Estimating Federal Payments and Eligibility for Basic Health Programs: An Illustrative Example

In some states, policymakers and stakeholders are considering adoption of the Basic Health Program (BHP) option permitted under the Patient Protection and Affordable Care Act (ACA). Federal regulations allow BHP implementation beginning in 2015. Through BHP, consumers with incomes at or below 200 percent of the federal poverty level (FPL) who would otherwise qualify for subsidized qualified health plans (QHPs) offered in health insurance marketplaces instead are offered state-contracting standard health plans that provide coverage no less generous and affordable than what have been provided in the marketplace. To operate BHPs, states receive federal funding equal to 95 percent of the premium tax credits (PTCs) and cost-sharing reductions (CSRs) that BHP enrollees would have received if they had been covered through QHPs. The rules governing BHP as well as its potential advantages and disadvantages are discussed elsewhere.¹ 

This paper has a narrow, technical goal: to inform state-level analysts about the characteristics of BHP-eligible people in their state and how to use that information to estimate the approximate federal BHP payment amount per average BHP-eligible resident. The paper first describes how federal BHP payments are determined, under the final federal payment methodology for 2015. The next section explains how state officials can use information about the characteristics of BHP-eligible consumers to estimate average federal payment amounts, illustrating that explanation with an example from one state. The final section places such federal payment estimates in context, showing what they can and cannot contribute to a state’s analysis of BHP’s overall fiscal effects.

To assist policymakers and others with calculating average federal payments for BHP-eligible consumers, we provide detailed estimates of the characteristics of BHP-eligible people in each state in the Appendix and as a link to a downloadable Excel file. These estimates were developed using the Urban Institute’s Health Insurance Policy Simulation Model (HIPSM).

These estimates differ from many past state-level estimates of BHP-eligible consumers, in two ways. First, they avoid underestimating average federal BHP payments, because the estimates in the appendix take into account unaccepted offers of employer-sponsored insurance (ESI) that preclude BHP eligibility. The estimates here are based on data from the American Community Survey (ACS), and unaccepted ESI offers are imputed through statistical matches with non-ACS sources of data. Many past efforts to analyze the characteristics of BHP-eligible consumers did not go beyond Census data. They simply assumed that uninsured consumers and those with nongroup coverage are not offered ESI. In fact, a significant minority have access to ESI, with offers that grow increasingly common as incomes rise. Failing to exclude those consumers from counts of BHP-eligible consumers overestimates average income levels among those who qualify for BHP. Since QHP subsidies and federal BHP payments decline as incomes rise, this underestimates average federal BHP payments.

Second, the numbers in appendix table A4 were developed with the aid of small-area estimation techniques that allowed an estimate of multiple characteristics for BHP-eligible consumers. For example, they show the number of such consumers in a state who are age 35-44, in 2-person households, with incomes between 150 and 175 percent FPL, with 1 BHP-eligible member in each household. Estimates with such multi-characteristic population sets greatly improve policymakers’ ability to project federal payment amounts, because federal payments are based on the number of BHP enrollees with such multiple characteristics.

State-level observers interested in federal payments for BHP enrollees could add take-up assumptions or simulations to the eligibility estimates in appendix table A4 to project the number and characteristics of consumers who will sign up for BHP. Such an enrollment projection could be translated into a total federal funding estimate through the method described below, which develops federal payment amounts for BHP enrollees with each set of characteristics shown in appendix table A4. However, the main goal of this paper is more modest—namely, helping state analysts develop reasonable estimates of average federal payments per BHP-eligible consumer, without determining, among eligible consumers, those who will likely enroll.

 

As noted earlier, the federal government pays 95 percent of what BHP enrollees would have received in marketplace subsidies, had the state not implemented BHP. To calculate that amount, the federal government puts each BHP enrollee into a federal payment cell, which is defined based on geography, income, and other personal characteristics. A specified federal payment applies to each enrollee in the cell. The payment is based on a reference premium and it includes a PTC component as well as a CSR component. Each of these factors—the cell definition, the reference premium, the PTC component, and the CSR component—is discussed in turn, below.Note that this section describes the federal BHP payment methodology for 2015. CMS proposed the same methodology for 2016.²  That methodology has not been finalized for 2016, however, and it may change for 2017 and beyond.

Federal payment cells

Each BHP enrollee falls within a “federal payment cell” that is defined by the following characteristics of its members:

• County of residence;
• Age range (0-20, 21-34, 35-44, 45-54, 45-54, or 55-64);
• Income range (0-50, 51-100, 101-138, 139-150, 151-175, or 176-200 percent FPL);
• Household size; and
• Coverage status (single BHP coverage, two-adult BHP coverage, etc.).

Reference premiums

To determine both the PTC and CSR component of the federal payment for a BHP enrollee, the starting point is the reference premium. The reference premium is the average premium that would have been charged by the second-lowest-cost silver plan in 2015 to non-smokers in the BHP beneficiary’s county and age range if the state had not established a BHP program. Averages within the age range are calculated based on an assumed even age distribution.

In most counties, the same QHPs are offered to all residents. If a single county is split between QHPs so that different silver plans have the second-lowest premium in different portions of the county, the portion with the most residents determines the reference premium that is used to calculate BHP payments for all county residents. Premiums for non-tobacco-users apply, since such premiums determine PTC amounts.

Generally, reference premiums for 2015 will be based on 2015 premiums, once they become known. However, a state seeking predictable federal payments before 2015 premiums were known had the option of instead using 2014 marketplace premiums, updated using a Premium Trend Factor (PTF). Such a state was required to inform CMS by May 15, 2014, that it chose this option. The PTF seeks to capture the likely increase in marketplace premiums from 2014 to 2015, based on nationally applicable trends. For 2015, CMS set the PTF as increasing premiums by 8.15%. This reflected two factors: the average increase in private insurance costs from 2014 to 2015 forecast by the CMS Office of the Actuary; and CMS’ estimates of the average impact on marketplace premiums of changes in the operation of the ACA’s transitional reinsurance program.³ 

Determining the premium tax credit component

Once the reference premium is established, calculating the average PTC for BHP enrollees within the federal payment cell begins by determining the percentage of household income devoted to premium payment for enrollees in the “reference” or “benchmark” plan (that is, the second-lowest-cost silver QHP). In 2015, those percentages will be 2.01% for those with incomes below 133% FPL, 3.02% at 133% FPL, 4.02% at 150% FPL, and 6.34% at 200% FPL, with percentages set on linear, sliding scales between the last three FPL “anchor points.” These percentages allow a calculation of the average (mean) payment amount, among households of a given size, for consumers within a particular federal payment cell enrolled in the benchmark plan, assuming an even distribution of households by FPL level. Subtracting that payment amount from the average reference premium for the payment cell yields an estimated average PTC.

That PTC must then be adjusted to reflect the average impact of income tax reconciliation, had BHP consumers claimed advance payment of tax credits (APTC) in the marketplace. To determine this Income Reconciliation Factor (IRF), CMS assumes that BHP eligibility will be continuous, based on household circumstances at the time of initial application, without adjustments to reflect mid-year income fluctuations. Modeling from the Department of the Treasury suggests that, across the entire caseload of BHP-eligible consumers, APTC amounts would be offset by a repayment to IRS that, on average, reduces such amounts by 5.08%. The PTC amount for each BHP payment cell is thus multiplied by an IRF of 94.92% for 2015. Finally, the resulting total is multiplied by 95% to determine the PTC component of the federal BHP payment.

Determining the cost-sharing reduction component

The value of the CSR component in the marketplace equals the total health care claims for essential health benefits (EHBs) paid by the increase in actuarial value resulting from the CSR. The first step in calculating this component is thus estimating the amount of total health care claims provided by the reference-premium plan.

Only some of the premium pays claims costs. To exclude administrative and other non-claims costs, the Factor for Removing Administrative Costs (FRAC) is set at 80%. Put differently, the federal payment methodology assumes that, on average, 80% of the reference premium is used to pay EHB claims. This is based on the approach taken by CMS in defining CSR advance payments for QHPs in 2015.

QHP enrollees will pay some EHB costs. With a silver-level plan, Actuarial Value (AV) is 70%, so consumers pay, on average, 30% of such claims costs. Accordingly, the total amount of EHB claims is the amount paid by the plan, divided by 70%. Put differently, it is the plan’s EHB claims amount (that is, the reference premium times 0.8) multiplied by 1.43, which is referred to as the AV factor.

Unlike PTCs, which reflect the premium charged to non-smokers in states that permit higher QHP premiums for tobacco users, CSRs include claim costs that result from tobacco use. Accordingly, the reference premium calculated as described above must be increased to reflect the average effect of tobacco use on BHP claims. Such a Tobacco Rating Adjustment Factor (TRAF) takes into account tobacco utilization levels by BHP enrollees, shown by state-specific data from the Centers for Disease Control and Prevention (CDC), which includes information about tobacco use rates by age.⁴  To estimate the average claims costs for tobacco use that are not included within the reference premiums charged to non-users, the TRAF also considers the weighted average difference, among benchmark plans, in premiums charged to tobacco users and non-users. For example, if in a particular state, benchmark plans charge 15 percent more, on average, for tobacco users than for non-users, and 10 percent of adults age 25-34 use tobacco, then the TRAF for BHP adults age 25-34 would increase EHB claims by .15 x .10 or .015.

If QHP enrollees with incomes at or below 200% FPL receive CSRs, they will pay less out-of-pocket for health care services. As a result, they will use more care, and their claims will increase. The Induced Utilization Factor (IUF) takes this effect into account. Based on CMS analysis, consumers who move from silver-level AV of 70% to either 87 or 94% AV—the two minimum AV levels BHP consumers would receive in the marketplace—increase average utilization by 12%. Accordingly, for BHP consumers, regardless of income, the IUF is 12% for 2015.

Taken together, these factors multiplied by the applicable reference premium determine the average claims costs that would have been incurred by BHP consumers, had they received CSRs in the marketplace. The value of the CSR in the marketplace would be the increased share of those claims paid by the federal government because of the CSR. For a consumer above 150% FPL, that share is 17% (that is, the difference between 87% AV provided by CSRs and the underlying 70% AV furnished by silver-level coverage). For a consumer below 150% FPL, it is 24% (the difference between 94% AV and 70% AV).

This penultimate factor—the Change in Actuarial Value—shows that income plays a much simpler role in determining the CSR component of federal BHP payments, compared to the PTC component. All that matters, for purposes of the CSR component, is whether the consumer’s income is above or below 150% FPL. Neither household size nor precise FPL level matters, once that basic threshold question is resolved.

The number that results from the above calculations shows the value of the CSR that BHP enrollees would have received in the marketplace. To determine the CSR component of the federal BHP payment, that number must be multiplied by 95%.

Our suggested approach

As explained earlier, the methodology for calculating actual federal BHP payments relies on determining a reference premium for each county in the state and applying it to each county’s BHP enrollees. The approach we suggest to projecting federal BHP payments simplifies this process by calculating a statewide reference premium and applying it to estimates of the statewide BHP-eligible population.

As the first step in our proposed process, one averages the premium for the second-lowest-cost silver plans among the state’s counties, weighted in proportion to the number of silver-plan enrollees or subsidized QHP enrollees in each county. The averages reflect non-smoker premium quotes for single adult enrollees of a particular age, such as 21-year-olds. The state’s rating rules allow a derivation of premiums for other ages and for coverage of more than one person per household.⁵ 

In step two, one uses the statewide benchmark premium to build statewide federal payment cells. Each cell shows what the federal government would pay for BHP enrollees of the applicable age range, FPL range, household size, and number of BHP-eligible consumers per household, assuming the statewide reference premium.

In step three, one calculates the average federal payment per BHP-eligible consumer, using the estimates in appendix Table A4 showing the number of BHP-eligible consumers who are within each statewide federal payment cell. To obtain the average, one: (1) multiplies the federal payment amount in each cell by the number of eligible consumers in that cell and (2) divides the total by the number of BHP-eligible consumers in the state. The results also allow a determination of average federal payments per BHP-eligible consumers within various sub-populations, such as those with incomes or ages in various ranges.

An illustrative example: Washington State

Here, we show how the above method is used to find that federal payments for BHP-eligible residents in Washington State will average approximately $4,366 for 2015.⁶ 

Step One: Determine the weighted average benchmark premium

For the Washington illustration, we begin by calculating the weighted average “benchmark” premium—that is, the second-lowest-cost silver plan offered in Washington’s marketplace—for 21-year-old non-smokers. Table 1 shows 2014 premiums and total enrollment for the benchmark plan in each Washington county.

We average the county-specific premiums in proportion to each county’s QHP enrollment. As a result, we find a weighted average benchmark premium for 21-year-old non-smokers of $222.86 a month in 2014.⁹  According to the Washington State Office of the Insurance Commissioner, weighted average QHP rates are expected to rise approximately 8.25% from 2014 to 2015.¹⁰  To estimate federal BHP payments for 2015, we therefore use a weighted-average benchmark premium of $241.25 for 21-year-old non-smokers, which is 8.25% above the 2014 level.

Step Two: Construct federal payment cells

After calculating the weighted average benchmark premium, or “reference premium,” for 21-year-old non-smokers in 2015, we construct federal payment cells by developing two components for each relevant combination of age range, FPL, household size, and number of BHP-eligible consumers per household: the PTC component and the CSR component of the federal BHP payment.

Premium Tax Credit Component

Premiums by age

In moving from the reference premium for 21-year-old non-smokers to the PTC component of federal BHP payments, the first step requires estimating the reference premiums that would be charged to BHP-eligible consumers of other ages. Like most states, Washington varies premiums by age using the so-called “HHS Default Standard Age Curve.”¹¹  We apply the ratios of that curve to the $241.25 premium for 21-year-old non-smokers to derive the reference premiums for adults of other ages, as shown in Table 2.

As noted above, the federal payment methodology assumes an even distribution by age within each age range used to define federal payment cells. We apply that averaging methodology in using Table 2 to calculate reference premiums for each age range, with results shown in Table 3.

Consumer payments for benchmark coverage

Estimating the PTC requires subtracting from the reference premiums shown in Table 3 the amounts that BHP-eligible consumers would pay for marketplace benchmark coverage, which vary based on FPL and household size. Table 4 shows those income-based amounts for households up to 5 people in size.¹² 

As explained above, consumer payments, within each FPL range for each household size, are calculated based on averages, assuming that each FPL percentage is equally represented in the range. Table 5 shows those averages.¹³  Note that the same amounts would be paid for benchmark coverage in all states but Hawaii and Alaska, so Tables 4 and 5 can be used by analysts in any of the other 48 states and the District of Columbia.¹⁴ 

PTC estimates, without considering tax reconciliation effects

The above analyses allow a calculation of PTC amounts, without considering tax reconciliation effects. The simplest case involves a household with one BHP-eligible member. Such a household’s PTC is determined by subtracting the required payment for benchmark coverage, given the applicable FPL level and household size, as shown in Table 5, from the reference premium for the applicable age range, as shown in Table 3. Table 6 displays the results, by FPL level and household size.

For households with more than one BHP-eligible member, the calculation is more complex. This issue requires careful attention; it is often mishandled in estimating federal BHP payments. In Washington and almost all other states, family premiums are calculated by adding up the premiums charged to each enrollee within the family.¹⁵  The family’s required payment for benchmark coverage, however, is unaffected by the number of family members who receive such coverage. For purposes of estimating federal BHP payments per BHP-eligible consumer, the payment amount required from the entire family is divided among the BHP-eligible members of the family.

To illustrate, in a 4-person household between 139-150% FPL, the required household payment for benchmark coverage is $106.30. If that household has one BHP-eligible member in the 45-54 age range, the reference premium is $425.23. The PTC amount is the difference between the two numbers, or $318.93 (Table 6). If that household has two BHP-eligible members in the 45-54 age range, each is charged the $425.23 reference premium, but they “split” the household’s required payment of $106.30. Each therefore receives a PTC of $372.08, calculated by subtracting $53.15 from $425.23.¹⁶  Tables 7 and 8 show PTC amounts for individual consumers within households that have two and three BHP-eligible members. The calculations divide household income-based payments by 2 and 3, respectively, to determine individual (rather than household) PTC amounts.

Calculating the PTC component of federal BHP payments

To calculate the PTC component of federal BHP payments, the above PTC amounts are multiplied by .9492, reflecting the impact of tax reconciliation, according to the federal payment methodology for 2015; and .95, which converts the marketplace PTC into the federal BHP payment. The amounts in Tables 6 through 8 are multiplied by .90174, the product of these two factors. The results are shown in Table 9.

Cost-Sharing Reduction Component

CSR component before adjusting for tobacco use

Estimating the CSR’s value for an individual consumer begins by calculating the amount of the consumer’s expected EHB claims. As noted earlier, the total amount of EHB claims, without including those related to tobacco use, is determined by making the following adjustments to the reference premium for non-smokers:

• Multiplying the reference premium by 0.8, to eliminate administrative costs;
• Dividing it by 0.7, to add consumers’ share of EHB claims; and
• Multiplying it by 1.12, to account for induced utilization resulting from lower out-of-pocket cost-sharing.

Combining these three factors means that the reference premium is multiplied by 1.28 to estimate the amount of EHB claims (other than those resulting from tobacco use). The value of the CSR, for consumers at or below 150% FPL, is the increase in AV resulting from the CSR, which equals 24% of EHB claims costs; for those between 151 and 200% of FPL, that increase equals 17%. The resulting value of the CSR in the marketplace is then multiplied by 95%, to calculate the CSR component of the federal BHP payment. Table 10 shows these calculations.

The tobacco adjustment

The tobacco adjustment is calculated based on two factors: the extent to which EHB claims for tobacco use are not included in the premium charged to non-smokers, which is estimated based on the weighted-average ratio of benchmark premiums for tobacco users to benchmark premiums charged to non-tobacco users; and the estimated prevalence of tobacco use among BHP enrollees.

For tobacco users age 21 and older, all but one of Washington’s benchmark QHPs increase premiums by 7.5% above the rates charged to non-users.¹⁷  The other QHP increases such premiums by 20%.¹⁸  The latter plan is the benchmark QHP in counties with 41% of the state’s QHP enrollees.¹⁹  Weighting these tobacco-based premium increases by QHP enrollment, we find that, for the weighted-average tobacco user age 21-64 in Washington State, premiums rise by 12.6% because of tobacco use. Under the federal payment methodology, this is the measure of EHB tobacco-related claims that are not included in the reference premium charged to non-users.

According to data from the Centers for Disease Control and Prevention (CDC), 17.5% of all Washington adults smoked and 3.6 percent used smokeless tobacco in 2012, totaling 20.1 percent tobacco users. These percentages varied greatly by age, as shown in Table 11.

By multiplying the 12.6% weighted average increase in health care costs resulting from tobacco use by the estimated rate of tobacco use among Washington residents within various age ranges, as shown in Table 11,, we calculate the percentages by which CSR payments should increase to reflect tobacco-related EHB claims that are not included in premiums charged to non-smokers. The percentage increases that apply within the age ranges used by the CDC are set out in Table 12.

Table 13 shows how those increases would translate into the age ranges used for BHP payment.²¹ 

While that calculation shows the generally applicable methodology, in Washington state no tobacco adjustment applies to BHP enrollees under age 21, because QHPs do not raise premiums for tobacco users under age 21.

Calculating the CSR component of federal BHP payments with tobacco adjustment

As the final step in calculating the CSR component, we increase the CSR component of federal BHP payment amounts, shown in Table 10, by the percentages shown in Table 13 (except for adults under age 21, whose CSRs are not adjusted based on tobacco use). The result is shown in Table 14.

Federal payment cells

Table 15 combines the PTC components shown in Table 9 with the CSR components shown in Table 14. The combination represents the approximate average federal payment for all BHP-eligible Washington residents who share the displayed combination of household size, FPL, age, and number of BHP-eligible consumers per household. Unlike the dollar amounts shown above, those in the following table are stated in annual terms.

Step Three: Calculate the average federal payment for BHP-eligible residents

Multiplying the number of BHP-eligible consumers in each category, shown in appendix table A4 for Washington State, by the federal payment per capita for each applicable statewide federal payment cell, as shown in Table 15, yields the federal payment totals shown in Table 16. For all BHP-eligible consumers statewide, these payments sum to $190.0 million. When we divide that total by the estimated 43,520 BHP-eligible state residents shown in the Appendix tables for Washington State, we find that federal payments for BHP-eligible state residents average approximately $4,366 for 2015.

Obviously, not all BHP-eligible consumers will enroll. But to the extent that eligible consumers of all types—income, age, household size, etc.—are equally likely to sign up, the average federal payment per enrollee will approximate the amount for all eligible consumers.

These estimates also allow a calculation of average federal payments for various subsets of BHP-eligible consumers, such as all consumers within particular age and FPL ranges. One can simply divide total federal payments for each subset by the number of included consumers. For example, Table 17 shows that:

• 2015 BHP payments in Washington State rise with age. They average $1,483 for BHP-eligible consumers age 19-20; 2,889 for those age 21-34; $3,421 for those age 35-44; $4,993 for those age 45-54; and $7,841 for those age 55-64. This pattern results from higher marketplace premiums (hence higher QHP subsidies, all else equal) for older adults.
• Within each individual age band, federal BHP payments are highest for the poorest consumers. For example, among adults age 19-20, federal payments average $2,015 for BHP-eligibles consumers at 0-138% FPL; $1,589 at 139-150% FPL; $1,216 at 151-175% FPL; and $860 at 176-200% FPL. This reflects higher marketplace subsidies (hence higher federal payments) for lower-income consumers.
• However, when one combines BHP-eligible consumers of all ages, the lowest average federal payments are for those with incomes below 138% FPL, because consumers in this group are poor immigrants disproportionately likely to be young adults. Above 138% FPL, federal payments are highest for those with the lowest income, even if one includes eligible consumers of all ages. Payments average $5,042 at 139-150% FPL, declining to $4,435 at 151-175% FPL and $4,132 at 176 to 200% FPL.

These sub-set averages can help state-level policymakers and stakeholders compare federal payments to health care costs that vary based on age (and income, if benefits and out-of-pocket cost-sharing differ based on BHP enrollees’ income). Such averages can also help policymakers craft BHP rules that promote financial feasibility by encouraging the enrollment of eligible consumers with the most favorable fiscal relationship between federal funding amounts and average health care costs.

The above process should provide a reasonable approximation of average federal payments per BHP-eligible consumer; however, actual federal payments could be different. For example, if the lowest-income BHP-eligible residents tend to live in a particularly low-cost or a particularly high-cost area of the state, then actual average federal payments may be lower or higher than the amount derived using the approach suggested here. That said, this method provides a good starting point for estimating the amount that a state would receive from the federal government, if all BHP-eligible consumers were equally likely to enroll. This should allow a comparison of federal payments to the cost of providing BHP coverage to the average eligible consumer.

The appendix tables should facilitate estimating BHP coverage costs by providing information about the characteristics of BHP-eligible consumers. However, BHP costs will depend on state decisions about covered benefits, out-of-pocket cost-sharing, premiums, and provider reimbursement. To estimate state costs, policymakers could begin with either average Medicaid costs for non-pregnant, non-disabled adults at relatively high income levels or average silver-level benchmark QHP costs for adults below 200 percent FPL. In either case, those initial cost figures would need to be adjusted to reflect differences between the coverage on which they are based (Medicaid or subsidized QHP coverage) and BHP.

It will also be important to estimate which consumers are likely to enroll. Only those who sign up will generate costs and yield federal payments. As suggested earlier, states may be able to influence the balance of BHP costs and revenues. For example, if the state designs BHP coverage so that the lowest-income BHP consumers are more likely to enroll because of minimal premiums and out-of-pocket costs, that may increase the average amount of federal BHP payments without a corresponding increase in average state BHP costs.

A BHP fiscal analysis also needs to consider potential state savings from BHP.²³  More fundamentally, federal BHP funding can vary based on year-to-year changes in QHP benchmark premiums. Over time, marketplace premiums should eventually stabilize. Moreover, CMS’s publication of federal payment rates for a given year in February of the prior year gives states advance notice of changes, allowing time to plan. Predictability is further enhanced if a state decides to base a year’s BHP payments, not on that year’s QHP benchmark premiums, but on the previous year’s premiums, updated based on CMS national projections. Notwithstanding these factors that can enhance a state’s ability to predict future federal payments and thus to plan ahead, during BHP’s early years states could consider attempting to retain a small surplus in BHP trust funds to guard against unforeseen drops in future QHP benchmark premiums or unexpected changes to federal BHP payment methodologies.

 

The Characteristics of BHP Eligibles by State

The federal BHP payment formula depends on applicable benchmark premiums and on four characteristics of BHP enrollees: age (within ranges specified by the BHP federal payment methodology), income (within FPL ranges specified by the BHP federal payment methodology), number of persons in the tax unit (the household unit, as defined for purposes of determining eligibility both for BHP and QHP subsidies), and number of BHP-eligible persons in the tax unit who receive coverage through BHP. In order to compute payments, the joint distribution of these four characteristics—in other words, the number of enrollees at each benchmark premium level who possess every possible combination of the above four characteristics—must be known. For each state, we estimated the number of the joint distribution of these characteristics among people who would be eligible for BHP in 2016.²⁴ 

We did not model how many of those eligible for BHP would actually enroll in the program. This depends to a large extent on the BHP premiums and beneficiary cost sharing, and states have a lot of flexibility in setting these elements of BHP policy.

Methods

To produce these estimates, we began with the Urban Institute’s Health Insurance Policy Simulation Model-American Community Survey (HIPSM-ACS). To obtain a large, representative sample population for each state, we pooled together the observations on the 2009, 2010, and 2011 American Community Surveys (ACS). Among national surveys conducted by the U.S. Census Bureau, the American Community Survey (ACS) has the largest state-specific samples and so is likely to provide the most reliable estimates. However, a limitation of both this data set and the other data set frequently used (the Current Population Survey-Annual Social and Economic Supplement) is that they do not include information about offers of employer-sponsored insurance (ESI), which almost always preclude subsidy eligibility.²⁵  States that fail to take such offers into account will overestimate the prevalence of relatively high-income BHP-eligible consumers, since ESI offers grow increasingly common as income rises.²⁶  As a result, such states will underestimate federal BHP funding per BHP enrollee, since QHP subsidies, hence BHP funding levels, decline as income rises. The estimates presented here do not share this problem, since HIPSM incorporates, via statistical matches with other data sources, information about unaccepted ESI offers.

Immigration Status. We impute documentation status for non-citizens in each year of survey data separately based on a year-specific model used in the CPS. Documentation status is imputed to immigrants in two stages, using individual and family characteristics, based on an imputation methodology that was originally developed by Passel, the most-used source of estimates of immigrants not lawfully present.²⁷  Undocumented immigrants and lawfully present non-citizens, including immigrant adults who have been U.S. residents for less than five years, are generally ineligible for Medicaid.

Tax units and filing. To model tax units and filing behavior, we use 2011 tax rules (including thresholds for tax filing requirements), Earned Income Tax Credit (EITC) eligibility guidelines, and poverty guidelines as defined by the U.S. Department of Health and Human Services. Baseline coverage and post-ACA eligibility are based on estimates from HIPSM-ACS.

Tax units and filing status are determined based on the IRS guidelines set forth by the 2011 1040 Instructions and the 2011 EITC eligibility guidelines. The primary tax filing unit for each family is defined as the head of the family, the spouse, and any qualifying children or qualifying relatives (as defined by the IRS). In multi-generational households, nuclear subfamilies are tested for their filing status. If they are not found to file as a unit themselves, they are tested to qualify as dependents of the head of the household.

Tax filing status is determined based on characteristics of the head of the tax unit and pooled income within the tax unit. Married couples are assumed to be filing jointly to qualify for tax credits. As support within the household is not captured by the ACS, any unmarried tax unit head with dependents is considered filing as a head of household. Any other unmarried person without dependents is tested as single. To determine requirement to file, individual Adjusted Gross Income (AGI) is pooled for each person within the tax unit and compared to the 2011 minimum mandatory filing threshold.

Due to limitations of the income that is captured by the ACS, some taxable income categories could not be included in total income. Capital gains are not reported as investment income in the ACS, so it was not counted. Paid alimony was also excluded; however, internal analysis based on CPS alimony data suggests this exclusion would not affect our results. The ACS does not collect data on unemployment compensation, but because this was likely an important form of income for people at the margin of the Medicaid and subsidy eligibility thresholds, it was imputed based on reported unemployment compensation from the 2008 CPS.

None of the adjustments needed to calculate AGI are reported by the ACS, so we therefore take total income as a proxy for AGI. Total income is calculated as the sum of wages, business income, farm income, rents, most forms of positive investment income, retirement income, unemployment compensation, and the taxable portion of social security income.

EITC eligibility is calculated in a slightly different way. AGI is pooled only among the head of the tax unit, the spouse (if filing as a married couple), and qualifying children. Qualifying dependents are not tested to file for EITC individually because they are either childless dependents (ineligible for EITC) or are found not to file in subfamily analysis. However, because they are claimed on the tax unit head’s return, they take on the EITC eligibility status of their tax unit.

Once it was determined which tax units were required to file and which were eligible for EITC, units were assigned filing decisions. A 2005 Treasury Report estimated that about 7.4 million taxpayers who were required to file did not in Tax Year 2003.²⁸  That year, approximately 131 million individual tax returns were filed,²⁹  meaning the filing rate among those required to file was about 95%. A study by the IRS of Tax Year 2005 filings estimated the following EITC participation rates, by number of qualifying children: 55.6% among those without qualifying children, 73.6% among those with one qualifying child, and 85.9% among those with two or more qualifying children.³⁰  Based on these rates, tax units were randomly assigned their decision to file or not file.

Eligibility for Medicaid/CHIP, QHP subsidies, and BHP. Medicaid and subsidy eligibility are determined using MAGI, which adds nontaxable social security income to AGI. Unit-level MAGI is pooled among the unit head, the spouse (if married), and any qualifying children with an individual AGI above the single tax filing threshold. The income of other qualifying children and qualifying relatives is not included. This is then used to calculate a ratio of MAGI to the applicable federal poverty level (FPL) of the unit. Special prorating of units that include undocumented parent(s) or childless spouses is used to scale the total AGI (including that of the undocumented family members) by a ratio of the FPLs including and excluding the undocumented family members.

Medicaid eligibility for some groups, particularly the blind and disabled, does not change under the ACA. We model their eligibility using pre-ACA rules. To determine Medicaid and CHIP eligibility for other groups, tax unit-level MAGI-as-a-percentage-of-FPL is assigned to the tax unit head, the spouse (if married), and qualifying children with individual AGI above the single tax filing threshold. Excluded qualifying children and qualifying relatives are automatically eligible for Medicaid under CMS regulations. Under the ACA, the children of non-filing qualifying dependents also automatically qualify for Medicaid. The remaining parents, childless adults, and children are then tested for Medicaid eligibility based on the corresponding eligibility threshold in their state of residence. Children who are found ineligible for Medicaid are tested for CHIP eligibility.

QHP subsidy eligibility is determined slightly differently. To be eligible for subsidies, one must have a MAGI-as-a-percentage-of-FPL between 100 and 400%. Eligibility for any public coverage precludes eligibility for subsidies, so subsidy-eligible consumers cannot be eligible for Medicaid or CHIP under the ACA, as determined above, nor can they currently be eligible for Medicare. Finally, no unit member can have an offer of single coverage that costs less than 9.5% of family MAGI. For this determination, we use the HIPSM-ACS imputation of employer offers and the affordability of those offers.

Those eligible for BHP are by definition those eligible for QHP subsidies who have incomes below 200% FPL.

Single Distributions of Each Characteristic. The resulting data allowed us to produce reliable estimates of the single distributions of BHP eligibles by state of age group, FPL income group, number of people in the tax unit, and number of BHP eligibles within the tax unit. These are Tables A1, A2, and A3.

Joint Distributions for Each State. As noted earlier, estimating federal BHP payments requires the joint distribution of all four characteristics by state. That is, one must know how many BHP-eligible residents of a state share a particular combination of age, FPL level, household size, and number of BHP-eligible household members. This would mean separating the BHP-eligible population for each state into 240 different groups.³¹  To get reliable estimates for so many small groups of people would require a sample size for each state far larger than what our data provide. We overcame this difficulty using a standard small area estimation technique that relies on our data having a large enough sample size to estimate this four-trait joint distribution among BHP-eligibles nationally. For each state, we reweighted the national joint distribution to match the individual state’s single distribution of age group, FPL income group, household size, and the number of BHP-eligible individuals per household.³²  Thus, we used estimates in which we had confidence—state-level single distributions of characteristics and the national joint distribution—to estimate the state-level joint distribution, which could not itself be tabulated directly from the data. The single distributions for each state are shown in tables A1-A3 and the final joint distribution estimates are shown in Table A4. One additional single distribution, involving household size, is not included here, but is available upon request from the authors.

Results

The following tables present the data on the characteristics of the BHP-eligible population by state. Tables A1-A3 provide summary-level statistics on age, income range, and the number of BHP-eligible people in the household unit for all 50 states and the District of Columbia. Table A4 provides detailed estimates of the joint distribution of BHP-eligible consumers by the four characteristics listed above. These detailed estimated are not provided for several states (Alaska, Delaware, the District of Columbia, North Dakota, South Dakota, and Wyoming) due to small sample sizes in those states. Detailed estimates are also not provided for New York because more comprehensive Urban Institute estimates have already been incorporated into state budget projections. Because of sample size considerations, we did not distinguish between FPL income ranges below 138% FPL. The number of BHP-eligible persons in the household unit represents the maximum number of people in the household who can enroll in BHP. Because very few BHP-eligible people are in households with more than five members or in households with more than three BHP-eligible members, our largest listed categories included households with five or more members and with three or more BHP-eligible members. In Table A4, we present data for households with one to four members. You can access the complete data in a downloadable Excel file of Appendix Table A4 (.xls).

Table A4. Estimated number of BHP-eligible people by state, household size, FPL, number of BHP-eligible people in household unit, and age (.pdf)

1. Stan Dorn and Jennifer Tolbert. The ACA’s Basic Health Program Option: Federal Requirements and State Trade-Offs, November 2014, Washington, DC: Kaiser Family Foundation and Urban Institute. ↩︎
2. CMS. “Basic Health Program: Federal Funding Methodology for Program Year 2016,” Federal Register, October 23, 2014, Vol. 79, No. 205, pp. 63363- 63376, http://www.gpo.gov/fdsys/pkg/FR-2014-10-23/pdf/2014-25257.pdf. ↩︎
3. After a BHP program’s first year, the federal government will need to make an additional adjustment to the reference premium, captured by the Population Health Factor (PHF). At that point, BHP enrollees will no longer be in the individual market. They may have a different average risk level than the remaining participant’s in the individual market. If so, premiums charged in the individual market without the participation of consumers under 200% FPL might be different than if BHP enrollees had stayed in the individual market. The PHF will adjust marketplace premiums to compensate for the change in risk levels made by the removal of BHP consumers so the reference premium reflects what would have been charged without BHP. If BHP consumers are healthier, on average, than individual market participants, the PHF will reduce the premium from levels observed in the marketplace. If they are less healthy, it will raise the premium. – In future years, it should not be difficult to determine the PHF. Each individual market participant’s risk level will be measured as part of the risk adjustment system. If states gather similar information about BHP enrollees, actuaries should be able to estimate the impact on individual market premiums if BHP-eligible consumers were added to the individual market. – In most states today, the PHF is even easier to calculate for the first year of BHP program operation: it does not affect premiums at all. That is because, in 2014, BHP-eligible consumers are already in the individual market in most states. As a result, marketplace premiums are already based on the risk pool that would apply without the operation of BHP. – However, in 2014 a handful of states—especially Minnesota, which covers all BHP-eligible consumers through the state’s longstanding “MinnesotaCare” program, now operating under a Medicaid waiver—serve numerous BHP-eligible consumers outside the individual market. No risk-adjustment system or comparable data-gathering mechanism allows a prospective comparison between the average risk level of such consumers and those who will enroll in the 2014 individual market. As a result, CMS is allowing states, for the 2015 BHP program year, to have the PHF determined retrospectively, after the conclusion of the 2015 BHP program year. A state choosing this option must, by August 1, 2014, have proposed a protocol to CMS for gathering the information needed to determine the PHF. CMS must approve the protocol by December 31, 2014. If information gathered through the protocol shows the need to change CMS’ 2015 payments, adjustments would be carried out through increases or reductions to the state’s later BHP payments. ↩︎
4. Links to such rates are available through the map at http://www.cdc.gov/tobacco/widgets/index.htm#widget. ↩︎
5. Most state individual markets, including QHPs, use HHS’s default ratios between premiums charged to adults age 21-24 and individuals of other ages. If more than one person within a family enrolls in a plan, the family premium combines the premiums charged to each family member, based on their ages. A few states—the District of Columbia, Massachusetts, Minnesota, New Jersey, and Utah—depart from the HHS default ratios in varying premium charges based on age. These states still determine family premiums based on the combined age-specific premiums charged to each enrolling family member. For HHS’s default ratios and the ratios used by the latter states, see Center for Consumer Information and Insurance Oversight (CCIIO). State Specific Age Curve Variations.August 9, 2013. http://www.cms.gov/CCIIO/Programs-and-Initiatives/Health-Insurance-Market-Reforms/Downloads/state-specific-age-curve-variations-08-09-2013.pdf. New York and Vermont do not permit premiums to vary based on age. Premiums vary based on family enrollment, depending on the characteristics of the enrolling family. In each state, coverage for two adults costs twice as much as coverage for one adult. For information about how premiums change when children are involved, see CCIIO, “State Specific Family Tier Ratios,” Market Rating Reforms: State Specific Rating Variations. Updated: July 11, 2014. http://www.cms.gov/CCIIO/Programs-and-Initiatives/Health-Insurance-Market-Reforms/state-rating.html#age. ↩︎
6. The purpose of this example is to illustrate our suggested approach to calculating federal BHP payments, not to provide up-to-the-minute, accurate estimates for Washington State. After this example was developed, final QHP premiums for 2015 were announced. To obtain more accurate and current estimates, Washington State officials and stakeholders would need to revise these calculations using actual 2015 premiums, rather than the projections we developed based on state insurance officials’ analysis. ↩︎
7. Dekker Dirksen, Community Health Plan of Washington/Community Health Network of Washington, personal communication, July 2014. ↩︎
8. Washington State Health Benefits Exchange, April 23, 2014. Health Coverage Enrollment Report: October 1, 2013 – March 31, 2014. http://wahbexchange.org/files/2713/9888/1218/WAHBE_End_of_Open_Enrollment_Data_Report_FINAL.pdf. ↩︎
9. To derive the weighted average, we first multiple the premium in a county by the number of QHP enrollees in that county. For example, we multiply $221.14 in Adams County by the 451 QHP enrollees and obtain a product of $99,734.14. We combine such county-specific products for all counties, which equals $34,028,555.85, and divide by the total number of QHP enrollees statewide, which is 152,690. The resulting average is $222.86. ↩︎
10. Mike Kreidler, Washington state Insurance Commissioner, “Seventeen health insurers file more than 230 plans for 2015 – average proposed rate change 8%,” News Release, May 13, 2014, http://insurance.wa.gov/about-oic/news-media/news-releases/2014/5-13-2014.html; Jeffrey Naas, Washington State Office of the Insurance Commissioner, personal communication, July 2014. ↩︎
11. For information about each individual state’s approach to age rating, see CCIIO, Market Rating Reforms: State Specific Rating Variations, Updated July 11, 2014, http://www.cms.gov/CCIIO/Programs-and-Initiatives/Health-Insurance-Market-Reforms/state-rating.html; CCIIO, State Specific Age Curve Variations, August 9, 2013, http://www.cms.gov/CCIIO/Programs-and-Initiatives/Health-Insurance-Market-Reforms/Downloads/state-specific-age-curve-variations-08-09-2013.pdf. ↩︎
12. Very few BHP-eligible consumers live in households with more than five members. ↩︎
13. For BHP-eligible consumers under 138% FPL, sample size considerations prevented us from developing eligibility estimates within the smaller FPL ranges used by the federal payment methodology (0-50, 51-100, and 101-138% FPL). We assumed an even distribution of BHP enrollees by FPL income levels from 0 to 138% FPL, as provided by the federal payment methodology for narrower FPL ranges. If BHP-eligible consumers are unevenly distributed among the three federal-specified FPL ranges below 138% FPL, our estimated payment amounts for consumers under 138% FPL may be inaccurate. However, given the relatively small size of the under-138%-FPL population among BHP-eligible consumers, the impact on calculating a state’s average federal payment per BHP-eligible consumer is likely to be modest. ↩︎
14. Hawaii and Alaska would be treated differently, because the FPL equals different income amounts in those states than in other states. ↩︎
15. The only exceptions are fully community-rated states, where family premiums vary based on the number of adults and children enrolled in coverage. CCIIO, Market Rating Reforms: State Specific Rating Variations. ↩︎
16. Put differently, the two BHP-eligible members receive family coverage for which a premium of $850.46 is charged, the household payment requirement is $106.30, and the household PTC is $744.16—precisely twice the $372.08 received by each BHP-eligible member. ↩︎
17. Premera Blue Cross, “Individual Filing – Effective 1/1/2014,” Exhibit 6.2 in Exchange Rates – Silver Plans; LifeWise Health Plan of Washington, “Individual Filing – Effective 1/1/2014,” Exhibit 6.2 in Exchange Rates – Silver Plans. ↩︎
18. Group Health Cooperative, 1/1/2014 Individual Rate Filing, “Exhibit 11 – Final Rates.” ↩︎
19. These counties are Benton, Franklin, King, Walla Walla, and Yakima. Dirksen, op cit. For the distribution of enrollees by County, see Table 2. ↩︎
20. These numbers come from Tobacco Control State Highlights 2012, http://www.cdc.gov/tobacco/data_statistics/state_data/state_highlights/2012/zip_files/highlights.zip. ↩︎
21. As explained by CMS in its proposed 2016 BHP methodology, “For the BHP payment rate cell for persons ages 21-34, we would calculate the factor as (4/14 * the utilization rate of 18-24 year olds) plus (10/14 * the utilization rate of 25-44 year olds), which would be the weighted average of tobacco usage for persons 21-34 assuming a uniform distribution of ages; for all other age ranges used for the rate cells, we would use the age range in the CDC data in which the BHP payment rate cell age range is contained.” CMS. Basic Health Program: Federal Funding Methodology for Program Year 2016. ↩︎
22. CMS, Basic Health Program: Federal Funding Methodology for Program Year 2016. ↩︎
23. Dorn and Tolbert 2014. ↩︎
24. These estimates will be almost the same as those for 2015, with very small changes reflecting population growth. A state analyzing BHP implementation for 2015 could use the tables in this appendix to develop the kind of fiscal analysis described in the body of this report. ↩︎
25. Among consumers with incomes between 139 and 400% FPL who are offered ESI, between 97% and 99.8% of such offers meet the ACA’s definition of affordability. Even among consumers in this income range who do not accept ESI offers, between 87% and 99% of the rejected offers are affordable. See the U.S. panel in table 1 in Matthew Buettgens, Stan Dorn, Habib Moody. Access to Employer-Sponsored Insurance and Subsidy Eligibility in Health Benefits Exchanges: Two Data-Based Approaches. Washington, DC: Urban Institute (prepared for the California HealthCare Foundation), Dec. 2012, http://www.urban.org/UploadedPDF/412721-Access-to-Employer-Sponsored-Insurance.pdf. ↩︎
26. See Buettgens, Dorn and Moody, 2012. ↩︎
27. Passel, J. and D. Cohen. 2009. “A Portrait of Unauthorized Immigrants in the United States.” Washington, DC: Pew Hispanic Center. ↩︎
28. Treasury Inspector General for Tax Administration, “The Internal Revenue Service Needs a Coordinated National Strategy to Better Address an Estimated $30 Billion Tax Gap Due to Non-filers,” November 2005, Reference Number 2006-30-006. ↩︎
29. “Internal Revenue Service Data Book 2003,” Internal Revenue Service, 2003. ↩︎
30. Plueger, D, “Earned Income Tax Credit Participation Rate for Tax Year 2005,” Internal Revenue Service, 2009. ↩︎
31. For households with 1 BHP-eligible member, groups would include 5 age ranges, 4 FPL income ranges, and 5 household sizes (with households of 5 or more members constituting the largest household), for a total of 100 groups (5x4x5=100). Households with 2 BHP-eligible members have the same number of age and FPL income ranges, but only 4 household sizes, since a 1-person household cannot have 2 BHP-eligible members. Accordingly, this second set includes 80 groups (5x4x4=80). The final set, consisting of households with 3+ BHP-eligible members, has only 3 household sizes, so it includes 60 groups (5x4x3=60). Altogether, these three sets include 240 groups (100+80+60=240). ↩︎
32. Specifically, we reweighted by minimizing cross-entropy. Martin Wittenberg, An introduction to maximum entropy and minimum cross-entropy using Stata, The Stata Journal (2010) 10, Number 3, pp. 315-330. ↩︎