Policy Recommendations to SJ 22
By State Auditor John Morrison
February 14, 2002
INTRODUCTION
After many months of research and giving thorough consideration to the comments I received from more than 400 Montanans through community discussions across the state, I am recommending that the SJ 22 Committee work with my office, all stakeholders and interested parties on a bipartisan package of legislation for your next session. We need to take some bold steps to address the affordability of health care coverage so more Montanans can obtain insurance. To do nothing or very little, is to endorse the status quo, which is unacceptable to most Montanans. We need to craft some meaningful legislation for your next session, but we also need to put into place a mechanism for dealing with this very difficult and complex issue into the future.
There are many options for us to consider, but our time and resources are limited. At this juncture, I recommend that we focus our work on the following strategies for increasing access to affordable health insurance and reducing the number of uninsured Montanans. Most states are working hard on planning and implementing strategies to reduce the number of uninsured and to retain coverage for the insured as premiums rise. The Bush administration and both parties in Congress have agendas to help the uninsured. Montana needs to join in and give our best effort at attacking this problem. Reducing the number of uninsured is the right thing to do for three key reasons: 1) Every citizen of the most prosperous nation in the world should have basic health care; 2) Everyone with health coverage can benefit when hospitals and providers no longer shift costs of uncompensated care to the insured; and 3) It's good for our economy when workers are healthy and productive and not looking for a new job with health benefits.
We have much homework to do once we select our priorities. Many of these strategies must be tailored to fit available resources and targeted to best achieve our goal. We may find after additional work, that some solutions are not feasible or that others look different when finally crafted. But, as is often said, "The devil is in the details." We cannot solve this problem, but with conviction there is plenty of work to get us started.
RECOMMENDATIONS
REFUNDABLE TAX CREDITS
I recommend that we extensively explore the option of employer and individual refundable tax credits. Federal tax credits have been debated for a number of years garnering support from conservative insurance groups such as the Health Insurance Association of America and liberal groups including Families USA. While policymakers in Washington D.C. continue to debate this option, we should figure out whether Montana can implement a meaningful tax credit strategy to help individuals buy coverage and allow more businesses to offer or retain coverage. Tax credits can be very costly. There is a great deal of work to be done to target these efforts.
Tax credits for individuals and employers have different purposes. Targeting a tax credit to individuals, including the self-employed, will help those people who do not have access to employer-sponsored plans. Making the individual tax credits refundable will help people regardless of their tax liability. Tax credits for businesses should be designed as an incentive to offer group coverage, especially for employers who have been unable to afford group plans. Small group tax credits also would help these employers maintain this expensive benefit if they are on the verge of dropping coverage.
You should note that in late January, President Bush announced his proposal for a refundable and advancable individual tax credit. The Bush credit is phased out at higher incomes and is available to individuals directly through an insurance company. At this time Bush is not proposing a business tax credit. Although Congress will debate this proposal, we should move ahead on our own and reconcile things later if necessary.
A. Small-Employer Refundable Tax Credits
I suggest that we target small businesses for an employer tax credit primarily because they have the most trouble affording coverage and currently are least likely to provide health benefits. Small employers in our state have the most difficulty stretching their budgets to pay for health plans, that in many cases are much more expensive than large-group coverage. And, many small employers offer lower wages, which makes it hard for employees to pay their share of the premium.
One challenge will be to decide what size businesses to target. The smaller the business, the less likely it is to offer coverage. All businesses in our designated small business category should be eligible for the credit so as not to punish the ones that are "doing the right thing" by currently offering coverage. However, by targeting the smallest businesses, with up to ten employees (or 25 employees if we can afford it) the tax is more likely to be an incentive to offer group coverage where none is currently available. Only 26 percent of employers with fewer than 10 employees currently provide coverage. Since 86 percent of the uninsured are from working families and so many of them work for these small businesses, helping small businesses buy health insurance is a great way to get coverage to the uninsured.
In an effort to contain the cost of the credit, profitability of the business or income of the employees may need to be considered. When insurance agents market plans to employers, they will apply the credits to reduce the price of the plans. The insurers would then be reimbursed for the credits by the state.
B. Individual Tax Credit Program
This refundable and advancable tax credit should be targeted to individuals and their families who do not have health insurance available through a job. To limit the cost of an individual tax credit, we could tie the size of the credit to family income, phasing it out for high-income individuals.
Administering this advancable tax credit needs to involve payment to insurers in the amount of the credit. Perhaps there could be a lump sum monthly payment to each carrier for all the individuals who qualify for the credit.
Individuals who cannot get coverage from an insurer for health reasons can qualify for coverage through the Montana Comprehensive Health Association (MCHA). The same tax credit should be available to pay MCHA premiums.
PURCHASING POOLS
It is well recognized that pooling individuals or buying "in bulk" saves money. We should consider a variety of purchasing pools.
A. Prescription Drug Purchasing
In recent years, prescription drug claims have been one of the primary factors driving up the cost of insurance and significantly increasing our Medicaid expenditures. In addition, the high cost of pharmaceuticals has become an overwhelming burden for senior citizens on fixed incomes because Medicare does not cover drugs and neither do most Medicare supplement plans. On average, the cost of the 50 drugs most commonly used by seniors increased at nearly twice the rate of inflation during 1999.
1. Multi-state purchasing pool
At the very least, Montana should look into joining a multi-state drug purchasing pool such as the one being formed by West Virginia, Louisiana, Maryland, Mississippi, Missouri, New Mexico and South Carolina. Those who could benefit from the discounts of this pool include our Medicaid program, CHIP, the state and University health plans, Community Health Centers, and school and local government plans. This multi-state group intends to be operating soon and welcomes more states to join. Tom Susman of West Virginia is the lead contact for the effort.
2. Drug discount program for seniors and others
Montana seniors have been very vocal about the high cost of pharmaceuticals throughout the last election year, at my roundtable discussions and at legislative hearings. Many states have drug discount programs for low-income seniors and other adults. It is time for Montana to care more about its senior citizens.
I suggest we set up a discount drug program for seniors and low-income adults that takes advantage of a large purchasing pool arrangement, such as the one suggested above. For low-income seniors and adults we should look at subsidizing their purchases of drugs, while requiring some cost sharing. As of July 2001, 29 states had implemented or were developing pharmacy assistance programs.1 There are good models and lessons to learn from these states.
The Bush administration has proposed federal funding for senior prescription programs. States would be required to fund programs up to 100 percent of the federal poverty level and in turn, the federal government would contribute $9 for every $1 spent by states to assist seniors with incomes between 100 and 150 percent of the federal poverty level.
Absent joining a large purchasing pool, we should consider what California and Florida have done in allowing Medicare beneficiaries to buy drugs at Medicaid rates.
3. Maine Rx
As an alternative to a multi-state drug purchasing pool, Maine Rx is another model for us to consider. Maine Rx allows the state to leverage drug discounts and charge prices "reasonably comparable" to those charged to the lowest paying customers. There is still a pending court case holding up implementation of Maine's program.
B. K - 12 Health Plan
Numerous small and medium-size school districts have called my office and attended my roundtable discussions to voice their concerns about huge and unaffordable insurance premiums. Premiums for some of these school districts are two to three times more than for large districts. In small and medium districts, teachers often are asked to pay more than $500 per month to cover their families when beginning annual salaries are $19,000 to $23,000. In addition, non-certified personnel (secretaries, paraprofessionals, food service workers and custodians) often are excluded from the group plan. We need to address school district health coverage, which is a significant problem across Montana.
The MEA-MFT and other education groups are working on a plan for a statewide K-12 health insurance program that is separate from the state employee plan. We need to support their efforts to address this problem.
C. Small Group Purchasing Pools
1. Private Sector Small-Group Purchasing Pools
The 1995 legislature created the opportunity for private purchasing pools to form and issue coverage to small groups.2 I urge you to continue investigating why no pools exist and how we can help small employers find more affordable coverage. Apparently when one pool tried to form, no insurance carriers were willing to offer coverage.
2. State Facilitated Purchasing Pool
We should evaluate the innovative new initiative HEALTHY NEW YORK, a state program offering less expensive coverage to small businesses, self-employed workers and low-income individuals. The state subsidizes insurers' losses by covering claims between $30,000 and $100,000 in an attempt to lower premiums. HEALTHY NEW YORK began enrolling people Feb. 1, 2001, with limited success. The Commonwealth Fund recently published an evaluation and a set of recommendations to improve enrollment in the program.3
MAXIMIZE FEDERAL FUNDS - EXPAND CHIP
Leveraging more federal funds for health care was a common recommendation at our roundtable discussions. Up to an allotted amount, the federal government will give the state $4.26 for every state dollar we spend on the Montana Children's Health Insurance Plan. In 2000, we returned $2.5 million in federal CHIP funds unspent, and in 2001, we returned $1.6 million. Last year, there were more than 1,100 kids on the waiting list for CHIP coverage. We need to do two things to correct this problem. We should allow the DPHHS to set the income eligibility for CHIP at up to 200 percent of the federal poverty level and appropriate enough state funds to take advantage of all our federal funds. This year the Bush administration wants to give states a second chance to use the unspent CHIP funds we returned. With a biannual appropriations process, we need the budget flexibility to take advantage of interim opportunities such as this.
An estimate I received from DPHHS says that expanding CHIP to include up to 200 percent of the federal poverty level would result in covering 7,143 children (in addition to the 9,300 current enrollees). This would cost the state $1.9 million dollars and bring $8.1 million in federal funds to Montana communities. Charging a small graduated premium for families with incomes between 150 and 200 percent of the federal poverty level could reduce the estimated cost to the state.
Also, we should look for ways for parents of CHIP kids to buy into this coverage using a tax credit to help pay the premium.
The interest from the tobacco settlement trust, which is dedicated to expanding health care programs or creating new ones, is a logical source of funding for CHIP.
In my experience, Montana families like CHIP. People appreciate the fact that it is insurance and lacks the stigma of a "welfare" program. We should do more to develop this popular program that is a good financial deal.
HEALTH CARE SYSTEM OVERSIGHT
We need a mechanism to look long-term at our health care financing system. Good data, research and oversight are critical to making sound decisions and directing resources efficiently. Access to affordable health care is a basic need. For something so important, we should have an entity that constantly looks ahead at health care policy issues.
I have encouraged the Martz administration to apply for a large state health care planning grant. I am pleased to know that work is being done on the application for this potential $1 million grant, which could help provide us with invaluable data, better planning tools and resources to initiate programs that will cover more Montanans with health insurance.
PRIMARY CARE, CONSUMER INFORMATION, WELLNESS PROGRAMS AND REWARDING HEALTHY LIFESTYLES
I was astonished by how often roundtable participants mentioned the need for people to be better health care consumers and take more responsibility for their health. Participants recognize the potential savings of encouraging patients to get primary care, rather than delaying it until health conditions need expensive care, often received in emergency rooms. They see value in programs that encourage healthy lifestyles and want to be rewarded for their healthy choices. They also want more information on managing health conditions in less costly ways and access to information on the cost of certain procedures.
We need to provide people with some level of coverage that will encourage them to get primary care before their problems worsen. Also, we need to look for financial incentives to discourage poor health habits.
Public health programs play a role in educating people about healthy lifestyles and managing diseases such as diabetes. Community Health Centers provide primary care to the uninsured on a sliding scale fee basis. We should continue to support and expand these programs whenever possible.
I encourage the business community to offer more wellness and workplace safety programs and to reward healthy lifestyles. The Department of Public Health And Human Services should receive support for its work and be encouraged to do more in the areas of preventive care, disease management promotion, health information distribution and in any other ways that helps Montanans live healthier lives.
ADDRESS THE COST OF SMOKING
In Montana, more than $205 million is spent each year on treating health care problems related to tobacco use.4 Twenty percent of adults in Montana smoke, leaving 80 percent of adults to shoulder the majority of smokers' health costs. This is unfair cost shifting.
I suggest we address this cost shifting by increasing the tax on cigarettes and other tobacco products and using the revenue to help make health insurance more affordable through the strategies I have discussed. In addition, we should adequately fund a tobacco cessation and prevention program.
Montana's cigarette tax ranks 39th in the nation at 18 cents per pack. Washington raised its cigarette tax to $1.425, dedicating the substantial increase to expanding access to affordable health insurance through the Washington Basic Health Plan. Numerous states are considering tobacco tax increases to fund health care programs. If Montana raised its cigarette tax $1, the state would have approximately $60 million to fund some of our affordable health care strategies such as tax credits, a prescription drug program, tobacco-use prevention or any health care programs we implement. The tax rate on the wholesale price of other tobacco products is 12.5 percent, a rate we should consider increasing as well.
Increasing tobacco taxes strongly discourages kids from becoming users, saves millions in health care costs, mitigates the cost shift that non-smokers bare when they pay for the health services of smokers and is a logical funding source for health care programs. Public opinion polls of Montanans show that a super-majority supports increasing the tobacco tax for health care. A recent New York Times article noted, "Polls of dedicated smokers even suggest that many welcome higher cigarette taxes as an incentive to quit."6 Lawmakers in New York, Arizona, Illinois, Oregon, Kansas, Maryland, Connecticut, Missouri, Minnesota and Nebraska are looking at tobacco tax increases. I strongly urge you to do the same.
CLOSING
In closing, I want to emphasize that we should think big and bold. Small incremental changes will not get us anywhere. This is a complex problem that needs the attention of our federal partners, but there is much we can do at the state level, as many other states have done. I am here to see if we can work together on a bipartisan package of initiatives for the next legislative session. I sincerely hope that we can make a difference for the Montanans who urgently need affordable health care coverage.
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