In their January 22, 2013 draft regulations, the Centers for Medicare and Medicaid Services (CMS) proposed letting states use Medicaid/Children’s Health Insurance Program (CHIP) funding to purchase coverage for eligible beneficiaries in the individual market, including through Qualified Health Plans (QHPs) in Exchanges. As CMS notes in the draft’s preamble, there are several reasons a state might use “premium assistance” to buy Medicaid-eligible adults coverage through an Exchange:
- Premium assistance allows an individual to keep the same health plan and provider network, even if his or her income fluctuates above or below Medicaid eligibility levels. Premium assistance breathes life into the Affordable Care Act’s (ACA’s) promise of a seamless continuum of Insurance Affordability Programs. It protects people with incomes less than 400% of the Federal Poverty Level (FPL), who tend to experience frequent income changes, from having to switch plans and providers.
- Premium assistance provides Medicaid beneficiaries the same access to providers as privately-insured patients—and ensures those providers receive the same payment. It should reduce—and potentially eliminate—cost shifting among payers.
- Premium assistance allows children who are eligible for Medicaid or CHIP to enroll in the same health plans as their parents who are receiving tax credits through QHPs.
- Premium assistance facilitates multi-payer patient and delivery reform, driving quality and performance improvements across government and private insurance products.
Understanding the History—and the Issues
Premium assistance is not new. Under Section 1906 of the Social Security Act, states have had the authority to use Medicaid premium assistance to “wrap around” employer coverage for Medicaid-eligible adults. Medicaid programs could cover some or all of the premium and cost-sharing obligations of an individual’s employer-based coverage, as well as any additional benefits available through the state’s Medicaid program. In 2006, premium assistance was extended to CHIP.
Although it’s been a long-standing option, states have not widely adopted premium assistance. The opportunity to use premium assistance for purchasing coverage through Exchanges, however, has awakened new interest in the program. Although it offers many benefits, premium assistance also comes with a range of challenges, inherent in blending the legal, policy and operational complexities of the public and private markets. Key issues include:
- Covered benefits. Under the ACA, states must offer non-disabled adults under 65 an Alternative Benefit Plan (ABP). States considering providing premium assistance to Medicaid beneficiaries enrolling in QHPs must compare the QHP’s package with the ABP. Since both the QHP and the ABP must include the same 10 categories of essential health benefits defined in the ACA, there is likely to be considerable overlap. If there are benefits missing from the QHP that the ABP offers—such as non-emergency transportation or family planning—CMS will need to waive them or the state Medicaid agency will have to cover them.
- Coverage effectuation. Coverage start dates are different in Medicaid than the Exchange—with a potential five-week gap between determining Medicaid eligibility and enrolling in a QHP. In addition, Medicaid coverage must apply three months retroactively—a requirement that remains in place for premium assistance programs. In both cases, states may need to cover beneficiaries in their fee-for-service programs until QHP enrollments take effect.
- Cost sharing. Under Section 1916 of the Social Security Act, premiums are not permitted for those with incomes less than 150% of FPL—and total cost sharing can’t exceed 5% of family income. Barring a waiver, states will need to wrap around the QHP premium, design QHP products that meet cost-sharing requirements or wrap around QHP cost sharing to reach levels allowable under federal Medicaid law.
- Cost effectiveness. Proposed regulations require states to compare premium assistance costs with Medicaid coverage costs. Many state-specific factors impact the evaluation process, from what efficiencies would be achieved through QHP vs. ABP coverage… to whether capacity demands would drive increased provider rates… to how much savings would be realized from lower beneficiary churn, cross-payer reforms and streamlined administration from providing private and public coverage in one system. Ultimately, states will need CMS guidance on applying the comparability standard and determining acceptable levels of cost variation.
Operational challenges. To ensure states achieve the full continuum of coverage anticipated in the ACA, they need to address several critical operational issues:
- Mandatory enrollment. We believe states will be able to mandate premium assistance but will need a freedom-of-choice waiver, if QHPs use a closed provider network.
- Risk pooling. It appears the ACA’s risk stabilization programs—including risk adjustments, risk corridors and reinsurance—will apply to Medicaid enrollees in QHPs.
- Plan shopping and enrollment. Questions remain around when the Exchanges will be ready to accommodate the added demands of premium assistance programs—and what interim solutions would work for 2014.
- Flow of funds to QHPs. Systems will need to be established that notify state Medicaid agencies when enrollments occur and enable them to pay the premium to the appropriate QHP.
- Benefit wraps. States will have to create approaches for providing any benefits not included in the QHP.
- Notices. States will need to notify individuals receiving ABP benefits through an Exchange of the reasons that would entitle them to opt into Medicaid and their right to access Medicaid benefits outside the QHP.
- Coverage appeals. Medicaid beneficiaries retain their right to challenge coverage decisions through a fair hearing, across both Medicaid and QHPs.
NOTE: To download a complimentary copy of our complete brief, Purchasing Coverage for Medicare Beneficiaries in the Exchange: A Review of the Premium Assistance Option, click here.