Under the Affordable Care Act (ACA), states can choose to establish a Basic Health Program (BHP) to offer more affordable coverage to people with incomes up to 200 percent of the federal poverty level (FPL) who do not qualify for Medicaid. Under BHP, states contract directly with insurers to cover BHP enrollees with plans separate from the Marketplaces. The federal government pays the state 95 percent of the Marketplace premium tax credits (PTCs) that BHP enrollees would have received if they had enrolled in the Marketplaces. Currently, two states—New York and Minnesota—have a BHP, and Oregon has received federal approval to implement one. In this brief, we examine the fiscal feasibility of a BHP in the remaining states, finding that five states could implement a BHP that makes coverage substantially more affordable while fully covering state costs with federal payments.

WHY THIS MATTERS

A BHP has several potential advantages for individuals with incomes up to 200 percent of FPL compared with Marketplace coverage. While the enhanced PTCs introduced in 2021 made health coverage in the Marketplaces more affordable and led to record-high Marketplace enrollment by 2023, concerns remain about the affordability of coverage for those with incomes too high to qualify for Medicaid. Current BHP states use the program to provide coverage with lower premiums and cost sharing than what is available in the Marketplace. In addition to being lower, BHP premiums can be structured as a fixed dollar amount by income group, making them much simpler to administer than Marketplace PTCs, which are computed on a sliding scale by family income. Also, Marketplace enrollees who receive PTCs must reconcile those amounts with the Internal Revenue Service at tax time, potentially having to repay PTCs if their incomes rise; BHP enrollees would not do so.

WHAT WE FOUND

We find that BHPs with these parameters would benefit those eligible in multiple ways:

• With high take-up, BHP could reduce the number of eligible uninsured people by between 39.5 percent and 71.5 percent in the various states.
• Health care spending of BHP enrollees would decline by between 60.8 percent and 87.4 percent, an annual decline of between $685 and $1,640 per person.

On the other hand, a BHP comes with some trade-offs:

• A BHP is not part of the private nongroup market, so the number of covered lives in that market would decrease by 22.3 to 36.7 percent in Iowa, Wisconsin, and Illinois, with a larger decrease in Wyoming because it has not expanded Medicaid eligibility under the ACA.
• A BHP would increase premiums for many higher-income people getting PTCs. This is a result of “silver loading,” the process by which insurers set higher silver premiums to cover the cost of the ACA’s cost-sharing reductions available to low-income Marketplace enrollees after the Trump administration stopped federal reimbursement of cost-sharing reductions.

HOW WE DID IT

We simulated BHPs in all states using the Urban Institute’s Health Insurance Policy Simulation Model.