Building on Covered California
Covered California (California’s Exchange) is reaching about 1.2 million Californians and holding strong despite the concerted efforts of the Trump Administration to dismantle and disable it. It has had a far better risk mix leading to lower premiums. It has had strong support from the Legislature, Governors and most interest groups. It’s time to improve it.
California has reduced its uninsured rates from 17% to about 6.8% due to the Affordable Care Act. About 40% of the remaining uninsured are eligible for Covered California or Medi-Cal, so we need to improve enrollment in both programs, this paper looks at Covered California. Less than half (400,000) of those eligible for Covered California are eligible for premium assistance and more than half (550,000) are not. https://healthcare.assembly.ca.gov/sites/healthcare.assembly.ca.gov/files/laurellucia_director_healthcareprogram_ucberkeley.pdf All together about 950,000 persons could be insured by improving Covered California. For the most part they are not enrolled because they cannot afford the premiums; anecdotally they feel it costs more than they can afford to pay, so they choose to be uninsured and hope they stay well. While some are unaware of the premium assistance available to them, most are aware of premium assistance. They may use community clinics, county clinics, local doctors or the hospital emergency room. Many are young adults 20-34. Most are healthy.
The Trump Administration has been seeking to weaken and dismantle Exchanges in several different ways: elimination of the individual mandate (shared responsibility), elimination of funding for cost sharing reductions, elimination of funding for risk sharing among plans, elimination of funding for outreach and enrollment assisters, promotion of association health plans and short term health plans without the ACA’s consumer protections. These efforts may weaken California’s progress and if unchecked, our premiums and our uninsured rates could increase.
Some of these efforts needed to be checked before they do serious damage to Covered California. However even without them, there is an important opportunity for the next Governor and California’s legislators to further improve the program. Hopefully in the next two federal elections of 2018 and 2020 we will elect a new President and new Senators and Representatives more supportive of universal health care for California policy makers to work with; however we need to plan and proceed as if that will not happen. We need to improve affordability of Covered California plans for their actual and potential subscribers .
My suggestions are designed to improve affordability and enrollment as follows: 1) link the premium assistance subsidies to the second lowest cost gold plan; 2) extend premium assistance to all whose premiums exceed 8% of income and cost sharing reductions to all with incomes less than 400% of FPL, 3) re-institute risk sharing and reinsurance, 4) regulate association health plans and short term insurance consistent with the ACA, 5) smoother coverage transitions assuring continuity of treatment, 5) auto enrollment and shared responsibility, and 6) small and flex employer buy-in.
1. Link premium assistance subsidies to the second lowest cost gold plan. Silver plans pay for 70% of expected medical expenses while gold pays for 80%. Gold coverage is closer to what employers and Medicare typically offer their subscribers. Premium assistance is currently linked to the 2nd lowest cost silver plan. As a result, most subscribers buy silver or bronze. Those with bronze and/or those with silver but no cost sharing reductions can and do face difficulties using their coverage because they cannot afford the higher copays and deductibles to access care. Linking to gold rather than silver has multiple benefits; it reduces out of pocket, reduces premium share for middle and moderate income workers and their families, improves affordability of care and coverage and encourages more of the healthy uninsured to enroll.
2. Extend premium assistance to all whose premiums exceed 8% of income and cost sharing reductions to all with incomes less than 400% of FPL. Premium assistance is determined by age, geography, family size and choice of plan; it terminates at 400% of FPL. Cost sharing reductions are determined by income and choice of plan – i.e. they are only available for those with incomes below 250% of FPL and only if they choose a silver plan; they phase down and out quickly between 138 and 250% of FPL. At just above 400% of FPL where premium assistance ends, there is an affordability cliff which primarily hurts older subscribers and families.
My first recommendation is that individuals whose premiums exceed 8% of income receive premium assistance tied to their purchase of the second lowest cost silver (gold to be consistent with recommendation 1) to reduce their premium contributions to no more than 8% of income (financial hardship as defined by the Affordable Care Act). My second recommendation is to extend cost sharing reductions to all enrolled in Covered California who are eligible for premium assistance. We need to cap an individual’s exposure for out of pocket costs for their medical care when they get sick. The ACA capped that exposure by setting numerical limits – e.g. $7350 for an individual and $14,700 for a family. That is far too high for many middle class consumers. I would recommend a second cap – no more than a designated percent of income – e.g. 5%. When a family or individual does encounter serious illness, they need to have better protections from financial hardship and ruin.
3. Re-institute risk sharing for health plans. Plans were protected in the ACA from adverse risk selection in three ways: risk corridors, re-insurance and risk adjustment. Adverse risk selection occurs when one plan enrolls a high percent of unhealthy subscribers while another plan enrolls an inordinately high percent of healthy subscribers. This could be the luck of the draw or due to the marketing strategies of the plans or the appeal of the provider networks in treating patients with severe medical needs, like cancer. The Trump Administration and certain Republican legislators have sought to undermine the ACA by increasing plans’ financial exposure for adverse selection risk; this forces plans to raise individual premiums for everyone. This led to double-digit premium increases over the past several years in individual markets. Certain states, led by Alaska, Oregon and Minnesota, have sought and secured federal waivers to provide adequate re-insurance for selection risk and thus reduced their health plan premiums accordingly. California needs to convene stakeholders from plans and consumers and decide whether there is merit in reinstating risk-sharing and reinsurance, how best to finance it, and whether premiums can be decreased accordingly. I think those large commercial plans that abandoned the California individual market yet stayed in California’s larger markets such as Aetna, Cigna, United and Anthem Blue Cross, need to be at the table and ought to share in the risk financing.
4) Regulate association health plans and short term insurance consistent with the ACA. Short term insurance as recently redefined by the Trump Administration includes plans of up to 12 months duration. Association health plans are plans where bankers, car dealers, agricultural employers or CPAs join together to negotiate and purchase health insurance. The Trump Administration seeks to exempt plans from the guaranteed issue, guaranteed renewal and minimum benefit requirements of the ACA. The expectation is that this would weaken the Exchanges by making them increasingly only for those with poor risk status, eventually making them the very high priced high-risk pools of yesteryear. California needs to assure that all plans sold to Californians are ACA compliant to assure the ongoing vitality of its individual and small employer markets and Exchange.
5) Auto enrollment and shared responsibility. Auto enrollment refers to automatically enrolling all Californians in coverage, subject to individual opt-out. This would save marketing, improve public awareness, reduce premiums and assure nearly universal coverage. One of the many questions are how do you collect their premiums and what plan and level of coverage are they auto-enrolled in? Shared responsibility is one way to collect the monthly premiums as a special tax or fee dedicated to the coverage of the individual being covered.
What should be the respective responsibility of government and the individual? One way is to link the individual’s contribution to a percent of income and allow the individual to choose to pay a health insurance tax for their coverage or to play (buy insurance, pay the premium). In the employer market, individuals directly pay on average 25% of the premium, and employers pay the rest. In the employer market, government subsidizes 1/3rd of the cost of coverage through pre-tax dollar purchasing. In Medicare, seniors and the disabled pay 25% of Part B premium, and taxpayers pay the rest. Maybe we should also start in the individual market with the premise of a 50/50 government and individual spilt in financing with the individual share linked to a percent of family income. The self employed get a tax break for purchasing individual coverage, the employed do not, so maybe we should wrap a state refundable tax credit around the existing tax deduction and treat the self-employed and employed on an equal footing.
6) Small and flex employer buy-in. This would allow the employers not otherwise offering coverage to contribute towards the premium; this could be either voluntary or mandatory. Most of those eligible for Covered California are the self-employed and flex (part time, temp or seasonal) workers who are not eligible for coverage through their employer. During this tight job market, some employers may be willing voluntarily to help their employees with the costs of their coverage through a pro rata contribution. This could allow the employee to better afford their Covered California coverage and/or upgrade coverage to a tier that better meets the family’s needs. Alternatively, California could adopt a pay or play for small employers and employers of the flex workforce that allows them to partially pay for their flex employees or small business employee’s family coverage through Covered California. This needs to be very carefully designed so that it does not erode existing offers of employment-based coverage.
Prepared by: Lucien Wulsin
Dated: 7/24/18