1. This research is funded in part through a U.S. Health Resources and Services Administration, State Planning Grant to the Hawaii State Department of Health, Prime Contract No. 1 P09 OA 00046-01. Sub-Contract Research Corporation of the University of Hawaii, Project No. 659075. Research conducted by the University of Hawaii, Social Science Research Institute in collaboration with the Hawaii State Department of Health, Hawaii Institute for Public Affairs/Hawaii Uninsured Project and the Hawaii Health Information Corporation. Uncovered Worker Pool: Coverage & Costs Gerard Russo Sang-Hyop Lee Lawrence Nitz University of Hawai`i at Mānoa Hawai`i Coverage For All Project Technical Workshop IV September 26, 2003

2. 26 September 2003 Preliminary results. Please do not quote. POLICY SCENARIO Imposition of an individual mandate for the self-employed and part-time workers under a publicly-sponsored, privately-financed, privately-underwritten insurance pool.

3. 26 September 2003 Preliminary results. Please do not quote. Design Features Mandatory Mandatory: without selectivity Single Coverage Family coverage to be modeled later. Private Financing Premiums Federal Tax Deductions

4. 26 September 2003 Preliminary results. Please do not quote. Sub-Cases for Self-Employed & Part-Time Worker Health Insurance Scenario Voluntary Purchase Mandatory Purchase Standard Private Plan † Standard Public Plan Ultra-Basic Public Plan

5. 26 September 2003 Preliminary results. Please do not quote. Uninsured Adults Age 19-64: BRFSS 2001 PersonsPercent Distribution Uninsured Self-Employed17,17527% Uninsured Employees16,74726% Other Uninsured Adults29,56647% Total Uninsured Adults63,488100%

6. 26 September 2003 Preliminary results. Please do not quote. Uninsured Self-Employed Adults Age 19-64: BRFSS 2001, CPS 1996-2002 Survey YearUninsured Self- Employed Persons BRFSS 200117,175 CPS 1996-200211,838 Sources: Behavioral Risk Factor Surveillance System Survey 2001, Current Population Survey March Demographic Supplements 1996- 2002.

7. 26 September 2003 Preliminary results. Please do not quote. Uninsured Self-Employed and Uninsured Part-Time Employees, Adults Age 19-64: CPS 1996-2002 Worker StatusUninsured Persons Part-Time46,522 Self-Employed11,838 TOTAL58,360 Source: Current Population Survey March Demographic Supplements 1996-2002, 7-year Average.

8. 26 September 2003 Preliminary results. Please do not quote. Persons Covered How many self-employed and part-time workers will be targeted under this initiative? 58,360, Based on CPS 1996-2002 Of those covered, how many previously had health insurance? Switching from private to private Will the switch be to a more extensive plan or less extensive plan? How many self-employed and part-time workers will seek full-time employment to avoid the individual mandate? How many self-employed persons will become newly insured? 58,360, Assuming 100% Compliance and No Avoidance

9. 26 September 2003 Preliminary results. Please do not quote. Cost What is the expected total expenditure per year per self-employed and part-time worker insured? What is the current expenditure level for medical services for uninsured self-employed persons? What is the economic cost (benefit) accruing to Federal Taxpayers State Taxpayers Health Care Providers Households with Self-Employed and Part-time Workers Others

10. 26 September 2003 Preliminary results. Please do not quote. Incurred Per Capita Expenses 2001: Uninsured Self-Employed Adults Age 19-64 Emergency Room & Hospital Inpatient Discharge $403 Hospital Operated Clinics? Private Physician Offices? Primary Care Facilities? Pharmaceuticals, etc.? TOTAL$403 Note: Imputed from the age-sex profile of expenses of the uninsured from the HHIC ER and hospital discharge data 2001 and BRFSS 2001.

11. 26 September 2003 Preliminary results. Please do not quote. Per Capita Expenses: US 2001 Privately Insured Person$2,484 Full-year Uninsured Person $1,253 Source: Hadley and Holahan, “How Much Medical Care Do The Uninsured Use, And Who Pays For It?” HEALTH AFFAIRS-Web Exclusive 12 February 2003.

12. 26 September 2003 Preliminary results. Please do not quote. Tax Issues What proportion of this cost will be borne by federal taxpayers via federal tax deduction for self-employed health insurance purchase? Adjustment to gross income 2002: 70%*Marginal Tax Rate Scheduled to rise to 100% How many newly insured self-employed persons will avail themselves of the SE Health Insurance Deduction? 20%?

13. 26 September 2003 Preliminary results. Please do not quote. SE Health Insurance Deduction: Federal Marginal Tax Rate Medicare Hospital Insurance (HI) Federal Payroll Tax 2.9% Wage Tax (1.45% + 1.45%) Social Security: Old Age Security and Disability Insurance (OASDI) Federal Payroll Tax 12.4% Wage Tax (6.20% + 6.20%) Federal Income Tax 15.0% for a typical household TOTAL FEDERAL MARGINAL TAX RATE 30.3%

14. 26 September 2003 Preliminary results. Please do not quote. Cost of Single Coverage Per Year: Based on 58,360 persons Per Capita Total Annual Single Premium Hawaii MEPS-IC 2001 $2698$157,455,280 Less Current Medical Expenses: US 2001 $1253$73,125,080 Less Federal Tax Deduction: 20%*30.3% (Self-Employed Only $163) $33$1,929,594 TOTAL$1412$82,400,606

15. 26 September 2003 Preliminary results. Please do not quote. Possible Refinements Effective Tax Rates: Household Specific Estimate Moral Hazard Effect Medical Expenditures Incurred by the Uninsured Self-Employed and Part-Time Workers: Extend to All Hawaii Provider Types Premium Rates: Self-Employed/Part-Time Specific Bring Estimates Forward in Time: 2003, 2004 Extend Analysis to Family Coverage Voluntary Plan with Selectivity and Subsidy Equilibrium adjustment of employment and self- employment.