In a report for the State Coverage Initiatives program of AcademyHealth, funded by the Robert Wood Johnson Foundation, Stan Dorn explores how states could use the Basic Health Program (BHP) option to provide low-income adults with more affordable and continuous coverage than they would otherwise receive from federal subsidies in the exchange. With BHP, a state could, in effect, extend the cost-sharing protections of Medicaid or the Children’s Health Insurance Program to adults with incomes up to 200 percent of the federal poverty level, using 95 percent of what the federal government would have spent on subsidies in the exchange. Dorn finds that, on average, federal BHP dollars will exceed baseline Medicaid costs and that implementing BHP would cause only modest reductions in the size of state exchanges.
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The Patient Protection and Affordable Care Act (ACA) offers states the option to implement the Basic Health Program (BHP). BHP gives states 95 percent of what the federal government would have spent on tax credits and subsidies for out-of-pocket costs for two groups:
- Adults with income between 133 and 200 percent of the federal poverty level (FPL); and
- Legally resident immigrants with incomes below 133 percent FPL whose immigration status disqualifies them from federally matched Medicaid.
If a state implements BHP, these two groups of consumers cannot receive subsidized insurance in the exchange. Instead, the state covers them by contracting with health plans or providers. Such contracts must provide at least the minimum essential benefits under ACA, and consumers may not be charged more than what they would have paid in the exchange.
Rather than analyze the full range of state options for implementing BHP, this paper focuses on strategies that reduce health care costs for low-income residents. Of course, ACA’s tax credits and other subsidies will make coverage much more affordable to the uninsured, but research suggests that the amounts charged in the exchange could still deter many low-income consumers from signing up for coverage. A further deterrent to enrollment could be consumers’ fear of owing money to the Internal Revenue Service at the end of the year if their annual income turns out to exceed what consumers anticipated when health insurance tax credits were paid during the course of the year. Finally, among some low-income adults who sign up for coverage, out-of-pocket costs could delay or prevent utilization of necessary care.
The BHP option permits states to sidestep these obstacles by giving low-income residents “Medicaid look-alike” coverage or “CHIP [Children’s Health Insurance Program] for adults,” with lower consumer costs than will be charged in the exchange and without any risk of beneficiaries incurring year-end tax debts. In many, if not most, states, the federal government would pay all the costs of such coverage. Primarily because provider payments are higher with private insurance than with Medicaid, federal BHP payments are projected to exceed by 29 percent what it would cost Medicaid to cover BHP-eligible adults in the average state.
This projection assumes that plans in health insurance exchanges will charge premiums like those in current private markets. If premiums in the exchange—hence, tax credits—exceed anticipated levels, then federal BHP payments will be higher than the amounts estimated here. Conversely, if premiums are lower than expected—for example, if an exchange obtains low premium bids, or inexpensive Medicaid plans join an exchange and cause tax credits to be set at low levels—then federal BHP funding will fall below projected levels.
Notwithstanding these factors, if premiums in the exchange are similar to those charged by today’s insurers, a state may be able to integrate BHP, Medicaid, and CHIP into a single, rebranded program serving all uninsured residents with incomes up to 200 percent FPL. Although cost-sharing could rise modestly as income increased above 133 percent FPL, the same health plans would provide coverage so long as income remained below 200 percent FPL, thus improving continuity of care. In addition, if “safety net” plans with a history of operating in low-income communities do not offer coverage through the exchange, they could nevertheless continue serving low-income consumers when incomes rise above Medicaid levels.
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