Universal Access to Health Care in Pennsylvania Cover all Pennsylvanians Economic and Small Business

1
Universal Access to Health Care in Pennsylvania-
Cover all Pennsylvanians Economic and Small
Business Effects

• bruce.phillips_at_nfib.org
• NFIB Research Foundation, Washington, D.C.
• September 2007

2
Executive Summary

• The state of Pennsylvania will provide access to
  health insurance for 767,000 uninsured workers.
  These represent about 60 percent of total
  uninsured
• Participation will be voluntary, but encouraged
  through low-cost state purchasing pools for
  employers with 2 - 49 employees
• Employers will pay 65 percent of estimated 300
  monthly premium or 195 per month per employed
  participant
• Pennsylvania will provide subsidies to workers
  and dependents with incomes under 300 percent of
  the Federal Poverty Level, or about 60,000
• Employers not offering health insurance to any
  employee must pay a three percent payroll tax,
  estimated at 822 million and enforced by the
  state
• An estimated 50 percent of small employers will
  pay the tax

3
Executive Summary (2)

• Small business owners will pay payroll taxes,
  insurance premiums, accounting costs, and
  insurance search costs of an estimated 1.9
  billion annually after startup
• Annual state costs of 1.9 billion include
  employee subsidy costs, health care expansions
  (clinics, nurse practitioners, physician
  assistants, etc.), new regulatory costs of about
  100 million, and an expanded role of state
  government
• The BSim model estimates that Pennsylvania
  businesses will lose 167,000 jobs from the
  proposal within five years of startup, 2008
  through 2012
• 103,000 of the jobs lost will come from small
  employers, especially those with fewer than 100
  employees
• Pennsylvania small employers will lose an
  estimated 10 billion in sales from 2008 through
  2012
• Small-business owners with 20 - 99 employees will
  lose an estimated 157,000 in sales, on average,
  over the five years, 2008 - 2012

4
The Proposal - Overview

• . To provide access to health insurance
  for Pennsylvanias 767,000 uninsured working-age
  persons and their dependents
• Employees in firms with 2 - 49 employees without
  insurance will have access to the states large
  purchasing pool through a modified form of
  community rating, if owners pay at least 65
  percent of the state discounted premium and if 75
  percent of a firms full-time employees
  participate
• Newly insured could be persons without previous
  health insurance or those who switch to state
  plan
• Subsidies available for workers with income less
  than 300 percent of Federal Poverty Level (FPL)
  and wage rate below state average of 39,000
• Payroll tax of 3 percent on all employers who do
  not offer any health insurance
• Employers receive a 3 percent tax credit if they
  currently offer health insurance

5
The Proposal Who Benefits?

• Any uninsured individual may participate in the
  states program at an unsubsidized,
  non-discounted basis
• There are an estimated 767,000 uninsured workers
  in the labor force
• Employed persons in firms with 2 - 49 employees
  (428,906) comprise 56 percent of working
  uninsured - remainder in larger firms
• The state program mandates coverage for
  ambulatory health care, prescription drugs and
  mental health benefits
• Students at four-year colleges and universities
  in Pennsylvania must have documented evidence of
  insurance coverage to continue studies. State
  program available to them if no other source
• Endnote A

6
The Proposal - Financing

• Three percent payroll tax imposed on non-offering
  employers will raise about 882 million
• Estimated 70 percent in state insurance pool will
  be subsidized - either workers or Medicaid
  recipients
• Seventy-five (75) percent of full-time employees
  (30 hours/week) must enroll in state insurance
  plan for employer to be able to offer it
• State funds (estimated 3.5 billion) will be
  saved from eliminating hospital-based chronic
  infections according to proposal and returned to
  program to partially fund it
• Additional monies to come from state share of
  tobacco settlement funds and reprogrammed
  Community Reinvestment Act funds

7
Distribution of Monthly Premium if Eligible for
State Insurance

• Employer pays 65 percent of 300 estimated
  monthly premium 195 monthly per employee
• Employee pays 25 percent of 300 estimated
  monthly premium (estimated) 75 monthly per
  employee
• State pays 10 percent of 300 estimated monthly
  premium 30 monthly per employee
  
  
  
  
• Sliding range of 10 - 75 based upon income

8
Employer Tax _at_ Three Percent of Annual Payroll-if
must pay

• Firm Size- Offer No.
  of Firms Employees Tax Per Firm
• (Employees/Firm) Rate (pct)
  (mean/firm)
• 1-4 44.4
  74,824 2.1
  1,538
• 5-9 61.0
  17,055 6.5
  5,110
• 10-19 77.5
  5,971 13.4
  11,415
• 20-99 92.7
  1,716 37.8
  34,942
• 100-499 96.5
  183 145.2
  135,972
• 500 99.9
  4 665.2
  735,464
• Endnote B for derivation of tax
• offer rate assumed for the unobservable 5 -
  9 employee size class Assumed rate is the
  average of the 1 - 4 and 10 - 19 employer offer
  rates. Source of offer rates is the 2005 Medical
  l Expenditure Panel Survey, U.S. Department of
  Health and Human Services. Data kindly supplied
  by Dr. Jonathan Gruber Dept of Economics, MIT.

9
The Proposal - Administration

• Program Administration
• Administration will cost 70 million annually
  (state estimate), about 14 percent of estimated
  first year employer cost of 882 million
• Employers that qualify for exemption from payroll
  tax must establish section 125 plan so employees
  can pay insurance premium on pre-tax basis
• Includes startup payroll taxes,
  regulatory expenses, administrative costs and
  employer health insurance search costs.

10
The Simulation

• . The NFIB/BSim Simulation model only applies to
  mandates placed upon employers
• BSim is a module of the REMI input-output model
• BSim estimates changes in jobs, income and output
  (sales) for Pennsylvania by state total, business
  size and industry
• Estimates are made comparing forecasts without
  change to forecasts with change (i.e., the
  proposal)
• Projections run from 2008 - 2012
• BSim also measures effects in other regions and
  states caused by policy changes in Pennsylvania,
  e.g., jobs lost or gained in other states and the
  U.S.
• Endnote C

11
Simulation Summary Jobs

• Pennsylvania loses an estimated 167,000 jobs
  during the first five years after enactment (2008
  - 2012)
• Small firms (under 500 employees) lose 103,000
  jobs during 2008 - 2012, 62 percent of the total
  loss

12
Simulation Summary Small Business Jobs

• Small business in Pennsylvania (less than 500
  employees) lose 103,333 jobs from 2008 - 2012.
• The distribution of job loss by firm size
  averages
• All Em-
  All Job Diff-
  All Em- All Job Diff-
• Firm Size ployees Losses
  erence Firm Size ployees
  Losses erence
• 1 - 4 employees 4.7 6.8
  144 20 - 99 employees 17.5
  22.5 127
• 5 - 9 employees 5.7 7.7
  135 100 - 499 employees 14.6
  15.6 -88
• 10 - 19 employees 7.0 9.2
  131 500 employees 50.5
  38.2 -75
• Endnote D
• Detail may not add to 100.0 due to rounding

13
Simulation Summary Job Loss/Gain by Selected
Industry, 2008 - 2012

• Losses
• 1. Retail Trade
  -30,635
• 2. Food Services
  -26,460
• 3. Prof, Technical Services -
  9,153
• 4. Administrative Services -
  8,891
• 5. Social Assistance
  - 6,404
• Gains
• 1. Nursing, Residential Care
  3,219
• 2. Ambulatory Care
  3,107
• 3. Hospitals
  1,680

14
Simulation Summary Output Changes (Billions of
Year 2000 Dollars)

• All Pennsylvania firms lose 19.2 billion in
  sales from 2008 - 2012
• Pennsylvania small firms (under 500 employees)
  lose 10.5 billion in sales from 2008 - 2012
• Pennsylvania small firms (10 - 19 employees) lose
  1.4 billion in sales by 2012, or about 52,760
  per firm

15
Data Inputted Into the Model(in addition to
baseline data already present)

• Non-Wage Labor Costs (aggregated by firm size and
  category) for projection period
• Distribution of employer receipts by sectorfrom
  the 882 million payroll tax for projection
  period
• Estimated 70 million cost to run new state
  agencyincluded in administration costs from tax
  receipts

16
Insurance Costs

• Insurance program uses 882 million of employer
  payroll taxes annually, excluding subsidies for
  employee premiums
• About 46 percent of Pennsylvania employers with 2
  - 49 employees will likely
• pay the payroll tax based on current insurance
  offer rates by firm size
• Simulation assumes full employer compliance in
  first year of program
• Endnote E
• Simplifying assumption used for calculations
  only. See further details under Limitations.

17
Owner Annual Administrative Costs

• Accounting Costs - Assume 5 hours per employee at
  35/hour (i.e., a four person firm 175 x 4
  700). Includes modifications to computer
  software
• Owner Insurance Evaluation Costs - Assume 10
  hours per firm/owner per year _at_ 75/hour 750
  per firm
• Hourly rates based upon William J. Dennis,
  ed., National Small Business Poll, Paperwork
  and Record-keeping, 3(5), 2003, (NFIB Research
  Foundation, Washington, D.C.). Number of hours
  based on assumed quarterly re-evaluation of
  health insurance needs and costs. Data for
  insurance evaluation costs also used from
  forthcoming research on firm/owner search
  methods.

18
Estimated Annual Employer Costs-Year 1
19
Estimated Recurring Employer Costs-After Startup
20
Total Small Business Owner Costs

• Year 1 882 million
• Year 2 - 5 4.116 billion (cumulative)
• Years 1 - 5 4.998 billion (cumulative)

21
Procedure for Simulation- Industry Distribution
of Funds Spent by State from Employer Payroll Tax

• Industry
  of Tax Millions
• Hospitals 30 150
• Nursing Patient Care 14 70
• Ambulatory Care 29 145
• Health Insurance 13 65
• State Administration 14 70
• Total 100
  500
• Endnote G

22
Number of Firms that Offer State Program (and Pay
Payroll Tax)

• Firm Size No. of Firms
  Tax/Firm Total
  (employees/firm) (1)
  (2) (1)x(2)
  
  
  (000)
• 1 - 4
  74,824 1,538
  115,079
• 5 - 9
  24,314 5,110
  124,244
• 10 - 19 5,
  971 11,415
  68,159
• 20 - 99 1,716
  34,942 60,012
• 100 - 499
  183 135,972
  24,883
  
  
  500 4
  735,464 2,942
• Based on firms not offering health insurance in
  2005 Medical Expenditure Panel Survey data

23
Comment Incidence of Losses

• Job losses in Pennsylvanias labor intensive
  industries are disproportionately in small firm
  dominated sectors like retail trade, restaurants,
  professional services and construction
• The payroll tax is not a fair share tax. When
  compared with the distribution of employment in
  Pennsylvania, larger firms lose about 25 percent
  fewer jobs than expected based on their
  existing share of Pennsylvania's employment
• The smallest firms lose about 40 percent more
  jobs than expected on an aggregate basis

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Estimated Annual Total State Costs (1)

• Estimated total annual state costs at startup
  estimated at 1.9 billionincludes expansion of
  Medicaid program financed by federal funds, small
  business subsidy costs, regulatory costs, new
  administrative costs, new costs of ambulatory
  care, hospital clinics, etc.
• State government subsidy costs to workers and
  dependents estimated at 700 million annually
• Expansion of clinics, additional nurses,
  electronic health transfers, etc. estimated to
  separately cost 200 million annually
• About 100 million annually separately assumed in
  new administrative and regulatory costs
• Based upon CPS data (2003-2005 averages) by
  poverty level of the uninsured, prepared for NFIB
  Research Foundation by the Employee Benefit
  Research Institute under contract, March, 2007.
  Subsidy calculated from Lewin report and CPS data
  by income level to average approximately
  100/person/month.

25
Estimated Annual Total State Costs (2)

• Startup incentive credits to small employers (2 -
  49 employees) from state government to encourage
  participation 60,000 year 1, 48,000 year 2,
  39,000 year 3, 31,000 year 4, 4,000 years 5
• Initial cost to state is 6.42 billion excluding
  federal funds - (based upon 99,800 small firms
  participating with 2 - 49 employees)
• Revenue sources do not cover costs
• New ambulatory care, nursing, hospital costs
  (from payroll tax collections) 880 million
• Assumed in proposed state 2007 - 2008 budget.
  Details somewhat vague when first released in
  late January, 2007. Credits were not modeled due
  to lack of budget specifics

26
References

• Commonwealth of PA, 2007-2008 Budget In Brief.
  Harrisburg, PA, February 6, 2007
• Mercer Consulting, Inc. Cover All Pennsylvanians
  Analysis and Methodology. Phoenix, AZ, February
  26, 2007
• Commonwealth of PA, Office of the Governor,
  Governor Rendell Unveils Historic Prescription
  for Pennsylvania to Provide Access to Affordable,
  Quality Health Care for all Pennsylvanians,
  Press Release, January 17, 2007
• Summary PA Health Care Reform Act, Chapters
  72-75 of Title 40, Internet download, April, 2007
• NFIB/PA, PA Chamber of Business and Industry, The
  Hospital Health-system Association of PA,
  Governor Rendells Prescription for
  Pennsylvania. Power-point slide show, prepared
  March, 2007

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Limitations

• Errors are solely the responsibility of the
  author.
• Because there are presently large gaps in the
  funding needed for this program, over and above
  those already proposed, it was assumed the funds
  saved from the reduction in hospital acquired
  infections (3.5 billion), would still be
  available to the hospital sector, presumably from
  additional state sources.
• Compliance rates do not vary in the BSim model.
  Therefore, complete compliance is assumed by all
  small-business owners at the inception of the CAP
  program. In reality, this is unlikely to be true
  compliance generally follows an asymptotic
  exponential covering 2 - 3 years after the
  effective date of a given regulation.

28
Endnotes

• A. It is not clear how saving 3.5 - 6 billion
  from eliminating hospital-based infections and
  other disease prevention measures translate into
  additional funds at the startup of this program.
  While it is possible that better management of
  hospitals and clinics will save money in the
  longer term, it is not likely that funds of this
  magnitude will be immediately available unless
  they are federal grants.
• B. 2004 payroll data (latest) by firm size and
  state from the U.S. Small Business Administration
  (SBA). Number of firms by employer size class
  also from SBA. Results were multiplied by .03.
  Some interpolation was necessary because data for
  firms with 20 - 99 employees did not match those
  with 20 - 49 employees. Size class means were
  derived and used as proxies.
• C. Business Size Insight Model, Prepared by REMI,
  Inc. under contract to the NFIB Research
  Foundation, 2006
• D. Employment distributions by state from
  www.sba.gov/advo/research. Last historical year
  was 2004.

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Endnotes (2)

• E. It is assumed that Pennsylvania will spend any
  payroll taxes collected from small employers
  directly on health. However, funds for subsidies
  are assumed to be available from the Pennsylvania
  Medicaid program, either directly as a pass
  through from the federal government or from
  reprogrammed state funds.
• F. Amount of actual spending is likely
  understated due to unknown amount of
  Medicaid/State government funds for subsidies and
  subsequent increased participation by families
  below the Federal Poverty Level. Amounts assumed
  here are conservative. Percentage distribution of
  health expenditures by category based upon
  Estimates of the Cost of Coverage Impacts and
  How to Expand Health Insurance in New York,
  prepared by Lewin Group, Arlington, Virginia
  under contract to the Commonwealth Fund, New
  York, draft December 14, 2006. A similar
  distribution exists for California from both the
  Lewin and Mercer consulting firms.
• G. Difference between 500 million tax receipts
  spent immediately and 882 million collected is a
  holdback for unanticipated expenses and higher
  state administrative costs than expected.

30
Acknowledgements

• Revisions to earlier drafts due to the incisive
  comments of William Dennis, NFIB Research
  Foundation, Gabor Lukacs, REMI, Inc., Fred
  Rueter of CONSAD Research and Kevin Shivers of
  NFIB
• Thanks are also due to Jonathan Gruber of MIT for
  making health offer rates by firm size and state
  available, and to Ken McDonnell of the Employee
  Benefit Research Institute for tabulations of the
  uninsured from CPS data