Modeling Dr. Dynasaur 2.0 Coverage and Finance Proposals

This study estimates the effects of expanding Vermont's Dr. Dynasaur program to cover all citizens of Vermont, regardless of income, through age 25. The current Dr. Dynasaur program, which we refer to as Dr. Dynasaur 1.0, combines the state's Medicaid program and Children's Health Insurance Program (CHIP) for children ages 0 through 18 to provide a seamless insurance program for those with family incomes below 317 percent of the federal poverty level. The program expansion, which we refer to as Dr. Dynasaur 2.0, extends insurance to all the remaining children in the state (excluding blind and disabled Medicaid enrollees) and all Vermont residents ages 19 through 25. In addition to describing the resulting distribution of health insurance coverage and health care expenditures, we identified the new revenues required to fund the program expansion, and we explored three alternative financing strategies to raise those funds: (1) an increase in the Vermont income tax, (2) a Vermont payroll tax, and (3) a Vermont business enterprise tax. We used a microsimulation model to generate estimates of insurance coverage choices by individuals and families, including employer-sponsored insurance (ESI), wage changes associated with those insurance choices, and new ESI premiums that result from changes in the ESI risk pool. These components then feed back to the model, including the effect of the new premiums on insurance choice and the effect of wage changes on tax revenues.

We considered two alternative scenarios for Dr. Dynasaur enrollment: (1) enrollment by 100 percent of the eligible population and (2) enrollment by 70 percent of the eligible population. The first scenario characterizes the potential of the program and potential results if there were strong incentive for enrollment. The second scenario, which may be more realistic, relies on a microsimulation model to characterize insurance enrollment choices, which resulted in the enrollment of roughly 70 percent of eligible individuals. Because of concerns that Dr. Dynasaur 1.0 provider reimbursement rates may be too low to assure enrollees of adequate access to care, we have conducted the evaluation using three alternative scenarios regarding provider reimbursement rates for services provided under Dr. Dynasaur 2.0: (1) Medicare rates, (2) commercial rates, and (3) the midpoint between the two. We identified the relative rates by category of service using detailed claims data. Thus, our study provides estimates of how increases in reimbursement rate schedules from the current levels would affect total covered health care expenditures.

The key results of the study are summarized in Table 1, which presents the following outcomes for 2019:

• Enrollment would increase by more than 260 percent under the 100-percent enrollment scenario and by nearly 200 percent under the 70-percent enrollment scenario.
• Total program expenditures would increase dramatically, in part because of increased reimbursement rates, but largely because of increased enrollment.
• Increases in administrative costs reflect the increased enrollment, but we found that these projections had a large amount of uncertainty.
• New sources of revenues included federal medical assistance percentage (FMAP) funds (which we estimated conservatively at current Medicaid reimbursement rates) and increased premium collections.
• Because we limited premium collection to no more than $60 per family per month ($720 per year), regardless of family income, program expenditures per enrollee far outpace current program revenues per enrollee.
• The resulting additional revenue required ranges from $343 million (with 70-percent enrollment and Medicare reimbursement levels) to $667 million (with 100-percent enrollment and commercial reimbursement levels).
• Given Medicare reimbursement rates, the new tax rates in the three financing strategies that we modeled range from a 2.5–percentage-point additive increase in the income tax schedule (for the 70-percent enrollment scenario) to a 3.9–percentage-point increase in the payroll tax (for the 100-percent enrollment scenario).

Not surprisingly, the children and young adults who move off ESI and into Dr. Dynasaur 2.0 have considerably lower expected health care costs than those who remain on ESI, increasing the per-person premiums by nearly $1,000 for those remaining enrolled in ESI. Even though children and young adults are a relatively low-cost population, we estimate that the annual health care expenditures per person for children and young adults in 2019 will be $4,325 with Medicare prices. We estimate that the combination of increased reimbursement rates, large increases in enrollment, and relatively low Dr. Dynasaur premiums (no more than $720 per year) will require significant new tax revenues to meet program obligations.