Indiana Uses Market-Based Plan to Help Uninsured

Published June 1, 2008

Indiana Gov. Mitch Daniels (R) has used free-market thinking and a healthy dose of individual responsibility to create an innovative program to help uninsured people in the state get health insurance.

The Healthy Indiana Plan (HIP) passed the legislature with bipartisan support last year, and people already are enrolling in the new program. It has funding to cover 130,000 people, and thousands of applications have already been received.

Works Like HSA

Participants get a POWER account (Personal Wellness Responsibility) to use for routine health spending and are covered by health insurance for larger medical bills.

The state of Indiana and HIP participants jointly pay into the POWER account, giving enrollees $1,100 a year to spend on routine care such as doctor’s visits and prescription drugs. After that, regular insurance triggers in, just as with a Health Savings Account.

In addition to paying for all medical bills above $1,100, the insurance covers up to $500 a year in preventive care, such as cancer screenings.

Payments Capped

People are eligible for HIP if they have been uninsured for more than six months, don’t have access to job-based health insurance, and earn less than 200 percent of the federally defined poverty level–about $41,300 a year for a family of four.

The amount they pay into their POWER account depends on their income, but no one will pay more than 5 percent of income.

For example, for a family of four with an income of $20,000 the state deposits $480 into the POWER account, and the family pays $620 a year, or about $52 a month. For that they get the $1,100 in their account to pay for small medical bills, plus insurance covering preventive care and all medical bills above $1,100.

If they have any money left in their POWER account at the end of the year, it rolls over to help fund their share of the account in the next year.

Responsibility, Security

The plan encourages responsible health spending because people see the money in the account rolls over if they spend wisely. And they have the security of knowing they have health insurance that will cover them and their families so big medical bills will not bankrupt them if someone gets sick or injured.

Many states want to simply expand Medicaid to cover the uninsured. Instead, Daniels wanted to give people new incentives to spend money wisely, get preventive care, and become partners in managing their health costs.

Shelly Ross, a community college instructor and divorced mother of two, was one of the first people to sign up for the plan. She makes $25,000 a year and pays $91 a month for her coverage. She already has had a cataract excised and received the mammogram she had been putting off. “I’m smiling when I’m writing that check,” she told a columnist for the New York Sun. “It’s not like I wanted a free ride.”

Other States Interested

Daniels had to work hard to convince the federal government to approve the plan, because it is funded partly with Medicaid money and the Office of Management and Budget saw it as a big change. Daniels also passed an increase in the cigarette tax to fund his state’s share of the program, for which he was severely criticized.

But Daniels said he believed Indiana’s high uninsured rate and declining job-based insurance required a creative solution and thus HIP was worth the price.

The plan is popular in Indiana, and other states now are looking at whether this creative, market-based solution to help the uninsured get coverage could work for them as well.

Grace-Marie Turner ([email protected]) is president of the Galen Institute.