II.A Single-Payer Program for Maryland
The Maryland Citizens’ Health Initiative Education Fund, Inc. has designed a single-payer program that would
provide universal access to all Maryland residents. All Marylanders would obtain coverage through a single state
operated program including those now covered under existing public and private health insurance programs.
Marylanders would no longer have to purchase private health insurance through their employer or on their own in
the individual insurance market. Persons now covered under Medicare, Medicaid, CHAMPUS, and the Federal
Employees Health Benefits Program (FEHBP) would be covered under the single-payer plan.
A.Benefits Package
The single-payer benefits package would be modeled on the benefits typically provided under employer health
plans. The program would cover medically necessary inpatient hospital care, physician services (including
preventive care), hospital outpatient care, prescription drugs, lab tests, and mental health services (including
substance abuse and tobacco cessation). Chiropractic services would be covered when referred by a physician.
The program would cover preventive dental care and vision exams, but it would not cover orthodontia, private
rooms, or eyeglasses. To discourage over-use of services, there would be a $10.00 copayment for ambulatory
care services and no deductible.

Benefits that are currently provided to Medicaid eligible persons which are not covered under the single-payer
model, would be continued for low-income persons who qualify for Medicaid under current eligibility rules. These
benefits include long-term care, eyeglasses, corrective dental care, orthodontia and transportation. Coverage for
home health and nursing home services would also be continued as a benefit for persons who qualify under
current Medicaid rules. (The existing Medicaid “spend down” rules for Medicaid would be retained for long-term
care.)

We assume that all Medicare beneficiaries in Maryland would become covered under the state program. For
Medicare recipients, the single-payer program would cover both services now covered under Medicare and a
substantial portion of costs that are not now covered by Medicare such as outpatient prescription drugs, and
Medicare cost sharing amounts. We assume that Medicare beneficiaries would continue to pay the Medicare
Part-B premium.

We also assume that employers would continue to provide workers with coverage for those services that they
now cover that would not be provided under the single-payer model. These will typically include orthodontia and
eyeglasses.
B.Managed Care
The Maryland single-payer program would feature a primary care provider referral (i.e., gatekeeper) model.
Primary care providers would be paid a fee to coordinate patient care for patients with chronic illnesses.
Specialist visits without a referral would be covered subject to a 50 percent copayment. Women would be
permitted to select a gynecologist as their primary care provider in recognition of their unique health care needs.
With the exception of the primary care provider referral model, most other managed care practices would be
eliminated. This includes prior authorization, physician profiling, and network formation and recruitment. We
assume that the program would continue to perform retrospective utilization review to protect against fraud and
abuse as is done in modern indemnity plans.

The impact that these changes in the use of managed care would have on utilization, are mixed. Persons who are
currently in fee-for-service plans may actually see a reduction in utilization due to the use of the primary care
provider referral model. Conversely, persons enrolled in restrictive HMOs would probably tend to experience a
net increase in utilization. Our assumptions on the impact of these changes in care delivery are discussed in
Appendix A.
C.Program Administration
The single-payer model would streamline administration of health benefits by centralizing the source of payment
for all covered health services under a single program with uniform coverage and reimbursement rules. This would
reduce administrative costs for both the insurer function and for providers. We also assume that the Maryland
single-payer model would replace hospital billing for individual patients with annual operating budgets. The
hospital budgeting model is designed to eliminate the costs of negotiating selective-contracting discounts with
providers and eliminate many of the utilization management programs now used by private insurers.

However, many of these costs would remain for care provided to non-state residents in Maryland and for
services provided to Marylanders receiving services out-of-state. For example, Maryland hospitals operating in
border areas such as the Washington, D.C. metropolitan area will still need to be able to engage in selective
contracting in order to remain competitive in these regions for interstate patients.
D.Health Spending Budgets
In each year, the single-payer program would establish a global budget for health services covered under the
program. In the first year of the program, we assume that health spending would equal what total health spending
would have been in the state under current trends. However, these amounts would be adjusted to reflect the
unique features of the program. These adjustments include:

Health expenditures would be adjusted to reflect the increase in utilization for persons who otherwise would
have been uninsured or underinsured;
Spending would be adjusted to reflect the changes in utilization resulting from the fact that there would be no
HMO coverage, under the program; and
Spending also would be adjusted to reflect that fact that providers would now receive payment for services
that otherwise would have been treated as uncompensated care, thus, eliminating the “cost shift” for
uncompensated care.
Operating budgets for hospitals would be set equal to the amount of spending that would have occurred
in Maryland hospitals under current trends plus an allowance for changes in utilization under the single-payer
program. These budgets would be adjusted downward to reflect the anticipated reduction in provider
administrative costs under the single-payer model.

Fee-for-service (FFS) payments to physicians and other providers would be equal to the overall weighted
average of payments to providers from all sources under the current system. However, payment to all FFS
providers would be reduced to reflect the reduction in uncompensated care expences due to universal coverage
and the expected reduction in provider administrative costs resulting from the use of a single-payer system.

By establishing a single-payer program, the state would effectively determine health spending levels in Maryland
by setting hospital budgets and provide reimbursement levels. These budgets could be used as a means of
capping the rate of growth in health spending throughout the state. However, for illustrative purposes, we assume
that health spending is budgeting to increase at the same rate as it would have increased under current trends.
E.Financing

The program would have four sources of financing. First, the program would recover all state, local and federal
funds used to provide health services under the current system that would become covered under the single-payer
program. This would include state and federal funding for Medicaid, the State Children’s Health Insurance
Program (SCHIP), government sponsored clinics and government funding for public hospitals. It would also
include federal funding for Medicare and CHAMPUS.

The second source of financing would be a payroll tax. The payroll tax rate would be set at the level required to
fully fund program expenses for workers and their dependents. Two-thirds of the payroll tax would be paid by
the employer with the remaining third paid by the worker. However, employers would be permitted to pay a
larger share of the payroll tax. The payroll tax would vary automatically as program costs and the wage base
change over time.

Third, state taxes on tobacco and alcohol would be increased. This includes increasing the tobacco tax to $1.25
per cigarette pack (with a comparable increase for other tobacco products) and raising alcohol tax rates to the
national average (tax rates for alcoholic beverages in Maryland are currently substantially less than the average
across all states).

Fourth, the remainder of the program would be funded with an increase in the state personal income tax. This
increase would be structured in a way where the tax increase is progressive (i.e., tax percentage of income paid in
taxes increases as income rises). The amount of the increase in taxes would be set at a level large enough to cover
the amount of the program costs in excess of other dedicated tax revenues and funding recovered from other
public programs.
F.Marylanders Employed Out-of-State
One problem with implementing a payroll tax finance program for Maryland is that about 430,000 Marylanders
work for employers that are located out-of-state. This includes about 290,000 persons working in the District of
Columbia and 140,000 persons working in Virginia, Pennsylvania, and Delaware. These employers are beyond
the reach of the state’s taxing authority and cannot be required to pay the payroll tax. Therefore, the state cannot
collect the employer’s share of the payroll tax that would have been used to finance the single-payer program.

To address this problem, individuals who work outside of the state are permitted to take coverage for themselves
and their dependents through their employer. These individuals are excused from the employee share of the
payroll tax and would not be eligible for coverage under the Maryland single-payer program. To assure that all
persons take their employer’s coverage, out-of-state workers would be required to present proof of coverage
with their tax returns or be liable for both the employee and employer shares of the payroll tax.

However, workers who are employed outside of the state by an employer that does not provide coverage would
be covered under the Maryland single-payer plan. These individuals would pay the employee’s share of the
payroll tax plus a portion of the employer’s share of the payroll tax which would vary with income from zero
dollars for families with incomes below $40,000 to the full amount of the employer payroll tax for persons in
families with incomes above $100,000. We anticipate that there will be very few workers employed out-of-state
with incomes over $40,000 whose employer does not provide coverage.

As discussed above, we assume that all Federal workers living in Maryland would be covered under the single-
payer program. This includes federal workers who live in Maryland and work in Washington, D.C. We assume
that the Federal Government would agree to pay the payroll tax for Maryland employees in exchange for no
longer covering these individuals under the FEHBP. Thus, the only Maryland residents excluded from the single-
payer program would be private sector workers (and their dependents) with out-of-state employers. As shown in
Figure 1, about 9.0 percent of the 5.2 million persons living in Maryland would obtain their coverage through an
out-of-state employer plan.
Figure 1
Distribution of Persons in Maryland by Coverage Status
Under the Single-Payer Program in 2001 (in thousands)
2 To minimize instances where out-of-state residents temporarily move to Maryland to obtain coverage when they become ill,
individuals are required to have been a Maryland resident for at least one month.
3 In two worker families where one workers is employed out-of-state and the other works in Maryland, the Maryland
worker is required to be covered under the Maryland program and must pay the payroll tax.
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