By early 2015, 17 million Americans had gained health insurance coverage under the Affordable Care Act. More than eight million are receiving premium subsidies to offset the cost of private coverage, and 6.5 million previously uninsured people now have Medicaid coverage. In states where Medicaid has been expanded, financial assistance of some sort is available to people with incomes between zero and 400 percent of the poverty level.
But people with incomes very close to the Medicaid eligibility cutoff frequently experience changes in income that result in switching from Medicaid to ACA’s qualified health plans (QHPs) and back. This “churning” creates fluctuating healthcare costs and premiums, and increased administrative work for the insureds, the QHP carriers and Medicaid programs.
The out-of-pocket differences between Medicaid and QHPs are significant, even for people with incomes just above the Medicaid eligibility threshold who qualify for cost-sharing subsidies.
The Basic Health Program (BHP) – section 1331 of the ACA – is a possible solution, although interest from states has been underwhelming thus far. Under the ACA, states have the option to create a Basic Health Program for people with incomes a little above the upper limit for Medicaid eligibility, and for legal immigrants who aren’t eligible for Medicaid because of the five-year waiting period.
The Basic Health Program was originally scheduled to begin January 1, 2014, but was postponed until 2015. And so far, only two states have chosen to implement a BHP: Minnesota‘s BHP was effective in January 2015 (see Minnesota’s BHP blueprint), and New York‘s is effective January 2016 (see New York’s BHP blueprint).
For both of those states, a BHP made sense from a financial perspective. It’s possible that other states may join them in the future, but some experts believe that other states will instead wait until 2017 and opt for a Section 1332 innovation waiver to design their own version of healthcare reform.
Why Minnesota and New York?
For several reasons, it made sense for Minnesota and New York to establish BHPs. With a BHP, the federal government pays the state 95 percent of what they would have paid in cost-sharing subsidies and premium subsidies if the BHP enrollees had instead enrolled in the second-lowest-cost Silver plan in the exchange. The state contributes additional funding as needed, and directs all the money to the managed care organizations that provide benefits under the BHP. Coverage under the BHP is available to people who aren’t eligible for Medicaid, don’t have access to an affordable employer-sponsored plan, and whose household income doesn’t exceed 200 percent of the poverty level (a little more than $40,000 for a family of three). And it’s also available to legal immigrants with income up to 138 percent of the poverty level who aren’t eligible for Medicaid because of the five-year waiting period.
Under the ACA, legal immigrants who are ineligible for Medicaid (because of the five-year waiting period) are eligible for premium subsidies in the exchange with income as low as $0. But since 2001, New York has allowed low-income legal immigrants to enroll in state-funded (no federal matching funds) Medicaid. Since a BHP receives significant federal funding, switching to a BHP allows New York to save money on the state-funded Medicaid they provide for low-income immigrants.
New York’s BHP (aka The Essential Plan) also presents a better deal for enrollees. NY Department of Financial Services noted that a person earning about $20,000/year will spend less than half as much in total healthcare costs on the BHP in 2016 than they would have on a subsidized private health plan in 2015.
In Minnesota, the state has operated MinnesotaCare since 1992. The state-funded program offered health coverage to residents who weren’t eligible for Medicaid, and the eligibility threshold extended as high as 275 percent of the poverty level for families with children, and 175 percent of the poverty level for adults without children. By converting MinnesotaCare to a BHP as of January 2015 (it’s still called MinnesotaCare), the state was able to take advantage of the much more generous federal funding that goes with a BHP. MinnesotaCare is projected to have more than 121,000 enrollees during the 2017 fiscal year, and federal funding will cover nearly 43 percent of the total cost of the program.
Enrollees in MinnesotaCare also have far lower out-of-pocket exposure and premiums than they’d pay if they were enrolled in a private, subsidized plan through the exchange. MinnesotaCare’s deductible is about $34, and copays for office visits and prescriptions are $3 in 2016.
So by implementing BHPs, New York and Minnesota are able to utilize federal funding to provide coverage that they were previously offering under state-funded programs. And their residents are able to obtain coverage with lower premiums and lower cost-sharing than they’d get if they had to enroll in private health plans instead.
Massachusetts has a program called ConnectorCare that supplements exchange subsidies for enrollees with incomes up to 300 percent of the poverty level. It’s not a BHP though – ConnectorCare was created as part of a 1115 Medicaid waiver and uses Medicaid funds to supplement the subsidies.
Millions could benefit, but most states keep status quo
Prior to 2014, a Kaiser Family Foundation analysis projected that nationwide, approximately 34 percent of total projected exchange enrollment would be people with incomes between 138 percent and 200 percent of the poverty level.
Among people who purchased private plans through Healthcare.gov in 2015, 65 percent had income between 100 percent and 200 percent of the poverty level, but the enrollment report doesn’t distinguish between people with income from 100 – 138 percent of the poverty level and those with income from 139 – 200 percent. In 2015, there were 21 states on the Healthcare.gov platform that had not expanded Medicaid, which means they had a much higher percentage of enrollees with incomes from 100 – 150 percent of the poverty level (in Medicaid expansion states, Medicaid covers the majority of people in that category, since eligibility extends up to 138 percent of the poverty level; in non-expansion states, subsidy eligibility begins at 100 percent of the poverty level).
A 2012 Health Affairs study found that if all states were to implement BHPs, 1.8 million fewer adults would churn between Medicaid and QHPs each year. To address the problem of churn, New York’s BHP eligibility is determined annually. That means BHP enrollees aren’t subject to churning between Medicaid, the BHP, and private health plans based on income fluctuations during the year.
At least eight states were considering implementing a BHP in 2015, although Minnesota was the only state that moved ahead with their plans. And for 2016, New York is the only state that has joined Minnesota in offering a BHP.
In October 2015, HHS issued proposed guidelines for determining federal payments to states that operate BHPs in 2017 and 2018. States that wish to establish a BHP in 2017 must submit their proposals to HHS by May 2016. So far, none have indicated that they will do so, and Minnesota has considered the idea of switching to a 1332 innovation waiver to replace MinnesotaCare, as the waiver would allow the state to use 100 percent of the funds the federal government would have spent on premium subsidies and cost-sharing subsidies, as opposed to 95 percent with the BHP structure.
The ACA requires states that operate a BHP to coordinate BHP eligibility and enrollment with Medicaid, CHIP (Children’s Health Insurance Plan), and QHPs in the exchange, but states are given plenty of leeway in designing their BHPs within the basic guidelines established by HHS. States can create BHPs that contract with Medicaid managed care organizations and jointly administer BHPs with Medicaid, effectively creating seamless coverage for everyone under 200 percent of poverty level, with continuity of benefits and providers. States also have the option of combining BHP risk pools with exchange risk pools in order to avoid destabilization of the private market that might occur if too many people were shifted to a separate BHP risk pool.
Both New York and Minnesota have made their BHPs available through their state-run exchanges, and both have opted to have BHP enrollment run year-round, like Medicaid, rather than having defined open enrollment periods like QHPs.
Lower costs for enrollees
A BHP must limit premiums and cost-sharing to no more than the amounts that insureds would otherwise have paid in the exchanges with the regular premium and cost-sharing subsidies. But in reality, they’re likely to be far lower since BHPs are generally modeled on Medicaid and CHIP. This is certainly the case in New York and Minnesota, where BHP enrollees face far less in out-of-pocket spending and premiums than they would if they had to purchase even heavily-subsidized QHP coverage in the exchange.
Lower premiums and out of pocket costs in BHPs will likely lead to higher enrollment and coverage retention among the population with incomes under 200 percent of poverty level.
Funding for BHPs comes from a combination of state and federal money, as well as some cost-sharing for enrollees.
- In New York, there’s no Essential Plan premium for enrollees with income below 138 percent of the poverty level who are eligible for the BHP because they’re in the five year waiting period for Medicaid. Enrollees with income between 139 percent and 150 percent of poverty only pay a premium if they want dental and vision coverage in addition to the health plan, and enrollees with income between 150 percent and 200 percent of the poverty level pay $20/month – directly to the managed care organization providing the coverage – for Essential Plan coverage.
- In Minnesota, some groups don’t pay premiums for MinnesotaCare. But most pay premiums on a sliding scale, ranging as high as $80/month but averaging about $16/month.