What Is a Basic Health Program?

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. This article will explain what BHPs are, how they work, and where they're available.

Only two states—New York and Minnesota—have created Basic Health Programs as of 2023, 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.

Oregon is considering the creation of a BHP, and may have one available for residents by 2026, or possibly earlier. Kentucky was also considering this in 2022, but opted to pause work on the program.

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 (both NY and MN offer free BHP coverage to most eligible enrollees) 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). And then premium subsidies in the exchanges start 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 early 2023, there are still 12 states where Medicaid has not been expanded. (South Dakota will expand Medicaid in mid-2023, reducing the number of non-expansion states to 11.)

When we compare Medicaid and private health plans purchased in the exchange, there is a fairly significant difference in the cost of coverage and health care, even when we account for premium subsidies and cost-sharing reductions in the exchange (the American Rescue Plan has greatly improved access to affordable, robust coverage in the exchange for people with income a little too high for Medicaid, and this was extended through 2025 by the Inflation Reduction Act).

Marketplace/Exchange 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/marketplace, the differences are significant.

If a person picks the second-lowest-cost silver plan in the exchange in 2023 and has an income of 199% of the poverty level, they'll pay about 2% of their household income in premiums (note that this percentage is lower than normal, through the end of 2025, due to the American Rescue Plan and Inflation Reduction Act). 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 199% of the poverty level, cost-sharing reductions will reduce the maximum allowable out-of-pocket to $3,000. That's far lower than the $9,100 out-of-pocket maximum that the insurer could otherwise impose for 2023, but still a substantial amount for a person earning roughly $27,000.

A person with an income of 199% of the poverty level may find that they're eligible for some zero-premium plans in the exchange. But these will tend to be bronze plans that have out-of-pocket maximums in 2023 of $9,100 or nearly that amount.

Cost-sharing reductions are only available on 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 $9,000 is not particularly realistic for a person with a low income.

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 early 2023, there were over 103,000 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 nine insurers that provide MinnesotaCare coverage.

MinnesotaCare enrollees pay between $0/month and $28/month. 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 2023, there were more than 1.1 million New Yorkers enrolled in the Essential Plan.

There are 12 private insurers that contract with the state to provide Essential Plan coverage in 2023. But 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.

Prior to the American Rescue Plan's implementation, Essential Plan enrollees with income above 150% of the poverty level had to pay $20/month for their coverage (those with income below that amount were able to enroll for free).

As of mid-2021, however, the state eliminated premiums for all Essential Plan enrollees, allowing people with income up to 200% of the poverty level to enroll in the Essential Plan, with no premium, if their household income doesn't exceed 200% of the poverty level (this was due to the American Rescue Plan's subsidy enhancements, which have been extended through 2025 by the Inflation Reduction Act). So premium-free Essential Plan coverage is available in New York to a single person earning up to $27,180 in annual income.

For enrollees with income up to 150% of the poverty level, the Essential Plan has nominal copays for prescription drugs, but other necessary medical services have no copays, deductibles, or coinsurance. The program also includes free dental and vision coverage that became available as of mid-2021.

People with income between 150% and 200% of the poverty level 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).

Both Minnesota and New York also received additional funding for their BHPs in 2021 as a result of the American Rescue Plan. New York's program received an extra $750 million, and Minnesota's received an extra $100 million.

Will More States Establish BHPs?

As of 2023, Oregon is the only other state that is currently working toward the creation of a Basic Health Program.

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. (note that there are several states that provide additional state-funded subsidies, for premiums and/or cost-sharing, in addition to what the federal government provides.)

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.

Summary

The Affordable Care Act allows states to create Basic Health Programs (BHPs) that provide low-cost, high-quality health coverage to people with income too high for Medicaid, and up to 200% of the poverty level. Just two states, New York and Minnesota, have opted to establish BHPs. Together, their programs are covering more than 1.2 million people, most of whom do not have to pay any premiums. Oregon is working to create a Basic Health Program that they expect to make available by 2026 at the latest.

A Word From Verywell

If you're in New York or Minnesota and your income is in the BHP-eligible range, you'll likely find that you have access to better coverage than you'd have in another state. And chances are, you won't have to pay a monthly premium for your coverage.

Although the rest of the states do not have BHPs, enrollees who purchase their own health insurance will tend to find that coverage is more affordable than it was prior to 2021, thanks to the American Rescue Plan's subsidy enhancements.