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February 2012 St@teside

No Clear Answer for States Considering a Basic Health Program

The Basic Health Program (BHP) under the Affordable Care Act (ACA) gives states an opportunity to make health care coverage more affordable for people with low incomes (between 138 percent and 300 percent of the Federal Poverty Level (FPL)) than the coverage they could obtain through the exchange. The BHP option could also provide continuity of provider networks as individuals move from the Medicaid program into the BHP, especially if it is built off of a state’s Medicaid managed care infrastructure. However, many questions remain about its impact on state resources and on the exchange and about the trade-off between potentially diminished churn1 at the 138 percent of FPL and the creation of a new churn point at 200 percent of FPL. Consequently, a number of states have begun to analyze whether the BHP would be a good option for their states, but none has committed to establishing one.

Several state-commissioned reports and analyses have examined the feasibility/viability of implementing the BHP in some states.

The Hilltop Institute at the University of Maryland, Baltimore County estimated the costs and enrollment of a potential BHP option for Maryland by analyzing three scenarios:

  • a Base-Cost scenario, which assumes no change in physician payments, and no utilization of Federally Qualified Health Centers (FQHCs);
  • a High Cost scenario, which assumes that physician payments will increase to 100 percent of Medicare fees, and FQHCs will provide 15 percent of all physician services; and
  • an Urban Institute model, which assumes that the BHP enrollees are younger and healthier working adults whose costs per enrollee are lower than those for the exchange enrollees.

The analysis indicated that:

  • Under the Base-Cost and the High-Cost Scenarios, the state would not be able to operate a BHP with only federal funds and enrollee premiums.
  • Under the Urban Institute model, the state could realize savings, but may incur administrative costs, if savings cannot be used for administrative expenses.
  • The state may want to postpone the implementation of a BHP, especially since the BHP provisions do not have an implementation deadline and BHP guidance is expected in 2012.

With support from the California HealthCare Foundation (CHCF), Mercer Consulting published a study in June 2011, to determine the feasibility of implementing the BHP option in California at existing MediCal managed care payment rates. The report concluded that:

  • The BHP option is indeed feasible in California, without spending additional state funds.
  • The impact on the exchange would likely be minimal because the state has a large population which would lead to higher enrollment in the exchange than is expected in other states.
  • The analysis is limited in its ability to estimate the impact of the BHP option due to the unclear federal guidance and unknown factors related to the implementation of the exchange.

However, a longitudinal survey data analysis by the Institute for Health Policy Solutions (IHPS) showed that the BHP would be very expensive to administer.  This is primarily due to a large number of people who would be eligible for the BHP option as well as low federal funding resulting from the tax subsidies reconciliation process. That is, the study estimates that the number of people who are eligible to enroll in the BHP over the course of the year is four times higher than the number who would qualify at the beginning of the year. In addition, only 30 percent of those who meet the eligibility criteria at the beginning of the year will have final annual incomes in the BHP range. Given that federal payments to states for the BHP are based on the year-end reconciliation amounts and not on the projected income of enrollees at the time they apply for BHP, states will receive a lot less than they expect when the new BHP members enroll.

Mercer Consulting also produced a report based on economic and actuarial modeling of the BHP option for Connecticut. It also considered three scenarios:

  • the low-cost BHP, which has low out-of-pocket costs for enrollees;
  • the alternative scenario, which has somewhat higher member out-of-pocket costs starting with those at 138 percent FPL and includes a gradual increase in out-of-pocket costs; and
  • the no-cost Medicaid scenario, which extends Medicaid to individuals up to 200 percent FPL. 

The report indicates that:

  • Under all three scenarios, it appears to be feasible for the state to implement the BHP, but it is difficult to determine which scenario is preferable.
  • The low-cost BHP scenario makes health care coverage more accessible and affordable for people close to 138 percent of federal poverty level, but dramatically increases the rate shock for people moving from the BHP option into the exchange. 
  • The alternative scenario decreases the out-of-pocket costs difference between the exchange and the BHP option, but increases cost for the people close to 138 percent of FPL. This scenario would also be the safest route for a state trying to ensure state dollars would not be needed.
  • The Medicaid scenario would be most advantageous to consumers, but would present the greatest risk to the state’s budget.

Rhode Island has conducted an initial assessment of the BHP option and it is considering building it off of an existing and successful program called RIte Share, a premium assistance program for people who have access to employer-sponsored coverage, but cannot afford to pay the premiums. Pairing the two programs would reduce financial risk to the state and support employer-based coverage. The state may not begin the process of implementing its version of the BHP option until it ensures that federal regulations allow it to extend the RIte Share model to the BHP.

Washington State’s analysis of whether to implement a federal BHP weighs the options in the context of a $2 billion projected deficit as well as an already existing state Basic Health Plan that may be cut during the legislative session.  Although the analysis indicates that the state could implement the federal BHP options, it also raises some concerns:

  • The estimated difference between the federal payments and the cost per participant may not be sufficient to ensure that the state’s budget would not be at risk.
  • The state would likely have to fund the administrative expenses, which will be even greater if the state eliminates its state basic health plan than if the state does not.
  • Attracting consumers back to a plan similar to the one that had just been eliminated may be difficult.

An analysis of the BHP feasibility for New Jersey indicates that it is possible for the state to build a BHP if the reimbursement levels to providers are lower than in the exchange. However, no clear option surfaces that would be more advantageous than the others.

A report by the New York State Health Foundation recommends that the state create a BHP option because it would save state money and ensure affordable coverage and continuity of care for low-income New Yorkers.  In addition, the report estimates that 92,000 people who may not be able to afford paying for premiums in the exchange will be able to obtain coverage through the BHP rather than end up being uninsured.

The reports all note the limitations of their estimates which are based on assumptions that may change as a result of expected federal regulations and the implementation of an exchange.  Federal regulations are expected to clarify questions such as:

  • Whether federal funding would cover administration of the BHP option. For example, if a state realizes savings, according to the ACA, it would have to put the savings back into the program to lessen enrollee premiums or expand the benefit package. It is unclear whether some of the savings can be used for administrative expenses.
  • How the retrospective adjustments to the amounts of federal BHP premiums and cost-sharing subsidies to the states would be determined to account for the actual income and health status of each enrollee.

In addition, until a federal exchange is implemented there are a number of unknown factors related to the cost of the exchange plans, the content of the state’s essential benefit package and the risk profile of the BHP and exchange populations that can impact the financial sustainability of both the BHP and the exchange. 

1Churning is the movement of people between Medicaid and the exchange as their household income changes from 138 percent FPL to above this level.