In the US, as in other developed countries, there is a relatively long history of publicly-funded need-based subsidies flowing to individuals to assist them in meeting general or specific human needs.  In the US, these programs range from basic income assistance such as the Earned Income Tax Credit, to assistance for families with children such as Temporary Assistance to Needy Families (TANF) to more specialized programs such as Section 8 (housing), Food Stamps (nutrition) and Medicaid (healthcare). All need-based subsidy programs arise out of a broad political consensus that amelioration of extreme poverty or its specific concomitants like hunger and poor health are desirable public policy outcomes.

However, desirable public policy outcomes may or may not be mean there is a consensus that they are public goods, meaning  that consumption of the good by one individual does not reduce the amount of the good available for consumption by others; and no one can be effectively excluded from using that good.  For example, US need-based subsidies for healthcare tend to be more universal for children than for working adults, suggesting that the good health of children may be more widely seen as a public good than is the good health of adults. In fact, the increased responsibility being pushed onto working adults for the financial decisions about their own healthcare suggests that the political apparatus view healthcare for working adults increasingly as a private good with payment of patient portion of medical expenses being viewed as private human capital investments, much like post-secondary education.

Whether or not they are seen as supporting the creation and maintenance of public goods, long established need-based subsidies in healthcare such as Medicaid and the State Children’s Health Insurance Program (SCHIP) have historically -- and continue -- to play important roles in reducing the patient portion of medical expenses for the most deeply impoverished segment of the population.

Another type of need-based subsidy is emerging in state-mandated charity care programs designed to ensure that hospitals provide care to low income people who do not qualify for Medicaid and have no health insurance coverage.  For example, New Jersey’s Care Assistance Payment Program is currently budgeted at $716 MM, from the Health Care Subsidy Fund administered under Public Law 1997, Chapter 263.

A new type of need-based subsidy is also being implemented in Massachusetts: payment to assist people who are well above the poverty line to afford to pay health insurance premiums.

Participation rates for even long-established need-based subsidy systems remain disturbingly low. For example, Food Stamp program participation rates remain in the 65% range nationally, with some states achieving rates just under 50% and others achieving rates as high as 85%.  A number of initiatives have been undertaken to equip entities with front line contact with the poor with electronic tools to test eligibility, calculate benefit levels, and apply for need-based subsidies. Each of these has a different business model. For example, The Benefit Bank typically seeks to implement a state-wide network, includes the Earned Income Tax Credit in the calculation of and application for benefits, and has recently attracted a number of Governors to their geographically and programmatically comprehensive approach.

RealBenefits tends to focus on institutions such a hospitals which have a strong self-interest in making such that their patients are signed up for subsidy programs which they can use to pay for the entity’s services, e.g. Medicaid and SCHIP in the case of hospitals. While such initiatives are attractive and while each can claim to have signed up significant numbers of low income people for need-based subsidy programs, it is not yet clear how substantial their impact will be on state and national participation rates.

New Jersey’s Care Assistance Payment Program is currently budgeted at $716 MM, from the Health Care Subsidy Fund administered under Public Law 1997, Chapter 263. The Fund has several sources of revenue including the State’s General Fund, some Unemployment Insurance tax money and taxes on HMOs and non-hospital ambulatory care facilities, Hospital care payment assistance is available to New Jersey residents who:

1. Have no health coverage or have coverage that pays only for part of the bill; and
2. Are ineligible for any private or governmental sponsored coverage (such as Medicaid); and
3. Meet both the income and assets eligibility criteria listed below:

Assets Criteria

Individual assets cannot exceed $7,500 and family assets cannot exceed $15,000.

Should an applicant’s assets exceed these limits, he/she may “spend down” the assets to the eligible limits through payment of the excess toward the hospital bill and other approved out-of-pocket medical expenses.

Hospital assistance is also available to non-New Jersey residents, subject to specific provisions.

If patients on the 20% to 80% sliding fee scale are responsible for qualified out-of-pocket paid medical expenses in excess of 30% of their gross annual income (i.e. bills unpaid by other parties), then the amount in excess of 30% is considered hospital care payment assistance.

Under Title XXI of the Balanced Budget Act of 1997, the availability of health insurance for children with no insurance or for children from low-income families was expanded by the creation of SCHIP. SCHIPs operate as part of a state's Medicaid program. Although Medicaid has made great strides in enrolling low-income children, significant numbers of children remain uninsured. From 1988 to 1998, the proportion of children insured through Medicaid increased from 15.6% to 19.8%. At the same time, however, the percentage of children without health insurance increased from 13.1% to 15.4%. The increase in uninsured children is mostly the result of fewer children being covered by employer-sponsored health insurance. The Balanced Budget Act of 1997 created a new children's health insurance program called the State Children's Health Insurance Program. This program gave each state permission to offer health insurance for children, up to age 19, who are not already insured. SCHIP is a state administered program and each state sets its own guidelines regarding eligibility and services.  As with the Medicaid program, those enrolled in SCHIP receive a card which resembles other third party payment commercial and public health benefit systems.

SCHIP has grown rapidly since its introduction in 1997 and now stands at a total of over $8 Billion funded by both State and Federal governments in what is for the states a more favorable ratio than that produced by the Medicaid cost sharing formula:

The federal financial contribution ranges from 65 to 84 percent of total program dollars depending on the state with wealthier states paying a higher share and poorer states paying a lower share. States have rapidly taken advantage of this relatively new source of funding for health insurance, but their own budgetary constraints have created wide variations in how aggressively states have used SCHIP, producing major inconsistencies from state to state with respect to coverage and participation rates.

Particpation Rates

According to an Urban Institute brief, in “…August 2007, the Centers for Medicare and Medicaid Services (CMS) issued a new directive that required, among other things, that states achieve public health insurance participation rates of 95 percent among children living in families with income under 200 percent of federal poverty level (FPL) as a prerequisite for using State Children’s Health Insurance Program (SCHIP) funds to cover children with family incomes above 250 percent of the FPL (Smith 2007). …achieving 95 percent participation will be very difficult under current program rules and financing levels and …there are serious methodological challenges associated with obtaining valid state-level participation rate estimates given the currently available data. Finally, while there is ambiguity about how CMS will be defining participation rates, the state-level estimates recently released by CMS are lacking in face validity and are methodologically flawed. Nonetheless, SCHIP had proven to be an effective way to assist families with the children’s portion of previously uncovered medical expenses, freeing up resources to needed to meet other demands on tight budgets, including adult uncovered medical expenses, if necessary. Many proposals for further extensions of SCHIP’s reach into higher and higher income strata continue to circulate in Congress.

The Food Stamp Program provides a basic nutrition safety net to millions of people. With roots in the Depression era, the current program structure was implemented in 1977 with a goal of alleviating hunger and malnutrition by permitting low-income households to obtain a more nutritious diet through normal channels of trade. The program provides monthly benefits to eligible low-income families which can be used to purchase food. Through the electronic benefit transfer systems (EBT) the use of food stamp “coupons” is no longer the means in which a client receives their benefits. EBT replaces paper coupons through use of a benefits card, similar to a bank card. All 50 states, DC, and Puerto Rico are now using EBT systems.

The average monthly participation level in fiscal year (FY) 2007 was 26.47 million individuals at a total cost of $33.17 Billion.  One of the strengths of the Food Stamp Program is its ability to respond to local, state, and national economic changes and emergencies. The federal government pays 100 percent of food stamp program benefits. Federal and State governments share administrative costs (with the federal government contributing nearly 50 percent).

The Food Stamp Program is targeted toward those most in need. Of all food stamp households in FY 2003 (the year for which the most recent detailed USDA data are available), 55 percent contain children; households with children receive 79.3 percent of all food stamp benefits. Roughly 18 percent of food stamp households contain an elderly person and 23 percent contain a disabled person. Approximately 88 percent of food stamp households have gross incomes below the poverty line ($18,100 for a family of four in 2002). Approximately 38.4 percent of food stamp households have gross incomes at or below half of the poverty line.  Benefit levels remain low, with the average monthly per-person benefit hovering at about $95 as of FY ’07.

Efforts are often made to legislate good nutrition behavior into the Food Stamp program, e.g. by prohibiting the use of Food Stamp benefits for the purchase of food deemed unhealthy or, much more recently, by providing a small incentive for the purchase of food deemed particularly healthy, e.g. fresh fruit. These efforts have always been defeated by the many interests supporting the Food Stamp program on the grounds of wanting to avoid stigmatization of those using the Food Stamp card.

Participation Rates: As with many need-based subsidy programs, Food Stamp program participation rates – measured as the percentage of the eligible population actually receiving benefits – remain low at about 65%, with very wide variation from state to state. According to the most recent USDA data, In fiscal year 2005, estimated rates for all eligible persons ranged from just below 50 percent in several States to over 85 in several others. Missouri ranked the highest with an estimated rate of 95 percent.

Need-based subsidy systems hold the promise of empowering the individual to choose among competing providers for the service required.  The drawbacks with need-based subsidies as they have been implemented in the US federal system include persistent problems achieving participation approaching the theoretical ideal of 100% of those eligible and often wide variability among states with respect to coverage eligibility criteria.

Speaks to multiple leverage points.

• Visible gaps in coverage
• Unless they are equipped with sliding scales, need-based subsidy programs will have massive “cliffs” in benefit payouts, causing gaps in coverage
• Failures of need-based subsidy programs demonstrate a different type of coverage gap, as do state-specific eligibility criteria
  
• Smoothing the vicissitudes
• Need-based subsidies provide additional predictability to the financial lives of low income people
  
• Healthcare as a public good
• Some need-based systems seem more rooted in the idea of health and wellness as a public good, than others
  
• Rebalancing of Intermediation and Disintermediation
• Need-based benefit payment systems using cards and automated payment processing can promote better direct relationships between consumers and providers than paper- or cash-based, reduce overhead expenses for those in the intermediation chain
  
• Anticipation of out-of-pocket revenue and expenses
• Providers benefit substantially from need-based subsidy programs
• Consumers can cover patient portion health-care expenses better if they are maximizing their use of all available need-based subsidy programs