Indiana Places HSAs at the Center of Coverage Expansion

INDIANA PLACES HSAs AT THE CENTER OF COVERAGE EXPANSION

Volume 28, Issue 491 May 14, 2007

Matthew Gever and Christina Kent

Indiana has become the first state in the nation to pass legislation making health savings accounts (HSAs) the main vehicle for expanding coverage to the uninsured.

Signed into law on April 30, HB 1678 directs the state to increase its cigarette tax in order to provide funds for the new “Check Up” program. Proposed by Governor Mitch Daniels, the Check Up program will combine HSA-like “POWER accounts” with high-deductible, back-up commercial health plans to expand coverage to as many as 132,000 low-income Hoosiers.

Qualifying Hoosiers will pay for a portion of the POWER accounts on a sliding scale based on income. The state will contribute the rest of the funds necessary to establish accounts of $1,100 per adult. If the funds in the accounts are depleted within a year, the commercial plans will kick in to provide continued coverage.

“We believe it is a reasonable market approach, with the added dimension of personal responsibility, to addressing the issue of the uninsured,” said Dennis Rosebrough, spokesman for the state Family and Social Services Administration.

U.S. Health and Human Services Secretary Mike Leavitt praised the legislation, saying, “There is no other program out there as innovative as what I'm seeing here in Indiana.”

The POWER accounts are only a part of the much broader Healthier Indiana plan, which, among other things, will:

increase the income limit for Medicaid eligibility for pregnant women;
allow for continuous eligibility of a child for Medicaid and the children’s health insurance program until the child turns three;
enable certain small employers to join together to purchase group health insurance; and
give qualifying employers a tax credit for the first two years that the employer makes coverage available.

Another provision will allow individuals up to age 24 to stay on their parents’ health plans. “More often than not, students graduate from college and have trouble finding an immediate job,” said Representative Charlie Brown. “It is not fair to be throwing them off policies during one of the most stressful times of their lives.”

Now that the General Assembly has passed the bill, the state will have to obtain federal Medicaid waivers to put it into effect. “The precise manner in which the funding will operate is still not completely tied down,” said H. John Okeson, senior legislative counsel to the Governor.

The State Fills in the Gap

To qualify for the Check Up plan, Hoosiers must have been uninsured for at least six months. They also must contribute between 2 percent and 5 percent of their incomes, on a means-tested sliding scale, to help fund the POWER accounts. The state will contribute the rest of the funds to establish accounts of $1,100. Participants also will receive $500 worth of preventive care at no cost to themselves.

Participants will use debit cards to withdraw funds from the POWER accounts to pay for medical expenses, up to the account limit of $1,100 per adult. At the end of the year, $500 of any unspent funds will stay in the account for the next year, and the participant may withdraw anything above $500.

The state will pay the premiums for the back-up private health plans. The law outlines the services that the plans must cover, which include, among other things, mental health care, home health services (including case management), substance abuse services, and dental and vision care. Providers in those plans will be paid Medicare rates, in an effort to ensure that they’ll participate.

Cigarette Tax Crucial

Much of the funding for the POWER account program will come from increasing the state’s cigarette tax by about 44 cents per pack. It’s estimated that this increase will bring in at least an additional $206 million in the first year. A portion of those revenues will pay for smoking cessation programs and for immunization of children less than two years old, but the bulk will go to fund the POWER accounts and the back-up plans.

Advocates of the tax increase say it will bring the total state tax that Hoosiers pay to 99.5 cents per pack—still less than the national average tax of $1.12 per pack. Currently, 27 percent of Hoosier adults smoke, which leads to health-care costs of more than $1 billion a year, including more than $400 million from Medicaid. Advocates hope that the price increase will encourage many smokers to quit.

“Indiana sells some of the cheapest cigarettes in the nation, and many believe smoking rates here will never drop until the price goes up,” said Senator Dennis Kruse.

While more than 130,000 Hoosiers could be eligible for POWER accounts, enrollment in the program will be limited by the amount of funds available, and will be provided on a first-come, first-served basis. The state hopes to launch the program on Jan. 1, 2008.

“I have asked a host of people whether they can think of a better example and nobody has,” added Governor Daniels.

Not all were convinced, however. “The cigarette tax is a regressive tax on the working poor,” said Senator Mike Delph.

Representative Eric Koch would have preferred a law that avoided any expansion of public programs. “While well-intended, this plan treats the symptoms, rather than the problem,” he said in a statement. “It does not address the structural causes of high health-care costs and health insurance premiums. Health-care reform will only be achieved through market-based, consumer-driven solutions, not more government programs and tax increases.”

Some advocates say that HSAs could backfire because low-income persons are unlikely to have the information required to obtain necessary health care. Also, they say, individuals don’t have the clout needed to get the lower prices available to health plans.

But others say the plan could start a national trend. “If you look at many of the major Health and Human Services initiatives over the last 75 to 80 years, they started within the states,” said Okeson. “I’m hopeful that people will watch this at the state level and at the federal level. It’s a well thought out way to provide coverage in a market-oriented, consumer-directed way. It puts the consumer in the best position to decide what kind of care to buy.”

© Copyright 2007, State Health Notes