What Is a Basic Health Program?

Young woman signs up for a basic health program

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Under Section 1331 of the Affordable Care Act, each state has the option to establish a Basic Health Program (BHP) that provides affordable, comprehensive health coverage to residents who earn too much to qualify for Medicaid, but not more than 200% of the poverty level (in 2020, that amounts to $25,520 in annual income for a single person and $52,400 for a family of four).

Only two states—New York and Minnesota—have created Basic Health Programs as of 2020, but in those states, residents with modest income have access to more affordable health coverage than they would have in the rest of the country.

Basic Health Program Model

Under the Basic Health Program model, the state contracts with one or more private insurance companies to provide coverage to eligible residents. Premiums are set at affordable levels, and the coverage is robust, providing at least platinum-level coverage to people with income up to 150% of the poverty level, and at least gold-level coverage to people with income between 150% and 200% of the poverty level.

Like Medicaid, enrollment in a Basic Health Program is available year-round for people whose income makes them eligible, although states do have the option to implement open and special enrollment periods.

In contrast, enrollment in private individual market plans and employer-sponsored plans is limited to annual open enrollment periods and special enrollment periods triggered by qualifying life events.

And just like most types of Medicaid, as well as premium subsidies and cost-sharing reductions in the exchange (and pre-tax employer-sponsored coverage), there are no asset tests for BHP eligibility—it's all based on income (and there's an ACA-specific calculation for income).

To understand why Basic Health Programs were contemplated as a coverage option for households with modest income—and why they serve a vital role in New York and Minnesota—it's important to understand how the system works when there's not a BHP in place. Let's take a look.

ACA for Low/Modest Income Households

Under the ACA, Medicaid was supposed to cover everyone with income up to 138% of the poverty level (133% plus a built-in 5% income disregard), with premium subsidies in the exchanges starting at income above that level to make private coverage more affordable for people who don't have access to employer-sponsored coverage.

Medicaid Expansion

The Supreme Court later ruled that Medicaid expansion to 138% of the poverty level would be optional for states, and as of 2020, there are still 13 states where Medicaid has not been expanded.

This number has been steadily dropping; Nebraska will expand Medicaid in the fall of 2020 and Oklahoma will expand Medicaid in 2021—in both cases under the terms of ballot measures passed by voters—and Missouri voters will decide on a similar measure in the August 2020 primary election.

When we compare Medicaid and private health plans purchased in the exchange, there is a fairly stark difference in the cost of coverage and health care, even when we account for premium subsidies and cost-sharing reductions in the exchange.

Market Plans for Modest Income Households

In most states, Medicaid has no monthly premiums (some states do impose modest premiums on some Medicaid enrollees), and cost-sharing amounts are capped at nominal levels. When we compare that with individual market plans purchased in the exchange, the differences are significant.

If a person picks the second-lowest-cost silver plan in the exchange in 2020 and has an income of 150% of the poverty level, they'll pay 4.12% of their household income in premiums. In addition, the plan will have cost-sharing in the form of a deductible, copays, and/or coinsurance.

At that level, a silver plan will have built-in cost-sharing reductions, which do help to lower the cost-sharing amounts that the person will have to pay if and when they need medical care.

But the cost-sharing can still be significant: With an income of 150% of the poverty level, cost-sharing reductions will reduce the maximum allowable out-of-pocket to $2,700. That's far lower than the $8,150 out-of-pocket maximum that the insurer could otherwise impose for 2020, but still a substantial amount for a person earning less than $19,000.

Millions of people with low-to-moderate incomes are eligible for zero-premium plans in the exchange, but these are almost always bronze plans that have out-of-pocket maximums in 2020 of $8,150 or nearly that amount.

Cost-sharing reductions are only available on silver plans, and the zero-premium plans are not silver plans. Although the coverage itself is obviously affordable if the premium is fully covered by premium subsidies, out-of-pocket exposure of more than $8,000 is not particularly realistic for a person with a low income.

When a person's income increases past 138% of the poverty level (in the states where Medicaid has been expanded) they will go from being Medicaid-eligible to being eligible for premium subsidies (and cost-sharing reductions if they pick a silver plan) in the exchange.

In most cases, this results in a fairly substantial increase in premiums and/or out-of-pocket medical costs, despite the fact that the person's income increase may have been fairly modest.

Purpose of Basic Health Programs

Congress envisioned Basic Health Programs as an in-between level of coverage for people whose income made them ineligible for Medicaid, but whose income was not robust enough to afford the premiums and out-of-pocket costs that go along with purchasing private coverage in the exchange.

The ACA also clarifies that lawfully present immigrants who have been in the U.S. for less than five years (and are thus ineligible for Medicaid) can enroll in Basic Health Programs, just as they can enroll in subsidized private coverage in the exchange.

For New York and Minnesota, there were strong financial incentives to establish Basic Health Programs. New York had already been using state funds to provide Medicaid to low-income immigrants who hadn't yet been in the U.S. for five years (Medicaid is jointly funded by the state and federal governments, but federal Medicaid funds cannot be used to provide coverage to recent immigrants).

MinnesotaCare was a state-funded program that had been in existence since 1992, providing coverage to low-income residents who weren't eligible for Medicaid.

In both states, the establishment of a Basic Health Program (or the transition to one, in the case of Minnesota's existing program that was converted to a BHP in 2015) allowed the state to continue to provide services it was already providing, but with generous federal funding that hadn't previously been available.

Minnesota's Basic Health Program

Minnesota's BHP, called MinnesotaCare, debuted in 2015. As of 2020, there were 87,770 people enrolled in MinnesotaCare. This was sharply higher than the 59,376 people who had been enrolled at the start of 2020, but that's not surprising given the widespread loss of jobs and income as a result of the COVID-19 pandemic. Minnesota contracts with seven insurers that provide MinnesotaCare coverage.

Premiums for MinnesotaCare range from $0 to $80 per month.

Most enrollees pay between $16/month and $80/month, as the incomes that correspond with premiums below $16/month would make an enrollee eligible for Medicaid (called Medical Assistance in Minnesota), as long as they had been lawfully present in the U.S. for at least five years.

Native Americans who qualify for MinnesotaCare (i.e., have income up to 200% of the poverty level) do not have to pay premiums, regardless of where their income falls in the eligible spectrum.

MinnesotaCare has an actuarial value of 94%, which makes it more robust than the average platinum health plan. Cost-sharing varies depending on the service, ranging from a $7 copay for generic drugs to a $250 copay for inpatient hospitalization.

Eligible Minnesota residents can enroll in MinnesotaCare through MNsure, the state's health insurance exchange.

New York's Basic Health Program

New York's BHP, called the Essential Plan, became available in 2016. As of early 2020, there were nearly 800,000 New Yorkers enrolled in the Essential Plan.

There are 16 private insurers that contract with the state to provide Essential Plan coverage, although their coverage areas tend to be localized and the number of participating plans from which a member can choose will vary from one area to another.

Premiums for the Essential Plan are either $0 or $20 per month, depending on income.

If the enrollee's household income is up to 150% of the poverty level (that amounts to $19,140 for a single person in 2020), there is no premium for the Essential Plan. If household income is between 150% and 200% of the poverty level (ie, more than $19,140 but not more than $25,520 for a single person in 2020), the premium is $20/month.

People who get the Essential Plan with no premium are also able to receive most health care services without any cost-sharing. There are nominal copays ($1 or $3) for prescription drugs, but other necessary medical services have no copays, deductibles, or coinsurance.

People who pay $20/month for the Essential Plan will have some cost-sharing associated with most medical care, but it tends to be much lower than it would be under a regular private health insurance plan (for example, $15 copays for brand-name drugs, $25 copays for specialist office visits, and $150 copays for inpatient hospitalizations).

Eligible New York residents can enroll in the Essential Plan through NY State of Health, the state's health insurance exchange.

How a BHP Is Funded

If a state does not have a Basic Health Program (and most states do not), people with income above the Medicaid threshold and up to 200% of the poverty level are eligible for premium subsidies and cost-sharing reductions if they purchase coverage in the exchange, assuming they're legally present in the U.S. and not eligible for Medicare or affordable, comprehensive employer-sponsored coverage.

If a state opts to establish a Basic Health Program, the federal government will give the state 95% of the money that the federal government would otherwise have spent on premium subsidies and cost-sharing reductions for the people who end up being eligible for the Basic Health Program coverage.

The state uses that federal funding, together with whatever additional state funding is necessary, to create a Basic Health Program that meets the statutory guidelines laid out by the ACA and subsequent HHS rulemaking.

Late in 2017, the federal government stopped funding cost-sharing reductions. This resulted in a sharp reduction in the amount of BHP funding that the federal government was providing to New York and Minnesota. In early 2018, both states sued the federal government over the reduction in their BHP funding.

The states and the federal government agreed later that year to a court ruling that essentially required HHS to work with the states to sort out a revised payment methodology for the BHPs. The agreement resulted in HHS providing New York and Minnesota with $169 million in additional BHP funds in 2018, and then reworking the BHP funding formula to provide additional funding going forward.

This was based on the fact that the elimination of federal funding for cost-sharing reductions has resulted in larger premium subsidies nationwide, due to the way that insurers have added the cost of cost-sharing reductions to silver plan premiums (and since premium subsidies are based on silver plan premiums, the subsidies have grown as well).

Will More States Establish BHPs?

Additional states could establish Basic Health Programs, but none have moved to do so yet. New York and Minnesota both came out ahead financially when they created Basic Health Programs because they had both been using state funds to provide coverage that the BHP could provide with substantial financial input from the federal government.

In states that aren't using state funds to provide that type of coverage, the adoption of a Basic Health Program could end up leaving the state on the hook for additional funding. That's because the current setup (in states that have expanded Medicaid) involves Medicaid coverage up to 138% of the poverty level, and then premium subsidy eligibility that picks up where Medicaid eligibility stops.

The cost of expanded Medicaid is paid mostly by the federal government (states pay 10%), but the cost of premium subsidies is paid fully by the federal government—states are not responsible for the cost of coverage for people who buy private health plans in the exchange (with the exception of California, Vermont, and Massachusetts, all of which offer supplemental state-funded premium subsidies).

If a state adds a Basic Health Program, the federal government would provide the state with 95% of what it would otherwise have spent on premium subsidies for people with income between 139% and 200% of the poverty level, but the state would be responsible for the remainder of the cost required to provide the coverage.

There is no doubt that the coverage provided by the two existing BHPs is more affordable and more robust than the coverage those enrollees would otherwise purchase in the marketplace. But the state bears a portion of that cost, which has made BHPs less appealing to other states.

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