October 1, 2004
Tanya Alteras, Sharon Silow-Carroll
Stretching State Health Care Dollars: Building on Employer-Based Coverage, Sharon Silow-Carroll, M.B.A., M.S.W., and Tanya Alteras, M.P.P., October 2004
Whether subsidizing an existing employer plan or creating a new and more affordable program for uninsured workers, states are using their dollars, regulatory/legislative powers, and purchasing clout to leverage employer and employee contributions in order to cover more people.
As discussed in the corresponding ESRI report, this approach is manifested in a variety of ways:
- Premium assistance for existing employer plan. This mechanism generally targets low-wage workers directly, though it could subsidize employer contributions as well. States may implement it by tapping federal dollars—as part of a Medicaid or State Children's Health Insurance Program (SCHIP) expansion—to match the state's contribution.
- Reinsurance. While premium assistance offers direct subsidies to individuals for purchasing insurance, reinsurance is an indirect way to reduce the price of premiums, thereby providing a more affordable option for uninsured workers. Reinsurance means that the state covers a portion of private insurers' claims; this "stop-loss" mechanism may cover catastrophic claims above a certain dollar amount, or it may cover claims within a designated corridor.
- Direct subsidization of new public-private plan. A number of states are exploring a public-private partnership model in which a new health plan is developed for small businesses. Either a state-designated board or a private insurer administers the plan, and the state subsidizes the premium for low-income workers.
- State-negotiated health plan. A way for states to help make coverage more affordable to small businesses without actually subsidizing the coverage is to bargain on behalf of employers. States have much greater clout than individual small businesses when negotiating prices with pharmaceutical firms or premiums with health care plans. A variation on this model is to allow small businesses and uninsured workers to actually buy into the state-employee health plan.
- Pay-or-play approach. In this model, the state requires businesses to either provide coverage to their workers or pay into a fund that purchases coverage, on a larger scale, for those and other workers. The major advantage of this strategy is that it is a way for states to expand coverage through the employer-based system without major public outlays. Also, it is said to "level the playing field" by requiring all employers to contribute toward coverage—as opposed to having some pay for their own workers as well as for the uninsured through taxes and higher health care costs. The financial burden on businesses (particularly small firms) and any possible effect on employment are the major concerns raised by this strategy.