What is an "Affordability Standard?"
Below is some important information about an Affordability Standard.
Why do we need it?
How will it help families?
What are the key elements of an Affordability Standard?
Where can I find more information?
Why do we need it?
The number one reason that families lack health care coverage is that they cannot afford it. For health reform to succeed for everyday Americans, Congress needs to make sure that families can afford to purchase - and afford to use - quality health coverage. An affordability standard will do just that.
If health reform legislation contains a mandate, as many expect, then affordability becomes even more important. Requiring people to buy coverage without seriously addressing affordability - especially during an economic downturn - will be disastrous for families and politically for Congress.
How will it help families?
Families who cannot obtain affordable coverage at work would be able to buy subsidized coverage in a health care exchange with rules that prevent insurance companies from discriminating or denying coverage to people who are sick. They would be expected to contribute only a certain percentage of their income for health care, based on how much they earn. This amount would include premiums and out-of-pocket expenses.
- For families earning between 200% - 400% of the Federal Poverty Level, there would be a sliding scale subsidy to help keep the cost of health coverage reasonable.
- Families earning less than 200% of the Federal Poverty Level - an income level at which most families are unable to meet their basic needs - would be exempted from monthly premiums and face minimal cost-sharing.
- Families earning over 400% of the Federal Poverty Level would not be expected to contribute over a certain fixed percentage of their income to health care.
Benefit packages would be adequate enough to cover the care people need to stay healthy and prevent disease and protect people from out-of-pocket costs they cannot afford. Each plan would cap total annual out-of-pocket costs.
There would be an overall cap on premiums and out-of-pocket expenses at 9 percent that ensures that people are not required to purchase coverage that is not affordable.
What are the key elements of an Affordability Standard?
Based on family budget surveys and research into state efforts to cover the uninsured, including the Massachusetts experience, PICO believes that there are five key elements of a strong Affordability Standard.
They include:
1. Sliding scale contributions based on income
The percent of income that a family is expected to contribute to purchasing coverage (including both premiums and other out-of-pocket costs) should be reasonable and should increase along a progressive sliding-scale.
People's ability to contribute to their health care costs increases as their income rises. Basing subsidies on a progressive sliding scale increases the chances that families will actually be able to purchase health coverage and decreases the risk that families will be required to purchase coverage that they cannot afford.
It is also essential that subsidies take into account total out-of-pocket costs. Just over half of the health care costs that people reported on this survey were not for premiums but rather for co-payments, deductibles, uncovered services and other out-of-pocket costs.
2. Protections for lower-income families
Families earning less than 200 percent of poverty - an income level at which most families are unable to meet their basic needs - should be exempted from monthly premiums and face minimal cost-sharing.
As PICO's survey and many others have found, families earning less than 200 percent of poverty are largely unable to meet their basic needs, let along take on significant health care costs. Families at this income level are eligible for a variety of public programs, such as food stamps and the Earned Income Tax Credit. Charging premiums to families under 200 percent of poverty would result in a significant decrease in the number of families obtaining health insurance coverage and would therefore defeat the goal of universal coverage. Lower-income families should pay only minimal cost-sharing to avoid creating barriers to needed health care.
3. Adequate benefit packages
Benefit packages should be adequate enough to cover the care people need to stay healthy and prevent disease and protect people from out-of-pocket costs they cannot afford. Each plan should cap total annual out-of-pocket costs.
As reported above, more than half of all health care costs that people in this survey report paying are above and beyond premiums. It is essential that benefit packages not leave families with large costs that they cannot afford. Subsidies that are based on a percentage of family income should therefore go toward plans that cover the services that people need, and should not impose additional out-of-pocket costs above and beyond the family's contribution.
4. A global cap
There should be an overall cap on premiums and out-of-pocket expenses at 9 percent that ensures that people are not required to purchase coverage that is not affordable.
Even families whose earnings put them beyond health care subsidies - for example, those earning more than 400 percent of poverty - should not be required to purchase health coverage unless they can obtain affordable coverage. In other words, while these families would not receive subsidies to help purchase insurance, they would not face consequences if they could did not purchase insurance if the cost was greater than nine percent of their income.
5. Transparency and simplicity
Subsidies should be delivered in a manner that is clear and transparent and most likely to accomplish the goal of universal coverage.
For lower-income families, tax credits may not be the most effective means of delivering subsidies. It may be more effective for families to be able to obtain health coverage by paying their contribution monthly based on their income.
By including a strong Affordability Standard that incorporates these five elements in health care reform legislation, Congress can go a long way toward making reform successful for our country's hardworking families.
If there is a mandate for all families to buy coverage, then an Affordability Standard will also ensure that no family - regardless of income - will be required to have health coverage if the cost of purchasing exceeds a certain percentage of their income.
Where can I find more information?
Check out the following reports & issues briefs for more information on an Affordability Standard:
PICO California Health Care Affordability Report: How a common-sense Affordability Standard can help comprehensive health care reform succeed, PICO National Network and PICO California, May 2009
The Importance of Establishing a Common Sense Health Care Affordability Standard for Individuals and Families, PICO National Network and Community Catalyst, May 2009
Individual Mandates: Critical Consumer Protections, Community Catalyst, April 2009
