Could North Carolina became the first State to achieve universal health insurance coverage? A student asked me recently what it would take financially to do so, and how it could most simply and quickly be done. Here is a quick estimate.
Using the Kaiser Family Foundations numbers, in 2016 there will be 1,216,000 uninsured persons in North Carolina if the Affordable Care Act were repealed. If implemented, they estimate that in 2016 398,000 persons will be covered by private insurance bought in exchanges who would otherwise be uninsured, and 377,000 (1) who otherwise would be uninsured will be covered by Medicaid if North Carolina undertakes expansion.
That would leave 440,000 persons uninsured in 2016, or around 5% of the population, down from ~17-18% today. We could get to this point easily by expanding Medicaid, and the State developing its own exchange. Any state can achieve something like what is noted in first three rows of the table via the ACA; but what would it take to be the first state to cover everyone, with at least some modicum of insurance coverage?
The last row of the table shows how much it would take (I estimate $78 Million in 2016)Â to achieve stop loss catastrophic hospital coverage, for the 440,000 left out by the ACA (didn’t sign up; ineligible) using the State Employees Health Plan infrastructure, and having a deductible of $10,000 for individuals, and $25,000 for families, with the state paying hospital costs above that. This is bare bones, hospital-only coverage to be sure, but it is the cheapest way to cover everyone with at least something that I can imagine.
A few details on how I got there.
Using the Hadley et al. (2008) estimate, the cost of care received by the uninsured in 2016 would be $1,100 per capita ($550 per capita actually paid by the uninsured, $550 unpaid, and therefore implicitly subsidized via the rest of the system) for a total cost of $484 Million in North Carolina in 2016 ($242 Million paid, $242 Million implicitly subsidized). Note that this cost will exist no matter what we do, but that half of it will be implicitly paid by those not receiving care by default.
If the 440,000 uninsured persons used care uniformly, the problem would be relatively easy to fix, but that is not the case. A recent U.S. Census Analysis shows per capita out of pocket spending by the uninsured ages 0-64 of $446 (compared to my estimate above of $550), but with 63.7% of such persons having expenditures of $0 (see Table 1). Similarly, a MEPS-based analysis showed that 2002 spending by the uninsured had a mean of $1,491, but the median was only $396, again showing that the distribution includes many $0 or very low users, and a few very large ones. The very large costs are catastrophic to families who have no way of paying them, and are a burden to hospitals and other providers who have to figure out how to cross subsidize such care, some of which they must provide under longstanding law, in what is essentially an unfunded mandate.
How could we achieve what I outline in the table above?
- Expand Medicaid under the ACA, perhaps using the Arkansas “private expansion” Medicaid model in which persons between 100%-138% of poverty receive private insurance purchased on the exchange that North Carolina could set up. Those under 100% of poverty could be covered by traditional Medicaid initially. Perhaps over time, more of them could be moved to the exchange. I have long been in favor of seeking increased flexibility for our Medicaid program so that the state can focus on acute health care, and shifting more of the responsibility for long term care to the federal government.
- Use the N.C. State Employees health plan to create a stop-loss catastrophic hospital insurance payment mechanism, through which the State would pay for the cost of annual hospital care above $10,000 for individuals, and above $25,000 for families. I estimate that this would cost North Carolina $78 Million in 2016, and this would be an annual recurring cost (for magnitude comparison, the annual budget for running the North Carolina General Assembly is around $51 Million in 2013).
- Why use the States Employees Health Plan (SEHP)? The SEHP has members in all 100 counties, and is certainly paying bills in every hospital in North Carolina, which means they have negotiated rates. I got the $10,000/$25,000 figures by comparing them to the SEHP maximum coinsurance (cost share + deductible) amount for their traditional 70/30 plan (in 2014 this will be $7,586 for an individual; $22,758 for a family; looking for round numbers for for simplicity and since we are talking about 2016, I rounded up to $10,000 for individuals, and $25,000 for families). This would mean hospitals would also have to charge uninsured persons what the State Employees Health Plan pays for care, a step that UNC Hospitals has already taken, which is a consumer protection of sorts that at least means the uninsured aren’t charged a rate higher than what any insurance company pays.
- Using a recent ASPE study on the distribution of hospital bills incurred by the uninsured, 56% of such hospital bills are larger than $10,000, and 28% of those larger than $25,000 (see Table 3). Without knowing the distribution of single uninsured v those in families, I assumed the cost of the program to be $78 Million in 2016, which is 40% of the half of the uncompensated care that is currently “implicitly financed” by hospitals not receiving payment.
I acknowledge that being uninsured is not only a financial problem and that there are human consequences. This is not the same as providing the 440,000 residual uninsured with health insurance, which would be expected to increase their use of care substantially. And it could correctly be said that this policy will most directly benefit hospitals who are now providing such care but not getting reimbursed. However, if our state expands Medicaid and sets up a vigorous health care exchange to market those policies, we will have done a great deal to address the issue of uninsurance. However, we know that some will not comply, and others will not be eligible for the ACA, yet they will still be living and working here, and in some cases using large amounts of health care. It would be preferable to develop a straightforward means of paying for this care.
The plan above in neither a liberal, nor a a conservative, dream solution. And the ideas above that could be tweaked in many ways. However, what I have written could plausibly be implemented by 2016, and by doing so, North Carolina could prove itself to be a leader in state-based health reform, and address the challenges of health reform, head on.
Notes:
(1) Kaiser estimates that the number covered by Medicaid in 2016 under expansion will increase by 478,000, but the net reduction in the uninsured will be 377,000. 478k-377k=101k estimate of woodwork effect (those now eligible but not signed up) + crowd out from private and non-group insurance to Medicaid.
(2) Using AHRQ estimate of 32% of uninsured expenses accruing to inpatient hospitals plus hospital outpatient, yields estimate of $155 Million of the $484 Million total uninsured cost estimate in 2016 being hospital care. Using ASPE estimate that 28% of the uncompensated hospital bills incurred by the uninsured are greater than $25,000, and that 56% of them are larger than $10,000, I assume that paying for a weighted average of the individual and family uninsured hospital bills above $10k and $25k would account for half of the uncompensated hospital care, or $77.5 Million, in 2016.
(3) Note: The North Carolina Hospital Association claims that hospitals delivered $1.5 Billion charity care and bad debt in 2010 (see p. 41 of the pdf, page 37 of the document); I am not going to get into it, but they are discounting for a wildly unrealistic initial number, whereas the ASPE work asserts costs; note the markdown from charges to costs in table 3 row 1, is 25 fold.
cross posted at freeforall
Interesting, Don, and a well-organized presentation. A question that occurred to me:
Does the “stop-loss hospital coverage” concept cover only the hospital, or does it cover the doctors as well, in those disaster cases? Yes, the hospital stay for a heart attack is expensive enough to cause another one, but those heart surgeons have pretty high rates too.
The other thing that occurred to me is that the folks who don’t get any health insurance, even after ACA is fully implemented, may be likely to default on their deductible under your plan. This, it seems, reinforces your point that the major benefit of the catastrophic coverage is to limit the default risk to the hospitals. In terms of the accounting arithmetic, it’s a way of spreading the cost of the uninsured catastrophic cases evenly over the entire tax base of the state.
I took the liberty of enlarging your chart image.
Who are the uninsured after a hypothetical Medicaid expansion? Loners, survivalists, illegal immigrants, itinerants, homeless, fit young people who think themselves immortal? It’s going to be difficult to create a political constituency for any of these.
My guess would be that the supporters of insurance for the folks you list will include hospitals, docs and state governments that get stuck paying for those folks’ medical care.
Good grief. You’re talking about a plan that would cover health care costs once a family has already had to spend more than $25,000 on health care in a given year. And this stingy, minimal, high deductible plan will be seen by at least one of the two political parties in your state as an unacceptable new entitlement that would provide yet more free goodies to the mooching 47%.
For anyone reading this outside the US, this must sound like a dispatch from an alien planet.
Another thought. By 2016 the ACA will have settled down and I expect it will be seen as a success. Prediction - though by now my track record is a bit like the “Dow 30,000” guy’s: Republicans will run on “repeal and ???” in 2014 and get nowhere, and the GOP will drop the plank in 2016 if they want to give HRC a competitive race. So there may be an opening for national proposals to close the remaining coverage gap in the ACA framework, more generously than Don’s deliberately barebones plan. A lot depends here on the success or failure of the cost-reduction smörgÃ¥sbord.
Good post Don. I have often wondered about plans to open state/federal employee plans to everyone if the resulting increase of very sick people increases premiums over time for the government employees. If so, one could ask why that small group of people should bear the cost of the new insurance rather than having the cost more broadly shared.
It seems to me, though, that this is almost the opposite of what you want to do from the point of view of bending the cost curve. The large hospital costs are in at least some cases a pretty direct result of the huge population of near-zero spenders on non-hospital costs. Unless you can get consumption of non-hospital health care up to plausible levels, you’re still going to be getting the huge hospital bills and negligible effect on outcomes.