Defining Affordability for Massachusetts

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Defining Affordability for Massachusetts
How can research inform the individual mandate?

• Christine Barber
• Community Catalyst
• Connector Board Meeting
• April 2007

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What is Affordability?

• Why is defining affordability important?
• Do not want to cause unintended financial harm to
  families
• Maintain political legitimacy of health reform
• Why did we conduct this analysis?
• Not literature available other studies assume
  affordability
• How do we define affordability?
• Affordability The percentage of income a
  household can devote to health care, while having
  sufficient income to address other necessities.
  We include total health costs.

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What does affordability mean? Methodology

• Guiding Principles
• An affordability scale should be a conservative
  measure.
• The scale should be progressive as income
  increases.
• Methods
• Analyzed available research
• Existing public programs
• Current spending on health care
• Household budgets
• Take-up rates and price sensitivity
• Public opinion research

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1. Existing Public Programs

• What we looked at
• State Childrens Health Insurance Program
  (SCHIP) 5 maximum of income
  (federal)
• Free Care Pool
• No cost sharing for people below 200 FPL
• What this tells us
• Not very useful. Often arbitrary, specific to
  population, voluntary programs

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2. Current Spending on Health Care

• What we looked at
• Urban Institute for Blue Cross Blue Shield
  Foundation
• National data on health care spending
• Non-group total spending
• What this tells us
• Middle income people pay average of 8.5 of
  income for total health costs
• At 600 FPL, people can afford unsubsidized,
  non-group health plans, at 8.5/income after
  meeting other basic needs.

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Building a Standard of Affordability

• At 600 FPL and above, people can afford total
  health costs at about 8.5 of income.

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3. Household Budgets

• What we looked at
• Greater Boston Interfaith Organization Study
• MassFESS (Family Economic Self-Sufficiency
  Standard)
• Economic Policy Institute Basic Family Budget
• What this tells us
• More than whats affordable, show us what is
  unaffordable
• People earning below 300 FPL barely have enough
  income to cover basic needs (before health care
  costs)
• Given how many people can only nominal amounts
  toward health care, and variation in
  circumstances, should not impose penalties for
  not buying insurance.

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Building a Standard of Affordability

• At 600 FPL, people can afford total health costs
  at about 8.5 of income.
• For people under 300 FPL, who can only afford
  nominal amounts toward health care, no penalties
  should be imposed.

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4. Take-up rates and Price Sensitivity

• What we looked at
• Economist Kenneth Thorpes work on take-up and
  price elasticity for Vermonts Catamount Health
  Reform.
• Taking into account price of insurance as
  percentage of income, what would people purchase
  voluntarily?
• What this tells us
• People just above 300 FPL would purchase
  insurance at about 4 of income.
• Therefore, set lower-bound of affordability
  scale at 4 of income.

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Building a Standard of Affordability

• At 600 FPL, people can afford total health costs
  at about 8.5 of income. This is an
  upper-bound of affordability.
• For people under 300 FPL, who can only afford
  nominal amounts toward health care, no penalties
  should be imposed.
• For people just above 300 FPL, set lower-bound
  of affordability scale at 4 of income.

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5. Public Opinion Research

• What we looked at
• Robert Blendon, Harvard School of Public Health,
  for Blue Cross Blue Shield Foundation.
• As a check on our findings, what do respondents
  find reasonably affordable?
• What this tells us
• Blendons findings are generally in accord with
  our analysis.

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Building a Standard of Affordability

• At 600 FPL, people can afford total health costs
  at about 8.5 of income. This is an
  upper-bound of affordability.
• For people under 300 FPL, who can only afford
  nominal amounts toward health care, no penalties
  should be imposed.
• For people just above 300 FPL, set lower-bound
  of affordability scale at 4 of income.
• A sliding scale of affordability is needed. For
  people between 300 - 600 FPL, create
  progressive scale from 4 to 8.5 of income.

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Building a Standard of Affordability
Any affordability schedule should be a
conservative measure. The scale should utilize a
progressive scale as income increases. What is
affordable may not be available.
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Building a Standard of Affordability

• What are limitations of this paper?
• We only looked at affordability for an individual
• Affordability curve can be drawn in a number of
  ways