Public Subsidies For Health Insurance Premiums Should Include Small-Firm Coverage,
Not Just Individual Policies, Health Affairs Article Says

Assisting Low-Income, Small-Business Workers Could Expand Coverage;
Size And Effects Of Public Subsidy Depend On Program Structure

BETHESDA, MD - To keep employer-based insurance from eroding, low-income workers at small businesses should be allowed to use tax credits or other public subsidies to purchase employer-sponsored coverage, not just to purchase policies in the individual market, according to a new Health Affairs Web-exclusive article published today.

Authors Ed Neuschler and Rick Curtis at the Institute for Health Policy Solutions argue that proposals to help low-income uninsured people purchase coverage only in the individual market, such as President Bush proposes, could lead many employers to consider withdrawing from employment-based coverage. As a result, a number of otherwise insured workers and families could find themselves without affordable coverage.

Allowing income-based government subsidies to be combined with worker and employer contributions, the authors maintain, would make coverage more affordable for many workers and their families. Job-based insurance, they note, has three key advantages: simplicity of enrollment, premium payment through payroll withholding, and pooling of risk. 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."

To make such a program of public subsidies work, the authors write, small, low-wage employers, many of which don't offer health insurance coverage now, should be allowed to contribute much less than normally required in the commercial market. Based on "local pilot program experience," the authors propose that a $50 monthly contribution per worker "is low enough to attract a sizable number of small businesses that do not offer coverage now."

Applying tax credits for low-income workers to employment-based coverage differs from other proposals that would subsidize small employers directly and/or all of their workers, not just those with low incomes, the authors say. They note that subsidies to entire employer groups would not efficiently or effectively reach the uninsured who cannot afford coverage.

Beyond limiting small, low-wage employers' contribution requirements, the authors review several alternative scenarios for structuring assistance to low-wage workers. Among them:

• Capping employee contributions on a sliding scale, with public subsidies paying any difference between the full premium and contributions of the employers and employees;

• Increasing the tax credit from the Bush proposal of $1,000 per adult to $1,800 per adult and $500 per child to $900 per child;

• A hybrid under which the Bush tax credit levels remain the same, but Medicaid or State Children's Health Insurance P (SCHIP) rogram dollars supplement the premium payments for convenient employment-based coverage for workers and their children.

The authors illustrate the costs of insuring 10,000 workers and dependents under each scenario if the enrollees were in a typical employer-sponsored health maintenance organization (HMO).

Under the capped employee contribution scenario, the annual public subsidy would be $17.6 million, or $1,763 per enrollee; under the higher tax credit proposal, the public subsidy would be $12.5 million, or $1,246 per enrollee; and under the hybrid approach, the public subsidy would be $9 million, or $898 per enrollee. But the authors note that these illustrative results are driven by the level of public subsidy specified, which can be readily adjusted under any of the models.

The authors describe their approach 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," the authors write.

Funding for the paper was provided by the David and Lucile Packard Foundation and the California HealthCare Foundation.

Health Affairs, published by Project HOPE, is a bimonthly multidisciplinary journal devoted to publishing the leading edge in health policy thought and research.

©2003 Project HOPE–The People-to-People Health Foundation, Inc.