The ACA’s Basic Health Program Option: Federal Requirements and State Trade-Offs
Beginning in 2015, states have the option to implement a Basic Health Program (BHP) providing low-income consumers with coverage outside health insurance marketplaces, which are sometimes called “exchanges.” The BHP option, provided by the Patient Protection and Affordable Care Act (ACA), permits a state to contract with “standard health plans” that serve consumers with incomes at or below 200% of the federal poverty level (FPL) (about $39,500 for a family of three in 2014) who would otherwise qualify for subsidized marketplace coverage.1 States opting for BHP receive federal funding equal to 95% of what the federal government would have paid in marketplace subsidies for BHP enrollees. BHP beneficiaries must receive coverage at least as affordable and comprehensive as what they would have obtained from a qualified health plan (QHP) participating in a marketplace.
Most states considering BHP have sought to provide low-income consumers with more affordable coverage than will be offered in marketplaces, using models provided by Medicaid or the Children’s Health Insurance Program (CHIP). These models lower the overall cost of coverage by reducing provider payments below levels in the private market and using state leverage to negotiate aggressively with health plans, thereby permitting nominal premiums and cost-sharing. Early microsimulation modeling estimated that such savings would let states use 95% of marketplace subsidies to provide consumers with substantially more affordable coverage than would be available from subsidized QHPs.2
In March 2014, the Centers for Medicare & Medicaid Services (CMS) published final BHP regulations3 and a final methodology for calculating state BHP payments in calendar year 2015,4 the first year when states will be allowed to operate BHP. This paper begins by summarizing these federal policies, including the requirements for BHP as well as the methodology for determining federal BHP payments. It then analyzes the key trade-offs facing states as they decide whether and, if so, how to implement BHP, with a particular focus on the impact of BHP on state budgets and the size, stability, and risk level of state marketplaces.