Why an individual mandate?
Health care is in crisis. Government programs that provide health care coverage are being progressively underfunded, placing more of the burden for health care on employers and individuals. Employers, in turn, are cutting benefits, shifting costs to employees and curtailing health coverage for retirees. And, as the number of uninsured has grown, the health care safety net has increasingly frayed. Hospital emergency departments have been forced to close, and an increasing number of physicians have had to close their practices to both uninsured as well as Medicaid/Medi﷓Cal patients while pondering how they will cope with federal reductions in Medicare reimbursement. This decline in both funding and access for low-income populations has put pressure on private-sector medicine by driving up the cost of insurance and denying care to more and more people. As time goes on, increasing numbers of Americans fear they are one serious illness away from bankruptcy.

Solutions to the problems of the uninsured have been elusive. A number of worthy efforts based on incentives and voluntary participation have had limited success. A recent example was the June 2004 introduction of Medicare “drug cards,” which provide qualified recipients with $1,200 in medications at no cost. More than a year later, fewer than half of the eligible seniors have signed up. Based on this and other experiences, CMA has come to side with those who believe that since there has never been a universal, voluntary “anything” in this country, health care will be no exception.

Beyond the inherent limitations of participation in voluntary approaches to health care coverage, another problem with voluntary approaches is that they do little to address the realities of the current health care marketplace, where those who seek health insurance disproportionately are those with pre-existing medical conditions. Insurance providers know this, and are thus forced to charge exorbitantly, particularly for those in the so-called individual market.

These two realities – the inherent limits in participation associated with voluntary approaches, plus the inability to address marketplace discrimination – have led CMA to conclude that there will be no significant improvement in health care coverage without some type of mandate.

Generally speaking, there are three types of mandates: 1) a single-payor system where health care for all would be an entitlement, 2) a broad, sweeping mandate encompassing all employers, and 3) an individual mandate to purchase a yet-to-be-determined level of coverage.

Voters in California and other states have rejected both single-payor systems and employer-funded health care mandates. Yet those same voters seem to accept mandates on such things as auto insurance. To CMA this indicates that an individual mandate would be the most viable approach to expanding health care coverage.

What would be mandated?
While there have been innumerable disputes about what should be included in a “basic” or “essential” health-benefit package, CMA believes there is a broad consensus that first and foremost, no one should be bankrupted by health care expenses. Thus, the key element of what should be mandated is “catastrophic coverage.” Such coverage would carry a $3,000 individual deductible per year. In addition, CMA believes this coverage should include U.S. Public Health Service (USPHS) approved preventive care tests, such as mammograms and pap smears.

How would this coverage apply?
One key is to understand that the uninsured are demographically diverse. CMA divides the uninsured into four categories and created plans that treat each group differently, both in how the individual mandated is applied and how it is paid for as follows:

Households earning more than 400% of the federal poverty line (FPL): 5 million people . Uninsured households earning more than 400% of the FPL ($38,280 for an individual; $64,360 for a family of three ) would be required to purchase an insurance plan that would provide catastrophic and preventive health care coverage with a $3,000 per-year deductible. Because all would be required to participate, some amount of community rating on the part of insurers could be required, with a special pool established to cover those with high-risk or pre-existing conditions. Enforcement would be through the tax code, e.g. a proof of insurance receipt attached to tax returns. Failure to comply could trigger a tax penalty.
Total cost: None. New money would actually flow into the health care system.

Children in households earning less than 200% of the FPL: 10 million . Uninsured children under 18 from families earning less than 200% of the FPL would continue to be covered by one of two federal programs: Medicaid or the State’s Children’s Health Insurance Program (S-CHIP). Recognizing that many children remain uncovered because parents don’t enroll them or because states don’t use this money, CMA proposes the development of incentives that would boost enrollment. Options include encouraging states to use federal monies (by withholding other funds) and/or mandating that parents with families earning less than 200% of the FPL enroll their kids in one of the federal programs. The bottom line is that one way or another, all these kids would be covered with at least S-CHIP-type coverage.
Total cost: At most, $10 billion per year.

Households earning 200-400% of the FPL: 10 million . The working poor, those without insurance earning 200-400% of the FPL, would be subject to the individual mandate. They would receive a tax credit on a sliding-scale basis to assist with the cost of the premium. The credit could be paid directly to health care brokers.
Total cost: At most $20 billion per year. (This would cover a tax credit averaging $1,000 for 10 million uninsured individuals, plus an additional $10 billion to assist in the coverage of “high-risk” individuals.)

Adults earning less than 200% of the FPL: 20 million . Uninsured adults with incomes below 200% of the FPL represent the largest subset of the uninsured. This group may require a more nuanced approach than simply declaring them “covered.” This population often has multiple social service needs and may be better served by multi-disciplinary approaches that are tailored to specific communities. The CMA plan allocates money to this group with an eye to creating a stronger safety net, one that may involve 24/7 access to community health care centers. Our emphasis here is on access to “care” rather than on traditional access to “coverage.”
Total cost: $20 billion.

How is the CMA plan funded?
As shown above, the cost of covering all low-income kids ($10 billion), providing tax credits and funding a high-risk pool to assist low-income Americans to meet the individual mandate ($20 billion), and bolstering the safety net for our lowest income insured adults ($20 billion) totals $50 billion. Where does the money come from?

The answer is that it can come from our current health care funding streams. Tens of millions of Americans presently receive employer-paid health insurance coverage for which they pay little or nothing. Since health insurance is an uncapped tax-free benefit, taxpayers are essentially subsidizing those who receive this “excessive” coverage.

If nothing more were done than to make health insurance subject to income tax by individuals (while still leaving it fully deductible by employers as a business expense), the federal government would, in 2005, collect approximately $150 billion in revenue. What CMA proposes is a cap on tax-free health insurance benefits, one designed to capture approximately one-third of this revenue, or $50 billion per year. Specifically, we propose that health insurance benefits that are valued at greater than 110% of the value of the local average plan would be subject to income tax. In practical terms, this means that those who either purchase or receive an average health insurance plan would probably not be subject to an additional tax. (CMA defines “average” as a pre-paid, highly managed plan such as Kaiser Permanente or PPO plans with significant deductibles, co-pays and multi-tiered pharmacy benefits.)

However, those who have coverage that allows unlimited access to unlimited services at little or no cost would be subject to income tax on the portion that is above the 110 percent mark.
CMA’s goal with this source of financing is not to discourage employer-paid health care or employee access, but rather, to recycle the fiscal benefit of the health insurance subsidy back into the system so that we can dramatically reduce the number of uninsured – without new government spending.

Who pays and how much?
This nominal assessment falls only on those who have extra-rich health benefits and who earn relatively high incomes. For example, assume that an average health plan costs a family of four $10,000 per year. If the family received an employer-paid “extra rich” plan valued at $13,000, it would pay income tax on the difference ($2,000) between 110% of the cost of the “average” plan ($11,000) and the $13,000 “extra rich” plan. Furthermore, if we assume a family income of $150,000 taxed at a marginal rate of 28%, the additional tax would be 28% of $2,000, or $560. In other words, this family of four earning $150,000 would be assessed $560 per year for the “extra rich” health plan selected. Individuals or families with equivalent benefits, but who earn less, would pay considerably less in income tax, especially in view of the fact that tax credits would begin to kick in for families whose incomes are less than 400% of the FPL (about $77,400 for a family of four ).

A clear choice
CMA’s proposal to utilize the tax-free status of health benefits as a financing mechanism for an individual mandate gives policy makers a clear choice about how to spend $50 billion. One choice is to continue the status quo, which is to subsidize very generous health care for the affluent and well employed. The alternative is to use that same $50 billion to improve access to coverage and access to care for literally tens of millions of currently uninsured Americans.

The benefits of the latter course are clear-cut:

• Protect virtually all Americans from medical bankruptcy.
• Expand broadly preventive care to tens of millions of currently uninsured individuals.
• Cover all kids.
• Bolster emergency and trauma networks nationwide by providing catastrophic coverage to at least 25 million uninsured individuals.
• Bring financial stability to entities that currently provide health care to the uninsured, such as county governments and community clinic networks.
• Reduce the cost of health insurance to all by reducing the number of uninsured.
• Do it all without new government spending.

As this situation worsens, a lack of consensus about how to address it is evident, both within the medical community and among a broader range of policymakers. CMA’s goal is to avoid partisan positioning, as well as those polarized strategies that have repeatedly failed to garner sufficient support to achieve a consensus. In fact, our purpose is to work toward such a consensus as the only meaningful first step in addressing the problem of the uninsured. Should that first step be achieved, i.e. if the CMA plan is accepted in principle -- more work would clearly be needed, but we would be well on the road to making real progress.

That said, the CMA plan contains elements that will likely be initially unacceptable to partisan constituencies. It may have “something to mildly offend everyone.” But, after thoughtful consideration, what we are proposing is practical, achievable, and bi-partisan.

2) What are two main goals of the CMA health care financing proposal?
One top priority for CMA has been to develop a plan that would provide meaningful coverage to the largest possible number of currently uninsured Americans without impacting state or federal budgets. No plan that calls for new budgetary allocations can be a “consensus” proposal in the foreseeable political environment.

Our other consensus point is that as we start to provide coverage to the uninsured, our top priority should be to eliminate the fear of catastrophic trauma or illness, i.e. no one should be in fear of health care costs. Doing this as an initial step in health care reform removes one of the more emotionally charged political arguments from the reform discussion, that of being “bankrupted” by health care costs, while providing an important level of coverage to many millions who currently have none.

Of note, in addition to catastrophic coverage, we have also included in our plan USPHS-approved clinical prevention coverage, such as immunizations, well-child and prenatal care, and mammograms.

3) Why is mandated health insurance for individuals at or above 400% FPL necessary?
Both the CMA HOD action in March 2004 to support “mandates” in general as necessary to achieve near-universal coverage, and the individual mandate in particular, stem from the facts that (a) there has never been a near-universal, voluntary “anything” in this country, and (b) mandates for health coverage can occur in one of only three ways: on the taxpayer (single payer), on the employer, or on the individual. The voters have repeatedly rejected the first two options, leaving an individual mandate as the only viable vehicle to significantly improve coverage.

One might see this plan as providing strong fiscal incentives to individuals to acquire catastrophic coverage through special excise taxes or other means. This is a common strategy for achieving desired social outcomes, and while there will always be people who fail to comply with legal mandates (criminal laws against murder, tax evasion and traffic violations do not produce 100% compliance), the negative consequences of non-compliance are by and large effective in producing the desired result.

4) How would a mandate be enforced?
The most commonly discussed mechanism to enforce a mandate is through the tax code. For example, a process could be established that requires an individual to either attach a “Form XYZ” verifying health insurance to their tax return, or to pay a significant tax. (Future W-2 forms could even have a check box indicating that one has received minimal "qualifying" insurance at the workplace). If there is in fact a significant tax penalty for failure to self-insure, compliance would likely be very high.

5) And with regard to those with incomes between 200 - 400 percent of poverty, how would this proposal ensure the tax credit would be used to purchase minimum health care coverage? Can someone with income between 200-400% of poverty truly afford health insurance even with tax credits, if a refund of all their state taxes will not result in enough to purchase health care?
The tax credit provided would be a refundable tax credit, which assures that even those with no tax liability would receive a “refund” from the government in the amount of the credit for the purchase of health insurance. A refundable cash credit provides cash back to taxpayers who are eligible for a credit that exceeds their tax liability. A mechanism can be developed to assure that this cash refund, or tax credit, can only be paid after proof of purchase of health care coverage. Or the tax credit could be directly allocated to the health care broker on behalf of each taxpayer, in effect taking the taxpayer out of the middle.

The amount of tax credit will have to be calculated and adjusted over time to assure that the tax credit is sufficient to enable the recipient to purchase, at a minimum, a high-deductible/preventive health care plan. At 400% FPL, that credit will likely be quite small, but at 200% the credit may well pay almost the entire cost of the plan.

In addition, this requirement to purchase individual health care coverage will be paired with individual market reforms. Insurers in the individual health care market will be subject to modified community rating without pre-existing condition clauses, and they in turn will be assisted by the creation and subsidization of high-risk pools for individuals likely to require higher-cost care.

6) How does this plan address “crowd out”? What precludes an employer currently providing health care coverage to those at low income (i.e., between 200-400% FPL) from dropping its health care coverage knowing that its employees will be provided with tax credits for the purchase of health care coverage?
Currently, low wage employers can already provide no health insurance coverage at all without penalty. So those employers that currently offer health care coverage do so as an employee benefit, and in almost all cases offer a much richer plan (e.g., first dollar coverage) without any requirement to do so. We propose providing tax credits in an amount sufficient for an individual/family to purchase a plan covering catastrophic health care coverage coupled with limited preventive coverage. Because the new requirement would be for a plan with clearly “lesser” coverage, we believe that employers will continue to offer their current “better” coverage to retain employees. To the extent this may not hold true, it will be an element that will have to be addressed as we move forward.

7) If the purchase of health care were mandated, wouldn’t a minimum benefit package need to be defined?
Yes, and we believe that that package is a catastrophic health care plan coupled with basic preventive health care coverage. And again, the preventive benefit package that would be coupled with the high deductible plan should be based on the US Preventive Services Task Force Guide to Clinical Preventive Services recommended benefits (which are based on age and sex).

8) How does this plan ensure coverage for those with chronic disease needing ongoing health care management?
As discussed, this plan moves those currently uninsured into catastrophic coverage at a minimum (and nothing precludes those individuals from adding some additional “front-end” benefits, at their own cost, if desired). Today, a chronically ill patient with no health care insurance continuously faces the potential of bankruptcy. With this plan, a patient’s health care expenses will be capped at perhaps $3,000 per year, which is far less than the uncapped ceiling faced by uninsured, chronically ill patients currently. This is clearly better than no coverage. And, the prevention benefits will aid in early identification of chronic disease.

Furthermore, as more people move into the catastrophic/preventive health care coverage market, market forces are likely to incentivize competing plans to include provisions addressing some chronic care needs, such as for diabetes, asthma, and CHF.

9) How does the CMA plan compare to the current AMA plan?
CMA and AMA take a strikingly similar approach toward creating funding for tax credits for low-income workers. Both call for capping the tax-free nature of health care benefits received by the individual, although CMA’s proposal is more specific by proposing a specific threshold for that cap at 110% of the value of a standard comprehensive plan in a given geographic region.

By contrast, where the plans differ most is over the concept of any kind of mandate to have health insurance. AMA supports only voluntary approaches, as opposed to CMA’s proposal for an individual mandate. CMA believes that the absence of an individual mandate in the AMA plan creates the possibility of a substantial number of individuals choosing not to use their tax credit to help purchase coverage.

Consider that as many as 11 million low-income seniors became eligible last year for Medicare drug cards that offered substantial savings, including the first $1,200 in drug expenses for 2004-2005 fully covered. Even so, fewer than half of those 11 million ever acquired a card. Mandated health insurance assisted by tax credits will be even more complex of an endeavor and may well still require some financial contribution from the individual, meaning that participation rates may well turn out to be quite low if done on a purely voluntary basis.

10) Can high deductible plans really work? Can consumers afford even a $3,000 deductible? Wouldn’t physicians and other providers be stuck collecting the new, higher deductibles?
At present, those who will be required to purchase a high-deductible plan coupled with some preventive care are uninsured. This new plan would cap any individual’s liability at an amount projected to be on the order of $3000, a major improvement over the current market in which personal liability is uncapped and can easily lead to bankruptcy. Furthermore, because the CMA proposal requires individual market reforms, other plans more generous than high-deductible coverage may become financially feasible to the individual purchaser.

Yes, physicians and other providers will have to collect the co-payments up to the deductibles. But given that the entire health care system is unraveling and more and more Americans are becoming uninsured with no coverage at all, this may well be the new role providers must play in order save the already fragile health care system. Moreover, many providers already successfully collect funds from patients – including from patients who annually risk bankruptcy in order to make their payments. Under this plan, those same patients would continue to pay medical expenses, but will have their expenses capped at an amount that, while daunting to some, still forestalls bankruptcy.

11) If we tax benefits over 110% value of the median, won't many employees choose less generous plans in order to avoid paying taxes on the richer plan, and thus ultimately cause the financing pool to “dry up”?
Many people love ‘kid-in-the-candy-store’ health care – with first dollar coverage guaranteeing free doctor visits, free Lipitor, etc. Tens of millions of Americans still have such plans, and will likely continue to select them, even with a cap on their currently tax-free status. The more relevant question is: Why should the larger public, through the federal tax code, subsidize this “excessive coverage” on the order of tens of billions per year, when 45 million Americans, most of whom are working and paying taxes, have no coverage at all? Some may downgrade their coverage. But many will not.

There may be a variety of challenges associated with this proposal, including a "race to the middle" for health care benefits. However, there currently exists no other viable proposal that will provide meaningful coverage to the majority of those currently uninsured with no impact on state or federal budgets.

12) Can this proposal be introduced in California?
Implementing this proposal at the state level is currently under study. The issue at hand is how funding can be raised from capping the tax-free nature of health insurance in the state income tax system. A great advantage of implementing this kind of reform at the State level is that that any dollars raised could be used to support the federal Children’s Health Insurance Program, or CHIP (“Healthy Families” in California) program and thus bring in federal matching dollars on a 2:1 or 3:1 basis.