Expanding subsidies to improve the risk pool

California Governor Newsom is proposing to improve the Covered California ACA risk pool by making plans effectively cheaper for populations that are not heavily subsidized or subsidized at all.  His revised budget lays out the plan (p. 37-38):

The Governor’s Budget proposed to make California the first state in the nation to offer financial assistance to qualified individuals with incomes between 400 percent and 600 percent of the federal poverty level…The May Revision expands upon this proposal by offering subsidies to individuals between 200 percent and 250 percent of the federal poverty level….

Combined with the Governor’s Budget proposal to create a state individual mandate to obtain comprehensive health care coverage, the subsidies will improve the overall risk pool in the individual market, reducing future premium increases.

The California proposal is trying to reduce the average non-subsidized premium in three ways.

Directly, it is subsidizing currently non-subsidized consumers.  This will benefit current buyers who were going to buy at non-subsidized prices and now they get a windfall to either pocket or buy up in quality.  It will attract some people who are not in covered right now and get them to buy.  We strongly suspect that as a cohort, individuals who are flipping a coin on coverage decisions due to price and choosing to not enroll are healthier than the average person who is electing to buy.  This will lower average morbidity and claims expenses which will in turn result in marginally lower premiums.

Secondly, it is subsidizing folks who earn between 200-400% FPL.  This will bring in some new folks (not many as $10/month  is real money but it is not big money) and keep some folks enrolled longer. Again, the people who are flipping a coin to stay or go are more likely to be lower cost than average.  Enrolling and keeping them enrolled brings down average per capita claims costs  which brings down premiums.

Finally, the state is proposing an individual mandate.  Economically this raises the cost of being uninsured so again people who were flipping a coin as to whether or not they should sign up will be signing up.  This again should be a healthier and cheaper cohort.

The interesting thing about the California proposal is that it is stealing some good ideas from other states.  New Jersey uses a state based individual mandate to fund reductions in non-subsidized premiums.  Massachusetts uses wrap-around state funded subsidies to increase affordability.  Minnesota has used state funds to subsidize the over 400% FPL crowd.

However California may not be seeking a Section 1332 waiver to collect some of the gains of lowering the index premiums through higher enrollment.  They are giving up some federal pass through funding as lower index premiums will lower federal spending on premium subsidies.  This is a policy trade-off for more state flexibility at some cost.

Interesting….

 






11 replies
  1. 1
    kindness says:

    We here in the People’s Republic of California are very lucky to have reasonable citizens who elect decent people to office (for the most part. Some sections of S. Cal don’t apply). I don’t love Gavin like I love Jerry Brown but I still support and am grateful for Gavin being there.

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  2. 2
    Villago Delenda Est says:

    This makes sense, which means the health insurance industry will oppose it simply out of spite.

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  3. 3

    @Villago Delenda Est: The insurers are on board — more paying customers and less variability is a win for them.

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  4. 4
    Juice Box says:

    @kindness: Gavin has been rather more impressive than I expected. He ain’t no Jerry Brown, though.

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  5. 5
    Martin says:

    @Juice Box: I agree. I was never a big fan of Newsom, but he’s done good.

    David,

    Newsom has appeared to be more willing to take the economic risk of single payer than Brown was. To what extent do you see these policy changes from CA laying the foundation for doing that?

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  6. 6
    Villago Delenda Est says:

    @David Anderson: “Less variability” – stable market.

    The GOP of course opposes out of spite.

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  7. 7
    patrick II says:

    I would change the name and idea of the individual mandate. As long as it’s called that, young healthy (and overly optimistic) people think they are getting nothing of value in return and are being punished for not buying a policy they don’t think they need.

    They are, however, getting benefits from the current healthcare system even if not enrolled: guarantees. A guaranteed emergency room services and the guaranteed right to buy insurance even after the discovery of a preexisting condition. If I were more clever, I would think of a name that combines those benefits, something like “EPEC” Emergency room and PreExisting Conditions tax, to make sure people feel like they are getting something for their money.

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  8. 8
    rikyrah says:

    Mayhew,

    Why do you think that other states haven’t tried the Medicaid as Public Option Buy-In choice?

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  9. 9

    @Martin: Good question. The finances never work for a state to go full single payer. This type of work to make the ACA marketplaces work better is well within the realm of plausible and possible with or without supportive federal partners.

    @rikyrah: Provider resistance. Medicaid tends to pay significantly lower rates than private insurance. Provider groups (the most trusted professions in America are doctors and nurses) and hospitals (usually the largest employer in any state Senator’s district) are happy with Medicaid rates when the alternative is not getting paid or chasing poor people for cash. They don’t want to see people who currently pay them 2x or more above Medicaid rates move to Medicaid like rates.

    The politics are tough and then mechanics are tough.

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  10. 10
    Juice Box says:

    @David Anderson: I live in a big city in a rich state with a good climate and a large supply of providers. Our contracts with private insurance were usually in the 115-125% of Medicare. That doesn’t seem that unreasonable when you realize how much more expensive it is to bill insurance and how much slower they are to pay.

    I had a routine appendectomy. Eight months later, I got a call from a collection agency about a $306 debt I owed for that surgery. I paid the $306 plus the collection fees and kind of forgot about complaining to HR about the issue. A couple of months later a refund check for $306 arrived from Blue Cross with no explanation. They let me go to collections for a minimal amount of money that they were eventually going to pay! Seventeen months after the surgery I received a notice that my appendectomy had been disallowed (not exactly experimental surgery!). I ignored the notice and nothing happened. This wasn’t a complex diagnosis*, exotic surgery, ongoing treatment or a procedure with complications and yet the billing claims still ping-ponged back and forth between the providers and the insurance company. Medicare would have just paid.

    *I walked into the ER and said, “Hi, I’m one of your docs. I have appendicitis. Who’s on call for surgery?” Then I had to listen patiently as about 15 people explained to me that with classic symptoms of appendicitis, I didn’t need imaging as I enthusiastically agreed (15 times) with the plan to skip the ionizing radiation.

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  11. 11
    gorram says:

    I mean, of course the insurance companies approve of more subsidies that ultimately go to them. I appreciate this as an immediate measure, but I have to wonder if this doesn’t reflect the impossibility of private market healthcare in the long run that the state has to so heavily subsidize the industry (if indirectly). I’m not a virulent single payer person (I think a public option might be a better way, both in terms of political passage and regarding disability rights), but we’re essentially stumbled towards it, but without a single risk pool, but one fragmented by private coverage providers, buoyed by state subsidies.

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