The Patient Protection and Affordable Care Act (ACA) allows for each state to develop a Basic Health Plan (BHP), that would enroll individuals with family income below 200 percent of the federal poverty level (FPL) who are ineligible for Medicaid. The BHP would operate independently of the state’s health insurance exchange, and it would receive separate federal financing equal to the subsidies that enrollees would have received if they had been enrolled in an exchange plan.
In this report, researchers at Mathematica Policy Research examined Massachusetts’ CommCare program—a program serving low-income adults, much like the ACA’s BHP is designed to do. They found that although there was an initial influx of older, high-risk enrollees, this diminished over time as the state implemented its individual mandate and began offering additional subsidies and auto-enrolling eligible adults. The authors note that BHPs could help buffer state exchanges from risk by separately pooling and financing low-income individuals.
Risk selection is a major concern for states as they plan exchanges and decide whether to develop a BHP. The enrollment of many previously uninsured individuals into the exchange might disrupt the commercial insurance market. If a state’s exchange attracts individuals who are less healthy than current commercial enrollees and risk adjustment is imperfect, adverse selection could raise premiums in the exchange and drive unsubsidized enrollees to seek coverage outside the exchange. In turn, this would leave fewer participants over whom to spread the administrative costs of operating the exchange and perhaps fewer health plans willing to participate in the exchange.
The BHP could help buffer the exchange from adverse risk by separately pooling and financing the medical risk of low-income adults. However, if the BHP itself experiences adverse selection, enrolling only those who need care, states may find it difficult to finance the program through federal subsidies alone.