2020-JUNE 6 ISSUE: DRAFT REPORT ON COST OF NM ‘UNIVERSAL HEALTH CARE’ PLAN

The Health Security for New Mexicans plan, driven primarily by Corrales’ Mary Feldblum over decades, has finally received rigorous financial analysis. Commissioned by the N.M. Legislative Finance Committee in 2019, a draft report was released May 22 to lay out what the anticipated economic impacts would be over the first five years if the universal health care system is implemented. Written comments on the draft report are due June 8. The final report is expected by the end of this month.

The fiscal analysis was contracted out to KNG Health Consulting, IHS Markit and Reynis Analytics. While KNG is based in the Washington DC area and IHS is headquartered in London, Reynis Analytics is led by Albuquerque’s Lee Reynis, former director of the N.M. Bureau of Business and Economic Research.

“If implemented, the Health Security Act would be the most ambitious state-based health reform ever carried out in the United States,” the report states. Feldblum’s Health Security for New Mexicans Campaign has won support for the plan from municipal and county governments around the state. (See Corrales Comment Vol. XXXVII No.20 January 5, 2019 ‘Health Security Act’ Could Pass N.M. Legislature.”)

The Health Security Act would enable the state to set up its own health insurance plan to ensure universal coverage. Proponents say it would provide comprehensive, quality services, fully protect those with pre-existing conditions and offer freedom of choice of health care providers, regardless of network.

In an emailed newsletter May 28, Feldblum said her organization has “some serious concerns about the report’s technical integrity.” In a statement May 31, she clarified, “The report makes numerous assumptions in order to come up with its financial projections. Several of these assumptions differ from what is specified in the Health Security Act. In addition, there are serious mathematical errors that need to be corrected.”

The statement points to “a critical discrepancy of over $3 billion in the preliminary draft report.” That discrepancy appears in two tables of numbers showing amounts for total health care spending on benefits and administration if the program were implemented in New Mexico. One of the tables states the amount for 2024 would be $12.3 billion, while the other table shows$9.2 billion for the same sum.

The chairman of Health Security for New Mexicans, Max Bartlett, pointed out that with the state’s existing health care system today, the amount is $12.1 billion. “The accompanying text provides no explanation for this enormous discrepancy, resulting in a major difference in the projected costs of the program,” Barlett said.

The draft report’s introduction points out that “Under the Health Security Plan (HSP,) the state’s uninsured rate would likely fall well below one percent, and the vast majority of the population would receive coverage through a public insurance program. The plan would also improve health care affordability for low- and middle-income families that would otherwise receive coverage through the non-group market.

“Over the initial five-year period, the overall economic impact of the HSP is expected to be small. However, the role for private insurance would be diminished, and some segments of the private insurance market would likely disappear altogether.” While use of health care services would increase if the plan were implemented, “long-term total health care spending could fall if reductions in payer-side administrative costs are achieved to the level specified in the Health Security Act.

Most of the cost of the HSP could be financed by re-directing public funding from duplicative health programs, requiring contributions from employers not offering coverage, and requiring enrollees with the means to pay a portion of their own premium costs. Still, significant additional funding sources would likely be needed to fully cover the cost of the plan.”

A summary of key findings produced by the analysis reads as follows. “In this study, we examined the cost of the HSP under different scenarios and whether existing revenues would be sufficient to cover the cost of the plan. Under our base model, we assumed premium costs similar to a typical employer plan, where employees are only responsible for a relatively small share of premium costs.  We assumed that low-income individuals would pay no premiums, similar to their premium costs under Medicaid or Marketplace coverage. Employers whose employees received coverage under the HSP would pay into the plan so that total payments from employers match their contributions under baseline. Although we assumed significant reductions in costs to administer the program (such that total program spending is less than baseline in the last year), we found that the HSP would be underfunded by approximately $1.5 billion a year in the first five years of the program.

“In addition to our base model, we examined several other scenarios, including ones where the program is fully funded either through contributions from participating employers or a tax levied on all firms. In these two scenarios, the program is fully funded but costs would increase for firms.

“We considered a less generous cost-sharing scenario where we assumed premiums and cost-sharing (e.g., coinsurance, deductibles) would be similar to the limits established in the ACA Marketplaces. The HSP would be under-funded, but by less than in our base model. Excluding Medicaid enrollees would not significantly impact the funding shortfall, although it could affect the potential payer and provider administrative savings.

“In general, we found relatively small economic impacts from the HSP, with impacts going from slightly positive in the first year to slightly negative in the fifth year. These small effects are due to the fact that by year five, the HSP would leave health care spending relatively unchanged because administrative savings offset higher spending for health care services.

“While overall economic impacts are small, the private insurance industry and its employees would see significant negative impacts as private insurance in the state would be greatly reduced. The private health insurance industry is a source of employment for several thousand workers in New Mexico. The HSP would limit the role of private insurers as insurance coverage and associated administrative activities for the HSP are done by the state.

As a result, many workers in this industry would likely lose their jobs. While resources currently being devoted towards insurance administration could be redirected towards other productive economic activities, including additional public administrative duties necessary for the operation of HSP, the HSP could produce financial hardship to New Mexican families and businesses associated with the private insurance industry. “In the long term, if administrative costs are compliant with the five percent cap established by the HSA, we estimated that health care spending would be lower by year 5 of the plan than under the baseline.

“While lower long-term health care spending would have a negative economic impact on the state, lower health care costs due to lower administrative spending could benefit employers and New Mexicans. With lower health care spending, employers and individuals could spend more on other goods and services that may yield increases in New Mexicans’ welfare.

“While our economic analysis assumed that budget shortfalls as a result of the HSP would be closed through a tax or similar mechanisms, HSP funding could be enhanced through establishing higher premiums. Using higher premiums to help fund the HSP could be economically beneficial in the long run as compared to taxing payroll, which could impact productivity. However, higher premiums could run counter to the goals of affordable health care coverage under the HSP.” The draft report considers how continuation of Obamacare, or the Affordable Care Act (ACA), would affect implementation of the Health Security Plan.

“Our results assumed that the ACA and associated federal funding will continue to be available to the state, which is significant. Under the ACA, the Federal Medicaid Matching Rate applied for newly eligible adults under Medicaid expansion is 90 percent for 2020 and beyond. In addition, the ACA provides for federal financial assistance to those eligible on the Marketplace. Together, these federal assistance programs contribute an estimated $2.1 billion to New Mexico. If the ACA was repealed and not replaced with a similar program, the costs of the HSP to New Mexico would be significantly higher.”

The fiscal analysts’ conclusion are stated this way. “Our analysis finds that the HSP would create near-universal health insurance coverage in New Mexico. The plan would also improve health care affordability for low- and middle-income families that would otherwise receive coverage through the non-group market.

“Usage of health care services would increase, but total health care spending would fall due to reductions in payer-side administrative costs. Most of the cost of the HSP could be financed by redirecting public funding from duplicative health programs, requiring contributions from employers not offering coverage, and requiring enrollees with means to pay a portion of their own premium costs. Still, significant additional funding sources would likely be needed to fully cover the cost of the program.”

County governments that have called for passage of the act include Bernalillo, Sandoval, Cibola, Valencia, Doña Ana, Grant, Guadalupe, Hidalgo, Los Alamos, Luna, Mora, Otero, Rio Arriba and Taos, among others.

Municipal governments endorsing the bill are: Corrales, Albuquerque, Rio Rancho, Santa Fe, Las Cruces, Bayard, Belen, Carlsbad, Deming, Ft. Sumner, Grants, Hatch, Las Vegas, Los Alamos, Los Lunas, Mesilla, Roswell, Taos and Silver City. More than 36 N.M. municipal and county governments have passed resolutions supporting the Health Security Act.

In the Health Security for New Mexicans Campaign statement May 31, Bartlett said the $3 billion discrepancy in charts accompanying the report “calls into question the reliability of the basic methodology used by KBG. Every number they produce relies on what they term ‘microsimulation’ modeling.

“We have two basic concerns with their approach. First, the text of the report does not clearly specify how any of the data presented in the two critical tables is actually generated. Their model functions effectively as a mysterious ‘black box.’

“Second, we believe that a macroeconomic overview must be included in order to project accurately the impact of a system-changing approach such as Health Security. Their exclusively microsimulation approach is better suited to projecting changes and modifications that occur within one over-arching system, such as our current employer-based, private insurance system.

“The Health Security Act is designed to eliminate reliance on that system, replacing it with a system that places about 84 percent of New Mexicans in one large, public health pool where everyone shares risk equally.”