By Sara Rosenbaum

Background

An important issue in implementing the Affordable Care Act (ACA) is how to address the needs of uninsured low-income individuals and families whose incomes exceed Medicaid eligibility levels but are less than twice the federal poverty level (about $37,000 for a family of 3 in 2011). Under the ACA, the basic approach to assisting such individuals and families is the state health insurance Exchange, which enables qualified individuals to secure coverage and provides access to premium assistance and cost-sharing subsidies aimed at making coverage and care affordable.

Research shows that a significant proportion of the low-income population can be expected to experience income fluctuation over a year and move back and forth between Medicaid and a state Exchange. A recent study examining income dynamics among the low-income population estimated that within 6 months of initial enrollment, 35 percent of the low-income population will experience enough change in income to move from Medicaid to an Exchange or vice versa.^[1] Over a 12-month time period, this figure rises to 50 percent (approximately 28 million adults). Data from the same study show that 30 percent of adults starting out with family incomes high enough to qualify for Exchange premium credits will see their incomes dip below 133 percent within 6 months, a figure that rises to 43 percent over a 12-month time period.

Movement across the Medicaid/Exchange divide for low-income subsidized families raises several challenges:

• Health plans that participate in Medicaid may not participate in the Exchange (or vice versa), thereby causing families to have to disenroll and reenroll in plans frequently. Because health plans deliver their services through provider networks, this frequent switching can also create serious disruption in health care. The ACA does not require companies that sell Medicaid managed care plans to sell products in the Exchange as a condition of Medicaid participation; nor does the ACA require insurers that seek to sell qualified health plans in Exchanges to also participate in Medicaid.
• The premium tax credit available through an Exchange is calculated based on a retrospective annual review of income. By contrast, Medicaid eligibility is based on a real-time eligibility determination based on current income.^[2] Although the same income valuation methodology (known as MAGI) governs the two models, the two approaches to evaluating income differ markedly, making eligibility determinations across the two subsidy systems complex.
• Paradoxically, individuals and families receiving Exchange tax credits who experience income decline to the point at which they become eligible for Medicaid may face premium tax credit recoupment liability under the ACA, if not immediately disenrolled and re-enrolled. This is because premium credits are not available to otherwise-qualified individuals who are “eligible” for “minimum essential coverage,” which includes Medicaid.^[3]

Changes Made by the Affordable Care Act

The ACA provides states with an option known as the Basic Health Program (BHP),^[4] which is designed to provide an alternative coverage pathway for the low-income population (i.e., for those with family incomes up to 200% of the federal poverty level). The law directs the Secretary of Health and Human Services (HHS) to establish a BHP that meets certain federal requirements. Under the program, a state may contract with one or more “standard health plans” to provide “at least” essential health benefits to the population eligible for BHP coverage. In order for a state to establish such a program, the law requires the Secretary to “certify” that:

• monthly premiums as well as patient cost-sharing amounts charged to standard health plan enrollees will not be any greater in relation to their incomes than the amount that the same individuals would pay under the Exchange premium tax credit system;^[5] and
• standard health plans cover at least the essential health benefits  required of qualified health plans sold through the state Exchange.^[6]

The law further provides that a “standard health plan” is one that is open only to eligible individuals and that, if offered by a licensed health insurance issuer, maintains a medical loss ratio of at least 85%.^[7] The legislation also permits states to contract with HMOs, health insurance issuers, or “networks of health care providers established to offer services” under the program.^[8] The term “eligible individual” is defined as an individual who:

• is “a resident” of the state;
• is ineligible for Medicaid and whose household income exceeds the Medicaid eligibility level but does not exceed 200% of the federal poverty level (FPL) (or in the case of a lawfully present alien, whose income does not exceed 133% FPL but is ineligible for Medicaid based on alien status);
• who does not qualify for minimum essential coverage; and
• who is under 65 years of age.^[9]

No individual can be eligible for the BHP unless the individual would be a “qualified individual” within a state health insurance Exchange,^[10] and “eligible” individuals under the BHP may not use the state’s Exchange.

The ACA requires states to use a “competitive” contracting process that utilizes a negotiated approach to premiums, cost-sharing and benefits in addition to essential health benefits.^[11] The ACA also requires a state to build certain factors into the competition, including:

• innovation in the areas of care coordination for enrollees with chronic conditions, incentives for the use of preventive services, and establishment of provider/patient relationships that “maximize” patient involvement in health care decision-making;
• allowance for differences in health care needs among enrollees as well as differences in the availability and accessibility of local providers;
• consideration of the degree to which contractors maintain the attributes of managed care systems given the local health care markets in which they operate; and
• use of performance measures for issuers of standard health plans that “focus on quality of care and improved health outcomes” and that require reporting of such measures to the state and enrollees in a “useful form.”^[12]

The ACA also requires that “to the maximum extent feasible,” a state must make multiple standard health plans available^[13] and must coordinate its BHP with its Medicaid and Children’s Health Insurance Program (CHIP) as well as other state-administered health programs.

The law requires that once the HHS Secretary determines that a state meets the BHP requirements, she must “transfer to the State for each fiscal year for which 1 or more standard health plans are operating within the state” an amount equal to 95% of the premium tax credits and the cost sharing reductions “that would have been provided for the fiscal year to eligible individuals enrolled in standard health plans in the state if such eligible individuals were allowed to enroll in qualified health plans through an Exchange….”^[14]

The law further requires that the Secretary make this financial determination about how much is owed to the state on a “per enrollee basis” that takes into account “all relevant factors necessary to determine the value of the premium tax credits and cost-sharing reductions that would have been provided to eligible individuals” including:

• enrollee age and income;
• whether enrollment is for self-only or family coverage;
• geographic differences for average health care spending across rating areas;
• reinsurance payments that would have been made if enrollment had been into a qualified health plan in an Exchange; and
• whether any reconciliation would have occurred if the enrollee had been so enrolled.^[15]

In making her determination, the Secretary is required to consider the experiences in states that enroll the target low-income population in their health insurance Exchanges. The Chief Actuary of the Centers for Medicare and Medicaid Services (CMS), in consultation with the Office of Tax Analysis in the Department of the Treasury, must certify the methodology and the determination.^[16]

The ACA further requires that funds received by the state be deposited into a trust fund established by the state that may be used only “to reduce the premiums and cost-sharing of, or to provide additional benefits for, eligible individuals enrolled in standards health plans” and bars the counting of funds held in trust as the state contribution toward any federal program (e.g., the required state share of Medicaid expenditures).^[17]

Implementation

Agency and Key Dates

No specific implementation date is provided under the law. Because the basic health program would operate in lieu of a health insurance Exchange for eligible persons, implementing regulations may be issued as part of HHS’ issuance of Exchange regulations.

Key Issues

Certification process: What information will be required of states to secure approval and certification, and what will be the timeline and process? Specifically, since the program uses the Exchange experience on costs as the benchmark, how will certification work in advance of having sufficient state experience to properly gauge that premium and cost-sharing obligations will not exceed those applicable to similarly situated individuals in an Exchange?

Offering of plans by entities that are not health insurance issuers: What federal standards will be set for networks of health care providers that seek to offer a basic health plan under a state program?

The negotiation process and documenting innovation, health and resource differences, managed care use, and performance measurement: How will states be expected to demonstrate that they have negotiated around premium pricing, the introduction of innovations, adjustments for health and resource differences, the use of managed care arrangements, and performance measurement?

Offering multiple plans and the “maximum extent feasible” test: What test will the Secretary develop for measuring whether it is feasible for the state to offer more than one basic health plan?

Funds transfer system: How will the funds transfer system work? Since the transfer methodology uses Exchange experience as a point of reference, how will the methodology account for states that seek to establish a Basic Health Program prior to amassing state experience with an Exchange system?

Public involvement: Will the Secretary require evidence of public involvement in the decision to establish and operate a Basic Health Program prior to approving such a program?

Accounting for recoupment: What assumptions will HHS and Treasury use about the extent of recoupment that participants can be expected to experience, including both recoupment against individuals with incomes above Medicaid eligibility levels as well as recoupment against individuals who become eligible for Medicaid during an enrollment year? What level of recoupment will be assumed for individuals who move between Medicaid and the Basic Health Program more than once during an enrollment year?

Recent Agency Action

None

Authorized Funding Levels

The Basic Health Program represents mandatory federal spending and therefore is not subject to the annual authorization or appropriations process.