New York's BHP program surplus pushes them to expand it to 250% FPL...with some ironic twists involved

New York

In my post a few weeks ago about Minnesota's plan to dramatically expand their existing Basic Health Plan (BHP) program, MinnesotaCare, into a full-fledged Public Option open to residents not currently eligible for the program, I made an offhand reference to similar BHP expansion-related news happening in New York State. However, I haven't gotten around to actually writing about NY's BHP program until now.

New York's implementation of the ACA's BHP provision (Section 1331 of the law) is called the Essential Plan, and it already serves over eleven times as many people as Minnesota's does (around 1.1 million vs. 100K). Part of this is obviously due to New York having a larger population, but that's only part of it (NY has 19.84M residents, just 3.5x higher than MN's 5.71M).

Whenever I write about BHPs I always throw in a simple explainer about what it is, with an assist from Louise Norris:

Under the ACA, most states have expanded Medicaid to people with income up to 138 percent of the poverty level. But people with incomes very close to the Medicaid eligibility cutoff frequently experience changes in income that result in switching from Medicaid to ACA’s qualified health plans (QHPs) and back. This “churning” creates fluctuating healthcare costs and premiums, and increased administrative work for the insureds, the QHP carriers and Medicaid programs.

The out-of-pocket differences between Medicaid and QHPs are significant, even for people with incomes just above the Medicaid eligibility threshold who qualify for cost-sharing subsidies.

The Basic Health Program (BHP) – section 1331 of the ACA — was envisioned as a solution, although most states did not establish a BHP. Under the ACA (aka Obamacare), states have the option to create a Basic Health Program for people with incomes a little above the upper limit for Medicaid eligibility, and for legal immigrants who aren’t eligible for Medicaid because of the five-year waiting period.

In short:

  • If you earn up to 138% FPL, you enroll in Medicaid.
  • If you earn 138 - 200% FPL, you enroll in a Basic Health Plan policy (BHP).
  • If you earn 200% FPL or higher, you enroll in a Qualified Health Plan policy (QHP).

Federal funding for BHP programs is supposed to be equal to 95% of the total amount of advance premium tax credits (APTC) and cost sharing reduction (CSR) assistance that the enrollees would otherwise have been eligible for had they otherwsie enrolled in a QHP using the ACA exchange.

Of course, the state itself can also throw in additional funding to make the BHP plans more generous if they wish...which is a key point to keep in mind. The coverage has to be at least as affordable and at least as good as a benchmark silver plan with Cost-sharing reduction benefits applied.

I don't know how many of New York's "Essential Care" enrollees fall into the "legal immigrant under the 5-year waiting period" category, but my guess is that it's a lot, likely making up the bulk of the disproportionately higher BHP enrollment in the state vs. Minnesota's version.

In any event, for a variety of reasons, New York's BHP program has something highly unexpected when discussing publicly-funded healthcare programs: A massive surplus...and that's putting it mildly. As Bill Hammond reports at Empire Center:

The accumulated surplus of the state-run Essential Plan had ballooned to $9.9 billion by the end of December, putting it on track to break $10 billion before the close of the fiscal year on March 31, according to newly released records from the comptroller’s office.

...Due to a quirk in its funding formula, the program generates far more federal funding than it needs to pay expenses – resulting in an operating surplus that has grown to almost $3 billion per year.

Awesome! New York has an extra $10 billion to play around with, right? Well, not quite:

Federal law bars the state from diverting the money for any other purpose, causing a $9.9 billion cash balance to build up in the program’s trust fund.

Despite this snafu, the Hochul administration is seeking even more federal aid to finance an expansion of the program, which would lift the income eligibility threshold from 200 percent to 250 percent of the poverty level.

If the proposal is approved, the state projects that the program's annual surplus would get half a billion smaller – but the cash balance would continue to mount.

On the surface, this sounds like fantastic news:

...Unexpectedly, the money generated by this formula has far exceeded the actual cost of coverage – likely because the Essential Plan pays lower fees to doctors, hospitals and other medical providers than the typical commercial plan.

The plan provides comprehensive medical, dental and drug coverage with no monthly premium and minimal cost-sharing.

...The state's only expense for the program has been administrative costs, which have amounted to about $75 million or 2 percent of the overall budget.

However, as Hammond noted this morning, the state can't use up much more of the surplus on existing enrollees because...well, there's nothing left to provide them with:

A strategy for spending down the surplus based on lower premiums and cost-sharing and expanded benefits does not seem to add up -- because its premiums are currently zero, cost-sharing is low and its benefits are comprehensive.

This leaves expanding the program to either undocumented immigrants (which I didn't even realize was feasible using federal funds, even with an approved waiver) or to expanding it up the income scale. Crain's New York explains why the former wasn't deemed feasible:

"This population wasn't included in the draft 1332 waiver because it was determined that the level of financial risk to New York State was too high to pursue a broad expansion of the Essential Plan at this time," Pomeroy said.

Pomeroy added that there is a "degree of uncertainty in data estimating the size and characteristics of the undocumented immigrant population and by extension participation rates and per member costs in an expanded Essential Plan program."

Basically, they have no idea how many undocumented immigrants would be eligible, so opening the floodgates could potentially turn the massive surplus into a massive deficit in short order.

Instead, then, the Hochul Administration is proposing expanding the program to more U.S. citizens earning up to 250% of the Federal Poverty Level (FPL) instead of the current 200% via a Section 1332 waiver:

The state is proposing to raise the plan’s eligibility ceiling from 200 percent to 250 percent of the federal poverty level, adding 91,000 enrollees at an estimated first-year cost of $683 million.

...If the application is approved, the program’s annual surplus would continue to mount, albeit at the diminished rate of about $2 billion a year. According to the comptroller’s office, the accumulated surplus in the Essential Plan trust fund is currently $9.3 billion.

The obvious question is why they don't propose raising the threshold even further (275% FPL? 300%?), but there are several reasons why I can see proceeding with caution:

However, the expansion would have ripple effects on the commercial market for direct-purchase coverage – removing a group of younger, healthier people from the risk pool and increasing premiums for those left behind by an estimated 3 percent. The state's application projects that 3,000 people will drop their insurance as a result, leaving a net coverage increase of about 20,000, or about 2 percent of the state's uninsured population.

In effect, the proposal would save additional money for people who already qualify for subsidized coverage while driving up insurance costs for those who buy it on their own.

In addition, there's also the fact that the expanded federal subsidies included in the American Rescue Plan & extended in the Inflation Reduction Act are currently scheduled to end at the end of 2025. While the NY BHP program already had a large surplus prior to the ARP/IRA subsidy expansion, if that expansion isn't extended beyond 2025 the current surplus rate would presumably drop significantly, and there would also be a significant ripple effect on the individual market from that as well.