Featured Health Business Daily Story, Dec. 9, 2010

States Consider Basic Health Program for Low-Income Coverage Outside Exchanges (with Table: Basic Health Program Versus Commercial Coverage, as Seen by One R.I. Plan)

Reprinted from AIS's HEALTH REFORM WEEK, the nation’s leading publication on the business implications of the massive changes for the health industry mandated by reform.

November 22, 2010Volume 1Issue 22

As states begin work to implement health insurance exchanges by January 2014, there is growing interest in a lesser-known provision of the federal reform statute: the Basic Health Program. The measure allows states to enter into contracts with health plans to provide essential health benefits to people with incomes above the new Medicaid threshold of 133% of the federal poverty level and up to 200% of FPL who would otherwise have subsidized coverage through the exchanges.

Creating a BHP in Rhode Island under reform’s Medicaid expansion would extend coverage to 27,000-plus low-income adults — about 70% of eligibles — through an established Medicaid managed care model at no additional cost to the state, asserted Neighborhood Health Plan of Rhode Island. Most of NHPRI’s 85,000 members are in RIte Care, the state’s Medicaid managed care program for children and families. NHPRI said the BHP approach would reduce “churning” between public and private insurance options, allowing 7,000-plus current RIte Care adult enrollees to see no change in their coverage or interruption in their care, and would result in lower levels of cost sharing than would coverage in exchanges (see table, p. 3). And Medicaid plans could implement the new program quickly using existing networks and systems, the plan said.

“Without a doubt, the piece that needs the most future work is on the financial side,” NHPRI President and CEO Mark Reynolds told HRW. The federal government will subsidize BHP enrollees at 95% of what would have been provided to them in the exchange, but the amount of the subsidy is unknown because it is related to as-yet-unspecified exchange benefits. Yet Reynolds said NHPRI expects the amount to be “sufficient to cover the cost” in Rhode Island — even if member cost sharing must increase to the maximum levels allowed under the federal statute.

“We think states should look seriously at the BHP as an option. It would allow them to tailor a program for the lowest-income beneficiaries in the exchange,” said Association of Community Affiliated Plans CEO Meg Murray.

If states choose the BHP option — thus precluding BHP-eligible people from using the exchanges — then Medicaid plans could expand their markets without becoming subject to state insurance codes. But commercial plans want to hold onto this business and may have more extensive provider networks to offer this population, and consumers may prefer such providers, some industry observers point out. And that puts states in the middle of a tough decision.

Basic Health Program Versus Commercial Coverage, as Seen by One R.I. Plan (for families between 133% and 200% of the federal poverty level)

Coverage/Issue

Commercial Coverage (Through Exchange)

Basic Health Program (Expand RIte Care)

Number of Newly Insured

Fewer Insured: Many people will choose to remain uninsured if their commercial coverage options do not meet their needs and cost too much.

Confusion: Many people who are not familiar with commercial insurance may find it difficult to enroll.

More people are likely to gain coverage if they can enroll in RIte Care, a proven model that meets their needs and is affordable.

Familiar and simple path to enrollment will increase number who become insured.

Cost to State

More: Fewer insured adults mean an increase in uncompensated care and emergency department utilization, as well as higher costs when people re-enroll in RIte Care.

None: State can use federal funds to ensure access to high quality, affordable coverage in a proven model that helps our families.

Potentially saves money by reducing uncompensated care.

Cost Sharing for Consumers

Expensive: Consumers will be required to pay higher premiums, copays and deductibles.

Lower levels of cost-sharing will result in more people accessing their coverage and improving health outcomes.

Continuity of Care

(Churn/Turnover)

Confusion: Parents will churn through different types of coverage more often, increasing difficulty of understanding benefits and care options.

Loss of choice: People will often have to switch doctors to remain in networks of new coverage, thus reducing continuity of care with their choice of family physician, pediatrician and other primary and specialty care professionals.

Expanding eligibility in RIte Care means fewer adults will move between commercial and Medicaid coverage, creating more predictable costs for families.

Continuity of care is increased as people will keep same primary care physicians and specialists.

Over 7,000 adults currently enrolled in RIte Care will see no change in coverage, and no interruption in their care.

Source: Neighorhood Health Plan of Rhode Island, November 2010

“We hear a lot of questions about BHP and whether states should pursue this as an option….I’m excited at the level of interest around the country in the BHP program,” Stan Dorn, a senior fellow at The Urban Institute, told a Nov. 17 BHP webinar for state officials sponsored by State Coverage Initiatives, a Robert Wood Johnson Foundation program administered by AcademyHealth. That nonprofit organization is helping states move forward on health reform efforts.

BHP Payments Would Exceed Medicaid Costs

For an average state, BHP payments will exceed Medicaid costs for adults, Dorn said. According to Urban Institute projections, current Medicaid costs for a non-elderly, non-disabled adult will reach $3,756 in 2015, while 95% of the average exchange subsidy will total $4,940, based on Congressional Budget Office estimates, he said. “If anything, this appears to understate the difference,” he added, explaining that BHP covers near-poor adults who would receive above-average subsidies if they were in the exchange. “So this opens up possibilities for states.”

Dorn calculated that, if states use BHP to provide coverage like Medicaid or the Children’s Health Insurance Program, health costs would be much more affordable for low-income households than with individual coverage under exchanges. He pointed to Massachusetts’ experience with state health reform, calculating that the minimum monthly premium payment for a single, uninsured adult would be $54 at 150% of FPL for a silver benefit package through an exchange, whereas no premium is charged at 150% of FPL in the lowest-cost Commonwealth Care basic plan in Massachusetts. At 200% of FPL, he calculated the premium difference at $114 versus $39, respectively. Data “show low-income folks may have to pay a lot more under the exchange” than in Massachusetts’ reform program, he said.

Dorn also said data indicate that out-of-pocket costs for low-income individuals covered through the exchange are likely to be “significantly higher in some instances” than under Commonwealth Care.

John Folkemer, Maryland’s Medicaid director, told HRW Nov. 18 that the BHP has come up in discussions through the state’s health care reform coordinating council and its workgroups. But he said it is still early, and that no one in the state has had serious discussions about the BHP yet.

As other states ponder the introduction of a basic health program, Washington state is facing significant funding challenges for its longstanding program, which serves as the model for the federal reform law’s provision. The state’s BHP now covers nearly 60,000 adults under 200% of FPL — and has twice that number on a waiting list until sufficient funding materializes to add them, said Jim Stevenson, spokesperson for the state’s Medicaid program.

Most of the people on the BHP waiting list meet Medicaid expansion criteria, “so we’ve asked to bring that population into Medicaid early,” Stevenson said. “We’re in probably the worst budget year in our state’s history, so funding for this [BHP] program is problematic.” He told HRW Nov. 17 the state has a pending “bridge waiver” and is negotiating with federal regulators to get funds in time to expand coverage in January 2011 through a 50-50 federal/state split.

Despite such funding challenges, the Coalition of New York State Public Health Plans asserts that based on Washington state’s BHP experience, a New York BHP could be offered at costs 30% to 40% lower than would otherwise be accessible through the state exchange. “It’s almost an extension of Medicaid — just a different funding source,” coalition spokesperson Anthony Fiori said, explaining that Medicaid offers provider reimbursement 30% to 40% below commercial levels.

Using the BHP option in New York also would drive the cost of coverage to BHP enrollees below premium levels for comparable coverage in the exchange, Fiori said.

Contact Dorn at sdorn@urban.org, Folkemer at folkemerj@dhmh.state.md.us, Murray at mmurray@communityplans.net, and Reynolds through Tom Boucher at tboucher@nhpri.org.

It's quick and easy to sign up for FREE access to AISHealth.com!

Why do I need to register?