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Implications of Establishing Basic Health Programs

Earlier today, Stan Dorn (Urban Institute) gave a presentation on the implications on a basic health program based on his recent research study, “Using the Basic Health Program to Make Coverage More Affordable to Low-Income Households: A Promising Approach for Many States.”

Under ACA, states have the option to implement a Basic Health Program for low-income adults between 138% and 200% FPL and lawfully present immigrants under 138% who do not qualify for Medicaid based on the less-than-five-year ban. States with BHP contracts would receive annual grants from the federal government in the amount equal to 95% of what they would have spent on health insurance tax credits for the eligible consumers in the Exchange. These dollars go into a state trust fund and may only be used on BHP subscribers.

The cost of coverage through the Exchange for low-income individuals, although subsidized, will still be significant. The chart below shows the monthly premiums expected of individuals in the Exchange who earn below 250% FPL. An individual who earns 150% FPL has a pre-taxed income of $1,354 and would have to spend $54.15 on monthly premiums. They would also pay $20 copays for office visits and $250 copays for inpatient hospital. Though these premiums are much lower than what people have to pay now, research has indicated that low-income consumers will be deterred from using these services due to cost. In addition, because subsidies are based on tax credits, individuals purchasing coverage through the Exchange could owe money to the IRS if they underestimated their income. 

ACA mandates that coverage through BHP be less than what subscribers would pay after receiving subsidies in the Exchange.

Using the Health Insurance Policy Simulation Model (HIPSM)*, Dorn and his team discovered that implementing a BHP would lead to annual savings of approximately $1500 among single adults compared to receiving subsidies in the Exchange. A BHP would generate an average of 23% more funding for the state compared to current funding. (He suggested this funding be used to raise provider rates above the Medicaid baseline). California would receive $5.6M compared to the current $4.6M (19.8% increase in funding) if it implemented a BHP.

If all states implemented a BHP, the estimated uninsured rate after 2014 would decrease by 600,000 and 34/50 states would have a statistically significant coverage increase. Overall, states would save $1.3B a year by moving people from Medicaid to BHP ($286M saved in California). Moving this population into the Exchange would save the state the same amount of money, however costs would be shifted to consumers in the form of copays and premiums.

Although it would lower consumer costs, the tradeoff to implementing a BHP is that provider payments, even with increased reimbursement rates, would be lower than commercial plans offered in the Exchange. This would lead to a smaller provider network. States must decide which is a more significant barrier to access.

Dorn and his team concluded that although implementing a BHP would take people out of exchanges, they would still be large enough for viability and attracting good plans. Unfortunately, the fixed administrative costs of running the exchanges would be spread across a smaller population. In addition, BHPs may not increase premiums due to tobacco use, so the cost to care for tobacco-related illnesses might increase costs.

About half a dozen states have legislation surrounding BHP, but no state has implemented it yet. California recently made its BHP bill, SB 703 (Hernandez) into a two-year bill. In addition, HHS has not yet issued federal regulations or guidance.

To learn more about Dorn’s study on the BHP, visit the Association for Community Affiliated Plans’ website.

*Models behaviors based on policy change.