August 24, 2009
New analysis from the RAND Corporation shows that a mandate requiring individuals to obtain health insurance — an option in various current legislative proposals — would increase the number of Americans with coverage by 9 million to 34 million, while a mandate requiring employers to offer insurance would boost the figure by 1.8 million to 3.4 million.
The findings are from a micro-simulation model created as a part of RAND COMPARE, an ongoing, independent effort to provide objective information about health care reform. The latest analysis, released today at www.randcompare.org, examines policy options designed to expand coverage to the uninsured.
In addition to individual policy options, the analysis examined a plan proposed in the lead-up to the current health care debate by U.S. Sen. Max Baucus. Researchers evaluated the likely effect of the proposal on coverage, spending, consumer financial risk and health. RAND's analysis of that plan, outlined in a white paper in November, concludes it would reduce the number of people without insurance by an estimated 60 percent to 85 percent, depending on specific design choices.
That proposal relates to draft legislation that is still being negotiated by the Senate Finance Committee, of which Sen. Baucus (D-Montana) is chairman. Not all of the elements examined by RAND will necessarily be part of the legislation that ultimately emerges from that committee, but many of the features are similar to those found in the House Tri-Committee bill and the Health, Education, Labor and Pensions (HELP) Committee bill.
Researchers from RAND, a nonprofit, nonpartisan research organization, found that under different design choices the Baucus proposal could significantly cut the number of uninsured Americans with almost no increase in overall spending on health care, although government costs would increase by an estimated 5 percent to 7 percent.
"What is clear is that the extent of subsidies to help people purchase insurance, as well as the size of the penalty for an individual who fails to purchase insurance or an employer who fails to offer it, can make a substantial difference," said Elizabeth McGlynn, co-director of COMPARE and associate director of RAND Health. "These are some of the key decisions that face Congress when it returns after the recess."
The plan as outlined in the white paper would be implemented over time and would include: a requirement that all employers above a certain size offer health insurance to their employees, an expansion in the eligibility for Medicaid and the State Children's Health Insurance Program and a requirement that all individuals have health insurance coverage.
The white paper did not specify which employers would be required to offer insurance or what the penalty would be for those who choose not to offer it. Researchers examined the effect of excluding companies with fewer than 5, 10 or 25 employees from the mandate, as well as the effect of penalties set at 5 percent, 10 percent and 20 percent of total payroll.
RAND estimates that before implementation of the individual mandate, the number of people who would become newly insured through employer-sponsored coverage could range from 2 million to 7.2 million, depending on assumptions.
Before the individual mandate is implemented, expanding eligibility for Medicaid and the State Children's Health Insurance Program results in about 5 million more people obtaining health insurance coverage than under the employer mandate alone.
All of the health reform bills introduced by chairs of committees with jurisdiction thus far include some type of new national health insurance exchange that would allow individuals to purchase health insurance in a national market, rather than only among those plans offered in the state where they live. Once this exchange is operational, the plan RAND analyzed would require everyone to have insurance through either a public program (Medicaid, State Children's Health Insurance Program, TRICARE) or through private sources (employer, individual policies, exchange).
"We found that the individual mandate has the largest effect on reducing the number of people without health insurance," said Christine Eibner, lead researcher on the analysis of the white paper and an economist at RAND. She noted that the Baucus proposal specifies that subsidies to help purchase insurance would be offered to people with incomes of up to 400 percent of the federal poverty level.
She said the individual mandate is the one policy option that addresses the different characteristics of the uninsured. It will affect both the 44 percent of people who already have an offer of health insurance through their employer or Medicaid, but have not taken it, as well as the remaining group that would have to seek out insurance.
The white paper did not specify the size of penalty that would be imposed on people who do not comply with the mandate to purchase insurance. Researchers examined the effect of penalties set at 25 percent, 50 percent and 75 percent of the premium an individual would have to pay for a policy from an insurance exchange. Assuming a moderate employer mandate, increasing the penalty from 25 percent to 75 percent of the premium an individual would pay on the national insurance exchange would reduce the number of uninsured by 32.5 million — a 71 percent reduction. By contrast, a penalty of 25 percent would reduce the number of uninsured by 20.8 million, a 46 percent reduction.
Most of the major proposals in Congress include some new health insurance marketplace (such as the "exchange" in the white paper and the House Tri-Committee bill, and "gateways" in the HELP Committee bill). Subsidies to offset the costs of purchasing health insurance are generally only available to people who purchase via the exchange; and access to the exchange in many bills is limited to those who do not have any other source of coverage. The RAND team estimated that if this restriction were relaxed, 38.3 million people would be newly insured — an 85 percent reduction in the rate of uninsurance.
RAND researchers also estimated the increase in national spending on health care, the increase in government spending, the effect for consumers in different types of households, and the change in the health of the population that might be caused by adopting provisions in the white paper.
Under all of the policy options, the increase in national spending on health care was negligible, meaning that increasing the number of people with insurance would not likely change the rate of growth in health spending. Government spending would increase by 5 percent to 7 percent under the most likely scenarios; however, if the insurance exchange were open to a much wider group of people, government spending could increase by as much as 9 percent, according to the RAND analysis.
Consumers who are currently uninsured would likely spend more on health care if the proposals in the white paper were implemented than they do today. RAND researchers estimate that people without insurance currently spend about 2 percent of their income on health care on average, compared with 6 percent among those with insurance. The analysis suggests the plan would prompt those who become newly insured to increase their spending on health care to about 5 percent, on average.
Researchers also evaluated whether any change would occur in the proportion of population likely to experience very high rates of spending on health care. They found that about one-quarter of the nation's population would spend more than 10 percent of their income on health care after the policy change, the same proportion that faces high levels of spending today.
A unique feature of the RAND analysis is the ability to estimate the impact of these policy changes on the health of the nation. Researchers estimate that under full implementation, the white paper's proposal would add 9.3 million life years to the U.S. population.
RAND developed COMPARE to provide objective facts and analysis to inform the dialogue about health policy options. Individuals, corporations, corporate foundations, philanthropic foundations, and health system stakeholders have funded COMPARE. The new analysis is presented on the Web site's "dashboard" (see www.randcompare.org/analysis/), which allows users to compare different policy options across a broad set of criteria.
RAND Health, a division of the RAND Corporation, is the nation's largest independent health policy research program, with a broad research portfolio that focuses on quality, costs and health services delivery, among other topics. RAND Health is the developer of COMPARE (Comprehensive Assessment of Reform Efforts), a one-of-a-kind online resource that provides objective analysis about national health care reform proposals.