Why do states produce health insurance?

While I was writing my paper about different redesign efforts for the MinnesotaCare program, I began to wonder, why does the government provide insurance? Insurance is an expensive business for state governments. According to the Kaiser Family Foundation, Minnesota spent $2.9 billion on Medicaid in 2009. So, why would the state spend valuable funds in a well-developed industry when they could use those funds for other need projects?

Normally a government intervenes only with instances of market failure. So what is the market failure that has occurred in the health insurance industry that requires government intervention? There are two central reasons why the government provides health care. First, the government redistributes income because pure markets do not enable all participants to earn an adequate level of income (Santerre and Neun 276). Insurance can be cost-prohibitive and therefore an unaffordable good for many Americans. According to the Kaiser Family Foundation the average employee contribution to a family health insurance plan was $4,000 in 2010 (Kaiser). This premium price makes insurance inaccessible for many families that are just above the federal poverty line. Therefore, the government implements income redistribution programs to assist low-income families in obtaining equal opportunities in the insurance market.

A second reason is that imperfect information exists in the insurance market because some consumers do not “understand the technical terms and conditions contained in health insurance policies” (Santeere and Neun 287). Insurance policies can be very complex and people often do not have the ability to directly compare competing policies to choose the best product. By producing insurance, the government prevents vulnerable consumers from the consequences of being deceived by imperfect information.

The United States government has found another method to intervene with an imperfect information market failure that does not require it to be an insurance producer. The Patient Protection and Affordable Care Act (ACA) of 2010 included provisions for each state to establish a health insurance exchange. The exchange is an online marketplace for consumers to compare all available insurance plans in their state. The plans will be categorized by type of benefits included and price. Consumers will be able to directly compare plans from competing companies in order to choose the one that best fits their needs. The exchanges will provider more information to consumers so they can participate the insurance market without fear of being deceived.

Wisconsin has made significant progress with create the infrastructure of its exchange. Check out the state’s prototype website here. Minnesota received a planning grant for the exchange from the federal government, but no legislations has passed to implement the program. A couple exchange bills have been introduced this session (one from Rep. Gottwalt and Rep. Erin Murphy), but neither bill has made it out of committee.

Kaiser Family Foundation. Family Health Premiums Rise 3 Percent to $13,770 in 2010, But Workers' Share Jumps 14 Percent as Firms Shift Cost Burden. 2 Sept. 2010. Web. .

Kaiser Family Foundation. "Minnesota: Federal and State Share of Medicaid Spending, FY2009." State Health Facts. Web.

Santerre, Rexford E. and Stephen P. Neun. Health Economics: Theory, Insights, and Industry Studies. Mason, OH: South-Western Cengage Learning, 2010.

Reconciliation: Using the Budget Process to Pass Health Care Reform

The most controversial question facing Congressional Democrats this winter is whether the budget reconciliation process should be used to pass health care reform legislation. In large part, the controversy over the use of reconciliation in the health care debate is simply an outgrowth of the controversy over the bill – observers in support of the bill generally characterize the use of reconciliation as aggressive action in service of the American public, while those opposed to the bill generally characterize it as a power grab and an affront to public opinion. At least part of the controversy, however, emanates from reconciliation process itself. Some Senators support health care reform (having voted for the legislation passed by the Senate on Christmas Eve), but oppose the use of reconciliation to advance a version more to the House’s liking (See the TMP report). According to these Senators, the reconciliation process is an inappropriate venue for major policy changes, which they suggest should be subject to supermajority votes (click here to learn more about Senate rules and traditions surrounding supermajority votes and the filibuster). Although defensible on political or philosophical grounds, on a procedural level this position draws an arbitrary line between policy and budget legislation, which ultimately obscures reconciliation’s fundamental purpose.

“The chief purpose of the reconciliation process is to enhance Congress’s ability to change current law in order to bring revenue, spending, and debt-limit levels into conformity with the policies of the annual budget resolution.” – Congressional Research Service Report, The Budget Reconciliation Process: House and Senate Procedures. Put more simply, reconciliation exists to help Congress reduce spending and avoid deficits. It recognizes that although a supermajority of Congress may agree to cut overall spending by certain amount over the long-term, when it comes to specifying the cuts, getting 60 votes in the Senate can be very difficult. To solve this problem, budget reconciliation allows Congress to “fast track” (i.e., avoid supermajority votes on) specific proposals that enable it to bring revenues or expenditures in line with spending targets in the budget resolution. This past April, Congress passed a budget resolution for FY 2010 that reduced spending targets over the next five years. Since entitlement spending (health care and social security) represents the baulk of projected expenditures, meeting these targets necessitated, among other things, changes to the laws governing Medicare/Medicaid. For this reason, the budget resolution included 5 reconciliation directives instructing 2 Senate committees and 3 House committees to report health care legislation eligible for consideration through the reconciliation process.

Admittedly, some elements of the health care bill may need to be stripped during reconciliation under the Byrd rule, which makes any provision of (or amendment to) the bill that is deemed “extraneous” to the purpose of amending entitlement or tax law vulnerable to a point of order. (See Policy Analysis: Introduction to the Federal Budget Process.) Still, a review of reconciliation’s function in the U.S. budgetary process suggests that Democrats should not be timid about using it to pass controversial pieces of legislation. Contrary to some of rhetoric, the whole point of reconciliation is to pass controversial pieces of legislation that would have little chance of receiving a supermajority vote. It is difficult to imagine, even in a less partisan environment, entitlement spending being significantly reduced any other way.

Enrollment in Public Programs - A Win Win

Research shows that even small increases in a family’s income—as little as $372 per month over three years—can have positive impacts on a child’s social skills and school readiness. Health care coverage, food support, child care assistance, energy assistance, earned income tax credits, and other public programs were designed to help low-income families meet basic needs. These programs also encourage parents and adults to remain in the workforce. Despite the benefits, many eligible Minnesota families do not participate in public programs or claim tax credits.

· Energy Assistance (70% of eligible households are not enrolled)
· MinnesotaCare and Medical Assistance (22% of eligible individuals are not enrolled)
· Child Care Assistance (76% of eligible children are not enrolled)
· Food Support (58% of eligible individuals are not enrolled)
· EITC and WFC (18% of eligible households do not claim)

There are many reasons why families are unable to participate in the programs for which they are eligible: if they are working, they often believe they don't qualify; language or literacy barriers can make a complex application process overwhelming; they feel stigmatized by public programs; they’ve had poor experiences or they distrust government bureaucracies. Even at current participation rates, these programs bring hundreds of millions of federal dollars into the Minnesota economy. In 2006, Minnesota received:

· Energy Assistance=$77 million
· EITC=$432 million
· Child Care Assistance=$132 million
· Food Support=$250 million

The United States Department of Agriculture estimates that every $5 dollars of Food Support benefits generates $9.20 in total economic activity. The economic impact on Minnesota would be enormous if all families participated in these programs. I currently work for Children’s Defense Fund Minnesota on an outreach project called Bridge to Benefits. A core component of the project is an online eligibility-screening tool designed to help individuals and families understand if they are eligible for seven public programs and two tax credits. By answering a few simple questions, individuals and families can learn if they qualify for programs, print out applications and get county-specific information about how and where to apply. The website will also connect families to organizations that provide one-on-one application assistance.

Helping Families Work

Child care is critical to the ability of families to work, go to school, and contribute economically to our community. According to the Children’s Defense Fund's 2008 Kids Count Data Book, the average cost of full-time, year-round care for an infant at a child care center was $13,000 -- no small chunk of change!

Minnesota’s Child Care Assistance Program (CCAP) is designed to help low-income families and families on public assistance pay for high quality child care while they work, look for work, or attend school. Specifically, child care assistance is available to families participating in the Minnesota Family Investment Program (MFIP), families with a MFIP case that closed within the last 12 months, and low-income families that may be eligible for a basic sliding fee (BSF) scale program. During the state fiscal year 2008, there were an average of 8977 families per month receiving child care assistance through the BSF program. However, as of February 2009, there were close to 7500 families on the waiting list, a number which has climbed from 2900 in July of 2007.

Local nonprofit organization Child Care WORKS advocates increased funding for CCAP to eliminate the waiting lists for families needing child care assistance. They also recommend increasing the state’s reimbursement rates -- those payments the state makes to child care providers who provide care for families receiving child care assistance. In 2003, rates were frozen at 2001 levels and have increased only minimally since then. Those increases have not kept pace with the cost of providing care to children.

Federal stimulus funds in the amount of $26 million were announced in February through the federal Child Care Development Block Grant. Which is a good thing. Because in a January interview on Minnesota Public Radio when asked about child care assistance, Tim Pawlenty responded, “'There's a whole array of really good programs and the need always exceeds the resources.' He says the obligation is first to balance the budget and then provide for people in need, and then provide for the future. 'Our listeners have to come to understand the magnitude of the challenge we face. It would be nice to keep things the way it is, but we can't.'"

For personal questions on whether you're eligible, CDF's Bridge to Benefits has a lot of the answers.

Proposed Cuts to Minnesota’s Health Care Programs: At What Cost?

According to a recent survey conducted by the University of Minnesota, the number of Americans living without health insurance increased by 9.3 percent between 1994 and 2007. In Minnesota, the number of uninsured grew by 8.4 percent during the same time period. Even more troublesome, the number of uninsured children in Minnesota grew by 6.2 percent -- whereas the number of uninsured children nationwide decreased during the same time period.

Both the Minneapolis Foundation and Minnesota 2020 attributed recent cuts to Minnesota Care program and declines in employer-sponsored insurance to the rise in uninsured children and households in Minnesota.

Now, Minnesota and other states will most likely face additional increases in the number people living without health insurance. According to the University of Minnesota’s State Health Access Data Assistance Center, dramatic increases in Minnesota’s unemployment in the late 2008 and early 2009 coupled with additional increases in health care costs will contribute to even higher numbers of uninsured individuals and families.

Facing a $4.6 billion budget deficit, Minnesota lawmakers are faced with tough decisions to reach a balanced budget. As a result, reductions in funding to many state programs, including public health care programs, are on the table. While federal stimulus funds for Medicaid programs require states to maintain current eligibility thresholds for state-run public health programs, Governor Pawlenty’s recent budget revisions propose some dramatic cuts including the following:

• Eliminate access to public health insurance programs to adults without children -- an estimated 60,000 people would lose access to health care;
• Restructure General Assistance Medical Care to reduce available services to adults;
• including eliminating coverage for hospital stays and outpatient services;
• Delaying changes to eligibility requirements for state health plans to 2011 – changes that would result “in at least 84,000 people from government-subsidized health care.

Governor Pawlenty’s proposal reflects an attempt to balance the budget during a particularly difficult time. But at what cost?

First, a 2005 study by the Minnesota Department of Health reported that for every dollar spent on increasing access to health care, there is a return on investment to the state of between $3 to $6. This return is the direct result of decreased use of hospital emergency care and admissions as well as increased earnings of enrollees due to primary care access.

Second, hospitals expect reductions in access to public health care programs to dramatically increase the demand for emergency room charity care: “The health system, which operates the University of Minnesota Medical Center and six other hospitals, predicts a loss of $100 million in revenue over the next two years under Pawlenty's budget cuts.”

The result would be a health care system under stress with limited ability to provide care and services to the entire community of patients.

While the Governor’s revised proposal helps address the budget deficit in the short-term, reductions in access to health care could contribute to heightened costs in the long-term.