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.