22 CONCLUSION 27 APPENDIX: METHODOLOGY FOR ESTIMATES OF PERSONS ELIGIBLE FOR A BUY-IN TO EMPLOYER-SPONSORED COVERAGE IN NEW YORK 28 REFERENCES 29

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8 INTRODUCTION States have the option under current federal law to subsidize the health insurance coverage of certain children and adults who have access to employer-sponsored coverage using Medicaid and/or State Children s Health Insurance Program (S-CHIP) funds. Persons who qualify for Medicaid or S-CHIP and have access to such coverage can potentially benefit from this provision. By providing premium assistance for employer-sponsored coverage, states can help low-income children and, potentially, working parents access coverage that is available to them but might not otherwise be affordable. States could also help families access a single source of coverage for all family members. Furthermore, states may realize modest savings from these programs because the cost of the premium assistance must be less than the cost of coverage in the public program. It is important to note, however, that there are many administrative issues with designing and implementing buy-in programs through either Medicaid or S-CHIP. This paper will outline the legislative authority for buy-in programs and the conditions for using public funds for this purpose. It will focus on New York specifically, but will include descriptions of Massachusetts and Wisconsin s programs, which are particularly innovative and could serve as models for New York. Public Policy Context As states gradually increase the income eligibility levels for public health insurance programs, they are increasingly reaching individuals with access to employer-sponsored coverage. For families living below the federal poverty level (FPL) in New York, only 21 percent had private coverage in For those between 101 and 200 percent of the FPL, however, 52 percent had private coverage (Thorpe and Florence, 1999). As states take steps to expand eligibility for public programs for parents and children with incomes above the poverty level, the issue of coordinating public coverage with employer-sponsored coverage becomes more pressing. Like other state policymakers, New York policymakers are concerned to ensure that expanded public programs are designed to support, not supplant, employer-sponsored health insurance. Indeed, a strong motivating factor for the states with buy-in programs has been to support the employer-based insurance system (IHPS, 2000). Preventing the erosion of this coverage both reduces crowd-out of private dollars, which could mean savings for the state over the long run,and enhances the ability to cover more people. While New York law has long authorized its Medicaid program to buy-in to employer-sponsored coverage, recent legislative action, as well as changes in welfare and Medicaid participation, make this a good time to explore the buy-in option. Two developments New York s coverage expansions and an emphasis on moving families from welfare to work mean that the number of families working but still income UNITED HOSPITAL FUND 7

9 eligible for Medicaid has increased. Although low-wage workers are less likely to be offered employer-sponsored coverage than higher wage workers, there is nevertheless an opportunity for some applicants. MEDICAID: HEALTH INSURANCE PREMIUM PAYMENT PROGRAM Under Section 1906 of the Social Security Act (SSA), 1 states have the option of paying a low-income worker s share of the premium, deductible, coinsurance, and other cost sharing for employer-sponsored coverage, if doing so is more cost effective than providing Medicaid coverage for Medicaid-eligible family members. This is called a Health Insurance Premium Payment (HIPP) program. To be cost effective, the cost of premiums and cost sharing must not exceed the expected cost of Medicaid benefits. In addition, states can pay the premium (but not the deductible or cost sharing) for non- Medicaid-eligible family members if doing so is necessary to obtain private coverage for Medicaid-eligible family members. For example, in cases where employer-sponsored coverage is offered as family coverage, it may be necessary to subsidize the parent s coverage in order to cover the child. Since children are eligible for Medicaid at higher income levels than parents, a state that is subsidizing family coverage for a Medicaideligible child may also subsidize the coverage of a non-medicaid-eligible parent, if doing so is necessary in order to obtain the coverage for the child. For example, in 1997, the average employee contribution toward private family coverage in New York was $1,230 and the average cost per child in Medicaid was $1,790 (AHRQ, 2000 and Urban Institute, 2000). For a family with three children, it would be cost effective to buy-in the entire family, including the parents, even if the parents are not Medicaideligible 2 (see below). Average cost of covering 3 children in Medicaid: $1,790 * 3 = $5,370 Employee s contribution toward private family coverage: $1,230 (Excludes the cost of wraparound benefits and cost sharing) Conclusion: It is cost effective to buy-in the entire family. Federal law provides that a state may require, as a condition of Medicaid eligibility, an individual, or a parent on a child s behalf, to apply for enrollment in a group health plan. If a state chooses to mandate enrollment in employer-sponsored coverage, the state would have to pay all of the premium, deductible, and cost-sharing requirements for Medicaid-eligible family members. (A child cannot be denied Medicaid eligibility or was passed as part of OBRA 1990 and was effective January 1, The Balanced Budget Act of 1997 amended this provision so that it is no longer a requirement that states buy-in to private insurance coverage, but is now a state option. 2 This excludes the cost of Medicaid wraparound benefits and cost sharing, which would need to be added to the cost of the buy-in. UNITED HOSPITAL FUND 8

10 services because a parent did not enroll in an employer-sponsored plan.) States payments of premiums, deductibles, and cost sharing for Medicaid-eligible family members and premiums for non-medicaid-eligible family members qualify for federal financial participation at the state s matching rate. While administratively complex, these provisions requiring states to cover cost sharing are important to ensure that lowincome workers with little disposable income do not face financial barriers that prevent them from seeking needed care. 3 Under Section 1925 of the SSA, states have the option of requiring individuals who receive transitional Medicaid to enroll in employer-sponsored coverage, whether or not it is cost effective (HCFA, 1999 and SSA, 1999). Conditions for Using Medicaid Funds There are several conditions that states must meet in order to use Medicaid funds for employer-sponsored insurance. In general, buying employer-sponsored coverage must be cost effective and each Medicaid-eligible person must continue to have access to all Medicaid-covered services at Medicaid cost-sharing levels. If the employer plan does not provide all Medicaid-covered services, or if it charges higher copayments, the state must provide wraparound coverage. The subsidy, or the cost of buying-in someone to employer-sponsored coverage, includes premium payments as well as costs associated with benefit and cost-sharing wraparounds. All of these costs are included in the test for cost effectiveness. The cost-effectiveness test can be based on the same person s past medical bills or the cost of Medicaid beneficiaries with similar demographic characteristics and medical conditions. When comparing the costs of Medicaid and employer-sponsored coverage, some states assume employer-sponsored coverage coinsurance based on Medicaid s fee schedule, which, because Medicaid s rates tend to be lower than those that commercial insurers pay providers, increases the likelihood of the employersponsored coverage meeting the test. Similarly, most states pay employer-sponsored coverage coinsurance and deductibles based on Medicaid s fee schedule, which in some cases means paying no coinsurance 4 (GAO, 1997). One way some states meet the costeffectiveness test is by targeting the buy-in to high cost beneficiaries, such as pregnant women or persons with AIDS, whose costs would almost certainly be greater than the amount of the premium subsidy. 3 Davidoff et al. Children Eligible for Medicaid but Not Enrolled: How Great a Policy Concern? found that Medicaid eligibles with private insurance faced barriers to care, most notably out-of-pocket costs. 4 A 1992 Office of the Inspector General (OIG) survey found that 17/18 states with HIPP programs use the Medicaid fee schedule to pay employer-sponsored coverage coinsurance. In a May 1994 report, the OIG recommended that the Health Care Financing Administration (HCFA) propose legislation that allows states to use the Medicaid fee schedules to pay employer-sponsored coverage deductibles and coinsurance. Furthermore, the General Accounting Office interprets 1906 to allow states to use the Medicaid fee schedule. At the time of the 1994 OIG report, HCFA deferred comment and has not yet issued formal comment. UNITED HOSPITAL FUND 9

11 New York Legislative Framework New York implemented a mandatory state buy-in program in 1982, nine years before Section 1906 of the SSA was implemented. As of April 1993, New York paid the private insurance premiums of 20,000 Medicaid beneficiaries. (This number includes persons bought-in via both Sections 1905 and 1906) 5 (OIG, 1994)). After the implementation of the Omnibus Budget Reconciliation Act of 1990, New York modified its rules to comply with federal requirements. Under New York law, Medicaid will pay the premiums for employer-sponsored coverage if the Local Department of Social Services (LDSS) determines the coverage to be cost effective. Medicaid pays the premiums, deductibles, and coinsurance obligations that would otherwise be covered by Medicaid (Strom, 1999). STATE CHILDREN S HEALTH INSURANCE PROGRAM (S-CHIP) States have two buy-in options through S-CHIP. First, states can subsidize the premiums for children who have access to employer-sponsored coverage through a parent by paying the parent s share of the cost of covering the child. This option requires approval of the Secretary of the Department of Health and Human Services. Second, states can subsidize the premiums for families with S-CHIP-eligible children through a family coverage provision. In order to implement the family coverage provision, states must seek a waiver under Section 2105(c)(3). Conditions for Using S-CHIP Funds for Children s Coverage Under federal law, there are six conditions states must meet in order to use S-CHIP funds to subsidize employer-sponsored coverage for S-CHIP-eligible children. The first three are intended to reduce the potential for S-CHIP to substitute for, or crowd-out, private coverage. First, children receiving subsidies cannot have been covered by employer-sponsored coverage for at least six months. (States have the option of requiring that children be without employer-sponsored coverage for up to 12 months. 6 ) Second, the employer must contribute at least 60 percent of the cost of family coverage. Therefore, the state s share would be no more than 40 percent, which should be less than the full cost of covering the children in S-CHIP. This is required because the Health Care Financing Administration (HCFA) does not want the availability of S-CHIP funds to encourage employers to reduce their contributions toward coverage, and 60 percent is the median employer contribution to employer-sponsored coverage nationwide. But if a state can demonstrate that a lower employer contribution is prevalent in the state and 5 Under Section 1905 (a) of the Social Security Act, states can use Medicaid to pay private insurance premiums of Medicaid beneficiaries who are expected to have high medical expenses. Unlike Section 1906, it does not include a cost-effectiveness test. New York s data pertain to persons bought-in under both Sections 1905 (a) and 1906 (OIG, 1994). 6 The child can be covered by S-CHIP or Medicaid during this waiting period. UNITED HOSPITAL FUND 10

12 that there will be other program features to prevent crowd-out, this provision can be modified. Maryland, Massachusetts, and Mississippi were successful in arguing this point, and the required employer contribution is 50 percent in these states. Third, states using the employer-sponsored coverage buy-in provision must collect information about the amount of crowd-out that occurs. The fourth requirement is that the employer coverage provided must be equivalent, at least in actuarial value, to the state s S-CHIP benchmark. If the employer coverage does not meet this standard, states must provide wraparound coverage so that it meets this requirement. Where the benchmark plan includes one or more of several specified services (mental health, prescription drugs, hearing, and vision services), the benefits must be at least 75 percent of the actuarial value for the respective services in the benchmark. Fifth, employer-sponsored coverage must be cost effective. To be cost effective, the state s payment for employer-sponsored coverage cannot exceed what the state s payment would have been if the child were in S-CHIP. Like a buy-in through Medicaid, the buy-in through S-CHIP includes the premium and costs associated with benefit and cost-sharing wraparounds. Families receiving a subsidy toward employer-sponsored coverage must apply for and receive the full premium contribution from the employer. Finally, employer-sponsored coverage cost-sharing requirements must meet S- CHIP requirements. For families with income below 150 percent of the FPL, cost sharing cannot exceed the Medicaid cost-sharing amounts. For families with incomes greater than 150 percent of the FPL, cost sharing cannot exceed 5 percent of family income. There can be no cost sharing for well-baby, well-child, or immunization visits. The November 1999 proposed S-CHIP regulations include a 2.5 percent limit on cost sharing for families with income below 150 percent of the FPL (Tollen, 1999; HCFA, 1998; and Federal Register, 1999). Conditions for Using S-CHIP Funds for Family Coverage States can cover families with S-CHIP-eligible children if it is cost effective and does not crowd-out other insurance for the children. To be cost effective, the cost of covering both adults and children under S-CHIP can be no more expensive than covering only the children. A buy-in to employer-sponsored coverage is probably the only way to meet this cost-effectiveness test. So far, states have proposed to subsidize family coverage only through an employer-sponsored coverage buy-in, but HCFA has stated that it is open to other ideas (Federal Register, 1999). Finally, the employer-sponsored coverage must meet other S-CHIP requirements, such as comparable benefits and cost sharing, listed above. UNITED HOSPITAL FUND 11

13 New Coverage Option for Parents and Pregnant Women While most buy-in programs are implemented through Medicaid, Medicaid waivers, or S-CHIP, a new option has recently emerged. States can also apply for a Section 1115 waiver of S-CHIP in order to expand coverage to parents and pregnant women. States would get the enhanced S-CHIP matching funds for this coverage expansion, up to their allotment ceiling. It was not specified in HCFA s guidance to states what coverage the parents would be eligible for Medicaid or S-CHIP-like benefits. Coverage of these populations is viewed as in keeping with the intent of the S-CHIP statute because it promotes enrollment for children. There are several factors that will affect HCFA s consideration of a state s S-CHIP 1115 waiver application. They include the following: The state must have at least one year of S-CHIP experience and submitted all required evaluations. The state must provide assurances that it is effectively covering the core population of low-income children intended to be covered by S-CHIP by meeting the following two requirements: The state must be covering children up to 200 percent of the FPL, enrollment must be on a statewide basis, and there cannot be a waiting list. The state must demonstrate that its application and redetermination process for S-CHIP and Medicaid promotes enrollment and retention of eligible children. For those demonstrations that do not focus on ways to find and enroll uninsured children, or seek to cover populations other than targeted low-income children, the state must show that it has adopted at least three of the following policies and procedures in its child health programs (S-CHIP and Medicaid): Joint mail-in application and common application procedure for S-CHIP and Medicaid; Elimination of asset tests; 12-month continuous eligibility; Procedures that simplify redetermination/coverage renewal process by allowing families to establish their child s continuing eligibility by mail and, in states with separate S-CHIP programs, by establishing effective procedures that allow children to be transferred between Medicaid and the separate S-CHIP program without a new application or coverage gap when a child s eligibility status changes; and Presumptive eligibility for children. The state must cover the lower-income individuals in the group targeted by the waiver first. In addition, the state cannot cover this group at income levels above those of children in the state. For example, New York could propose to cover parents and pregnant women up to but no higher than 250 percent of the FPL, the eligibility level for children in Child Health Plus (CHP). 7 Finally, the state would have to comply with 7 Child Health Plus is the name of New York s S-CHIP program. UNITED HOSPITAL FUND 12

14 budget neutrality rules, which require that a state can only spend up to its S-CHIP allotment amount. If a state exceeds its allotment, any spending over this amount is not eligible for enhanced matching funds. If the demonstration complies with Medicaid rules, the state could get the Medicaid matching rate for spending above the allotment. Otherwise, this spending would not be eligible for any federal matching funds (HCFA Letter to State Health Officials, July 31, 2000). This S-CHIP 1115 waiver authority gives states another mechanism through which to cover parents and pregnant women. This would be a public program expansion, while a buy-in to employer-sponsored coverage provides an opportunity to link public financing and private insurance. In addition, a state could combine the two approaches expand public coverage and allow those eligible to be bought-in to employer-sponsored coverage. One benefit to providing direct public coverage (through the S-CHIP 1115 waiver authority) as opposed to a buy-in is that states would not have to meet the cost effectiveness and benefit comparability tests or the administrative tasks required of a buy-in. States would, however, be limited by the budget/allocation neutrality rules with an S-CHIP 1115 waiver. Since New York has spent its entire S-CHIP allotment on coverage for children, it would seem that there would not be any money to put toward a coverage expansion for parents and pregnant women. However, the newly initiated process of moving Medicaid-eligible children into S-CHIP may result in excess money under the allotment ceiling in the future. On the other hand, because a buy-in to employer-sponsored coverage leverages private spending on health care (and spending is required to be cost neutral for the state), the state would be able to cover parents at no new cost to the state and budget/allocation neutrality would not be an issue. Finally, more people are likely to be eligible under a coverage expansion through S-CHIP than to meet the requirements of a buy-in. New York Legislative Framework New York did not include a buy-in provision for children in its S-CHIP state plan. In addition, New York has not applied for a family coverage waiver or an S-CHIP 1115 waiver. ADVANTAGES OF A BUY-IN TO EMPLOYER-SPONSORED COVERAGE Employer-sponsored coverage buy-in programs bring both opportunities and challenges. One benefit to such a program is that it can save public dollars albeit modest amounts. By leveraging employer spending on health care coverage, public dollars can be spent to further expand subsidized coverage or to meet other priorities. Buy-in programs provide premium assistance to employees, which could help them take up coverage and/or prevent them from dropping existing coverage. Furthermore, a buy-in could encourage employers to continue offering coverage because the buy-in is contingent upon this UNITED HOSPITAL FUND 13

15 offer unlike other direct coverage options, such as S-CHIP and Medicaid. Furthermore, participating in private coverage could give workers access to providers who are not otherwise available to Medicaid and/or S-CHIP beneficiaries. And, enrolling in the health insurance plan that also covers fellow employees could serve to help integrate new workers into the workplace. Finally, a buy-in to employer-sponsored coverage could mean that all family members would be in the same plan and/or network. It is important to consider that there would potentially be a limited number of eligible persons. To meet the requirements of a buy-in to employer-sponsored coverage, a person must be working and eligible for employer-sponsored coverage (or the dependent of this worker), and also have a low enough income to qualify for public coverage. The number of persons eligible for such coverage has grown in recent years because of welfare-to-work efforts, but the total number is still likely to be relatively low. Fifty percent of low-wage workers (persons who earned below $15,000/year) in New York worked for a firm that offered coverage in 1999 and 35 percent of these lowwage workers were eligible for coverage. Of those eligible, 77 percent accepted their employer s coverage offer. 8 Among workers of all income levels in New York, 73 percent worked for a firm that offered employer-sponsored coverage, 65 percent were eligible for coverage, and 84 percent of those eligible accepted the offer. Rates at the national level were similar (Table 1). Premium assistance could benefit the 20 percent of workers who declined their employer s offer of coverage. Table 1 Offer, Eligible, and Take-up Rates of Low-Income Workers Compared to All Workers, United States and New York, 1999 Percent Who Work for A Firm That Offers Employer- Sponsored Coverage Percent Eligible for Coverage Percent Who Accept the Coverage Offer United States All workers 76 percent 68 percent 85 percent Workers earning <$15,000/year 58 percent 36 percent 77 percent New York All workers 73 percent 65 percent 84 percent Workers earning <$15,000/year 50 percent 35 percent 77 percent Note: The percent of workers offered and eligible for insurance is shown as a percent of all workers, while the percent of workers who accept coverage offers is shown as a percent of those eligible for coverage. Source: Tabulations of the February 1999 Current Population Survey prepared by Kenneth E. Thorpe and Curtis S. Florence. 8 Note that the take-up rate refers to only those workers eligible for the coverage. Among the 35 percent of low-wage workers eligible for their employer s coverage, 77 percent accept the coverage and 23 percent decline it. UNITED HOSPITAL FUND 14

16 A relatively small number of people are likely to meet the requirements of a buyin to employer-sponsored coverage both because few low-wage workers are offered and eligible for employer-sponsored coverage and because this coverage must be cost effective. Therefore, the amount of cost savings would also be relatively small. In Iowa, Pennsylvania, and Texas, three states with Medicaid HIPP programs that are considered to be successful, annual cost savings ranged from $2 to $10 million, which represented percent of total Medicaid expenditures in these states (GAO, 1997). ADMINISTERING A BUY-IN TO EMPLOYER-SPONSORED COVERAGE It is important to recognize the challenges associated with a buy-in program. There is an administrative burden of designing and administering the premium subsidy and the benefit and cost-sharing wraparounds. The federal conditions for using Medicaid and/or S-CHIP funds for a buy-in to employer-sponsored coverage require that this coverage be cost effective and that the benefits be comparable. Based on several states experiences, implementing these conditions can pose significant administrative burdens for government and employers. Because New York has laws that standardize benefits and rates and waiting periods for pre-existing conditions are limited, there is greater uniformity among private plans compared to other states (Table 2). Thus, the task of determining whether or not benefit plans are in compliance with Medicaid and/or S- CHIP rules will be easier. Nevertheless, it is important not to underestimate the administrative work to be done. Table 2 New York State Insurance Laws Individual Market Small Group Market (2-50) Large Group Market (50+) Insured Self-Insured Minimum Benefits Community Rating Guaranteed Issue X (Plus additional state requirements) X X (HMOs are required to offer HMO and POS plans with specified benefits.) X X X X X (Modified community rating) X Exempt from statutory mandates. Exempt from statutory mandates. Exempt from statutory mandates. Source: Susan Laudicina et al., State Legislative Health Care and Insurance Issues: 1999 Survey of Plans, Blue Cross/Blue Shield Association, 1999 and personal communication with Steve Casscles, Council on Health Care Financing, New York, September UNITED HOSPITAL FUND 15

17 State Examples of Program Design States have chosen different methods for implementing various components of their employer-sponsored coverage buy-in programs. The following sections describe some of the options available to states for administering premium subsidies and designing benefit and cost-sharing wraparounds. It also includes examples of how certain states have chosen to implement these provisions. Administering Premium Subsidies To use public funds to buy-in persons to private insurance, states need a mechanism to pay the subsidies. One option for states is to pay participants directly. The employee s share of the premium is deducted from his/her paycheck by the employer and the state reimburses the participant for a portion of this premium. A state must consider the administrative costs associated with writing and distributing checks to participants on a monthly basis. And the fact that the participant is reimbursed retroactively could create cash flow problems. To avoid such problems, the state could pre-pay the first month s subsidy amount. The participant would submit a copy of his/her pay stub to the state thereafter to show that his/her contribution was deducted. Thus, the state would be at risk for only one month s subsidy. A second option for states is to pay the subsidy to employers. It may be less administratively burdensome to pay a smaller number of employers than thousands of employees, but the magnitude of this difference is unclear if most participants work for small firms. In this case, the employer deducts less from the employee s paycheck and the balance is paid by the state. The employer, employee, and state contributions are then sent to the insurance carrier. One problem with this method is that employers may not want to change the amount of payroll deduction for a small number of employees. Also, under S-CHIP rules designed to reduce crowd-out, states cannot subsidize employees who already purchased this coverage for their children, but they can subsidize employees who did not previously purchase coverage for their children. Employers may not want to participate in this arrangement because of its seeming inequity. There are also issues of confidentiality since the employer would know who is participating and therefore would know the families household income. Furthermore, there is potential for mistakes by employers, e.g., employers may not deduct the right amount from paychecks. The state could require employees to submit pay stubs or require employers to provide verification. But again, it is important to consider the administrative burden. Finally, there is potential for crowd-out with this method because employers may be tempted to change the amount of their contribution knowing that there is a state subsidy option. Several states have adopted blended approaches to pay the subsidies. In Iowa s Medicaid HIPP program, the state pays the subsidy to either the employee or employer. In Massachusetts Medicaid/S-CHIP buy-in program, the state makes payments directly UNITED HOSPITAL FUND 16

18 to employees or through intermediaries. In Wisconsin s Medicaid/S-CHIP buy-in program, the state pays employees, employers, or insurance carriers. Finally, in Texas Medicaid HIPP program, the state pays employees through a voucher system beneficiaries submit a voucher with their pay stubs to the state in order to get reimbursed (Tollen, 1999 and personal communication with state contacts). Benefit Wraparound If employer-sponsored coverage does not include the required Medicaid or S-CHIP benefits, the state can either disqualify the applicant from the buy-in program and enroll him/her in the standard Medicaid or S-CHIP program or develop and administer a benefit wraparound. Alternatively, a state can precertify certain plans determined to be eligible and then restrict people to these plans if offered by their employer. Iowa provides wraparound coverage through Medicaid. Beneficiaries must go to a Medicaid provider for services not covered by employer-sponsored coverage, and Medicaid is billed (Tollen, 1999 and personal communication with state contact). Supplementing Cost Sharing Supplementing cost sharing is more complex than supplying benefit wraparounds because, based on HCFA decisions with S-CHIP, beneficiaries cannot incur costs greater than the cost-sharing limit, even if they are reimbursed retroactively. One option for states is to use a voucher system. Under this system, providers bill the state directly for the required cost sharing. This is the approach usually used in buy-in programs. The amount of the voucher varies by participant income level (for persons above and below 150 percent of the FPL). A difficulty with this option is that if these providers do not normally serve Medicaid beneficiaries directly, they will not have a Medicaid Management Information System (MMIS) identification number. States can assign a MMIS number or use an alternative system. Alternatively, a state can prepay families in cash for the expected copayment amount. This method is simpler for the state, providers, and families. However, there are potential problems with this method. For example, a family may not spend the money on medical care or the state may over/under pay if utilization is less/ more than expected. Texas uses a voucher system in its Medicaid HIPP program to supplement cost sharing. In Massachusetts, providers are required to bill the state directly for supplemental cost sharing. Massachusetts allows other options, at the beneficiary s preference. For example, if the beneficiary prefers, he/she can submit the provider s bill to the state or pay the bill and get reimbursed from the state. Massachusetts uses the state vendor payment system for billing (not MMIS) (Tollen, 1999 and personal communication with state contacts). UNITED HOSPITAL FUND 17

19 Work with a Health Insurance Purchasing Alliance Another option is for states to coordinate with a Health Insurance Purchasing Alliance for the administration of the buy-in. These alliances coordinate the purchase of health insurance coverage on behalf of a group of employers, usually small businesses, by standardizing benefits, collecting premiums, and paying insurance carriers. Therefore, these entities have much of the administrative experience necessary to coordinate a buyin program. An alliance could develop standardized benefit wraparounds or whole benefit options that meet S-CHIP requirements, eliminating the need to supplement benefits. Working with an alliance would reduce the administrative burden for the state and employers. New York has two small business purchasing alliances, one in New York City (Health Pass) and one on Long Island (LIA Health Alliance). NEW COVERAGE OPTIONS FOR NEW YORK As a result of the recent Health Care Reform Act 2000 (HCRA 2000), there are new coverage opportunities in New York. This legislation included the Family Health Plus (FHP) program, which expanded Medicaid to adults above traditional levels. 9 Parents with income up to 150 percent of the FPL and single adults and childless couples with income up to 100 percent of the FPL are eligible for Medicaid, compared to 87 percent and approximately 50 percent, 10 respectively, before this expansion (Figure 1). 11 With the enactment of FHP, adult eligibility for Medicaid has moved up to income levels where more people have access to employer-sponsored coverage. New York could design a buy-in to employer-sponsored coverage as part of the FHP program. In fact, legislation was proposed last session in the state senate (Senate Bill 8168) that would provide authority for a buy-in through FHP. Individuals with equivalent health insurance coverage would not be eligible for FHP. 12 But persons with access to coverage who have not enrolled (likely because of its cost) would be eligible for FHP. Premium assistance through a buy-in could help these individuals take up this coverage. There are several advantages to designing a buy-in program through FHP. First, since the FHP benefits package is less comprehensive than traditional Medicaid, the chances of employer-sponsored coverage meeting the benefit comparability test under FHP are greater than under Medicaid. In addition, since income eligibility levels for adults under FHP are greater than under traditional Medicaid, there are likely to be more 9 Family Health Plus requires approval of the federal government. 10 The eligibility level for single adults and childless couples is up to the public assistance need standard, which varies by county, but is approximately 50 percent of the FPL. 11 The state of New York uses gross income to determine eligibility for Child Health Plus and Family Health Plus and net income to determine eligibility for Medicaid and Healthy New York. All references to Medicaid and Healthy New York eligibility are in net income terms while references to other programs are in gross income terms. Gross income equals approximately 120 percent of net income. Therefore, gross income eligibility of 222 percent of the FPL translates to net income eligibility of 185 of the FPL. 12 New York is seeking a waiver that would allow this type of eligibility restriction since it is not allowed under traditional Medicaid rules. UNITED HOSPITAL FUND 18

20 Figure 1. Medicaid, Child Health Plus, Family Health Plus, and Healthy New York Eligibility Levels 1 % of Federal Poverty Level (FPL) 300% 250% 200% 200% Healthy New York Family Health Plus Child Health P lus Medicaid 250% 250% 208% No Ceiling 150% 150% 100% 133% 133% 100% Public Assistance 50% 87% Need Standard (varies by county) 0% Pregnant Children Children Parents 3 Single Adults Employed Small Women Aged 1-5 Aged & Childless Individuals 5 Businesses 5 and Infants Couples 4 1 Medicaid and Healthy New York eligibility are expressed in net income while Child Health Plus and Family Health Plus eligibility are expressed in gross income, as written in HCRA 2000 and Medicaid law. In 2000, 100% FPL is $8,350 for an individual. 2 Medicaid will expand to cover children under 19 up to 133% FPL when federal approval is received or Medicaid managed care enrollment reaches 50%. Plan amendment submitted December Family Health Plus requires approval of federal government. For parents, eligibility would increase incrementally as follows: up to 120% FPL as of Jan. 2001; up to 133% FPL as of Oct. 2001; and up to 150% FPL as of Oct Single adults and childless couples are currently eligible at county-determined public assistance need standard; they would be eligible up to 100% FPL when federal financial participation becomes available. 5 May include dependent coverage. persons eligible. A buy-in through FHP may allow New York to cover more persons at a lower cost to the state. HCRA 2000 also includes Healthy New York, an insurance option for small businesses and uninsured workers and their families with income up to 208 percent of the FPL. Through its more limited benefit package and state-funded stop loss, Healthy New York was designed to be less expensive for employers to offer. New York could design a buy-in for persons who are income-eligible for Medicaid and who have access to coverage through Healthy New York. The state would have to provide wraparound Medicaid benefits for those not offered through Healthy New York. Since the state would be subsidizing the cost of premiums, a buy-in would make the coverage more affordable for workers and could therefore help increase take-up rates. UNITED HOSPITAL FUND 19

21 STATE EXAMPLES OF EMPLOYER-SPONSORED COVERAGE BUY-IN PROGRAMS Massachusetts and Wisconsin have implemented buy-in programs for children and families through a combination of Medicaid Section 1115 waiver and S-CHIP. These states programs also include coverage expansions. Thus far these are the only states to cover families through the S-CHIP family coverage option. 13 MassHealth Family Assistance Program Massachusetts provides premium assistance to families with incomes between 150 and 200 percent of the FPL that have access to state-approved employer-sponsored coverage. The state received an S-CHIP family coverage variance and can therefore use S-CHIP funds to provide premium assistance to both parents and children, so long as the coverage meets S-CHIP rules. (See Conditions for Using S-CHIP Funds above.) Whether the premium assistance is funded through Medicaid or through S-CHIP depends upon the family income and insurance status. Families with access to employer coverage are screened first for S-CHIP premium assistance eligibility. Those not eligible through S-CHIP may be eligible through Medicaid. Persons with income below 150 percent of the FPL may be eligible for premium assistance through Medicaid. Persons with income between 150 and 200 percent of the FPL with access to employersponsored coverage that does not meet S-CHIP requirements may also be eligible for premium assistance through Medicaid. Rather than supplement employer coverage to meet its S-CHIP benchmark, Massachusetts has chosen to require that employersponsored coverage benefit packages be equivalent to the S-CHIP benchmark. Massachusetts 1115 waiver has no benefit standard for coverage buy-ins, so in cases where the employer coverage does not meet the S-CHIP benchmark, the state will buyin persons through this authority, so long as coverage meets the other requirements of the waiver. Under S-CHIP rules, if a child was previously insured, he/she cannot be covered through S-CHIP. In these cases, Massachusetts will buy-in the family to 13 Maryland received HCFA approval for its S-CHIP amendment to expand coverage to children in families with income between 201 and 300 percent of the FPL and includes a buy-in to employersponsored coverage. Maryland also received approval to reduce the employer contribution requirement to 50 percent. The target date for implementation is July 1, Mississippi also received HCFA approval for its S-CHIP amendment that will include an employer-sponsored coverage buy-in for children and families up to 200 percent of the FPL. Mississippi has deferred implementation indefinitely. There are several other states considering a buy-in to employer-sponsored coverage. Oregon has submitted an S- CHIP amendment proposal to HCFA in order to allow employer-sponsored coverage through its Family Health Insurance Assistance Program and to request a family coverage waiver. The request is pending HCFA approval. New Jersey has proposed a state-only funded employer-sponsored insurance buy-in program for working families with income between 133 and 200 percent of the FPL and is also developing a buy-in through S-CHIP. Finally, Michigan is also considering a buy-in through S-CHIP (Alpha Center, 2000; IHPS, 2000; HCFA, 2000; and personal communication with Theresa Hanna, Mississippi Department of Finance and Administration, and Nancy Dieter, Maryland Department of Health and Mental Hygiene, 2000). UNITED HOSPITAL FUND 20

22 employer-sponsored coverage through the Section 1115 waiver authority (so long as the employer-sponsored coverage meets the waiver requirements essentially the Medicaid HIPP program requirements). The state receives federal financial participation at the Medicaid matching rate in these cases. If a buy-in through S-CHIP would not be cost effective, other state assistance depends upon the family s insurance status. If the family is not insured, the state can cover the child (but not parents) through traditional S-CHIP. In this case, the state would receive the enhanced S-CHIP matching rate. If the family is insured, the state will contribute toward employer-sponsored coverage for the family the amount equal to the cost of coverage for children in MassHealth, and the family will be responsible for the rest of the premium. To be state-approved, employer-sponsored coverage must meet benchmark benefits level and cost-sharing requirements. In Massachusetts, the benchmark is the largest commercial HMO in the state. Employers must contribute at least 50 percent toward the premium. There is no requirement that persons be without insurance for a specified number of months, but eligibility varies based upon a person s insurance status. As discussed above, if a person is insured, he/she is not eligible for a buy-in through S-CHIP but could be eligible for a buy-in through the Section 1115 waiver or for traditional S-CHIP or Medicaid coverage. Families with income above 150 percent of the FPL will pay part of the premium, which is a flat amount based upon the number of children in the family. Families will also pay any additional premium that remains after the employer share if it exceeds the cost-effective amount, up to 5 percent of family income (Tollen, 1999 and personal communication with Pat Canney, Massachusetts Division of Medical Assistance, September 1999). The program subsidizes about 7,000 people with employment-based coverage (3,815 children covered by 1,837 family policies) and also purchases about 500 policies for adults (Polzer, 2000). Wisconsin s BadgerCare Wisconsin provides premium assistance to families with income up to 185 percent of the FPL who have access to cost-effective employer-sponsored coverage. 14 Premium assistance is funded through both Medicaid and S-CHIP. Eligibility for the respective programs depends upon family income and coverage being cost effective. If income eligible for S-CHIP and premium assistance for the family costs the same or less than the cost of covering only the children in S-CHIP, the buy-in will be funded through S- CHIP and the state will receive the enhanced S-CHIP match. If premium assistance through S-CHIP is not cost effective, the state will determine if premium assistance for the family would cost the same or less than covering the family in Medicaid. For 14 Once enrolled, families can remain in the program if their income increases up to 200 percent of the FPL. UNITED HOSPITAL FUND 21

23 families bought-in through Medicaid, the state will receive the Medicaid match. If neither test is met, the family will be enrolled in Medicaid managed care or Medicaid fee-for-service, and Wisconsin will get the Medicaid match for adults and the S-CHIP match for children. Employer-sponsored coverage must be a Health Insurance Portability and Accountability Act standard plan and employers must contribute between 60 and 80 percent toward the premium. 15 To be eligible, family members must not have been insured for at least six months. Families with income above 150 percent of the FPL will pay a premium of no more than 3 percent of family income to BadgerCare. Families are required to enroll in employer-sponsored coverage if it is cost effective and the employer s premium contribution is between 60 and 80 percent. Wisconsin provides benefit and cost-sharing wraparounds for services that are not included in the employersponsored benefit package and for cost sharing that exceeds the allowable amounts (Wisconsin S-CHIP State Plan; Tollen, 1999; and personal communication with Don Schneider, September 1999). This program was implemented in July 1999 and as of October 2000, 25 people were enrolled. Two reasons account for this low number. First, only half of those otherwise eligible have access to family coverage; others are offered either individual coverage or no coverage. Second, in cases where coverage is offered, employer contributions often do not meet the required 60 to 80 percent of premium. State data indicate that of 1,300 people otherwise eligible, 22 percent of employer contributions were between 60 and 80 percent, 50 percent were below 50 percent, 21 percent were between 50 and 59 percent, and 6 percent were over 80 percent (personal communication with Don Schneider, October 2000). MAKING BUY-INS WORK IN NEW YORK As a first step, it is important to identify those who are potentially eligible for a buy-in uninsured persons with access to employer-sponsored coverage. In New York, as in most states, most uninsured persons are low-income and/or work for small firms. Sixtysix percent of the uninsured have incomes below 200 percent of the FPL and half of uninsured workers are in firms with less than 25 workers (Thorpe and Florence, 1999) (Table 3). However, large firms are more likely to offer insurance than small firms. Ninety-two percent of workers in large firms (firms with 100 or more workers) were offered insurance compared with 41 percent of workers in small firms (firms with 25 or fewer workers) (Thorpe and Florence, 1999) (Table 4). Persons who meet the income eligibility requirements of the public program and work for an employer that offers insurance could be eligible for a buy-in. It is estimated that more than 60,000 uninsured persons in New York could be eligible for a buy-in to employer-sponsored coverage 15 Plans must include major medical services. The employer contribution requirement is a result of both federal and state rules. Federal rules require that an employer contribute at least 60 percent toward coverage. Wisconsin requires that if an employer contributes more than 80 percent, the family will not be eligible for premium assistance (Wisconsin S-CHIP State Plan). UNITED HOSPITAL FUND 22