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Think Tank

Basic Health Program: Good or Bad Idea for California?

The Affordable Care Act gives states the option of creating state-run public insurance — known as a Basic Health Program or Basic Health Plan — for low-income people who aren’t eligible for Medicaid and are not covered by an employer-sponsored plan.

The California Legislature is considering a proposal to create a Basic Health Program in California. SB 703 by Ed Hernandez (D-West Covina) would create low-cost health insurance for as many as one million Californians who otherwise might not qualify for subsidized coverage.

Proponents say that it’s the right thing to do and that the federal subsidies being offered are too good to pass up.

Opponents say creating a separate program would undermine the new California Health Benefit Exchange. We asked stakeholders and experts: What should California do? 

We got responses from:

Basic Health Program Too Good To Ignore

Western Center on Law & Poverty supports the creation of a Basic Health Program in California because it would make coverage eminently more affordable for low-income Californians. Under the Affordable Care Act, the BHP is for adults with incomes between 133% and 200% of the federal poverty level ($1,238 to $1,862 per month for an individual).

The numbers tell the story. In California’s exchange, an individual with an income at 200% FPL — or $1,862 per month/$22,340 per year — would have a monthly premium of $117 per month, as well as be responsible for sharing 13% of the total cost of care. A fiscal analysis of the BHP estimates that the same person in the BHP would pay a $20 monthly premium and share a maximum of 4% of the cost of care. In short, the exchange premium would be more than five times that in the BHP and the cost-sharing three times as much. 

At these low-income levels, consumers already are unable to make ends meet. The costs in the exchange for this population will lead some to go without needed coverage and care. Even the costs in the BHP are a stretch for many, but they are plainly more affordable.

Another important advantage of the BHP is that California can get federal funds for all legally residing immigrants. The “five-year bar” that applies to legal residents seeking to enroll in Medi-Cal does not apply to BHP (Medi-Cal is California’s Medicaid program.)

For the BHP to be a success it must be coordinated as seamlessly as possible with Medi-Cal and the exchange. California is in the process of building a “no wrong door” enrollment system for health care so that regardless of where a consumer applies for coverage, she will be enrolled into the correct program including the BHP, Medi-Cal, Healthy Families (California’s CHIP) and the exchange.

Detractors point to the lost purchasing power for the exchange if the BHP population is separated and voice concerns about the risk mix for the exchange.  Even with a BHP however, California’s exchange will likely still have enrollment of over a million people — more than Healthy Families and a sizable group for which to bargain. Also, California could have the exchange purchase the coverage for both those enrolled in the exchange itself and those in the BHP. 

Overall, the case for the BHP is too compelling to ignore. It is the right answer for California.

Move All Non-Medi-Cal Coverage Into Exchange

Insure the Uninsured Project’s goals for California’s implementation of the Affordable Care Act are:

 1) To cover as many uninsured as possible;

 2) To build a strong and successful exchange to buy more affordable coverage for small employers and privately insured and uninsured individuals; and

 3) To develop integrated safety nets that compete on a level playing field on the basis of their price and quality.

The Basic Health Plan could be valuable in meeting one, and possibly two, of these three ITUP goals, while weakening the third (the exchange). Lower BHP premiums could attract more participants, and the BHP may be attractive to local health plans, allowing them to integrate safety-net delivery systems. There could be too little competition in a BHP and thus less incentive for plan networks to excel on price and quality. A BHP that pays Medi-Cal rates would have a weak network of private physicians. A BHP may weaken the exchange by diverting almost a million subscribers out of the exchange.

ITUP has four suggestions.

First, the exchange should eventually administer and integrate all health insurance programs for people with incomes over the bright line (133% of FPL). The Department of Health Care Services should administer all programs for patients with incomes below 133% of FPL. If California decides to develop a BHP, it should be administered through the exchange. Programs like Healthy Families and AIM (Access for Infants & Mothers) should eventually be moved from MRMIB (Managed Risk Medical Insurance Board) and integrated into the exchange. This system will be easier to understand and navigate for subscribers, providers, plans and the general public.

Second, local safety-net health plans and networks should work to develop BHP-like coverage and compete for subscribers with commercial plans in the exchange. More competition should produce better products. To avoid the underpayment issues that plague Medi-Cal, we believe a BHP should pay at least Medicare rates to physicians.

Third, it is important to keep new programs simple and to preserve continuity of coverage, of provider choice and of plan options, as individuals inevitably shift back and forth between Medi-Cal and the exchange as incomes and family composition change. California has long had a pattern of developing incremental niche programs that work for the few, but create endless complexities for the many. The ACA offers the opportunity to simplify. In California we absolutely must avail ourselves of this.

Fourth, the discussion of the BHP option highlights the very real challenges facing the exchange to develop models of coverage that are substantially more affordable to individuals and small employers. In our view, delivery systems integration, prevention and primary care, reimbursement reforms focused on outcomes and cost effectiveness, transparency of plan and provider prices and outcomes and competitive bidding with strong financial incentives are among the menu of options the exchange should embrace.

Focus Must Be Successful Health Benefit Exchange

The creation of a Basic Health Program would epitomize an approach to health policy — and to California governance in general — that has simply not worked to create universal access, sustainable cost growth or better health. The theory is that through the creation of a new public program that will pay health care providers slightly more than Medi-Cal rates, we can expand coverage by offering more affordable policies that will be taken up by more people. There are several issues with this approach. 

First, although the amount that businesses and individuals pay for health insurance is too high, California’s Medi-Cal program reimburses doctors and hospitals at rates that are unsustainably low. Adding more people at very low rates will simply accelerate the shifting of costs from the public to private sector and aggravate access issues that already exist within public programs. 

Even worse, the Basic Health Program would negatively impact the very promising new publicly administered market for private insurance, the California Health Benefit Exchange. This market is heavily subsidized so it will also make health coverage affordable for millions who need it. This affordability, though, will be a factor of these subsidies as well as innovative product design, not simply underpayment to providers. The Basic Health Program robs the exchange of more than a third of its enrollees and well more than half of its federal subsidies, cutting it off at the knees before it has learned to walk. 

Finally, basically every problem with our current health system is a direct result of its metastasizing complexity which makes it impossible to navigate or optimize. The Affordable Care Act attempts to simplify and streamline public programs in order to begin to create a system that is more effective, transparent and fair. The creation of a Basic Health Program, as an entirely new public program with separate administration, eligibility rules and benefits, runs counter to these goals. It’s an option for the state that is a result of the passage of the ACA, but it’s a perfect example of the importance of the process of implementing the law thoughtfully. 

Fixing the incentives in the private market for health insurance, which includes creating a successful California Health Benefit Exchange, is where we should be placing our time and attention. We should look very skeptically upon any proposal that would undermine that process.

California Should Try 'Lower Risk Option'

We have been working at the UCLA Center for Health Policy Research, in collaboration the UC-Berkeley Labor Center, to provide estimates to the California Health Benefit Exchange board and others regarding both eligibility and likely enrollment in the exchange starting in 2014. Based on our work to date, we estimate that about 0.95 million Californians will be eligible for the BHP option in 2014, representing about 36% of the population eligible for exchange subsidies. As a result, the BHP option would still leave a significant number of Californians, about two million, eligible for the exchange.

Whether the BHP option will seriously hinder the effectiveness of the exchange by removing more than one-third of eligibles is subject to debate. And, based solely on estimated out-of-pocket expenses, the BHP eligible population will almost certainly be better off under the BHP option than in the exchange.

But I think it’s more appropriate to re-frame the question of whether California should pursue the BHP option in the following way: What mechanism is going to serve the health needs of the BHP-eligible population most effectively?

Based on our work examining people between 201% and 400% of the federal poverty level, the BHP-eligible population is very similar to the exchange-eligible population when accounting for either their self-reported health status or their number of chronic illnesses. But about 63% of BHP eligibles report no usual source of care or relying on safety-net providers, and more than one-third of those report no visits to the doctor within the past 12 months. As a result, the BHP-eligible population may have significant unmet need for primary and specialty care. So, can the BHP option meet these needs more effectively than insurers in the exchange? 

If payment rates are not set higher than they are currently under Medi-Cal, I’m concerned the BHP-eligible population will not have sufficient access to primary care under the BHP option. If the state’s budget crisis wasn’t deepening, I’d have more confidence in the state’s ability to set adequate payment rates for primary and specialty care under the BHP option.

Instead, I favor what seems to be a lower-risk option at this time. Namely, the Legislature should require the exchange to aggressively recruit existing and newly established safety-net provider networks to participate in the exchange as qualified health plans to serve the BHP-eligible population, while simultaneously requiring other qualified health plans to contract with safety-net provider networks to demonstrate evidence of sufficient network capacity. This dual approach will cost low-income families more in terms of out-of-pocket premiums, but should improve access to primary and specialty care relative to the BHP option.

Important Tool To Expand Coverage

Since the passage of the Affordable Care Act, California has led the nation in working toward the major coverage expansions effective in 2014. The California Health Benefit Exchange is up and sprinting toward its 2014 opening date. The groundwork has been laid for the Medi-Cal expansion through the Low Income Health Program.

Another important federal option remains on the table for California and deserves swift approval. SB 703 would provide an important tool to help California achieve federal health reform’s promise of affordable coverage.

The ACA provides states the option to offer, in lieu of subsidized coverage via an exchange, a state-administered BHP to eligible adults with incomes 138% to 200% ($15,415-$22,340) of the federal poverty level. They must be ineligible for Medi-Cal and employer-sponsored coverage, or unable to afford that coverage. States would be given 95% of the value of the subsidy folks would have received in the exchange and in return, offer subsidized coverage with significantly lower cost-sharing than in the exchange.

Think of it as Healthy Families coverage for adults. And like Healthy Families, the trade-off is simple — broad, commercial coverage with higher cost-sharing in an exchange vs. narrower networks with significantly lower cost-sharing in a BHP.

Why would anyone make this trade-off? The answer is simple and at the heart of that narrow band of eligibility for BHP: affordability for lower income people. Those eligible for a BHP will have incomes just above Medi-Cal eligibility and will face higher cost-sharing in the exchange than the BHP.

In analyses — by both Mercer and the Urban Institute — of the financial feasibility of establishing a BHP in California, the contrast is stark. An adult with just over $1,300 in monthly income ($16,000 annually, or 150% of FPL) would pay an estimated $54 monthly premium for exchange coverage vs. an estimated $10 monthly premium with BHP. The Urban Institute estimates that without a BHP, 100,000 Californians would likely forgo coverage in the exchange and remain uninsured due to affordability concerns.

As envisioned in SB 703, a BHP can and must be carefully constructed to operate in a seamless and complementary way with Medi-Cal, Healthy Families and the exchange. If done properly, these programs can work behind the scenes to coordinate networks, align products and reduce coverage disruption. Increasing affordability to quality coverage is critical to making federal reform work. While a BHP won’t work for every state, it’s a compelling option that should be approved in California.

California Should Not Miss This Opportunity

California cannot pass up this federally supported opportunity to provide affordable health insurance coverage at virtually no new cost to the state. The Basic Health Plan will offer individuals the same benefits, the same coverage and the same access as the exchange — but at a cost to those covered that will be five times more affordable. This is the most critical point to keep in mind when considering the Basic Health Plan and the population it will serve — individuals with incomes barely too high to qualify for pubic health care programs but too low to actually afford the out-of-pocket costs of maintaining coverage through the exchange.

Even with tax credits and subsidies taken into account, lower income individuals who are eligible for the Basic Health Plan would spend a minimum of $201 a month — nearly 10% of their income — for exchange-based coverage.

By contrast, because of the lower administrative costs (15% maximum in the BHP vs. 20% in the exchange) and the provider networks ready to serve the Basic Health Plan, the same coverage would cost $30 a month in the Basic Health Plan. 

The Basic Health Plan promises coverage at a price that people can afford. And, with it in place, California’s exchange will still manage a risk pool that will have over 2.5 million individuals. It will be the largest in the nation. We just cannot miss this opportunity to provide Californians with the Basic Health Plan, a truly meaningful and viable option for purchasing coverage.