Nine Billion Dollars a Year to Cover the Uninsured: Possible Common Ground for Significant, Incremental Progress

by Stan Dorn and Jack A. Meyer

Economic and Social Research Institute
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The following people made special contributions to this paper by suggesting many key ideas and greatly helping to shape the analysis—Stuart M. Butler, The Heritage Foundation; Lynn Etheredge, Health Insurance Reform Project of George Washington University; and Alan Weil, the Urban Institute. However, only the coauthors are responsible for the paper in its final form.

Summary

Earlier this year, leaders in both parties proposed investing significant resources to cover uninsured Americans. Budgets from both the Administration and the Senate Budget Committee allotted approximately $9 billion a year over the next 10 years to expand health coverage. At the national level, such bipartisan commitment to investing significant sums addressing domestic priorities is extraordinary and rare. However, largely because of philosophical disagreements about whether to cover the uninsured by creating tax credits or expanding public programs, proposals to implement these budget commitments did not move forward.

Even while considering proposals to help smaller, discrete groups of uninsured Americans, policymakers have had trouble reaching agreement. For example, when federal stimulus legislation proposed investing more than $19 billion over two years to cover workers losing their jobs during the current economic downturn, policymakers could not resolve disputes about how to provide insurance. As a result, health coverage for unemployed workers was stripped out of the bill before it became law.

In contrast, the more recent debate over trade policy resulted in bipartisan agreement to provide health coverage to more than 100,000 workers displaced by foreign competition and selected retirees. In the nation’s first incremental coverage expansion since adoption of the State Children’s Health Insurance Program (SCHIP) in 1997, these individuals will receive health insurance tax credits that can be used to purchase insurance from certain employers, state-level health insurance pools, and (in limited cases) the nongroup market.

As with SCHIP and now trade, bridge-building across philosophical divides is likely to remain essential for future coverage expansions to have reasonable prospects of enactment. This paper suggests that, given the roughly $9 billion a year that leaders in both parties agree should be invested to cover the uninsured, a variety of approaches could build on these earlier, bipartisan accomplishments and cover a large group of uninsured. We explore such approaches in the following three categories:

¨ Individual choice strategies. Policies in this category give uninsured families a range of options for using health insurance subsidies. One example of such a policy would use refundable and advanceable federal income tax credits to give low-income, uninsured individuals a choice among group plans in a health insurance marketplace modeled after the Federal Employees Health Benefits Program (FEHBP). The basic features of FEHBP would apply, using flexible federal guidelines and market pressures to encourage low-cost, innovative, high-quality care that meets consumers’ needs. Some aspects of FEHBP, however, would change. National policy adjustments would encourage plan participation and make coverage affordable for uninsured workers, most of whom earn much lower incomes than do average federal employees.

¨ Hybrid strategies. These strategies couple public program expansions favored by some policymakers with tax credits favored by others. Under one possible hybrid approach, state Medicaid programs could receive the flexibility to cover all uninsured residents with incomes below a state-selected level, regardless of household category. This would overcome two current limits on state flexibility: states now must use different eligibility rules for different populations, based on such factors as age, parenthood, and disability; and states without federal waivers are forbidden from covering non-elderly, non-disabled adults without dependent children, no matter how poor they are. Policymakers could encourage implementation of this new option by raising federal matching percentages above standard Medicaid levels.

At the same time, refundable, advanceable federal income tax credits would pay for health insurance purchased by low- and moderate-income employees of small businesses. Such credits could be used in any market available to workers under current law, including the nongroup market. In states where credit recipients lack access to comprehensive, group coverage with benefits and premium costs resembling the most popular insurance provided to federal employees, the federal government would contract with “fallback plans” to offer such coverage.

¨ State-based strategies. This group of strategies gives states resources to choose from a menu of policy alternatives for expanding coverage. States could use such resources to expand public programs; to provide health insurance tax credits using state income tax systems; to provide health insurance vouchers (the functional equivalent of tax credits) in states without income taxes; to implement market reforms like purchasing cooperatives and high-risk pools; to provide financial incentives for employers to expand coverage; to permit uninsured families to enroll in state-purchased coverage, with costs based on ability to pay; or to use other strategies designed by states or localities. Federal policymakers contemplating this approach need to consider carefully the requirements that states would be asked to meet in spending these funds (including whether any matching funding would be required) and the methods that would hold states accountable.

Working through all the details of these approaches will not be easy. And other bipartisan policies are certainly possible. For example, policymakers could extend to other uninsured Americans the basic approach taken in recent Trade Adjustment Assistance (TAA) legislation, which provides health insurance tax credits that are primarily usable through state-based insurance pools.

This paper’s goal is not to advocate any particular policy. Rather, its purpose is to illustrate, through specific examples, that differing policy preferences and political philosophies can be bridged through well-designed, pragmatic proposals to help significant numbers of uninsured Americans, using resources already promised by leaders in both parties.

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