ACA offers a lower-cost option. Why are only two states using it?

Here's what Manhattan freelance writer Marcella Durand feared when she went to an Affordable Care Act enrollment counselor for 2016 health insurance: a “terrible premium with a terrible deductible for a plan that covered nothing.” Instead, she says she was “absolutely surprised” by an option she knew nothing about.

Durand signed up herself, her husband, who's a freelance artist, and their young son for New York State's new Essential Plan. Her family will pay $49 a month for a plan through Empire Blue Cross and Blue Shield that has no deductible and covers most of their regular providers. They were previously paying $500 a month for an exchange plan with a $3,500 deductible. “I can't tell you how relieved we were,” she said.

On Jan. 1, New York became the second state to launch a version of the Basic Health Program (BHP) option authorized by the ACA, serving people with incomes between 138% and 200% of the federal poverty level, plus legal immigrants who don't immediately qualify for Medicaid. Consistent with Durand's experience, the state's advertising slogan for the Essential Plan is “You'd be surprised.”

Minnesota took advantage of the program last year, shifting its longstanding MinnesotaCare program—which also covers legal immigrants—to a BHP. In both states, it is the sole subsidized insurance option for residents who fall into that defined income group.

The federal government pays the state programs 95% of the amount it otherwise would pay a state for premium tax credits and cost-sharing reductions for the targeted population. As of last month, New York reported that 356,000 residents had signed up for its Essential Plan, while Minnesota has 125,000 enrollees. New York says the plan will cost $2.6 billion for 2016-17, of which $2 billion will be covered by the federal government. Oregon lawmakers are now considering a bill to develop a BHP option for 2018.

At a time when many Americans are finding insurance premiums and cost-sharing too expensive, advocates say the Basic Health Program is a way for states to offer a more affordable insurance option for those just above Medicaid income levels. The goals of the BHP option are to reduce premiums and out-of-pocket costs, facilitate continuity of coverage and providers, and boost the percentage of the uninsured who obtain coverage.

“Low-income households are having the most trouble with affordability, and even if they can afford the premiums, they are tending not to use the coverage because of out-of-pocket costs,” said Janet Bauer, a policy analyst at the Oregon Center for Public Policy who wants her state to take advantage of the BHP program. “We have this option that would be a substantial improvement for this population at little cost to Oregon.”

While Democratic presidential candidate Hillary Clinton has proposed addressing the insurance affordability issue by capping consumers' out-of-pocket and prescription-drug costs, that would require action by a deadlocked Congress, whereas the BHP option already exists in law.

“It's just about the only way to substantially increase the affordability of coverage without any change to the ACA, so a lot of people are thinking about how to make it work,” said Matthew Buettgens, a senior research analyst at the Urban Institute who is advising Oregon as it considers the program. “This could be cheaper than Hillary's approach,” he said.

But experts caution that the program involves complex considerations for states, which may be why more haven't seized the opportunity. Moving thousands of enrollees out of a state exchange and into a BHP plan could make the marketplace less attractive to insurers and undermine the exchange's financing—which is why Oregon is considering offering BHP plans through its exchange. Making the program less expensive for the state may involve cutting provider payments below exchange-plan rates, which is likely to anger providers.

Some states may prefer to wait and improve the coverage they provide through the ACA's Section 1332 waiver program instead, which may offer broader flexibility and will offer 100% federal funding when it takes effect next year. Another concern is that House Republicans are challenging the legality of the Obama administration's funding of the program.

In New York, many people are switching from exchange plans to Essential Plan products because of their lower cost, enrollment counselors and insurers say. Stacy Villagran, who heads a team of ACA enrollment navigators at the Nassau-Suffolk Hospital Council in Hauppauge, N.Y., said the Essential Plan has been the most popular option for its clients. Many who switched to the Essential Plan “were happy because they were struggling to pay the (exchange plan) prices,” and were either dropping their coverage or not enrolling in the first place, she said.

Healthfirst is offering Essential Plan products in New York City and Long Island, including more comprehensive plans that cover vision and dental care through higher premiums. Pat Wang, the not-for-profit plan's CEO, said her Essential Plan products pay providers somewhere between Medicaid and commercial rates.

Wang thinks the Essential Plan will reduce the state's uninsured rate and improve enrollee retention throughout the year because it costs less than an exchange plan, and the absence of a deductible will encourage members to seek appropriate care. The average premium for people migrating from a Healthfirst exchange plan to an Essential Plan drops from $120 a month to between $20 and $33 a month, she said.

But Wang is wary about how the new program will affect the state-run marketplace, given that it has shrunk her plan's exchange enrollment. “We hope there are still enough members in that risk pool to make it viable from an insurance perspective,” she said.

Will other states adopt the BHP model? Much depends on whether concerns about insurance affordability for people under 200% of poverty outweigh growing anxieties about the viability of the exchange markets, the Urban Institute's Buettgens said. “You'll see tensions between these two issues playing out in a number of states,” he predicted. “Whether or not (BHP) will work is a very complicated issue.”

Correction, Feb. 8, 2016: