Premium assistance is the use of public funding for the purchase of commercial health insurance. Historically, premium assistance has mostly enabled a small number of Medicaid and Children’s Health Insurance Program (CHIP) recipients to enroll in health insurance through their employers by having the government pay all of the costs of coverage, except for some cases where the family contributes a small premium.
Premium Assistance And The ACA
More recently, the Affordable Care Act (ACA) has taken premium assistance beyond just Medicaid. It provides advanced premium tax credits (APTC) to individuals and families under 400 percent of the Federal Poverty Level (FPL) to offset their premium costs, and gives families under 250 percent FPL access to reduced cost sharing. The commercial health insurance coverage is purchased through a state-based or federally facilitated marketplace and the tax credit can be applied monthly to offset premium costs or received in lump sum as a refund at tax time.
There are two main ways that premium assistance helps low- and moderate-income recipients obtain commercial health insurance. The first, the Health Insurance Premium Payment Program (HIPP), uses government dollars to pay for the employee’s share of employer-sponsored health insurance (ESI). For Medicaid and CHIP, this only occurs when the cost is less expensive than the traditional model. The operational challenges posed by old-fashioned HIPP designs—complicated wrap-around benefits, manual reimbursement of out-of-pocket costs, voluntary participation by individuals with ESI access—have limited the uptake of this model in most states to a tiny proportion of the overall eligible population.
The second approach, called the “private option,” is a recent application of Section 1115 demonstration waivers that uses Medicaid dollars to pay for private health insurance and covers copayments, deductibles, and co-insurance. Several states, including Arkansas, Iowa, and Michigan, have adopted the private option as an alternative to traditional Medicaid expansion under the ACA.
A New Opportunity For Innovation
The State Innovation Waiver provision, codified in Section 1332 of the ACA, gives states the authority to cover their citizens using methods that diverge from the ACA’s overall design. With the input of stakeholders, and through a transparent public process, state leaders may propose and implement innovative and cost-saving strategies for their public health insurance programs. While these waivers can be developed now, the earliest they can become operational is 2017.
Provided that a State Innovation Waiver meets the ACA’s broad coverage and cost-neutral fiscal objectives, it can be an alternative to one or more of the ACA’s policies, including the individual mandate, the employer mandate, the ACA-specified list of benefits, and premium tax credits for Qualified Health Plans (QHPs). Any state that pursues this opportunity becomes a laboratory of health policy where comprehensive health coverage can be delivered in a way that reflects and respects unique cultural, demographic, and political attributes. The possibilities of a State Innovation Waiver can be magnified, and the number of positively affected individuals significantly expanded, by combining it with a separate but related Medicaid 1115 waiver.
Waivers That Combine Premium Assistance With Employer-Sponsored Insurance
The flexibility granted by the State Innovation Waiver gives the traditional HIPP program new life. For states that seek to protect and expand the ESI market, combining public dollars with employee and employer contributions is an attractive alternative. Using a State Innovation Waiver—possibly in combination with an 1115 waiver—a state could create a HIPP Program that applies to a much broader range of income-eligible families.
By changing the eligibility criteria, the waiver would take some of the money currently spent on tax credits and reduced cost sharing in a state-based exchange or the federally facilitated marketplace and redirect it to pay a portion of the employee premium cost and underwrite some of the out-of-pocket expenses. The remainder of the revenue generated by the waiver would be available as subsidies to income-eligible individuals who do not have health benefits through their jobs.
A State Innovation Waiver that adopts this approach could also make affordable health insurance available to families who are currently denied subsidies because of the ACA “family glitch.” Based on Internal Revenue Service (IRS) rulemaking, a family is not eligible for premium tax credits and reduced cost sharing if a family member has access to health insurance through their employer and the cost of employee-only coverage meets a quantitative affordability test. This rule fails to account for the high cost of spousal, dependent, and family coverage, so it has excluded many Americans from being able to purchase affordable coverage through the marketplace. By substituting a HIPP program for premium tax credits, the IRS affordability test would be eliminated, meaning the spouses and children of the employee could be covered.
The single streamlined application that is used to determine eligibility for all insurance affordability programs already collects information about whether an applicant has access to ESI and, if so, how much the employee pays for the coverage. More than three-quarters of the nation’s uninsured are in families where one person generates their primary income. More than 90 percent of these income earners are employed by medium or large companies that provide access to health insurance.
A Medicaid and/or CHIP waiver could make premium assistance available to employees with lower incomes. The employer-purchased insurance coverage would need to be actuarially equivalent to the ACA’s 10 Essential Health Benefits (EHBs), and Medicaid wrap-around benefits could be minimized or avoided if the premium assistance was limited to adults. Longstanding HIPP operational barriers could be eased with electronic debit cards and the creation of an employer database with health insurance plans that are pre-approved.
A seamlessly connected “three-share” (employee, employer, and government) premium assistance program would enable low- and moderate-income individuals with access to ESI to receive health insurance through their employers, with the amount they pay for premiums and health care services tied to their income level. This would dramatically decrease churn—the movement of people back and forth between health plans and types of coverage—and the continuity of care would increase. While the funding streams would change as incomes go up, from Medicaid to CHIP to revenue previously spent on premium tax credits, this financial complexity would be invisible to families.
Premium Assistance In The Individual Market
States can also provide premium assistance to purchase health insurance in the private individual market, referred to as a private option waiver. This could be a standalone approach or combined with HIPP premium assistance in the ESI market. It would be most beneficial and attractive for Medicaid-eligible individuals and families. But when combined with a State Innovation Waiver, it could also apply to some or all of the subsidized exchange population.
While the mechanics would be different from HIPP, the concept would be the same — an alternative to traditional Medicaid and, potentially, health insurance exchange-based tax credits and reduced cost sharing. A state would identify a set of health plans or health insurance products that meet the ACA requirements from which their citizens could enroll.
As an example, an 1115 waiver could be combined with a State Innovation Waiver to cover all individuals whose incomes fall within a state-specified income eligibility range. This option is designed to significantly reduce family stratification—in which different family members are enrolled in separate programs and receive care from different provider networks—and the churn caused by the movement between programs as family circumstances change.
Under one variation of this concept, a state could expand Medicaid using the private option and also cover adults with incomes from 138 to 250 percent FPL through a State Innovation Waiver program that is similar to Medicaid, but is funded and regulated differently. While enrollees in the higher income cohort would have access to the same health plans and benefits as the Medicaid-eligible enrollees, the method of financing would change and enrollees would be subject to sliding-scale premiums and cost sharing.
This Medicaid look-alike would be a seamless coverage continuum between Medicaid and the coverage program available to low- and medium-income families who transition out of Medicaid, due to their incomes increasing or family size decreasing. Although it is similar to the Medicaid program, the state would not be subject to Medicaid regulations for this coverage group, creating a more flexible environment for premiums, co-pays, and any other policies that a state might envision to ease the transition from Medicaid to non-Medicaid coverage.
Opportunities And Next Steps For States
With fewer operational barriers for newly designed HIPP programs, (mandatory participation for the expansion population, automated reimbursement, no wrap-around benefits) and expanded opportunities for creative thinking across the coverage continuum (Medicaid, CHIP, subsidized exchange population), premium assistance deserves a fresh look. This is especially true for states that are interested in flexible ways to preserve and expand the private health insurance market and bring affordable coverage to individuals and families who currently do not qualify for it. Medicaid waivers alone, or in combination with CHIP and/or State Innovation Waivers, give states the power to devise premium assistance solutions that are tailored to their goals and budgetary constraints.
Premium assistance is an invitation for state leaders to think creatively about how to help their citizens gain access to affordable health insurance coverage. With the maturation of the ACA through ongoing federal rulemaking, the burden and complexity of public health insurance programs is likely to increase. At the same time, state leaders will strive to shape programs that provide coverage for a greater number of their citizens while remaining true to their public policy principles. Premium assistance may be the answer for each challenge through an 1115 waiver and/or a State Innovation Waiver.
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