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Notes to Appendix B
as used to estimate the Commission's recommendations is presented in the “Assumptions Used to Estimate Costs for the Long-Term Care Recommendations."
1. Data presented in this section were prepared by
Commission staff with assistance from John Sheils of Lewin/ICF, Inc. and Kenneth Thorpe of the Harvard School of Public Health.
2. Cost and coverage estimates are based on the as
sumption that all individuals with incomes below 100 percent of poverty would participate, since they get full coverage. For the near-poor, estimates assume that a 50 percent subsidy would induce participation by 50 percent of the eligible population without job-based coverage. Although the proposed option would vary the subsidy with income—from a high of 75 percent of the premium for people with income between 100 and 125 percent of poverty to zero at 200 percent of poverty—the weighted average subsidy for the full population is about 50 percent of premium
7. Except for its means-tested eligibility (limited to
people with incomes below 200 percent of poverty), this home care benefit is similar to the benefit the Commission recommends. Its costs are lower than the costs of the Pepper Commission home care recommendations because fewer people are eligible, due to income requirements; a lower proportion of eligible people are likely to participate because it is a welfare program; and the additional cost per user is lower, since a larger proportion of beneficiaries already receive public benefits. These factors explain 43 percent, 25 percent, and 32 percent, respectively, of the cost difference between the two proposals.
3. Estimate assumes 100 percent participation by
the poor, 50 percent participation by the nearpoor.
4. Under this option (as under the Commission's
recommendations), states would contribute what they currently spend on the specified set of health services through their Medicaid programs, increased annually for general inflation. Insuring the uninsured under the federal program would save state and local governments some of their uncompensated public hospital expenditures and some of their other expenditures on the medically indigent. On net, this is estimated to result in savings of about $4 billion.
8. The long-term care insurance policy used for
this analysis covered four years of nursing home care after a 100 day deductible period. The policy paid $50 per day and was partially indexed for inflation at 5 percent of the purchased benefit per year up to age 85. Home care benefits under the policy were dependent on the number of nursing home days received. Today, premiums for individuals policies like these would be $236 if under age 55, $583 at age 65, and $1,255 at age 75. If purchased through employment, premiums would be about 80 percent of these amounts. Estimates of who would have long-term care insurance were based on the updated Brookings/ ICF Long-Term Care Financing Model. The assumptions about the decision to purchase, lapse rates, the growth in employer sponsorship, as well as the policy and premiums are described in Chapter 3, endnotes 73 and 74. The microsimulation model is described in more detail in Appendix E. The range of estimates reported reflect slight variations in these assumptions. While the tax credits have a very small impact on the effective price of insurance, and therefore on the price relative to income, the tax credit may alter preferences for long-term care insurance. This is reflected in the upper bound of the range of estimates.
5. Although individuals encouraged to purchase
health insurance would incur new expenses, the poor and near-poor who now purchase private health insurance as individuals (not job-based) or would have faced health care expenses without health insurance would save a tremendous amount. The net savings to individuals would be $22 billion. Since millions of Americans would still be without adequate coverage, the savings are not offset by substantial new premium payments associated with universal coverage that requires individual contributions.
6. Data presented in this section are from the
updated Brookings/ICF Long-Term Care Financing Model and were prepared for the Commission by David Kennell and Lisa Alecxih of Lewin/ICF, Inc. An explanation of the model
These estimates assume that the tax code has been clarified so that long-term care insurance receives the same tax treatment as other employee benefits such as health insurance.
However, these expenditures would be offset by a number of savings. Larger employers would save about $7 billion due to reduced uncompensated care and cost shifting from Medicaid, and more than $13 billion as workers whom they now cover as dependents obtain coverage from their own employers. Finally, some employers could reduce their health spending by obtaining coverage for their employees from the public plan by paying a share of payroll. At a payroll contribution rate of 7 percent, about 6,100 large employers (7.5 percent) would find it to their advantage to rely on the public plan. Large employers who rely on the public plan would reduce their health spending by about $1 billion.
SOURCE: Lewin/ICF estimates using the Health Benefits Simulation Model.
Current employer expenditures for health
If all smaller employers were to offer insurance in response to incentives, costs would increase $18.8 billion, after taxes, or 1.8 percent of payroll. For smaller employers, the cost of covering previously uninsured persons ($34.7 billion) and expanding benefits to meet the minimum standard ($5.9 billion) would total $40.6 billion. This increase would be offset for five years by a 40 percent refundable tax credit for employers with fewer than 25 workers and an average annual payroll of $18,000 per worker amounting to $5.8 billion; by $7.6 billion in lower taxes (including use of the new opportunity to deduct full premium costs); and by $8.4 billion in reduced responsibility for covering workers of other employers and for uncompensated care.
The estimated 28.6 million workers in small firms who are not covered through their own jobs—some 3.7 million of whom work part time-would receive job-based coverage under these provisions. Another 11.7 million dependents would also get job-based coverage. In addition, the Commission's plan would affect some existing small employer plans that fall short of the plan's minimum benefit and premium sharing standards. About 25 percent of all small firms that now offer insurance would fail to meet the minimum benefits and premium sharing provisions of the Commission's plan.
If small employers were to become subject to the requirement to provide private or public health insurance, their after tax health expenditures would increase by about $20.6 billion, a 2.1 percent increase in their cost of labor. The cost of requiring employers to contribute to insuring all workers and dependents not now insured would be about $30.5 billion (see Table C-2). (This cost assumes a cap on employer payments for health insurance at 7 percent of payroll, an example of the contribution rate to obtain public coverage.) The cost of the minimum benefits standard and premium sharing requirements would be about $5.9 billion. Estimated total new costs are therefore $36.4 billion.
These costs would be offset by savings of about $15.8 billion. Firms would save $5.9 billion as working spouses and dependents obtain coverage through their own employers, and $2.5 billion in reduced payments for uncompensated care. In addition, some employers could reduce their health spending by covering their employees under the public plan through
the payroll contribution, lowering their costs by about $0.5 billion. Finally, higher health expenditures are offset by lower tax payments ($6.9 billion), including reductions due to the new opportunity to deduct full premium costs. The net increase in small employer benefit payments would be $20.6 billion (see Table C-2).