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Basic Health Program: A Presentation for CHIP Directors

Stan DornSenior Fellow, Urban Institutesdorn@urban.org 202.261.5561

August 25, 2011

URBAN INSTITUTEMany thanks to the State Coverage Initiatives Program of AcademyHealth and the Association for Community Affiliated Plans for supporting our research.

Microsimulation modeling by Matthew Buettgens, Senior Methodologist, and Caitlin Carroll, Research Assistant, Urban Institute

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URBAN INSTITUTEOverviewFederal lawOptionsModeling methodologyModeling resultsPolicy implications3URBAN INSTITUTEA word about affordabilityBut first4URBAN INSTITUTEPremiums and actuarial value of coverage for a single, uninsured adult, at various income levels qualifying for subsidies under the ACAFederal poverty level (FPL)Monthly pre-tax incomeMonthly premiumActuarial Value (AV)150 $1,354 $54.15 94%175 $1,579 $81.34 87%200 $1,805 $113.72 87%225 $2,031 $145.70 73%250 $2,256 $181.63 73%5Note: assumes 2010 FPL levels. URBAN INSTITUTEExamples of health plans at various actuarial value levelsIncomeAVPlan exampleAnnual deductibleOffice visitsInpatient hosp.Prescr. drugs150% FPL 93%Average HMO plan offered by employersNone$20 copays$250 co-pay$10/$25/ $45 copays175% FPL87%Federal Blue Cross-Blue Shield$250$15$100 co-payment, then 10%25% of all costsSource: Congressional Research Service, 2009.6URBAN INSTITUTEMaximum repayment obligation for tax credit recipients, by income Single filerJoint filer 138% FPLLegally resident but not qualified immigrants < 138% FPLOther low-income adults >138% FPL also receive much more affordable coverage than will be offered in the exchangeNo risk of owing money to IRS at the end of the yearMore stability of coverageMore access to safety-net plansDisadvantagesMore limited provider networks, even though could raise provider fees and capitated payments above Medicaid levelsLess access to commercial plansThe key consumer trade-off: for this particular population, what is the more significant impairment of access?Higher costs in the exchange; orSmaller provider networks in BHP25URBAN INSTITUTEState cost savings: the big pictureScenario What happens to Medicaid adults >138% FPL?Impact on Medicaid adultsState fiscal effects1.They stay in MedicaidNo increased costsNo savings2.They move into the exchange Major cost increasesSavings3.They move into BHP, with CHIP-level cost-sharing and premium paymentsNominal cost increasesSame savings as #226By shifting adults health costs from Medicaid to BHP, the state saves money without forcing these adults to pay significantly moreCould also save money by putting these adults in the exchange, but that would greatly raise consumers health costs without increasing state savingsURBAN INSTITUTESavings from moving people from Medicaid to BHPModeled: Adults eligible under 1115 waivers and Social Security Act Section 1931, annual state savings of $1.3 billionUnmodeled: Lawfully present immigrants with MAGI < 138 percent FPL who are ineligible for federally-matched MedicaidOver 138% FPL, Medicaid adults outside 1115/1931 eligibility (pregnant women, people diagnosed with breast and cervical cancer, etc.)Children over 138% FPL, if maintenance of effort requirements are repealed or CHIP is allotments end after 201527URBAN INSTITUTE More unmodeled state savingsTo the extent that BHP leverage yields cost savings, the state, rather than the federal government benefitsLower cost of state benefit mandates ACA requires state to pay increased costs in the exchange that result from state requirements to cover services that go beyond federally-specified minimum essential benefitsBHP implementation eliminates the need to pay such costs for adults at 138-200 percent FPLReduced costs for Medicaid medically needy coverageWith comprehensive coverage in exchange, slower spend-down, so state savingsEven slower spend-down and more state savings if BHP:Lowers out-of-pocket costs below levels in the exchange and Covers more long-term care than will be covered in the exchange

28URBAN INSTITUTEA hypothetical: Medically Needy Mary has a $100 monthly spend-down amountMary todayMary in the exchangeMary in BHP (nominal copays)Insurance statusUninsured, except for medically needy coverageCommercial coverage ($250 deductible, 25% coinsurance)Coverage like CHIPTotal monthly health costs$1,000$1,000

$1,000

Average monthly amount covered by insurance$0$730$990Monthly payment from Mary$100$100$10Remaining amount (paid by Medicaid)$900$170

$029URBAN INSTITUTEWhat about the exchange?Exchange size somewhat smallerLarge enough for ViabilityAttracting good plansFixed administrative costs spread across a smaller populationLeveraging health care delivery reforms? With or without BHP:Can leverage some changesFor earthshaking reforms, may need to negotiate on behalf of multiple payers at once: the exchange, state-purchased coverage, Medicare, and large employers that voluntarily participateFederal BHP payments will likely exceed baseline costs, but: Inherent uncertainties in any new federal programExchange administration will affect federal BHP fundingA very low reference premium cuts tax credit amounts, hence BHP fundsIf premiums are risk-rated for tobacco use, tax credits, so federal BHP funds, do not include the tobacco charge; but BHP must pay tobacco-related costsWhat about tax reconciliation? It helps the state.30URBAN INSTITUTEWhy tax reconciliation helps the stateIncome changeResulting change in what the tax credit should have beenTransaction with IRSUnlucky Uma-$10,000+$1,000+$1,000Lucky Luisa+$10,000-$1,000-$300 (because of cap)Federal BHP amount is based on the subsidies the consumer would have received in the exchangeCalculation includes effect of reconciliationIRS repayments to consumers are uncappedLow-income consumer repayments to IRS are capped31Another hypothetical: Unlucky Uma and Lucky LuisaURBAN INSTITUTEEffect of BHP implementation on exchange riskWhat counts is effect of BHP implementation on the entire individual market. ACA insurance rules base premiums on the risk level of the entire market, not enrollees in a particular plan or set of plans:Plans pool all individual enrollees together, inside and outside the exchangeRisk-adjustment, reinsurance equalizes risk levels between plansDeath spirals highly unlikely to result from increased individual premiumsIn the past: increased risk in exchange raised premiums in the exchange; healthy enrollees left for similar coverage sold elsewhere at much lower prices, further raising risk in exchange, further raising premiums, triggering further departures, etc. Under the ACA:High risk levels within specific plans do not cause a major premium increase. Premium based on overall market risk, not risk level of plan enrollees.Little or no reason for healthy individuals to leave. Similar coverage not available outside the exchange for much lower premiums. General premium increases in the individual market:Will affect the federal government and unsubsidized enrolleesWill not have a major impact on subsidized enrollees

32URBAN INSTITUTEAnother hypothetical: Tommy Tax Credit

Tommys planFactorWhat happens if all the premiums in the exchange are low?What happens if all the premiums in the exchange are 20% higher?Whats the difference?Plan with reference premiumMonthly premium$400 $480 $80 Tommys cost$160 $160 $0 Tax credit$240 $320 $80 A more costly planMonthly premium$500 $600 $100 Tommys cost$260 ($160 + the $100 excess over the reference premium) $280 ($160 + the $120 excess over the reference premium)$20 Tax credit$240 $320 $80 33A single guy, Tommy has income at 250% FPLIf Tommy picks the plan with the reference premium, he pays 7% of income, or $160 a monthURBAN INSTITUTEState policy options to lessen risk effectsIf individual and small group market merge, BHP will have little effect on risk But federal BHP amount could decline slightly. With or without BHP, premiums in most states will probably be slightly lower in a merged than in a separate individual market.If high-cost Medicaid is cut back above 138 percent FPL, BHP effects on the remaining risk pool would be partially or fully amelioratedIf allowed by HHS, the state could share risk between BHP and the individual market Include BHP in reinsurance, risk adjustment mechanisms serving the individual marketIf a BHP plan is state-licensed, require the insurer to pool BHP risk with individual market members

34URBAN INSTITUTEContinuity of coverage and careBHP could move the transition point between Medicaid plans and the exchange from 138 to 200 percent FPL. This improves continuity, since, at lower income levels: More subsidy recipients More income fluctuation Caveat: depends on whether BHP is structured to be continuous with MedicaidWhy continuity mattersContinuity of provider is clinically significantCoverage can be temporarily lost in a shift between programsChurning raises public-sector administrative costsContinuity increases plans incentive to invest in members long-term wellness35URBAN INSTITUTEHow important is it to cover children and parents in the same health plan?The research says: no evidence that it mattersChildren benefit when their parents have coverageNo evidence of benefit when parents are covered through the same plan as their children, rather than a different planFactors outside the researchWhy its not so important: Children and parent may use different provider networksWhy its importantParents need to learn only one health plans proceduresIn staff-model HMOs and with family practitioners, parents and kids can all be seen at onceFor long-term political viability, a reformed health care system needs to make sense to consumers. It doesnt make sense to force children and parents into separate health programs.

36URBAN INSTITUTEOne possible approach: integrated coverage for all low-income residentsMedicaid-level benefits and costs up to 138% FPLCHIP-level benefits and cost-sharing between 138-200% FPL (higher for children in states with CHIP eligibility >200% FPL)Capitated rates and provider payments between Medicaid and private levelsCo-pays and premiums at CHIP levelsWould impose cost-sharing on some current Medicaid adultsCould eliminate out-of-pocket cost-sharing for maternity carePut CHIP kids and adults at 138-200% FPL in one placeIf CHIP agency or exchange, use CHIP plansIf Medicaid agency, use Medicaid plans (but with extra providers)Back-room accounting, invisible to consumer: funding split between Social Security Act Title XIX, Title XXI, BHP

37URBAN INSTITUTEConclusionImplemented to build on existing Medicaid and CHIP models, BHP could greatly improve affordability for low-income consumers, including some Medicaid adults who might otherwise be moved to the exchangeBHP allows state Medicaid savings without imposing major cost increases on Medicaid beneficiariesTrade-offsFor consumers: smaller provider networks than in the exchangeFor exchange: fewer covered lives and (depending on state) somewhat higher individual market premiumsFor providers: smaller increase in private coverage, larger increase in public coverage, compared to status quo

38URBAN INSTITUTEChart156654600.08

Series 1

Sheet1Series 1Series 2Series 3BHP payment$5,6652.42Cost of covering a BHP-eligible adult through Medicaid with CHIP-level cost-sharing$4,6004.42Category 33.51.83Category 44.52.85To resize chart data range, drag lower right corner of range.