A significant area of concern among senators and governors in Medicaid expansion states is the loss of coverage under the BCRA for those who have it today under the ACA and the unaffordability of the new BCRA coverage options for low-income people. The July 20 CBO score estimated that the BCRA would lead to substantial loss of health insurance coverage, increasing the uninsured number by 22 million in 2026 compared to current law. The coverage loss is driven primarily by the BCRA's phase out of the enhanced federal Medicaid funding under the ACA that allowed 31 states and the District of Columbia to expand Medicaid coverage to 14 million people with incomes below 138% of the Federal Poverty Level (FPL). The phase down and eventual elimination of the enhanced funding will require many (perhaps most) expansion states to end expansion, if not in 2021 when the phase down begins, certainly by 2024 when the enhanced funding is eliminated entirely. Whether states end expansion before or during the funding phase down, ultimately the result will be the same: very low-income parents and other adults will lose Medicaid coverage.
The Senate bill provides that individuals with incomes below 100% FPL may access subsidies to purchase insurance through qualified health plans (QHPs) in the Marketplace, filling a gap in the ACA that provided subsidies only to those with incomes above 100% FPL. (The ACA anticipated that the expansion would be implemented in all states; but, the expansion became voluntary after the Supreme Court’s decision in National Federation of Independent Business v. Sebelius). BCRA proponents have suggested that the new subsidy construct will be a viable replacement for Medicaid coverage and indeed a source of coverage for low-income adults in non-expansion states. In this issue of “Manatt on Health,” Manatt estimates out-of-pocket costs under the BCRA to test coverage affordability for low-income families, many of whom are covered under the Medicaid expansion today.
Like the ACA, the BCRA proposes that Marketplace enrollees pay a portion of their incomes (adjusted by age) toward the cost of a benchmark plan, with the federal government paying the difference in the form of tax subsidies.1However, the BCRA makes an important change to the benchmark plan by lowering the plan’s actuarial value or AV (the proportion of covered services for which the plan must pay) to 58%;2 under current law the benchmark plan has a 70% AV. Further, the bill eliminates the cost-sharing reduction subsidies that are currently in place to ensure affordability of out-of-pocket costs (deductibles, co-pays and co-insurance) for those with incomes below 250% FPL who purchase Marketplace coverage.
To assess affordability of coverage for low-income people under the new BCRA subsidy approach, Manatt considered premiums and deductibles under the new BCRA benchmark plan as a percentage of family income. As the chart below shows, under the BCRA, a family of two with an income below 133% of the FPL would be required to pay more than half of its annual income toward healthcare costs before its insurance plan would begin to pay for most covered services. For example, the deductible and premiums for a family of two earning $16,240 a year (100% FPL) would amount to more than three-fourths (78%) of that family’s total annual income.
To view graph click here.
Responding to expansion states’ coverage affordability concerns, a number of ideas have been floated to mitigate the high cost of Marketplace coverage under the BCRA:
CMS Administrator Verma has suggested that expansion states might be permitted to use funds from the BCRA individual market stability pool (funded at $180 billion for the period from 2019 through 2026) coupled with funds secured through a Section 1115 waiver to further subsidize out-of-pocket costs for low-income people covered in Medicaid today. Media reports last week refer to a proposed $200 billion fund to be added to the BCRA for states that expanded Medicaid; as of this writing, it is unclear whether this fund would be used to fund the waiver approach, or would be over and above the waiver option. Reports suggest that the new pool would be funded by leaving in place the ACA net investment income tax and Medicare surtax and would be distributed in the out years of the BCRA when the enhanced funding for Medicaid expansion is fully eliminated. Notably, this new pool of funding is not reflected in the Senate’s latest BCRA language released on July 20. Over the weekend, the “Graham Cassidy” proposal emerged, which would give states a federal block grant that would replace federal funding for Medicaid expansion, tax credits, and cost-sharing reduction subsidies. States would have flexibility to use these funds to “pay for healthcare costs” for people in their states. There are few additional details on the proposal, including the program and spending requirements that would be attached to the block grant.
Each of these proposals shares a common theme: knitting together multiple pots of federal funding, some of which appear time limited. There are significant questions about whether sufficient BCRA pool and waiver funding could be patched together to implement and sustain in all 31 expansion states a broad-based coverage solution that is comparable in benefits and affordability to coverage under the ACA. Additionally, current law ensures enhanced federal matching funds for all states that expand Medicaid coverage, whereas waivers are time limited and subject to the discretion of the CMS Administrator, and block grants shift spending and enrollment risk to states for healthcare spending. In the case of Graham Cassidy, the risk shift to states would be for both Medicaid and low and modest income residents with incomes above Medicaid levels who rely on ACA tax subsidies and cost-sharing reductions today. Both of these proposals create new processes, uncertainty and financial risk for states. With respect to the waiver proposal, whether the Office of Management and Budget (OMB) would find waivers to be budget neutral to the federal government and how they fit into the capped Medicaid funding structure advanced by the BCRA adds additional levels of complexity and uncertainty. Another major open question is whether the waiver option would be available to non-expansion states that might want to wrap Marketplace costs for their low-income residents.
Despite the lack of details around these proposals, it is clear that the stability pool is intended for multiple purposes (see below for more details), including generally stabilizing coverage in the non-group market, and that both the stability pool and the $200 billion pool are time-limited, making the long-term sustainability of the funding sources for the affordability proposals uncertain at best. Finally, if the end goal of these proposals is to shift people currently covered by Medicaid to Marketplace plans with comparable affordability and benefits, they are likely to cost the federal government more than coverage through Medicaid, which has been well-documented as a less costly way to provide coverage. This raises the most puzzling question related to these proposals: Why replace an existing system that works reasonably well with a new, temporary patchwork of pools, grants and waivers that costs more and falls short of what the Medicaid program already does?