This week, our In Focus highlights a white paper from Wakely, an HMA Company, exploring the potential design elements and expected effects of a public option or a low-cost plan being newly introduced in the Affordable Care Act (ACA) individual market.
1332 state innovation waivers have been in place for a number of years and allow states to implement programs that increase access to and the affordability of healthcare coverage, subject to approval by the Department of Health and Human Services (HHS) and Department of Treasury (Treasury). Nearly all waiver programs in effect in 2021 employ a reinsurance program aimed at reducing the overall claim costs and premiums for members by reimbursing issuers for a portion of claim costs over a specified threshold.
A number of states have been exploring other ways to structure a waiver program, including introducing a public option plan into ACA markets (individual and small group plans subject to the ACA market reforms). The definition of a “public option plan” has evolved over time and can vary, but more commonly refers to a privately funded health plan with some level of government oversight or additional requirements established to improve consumer value and facilitate cost containment.
A public option plan aims to further increase access to coverage and affordability by offering a new qualified health plan, typically with a lower premium relative to existing premiums in the market. A public option plan specifically aims to extend a more affordable coverage to individuals who are currently not eligible for ACA subsidies (e.g., family glitch, non-citizens, and those with higher incomes). The plan could be structured in a variety of ways such as a state-sponsored product, state employee health plan buy-in, Medicaid plan buy-in, or a private plan offered by existing issuers. Colorado and Washington will require health plans to offer public option plans with a target premium reduction relative to other plans in the market, with constrained rate increases over time, giving health plans the opportunity to arrive at the lower premiums through their own means, for the 2023 plan year. Lower premiums would likely be achieved through a combination of lower provider reimbursement and lower risk margins.
Given the nature of premium subsidization in the individual ACA market, where premium subsidies are tied to the second lowest cost silver (SLCS) plan in the market, the introduction of a lower cost public option plan has a mixed impact on market growth and the types of member segments that benefit. Since Washington State is the only Exchange that currently offers a public option plan, there is minimal experience available to understand the impact a public option plan may have on the market. As a result, our goal was to look at states where a new issuer has entered a market as a low-cost plan over the last four years, to better understand plan enrollment migration (how many members switch to the low-cost carrier), competitors’ reactions, and the reduction in premium needed to incentivize members to take up coverage. This market dynamic potentially closely mimics a public option plan that offers lower premiums being introduced in a market. Over the last four years (2018-2021), we identified 51 instances of new issuers entering an individual on-Exchange market. Of those 51 new entrances, 25 met our criteria of a low-cost plan.
The analysis showed mixed impacts of a low-cost plan introduction in ACA markets, with minimal impact on the uninsured, but with improved affordability, particularly for the unsubsidized. The detailed observations are discussed further in this paper.
Please contact Ksenia Whittal at [email protected] with any questions.