Improving the ACA under gridlock, Part II: Innovation waivers and new revenue sources

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Earlier this week I reviewed the many ways a Biden administration might improve healthcare access and affordability by administrative action, on the assumption that with a Republican Senate majority, major legislation to improve the ACA or revolutionize drug pricing is off the table. The laundry list was courtesy of Elizabeth Warren, except for a final item, maximizing silver loading, would likely have the largest impact on the ACA marketplace.

Now let's think about another non-legislative means by which insurance coverage might be boosted: the ACA Section 1332 innovation waivers available to states. 

Under these waivers, states can propose to change almost any aspect of ACA marketplace coverage -- subsidy structure, metal level, essential health benefits, employer mandate -- in an effort to improve affordability and access. There are tight constraints, however: the proposed alternative must  provide coverage as comprehensive and affordable to as many people as does the existing marketplace design (or rather, will again, with CMS director Seema Verma gone), without increasing the federal deficit. 

That fiscal constraint amounts almost to a Catch-22, as the requirement not to boost spending is on an absolute, not per capita basis. If the state's changes boost enrollment, even while reducing cost per person, the state must foot any excess spending.

I have reviewed potential state innovations many times, e.g., here and here (one major option for states to consider, a Medicaid-like Basic Health Program for enrollees with incomes up to 200% FPL, is enabled by a different ACA provision, Section 1331).

Here I want to focus not on potential alternative schemes themselves, bur rather on fiscal opportunities that have opened up for states in the Trump years and that potentially make waivers more viable. By both accident and design, the federal government has put new money on the table.  Potential revenue sources include:

New Jersey poised to add state premium subsidies to federal in ACA marketplace

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New Jersey's tweeter-in-chief

The New Jersey bill that would replace the ACA's repealed health insurance assessment with a similar state tax, S2676/A4389, has passed out of all committees and is scheduled for floor votes in the state Senate and Assembly tomorrow (July 30). Update, 7/31: the bill passed the New Jersey Assembly and Senate yesterday on a near-straight-party vote, after withstanding a late $1 million dark money assault. 

The bill levies a 2.5% tax on fully insured employer plans and individual market plans operating in New Jersey and deposits that revenue in a Health Insurance Affordability Fund devoted to

increasing affordability in the individual market and providing greater access to health insurance to the uninsured, including minors, with a primary focus on households with an income below 400 percent of the federal poverty level [FPL], expanding eligibility, or modifying the definition of affordability in the individual market, through subsidies, reinsurance, tax policies, outreach and enrollment efforts, buy-in programs, such as the NJ FamilyCare Advantage Program, or any other efforts that can increase affordability for individual policyholders or that can reduce racial disparities in coverage for the uninsured.

The bill was amended late to exempt the New Jersey small group market  -- which also means that that market is excluded from benefiting from the Affordability Fund (MEWAs and dental plans were also exempted).

In the immediate term, the New Jersey Department of Banking and Insurance (DOBI) has indicated that it plans to spend the entirety of an estimated $224.4 million* in revenue collected in 2021 on the New Jersey's individual health insurance market. $77 million would go toward the state's share of the reinsurance program implemented in 2018 (designed to reduce premiums to 15% below where they'd be without the fund). The remaining $147.4 million would be used to supplement ACA marketplace subsidies with state subsidies for all New Jersey marketplace enrollees with incomes below 400% FPL.** Those subsidies would be on offer during Open Enrollment this fall, when the state's new state-based marketplace is set to be unveiled and New Jersey bids farewell to HealthCare.gov, the federal exchange.

As of February 2020, 174,978 New Jerseyans were receiving premium subsidies in the New Jersey health insurance marketplace. Were the extra subsidies to boost enrollment at incomes below 400% FPL to 200,000, the per-person state supplemental subsidy would come to about $60 per month. DOBI has floated a lower estimate, $42 month [see update 4 below]. Supplemental subsidies in this range -- $40-60 per month -- could have a substantial impact.

Testimony in support of a Health Insurance Assessment in New Jersey

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The New Jersey Senate and Assembly are holding hearings this afternoon on a bill, S2676/A4389, that would replace the national ACA tax on health insurers repealed by Congress late last year with a state tax that would raise some $300 million per year. The bill dedicates the funds to improving health insurance affordability, focusing mainly on low-income New Jerseyans.

The bulk of the money will likely be used to add state subsidies to federal subsidies for health plans sold in the ACA marketplace -- possibly as early as 2021 --  with a portion going to fund the existing reinsurance program that reduces individual market premiums for those who earn too much to qualify for subsidies.

BlueWaveNJ, of which I am a member, submitted the testimony below on behalf of the bill.