VIII.
The Multi-Payer Universal Coverage Model
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The multi-payer model is designed to give employer groups the option of staying with their current coverage while
still creating a government program to insure persons without employer-sponsored coverage. The government
program would be identical to the single-payer model discussed above with the sole exception that employers
would have the option of providing coverage for their group. Employers who provide coverage would credit the
cost of the coverage they are providing against the payroll tax that they would be required to pay. All persons not
covered by an employer plan would become covered under the government plan.
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Providing the option of continuing with existing employer coverage is likely to be popular in the initial years of the
program until the government program has had an opportunity to prove itself. Also, many employers with
employees across one or more states may find that it is more efficient for them to opt-out of the government
program so that they can have a uniform benefits plan for all of their employees. Because the idea is to give
employer groups the option of remaining with what they now have, employers who opt-out of the government plan
would be permitted to continue with existing managed care and indemnity plan models. The multi-payer option is
discussed in the following sections:
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The Multi-Payer Opt-Out;
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Impact on State Health Spending; and
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Impact by Payer Group
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A.The
Multi-Payer Opt-Out
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Under the multi-payer model, a single government program would be established to provide coverage that is
identical to that created under the single-payer model discussed above. The benefits package would be the same
as that created under the single-payer program and would be financed in the same way. Fee schedules also would
be developed and used to control health care cost growth as under the single-payer scenario. Also, as under the
single-payer model, employers would be required to pay two-thirds of the total payroll tax with the employee
paying the remainder.
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The sole difference in the multi-payer scenario is that employers would be able to opt-out of the government
program to continue providing coverage through their own health plans. The coverage provided under these plans
must be at least as comprehensive as the standard benefits package established under the government program.
Also, the employer must pay at least two-thirds of the premium for such coverage, which corresponds to the
percentage of the total payroll tax that individuals would pay if they participated in the government plan. Employers
who opt-out would be permitted to continue offering coverage through existing managed care models including
capitation arrangements.
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Under this program, eligible employees would be required to accept the coverage offered to them. Employers
would have the option of covering their part-time and temporary workers separately under the government plan by
paying the full payroll tax for their workers.
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Employers who do not opt-out of the government program would pay the employer share of the payroll tax
required to fund the program as under the single-payer scenario. Employers who choose to opt-out would be
exempt from the payroll tax if the employer’s actuarially determined expected cost of providing the basic benefits
package is equal to or greater than the payroll tax amount that the employer would have paid if they had not
chosen to continue their health plan. However, firms whose expected costs are less than the payroll taxes that they
would have paid would owe the difference to the government program.
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1.Calculating
the Payroll Tax for Employers that Opt-Out
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The payroll tax for an employer who decides to provide coverage would be calculated in two steps. First, the
expected cost of covering the employer’s work force would be estimated actuarially based upon the demographic
and geographic characteristics of their workers and their dependents. Second, the tax payment would be
calculated as the difference between the payroll tax that they would have paid under the government program (i.e.,
including employer and employee share) and the estimated cost of covering the workers who would be covered
under the employers plan (including employer premium share and employee premium contribution). This process
would be repeated each year.
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The method for computing the expected cost of coverage would be based upon costs under the government
program. Thus, any increase in a health plan’s costs in excess of allowable spending growth under the public plan
could not be applied to offset the tax payment amount for the firm. Also, the higher cost of administering health
benefits under a multi-payer model could not be offset against the firm’s payroll tax liability. This would create an
additional incentive for employers to adopt efficient health plans. Due to the higher administrative costs of providing
coverage through an employer plan, most firms would find it less costly to simply pay the payroll tax, thus, covering
their workers under the government program.
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As discussed above, in cases where a firm’s payroll tax payment exceeds the expected cost of covering the group,
the employers and the employees would pay the difference to the government program. Employers are required to
pay two-thirds of these costs with the employee paying the remainder. However, employers would be permitted to
pay a greater percentage of these costs. (This will typically occur in firms with collective bargaining agreements.)
There would be no tax payments in cases where the expected cost of coverage exceeds the payroll tax obligation.
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2.Potential
Gaming By Employers
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Another potential problem with the opt-out model is “gaming” by employers. For example, employers with a
disproportionately healthy population (even after adjusting for demographics and geography) would typically find
that the cost of covering their group is less than the actuarially determined expected cost. These employers would
find it less costly to insure their own group and pay the difference between the payroll tax amount and the
actuarially determined expected cost. This would drive per-capita costs up in the government program because the
employers with healthier individuals would insure on their own, leaving only the higher cost employer groups in the
government program (i.e., this phenomenon is know as adverse selection).
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However, it is also possible that some employers would continue to insure on their own even if they have higher
than average costs. This is most likely to occur in unionized firms and in firms with highly compensated workers
who may be willing to pay more to retain private coverage. This behavior is particularly likely to occur in the early
years of the program when many consumers are likely to be cautious about shifting to the government plan.
Moreover, some employers may feel that they can provide coverage at lower costs through managed care
arrangements. Thus, it is difficult to predict whether employer behavior would result in an increase in per-capita
costs in the government program due to adverse selection.
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This issue could be addressed by using actuarial methods to determine whether the public program is accumulating
a disproportionate share of high cost individuals. If so, the additional cost attributed to this could be recovered by
requiring an additional tax payment from firms that opt-out of the public program.
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3. Assumptions
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To the maximum extent possible, the assumptions that we used to model this scenario were the same as those used
in our single-payer scenario discussed above. For example, the increase in health services utilization among newly
insured persons under this scenario would be the same as under the single-payer plan scenario.
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Employer behavior under the multi-payer model is extremely difficult to predict. In general, employers of low-wage
workers would find it less costly to pay the payroll tax, which is computed as a percent of income, than to continue
providing coverage. We also anticipate that most employers of higher wage workers would find participation in the
single-payer program less costly than continuing to provide employer coverage due to the lower administrative
costs under the government plan. However, some employers may be able to save by adopting managed care plans
with aggressive cost controls that are less costly than the expected costs for their workers and dependents under
the government plan. It is unclear how employers would respond to these incentives.
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In general, employers facing a payroll tax in excess of what they now pay for coverage will find it less costly to
discontinue their employer plan because of the higher cost of administering private coverage. As discussed above,
this is because the employer pays the difference between their actuarially determined expected costs assuming
single-payer plan cost levels (for benefits and administration) and the payroll tax, which causes the employer to pay
the full amount of any of the higher administrative costs associated with the employer sponsored plan. Also, as
discussed above, the tax paid by firms that opt-out of the single-payer plan would be adjusted to correct for any
adverse selection into the single-payer plan resulting from employer “gaming” of the program. Consequently, most
employers will find it less costly to cover their workers under the single-payer program. However, employers who
are willing to sponsor managed care plans with aggressive cost controls may still find it less costly to insure on their
own.
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Despite these cost incentives, many employers may still opt-out of the single-payer program to continue providing
coverage due to a potential preference on the part of workers and unions to remain with their current employer
coverage. For illustrative purposes, we assume that employers would be willing to pay the higher administrative
cost of continuing their current plan. However, we assume that all employers will discontinue their coverage if the
payroll tax is less than the expected cost of covering their workers.
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Under these assumptions, about 49 percent of Maryland residents would be covered under a private employer
plan (Figure 10). These include Marylanders covered by out-of-state employers (9 percent) and persons covered
by Maryland employers who chose to continue to provide coverage (40 percent). About 51 percent of Maryland’s
population would be covered under the government plan.
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Figure 10
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Distribution of Persons in Maryland by Coverage Status Under the Multi-Payer Universal
Coverage Program in 2001 (in thousands)
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