By Jeffrey Barg

State Sen. Joseph F. Vitale

Published June 2008

State Sen. Joseph F. Vitale’s (D-Middlesex) universal health insurance plan, two years in the making, is off to an impressive start in the New Jersey Senate. The first phase of the plan, S1557, was introduced on April 7th, approved unanimously by the Senate Health, Human Services and Senior Citizens Committee on May 15th, and approved unanimously by the Senate Budget and Appropriations Committee on May 19th. The measure expands eligibility and outreach for NJ FamilyCare, establishes a mandate for health care coverage for children, and makes various reforms to the individual and small employer health insurance markets. Proponents aim to gain final passage of the measure in both the Senate and the General Assembly by the June 30th recess and to introduce the second and final phase in the fall, according to one of the plans architect’s, David L. Knowlton, president and CEO of the New Jersey Health Care Quality Institute. The second phase includes the creation of a state-managed, commercial-grade insurance plan available to all New Jersey residents, a mandate for all residents of New Jersey to have health coverage, and a collaborative care system for those who remain uninsured.

Vitale, who chairs the Senate Health, Human Services and Senior Citizens Committee, publicly announced his interest in putting forward a universal health insurance plan in April, 2006, in the wake of Massachusetts adopting such a plan. Vitale asked Knowlton to put together a team of experts to devise the plan. Knowlton selected a group of 20 people based on their expertise and experience rather than their organizational affiliation, and the governor also selected two representatives. Knowlton chaired the meetings, which took place for two hours every Thursday throughout the summer and early fall in Woodbridge, so that Vitale, who was serving as interim Woodbridge mayor at the time, could attend every meeting. In 2007, they met with stakeholder organizations and gained political support for the plan. A white paper containing the plan was released on March 17, 2008.

The legislation approved unanimously by the Senate Health, Human Services and Senior Citizens Committee and the Senate Budget and Appropriations Committee has three main components: a "Kids First" mandate, an expansion of NJ FamilyCare eligibility for low income parents, and individual and small employer health insurance reforms.

The "Kids First" mandate requires that all children 18 years of age and younger residing in New Jersey have health insurance coverage within a year after the enactment of the legislation. The coverage can be either employer-sponsored, an individual health benefits plan, the Medicaid or NJ FamilyCare programs, or the NJ FamilyCare Advantage buy-in program. The last option first became law in 2005 but only became operative in January because of difficulty finding a private insurer willing and able to provide statewide coverage at a reasonable price, reported The Times of Trenton. According to the Vitale white paper, this is the last piece in making health insurance accessible to all New Jersey children, by permitting families with incomes over 350 percent of the federal poverty level to purchase coverage for their children at the rate the state pays.

The mandate is necessary because, despite the availability of public programs such as Medicaid, FamilyCare, and FamilyCare Advantage, there are still 242,000 uninsured children in New Jersey, according to 2004 and 2005 Current Population Survey data. The white paper explains that "rather than imposing penalties for non-compliance, a robust outreach and enrollment strategy will be implemented to ensure that children become insured." State agencies will identify and enroll children at school and other points of contact. Hospitals, clinics and physicians will also serve as points of enrollment. The legislation prohibits hospitals from submitting charity care claims for emergency room patients under 19 years of age. Beginning with 2008 state income tax returns, taxpayers would be required to indicate on the return whether the taxpayer and dependents have health insurance coverage on the date of filing the return. The State Treasury would then be required to send Medicaid or NJ FamilyCare applications to eligible uninsured taxpayers. The bill was amended by the Senate Health, Human Services and Senior Citizens Committee to add an appropriation of $1 million for enrollment and retention initiatives.

The bill also expands eligibility for parents to enroll themselves in NJ FamilyCare from 133 to 200 percent of the federal poverty level. "Recognizing that participation of parents in NJ FamilyCare is critical to the success of enrolling children, one key component of this reform plan would take full advantage of federal funding available to New Jersey by immediately expanding NJ FamilyCare to parents whose family income falls below 200% of the federal poverty level," the white paper says. This provision could therefore increase enrollment of children in NJ FamilyCare and better utilize federal funds from the State Children’s Health Insurance Program (SCHIP) to pay for low income parents’ health care.

The legislation also has a number of reforms of the individual and small employer health insurance markets designed to make coverage more affordable. The New Jersey Individual Health Coverage Program, created by the Legislature in 1992, required community rating, which over time has led to the decline of this market, relegating it to older and sicker populations, according to the white paper. S1557 attempts to make individual coverage more affordable to young adults by allowing a premium differential of up 350 percent for individual plans based on age. People who are already on individual plans would be protected from steep rate increases by limiting them to no more than 15 percent annually for the five years following enactment of the legislation. The bill would also raise the minimum amount of premium dollars spent on medical costs from 75 percent to 80 percent for both the individual and small employer markets.

The second phase of Vitale’s reforms would create an affordable state-managed, commercial-grade health insurance product called Garden State All-Care, mandate health coverage for all New Jersey residents, and utilize a collaborative care system for those who remain uninsured.

Garden State All-Care would be a state-sponsored plan administered by commercial insurers. Subsidies would be provided to low-income households to ensure its affordability, according to the white paper. Its benefits would include hospitalization, preventive care and prescription drugs. The white paper notes that the decision to make this plan comprehensive rather than basic is important because basic plans with high deductibles may cause people to forgo primary care and could increase bad debt for hospitals. "A comprehensive plan will ensure consumers have access to the care they need to be healthy, while reimbursing providers for the care they deliver," the white paper argues.

Garden State All-Care will give consumers a choice between a HMO and a PPO plan design. Providers will be reimbursed at commercial rates in order to ensure an extensive network of providers, according to the white paper. The rates will be comparable to those for the New Jersey State Health Benefits Program, Knowlton said in an interview with PND. Having only two plan designs will maximize the underwriting savings by grouping large numbers of people, states the white paper. It estimates that the current annual cost for an individual plan of $16,000 with a $1000 deductible will be able to be reduced by 75 percent. The white paper says that those in the individual market will be merged into Garden State All-Care so that they may benefit from the reduced rates generated by a large risk pool. Knowlton notes, however, that individual policy holders may be able to retain their plan if they wish.

Once Garden State All-Care is in place, which Knowlton says may take up to three years to phase in, all New Jersey residents will be required to have health coverage. The white paper estimates that 248,000 of the uninsured will qualify and enroll in Medicaid or NJ FamilyCare, and that approximately 558,000 will utilize Garden State All-Care.

It is acknowledged in the white paper that there will always be some residual number of residents made up largely of non-citizens and the homeless and transient who will remain uninsured. Non-citizens will not be eligible for subsidized insurance. Hospitals will be required to redirect uninsured patients who require primary care to clinics, and those who require higher levels of non-emergent care will be directed to hospitals designated by the state for the care of the uninsured. The white paper justifies providing care to non-citizens at taxpayer expense because every citizen benefits when the people they come in contact with are healthy, and the Vitale plan makes more efficient use of existing resources to keep the remaining uninsured healthy.

Unlike the Massachusetts plan, the Vitale plan does not mandate that employers provide coverage for their employees or tax employers that do not provide health coverage. The only requirement on employers is that, if they do not provide health coverage, they must provide a Section 125 flexible spending account so that employees can use pre-tax dollars to buy into the State-sponsored plan. The white paper notes that Federal law severely limits states’ ability to force employers to provide coverage and that such mandates can lead to unintended consequences. Knowlton notes that New Jersey has the third highest rate of employer-sponsored coverage in the nation and that he doesn’t expect that to change under the reforms.

The white paper provides some cost estimates, but provides little explanation of where funding will come from other than federal matching funds and the redirection of current charity care funds and other health care subsidies. The New Jersey Department of Human Services projects that in the first year, 52,166 children will enroll in Medicaid, NJ FamilyCare or NJ FamilyCare Advantage for a total State cost of $20.5 million, and that 12,000 new parents will enroll in NJ FamilyCare at a cost of $8.3 million to the state. Mercer Government Human Services Consulting estimates that the cost of insuring 558,000 uninsured adults and children in the State-sponsored commercial insurance plan is $1 billion.

Vitale was invited by the Medical Society of New Jersey (MSNJ) to present his thoughts on universal health coverage, which he did in broad terms with little details in late Fall, according to Joseph H. Reichman, M.D., president-elect of MSNJ.

Afterwards, MSNJ developed a policy statement on principles of coverage of the uninsured. The policy states that New Jersey must take an active role in providing coverage for the uninsured. In doing so, office administration for all practitioners should be minimized and fair reimbursement offered that reflects the costs of practicing medicine and the administrative burdens of utilization review. Expanded coverage would likely lead to rapid spikes in health care utilization in areas in which the uninsured are concentrated and the existing infrastructure could prove to be inadequate. The MSNJ statement argues that "unattractive mandates on physician participation would most likely result in migration of physicians away from those very areas in which the state is trying to increase access. In other words, those regions that would see larger spikes in covered persons must first attract an adequate number of providers, then keep them there, in order to assure that there is, in fact, accessible care."

Moreover, physician networks for any new products must be adequate in both primary and specialized care, preventive health care and mental health care, and patients must have the option of seeing out-of-network providers. Finally, use of private insurance carriers should not give them anticompetitive power over health care providers and consumers. Since different regions of the state are currently dominated by different private carriers, "the state/carrier partnerships should be regionally based, with an emphasis on stimulating competition in a given region in a way that preserves or, in fact, strengthens the physicians’ and patients’ standing in negotiation with carriers." Knowlton says that Garden State All-Care will utilize at least two insurance carriers, while Reichman says that having two carriers would not be enough.

Providing context for the statement, Reichman says that the current practice environment in New Jersey is poor. Reimbursement rates are low and medical liability insurance rates and other practice costs are high. There are already physician shortages, including in primary care. Vitale made a veiled threat of tying participation in public programs to medical licensure if enough physicians were not voluntarily participating, Reichman says. New Jersey physicians perceive that as being thrown another anchor while trying to swim, he adds.

MSNJ has not been actively involved in the development of Vitale’s plan or in subsequent discussions, Reichman says, although they would very much like to be and will continue to try to have constructive input.

Randy J. Minniear, vice president of legislation and policy for the New Jersey Hospital Association, says NJHA would also like to have more input in the discussions. NJHA’s primary concern is the details of the transition between the current charity care system and the new system, ensuring that hospitals will not be on the hook for charity care during the transition, Minniear notes.