Children's health insurance coverage rates decline.

Health care spending in the United States continues to have a major impact on the national economy. In 2005, our nation spent $2 trillion on health care, representing 16 percent of the Gross National Product. This translates into a $6,500 per person on health care. At the same time, health insurance premiums rose 7.7 percent and drug prices increased 15 percent. Figure 1 (page 24) shows increases in premiums in the United States from 1990 to 2005 compared to the workers' earnings and overall inflation. Even with this level of spending, 18 percent of Americans under age 65 do not have any health insurance. The share of U.S. firms offering health benefits fell from 69 percent in 2000 to 60 percent in 2005. The lack of federal level reform has lead many states to enact changes to control the level of spending. Some states such as Maine, Massachusetts, New Mexico, and New York have undertaken sweeping reforms at a systemic level, while others are working on a more incremental approach. Montana has made several such incremental changes to address the rate of uninsured in the state.

Health Care in Montana

The 22 percent uninsured rate in Montana for people under 65 is higher than the national rate. When those over 65 are added, the rate drops to 19 percent primarily due to the addition of the Medicare population. In Montana, we spent about $5 billion on healthcare in 2005, which represents 17 percent of the Gross StateProduct. Of that $5 billion, 28 percent represents state spending on the public health insurance programs Medicare, Medicaid, and the Children's Health Insurance Plan. Spending on prescription drugs was slightly below $460 million.

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BBER Research Findings

In 2003, and then again in 2006, BBER conducted survey research on employer-based health insurance to determine uninsured rates and employer-based offering of health insurance. The findings showed that 173,000 Montanans were without health insurance, and that the 19 percent uninsured rate did not change between 2003 and 2006. Figure 2 (page 24) shows the comparison between offer rates by firm size in 2003 and then 2006. Forty-nine percent of all Montana firms offered health insurance to their employees in 2006, with the majority of them (94 percent) offering it to all employees. The size of the firm is a major determinant of whether the firm offers this benefit; as the firm size increases so does the likelihood of an employee being offered health insurance. Forty percent of firms with five or fewer workers offer health insurance, and 69 percent of firms with 11 to 20 employees offer insurance. One hundred percent of firms with 100 or more employees offered health insurance to their entire work force.

Changes in the findings from the research conducted between 2003 and 2006 centered mainly on the costs to both employers and employees. The number of firms offering health insurance did not change over the three-year period, and the reason given for not offering the benefit was similar in both studies: the cost is prohibitive. However health insurance costs for employers have increased dramatically over the past three years, with much of the cost shifted to employees (Figure 3, page 25).

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Uninsured Rates for Children in Montana

A similar story of high uninsured rates also plays out for children in the state. The percent of Montana children of all ages lacking private or public health insurance went from 14 to 16 percent over a four-year period ending in 2005. Using three-year averages, Figure 4 shows the rates for the U.S. compared to the rates for Montana. Children below the federal poverty level had some of the biggest declines in health insurance coverage, going from an uninsured rate of 19 percent four years ago to 29 percent by 2005. This represents a state rate that is 1.5 times higher than the national rate. Montana's increase of 10 percentage points in the uninsured rate for kids below poverty is in contrast to 27 other states where the uninsured rate for kids below poverty decreased over the same period. Figure 5 shows the rates of uninsured children who fall in different poverty levels, Table 1 (page 26) explains the Federal Poverty Level.

Montana Solutions

There are an array of solutions available to states that are trying to control costs or to completely overhaul their health care systems. An incremental approach includes tax credits, premium assistance, health savings accounts, and increases in the eligibility levels in public insurance programs. The state of Montana has responded to higher uninsured rates through initiation of the Insure Montana Program for small employers and expanded coverage of the Children Health Insurance Program and for mothers with young children in the Medicaid program. These two approaches have both costs and benefits.

Insure Montana

In the 2005 legislative session, the Insure Montana Program was passed as the Small Business Healthcare Affordability Act. It provides tax credits and premium payments to small business owners for employee health insurance. The Act also provides for small business formation of purchasing pools designed to negotiate lower-priced health plans through group purchasing.

The tax credit is targeted to employers already providing health insurance who employ two to five employees and where no employee is paid more than $75,000 per year (owner excluded). The tax credit cannot be more than 50 percent of premiums paid. To qualify for Premium Incentive and Assistance Payments, employers of two to five employees cannot currently provide employee health insurance. Eligible employers also must go through the new State Health Insurance Purchasing Pool or another qualified Association Plan and cannot have an employee who is paid more than $75,000 per year (owner excluded).

Employer tax credits have a number of direct and indirect cost impacts to the state and to taxpayers. Tax credits result in a loss of tax revenues as employer-provided health insurance expenditures not taxed. Workers covered elsewhere may shift to their employer's health plan, and small firms with low-wage workers may bring a higher risk and higher cost group into the insured pool. Tax credits also fail to address rising premiums since firms are cost enabled through the credit.

Children's Health Insurance Program

Significant expansions in CHIP would go a long way to improving health care access for Montana kids, particularly for the 24,000 children living in households below 200 percent of the federal poverty level. State budget dollars required for providing health care access to the majority of children in Montana can be calculated using $1,734 per child, with Montana's match being $371. These amounts are based on state fiscal year 2006 CHIP program data. Thus, the cost to the state would be $4.5 million to insure the 12,000 children below 100 percent of the federal poverty level. To insure the 12,000 more Montana kids who are between 100 percent and 200 percent of the federal poverty level, the cost to the state would be $4.4 million (Figure 5).

Another 6,000 Montana children would have health insurance if the eligibility cutoff were raised from 200 percent to 250 percent of the federal poverty level and would cost an additional $2.2 million in state funds. Coverage of kids at 250 percent and above the federal poverty level would enroll another 7,000 children and cost another $2.6 million in state dollars. Extending coverage to all Montana children would eliminate lack of health insurance for all children 18 years of age and under at a total cost to the Montana treasury of $13.7 million.

Economic Benefits and Costs to CHIP Expansion

Lower health care costs for children, cost savings on employer-based health insurance premiums, and positive impacts on the state economy through outside federal dollars are direct benefits from extending health insurance coverage to all of Montana's children.

The estimated $13.7 million in state outlays for covering all children is a significant investment even though it would bring in almost $55 million in federal dollars. These outside dollars would have a cumulative impact of $60 million on labor income throughout the Montana economy, generating state income taxes that would offset part of the state budget outlay.

Providing health insurance to all children has some potential consequences. "Crowding out" is one result. If all children are signed up for CHIP, parents have no reason to sign them up on employers' health insurance plan. If employees decline insurance offered through their work place, employers have less incentive to offer the benefit to families.

Conclusions

Despite the state's strong economic growth, the prospect of improvement in Montana's uninsured rate is not strong. The Legislature will see continued debate on how best to approach the issue. However, many states that have already started this debate and have made more incremental changes than Montana are still struggling with containing costs. Thus Montana is relatively new to the work of addressing the issue and has a long, politically-bumpy road ahead, although there is much to be learned from the work done in other states.

According to BBER research, Montana employers expect to do more cost shifting to workers as they do not anticipate their costs of offering health insurance benefit to go down.

Editor's note: This article is based on research conducted by BBER, Health Care Research and Montana Kids Count, Steve Seninger, Ph.D.