By CHIR faculty

The Oregon Health Policy Board met on September 12, 2023 and approved plans to seek federal approval of a Basic Health Program (BHP). Oregon would be the third state, after New York and Minnesota, to establish a BHP. The program, created under the Affordable Care Act (ACA), allows people who earn just a little too much to qualify for Medicaid to enroll in comprehensive, low cost health insurance. In a recent issue brief for the Robert Wood Johnson Foundation, CHIR and Urban Institute researchers examined New York and Minnesota’s experiences with the BHP and lessons for its design and implementation in other states.

What’s a BHP?

The ACA included an option for states to run a program, called the BHP, that replaces subsidized coverage on the health insurance Marketplaces for individuals with incomes up to 200 percent of the federal poverty level (FPL).

The ACA sets minimum requirements for state BHPs. BHP premiums may be no higher than an individual’s cost for the second lowest cost silver plan on the Marketplace, and cost sharing must be similar. Like Marketplace plans, BHP coverage must cover the full range of the ACA’s essential health benefits. The federal government helps finance the BHP by providing the state with 95 percent of the funds it would have paid in Marketplace premium tax credits (PTCs) for each enrollee.

The BHP in New York and Minnesota

Before enactment of the ACA, New York and Minnesota operated and contributed state funding to coverage programs for low-income people who did not qualify for Medicaid. While these populations would generally be eligible for PTCs, the BHP offered both states an opportunity to continue providing Medicaid-like coverage with additional federal funding.

Both states’ BHPs are built on a Medicaid chassis: they are administered by the state agency that operates Medicaid and the state contracts with many of the same managed care plans that cover Medicaid enrollees, which in turn rely on a similar set of providers to deliver services. BHP enrollees in both states receive more generous benefits than those in Marketplace plans. Premiums in both states’ BHPs are also lower than Marketplace premiums, and New York eliminated all BHP premiums in 2021.

State Considerations for a BHP

A BHP has the potential to greatly improve coverage for eligible consumers, though the impact depends heavily on a state’s available funding, implementation choices, and operational systems. A BHP can also protect consumers from key sources of financial risk and complexity inherent in Marketplace coverage, such as the reconciliation of advanced PTCs on their annual tax returns, annual premium and PTC fluctuations, and plan choice overload.

However, when states switch to a BHP, some consumers eligible for premium tax credits in the Marketplaces may face higher premiums or cost sharing. This perhaps unintuitive effect arises because adopting a BHP largely eliminates the benefits of silver loading for people enrolled in bronze or gold plans. While modeling suggests that resulting coverage losses would be small, this concern has prompted Oregon to consider ways to mitigate the higher premiums for affected enrollees.

State Fiscal Impacts

The cost of a BHP to the state depends in part on the generosity of the coverage provided. But the cost also depends on how the cost of the program compares with federal funding. Where Marketplace premiums are high, BHP funding can support a generous program with little or no state contribution. Where Marketplace and Medicaid costs are similar, 95 percent of Marketplace subsidies may not support a generous program.

Generally, the most important factors in the fiscal viability of a BHP are the level of Marketplace premiums and the difference between provider reimbursement rates paid in the individual market and those under the BHP. If a state has a substantial gap between Medicaid and commercial provider rates and can keep its BHP provider rates on par with Medicaid (or some modest multiple thereof), the state is more likely to be able to rely exclusively on federal dollars to finance its program.

Conclusion

New York and Minnesota’s BHPs have both shown great success in making coverage affordable for low-income consumers. However, it is not clear that these states’ experiences are replicable in others. Much depends on state-specific factors, particularly the difference in provider reimbursement rates between Medicaid and the commercial market.

You can download and read the full issue brief, “The Basic Health Program: Considerations for States and Lessons from New York and Minnesota,” here.