APPENDIX C

Healthcare Financing Study

Revised: 5/13/2008                                                   Steve Kappel

History

This study was originally conceived of as an alternative to the several “single payer” studies that the legislature has requested.  Focusing on how the money is raised was intended to accomplish two things:

· Sharply reduce the number of assumptions needed as compared to a single payer study

· Recognize that payers perform several different functions and that policy options are not limited to a specific combination of functional choices

For example, a system of tax-financed vouchers can be created that changes how the money is raised, but has minimal impact on the existing insurance market.  The financing study could be the first step in looking at each component of health care financing (allocation of costs, collection of funds, management of risk, administration of claims, reimbursement…) individually.

Because this approach was intended to hold the rest of the system constant, outcome variables were macroeconomic consequences of financing alternatives (e.g. impact on Gross State Product or employment) rather than direct measurement of health care costs. 

This macroeconomic focus necessitated the involvement of economists with expertise in this area.  The initial study last year was done by Tom Kavet and Nic Rockler, under their existing contract with JFO.  The model that they built can be a very useful starting point for additional analyses, and the ongoing analytical process will certainly benefit from their continuing involvement.

 When the legislature created the study, it was hoped that the administration’s economist would be involved in a consensus process, but this did not happen.

Next Steps

Since the initial report was written, a number of policy options have emerged for consideration.  With additional development, the model might support examination of the consequences of:

· Different levels of employer assessment

· Individual mandates

o Including comparison of ways to address affordability such as subsidies or tax credits

· Various proposals to disconnect health insurance from employment

o Including how employers might use freed-up funds (raise wages, lower costs, increase profit)

· Segment-specific public financing (e.g. hospital or primary care)

Another possible direction to explore is to model the effects of proposals on different sub-populations, such as those in the individual market or those with different levels of insurance coverage.

Each of these analyses can build off the initial model, but the further the questions move past how the money gets raised into how it gets spent, the more additional work will be needed.

In addition to examining macroeconomic impacts, the analyses will include a discussion of how the proposals will interact with major federal legislation and programs, especially ERISA, Medicare, and Medicaid, and how proposals will be affected by cross-border issues, including employment and hospital care.

As mentioned above, the focus of this analysis is on the raising of funds, rather than on expenditures.  Examination of financial processes as they impact the administration or delivery of care, such as changes in provider reimbursement or transition to a chronic care model, are outside the scope of this study.  However, broad-brush estimates of savings attributable to how funds are raised may be possible.  

For example, to the extent that the portion of spending that is financed by the state increases, the ability of the state to control spending is enhanced.  However, the question of how growth in spending can be brought into balance with growth in revenue will not be addressed.