The Individual Market and Covered California –
Potential Improvements in Affordability for Consumers
The Governor has recently proposed to further improve California’s individual market, building on the structures pioneered in the Affordable Care Act and implemented by Covered California. He mentions three key issues: premium assistance extended to 600% of the federal poverty level (FPL), greater assistance with premium assistance and cost sharing for individuals with incomes less than 400% of FPL, and reinstating the individual mandate. He as yet has given no details.
Covered California published a set of options that help set the framework for discussions and consideration by the legislature and the Governor. https://board.coveredca.com/meetings/2019/01-17%20Meeting/Draft_Affordability_Report%20_1-16.pdf They included the three identified by the Governor and a fourth, reinsurance.
Option 1: Premium Assistance is extended to individuals with incomes up to 600% of FPL ($73,000 for an individual or $150,000 for a family of four) and expanded to all with incomes between 138% and 400%). Right now premium assistance ends at 400% of FPL.
This option would set premium caps for individuals making 138-200% of FPL at 0% of income gradually rising to 1.9% of income; the ACA formula was 3% of income rising to 6.5% of income. For individuals with incomes between 200 and 250% of FPL, their premium caps would start at 1.9% of income slowly rising to 3.4% of income; this is a big improvement from the ACA formula of 6.5% of income rising to 8.3% of income. For individuals with incomes between 250 and 400% of FPL, premium caps would slowly rise from 3.4% of income to 8% of income; under the ACA formula the premium caps increased from 6.5% of income to 9.8% of income. For individuals with incomes between 400 and 600% of FPL, the premium caps would increase from 8 to 12% of income; under the ACA there was no premium assistance above 400% of FPL. Above 600% of FPL, the premium caps would increase from 12 to 15%. Under the ACA; there was no premium assistance for individuals with incomes above 400% of FPL.
Option 2: assistance for cost sharing (copays and deductibles) is increased. Cost sharing assistance is linked to individuals who choose the silver plan, 70% of actuarial value. In essence it buys lower copays and deductibles. For individuals with incomes between 138 and 150% of FPL, cost sharing stays the same – 94% of actuarial value. For individuals with incomes between 150% and 200% of FPL, cost sharing will be upgraded from 87% to 94% actuarial value. For individuals between 200 and 250% of FPL, cost sharing will be upgraded from 73% to 87% of actuarial value. For individuals between 250 and 400% of FPL, their cost sharing will be upgraded from 70 to 80% of actuarial value (a gold plan). Most employer based coverage and Medicare already offer coverage equivalent to a gold plan – i.e, copays and deductibles of about 20% of the average costs of medical treatments.
Option 3 re-institutes the tax penalty for not purchasing insurance at the same levels that they were before Congress repealed them last year. It is projected this would reduce individual market premiums by 5% due to a more favorable risk mix.
Option 4 would provide reinsurance to insurers for the most costly cases in the individual market. It is projected this would decrease individual market premiums by about 10% as the costs of the most expensive individuals would be re-insured with state funds. The state would seek a §1332 waiver from the federal government to recoup some of the federal savings generated by reinsurance.
The total enrollment increases from all these changes are 745,000 uninsured individuals newly enrolled in the individual market. The participation rates in the individual market increase from 50% to 70%. Premiums would decrease by 15% due to the more favorable case mix and the reinsurance. Consumers would experience much lower premiums and much reduced cost sharing. The federal government would see savings as well from the reduced premiums.
The costs to the State of California of these changes are not insignificant. The costs to the state before savings are $4 billion. The state revenues from the reinstatement of the tax penalty are $440 million. The §1332 waiver federal revenues to the state (if secured) are $1.1 billion. The net savings to the federal treasury $330 million (after the waiver). In summary, the net cost to the state would be $2.5 billion if the waivers are secured and enrollment and penalties are as projected.
I think this is an excellent starting point to make the individual market more affordable for its customers. I would suggest that the premium caps between 400 and 600% of FPL be set at 8% of income, and above 600% of FPL they should be set at 10% of income. There is an unclear interface with federal and state income tax deductions for the individual premiums of the self employed. Personally, I think there should be no double dipping, you either take the tax credit or the tax deduction, but not both.
Prepared by: Lucien Wulsin