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H E A L T H T R A C K I N G :
M A R K E T W A T C H
W E B E X C L U S I V E
21 May 2003
Use Of Subsidies To Low-Income People
For Coverage Through Small Employers
A proposal to extend employment-based
options under publicly
funded coverage expansions.
by Ed Neuschler and Rick Curtis
ABSTRACT:
If tax credits or other public subsidies are made available only for health
insurance that is not employment-based, serious erosion of employer coverage
could result. To prevent this, public subsidies targeted to low-income workers
and families could be applied in ways that broaden employer coverage for low-income
workers and their families by encouraging small employers with largely low-wage
workforces to offer and partially fund health coverage for their workers. To
accomplish this, such employers—very few of which now provide health coverage—must
be allowed to contribute much less than normally required in the commercial
market.
To expand health insurance
coverage to the uninsured, policymakers are now considering several proposals.
Most of the proposals—from expanding eligibility for existing public programs
such as Medicaid and the State Children’s Health Insurance Program (SCHIP)
to making available tax credits or vouchers to purchase private health insurance—would
subsidize the purchase of health insurance coverage by specific populations
based on personal (family) income. Although a substantial majority of the uninsured
are in working families, these proposals generally do not attempt to work with
or through employers to expand coverage.1 The Bush
administration’s proposal for health insurance tax credits, for example,
would not allow tax credits to be used toward what the worker pays for employer-sponsored
coverage.2
If sizable tax credits are made available only for non-employment-based coverage
or if direct public coverage is made available for working adults, a number
of employers are likely to rethink their role in covering their employees, and
a serious erosion of employer coverage could result.3
Among people with incomes between 100 percent and 200 percent of the federal
poverty level, many more (46.6 percent) have employer coverage than are uninsured
(26.3 percent).4 As a practical budgetary matter,
government is unlikely to have the wherewithal to replace employers’ current
contributions toward health coverage for their low-income workers. It therefore
makes sense to examine approaches that would help to maximize net coverage gains
by allowing public subsidies to be applied in ways that complement existing
employment-based coverage instead of crowding it out.
Direct subsidies for uninsured or low-wage small firms have also been proposed
as a way to encourage them to offer coverage to their employees.5
But these proposals are difficult to target efficiently, because some workers
in such firms do not have low (family) incomes.6
This paper investigates how public subsidies targeted to low-income people—including
both public program subsidies and tax credits—might also be applied in
ways that broaden employment-based coverage for low-income workers and their
families and lessen the risk of a cascading erosion in employer coverage. The
approach outlined here could work with a variety of subsidy mechanisms as a
cost-effective way to make job-based enrollment, payroll contributions, and
coverage work for more Americans, including the many uninsured people who work
for firms that do not now offer health insurance coverage.
The Concept
The overall objective of our proposed approach is to maximize the net increase
in health insurance coverage for low-income workers and their families, regardless
of the type of public subsidy funds that are made available. By allowing available
government subsidies to be combined with workers’ and employers’ contributions,
our approach would make coverage more affordable for many workers and their
families. It also would parlay the key advantages of job-based insurance: simplicity
of enrollment, premium payment through payroll withholding, and pooling of risk.
Signing up for health insurance at work is an easy, effective way to enroll
in health coverage. Also, enabling all family members to be covered by a single
health plan is convenient for parents and important for children, who are more
likely to be covered and get needed care if they can be enrolled in the same
health plan as their parent(s).7
Our approach focuses on allowing subsidies that are or may become available
for low-income people to be applied to employment-based coverage for workers
and their dependents, but only for employees of small firms with largely low-wage
workforces.8 If sizable tax credits became available
only for non-employer-group coverage, insured small firms with low-wage workforces
are most likely to be the first wave of employers that drop coverage to allow
their workers to benefit from higher tax subsidies. Moreover, small firms with
low-wage workforces employ a sizable share of all uninsured workers and are
much less likely than other small firms are to offer coverage.9
Also, low-wage workers tend to be concentrated in low-wage businesses.10
Therefore, focusing on workers in these firms could extend coverage further
and thus maximize the “bang for the subsidy buck.” Further extensions
of the concept could allow tax credits to be applied to larger low-wage firms
or to low-wage collective bargaining units for group coverage across multiple
employers.
Employers’ Contributions
Small employers cite a variety of reasons for not offering health benefits,
but not being able to afford the cost is the primary reason.11
Insurers will not issue a group plan to a small firm unless a substantial majority
of its otherwise uninsured workers agree to enroll. To induce enough workers
to participate, employers usually have to pay a substantial portion of the premium.12
In fact, for the relatively few workers who had worker-only coverage through
a low-wage small employer in 2000, the average contribution requirement for
such coverage was only 20 percent of premium, and half had no contribution requirement.13
With the average premium for worker-only coverage now in excess of $3,000 per
year and family coverage approaching $8,000, it is not surprising that neither
low-wage small employers nor their workers see health insurance as affordable.14
However, local pilot program experience indicates that many small employers
with mostly low-wage workers will offer health insurance if they feel the amount
they must contribute is affordable and predictable and will remain so over time;
if their contribution reduces the costs their workers face; if their workers
can afford what they are asked to contribute; and if the coverage source is
reliable and sustainable and minimizes the employer’s administrative burden.15
Based on this experience, we believe that by allowing such employers to make
much smaller contributions than are required in the regular commercial market,
public subsidies otherwise available for low-income workers and families could
also be used to encourage small employers with largely low-wage workforces to
offer and partially fund health coverage.
Small, low-wage firms could be allowed to offer coverage through a venue that
channels public subsidies to their low-income workers and requires them to contribute
only a flat $50 per covered worker per month (in 2002 dollars), regardless of
the worker’s age, the plan the worker selects, or whether dependents are
covered. Local pilot program experience suggests that $50 is low enough to attract
a sizable number of small businesses that do not offer coverage now. Although
we do not prescribe a specific qualifying definition for such firms, a reasonable
sample criterion might be firms with twenty-five or fewer employees, the majority
of whom earn less than $10 per hour.16 Nationwide,
there are about 8.3 million workers in such firms; about five million of them
are in firms that do not offer coverage.17 Limiting
participation to small, low-wage firms greatly reduces the risk that public
subsidies will simply replace employers’ and workers’ current contributions
toward health coverage— known as crowding out—because more than two-thirds
of small, low-wage firms do not offer health coverage now.18
Those that do offer coverage are very likely to drop it without such an option.19
While firms would qualify for participation based on the number and compensation
of their employees, workers would qualify for subsidies based on the rules governing
the program providing the subsidy, whether a public program or a new income
tax credit. In either case, workers’ eligibility for subsidies would be
based on total family income, so that public funds are targeted to people who
need help paying for health coverage and not to higher-income coworkers.
Two more considerations are important if the objective is to obtain broad participation
of low-wage small employers in offering coverage. First, to ensure that enough
low-wage workers can afford to participate, eligibility for subsidies must continue
above 200 percent of poverty, on a sliding scale, particularly for unmarried,
childless workers. Because the federal poverty level is so low for a one-person
household ($8,860 in 2002), a full-time worker with no dependents who earns
more than $8.52 per hour has income above 200 percent of poverty. Further, almost
half of uninsured workers are unmarried and do not have children.20
Thus, a subsidy program with an eligibility cutoff at 200 percent of poverty
could leave many low-wage, small-firm workers unable to afford coverage and
could lead many eligible small firms to decline to participate.
Second, employers will be more willing to participate if they can offer coverage
to their entire workforce, both those who are eligible for subsidies and those
who are not. This also will mean that workers can maintain their coverage source
and provider relationships if their subsidy status changes because of increased
or decreased earnings at that job.
Sliding-Scale Public Subsidies
To illustrate our proposed approach, we examine two primary subsidy constructs,
each of which uses a sliding-scale arrangement wherein the public subsidy falls
as a worker’s income rises up to, potentially, 300 percent of poverty.
The constructs differ primarily with respect to how much of the risk for higher
premium costs is borne by the government and how much by the worker. Each construct
could work in conjunction with a variety of approaches to publicly subsidized
coverage, including (1) the expansion of means-tested public programs such as
Medicaid and SCHIP to offer premium assistance to low-income workers, or (2)
tax credits to allow individuals to purchase health insurance.
Worker contribution defined,
based on worker’s income.
Under this approach, the worker makes a defined contribution to the premium
cost that increases as the family’s income (or, possibly, the worker’s
wage) increases, up to a specified percentage of poverty or dollar amount. The
public subsidy pays the remaining premium cost (net of the employer’s contribution).
For purposes of illustration, we analyze a sliding-scale arrangement under which
workers contribute an increasing proportion of their income toward their health
coverage, ranging from 1 percent of income for workers with incomes below poverty
to 5.4 percent of income for workers with incomes between 250 percent and 300
percent of poverty. Above that level there is no subsidy. This approach could
be adopted by public programs, such as SCHIP or Medicaid, that can assist eligible
people in paying required employee contributions—a practice referred to
as providing “premium assistance.” (At present, however, these programs
generally do not provide assistance on a sliding scale.)
Public subsidy contribution
defined, based on worker’s income.
A second approach is to specify a maximum subsidy amount the government is willing
to provide and then decrease that amount on a sliding scale as the family’s
income increases up to a specified level. The worker then pays the difference
between the subsidy amount and the insurance premium (net of the employer’s
contribution). The maximum subsidy amount could be specified either in dollar
terms or as a percentage of premium. This approach is most commonly thought
of in conjunction with federal tax credits for the individual purchase of health
insurance coverage, such as the Bush health insurance tax credit proposal.21
Tax credit with higher caps.
Preliminary analysis showed that even if the health insurance tax credits under
the Bush administration’s proposal were added to modest employer contributions,
the maximum credit amounts of $1,000 per adult and $500 per child would be too
small to make even relatively low-cost employer coverage affordable for most
low-income working families with children. Therefore, we examine a tax credit
approach based on the structure of the Bush administration’s proposal but
using higher maximum credit amounts of $1,800 per adult and $900 per child.22
A possible third option
for states. A
hybrid approach to subsidies for employment-based coverage may be of particular
interest to states. If the president’s proposed tax credit amounts could
be applied toward employer coverage at qualified small firms, a state might
add premium assistance for children under Medicaid or SCHIP to small employers’
contributions and tax credits for the adults to make employment-based coverage
affordable for low-wage, uninsured small-firm workers and their children.23
We included this approach as a third option in our analysis.
Illustrative Analysis
Assumptions.
The impact of different subsidy approaches on public subsidy costs and on workers’
contribution levels varies depending on the underlying premium cost for the
coverage being provided. To illustrate a reasonable range of potential variation,
we applied two cases of underlying premium costs, as shown in Exhibit
1: (1) a “standard case,” reflecting the typical premium for employer-sponsored
health maintenance organization (HMO)–style coverage in 2002; and (2) a
“lower-cost case,” reflecting current market rates for the lowest-cost
HMO coverage available to young workers in low-cost areas (or reflecting rates
for preferred provider organization, or PPO, coverage with higher cost-sharing
amounts than are typically used now).24 These illustrative
rates are also in line with premiums for coverage available through small-employer
purchasing pools in Connecticut and California at the end of 2002.25
Workers’ contribution levels.
We calculated workers’ contribution amounts for each of three coverage
tiers at several different income levels.26 Exhibit
2 shows, both in dollar terms and as a percentage of income, the annual
amount eligible workers at various income levels would have to pay to cover
themselves and two children (but not their spouses) under the three alternative
subsidy approaches. Results for worker-only coverage and full family coverage
are not shown.27
Given the parameters we specified, the income-based worker contribution approach
yields the most affordable worker contributions for standard-cost coverage,
measured as a percentage of the worker’s income. Under this approach, subsidies
automatically adjust as needed to achieve the prespecified worker contribution
level. For standard-cost coverage, workers’ contributions are much higher
under either of the other two approaches. Bringing standard-cost employer coverage
within reach of workers and their children using the other approaches would
require either larger increases in the maximum tax credit proposed by the Bush
administration or further state premium assistance for children added to the
Bush tax credits for adults. In geographic areas with lower premium costs, any
of the approaches could yield affordable worker contributions.
Total costs.
The sophisticated simulation modeling necessary to estimate likely participation
rates under our three alternative subsidy constructs and two different premium
levels would have been well beyond the scope of this policy study. Therefore,
this paper does not provide estimates of the relative effectiveness of the alternatives
in reaching uninsured workers and dependents.28
Instead, we used a simple illustrative model to provide a rough sense of the
relative costs of subsidizing employer-based coverage for a specified number
of low-income small-firm workers and their families. We estimated total and
per capita costs of covering a standard population of 10,000 subsidy recipients,
both workers and dependents, with a range of incomes and family structures typical
of workers in low-wage firms that do not offer coverage.29
The differences among the three subsidy constructs are most evident under the
standard-cost case shown in Exhibit
3. By design, employers pay essentially the same amount under each alternative,
since their per worker contribution is fixed.30
Workers pay the least under the income-based worker contribution approach, and
many times more under the hybrid approach. Public costs, on the other hand,
are lowest under the hybrid approach and greatest—almost double—under
the income-based worker contribution approach. Under the lower-cost case (not
shown), the range of variation in total worker contributions and public subsidy
costs across approaches is much narrower.
Discussion
If tax credits or other public subsidies are made available only for health
insurance that is not employment-based, employer coverage could erode. To prevent
this, and to strengthen rather than undermine the market demand for employment-based
insurance, public subsidies targeted to low-income workers and families—including
both public-program subsidies and tax credits—could be applied in ways
that broaden employment-based coverage for low-income workers and their families
by encouraging small firms with largely low-wage workforces to offer and partially
fund health coverage for their workers. To accomplish this, such firms—very
few of which now provide health coverage—must be allowed to contribute
much less than normally required in the regular commercial market.
Sliding-scale subsidies:
important considerations.
A major question about alternative subsidy approaches is the trade-off between
affordability for workers and families and cost to the government. Although
this paper does not estimate participation rates, if public subsidies for health
insurance coverage for low-income workers and families are not large enough,
the intended beneficiaries clearly will not participate; however, the larger
the subsidies, the greater the costs to taxpayers.
The public subsidy level can be adjusted under any of the general approaches
discussed here, but the following dilemma still pertains: Public subsidy approaches
that limit workers’ contributions to a relatively small percentage of income
focus primarily on the affordability issue and thus are more likely to cover
a sizable number of uninsured low-income workers and families. Such approaches
are costly, however, and the cost rises as employer coverage premiums rise.
To counteract these inflationary tendencies, purchasers— whether individual
employers or larger pools—must have incentives to keep premiums as low
as possible. Furthermore, approaches that require percentage-of-income worker
contributions are administratively cumbersome, because the subsidy amount required
varies depending on the plan chosen by the worker, and an experienced administrative
agent may be needed to implement them.
Public subsidy approaches that limit the dollar amount of the subsidy available
to any particular worker and family, by definition, limit government’s
liability. They are also easier to administer than percentage-of-income approaches
are. The drawback of these approaches, however, is that they are more likely
to require contributions from workers that are too high to be affordable, particularly
as premiums rise, and that deter workers’ participation. Even if the Bush
tax credits were applicable toward employment-based coverage at certain small
firms, as we propose, the credit amounts would be too small to make even lower-cost
coverage affordable for most low-income working families with children. A tax
credit approach could be made affordable for working families by increasing
the maximum credit amounts.
Mechanisms to combine contributions
from multiple sources and allow consumer choice.
The application of any kind of public subsidy toward employment-based coverage
could be facilitated by using organizations that have the ability to combine
contributions from multiple sources on behalf of a single worker and family
and direct those funds to the worker’s chosen health plan. As reflected
in both current public programs and proposed individual tax credits, many policymakers
believe that such applications should give recipients a choice of competing
health plans. Some oppose subsidized coverage through small firms, specifically
because they rarely offer such choice. If desired, however, subsidies could
be made available only when the employer uses a coverage venue that extends
choice of plans. A number of potential mechanisms to accomplish this, such as
purchasing pools or clearinghouses, also could be designed to combine contributions
from multiple sources.
The approach outlined in this paper could work with a variety of individual
income–based subsidy programs—whether they use the income tax system
or traditional public programs—as a cost-effective way to make job-based
enrollment and coverage work for more Americans. By increasing total (employer
plus subsidy) contributions, while reducing the risk that such subsidies might
precipitate cascading erosion in employer coverage, the approach could increase
the number of uninsured people covered through such programs.
These ideas and proposals were presented and discussed, in preliminary form,
at a May 2002 roundtable discussion. The authors extend their appreciation to
the roundtable participants for sharing their valuable insights and expertise
on the approaches presented. Funding for this paper was provided by Grant no.
2001-17513 from the David and Lucile Packard Foundation and Grant no. 02-2067
from the California HealthCare Foundation. However, the views expressed here
are those of the authors. No official endorsement by the David and Lucile Packard
Foundation or its trustees or the California HealthCare Foundation or its trustees
is intended or should be inferred.
NOTES
1. One
exception is the Relief, Equity, Access, and Coverage for Health (REACH) Act,
S. 590 (107th Congress), sponsored by Sen. James Jeffords (I-VT) and nine cosponsors.
Under it, workers who enrolled in an employer-sponsored plan could qualify for
a credit equal to 40 percent of the credit that would be available if they purchased
insurance on their own. Also, when expanding public coverage above traditional
welfare levels, especially for adults, a number of states have sought to make
use of available employer coverage, through premium assistance, wherever possible.
2. U.S. Department of the Treasury, General Explanations
of the Administration’s Fiscal Year 2004 Revenue Proposals (Washington:
Treasury Department, February 2003).
3. Low-wage employers would have the greatest incentives to
drop coverage initially. The concern is that these initial effects could cascade
as other employers respond to their competitors’ decisions to drop coverage.
See R. Curtis and E. Neuschler, “Tax Credits for Individual Health Insurance:
Effects on Employer Coverage and Refinements to Improve Overall Coverage Rates,”
Occasional Paper for the Covering America Project (Washington: Economic and
Social Research Institute, August 2002); and Institute for Health Policy Solutions,
Individual Tax Credits and Employer Coverage: Assessing and Reducing the
Downside Risks (based on an Expert Forum) (Washington: ESRI, August 2002).
4. Kaiser Commission on Medicaid and the Uninsured, Health
Insurance Coverage in America: 2002 Data Update (Washington: Kaiser Commission,
February 2002), Table 1.
5. See, for example, the Health Insurance Association of America’s
“InsureUSA” plan at www.insureusa.org.
Also, Sen. Debbie Stabenow (D-MI) plans to introduce legislation that would
authorize federal tax credits for small businesses that provide health insurance
to their workers. S. Hall, “Stabenow Seeks Aid for Health Plans,”
Detroit News, 4 March 2003.
6. J.D. Reschovsky and J. Hadley, Employer Health Insurance
Premium Subsidies Unlikely to Enhance Coverage Significantly, Issue Brief
no. 46 (Washington: Center for Studying Health System Change, December 2001).
7. Common sense suggests that parents will know better how to
get care for their children if they are familiar with how the health plan works
because they use it themselves. Research documents that children are more likely
to use care if their parents use care. And the effect is even stronger if both
parent and child are insured. K. Hanson, “Is Insurance for Children Enough?
The Link between Parents’ and Children’s Health Care Revisited,”
Inquiry (Fall 1998): 294–302. Children are also more likely to use
care if their parents are insured. L. Dubay et al., “Highlights from the
Urban Institute’s SCHIP Evaluation” (slide presentation), www.urban.org/Presentations/ANF_SCHIP_eval/SCHIPeval_files/frame.htm
(25 April 2003).
8. As used here, “firms with largely low-wage workforces”
means firms in which half or more of the workers earn less than a specified
hourly wage rate. In employer-survey data for 2000 from the Agency for Healthcare
Research and Quality, the wage rate used is $9.50 per hour.
9. Most uninsured workers work for firms that do not now offer
health coverage. K.E. Thorpe and C.S. Florence, “Why Are Workers Uninsured?
Employer-Sponsored Health Insurance in 1997,” Health Affairs (Mar/Apr
1999): 213–218, Exhibit 1. Nonoffering employers are overwhelmingly small
firms with fifty or fewer workers—about seven of eight jobs in firms that
do not offer health coverage are in small firms, and almost half of such jobs
are in small firms with majority low-wage workforces. Authors’ analysis
based on data from Agency for Healthcare Research and Quality, 2000 Employer-Sponsored
Health Insurance Data: Private-Sector Data by Firm Size, Industry Group, Ownership,
Age of Firm, and Other Characteristics, September 2002, www.meps.ahrq.gov/data_pub/ic_tables.htm
(9 September 2002).
10. In 1997, 58 percent of low-wage workers (earning less than
$7 per hour) were employed by low-wage businesses (in which two-thirds of workers
earned low wages). In low-wage businesses, 87 percent of all workers earned
low wages. S.H. Long and M.S. Marquis, “Low Wage Workers and Health Insurance
Coverage: Can Policymakers Target Them through Their Employers?” Inquiry
(Fall 2001): 331–337, especially Table 1.
11. P. Fronstin and R. Helman, Small Employers and Health
Benefits: Findings from the 2002 Small Employer Health Benefits Survey,
EBRI Issue Brief no. 253 (Washington: Employee Benefit Research Institute, January
2003), Figure 23.
12. We recognize that an employer’s contribution toward
health benefits is part of its workers’ total compensation, and, in that
sense, workers pay the entire cost of health coverage. But by contributing funds
that can be used only to enroll in health coverage, the employer assures that
most workers will enroll.
13. AHRQ, 2000 Employer-Sponsored Health Insurance Data,
Tables I.C.3 and I.C.4.a.
14. Henry J. Kaiser Family Foundation and Health Research and
Educational Trust, Employer Health Benefits: 2002 Annual Survey (Menlo
Park, Calif.: Kaiser Family Foundation, 2002).
15. One such local pilot program is the FOCUS (Financially
Obtainable Coverage for Uninsured San Diegans) program, run by Sharp Health
Plan. It offered heavily subsidized coverage to about 2,000 workers and dependents
through previously uninsured small employers in San Diego County. See the presentation
by K. Mead, CEO of Sharp Health Plan, in Institute for Health Policy Solutions,
Effective Coverage Expansions for Uninsured Kids and Their Working Parents:
Links to Job-Based Coverage, transcript of a policy conference held 18 May
2001, available at www.ihps.org. Additional
information is available on the Sharp Health Plan Web site, www.sharp.com/HealthPlan
(25 April 2003). Also, two local projects in Michigan—Access Health in
Muskegon County and HealthChoice in Wayne County—have enrolled previously
uninsured small businesses with mostly low-wage workers by asking employers
and workers each to pay about one-third (or a little less) of the cost of coverage.
Information is available on the Access Health Web site, www.mchp.org/html/prahealth1.html
(25 April 2003). Limited information about Wayne County’s HealthChoice
program is contained in the 2000 Annual Report of the Wayne County Department
of Public Health, www.waynecounty.com/
hcs/phealth/annual.htm (25 April 2003).
16. Note that the criteria under which firms qualify are based
on characteristics of the firm that are observable, or at least auditable, from
routine tax filings or the firm’s own records: number of employees and
compensation paid.
17. Authors’ analysis based on data from AHRQ, 2000
Employer-Sponsored Health Insurance Data, Tables I.B.1 and I.B.2.
18. In 2000 only 28.9 percent of businesses with fewer than
twenty-five workers and in which a majority of workers earned less than $9.50
per hour offered health coverage to their workers. Ibid., Table I.A.2.
19. In 1997, 21 percent of workers in firms with fewer than
ten employees worked for a firm that had offered coverage in 1995 but no longer
offered coverage in 1997. S.H. Long and MS Marquis, “Stability and Variation
in Employment-Based Health Insurance Coverage, 1993–1997,” Health
Affairs (Nov/Dec 1999): 133–139, especially Exhibit 3. Also, workers
in low-wage businesses “confront much greater turnover in the offer of
insurance than other workers.” Long and Marquis, “Low Wage Workers
and Health Insurance Coverage.”
20. B. Garrett, L.M. Nichols, and E.K. Greenman, Workers
without Health Insurance: Who Are They and How Can Policy Reach Them? (Battle
Creek, Mich.: W.K. Kellogg Foundation, no date), Appendix Table 1 (based on
analysis of the 1999 Current Population Survey).
21. Department of the Treasury, General Explanations.
22. One reason the administration’s proposed tax credit
is limited to $1,000 is that a larger credit would risk “crowding out”
employer coverage. The approach here addresses that concern in a different way.
23. Under this approach, we assumed that a typical state contribution
would be $90 per month per child.
24. The standard case is based on the actual employer-market
national average premium for HMO-style, worker-only coverage, which is about
$230 per month in 2002 for firms of all sizes and about $234 per month for firms
with 3–199 workers. Kaiser/HRET, Employer Health Benefits, Exhibit
1.13. However, we assume that newly insured workers will be younger than currently
insured workers and would therefore cost about 5–6 percent less than current
market rates—that is, $220 per month. Such leaner coverage could be appropriate
for childless adults, but not for children.
25. For the “standard-cost” case, our illustrative
premiums fall within the range of premiums for “HMO Standard” coverage
($20 copayment) for workers ages 30–39 for new coverage becoming effective
in Hartford, Connecticut, in the last quarter of 2002, as offered through the
Connecticut Business and Industry Association’s Health Connections program.
Premiums for Health Connections coverage were accessed electronically at www.cbia.com/ins/hlt/vr/3-50rates.htm
(30 April 2002). For the “lower-cost” case, our illustrative premiums
represent approximately the lowest-cost “HMO Standard” coverage ($30
copayment) for workers under age thirty for new coverage becoming effective
in Orange County, California, in the second half of 2002, as offered through
the Pacific Business Group on Health’s PacAdvantage program (in California).
Premiums rates were accessed electronically on the PacAdvantage Web site, www.pacadvantage.org
(30 September 2002). Note also that Connecticut is among the highest-cost states
for health insurance, while premiums in California are below the national average.
26. Exhibit 2 shows the actual or nominal amount the worker
would pay to enroll in coverage. The amount the employer contributes—$600
per year or about twenty-nine cents per hour worked for a worker working forty
hours per week—is also part of the worker’s total compensation and,
over time at least, substitutes for direct wages the worker would otherwise
have received. This amount is the same under all of the alternatives, however,
and was not included in our calculations of the workers’ contributions.
27. For complete results, see E. Neuschler and R. Curtis, Applying
Large-Scale Subsidies for Low-Income Populations to Health Insurance Coverage
through Small Employers (Washington: IHPS, December 2002).
28. Nor are we able to estimate what percentage of participants
are likely to have been insured previously. However, full-time workers with
low family income are unlikely to have a working spouse with generous benefits,
and only 20 percent of workers in low-wage small firms have coverage through
their own employer. Authors’ analysis based on data from AHRQ, 2000
Employer-Sponsored Health Insurance Data.
29. The 10,000 subsidized people include 4,943 workers, 1,285
spouses, and 3,772 children. While there is no doubt that participation rates
by income would vary under the three alternative subsidy constructs, our simplified
model assumes the same participation rates by income for all alternatives.
30. Note that employers have about $0.3 million in offsetting
Social Security and Medicare (FICA) tax savings under the income-based worker
contribution approach, because we assume that workers’ contributions would
be made through a Section 125 “POP” (premium-only plan), which provides
tax savings to both the worker and the employer.
Ed Neuschler is a senior
program officer and Rick Curtis, president, at the Institute for Health Policy
Solutions in Washington, D.C.
©2003 Project HOPE–The People-to-People Health Foundation, Inc.
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