Monday, April 27, 2020

Boosting ACA coverage in a time of mass unemployment: State options

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In the past five weeks 26 million Americans have lost their jobs. Could national impoverishment prepare a path to universal health coverage?

When tens of millions of household incomes shrink toward the poverty level, tens of millions will become eligible for Medicaid. If double-digit unemployment persists for many years, the program may be upgraded by popular demand and its eligibility threshold may creep up by degrees.

All bets are off if Trump is reelected, as Republicans are sworn enemies of Medicaid. Their 10 years' war against the ACA has at bottom been a drive to defund Medicaid -- roll back the ACA eligibility expansion, impose block granting or per capita caps on remaining Medicaid programs, and throw up barriers to enrollment like work requirements and frequent "redeterminations" of eligibility.  If Republicans regain control of Congress as well as the presidency any time soon -- or neutralize Congress under authoritarian rule -- they'll doubtless succeed in shrinking and hollowing out the program.

If they don't, Medicaid will remain funded, and it stands ready to catch a hefty proportion of the newly unemployed in the 36 states that have enacted the ACA Medicaid expansion. Total enrollment is likely to increase by 16.5 million to about 87 million according to the mid-range estimate in an analysis by Health Management Associates. With no end to our coronavirus exposure in sight, we are probably looking at double-digit unemployment for the foreseeable future. Elevated Medicaid enrollment may persist.

If Democrats win the presidency in 2020, but lack power or will to enact sweeping new coverage expansions, Medicaid coverage, perhaps under different names, will likely expand further.

Blue states looking to avoid (or roll back) massive increases in their uninsured population should look closely at existing state programs that extend Medicaid-like coverage up the income ladder.  There are two existing models that states might follow.

The first is the Massachusetts model: use state funds to strongly increase ACA premium and Cost Sharing Reduction (CSR) subsidies for lower income enrollees -- to 300% of the Federal Poverty Level (FPL) in Massachusetts' case. That increases marketplace enrollment of the young and healthy at low income levels, which improves the risk pool and keeps premiums relatively low for those at higher income levels. Massachusetts recruited Medicaid MCOs to provide the heavily subsidized plans offered at income levels up to 300% FPL, and, by making the lowest-cost silver plan the benchmark, generated competition that helps keep prices low. The state gets partial federal funding for the extra subsidies, however, through a Medicaid waiver that has pre-ACA origins and is not available to other states.

A second possibility for states seeking to extend access to really low-cost coverage is to join Minnesota and New York in implementing a Basic Health Program, an option for states established by the Affordable Care Act. A BHP is a health benefits coverage program for residents with incomes up to 200% of the Federal Poverty Level (FPL) who would otherwise be eligible for subsidized marketplace coverage. In the 2020 marketplace, 200% FPL is $24,980/yr for an individual, $33,820 for a couple, and $51,500 for a family of four.

The BHPs serve not only residents with incomes between 138% FPL (the cutoff for Medicaid enrollment) and 200% FPL, but also legally present non-citizens subject to the "5-year bar" on federally funded Medicaid eligibility. In New York that was a huge incentive, because the state was already providing Medicaid to that population on its own dime, in compliance with a court order. Transferring that population to BHP coverage (at zero premium) was a billion-dollar windfall.*

The BHP: Extending the Medicaid model

The basic BHP proposition is that the state runs the program more cheaply than the private plans in the marketplace, and so can offer coverage with lower premiums and out-of-pocket costs.  Funding is structured so that the program must run cheaply. The federal government funds BHPs at 95% of the estimated cost of marketplace premiums and cost sharing reduction (CSR) subsidies that it would have paid out to low income marketplace enrollees if the state had not started a BHP and those enrollees were in marketplace coverage.

A lower funding level compels lower payment rates to providers. The two existing BHPs, MinnesotaCare and New York's Essential Plan, are essentially managed Medicaid programs.

BHPs have low premiums and low cost sharing. New York’s BHP, dubbed the Essential Plan, is free for enrollees with incomes up to 150% FPL and $20 per month for those with incomes in the 150-200% FPL range. The actuarial value ranges from 95-99% – higher than anything offered in the ACA private plan market, and also higher than almost any employer-sponsored plan.

Premiums for MinnesotaCare, a program that pre-dated the ACA, top out at $80 per month for individual with an income of 200% FPL (again, just shy of $25,000 year), compared to the $135 per month premium for a benchmark silver, CSR-enhanced marketplace plan. Actuarial value is 94% -- the same as silver-CSR plans available to enrollees with incomes up to 150% FPL in the marketplace.  There is no deductible.  Co-pays include $7 for generic drugs, $25 for brand-name drugs, $25 for physician office visits, and $75 for ER visits.

Both MinnesotaCare and New York's Essential Plan offer enrollees a choice of plans offered by more or less the same insurers that participate in each state's marketplace. New York's Essential Plan pays providers 120% of Medicaid rates. MinnesotaCare plans are paid on a capitation basis at the same rates paid to managed Medicaid plans.

The value proposition in a BHP is simple: The government pays the plans less, the plans pay providers less, and the plans charge enrollees less. That is the key to increasing healthcare access and affordability in the United States.  The ACA adhered to this simple formula in its Medicaid expansion - - the chief engine of the law's success in reducing uninsurance and underinsurance. The ACA waived this formula in the design of the marketplace, in which insurers are left to negotiate their own provider payment rates. The much higher rates paid are passed on in premiums paid by the federal government and the individual enrollees -- and to keep this more expensive subsidization from increasing the federal deficit, lawmakers left enrollees undersubsidized. Many potential enrollees consider the available coverage unaffordable (though many also remain unaware of what subsidized coverage will cost them).  Less than half of people eligible for marketplace subsidies (i.e., lacking other insurance) are enrolled, according to a Kaiser Family Foundation estimate (or barely half, according to my fly-specking).

New York's Essential Plan is cost-effective.** The 2019 enrollment report for New York State of Health, the state ACA exchange, noted, "On average, Essential Plan enrollees spend $1,485 less per year on premiums and out-of-pocket costs in the Essential Plan than if they were enrolled in a Qualified Health Plan."  Provider networks are narrow in the BHPs. But they're narrow in marketplace plans as well.

The Essential Plan's low premiums and out-of-pocket costs have massively boosted enrollment. As of Feb. 7 this year, the program had 796,998 enrollees. In 2019, 39% of enrollees were immigrants who would have qualified for Medicaid if they were not subject to the 5-year bar for federal funding -- that is, they had incomes under 139% FPL.**   As that ratio has probably not changed (a breakout for 2020 is not yet available),  enrollment at the 139-200% FPL income level was about 486,000 in February.  In 2015, prior to the opening of the BHP to people in this income range, marketplace enrollment at 139-200% FPL was about 166,000.  Enrollment in this income range has just about tripled.  By contrast, enrollment at incomes over 200% FPL (where marketplace eligibility begins in New York) has risen just 9% since 2015, from about 249,400 to 272,998.

The Essential Plan's low entry bar has attracted young enrollees, which improves the risk pool and helps keep costs low. As of 2018, 61% of Essential Plan members were under age 45, according to a report by Stan Dorn of Families USA.

BHP Plusses and Minuses

A BHP can provide challenges to a state's remaining ACA marketplace. It removes from the risk pool those who are offered the most affordable coverage -- people with incomes up to 200% FPL, who in the marketplace would qualify for strong CSR. For people with incomes above 200% FPL, marketplace coverage generally entails high deductibles and out-of-pocket costs. In marked contrast, the Massachusetts model is integrated with the broader state ACA marketplace and so improves the risk pool, helping to keep premiums low for lightly subsidized and unsubsidized enrollees.

But the BHP offers more affordable coverage to those with incomes below 200% FPL than does CSR-enhanced marketplace coverage. And the cold fact is that most of the 26 million newly unemployed -- and therefore potentially newly uninsured -- are likely to have incomes below 200% FPL. Excluding the $600/week extra unemployment benefit provided for four months in the CARES Act, the COVID-19 relief package enacted in late March, the average normal unemployment benefit nationally is $378 per week. The BHP eligibility threshold, 200% FPL, is $24,980 for an individual, $33,820 for a couple, and $51,500 for a family of four.

In 2018, 50% of the uninsured had incomes under 200% FPL, according to the Census Bureau. That's down from 55% in 2013; the latter half of a long, slow economic expansion produced some real increases in wealth. But in a pandemic-crippled economy, that percentage is all but certain to climb.

BHP funding battles and prospects

The Trump administration has created funding challenges for the two existing BHPs. In the original funding formula, a state received 95% of the estimated funding for ACA marketplace premiums and CSR subsidies for enrollees with incomes up to 200% FPL. Until October 2017, insurers were reimbursed directly for providing CSR, which raises the actuarial value of a silver plan (70%) to roughly platinum level (90% on average) at incomes up to 200% FPL.  When Trump cut off CSR reimbursement in October 2017, insurers responded by pricing CSR directly into silver plan premiums (a practice known as "silver loading"). CMS then changed the BHP funding formula, eliminating reimbursement for CSR and shorting the two states roughly $1 billion in 2018.

After a legal dispute, the feds settled with the BHPs, introducing a new formula for 2018 that took the premiums inflated by silver loading (also inflating premium subsidies, which are keyed to a silver plan benchmark) into account. At the same time, in a final rule published this past November,  CMS discounts the reimbursements to the extent that marketplace enrollees with incomes under 200% FPL increase their selection of bronze plans, which cost the federal government less than silver (silver loading makes bronze plans relatively cheaper). By my own calculation, silver plan selection since the CSR cutoff has dropped significantly at the 150-200% FPL income level, from 83% in 2017 to 73% in 2020. The drop at incomes below 150% FPL is far more modest. About twice as many CSR recipients have incomes below 150% FPL as have incomes in the 150-200% FPL (2.6 million vs. 1.2 million in 38 states).

Possibly offsetting this federal haircut, however, are anticipated large increases in marketplace premiums for 2021 in response to the pandemic.  In the face of huge unknowns -- the high costs of Covid-19 hospitalization, the massive cutback in other types of medical treatment, the duration of the pandemic, a likely rush to seek postponed care when the crisis eases -- estimates for insurers' requested rate increases range as high as 40%. Higher marketplace premiums translate to higher BHP funding levels, at least with a receptive Democratic administration.

A further wild card is the enhanced unemployment benefit included the CARES Act. The bill adds a $600/week boost to normal unemployment benefits for up to 17 weeks and extends unemployment eligibility to groups normally excluded, such as the self-employed and those with short work histories. That extra money -- up to $10,200 -- counts toward ACA marketplace subsidy calculations. Among the newly uninsured, it's likely to reduce the percentage of enrollees with incomes under 200% FPL in the short term. That could affect BHP funding by reducing the estimated value of silver loading including in the BHP funding formula. But a BHP can't be stood up overnight; planning now would be for 2022 at the earliest. The unemployment income boost won't factor into 2021 enrollment, unless it's reintroduced, and so wouldn't affect funding for a program launched in 2022 or beyond.

Stan Dorn of Families USA thinks it's possible that House Democrats will push through coverage expansions as part of a major Covid-19 relief bill. There's also a good chance that Republicans will block any such efforts, however.  Under current law, Dorn says, "if premiums go up next year, BHPs may be a really good thing to do, because we're going to have a lot of people in that income range.  It's a potentially great opportunity for states to meet the needs of large numbers of people."

From a fiscal standpoint, Dorn notes, "In New York, even on a current account basis [discounting the initial gain from transferring noncitizens in from state-funded Medicaid], the state is coming out ahead -- the federal payments are exceeding the costs. Minnesota is also coming out ahead.  Premium spikes in the exchange will make BHPs even more viable. If a state does do a BHP and gets more people enrolled, that means more federal money coming into the state. It means more jobs. It means more state general revenue, so less budget cuts."

Beyond the BHP: Buy-ins at higher income levels

For states that want to extend "Medicaidish" coverage further up the income chain, the ACA offers yet another tool: Section 1332 innovation waivers, which enable states to propose alterations to most aspects of ACA marketplace architecture, including metal levels and CSR. An innovation waiver proposal must offer coverage as comprehensive and affordable to at least as many people as does the existing marketplace, and it must not increase the federal deficit.

One potential option is to seek an ACA innovation waiver that would leverage the BHP's lower costs by allowing buy-in at higher income levels, perhaps tiered something like the ConnectorCare premiums, possibly to even higher income levels, or to all comers.

If buy-ins are available at all income levels, however, the program would cannibalize the state's existing individual market. In fact the new "Medicaidish" market, in which the state would control the rates participating plans pay to providers, would probably replace the existing individual market. That would arguably be a good thing, cheaper for all involved -- but it would stimulate fierce resistance from hospitals and doctor groups, which oppose any initiative that increases the percentage of the population covered in plans that pay providers at government rates rather than at commercial rates. Insurers, on the other hand, do very well in managed Medicaid markets and would have no inherent reason to oppose a similarly structured individual market at higher income levels

Given healthcare providers' outsized political clout at every level of U.S. government, a BHP extended with a buy-in option to 300% FPL is likelier to fly than an extension to all income levels. Perhaps buy-in can be extended by degrees over time.

The Massachusetts model: Making the ACA work as intended

In the months preceding the Covid-19 explosion Dorn was pitching state governments to adopt the Massachusetts model: enhance federal marketplace subsidies at low income levels. According to Dorn's analysis, nationally, 63% of adults in the 139-200% FPL income range who are eligible for marketplace subsidies remain uninsured, as do 56% of those in the 201-300% FPL range (those estimates are even more dire than Kaiser's). Making coverage much more affordable, Dorn notes, brings in younger enrollees and improves the risk pool. That has happened in Massachusetts.

The Massachusetts marketplace predates and served as prototype for the ACA's. Its original design subsidized private coverage more heavily than does the ACA marketplace, but offered subsidies only up to 300% FPL, as opposed to the ACA's 400% FPL subsidy ceiling. When the ACA launched, the state used its own funds, partly augmented by a pre-ACA Medicaid waiver, to maintain its prior subsidy level up to 300% FPL.  For enrollees with incomes up to that threshold, the state offers ConnectorCare, with premiums and cost-sharing comparable to those offered by the BHPs, along with a proportionately low-cost extra tier at 201-300% FPL.

ConnectorCare plan premiums are $0 at incomes up to 150% FPL, $43/month at 151-200% FPL, $83/month at 201-250% FPL, and $123/month at 251-300% FPL. Out-of-pocket costs are proportionate.  Takeup is very high. Massachusetts has the lowest uninsured rate in the country (3%) and the lowest average premiums, despite the high cost of care in Massachusetts. Massachusetts also requires that insurers maintain a higher medical loss ratio (MLR) than the national standard -- that is, that insurers in the individual market must spend at least 88% of premiums on enrollees' healthcare, as opposed to the 80% federal standard.

ConnectorCare differs from a BHP model in that the low-premium, low-OOP plans are enhanced silver plans within the same private plan market as the plans offered at higher income levels. That means that enrollees at all income levels are part of the same risk pool, and marketplace enrollees at higher income levels benefit from high takeup among younger and healthy adults eligible for ConnectorCare. Accordingly, while unsubsidized individual market enrollment has cratered nationally since 2016, it's remained stable in Massachusetts, and overall enrollment in the state exchange has increased every year since 2014.

Because it's integrated with the state marketplace, ConnectorCare constitutes an alternative to the BHP model. BHPs control costs by imposing government-level provider payment rates. The Massachusetts Health Connector controls costs by several means: subsidizing enrollees to a level that improves the risk pool; committing state resources to advertising and outreach;  requiring higher MLR of insurers; standardizing plan design and reducing choice to manageable levels; and requiring insurers to compete to offer ConnectorCare plans, as the state chooses only five participants in that submarket  annually (see p. 13 here). Because the lowest-cost silver plan is the one at which quoted ConnectorCare premiums are available,*** insurers compete for this position, which keeps silver premiums low.  The benchmark plan picks up all auto-enrollees, i.e. those who don't actively choose a plan.

The result is a market that works as the ACA was intended to work. Probably the main difference is subsidization to a level that makes coverage and care affordable to more prospective young and healthy enrollees. Under-subsidization and consequent poor takeup by the young and healthy is the ACA marketplace's besetting sin.

The extra spending required to maintain enriched subsidies in ConnectorCare is funded in part by a federal Medicaid waiver with roots in the pre-ACA era, originally granted to enable the state to reduce its uninsured population, and most recently extended in 2016. Other states seeking to extend "Medicaidish" benefits to incomes above 200% FPL would have to find other means and funding sources.

Funding options may determine choices

The drive to capture federal dollars to help fund any state efforts to boost enrollment and affordability may shape states' choices.

States might seek funding for enhanced marketplace subsidies via Section 1332 innovation waivers, positing that increasing the proportion of plan costs directly subsidized will improve the risk pool and therefore lower base premiums. That argument is similar to the rationale for Section 1332 federal funding for state reinsurance programs, which CMS has granted to 12 states so far.

Reinsurance programs, however, chiefly benefit unsubsidized enrollees and so do not increase the federal deficit. They therefore evade a Catch-22 to which other Section 1332 waivers are subject: if a plan increases the federal deficit, the state has to pick up the additional cost. Even if the program reduces costs on a per-enrollee basis, the state is on the hook for costs generated by increasing enrollment -- notwithstanding that increasing enrollment is the main point of the enterprise.

A BHP, in contrast, gets federal funding on a per-enrollee basis. Although overall funding is just 95% of the estimated cost of funding the enrollees in marketplace coverage, that funding is on a per-enrollee basis: it grows as enrollment grows. If it didn't, New York's Essential Plan would be unsustainable.  The opportunity to obtain this more elastic federal funding could tilt some state decisions toward a BHP.

Another option, advocated by Dorn, is for states to establish a Health Insurance Tax to replace the national tax of that kind repealed as of 2021 in Congress's two-year spending bill passed in December 2019. A bill to do this was introduced in the New Mexico legislature this year but failed to gain passage. It was projected to raise $125 million, the bulk of which would go into a state affordability fund to boost coverage.  New Jersey healthcare advocates are discussing a similar tax that would raise over $500 million per year.  While insurers are not likely to look kindly on a replacement tax, those that offer marketplace coverage will essentially get it back in the form of boosted subsidies for enrollees, and resulting increased enrollment.

State budgets are going to be in dire shape as revenues are crushed by the shutdowns necessitated by the pandemic, perhaps making any spending initiatives unlikely. At the same time, swelling ranks of uninsured residents will create pressure for relief -- and continuing pressure for new forms of federal support. A state health insurance tax, and available BHP funding, may make state initiatives viable in trying times.

If Democrats win the presidency and both houses of Congress, they will need to fulfill promises to pass major healthcare reform -- at a minimum, major enhancement of ACA subsidies -- that may obviate the need for the kind of state initiatives discussed here. If Democrats win the presidency but Republicans hold onto the Senate, persistent high unemployment may create pressure enabling more limited measures, such as enabling states to extend Medicaid eligibility beyond 138% FPL. Perhaps an amendment to ACA Section 1332, requiring innovation waiver proposals to be cost-neutral only on a per-enrollee basis, so that state funding responsibility doesn't increase if enrollment increases, might be the kind of technical, incremental measure that could slip through, say in an omnibus budget deal.  In case of total gridlock, however, a BHP proposal submitted to a receptive administration might be the most viable path for a state seeking to increase healthcare access and affordability.


*  In April 2015, the state transferred 225,000 non-citizen Medicaid enrollees receiving no federal funding into the Essential Plan, thereby gaining 95% federal funding for this group.

**MinnesotaCare offers enrollees in the 139-200% FPL income range more modest discounts compared to the marketplace than does New York's Essential Plan. From 140-200% FPL, MinnesotaCare premiums slide up from $25/month to $80/month (see p. 7 here), compared to a flat $20/month in New York. Out-of-pocket costs are higher too. The impact on enrollment accordingly seems more modest, though I lack data for a detailed comparison. As of March 2020, enrollment in MinnesotaCare was 73,026, while marketplace enrollment was 123,668. For the combined programs, enrollment at incomes under 200% FPL was 37% of total enrollment, while in New York, enrollment at 139-200% FPL alone was 64% of enrollment above 138% FPL in the combined programs. At incomes under 200% FPL, tens of dollars per month in premiums matter a lot.

*** Text is corrected here: I originally called the cheapest silver plan the "benchmark" in ConnectorCare. That's not literally true: as in all markets, federal premium subsidies are set against premium for the second cheapest silver plan in the state marketplace. 

1 comment:

  1. Great article, your effort is appreciated.

    I am amazed at the number of programs which are funded by re-purposing federal funds that were legislatively designed for some other program. It is a good thing that Washington has 'soft budgets' and at least in health care very rarely tries to cut spending.

    James Galbraith is worth reading on this issue.