All the programs studied seek to increase access to coverage for low-income uninsured populations. The approaches used to accomplish this goal, however, are extremely varied. The variations highlight the challenges and tradeoffs that policymakers must consider when expanding health care coverage. This portion of the analysis will compare and contrast the different approaches that States take to address this issue in four broad areas.

1. Program Design. This section compares State decisions regarding how to target their programs in terms of the size of employers, the income eligibility standards, and the type of delivery system (e.g., managed care) that will be used.
2. Program Financing. This section examines the variation in the relative roles of States, employers, and employees in paying for the products. Also discussed are the constraints that Medicaid funding introduces into program operations.
3. Methods to Keep the Program Affordable. This section focuses on how programs control the costs by limiting the services. The discussion examines service limits, as well as co-pays and other cost-sharing provisions.
4. Program Administration. This section examines the different approaches that States have taken to manage and promote these programs. Specifically, the section will discuss the role that the private market plays, or does not play, in marketing and operating the programs.

1. Program Design

When seeking to expand coverage to uninsured populations, a State must make a series of program design decisions. Two initial decisions, which influence many subsequent choices, are how to target the program and in what manner to provide services. States used SPG dollars to study the uninsured within the State in order to guide these decisions.

Program Targeting – When designing a program to serve low-income uninsured populations, the first decision that States must make is through what avenue they want to reach the population. In the broadest sense, programs may either go through employers or directly target individuals.

Employer Targeting: Since States found that the greatest share of the working uninsured are employed by small businesses, most programs target small employers. Perhaps because the Health Insurance Portability and Accountability Act (HIPAA) of 1996 defined a small employer as one that employs between 2 and 50 people, most States have targeted businesses with fewer than 50 employees, and some States include sole proprietors in their definition. There are, however, exceptions within the States studied.

More than 50 Employees

HCG of Arizona: While the main focus is businesses with fewer than 50 employees, recent legislative changes allow the program to serve employees of political jurisdictions (local government agencies) with more than 50 employees.

UPP: UPP has no limits to the size of the employer that may participate. This program has only just begun and enrollment is, at present, very low.

Access Health: Although originally targeted at businesses with fewer than 20 employees, the limit was lifted when the program failed to meet initial enrollment targets.

Sole Proprietors and Self-Employed

Many uninsured are either self-employed or employed in companies that will not provide health insurance. If a State is interested in serving these individuals, it has several options. For instance, it may allow self-employed and sole proprietors to participate in the program.

Healthy NY: A sole proprietor (or an individual) may participate in Healthy NY as long as his or her income is below 250 percent of the FPL. The individual must pay the full premium that any other employer would pay.

HCG of Arizona: Sole proprietors may participate in the program on the same terms as any other business. The business must have been an “active business” in Arizona for at least 60 days.

Programs for Individuals: Some States have developed programs specifically for individuals without access to ESI.

O-EPIC: In addition to operating the Premium Assistance Program, Oklahoma is in the process of rolling out a program for individual uninsured adults. This program will offer a reduced benefit package. The program will be administered by the existing Medicaid program and will include primary care case management as does the existing Medicaid SoonerCare Program.

PCN: For uninsured individuals who cannot access private insurance, Utah offers a limited primary care benefit, which is targeted at low-income adults.

Table 3 on the following page summarizes employer targeting rules for each State. It includes information on the upper limit on firm size, whether the program allows sole proprietors or the self-employed to enroll and whether employment is a requirement for entry into the program.

Table 3: Employer Targeting Rules

Employee Targeting: Since the programs are intended to promote insurance coverage among low-income individuals, States must wrestle with how to target these individuals. Typically, States try to target the programs at individuals below a certain income threshold, usually about 185 or 200 percent of the FPL. This approach has two problems. First, it requires an administrative step to determine individual eligibility. Second, it can create equity issues for an employer as one individual might qualify for a subsidy and another, making almost the same wage, might not. Both New York and Muskegon County, Michigan, take a slightly different approach. These programs target companies who mostly employ low-income workers as opposed to focusing on the general population of low-income workers. The result is that individual employees do not have to file applications which include means testing for themselves and other family members.

Healthy NY: A company can participate in this program as long as 30 percent of its employees and enrollees earn less than $34,000 annually.

Access Health: A company may participate in this program as long as the company’s employees’ median income is less than $11.50 per hour.

Delivery Model – When designing these programs, States must also decide how to deliver services. Health care coverage varies from traditional insurance to some form of managed care to models that provide access to health services but are not insurance. Within this range there are further distinctions, as States seek to match the delivery system with the other features of their respective programs.

Insurance Model: In an insurance model, services are provided by qualified entities that operate within State guidelines. The entity provides and assumes financial risk for the benefit package. Services are often delivered through the networks the entity has in place for other businesses. Participants in these programs have insurance coverage like any other individual, although often with different financing and benefits. A number of variations exist within this type of model.

• Any Qualifying Insurer. Under this approach, the State establishes the features (benefits, co-pays, etc.) that a product must have and then allows insurers to sell that product. Individual States vary this approach slightly.
  • Healthy NY requires all HMOs that operate in the State to offer a version of the Healthy NY product, and other insurers may choose to participate.
  • O-EPIC Premium Assistance plans must demonstrate that they meet the State minimum benefit and cost-sharing requirements, after which they are available in the market with all other products.
  • With UPP, any insurance product that meets or exceeds the State-established minimum benefit and cost-sharing criteria can be offered.
• Selective Contracting. Under this approach, the State establishes a benefit package that it deems appropriate (trading off comprehensiveness against affordability) and then enters into direct negotiations with insurers for that benefit. It is interesting to note that while two of the States examined take this approach, one builds on Medicaid and the other builds on private insurers.
  • HCG of Arizona allows a limited number of insurers to offer its product. It limits the number of participating providers to avoid over-segmenting the available pool.
  • New Mexico State Coverage Insurance contracts directly with three Managed Care Organizations (MCO) that already participate in the State’s SALUD! program. Thus, the program may be thought of as modified Medicaid.

Non-Insurance Model: Most of the State programs discussed follow an insurance model. That is, an organization agrees to provide a fixed set of benefits for a period of time for a set price. This includes bearing the risk if actual service costs exceed the amount paid. Access Health is an interesting exception to that model. Access Health is not an insurance product; it operates as a virtual MCO paying for services out of a fixed budget. It does not, however, bear risk or have to maintain solvency funds like a typical MCO and is specifically exempt from State insurance rules.

2. Program Financing

Underlying all these State coverage initiative programs is the assumption that a root cause of uninsurance is that available insurance products are too expensive. Many States used SPGs to conduct employer/employee surveys or focus groups. A major focus of these efforts was to determine how much small employers and/or their employees say they would be willing to contribute to health insurance premiums. Most programs studied combine some State subsidy with benefit limits (discussed in 3. Program Services) in order to keep the premiums in line with information concerning acceptable levels learned during the survey process. However, State approaches to this topic contain considerable variation.

The following section will include information on where the subsidy is directed, State expectations concerning employer and employee contributions, and the source of subsidy funding.

Where the Subsidy is Directed

For programs that provide them (all but HCG of Arizona), subsidies vary considerably in terms of where they are directed: at the insurance product, at the employer, at the individual, or at the program.

At the Insurance Product. Both New York and New Mexico directly subsidize the insurance product available to participants, although they apply the subsidy differently.

New York provides stop-loss protection for a substantial portion of program costs, thus lowering product prices by reducing the insurer’s risk. This reinsurance program results in insurers charging lower premiums for the program because they recognize that they will receive reimbursement from the State for most of the expenses of high-cost enrollees. Instead of directly subsidizing the small business or the low-wage worker, the subsidy pays after the fact for 90 percent of the cost of care for individuals with health care costs between $5,000 and $75,000. Carriers pay all claims below $5,000 and above $75,000.

New Mexico negotiates directly with MCOs to provide a package of services, which are then offered to employers and employees at fixed prices. Employers are charged $75 per month and employees are charged nominal amounts based on their family incomes. For example, employees with family incomes under 100 percent of the FPL pay no premiums, while those between 101 and 150 percent pay a $20 per month premium and those between 151 and 200 percent pay a $35 per month premium. New Mexico pays a monthly capitated payment to the MCO, which equals the difference between the negotiated rate and the amount the employer/employee jointly are required to pay as described above.

At the Employer. Oklahoma pays the employer directly for the difference between the required employer/employee contributions and the cost of the insurance product. The employer is then responsible for collecting the employee share and passing on the blended funding (employer share, employee share, and State subsidy) to the insurer.

At the Individual. UPP provides subsidies directly to individuals to assist them with purchasing insurance from their employer. The State eligibility offices determine the insurance subsidy amount. Under UPP, the employer collects the employee’s share of the premium (most commonly through payroll deduction). The State gives money directly to the employee early in the month so he or she can pay for the employee/State share of the premium. The State plans to check every six months with the employer to make sure that the employee continues to purchase the insurance.

At the Program. A number of the programs studied directly enroll beneficiaries and pay providers for services. These programs keep the subsidy and collect premiums from employers, employees, or individuals in order to pay for the services. Examples of programs that keep the subsidy to pay for services include the Utah PCN, Access Health, and the O-EPIC Individual Plan.

No Subsidy. At present, Arizona provides no subsidies to lower the cost of insurance, although it has provided subsidies in the past.

Expectations of Employer and Employee Contributions

The programs call for employers and employees, sole proprietors, and/or in some cases individuals to participate in funding the cost of care, although what those expectations are and how aggressively they are enforced varies. Methodologies include:

• Fixed Percentages. Some programs specify that employers must contribute set percentages of the cost of the insurance product.
• Fixed Amounts. In this model, employees and employers are expected to contribute a specified amount.
• Employer-Determined Contributions. In some programs, the relative share of employer and employee contributions is set by the employers themselves.
• Non-Employer Programs. Some of the programs provide insurance only to individuals without access to employer-based coverage. In these programs, the individual is responsible for paying the premium, usually with the help of a subsidy.

Table 4 provides information concerning who shares in the cost of the premiums. It also includes information related to the methodologies used by the State to determine each party’s share of the premium.

Table 4: Employer/Employee/State Financial Contributions for Individual Adult Coverage

Sources of Subsidy Funds

With the exception of Arizona, which lost its public subsidy last year, all the programs examined involve some public subsidy that effectively lowers the cost of insurance to employers and/or employees. Most (but not all) of the programs use Medicaid funds to provide that subsidy, although each type of Medicaid funding leads to specific limitations on the programs. The following section will discuss the different funding sources used and their implications.

State-Only Funding. New York uses purely State funds to cover 90 percent of the cost of care for individuals with health care costs between $5,000 and $75,000, thereby reducing product costs.

Medicaid Funding. Although it is logical for States to look to Medicaid to help fund insurance expansions for low-income populations, stakeholders need to understand the limits and constraints that Medicaid funding rules place on program design and spending. Many States that have expanded coverage through Section 1115 waivers have assured budget neutrality by redirecting Federal Disproportionate Share Hospital (DSH) payments toward coverage or by expanding coverage at the same time that they have implemented mandatory managed care (applying the anticipated savings from managed care to the new coverage costs). Other States have used unspent SCHIP allocations. This section will briefly describe these financing mechanisms.

Section 1115 Medicaid demonstration waivers must be “budget neutral,” meaning the waiver cannot cost the Federal government more than it would have spent without the waiver. When a State applies for a waiver, the Centers for Medicare and Medicaid Services (CMS) and the State estimate the Federal costs with and without the waiver during the period covered by the proposed waiver. If a State is planning to use a waiver to implement an eligibility expansion—such as covering non-disabled childless adults as is the case with Oklahoma and Utah—it must identify offsetting Federal savings. States continue to submit claims for Federal matching payments, but the States’ Federal payments for all waiver-related expenditures cannot exceed the neutrality cap. If actual costs exceed the projections, the State must reduce costs or cover the costs with State general funds. If costs are lower than allowed, the State can develop a budget neutrality cushion, which can then be used for future expansions in populations served under the waiver.

Some States, such as New Mexico, have redirected unspent Federal SCHIP funds to pay for new coverage expansions for adults. New Mexico was able to obtain a Federal HIFA waiver to cover the expansion population because they had a significant amount of unspent Federal SCHIP allotment. This was because New Mexico had expanded coverage to higher-income children prior to the implementation of the Federal SCHIP program, so under maintenance of effort rules, the State was unable to draw down SCHIP allotment to serve these higher-income children. New Mexico was able to obtain Federal waiver approval to use this money to cover adults through NMSCI. This situation is fairly uncommon, however, and States in this situation have often already used their SCHIP allotment to serve higher income SCHIP children.

Oklahoma and Utah also use Medicaid funds to help finance their programs, although each has a unique agreement with the Federal government. Any State applying for a Medicaid waiver to serve expansion populations has an individualized agreement with CMS that includes specific terms and conditions. Therefore, one State’s Federal arrangement does not necessarily apply to another State’s situation. Factors that make States different include whether they have a Federal budget neutrality cushion from an earlier 1115 waiver, whether they have unspent SCHIP dollars as was the case with New Mexico, or whether they have excess DSH funding.

The O-EPIC programs are funded through matching Federal Medicaid funds, State special funds, and individual and employer contributions. Matching Federal Medicaid funds are projected to be $100,000,000 per year. State special funds are generated from a portion of the sales tax on tobacco. The funds from the tobacco tax are non-lapsing and as of October 15, 2006, collections for the program were approximately $58 million. It would be tempting for stakeholders in other States to think that their State could access similar levels of Federal funds as long as they were able to come up with the State match. However, this is not necessarily correct. Oklahoma was able to draw down these Federal funds for an expansion population because they had a large Federal budget neutrality cushion left over from the early years of the SoonerCare 1115 managed care waiver. The Federal government, in effect, is allowing the State to spend down the cushion to serve the expansion population. Most States do not have large budget neutrality cushions that can be used in such an effort.

Unlike Oklahoma or New Mexico, Utah did not have a large cushion under its budget neutrality agreement or a large unspent SCHIP allotment. Thus Utah had to be very cautious in terms of the size of the benefit package and the populations served under the waiver. It also had to agree to some reductions in the Medicaid benefit package for current eligibles and increases in co-payments for certain eligibles in order to provide primary care services for the expansion population. Therefore, PCN was developed with a very limited benefit package. In addition, the State has to limit the number of childless adults entering the program in order to meet budget neutrality calculations. Because of the tight budget neutrality situation, the State will have to closely monitor enrollment under the new program, UPP.

One final Medicaid funding source for helping to cover the uninsured is the Medicaid Disproportionate Share Hospital (DSH) Payments Program. Forty percent of the cost of Access Health is funded with part of Michigan’s DSH allowance. The Medicaid DSH Payments Program was established by Congress in the Omnibus Budget Reconciliation Act of 1981 to support hospitals that serve large numbers of Medicaid and low-income patients. The rationale for developing the program was that hospitals with a high proportion of Medicaid patients often also have many uninsured patients and few privately insured individuals. Therefore, these hospitals may be limited in their ability to shift the costs of uncompensated care to the privately insured. Under the DSH program, a State makes a separate payment to a hospital in addition to its standard Medicaid reimbursement. After the State makes the DSH payment, the Federal government reimburses the State for part of the cost of the payment, based on the State’s Medicaid matching rate. States and local hospitals practice a great deal of discretion in the use of these funds.

If DSH rules were to change, or State priorities for use of DSH funds were to shift, the program would be forced to seek alternative funding. Although this funding source has been critical to the success of Access Health, it would be difficult to replicate in other States—especially since CMS has increased Federal scrutiny over the allocation of DSH funds within States. Access Health is the only program in this study that uses part of the State’s DSH allowance as a funding source.

3. Methods to Keep the Program Affordable

In an effort to keep programs affordable, most States combine a subsidy with limitations on benefits. The extent of benefit limitations varies from program to program, and even within programs. In half of the States examined (New York, New Mexico, and Michigan) a single benefit package is defined. In the other three States, the packages have more variety. Oklahoma and Utah established a qualifying benefit package and any product that meets or exceeds that level is acceptable. Arizona takes a unique approach by defining a variety of packages that meet different needs and price points and allowing them to be sold by a limited number of insurers.

Within these variations, however, there are some common approaches to limiting the cost of the packages.

Limits to Benefits

Primary Care Only. The Utah PCN limits benefits to primary care services. Hospitals in Utah committed to “donating” $10 million in care to PCN enrolled individuals who are referred to them for services. Given limited funds, the State decided to offer primary care services to more individuals rather than comprehensive services to a few individuals. The downside to this approach is that individuals have limited access to specialty care. Another State studied, Arizona, is preparing to make available a primary care product (Access Copper) on a limited basis in 2007.

Varied Packages. Arizona takes a unique approach in that it offers a variety of packages with different benefit mixes intended to meet the needs of different populations at different price points. One downside of this approach is that an individual may buy a limited and therefore less costly benefit package and end up needing more comprehensive services.

Broad Benefit Package. Healthy NY offers a broad benefit package, but specifically excludes several services that typically add significantly to the cost of insurance (i.e., mental health services, substance abuse treatment, and home health care). Similarly, New Mexico offers a fairly comprehensive package but has an annual cost limitation of $100,000. Oklahoma’s Premium Assistance Program builds on the private sector benefit packages.

De Facto Restrictions. The Michigan program is unique in that as a county-specific, non-insurance product, it only pays for services delivered by providers in the county. This effectively eliminates many tertiary services from the benefit package (e.g., burn care, neonatal intensive care, and transplants).

Limited Provider Networks

Most of the programs examined follow an insurance model for delivering care. The insurer, in most cases an MCO, agrees to provide a package of services for an agreed price and is responsible for providing access to those services. Programs that rely on managed care may restrict client’s choice to providers within a network. Again, Access Health is an exception. The program’s central feature is that all services under the program (physician, hospital, etc.) are delivered only by providers in the county. This program model reduces cost since there are no tertiary care providers within the county, but it would not work in a program which with a larger geographic area that includes tertiary care providers.

No ESI programs studied take special accounts of Federally qualified health centers (FQHCs). If the program is a Medicaid expansion, FQHCs participate in the same way that they do in the general Medicaid program. If the program is not a Medicaid expansion and uses an insurance model, FQHCs participate in the same way that they participate in the private insurance market. Therefore, they are more involved in care delivered through Medicaid expansion programs.

Co-Pays and Deductibles

In addition to employee premiums, most programs feature a variety of copays to discourage inappropriate use and to further hold down program costs. The co-pay amounts and provisions are, like any health coverage product, highly variable. The most interesting commonality is among those programs that are Medicaid expansions or that use Medicaid matching funds to provide a subsidy (such as the O-EPIC Premium Assistance Program). In these programs, there are caps on member out of pocket expenses. Typically, these programs limit out-of-pocket expenses to no more than 5 percent of family income. Utah’s UPP is the exception. Perhaps because the Utah waiver program already included a limited benefit package, CMS did not require Utah to cap member out-of-pocket expenses.

These limitations are intended to assure that low-income individuals with limited resources are not overly burdened by cost-sharing. The problem is that such restrictions can add significant additional cost to the administration of the program (e.g., collecting health care expenditure receipts from individual, validating expenses, reimbursing individuals for costs above the program limit on out-of-pocket expenses) that might be otherwise spent expanding coverage. Table 5 describes cost-sharing rules for each program.

Table 5: Cost-Sharing Rules

4. Program Administration

Oversight Responsibility

Medicaid Agency. Four of the six programs included in the study fall under the oversight of the State Medicaid agency: Arizona, New Mexico, Oklahoma, and Utah. Although all of these States have dedicated units and administrators for the coverage expansion programs, many of them also depend on staff and resources within the Medicaid agency (see Table 6 for details).

Table 6: Medicaid Infrastructure

State Insurance Agency. Healthy NY is administered by the Insurance Department of New York which drafted the regulations, developed the administrative procedures, obtained the cooperation of HMOs, and implemented the program within an aggressive one-year timeframe.

Local Entity. Access Health, Inc., which was established in September of 1999 as an independent 501(c)(3) corporation, manages the Access Health program. To identify and enroll businesses and members, Access Health, Inc. contracts directly with providers; maintains its own sales staff; and also works through local insurance agents who donate their time. Claims and payments are managed through two third-party administrators.

Enrollment and Processing Premium Subsidies
All six States attempted to streamline eligibility determinations in order to encourage the use of employer-based insurance. However, this process is inherently more complex for agencies that use Federal Medicaid funds because it involves individual eligibility processing, including means testing. Table 7 describes eligibility processes for insurers, employers, and employees. It also compares ways in which the subsidy is processed. PCN and the O-EPIC Individual Plan are not included in the table because they do not follow the employer-based insurance model.

Table 7: Enrollment of Businesses and Employees

Product Marketing

Each of the States has developed its own marketing strategy for its insurance programs. Many of the differences relate to the populations being targeted for enrollment. For example, if a program is only enrolling employees of small businesses (Access Health and Premium Assistance), then it can direct its marketing efforts at the small businesses first and their employees second. If, on the other hand, the State is targeting uninsured low-income working populations, regardless of whether they have access to ESI coverage (Healthy NY, NMSCI, O-EPIC Individual Plan, UPP, and PCN), then the State has to develop a much broader marketing plan. HCG of Arizona is in the middle of the spectrum, marketing to employees of small businesses plus sole proprietors only.

Use of Insurance Brokers/Agents. Many States have found that it is critical to work with insurance brokers or agents when trying to engage the small business community. This is because small businesses often do not have human resource staff and therefore frequently choose health insurance through an insurance broker. Brokers often represent a number of companies and when this is the case, they are authorized by the insurance company to act on their behalf in marketing the insurance product. In exchange, the insurance company pays them a commission to sell the product. The cost of this commission is built into the rates that the company pays for the health insurance product. Even if a small business bypasses the brokers, they still end up paying the same for the product, so there is no financial advantage for small businesses not to use the brokers.

Brokers help the small business choose an insurance product and complete the application paperwork for the business and the individual employee, as well as help settle insurance claims. Two key issues that need to be considered by States that want to use insurance agents/brokers to sell their products are 1) whether there is value-added by using brokers who can effectively market the plan and 2) how to pay insurance agents/brokers.

The State that had the most extensive online information for brokers was Oklahoma. The O-EPIC Premium Assistance site includes training materials for brokers and online application processes for them to use to enroll businesses and employees. Since this program is building on the ESI market in Oklahoma, payment for brokers is directly handled by the insurance companies. Although UPP is just being implemented, it plans to build on this type of approach as well. Healthy NY leaves the use of brokers up to the health plans. However, if the health plan provides commissions on regular small group contracts, then the State Insurance Commission requires it to provide commissions with the Healthy NY small group contracts.

New Mexico and Arizona contract directly with health plans and then have employers enroll through the health plan. These States have different mechanisms for reimbursing brokers. New Mexico’s Federal 1115 waiver does not allow any Federal funds to be used for payments to brokers. This means that employer premiums that are not matched with Federal dollars are used to pay for broker commissions. Arizona law has restricted payments for brokers to a one-time payment when the broker helps with enrolling the business/employees.

Access Health does not pay brokers for assisting with the application process, but it has employed sales staff to assist with this process.

The bottom line is that States need to develop mechanisms for marketing and enrolling small employers. This process is time consuming in the small employer market. If the process involves private insurance brokers or agents, the State must consider how to pay these entities. If the program decides to employ staff to take on this role, they need to understand that the staff will have to directly outreach and complete applications and other paperwork for small employers and their employees. New programs need to budget for this significant administrative burden.