SustiNet backers dispute analysis saying plan would cost millions

Opponents of the proposed SustiNet state-run health insurance plan say a nonpartisan report showing the plan could cost the state hundreds of millions of dollars a year will be a significant blow to the proposal.

Supporters, meanwhile, took issue with the analysis and issued competing projections suggesting the plan could save the state money.

The SustiNet proposal calls for joining the existing state-funded health plans under a quasi-public authority, then having the authority offer health insurance to municipalities, small businesses, nonprofits and, eventually, anyone in the state.

The report released Monday by the legislature's nonpartisan Office of Fiscal Analysis suggested that the proposal would cost the state money, including hundreds of millions of dollars a year for covering low-income adults who don't qualify for Medicaid. It said little about concrete savings for the state, which SustiNet supporters have said could be achieved.

The Office of Fiscal Analysis, or OFA, is responsible for detailing the potential fiscal impact of proposed legislation. Critics of SustiNet said Tuesday that the OFA report, known as a fiscal note, could change the debate on the proposal.

"I think it's significant because it marks the official end of aspirational math on SustiNet," said Keith Stover, a lobbyist for the Connecticut Association of Health Plans. "I don't mean to be flippant, but the fact is, the fact that you believe savings will materialize, even if you really, really, really believe it, it doesn't have any impact on a fiscal note."

Stover praised the report and said he hoped it would lead to more attention being focused on implementing federal health reform, rather than trying to create a state program.

Sen. Jason Welch, R-Bristol and the ranking member of the Public Health Committee, said the fiscal note substantiated his concerns about the potential cost of SustiNet. But he acknowledged that not everyone would be swayed by the report.

"I think it is a debate changer for some, but not for everybody," he said.

Among those not convinced is the Universal Health Care Foundation of Connecticut, which created the original SustiNet proposal. The foundation released a statement Tuesday saying the OFA analysis contains "serious errors and discrepancies." It also released an analysis by Stan Dorn, a senior fellow at the Urban Institute who consulted for the board that developed SustiNet, that questioned OFA's analysis.

"It is unfortunate, because it looks like a sincere effort was made to capture the financial impact of SustiNet," foundation President Juan A. Figueroa said in a statement. "But the analysis misstates facts and figures in key areas of the plan, which involve significant savings and costs."

House Speaker Christopher G. Donovan, D-Meriden, another strong backer of SustiNet, also raised questions about the OFA figures, saying that they appeared to contradict estimates from people who had worked on the plan.

"We need to see what their assumptions are based on," he said of OFA. "I've seen some information that we think their numbers may be erroneous. We'll be talking to them and trying to figure out what the real cost estimates are."

OFA Director Alan Calandro said the office would review the points Dorn and the foundation raised.

"Unfortunately, there are a lot of unknowns in this kind of analysis and associated strong opinions where someone is bound to be unhappy with the conclusions," he said. "We will review our assumptions and see if anything needs to be modified. This is a very important issue and I want to be sure we have the best analysis possible given the constraints involved."

While the cost of SustiNet has been a major source of dispute, it's not the only barrier the proposal faces. Gov. Dannel P. Malloy has raised concerns about having a quasi-public agency in charge of state health plans and has become more explicit in voicing his reservations.

"The governor has been clear that he supports the goals of SustiNet, but does not think this particular piece of legislation is the right vehicle, in part because of the cost associated with it, but also because he has serious concerns about handing over decision-making responsibility for the state's healthcare obligations--about 12% of the state budget--to a quasi-public authority that has almost no accountability to taxpayers," Malloy spokeswoman Colleen Flanagan said Tuesday.

Competing Projections

According to the OFA analysis, the largest potential cost to the state would be between $222.8 million and $478.6 million a year to provide a "basic health plan" for adults who earn slightly too much to qualify for Medicaid. The federal government would provide funding for the coverage, but the OFA analysis projected that it would not be enough to cover the cost of the plan.

Dorn took issue with how OFA calculated the cost of the basic health plan, arguing that the analysis overestimated the cost of coverage and underestimated how much the federal government would chip in. Using what he said were the correct figures, Dorn projected that federal funding for the basic health plan would exceed the state's cost for providing coverage. He also argued that OFA overestimated the number of people who would be covered by the basic health plan.

OFA estimated that it could cost between $6,000 and $9,000 a year to provide coverage to approximately 101,250 adults in the basic health plan. About 16,000 of the enrollees already receive state coverage through the HUSKY program for low-income children and parents, while the remaining 85,250 would be new to state coverage, with unknown costs.

To calculate the cost of coverage, OFA took into account the current per-person HUSKY cost--$3,333 overall for children and adults--and information from the Connecticut Insurance Department that covering adults costs approximately 2.5 times the cost of covering a child. If the newly covered people are similar to adults in HUSKY, the fiscal note said, the state could expect to pay $6,000 a year per person by 2014. But if the costs of covering the new enrollees are more like those for people in a new Medicaid program for low-income adults, the plan could cost $9,000 per person, the report said.

Dorn argued that both ends of the potential cost range were incorrect. Figures from fiscal year 2007 show that Connecticut spends only 3.5 percent more for adults in HUSKY than children, he wrote. Based on that, the state could expect to spend $3,759 for those adults in 2014.

As for the projection that new enrollees could cost $9,000 a year, Dorn wrote, it incorrectly compares them with the very poor childless adults in the Medicaid low-income adults program, which covers many people with chronic mental and physical problems. The adults who qualify for the basic health program would be relatively healthy and working, he wrote. He projected that the newly enrolled adults would cost $3,195 per year.

Dorn also disagreed with OFA's projection of how much federal funding the state would get to run the basic health plan. The federal government has not yet released information required to calculate how much it will pay, so the figures Dorn and OFA used are both estimates.

States that offer a basic health plan would get 95 percent of the subsidies the federal government would otherwise have paid to individuals to buy insurance and cover copayments and other cost-sharing requirements. The subsidies are based on the cost of a midlevel plan sold in the exchange, the marketplace for buying coverage under health reform.

For its analysis, OFA estimated that a midlevel plan would cost $4,500, attributing that figure to a general estimate used by the Congressional Research Service and the Congressional Budget Office. From that, OFA projected that the federal government would provide $3,325 a year for each person covered by the basic health plan. Given the projections that coverage would cost between $6,000 and $9,000 per person, the state would be left paying between $2,675 and $5,675 a year for each enrollee.

Dorn wrote that the $4,500 estimated cost was incorrect, and cited a Congressional Budget Office projection that in 2016, the premium for a midlevel plan would be $5,200. OFA also failed to take into account federal subsidies for cost-sharing requirements in the plan, he argued, which would add to the funding the state would receive. Based on his figures, Dorn wrote, the state would receive $4,758 for someone in the middle of the basic health plan income range--more than the $3,195 to $3,759 he projected it would cost the state to cover them.

Dorn also took issue with OFA's projections for the costs of the quasi-public agency that would run Sustinet--less than $4 million in the first year and less than $6 million per year after that. Because much of the SustiNet authority's functions related to Medicaid and the state employee and retiree health plan are already being handled by state agencies, he wrote, savings in administrative costs in the agencies would largely offset the cost of the SustiNet authority. Administrative costs related to Medicaid could also be partially reimbursed by the federal government, he wrote.