Breaking the BHP ring fence: New York's Hochul proposes Essential Plan eligibility to 250% FPL

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This significant tidbit, gleaned from New York Governor Kathy Hochul's State of the State Address, was reported in yesterday's Politico Pulse newsletter:

...Hochul proposed raising income eligibility for New York’s Essential Plan — which provides health insurance to New Yorkers who don’t qualify for Medicaid — from 200 percent of the federal poverty level to at least 250 percent, pending federal approval. The policy is estimated to reduce the number of uninsured New Yorkers by at least 14,000 and make health care more affordable for at least 92,000 people.

This initiative is not mentioned in the published text of Hochul's speech. I can't find any further written trace of it.  To extend eligibility beyond the current 200% FPL income threshold would appear to require the filing of a state ACA innovation waiver requesting federal approval.  [Update: this language is in the State of the State Book, page 34. The NY Dept. of Health confirms that the state will have to submit an innovation waiver proposal, and adds that there will be more detail in the executive budget proposal.]

If the proposal pans out, it could pave a state route to essentially replacing -- at least in large part -- the ACA marketplace with a program more cost-effective for enrollees and governments alike.

New York's Essential Plan is 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 2022, 200% FPL is $25,760/yr for an individual, $34,840 for a couple, and $53,000 for a family of four. New York and Minnesota are the only two states to go the BHP route.

By statute, the federal government funds BHPs at 95% of the estimated cost going forward of providing marketplace coverage for those eligible.  Since June 2021, in accord with the American Rescue Plan's increase of marketplace subsidies through 2022, the Essential Plan has been free for all qualifying enrollees, up to the 200% FPL eligibility threshold. There are no deductibles, and out-of-pocket costs are very low.

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 who have incomes below 138% FPL and are 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 federally funded BHP coverage (at zero premium for enrollees) was a billion-dollar windfall for the state.

The  Essential Plan is much more affordable for low income enrollees than marketplace coverage would be. 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."  The subsidy boosts in the American Rescue Plan have narrowed that gap, but not eliminated it.

The value proposition of a BHP has historically been that the program will pay lower rates to providers and plow those savings into lower-cost coverage for enrollees. Until recently, the Essential Plan paid providers 120% of Medicaid rates. But that changed in the 2022 budget; the EP will now pay "rates for inpatient and outpatient hospital-based services that are 225% of Medicaid fee for service  reimbursement for the same services." That's quite a jump. In November, Governor Hochul announced that the federal government was increasing Essential Plan funding by $750 million. Elevated funding levels for the BHP in future years may depend on Congress extending the temporary marketplace subsidy boosts  provided by the American Rescue Plan past 2022. [paragraph added, 11:45].

Hochul has now proposed to break the Essential Plan's statutory ring fence of eligibility up to 200% FPL. If the plan can be offered to 250% FPL, there's no inherent reason it can't be offered at higher incomes, with costs rising on a sliding scale.  The American Rescue Plan's elimination of the income cap on subsidy eligibility in the ACA marketplace (formerly 400% FPL) may make this more feasible by bringing more high-income enrollees into the marketplace.

If the Essential Plan costs less per enrollee than the marketplace, those savings can be plowed into low out-of-pocket costs at all income levels. The Essential Plan could essentially replace the marketplace, at least up to an even higher income threshold. (The increased provider payment rates may be laying the groundwork for that, enabling provider networks to be upgraded as eligibility moves up the income food chain. Conversely, though, the bump-up in hospital payment rates may call the basic value proposition  -- lower cost of care --> lower costs for enrollees -- into question.)

Such replacement would be no loss to insurers. In New York twelve insurers offer plans in the ACA marketplace, and fifteen offer Essential Plans. Eleven insurers participate in both programs. 

If the Essential Plan is made available at progressively higher incomes, it would be an incarnation of sorts (as the Essential Plan already is to a degree) of a pre-ACA plan floated in New York by the Community Service Society.  I outlined that plan in a 2016 post on healthinsurance.org:

A state that forms a BHP could potentially seek an ACA “innovation waiver” to extend BHP eligibility either to 400 percent FPL, the eligibility cutoff for private plan subsidies under the ACA [until 2021, when the cap was removed through 2022], or to anyone at any income level who lacks access either to employer-sponsored insurance or to another public insurance program.

As it happens, in November 2009, before the ACA was passed, a New York nonprofit, Community Service Society, produced a plan for the state that would have done just that – and then some, as it would have given employers the option of buying in. (In 2013, CSS produced a plan outline and cost estimate for the state’s BHP that did a good job scoping out the costs and target population as it actually played out. )

Authored by Elisabeth Benjamin, CSS’s VP of health initiatives, and Arianna Garza, the Cornerstone for Coverage Plan would have used New York Child Health Plus plan (CHP), which was the prototype for the national Children’s Health Insurance Program, as the building block of a low-cost public program available not only to the uninsured but to the underinsured. 

The Cornerstone Plan would have been available to employers as well as individuals. See the post for more detail, including proposed premiums at different income levels.

The Essential Plan's low premiums and out-of-pocket costs have massively boosted enrollment in the 138-200% FPL income category in New York. According to a September 2021 enrollment report issued by the state exchange, "the take-up rate among individuals determined eligible for EP is 96 percent compared with 51 percent for consumers determined eligible for QHP." Last year I noted:

As of Feb. 7 this year [2020], 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 272,948.

I can't readily update those numbers, since the elimination of premiums at 138-200% FPL has probably changed the ratio of enrollees above and below the 138% FPL threshold. Essential Plan enrollment is now 947,218, and marketplace enrollment has dipped to 211,226, for reasons not immediately apparent (it was 215,889 in January 2021). My guess is that there was significant migration from the marketplace to the Essential Plan in 2021, triggered by job loss and perhaps further incentivized by the dropping of any premiums in the EP.  In 2020, New York did not require enrollees with income otherwise below 200% FPL to include the supplementary unemployment income provided by the CARES Act in their income estimates.

Assuming that full replacement of the New York marketplace is not envisioned at present, the  American Rescue Plan's removal of the income cap on subsidies (formerly 400% FPL)  through 2022 may have made the proposed extension of Essential Plan eligibility to 250% FPL more feasible. The enhanced marketplace subsidies -- no one who lacks access to other affordable insurance pays more than 8.5% of income for a benchmark silver plan -- are attracting more high-income enrollees into the marketplace, potentially offsetting enrollment losses in the 200-250% FPL income range. Again, though, the near-total participation in the Essential Plan by New York's marketplace insurers would seem to make eventual replacement of the marketplace by the Essential Plan feasible.

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