Funding health care uninsured

In New England, several states have turned to one-time sources of revenue to initially
fund coverage expansions. For example, Maine, Massachusetts, and Vermont have redistributed
federal funding obtained through Medicaid waivers to expand eligibility and coverage to certain segments of the population.
Maine, Rhode Island, and Vermont have used their tobacco settlement allocations to seed partial funding.
A problem with one-time sources of revenue
is that when they run out, states may need additional money to sustain expansions
in coverage. With this in mind, Rhode Island has created a trust out of its tobacco settlement to fund in perpetuity a program to reduce the health insurance premiums for small businesses. Other states have implemented
or are exploring excise taxes on tobacco
to fund coverage expansions.
One New England state—Massachusetts—
is using a unique source of revenue to fund its coverage expansion, gradually tapping
its $693 million uncompensated care pool. Massachusetts’ pool—the only one of its kind in the nation—is funded by assessments
levied on hospitals and insurers. The money in the pool was previously used to reimburse hospitals and health care clinics for services that were provided to uninsured individuals. In redirecting these funds from care to insurance coverage, it is unclear how much revenue individual hospitals and clinics
may lose and whether they will be able to continue to provide care in the face of such losses. “This issue,” said Nancy Turnbull, President of the Blue Cross Blue Shield of Massachusetts Foundation, “is so touchy that nobody wants to directly answer questions about it.”
Many reform plans are funded upon the belief that coverage expansion will induce more cost savings because hospitals will no longer have to incur large costs for bad debt and charity care and more of the uninsured will receive routine medical care, which will reduce their reliance on expensive emergency
room visits. Combined with a diversification
of the insurance risk pools through the addition of relatively young and healthy uninsured populations, states are hoping that these savings will curb the growth of private insurance premiums and allow for future coverage
expansions.
However, states will encounter significant
fiscal difficulty if such cost savings fail to materialize. In Maine, the DirigoChoice plan was designed to be partially funded by an assessment on the amount of cost savings the insurer saw as a result of providers reducing
their fees in response to less charity care and bad debt. But disagreement over the size of the cost savings and the subsequent size of the assessment ultimately ended up in court. Currently, Maine is searching for new sources of funding for its fledgling plan.
Employers are another source of potential
revenue for states. Health care legislation
passed in Massachusetts and Vermont in early 2006 requires annual fees of $295 and $365 per full-time employee, respectively, to be paid by employers that do not offer health benefits to their employees, subject to some exemptions. But these assessments are not large enough to cover the complete cost of expanding coverage to employees who are not offered insurance, especially as the cost of health insurance continues to rise. The current
political climate makes the possibility of higher taxes to pay for coverage unlikely.
Businesses may respond by encouraging eligible employees and their dependents to enroll in Medicaid and SCHIP. Commenting
during the second panel discussion at the conference, Trish Riley, Director of the Governor’s
Office for Health Policy and Finance in Maine, wondered whether increased coordination
between large employers and the state would address this contentious issue. For example, it might be more efficient if coverage for low-wage and part-time workers were administered through a Medicaid program,
with partial funding from employers.
As long as health care spending decelerates
and state revenue collections remain strong, state fiscal conditions for coverage expansions remain on steady ground. But over the long term, any sort of fiscal stress will affect a state’s implementation of reform and expansion of coverage, especially as aging
Baby Boomers place additional pressure on the health care system. Moreover, a significant
amount of funding for state coverage
Over the long term, any sort of
fiscal stress will affect a state’s
ability to expand coverage.