Minnesota looks to transform their BHP into a Public Option, with two important caveats

There's been a LOT of buzz among healthcare wonks over the past week about major developments happening with the ACA's Basic Health Plan (BHP) programs in both Minnesota and New York State. This article is about Minnesota; I'll post about what's happening in New York separately.

As Louise Norris explains:

Under the ACA, most states have expanded Medicaid to people with income up to 138 percent of the poverty level. But people with incomes very close to the Medicaid eligibility cutoff frequently experience changes in income that result in switching from Medicaid to ACA’s qualified health plans (QHPs) and back. This “churning” creates fluctuating healthcare costs and premiums, and increased administrative work for the insureds, the QHP carriers and Medicaid programs.

The out-of-pocket differences between Medicaid and QHPs are significant, even for people with incomes just above the Medicaid eligibility threshold who qualify for cost-sharing subsidies.

The Basic Health Program (BHP) – section 1331 of the ACA — was envisioned as a solution, although most states did not establish a BHP. Under the ACA (aka Obamacare), states have the option to create a Basic Health Program for people with incomes a little above the upper limit for Medicaid eligibility, and for legal immigrants who aren’t eligible for Medicaid because of the five-year waiting period.

In short:

• If you earn up to 138% FPL, you enroll in Medicaid.
• If you earn 138 - 200% FPL, you enroll in a Basic Health Plan policy (BHP).
• If you earn 200% FPL or higher, you enroll in a Qualified Health Plan policy (QHP).

Federal funding for BHP programs is supposed to be equal to 95% of the total amount of advance premium tax credits (APTC) and cost sharing reduction (CSR) assistance that the enrollees would otherwise have been eligible for had they otherwsie enrolled in a QHP using the ACA exchange.

Of course, the state itself can also throw in additional funding to make the BHP plans more generous if they wish...which is a key point to keep in mind. The coverage has to be at least as affordable and at least as good as a benchmark silver plan with Cost-sharing reduction benefits applied.

Regular readers may have noticed that I've been getting increasingly cranky with the Centers for Medicare & Medicaid Services (CMS) for continuing to relegate BHP enrollment to a literal footnote in their enrollment reports.

As I've noted before, this may have made sense back in 2014 when Minnesota was the only state to have a BHP program in place (they call it "MinnesotaCare") with fewer than 100,000 people enrolled in it...but makes no sense at all today now that New York has over a million BHP enrollees (they call it "the Essential Plan").

Combined, over 1.2 million residents of the two states are now enrolled in BHP coverage, or roughly 7.5% as many as are enrolled in exchange-based Qualified Health Plans (QHPs). It's long past time for CMS to acknowledge the growth of these programs. It makes even more sense now that other states like Oregon is planning on implementing the program as well (Kentucky had also planned on doing so but it looks like that's been put on hold for now).

In any event, MinnesotaCare has actually been around for far longer than the ACA; it was originally created back in 1992. When the ACA came around, however, it was retooled and converted into a BHP program...again, currently limited to those earning up to 200% of the Federal Poverty Level (FPL).

So what's going on now? Well, apparently Minnesota Democrats, who now have full control over both chambers of the state legislature and the governor's office at the same time, have decided that they want to transform MinnesotaCare once again into something much bigger. Via Steve Karnowski for the Associated Press:

Lawmakers went to work Wednesday on a proposal to allow all residents to buy into the state-run MinnesotaCare health insurance program, not just low-income workers struggling to get by.

Democratic legislators and Gov. Tim Walz have been pushing for several years to expand MinnesotaCare into a low-cost “public option” for health insurance that would be available to everyone. Now that Democrats control both chambers of the Legislature and the governor’s office, expanding the program is one of their top priorities for the 2023 session.

...The administration of former Gov. Mark Dayton estimated in 2017 that removing the income cap could double enrollment in MinnesotaCare. Walz’s proposed budget for fiscal year 2024-25 includes nearly $21 million for expanding the program.

Officials from business and insurance groups told the House commerce committee that they were concerned about the impacts on struggling hospitals in rural areas, given that payments from public programs are often far below what commercial insurance plans pay and don’t cover the full costs of care.

...Under the proposed expansion, premiums would be on a sliding scale that the state would develop later. The state would also develop an option for businesses with under 50 employees to participate.

The change would take effect in 2026, assuming the federal government approves, and eligibility would no longer depend on immigration status. During the transition, the bill would raise state subsidies for “gold” plans purchased through the MNsure exchange for 2024 and 2025.

The highlighted portion above is really the key to the whole thing: How much would the expanded MinnesotaCare pay healthcare providers? Washington State found out how tricky this can be a few years back when they created their own quasi-"public option" (which, again, isn't really a true public option since it's still administered by private insurance carriers).

The short version in WA is that they originally intended on paying providers the same rates as Medicare...only to see that reimbursement rate increase from Medicare rates to the official cost of services to 150% of Medicare rates and finally to 160% of Medicare rates...with flexibility for them to modify it further under certain circumstances. At a certain point, you're not really saving any money, although there can be other benefits to having such a program.

The other big thing to keep an eye on: The plan includes temporarily adding supplemental state-based subsidies to Gold ACA plans for the next two years until the expanded BHP program is in place...but remember that the enhanced federal subsidies of the American Rescue Plan & Inflation Reduction Act are currently set to sunset at the end of 2025. If they aren't extended beyond that (hopefully permanently), a large chunk of the federal funding for both ACA exchange plans and MinnesotaCare would dry up starting in 2026...the same year the expanded program would go into effect.

This doesn't mean that the Minnesota legislature shouldn't proceed with the plan, it just means that they should prepare for both contingencies in whatever the final version of the bill ends up being. Basically, structure the plan so that it's less generous and/or is open to fewer people if the ARP/IRA subsidies expire or make sure that whatever funding mechanism they intend on using would generate higher or lower revenue depending on how things play out (i.e., if it involves a tax, make it 2% if the ARP subsidies aren't extended vs. 1% if they are or whatever).