Basic Health Plans: The Affordable Care Act’s Alternative to the Marketplace
The most unused piece of the Affordable Care Act is equal parts Medicaid and Obamacare
The Affordable Care Act (ACA), passed in 2010, did a number of things. It expanded Medicaid for childless able-bodied adults up to 138% of poverty, created employer mandates, set Medicare on the path to value-based care, closed the Medicare Part D donut hole, expanded Community Health Center funding, created marketplaces for small businesses to shop for health plans, and created the individual ACA marketplaces we know today as Obamacare on Healthcare.gov or state-based exchanges. However, it also created another program that flies mostly under the radar to this day, so much so that only New York and Minnesota use them. Under Section 1331 of the ACA, it authorized the voluntary state creation of what we call “Basic Health Plans” (BHPs) that function as an alternative to the Obamacare marketplace and its assortment of refundable advanced premium tax credits (APTCs) and cost-sharing reductions (CSRs) for low-income individuals. In today’s post, I will explain what BHPs are, how they work, and their potential to ease multiple issues with the ACA marketplace.
What is a Basic Health Plan?
The ACA fundamentally built two insurance structures to cover the uninsured – the Medicaid Expansion and the ACA marketplace called Obamacare. Medicaid and the Children’s Health Insurance Program (CHIP) already covered a large swath of Americans, but the Medicaid Expansion gave childless able-bodied adults making less than 138% poverty access to it for the first time. Medicaid can be quite generous and comes with very little cost-sharing and no premiums for most situations. On the other hand, Obamacare created community rated and guaranteed issue plans for the individual marketplace. Americans would be able to get refundable tax credits applied to their premiums depending on their income if they were not eligible for Medicare, Medicaid/CHIP, military care, and were not offered an “affordable” employer plan. For people making less than 250% poverty, they could also receive CSRs to help cover their out-of-pocket costs. However, the switch from Medicaid to Obamacare could lead to a large change in premiums, the number and variety of options, and significant increases in out-of-pocket costs. Because incomes are more volatile for lower income Americans, people may “churn” in and out of the Medicaid and Obamacare programs.
Basic Health Plans were envisioned as a middle ground between the Medicaid and Obamacare programs. These plans would be run by the state government, much like Medicaid programs, and would be offered to people making less than 200% poverty and to people that did not otherwise qualify for Medicaid/CHIP, Medicare, military care, or “affordable” employer plans just like Obamacare. Because these programs would be run by the states and cover people with more volatile incomes in a less varied plan structure than Obamacare, it would offer an opportunity for states to easily transition enrollees from state Medicaid programs to an individual health plan without a gap in coverage and vice versa. States would be given considerable flexibility in how to implement and manage their programs. These programs are often run by the same insurers that offer Medicaid managed care plans, or that offer qualified health plans on Obamacare.
How do these plans work?
For states that opt in to BHP programs under the Section 1331 waiver, they can offer BHPs to citizens making between 138%-200% poverty and to legally present residents that make less than 200% poverty. Because legally present immigrants are barred from receiving Medicaid for their first five years, these immigrants can enroll in BHPs even if they make less than 138% poverty. Plans are required to offer all ten essential health benefits under the ACA, and are encouraged to offer more than one plan in order to maintain the ACA’s goal of competition between insurers. Additionally, BHPs must have premiums less than or equal to the benchmark ACA plan and must at least offer out-of-pocket cost-sharing as generous as the benchmark ACA plan for a given income level. In other words, plans must cover as much as 94% of costs for their populations under 150% of poverty and 87% of costs for populations under 200% of poverty. In practice, state BHPs in New York and Minnesota are much closer to the coverage of their Medicaid programs, so BHPs tend to be more generous than enrollees would find on Obamacare benchmark plans with CSRs. States with BHP programs are also required to follow simplified application programs used for Medicaid where enrollees that apply must be enrolled in a plan even if they did not select a specific plan. Wait lists and enrollment caps are also barred from the program as a method to control costs. Anyone that qualifies and applies must be enrolled in a timely manner. States are given the option of whether to use the ACA open enrollment period or use Medicaid’s year-round enrollment period. They are also given the option to use 12-month continuous coverage rather than periodic redetermination to reduce churn between the Medicaid, BHP, and Obamacare programs. A Health Affairs study found that as many as 1.8 million people could churn between these programs per year if all states adopted BHPs, so this can be a key feature to ensure a well-functioning program.
State funding for BHP programs is set at 95% of the APTCs and CSR funds that would have gone to the population in the state BHP program if they were enrolled in Obamacare. This funding is deposited quarterly by the federal government in a state trust fund created and managed by the state for the sole purpose of covering their BHP enrollees. Federal money does not necessarily fund all of the program costs though, and in 2017 Minnesota covered 26% of the costs of their program while New York covered 15% of their costs. However, New York’s trust fund has continued to grow over the last few years and will likely continue to grow with the additional money following the enhanced ACA subsidies from the American Rescue Plan Act and Inflation Reduction Act. States are encouraged to further lower premiums and cost-sharing than is required by the waiver program if federal funding is adequate, or use state funding if desired.
Because of the complexities of the interaction of the BHP program with the ACA marketplaces, they were excluded from the federal risk-adjustment, reinsurance, and risk corridor programs much like Medicaid/CHIP or the employer marketplace. The Centers for Medicaid and Medicare Services was cautious of the uncertain effects of including BHP programs in risk-adjustment, reinsurance, and risk corridor programs, so they opted to set the default at keeping them separated. However, they decided states can opt for a retrospective risk-adjustment protocol to determine the effects of the BHP on their Obamacare marketplaces, and have their quarterly trust fund deposits adjusted to reflect any resulting effects in their state’s Obamacare risk pool and BHP risk pool. In other words, the default is to treat the health status of enrollees in BHPs as equivalent to people enrolled in Obamacare, but states can account for any differences if they so choose.
How have states implemented them?
Only two states have implemented BHPs so far, New York and Minnesota, but their approaches were similar. Both states have expressed interest in expanding their programs further; New York via converting their Section 1331 waiver to a 1332 waiver and expanding BHP eligibility to 250% poverty, while Minnesota is considering offering a Minnesotacare “buy-in” on the ACA marketplace.
Minnesota opted into their BHP program as soon as possible in 2015, though Minnesotacare has existed since 1993. Citizens, legally present immigrants, and DACA workers that make between 138%-200% of poverty are eligible to select plans ranging from nine different insurers the state partners with. Minnesotacare uses income-scaling premiums and eliminates cost-sharing for people under 19 or from a recognized tribe. They use year-round enrollment like Medicaid/CHIP, 12-month continuous coverage, and use Medicaid reimbursement as the basis of their reimbursement with adjustments to meet enrollee needs. They also opted for retrospective risk-adjustment with their ACA marketplace to ensure sustainability of their two systems. They use Medicaid determination rules for non-tax filers, and are considering further waivers to coordinate better between programs. It now covers 108,000 people in Minnesota.
New York created their BHP program in 2016, called the “Essential Plan.” It created four different packages, Plan 1 for people making 150%-200% poverty, Plan 2 for 138%-150% poverty, and Plans 3 and 4 up to 138% poverty managed by fourteen different insurers. Previously, the plan had premiums of $20/month, but this was eliminated. As many as 97% of eligible people are enrolled in the New York Essential Plan. It allows for year-round enrollment like Medicaid, 12-month continuous enrollment, and uses a hybrid of Medicaid and ACA marketplace reimbursement rates to control costs. This very well could be why the trust fund is growing each year. New York has integrated enrollment between Medicaid/CHIP, the Essential Plan, and their state-based exchange to ease transitions in coverage. Because they believed their Essential Plan population was slightly healthier and the effects on premiums would be minimal, they did not opt for a retrospective risk-adjustment protocol. As of 2022, 1.1 million New York residents are covered by the New York Essential Plan.
Why might they be superior to the ACA marketplace?
BHPs can offer a few key advantages to the current ACA marketplace. Allowing for better state coordination between their Medicaid/CHIP programs and the BHPs compared to the Obamacare marketplace means states can keep residents enrolled and avoid lapses in coverage for a population with more volatile income. States that opt for BHPs also tend to opt for 12-month continuous coverage and year-round enrollment, which can be simpler for enrollees than the ACA’s open enrollment period and special enrollment periods, though the ACA’s new permanent special enrollment period for people below 150% poverty can help. The simplified application process and the smaller variety of choices means people are less likely to be overwhelmed by choice, or choose lower value plans than they qualify for. This can be a huge problem in the ACA, with people giving up when they have over one hundred plans to choose from or choosing the cheapest premium plan available rather than considering CSR plans that lower out-of-pocket costs substantially. BHPs can also be much simpler for low-income immigrants for the same reason, and lower their rate of uninsurance. And funding goes directly to state trust funds, rather than creating another question for enrollees on how to apply their tax credits.
Why haven’t more states created BHP programs?
I’m not quite sure why more states haven’t chosen to create these programs, considering just how much more effective they seem to be for enrollees to get and stay enrolled, as well as lowering out-of-pocket costs more than traditional Obamacare plans. Part of the reason may be the original ACA premium schedule. Enrollee share of premiums quickly rose as enrollees earned more, and this means far fewer APTCs. Because the BHP funding is set to 95% of the APTCs and CSRs enrollees would have gotten on the ACA marketplace, states would have to significantly curtail reimbursement rates in order to keep BHP programs solvent and/or add their own tax revenue into the program. This was seen with Minnesota and New York, which funded 26% and 15% of the cost of their programs, respectively. Considering many states were reluctant to pay for the Medicaid Expansion at 10% of the total cost, maybe we shouldn’t be surprised that states would rather have people pay their own premiums rather than wage a political battle to raise taxes or fight health care providers on decreasing reimbursement rates. And insurance companies may not have a clear incentive to allow about half of the ACA marketplace’s enrollees to go to a different program that may result in less revenue for them. Especially when this could adversely affect the ACA marketplace’s risk pool.
Furthermore, the political debate around the ACA revolved around choice, shopping, and “skin in the game.” BHPs are far more restricted in their choice, are far more similar to Medicaid in their generosity, and don’t encourage careful shopping. Maybe opting for BHPs and expanding them like New York or Minnesota could look like “giving up” on President Obama’s crowning achievement?
However, the recent enhancement of Obamacare subsidies could be changing this dynamic. Now, benchmark plans for people under 150% of poverty rates are set to $0, and people up to 200% poverty pay no more than 2% income. That means far more APTCs, and more BHP trust fund money to go along with it. This could make BHPs far more viable for states going forward, and this could explain why Oregon, West Virginia, Kentucky, and others are finally considering BHPs. And if anything, New York’s growing trust fund is an indicator that these programs can be quite viable. So viable, in fact, that they are trying to convert their Essential Plan’s waiver so they can further expand the program to higher income people and spend down spare trust fund money. Maybe we are turning the corner on a Basic Health Plan revolution, but we’ll have to wait and see.