Extending Health Insurance Coverage to Citizens of Maryland: A Proposal

Posted on February 11, 2009


On Nov. 12, 2008, the Maryland Citizens’ Health Initiative Education Fund (MCHI), a non-profit organization, unveiled a detailed proposal to extend health insurance coverage to all citizens of the state of Maryland in the United States. I do not follow the politics of Maryland so I don’t know what chance this proposal has of seeing the light of the day. However I want to present the highlights of the proposal because I was impressed by how detailed and comprehensive it is.

But first a little about Maryland:

  • Its total area is about 32,000 sq. km. which makes it comparable in size to Kerala (39,000 sq. km.).
  • Its population is about 5.6M which makes it comparable in size to Himachal Pradesh (~ 6.0M).
  • Maryland is prosperous and at US$ 68,000 has the highest median household income of all American states.

Mission: The proposal aims to make high quality health insurance coverage affordable to all citizens of Maryland. It is important to note that the proposal is about health insurance coverage and not about the entire universal healthcare chain. As we will see in the article later, the focus therefore is on financing and risk pooling and individuals are left to find, choose and engage the healthcare service provider of their choice at whatever cost. The proposal does detail specific initiatives to help make appropriate healthcare services available to individuals but these initiatives are facilitative rather than prescriptive in nature.  While this might sound like a cop out to votaries of a comprehensive universal healthcare policy, I suspect it is a compromise to avoid confrontation and win the support of the influential and politically powerful medical professionals’ lobby.  In making the health insurance coverage affordable, the plan hopes to extend the insurance coverage to the currently uninsured but equally importantly ensure that every individual’s premium dollar fetches the most number of services of the highest quality.

Financing: The proposal seeks to avoid political confrontation by aiming to raise new funding, thus not impacting any current program. A mix of financing models is envisaged: tax-funded financing to subsidize the insurance premium of the poor and mandatory enrollment in social health insurance schemes of the financially privileged. The proposal levies a 2% payroll tax on all private employers, the state governments and the local governments. This tax would raise a bulk (85%) of the required finances. The rest is raised through politically “correct” sources such as increase in alcohol and tobacco tax.

Risk Pooling: The proposal seeks to create a single state-wide risk pool of all the state’s citizens. The risk pool will be administered by a quasi-governmental entity – MHIP. To avoid adverse selection and deterioration of the risk pool, any insurance company that wants to do business in the state must offer their policies to the pool. Moreover, all citizens (with a few exceptions discussed later) must enroll and purchase insurance through the pool. To avoid cream skimming, insurers may not deny coverage and must guarantee renewal to every citizen. Moreover, insurers can vary premium only by age (and not by health status or any other factor) and that too within a 3:1 maximum band, i.e. the highest premium rate cannot be more than thrice of the lowest. Insurers must disclose their medical loss ratio i.e. the ratio of difference in premium earned and claims paid to the premium earned. (If the ratio is positive then the insurer is collecting more premium than the claims he is required to pay and if the ratio is negative then the insurer is paying more claims than the premium he is collecting. Over a long term, the yearly average medical loss ratio should tend to zero)

Insurance Plans Made Available:  The proposal mandates that all insurers must offer 3 plans: basic, typical and generous. A generous plan will have the least number of restrictions and most number of benefits and consequently be the most expensive. A typical plan is less generous and more affordable and the basic plan is the least generous and also the least expensive. The MHIP will establish, what benefits at the minimum, constitute the three plans and insurers are free to compete by offering more. However the higher premium that the insurer can charge for a more generous plan will reflect the actuarial value differences of additional benefits and not any insured characteristics like sex, race or current health status. All insurers must offer atleast one generous plan.

Achieving the Goal: The proposal aims to ensure affordable universal healthcare access through implementing 3 strategies:

  • The insurance premium payable by those with income less than 400% of the Federal Poverty Line (FPL – a level determined by the US federal/central government) will be subsidized. Specifically, this subsidy will be available to the unemployed, self-employed and those employed in firms with 2 to 100 employees.
    • For those with income less than 300% of the FPL, subsidy upto 50% of the average premium of offered typical plans available for one’s age
    • For those with income between 300% and 400% of the FPL, subsidy upto 25% of the average premium of offered basic plans available for one’s age
  • Lower the eligibility threshold so as to allow more people to join the Medicaid (a health insurance program financed and administered by the state government). The cost of lowering the eligibility threshold would be met by the proposed system.
  • Offer a MHIP funded reinsurance to all insurers to cover reimbursement of catastrophic high cost care. This eliminates the need for individual insurers to load the cost of such catastrophic high cost care on premium collected from each individual. The reinsurance would cover 75% of a person’s annual health costs between US$ 35,000 to US$ 100,000 and 95% of annual health costs in excess of US$ 100,000 upto a lifetime maximum of US$ 2,000,000. In my opinion, this feature, offering catastrophic high cost care coverage without attendant high premium, makes this proposal attractive to the financially privileged who otherwise seemingly get no tangible benefit on implementation of this proposal. It must however be noted that the proposal is not explicit on what constitutes catastrophic high cost care.

The proposal envisages that insurance premium subsidy would account for 27% of all expenses, expansion of Medicaid 20% and catastrophic high cost care reinsurance 49% of all expenses.

Exceptions: It is mandatory for firms with 2 to 100 employees to purchase health insurance for their employees through the pool but firms with more than 100 employees can choose to purchase health insurance outside the pool.  However firms with more than 100 employees can purchase through the pool but only if the firm joins as a whole. Moreover the employees of such firms do not have access to the low income subsidies. The proposal outlines tax based penalties for individuals that fail to enroll for health insurance coverage but makes two exceptions: one, those that qualify for Medicaid but have not enrolled and two, those who are confronted with a premium value that is beyond a certain level of their income.

Conclusion: As I mentioned at the beginning, this proposal aims to bring the uninsured under coverage and make the insurance coverage affordable to all. The proposal does a great job in providing the details of this would work. It aims to reduce the cost of insurance from between 10% (for the financially privileged or those working with large firms) to 60% (for the lowest income group). Bear in mind that Maryland is a prosperous state so the moot question is how many families would see a substantial reduction in their premium payment and whether those numbers are large enough to provide adequate momentum to carry the proposal pass the political finish line.

Postscript: This entry won’t be complete if I fail to mention the initiatives in the proposal aimed at improving the quality of the healthcare services delivered. The proposal recommends the establishment of an Institute of Clinical Value to develop strategies, guidelines and information to help individuals and physicians choose services that are evidence based and provide significant benefit and value to patients and improve public health. The Institute will also spearhead the establishment of a centralized IT infrastructure, the Electronic Health Record System that will allow a smooth and efficient flow of information. Finally the Institute would fund a trust to implement culturally and linguistically appropriate prevention and health promotion initiatives to reduce health disparities.