Covering the Uninsured: How to Administer Expanded Medicaid + Tax Credits
A 2003 article in the journal Health Affairs proposed a combination of liberal and conservative strategies for extending health care coverage to uninsured Americans, combining tax credits with an expansion of public insurance programs. The design of such a program would be extremely complex because of differences between the tax system and the administration of health care programs.
From 2005 to 2007, researchers and consultants at the Health Insurance Reform Project at George Washington University, working with the National Academy of State Health Policy and more than 30 experts, carried out a project to determine the administrative changes that the federal government, state government and employers would have to make if Congress enacted such a health care reform initiative.
- A February 2007 report, Administering a Medicaid + Tax Credits Initiative, outlined elements of a system to improve and expand health insurance coverage, including:
- Eligibility based on adjusted gross income for both federal and state assistance.
- A one-page application for health insurance and tax credits.
- Administration through the payroll deduction system for workers and their families, who are 80 percent of the uninsured.
- A competitive insurance market based on the plan that covers federal employees.
The Robert Wood Johnson Foundation (RWJF) funded the project with a grant of $258,098 between August 2005 and March 2007.
Most Americans under age 65 receive health insurance through their employers or through public programs. In 2005, however, more than 46 million Americans were uninsured, according to the U.S. Census Bureau. Most of these were ineligible for Medicaid and worked for employers that did not provide insurance or could not afford the insurance their employers offered.
According to the project director, Lynn Etheredge, there are two philosophical approaches to providing coverage for uninsured people:
- Conservatives favor providing tax credits that people can use to purchase health insurance.
- Liberals favor expanding public insurance programs such as Medicaid and the State Children's Health Insurance Program, known as SCHIP.
In 2003, as part of their work with the Health Insurance Reform Project, Etheredge and Judith Moore published an article in Health Affairs that explored the possibility of using a combination of these strategies to expand health insurance coverage. This paper was part of a larger project funded by RWJF. (See Grant Results for background.)
Such a proposal could serve as an acceptable compromise because it contains the key elements of both conservative and liberal proposals, according to Etheredge. The Medicaid system and the federal tax code are quite different, however, and those differences make implementation of such a proposal challenging. For example:
- The federal tax code applies to everyone in the country. Medicaid is a federal-state partnership, however, with different eligibility standards in each state.
- Eligibility for federal tax credits aimed at low-income people is based largely on income. Medicaid eligibility is determined by a complex set of rules based on income, age, marital status, family make-up, disability and other criteria.
- In addition to income, Medicaid also has an asset test, requiring families to spend down their assets before they are eligible for assistance. Tax credits do not have this requirement.
Because many uninsured people are employed, a Medicaid-plus-tax-credit system would also have to coordinate with employer-provided health insurance, probably through the payroll deduction system.
Etheredge notes, "Major efforts to expand coverage over the past two decades have left millions of eligible individuals without insurance because of inadequate attention to administrative issues. Since a Medicaid-plus-tax-credit system would involve many federal, state and private sector organizations that do not normally work together, it is particularly important to identify and consider administrative issues before legislative drafting."
RWJF supports efforts to achieve stable and affordable health care coverage for all Americans. The Health Insurance Reform Project (HIRP) produced critical thinking and ideas designed to influence national health care policy. This project sought to foster thoughtful, nonpartisan examination of national health care issues and to build consensus around ways to resolve them.
Under Grant ID# 041223, HIRP made significant contributions on policy issues involving coverage for the uninsured, restructuring the Medicare+Choice program, improving Medicare for chronically ill and disabled beneficiaries and developing more effective ways to involve consumers/patients in their own health and health care.
HIRP worked in two areas of interest to RWJF: (1) the design and implementation of a federally sponsored, large-scale demonstration of improving quality performance under the Medicare program; and (2) targeted research on the design and implementation of tax credits to expand coverage to the uninsured and the redesign of Medicaid.
The objective of this project was to flesh out the administrative components of a system that combined tax credits and expanded Medicaid coverage to provide health insurance for people with no insurance. "We could enact eligibility to cover 47 million people and it could be completely unworkable," project director Etheredge said. "If we don't build an administrative system this could be a complete disaster."
The project, overseen by HIRP—a nonprofit, nonpartisan program based at George Washington University, works to develop and advance new ideas to improve federal health policy, including Medicare and Medicaid. Etheredge, a consultant, directed HIRP.
To provide input into the administrative design of an integrated Medicaid/tax credits system, the project hosted three meetings of experts from organizations and agencies that would have to implement such as system:
- A meeting held in Washington on December 5, 2005, covered key federal administrative issues and national health policy perspectives. (12 participants)
- A meeting held in Washington on March 27–28, 2006, examined concerns at the state level and suggestions from state officials. (20 participants)
- A meeting held in Boston on December 1, 2006, discussed the recent health care reforms in Massachusetts and solicited input from state experts, employers and health plans. (20 participants)
The National Academy of State Health Policy, using funding from this RWJF grant under a subcontract, helped to organize the meetings and write and distribute a final report.
The primary product of this project was a report, Administering a Medicaid + Tax Credits Initiative. The Health Insurance Reform Project and the National Academy of State Health Policy mailed copies to 150 federal officials and 550 state officials. As of the date of this report, an edited version of the report was also planned for a volume to be published by the National Academy of Social Insurance and the National Academy of Public Administration.
Etheredge wrote an article for Health Affairs on the Massachusetts health reforms and how they would mesh with federal tax credits. Etheredge also gave presentations to the federal Medicaid Commission, the national Ticket to Work and Work Incentives Advisory Panel and a Department of Health and Human Services Task Force. See Bibliography for details.
The project produced the following result:
- A February 2007 report, Administering a Medicaid + Tax Credits Initiative, outlined elements of a system to improve and expand health insurance coverage. The report set out the major administrative tasks that would face government and the private sector in establishing such a system. Key elements of the proposal include:
- Eligibility would be based on the prior year's adjusted gross income, as reported to and verified by the Internal Revenue Service. This would replace the more complex requirements of existing entitlement programs.
- Eligibility would be determined for a full year. Recipients would not have to reapply periodically at a county Medicaid office, as many states now require.
- The simplified eligibility standard means the system could rely on a one-page form to apply for benefits, select a health plan and arrange for premium payments. An application could be filed at multiple points, including the workplace, online, with health plans or providers or at government agencies.
- Besides enrollment, all other administrative functions would be handled by computerized information and financial exchanges among federal and state agencies, employers and health plans.
- To ensure broad coverage, there could be enrollment mandates, automatic enrollment and incentives to enroll. A key focus would be the points of transition when health coverage often lapses. For example, unemployment offices could inform their applicants of the availability of coverage and subsidies.
- Workers, whose families constitute 80 percent of the uninsured, would pay their health care premiums through payroll deductions. They would "receive" the health care tax credit through lower income tax withholding. For low-income workers entitled to a credit larger than their withholding, the government would advance them the necessary credit.
- Nonworkers would pay their share of premiums to their health care plan, with federal and state governments paying the tax credit and any other subsidies.
- States would establish a health care market that would offer consumers a competitive choice among health plans. It could be modeled after the Federal Employees Health Benefit Program.
- Most participants will be handled through the IRS's tax administration and the payroll deduction system, which are well-established and more efficient than other means of providing benefits. For people who are not employed, states should establish one-stop consumer agencies, as Massachusetts has done in its recent health care reform initiative.
The advisory panels offered a number of suggestions for those who may be involved in legislative drafting and early planning of new administrative systems:
- Adopt simplified administrative systems wherever possible.
- Define clear responsibilities for all public and private entities involved in the new health care system.
- Limit the number of options available to states in designing their own programs, but permit waivers for states that want to innovate.
- Start with a demonstration program in a few states before establishing the new system nationally.
- Provide plenty of time and funding for planning before the system is up and running.
For additional information see Grant Results on ID# 052038.
GRANT DETAILS & CONTACT INFORMATION
Exploring Expanding Coverage by Integrating State Medicaid Programs with Federal Tax Credits
George Washington University (Washington, DC)
Dates: August 2005 to March 2007
(Current as of date of this report; as provided by grantee organization; not verified by RWJF; items not available from RWJF.)
Etheredge L. "Massachusetts Reforms Plus President Bush's Tax Credits: A National Model?" Health Affairs Web Exclusive, September 14, 2006. Abstract available online.
Etheredge L, Moore J, Schwartz S and Weil A. Administering a Medicaid + Tax Credits Initiative. Washington: Health Insurance Reform Project and the National Academy for State Health Policy, 2007. Available online.
Report prepared by: Susan G. Parker
Reviewed by: Robert Narus
Reviewed by: Marian Bass
Program Officer: Nancy Barrand