At least three states plan to offer additional subsidies next year for health coverage purchased on Obamacare’s health insurance marketplaces, on top of the federal tax subsidies offered as part of the health reform law.
Officials in Massachusetts, New York and Vermont are considering various state-funded subsidy packages, although they differ in their scope and generosity. It is yet another reminder that, while much of the debate over the Affordable Care Act (ACA) centers on states that are refusing to implement the law, some are going beyond what Congress prescribed back in 2010.
New York and Vermont have one thing in common: They both currently offer Medicaid coverage to people above 138 percent of the federal poverty level, the new Medicaid eligibility threshold under the ACA in states that decide to expand the program. So those people above that line who currently receive Medicaid will instead purchase health coverage through the marketplaces, also known as exchanges, starting next year. The additional state subsidies are intended to make sure that being insured isn’t more expensive for that population when they move to the exchange, state officials say.
Massachusetts is slightly different, though the principle is the same: That state’s 2006 health reform law, which served as a model for Obamacare, included more generous subsidies than the federal law. So the state-funded subsidies on the exchange will help offset any difference in cost once the federal subsidies kick in next year.
“The concern for some states is that the subsidies in the exchanges… just aren't good enough to enable folks to enroll,” says Jennifer Tolbert, who tracks exchange implementation for the Kaiser Family Foundation. “These states are looking at ways to improve the affordability of that coverage so more people will enroll.”
Vermont is planning to provide state-based subsidies to people with incomes between 138 percent and 350 percent of the federal poverty level (the federal subsidies go to 400 percent of the poverty level, roughly $46,000 for an individual) because those people currently qualify for Medicaid. The subsidies would offset the cost of premiums by another 1.5 percent on top of the federal subsidies. About 40,500 Vermonters are expected to receive the additional assistance, at a cost of $2.9 million to the state in 2014.
The state would also pay insurers to reduce both the deductible and out-of-pocket maximums of exchange coverage for those people. For example: someone making between 200 and 250 percent of the poverty level currently has a deductible of $500 for Medicaid, but that would increase to $1,900 for a private plan under the ACA. The state would therefore pay the difference for someone to purchase a plan with a $700 deductible. For someone making between 300 and 350 percent of the poverty line, the state would pay to lower their deductible from $1,900 to $1,500.
“In our state, Medicaid expansion really means Medicaid contraction,” says Mark Larson, commissioner of the department of Vermont Health Access. “When we thought about transition to 2014, we had a question of how do we maintain an affordability standard that we've already achieved in Vermont. What we attempted to do was maintain as close to the standard that we already had.”
The proposal in New York would function similarly to Vermont’s plan for premiums, though it would apply to a narrower income bracket. New York currently covers working parents with incomes up to 150 percent of the poverty level under Medicaid, so the state subsidies would apply to people between 138 percent of the poverty level and 150 percent.
Massachusetts extended Medicaid coverage (administered through private managed care plans) to individuals and families making up to 300 percent of the poverty level under its 2006 law; about 200,000 people were insured as a result. The 2006 law’s subsidies for that coverage were more generous than what the ACA will provide next year, however, so the state plans to offer state-funded subsidies to keep the cost of coverage the same for people up to the 300 percent threshold. As in Vermont, the size of the additional subsidies will be based on a sliding scale. State officials expect 150,000 people to qualify for the state subsidies, which are estimated to cost $120 million.
“We had a lot of success in our state with our first reform, and we expect that this will maintain the coverage gains that we’ve gotten to date,” says Candace Reddy, Massachusetts’s assistant secretary for health care finance.
Similar proposals were weighed to some degree in Connecticut and Maryland before being discarded. Connecticut Gov. Dannel Malloy proposed sending parents currently enrolled in Medicaid with incomes between 138 and 185 percent of the poverty line to the exchange and then providing premium assistance for their new coverage. But the legislature rejected Malloy's plan, opting instead to keep those people on Medicaid.
The idea of additional state-funded subsidies was also floated briefly in Maryland, though nothing formal was ever introduced.
"I would say it would be a possible consideration for the future, but we're locked into what we're doing for year one," says Joshua Sharfstein, Maryland Secretary of Health and Mental Hygiene.
The approach Massachusetts, New York and Vermont are taking makes some sense because concerns about the affordability of exchange coverage are very real, says Caroline Pearson, who tracks state ACA implementation for Avalere Health, an independent consulting firm.
According to a recent Avalere analysis, patients with incomes of 350 percent of the poverty level and below who reach the out-of-pocket maximum allowed under the ACA would be considered “underinsured” based on the percentage of their income that they could end up spending on medical costs, even with the available federal subsidies. For example: the study found that people making 300 percent of the poverty level could still spend up to 20 percent of their income on health care, while the underinsured threshold is 10 percent.
Therefore, the additional subsidies that these states are considering could help offset those costs and make it more affordable for people to enroll in the exchanges and purchase coverage, Pearson says.
“The subsidies still leave a bit to be desired. They still leave a lot of out-of-pocket costs,” she says. “It's a pretty big deal for patients in these states if they get additional subsidies, but the question is: Can they sustain it?”