Basic Health Plans and hoping for chaos

States that want to start a Basic Health Plan in 2019 have an incentive to root for non-fatal market chaos in 2018 rate filings.

The Basic Health Plan (BHP) is effectively enhanced Medicaid Managed Care for the Exchange population that earns less than 200% of the Federal Poverty Level. States receive 95% of the funds that would have been spent on Exchange premium and cost sharing subsidies with geographic and demographic adjustments.

Currently, we are hearing that insurers may file very high rates because they don’t know what the 2018 on-Exchange rules or risk pool will look like. Very high rates will be composed of the combination of increasing medical trend which is a normal part of a rate filing and an uncertainty component. The uncertainty component will be large enough to cover an insurer’s obligations if they are required to offer Cost Sharing Reduction (CSR) actuarial value boosts without getting paid for them. The uncertainty component will be large enough to cover a risk pool that shrinks significantly as outreach by Healthcare.gov is curtailed or ineffective and mandate enforcement messaging disappears. The uncertainty component is the insurance insurers will take out to cover themselves from sabotage.

The uncertainty component is specific and limited to only the individual market.

The current rules are from the February 29, 2016 Federal Register. BHP subsidies are not adjusted for changes in premiums due policy uncertainty. The assumption in the current rules is that Exchange costs increases are driven only by medical trend.

This produces an opportunity for states that want to start a BHP in 2019. If we assume the ACA’s structure fundamentally exists in 2019 states could receive a cash windfall if they elect to build a BHP using 2018 QHP rates as the funding baseline. 2018 QHP rates will be very high and most of that increase will be due to policy uncertainty and not underlying medical trend. The current rules do not recognize a policy uncertainty adjustment so the states would get a block grant equal to 95% of the inflated Exchange expense. The underlying trend of expenses in a BHP would be normal and the block grant would be more than sufficient to cover expenses. The surplus could either be used to enhance benefits with a BHP, provide a one shot infusion of funds to opioid efforts or other public health/social determinants of health programs.

By 2020, the uncertainty premium is most likely wrung out of the baseline Exchange rates that drives the BHP funding stream so it is only a one or two year play but there is a good chance a lot of extra money is out there for states that want to start their own Basic Health Plan in 2019.

6 replies
  1. 1
    StringOnAStick says:

    I am worried that the howling over the huge increase in premiums thanks to the uncertainty component is going to do Drumpf’s “let the ACA collapse” work for him. I know why it shouldn’t because I read you, but the average US person is going to hear how the media spins this (and they will, for the repub’s benefit) and think the ACA has to die. What comes next is anyone’s guess, but as someone about to turn 60 with a husband who wants to become a contractor so we’ll have to buy our own HI, I am nervous.

  2. 2
    TKinNC says:

    Hey David – and anyone else in the area – We’re having the LWV come up to Roxboro NC and talk about the ACA on May 11 at 7PM. You are cordially invited to attend. Bring about 5K folks that vote D, establish residency and we’ll turn this county around in no time!
    Event on Facebook:
    https://www.facebook.com/events/362194700841186/
    I’ve invited Rep Mark Walker (NC-6) District Director – Julie Emmons. I hope she shows.

  3. 3
    Steeplejack says:

    @TKinNC:

    What is the LWV?

  4. 4
    StringOnAStick says:

    @Steeplejack: I think that is the League of Women Voters.

  5. 5
    TKinNC says:

    @StringOnAStick: @Steeplejack: Yep – league of women voters – in this case, specifically, “League of Women Voters of Orange-Durham-Chatham”. I’m in Person County – we sit immediately north of Durham and Orange – and hold Virginia at bay. We’ve got water and dirt but not that many people – relatively.

  6. 6

    @TKinNC: I am in Pittsburgh that evening but I will highlight this on the frontpage the week of the event.

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