Public Assets Institute2
plan, the analysis assumes the household will paythe necessary premiums and out-of-pocket costsfor an assumed level of health care services. Theamount a household pays for health care varies based on the household income because of various public programs, including public insurance and premium subsidies. Therefore, public programsthat cover more of these costs effectively increasethe household income available to meet other needs.The methodology for this analysis has three basiccomponents:1.
Basic Needs Budget After Paying forHealth Care.
This is calculated by subtract-ing all health care costs (premiums and out-of-pocket costs) from the Basic Needs Budget. Basic Needs Budgets, prepared in manystates, document the cost of meeting basicneeds for various household conﬁgurations(e.g., one-adult, one-child household; one-adult, two-children household; etc.).2.
Effective Income After Paying for HealthCare.
Although the cost of basic needs after paying for health care is the same for a givenhousehold conﬁguration regardless of wages,the ability of the household to meet thoseneeds depends on wages, taxes and publicassistance. To calculate the effective incomeavailable to meet the household’s remainingneeds at each gross wage increment, theanalysis starts with the annual gross wageamount, then:a. Subtracts state and federal incometaxes, b. Adds any other public assistance thehousehold may be eligible for to helpmeet its remaining basic needs, thenc. Subtracts the amount paid by thehousehold for:i. health insurance premiums, andii. all out-of-pocket costs for thehousehold’s assumed level of health care services, which is based on actual services used (median by age group) as reported by MEPS
.This number is adjusted for theactual coverage provided by theinsurance policy being analyzed tocalculate the out-of-pocket costs of thehousehold.3.
An important variable in evaluatingany health insurance plan is the extent of the household’s ﬁnancial risk should theyexperience higher than median health carecosts in the case of severe illness or accident.To estimate these costs, this analysis uses thesame MEPS data but chooses the 90th per-centile, by age group. Any costs not covered by the insurance or managed care plan must be paid by the household. As this extra costwould reduce the household’s ability to meetits remaining basic needs, it is subtractedfrom the Effective Income After Paying for Health Care and is shown in the chart as aseparate “risk” category.
The following analysis shows two charts thatuse this methodology for a household with oneadult and one dependent child: Chart A is theexisting situation in Vermont for 2004 (the mostrecent available data) and Chart B assumes thatthe household had access to Catamount Healthin 2004. The charts illustrate the impact of Cata-mount Health on both the economic momentumfor the household and the annual gross wagesneeded to pay for basic needs. The x-axis (bot-tom) shows the household’s annual gross wagesand the y-axis (left) is the effective income lev-els. Starting with the minimum wage
level onthe left, as gross wages increase, the chart tracksthe household’s effective income after paying for
Medical Expenditure Panel Survey of the Agency for Healthcare Research and Quality, U.S. Dept. of Health andHuman Services, www.meps.ahrq.gov
Vermont’s minimum wage in 2004 was $6.75/hour or $14,040/year.