How AHCA affects NY’s Essential Plan

by Bill Hammond |  | NY Torch

What would happen to New York’s popular Essential Plan under the House Republican health bill? The answer, like so much in health policy, turns out to be more complicated than previously understood.

The Essential Plan, launched in 2015, is a taxpayer-funded health plan covering people with incomes up to double the poverty level. It’s part of an optional program under President Obama’s Affordable Care Act that only New York and Minnesota chose to exercise. With premiums of just $20 a month or nothing, depending on income, New York’s version has enrolled 685,000 people.

The House bill, as narrowly approved last week, would leave in place the authorizing language for the Essential Plan, but repeal one of its two funding streams and reduce the other. The Cuomo administration said that the bill would effectively eliminate the program, while members of New York’s congressional delegation have said it could continue, albeit in modified form.

The ambiguity results from the program’s unusual funding structure. The ACA subsidizes health coverage for low-income consumers in two ways: with premium tax credits available on a sliding scale up to 400 percent of the poverty level, and with “cost-sharing reduction” subsidies that lower or eliminate copayments and deductibles up to 250 percent of the poverty level.

The ACA also gives states the option of establishing a “basic health plan” – known as the Essential Plan in New York – for consumers up to 200 percent of the poverty level ($24,120 for an individual, $49,200 for a family of four). For states that do so, the federal government provides 95 percent of the money that would otherwise have gone toward tax credits and cost-sharing subsidies for that group of enrollees.

In New York, the two streams of money added up to about $3 billion in the 2017 fiscal year, or more than 80 percent of the Essential Plan’s budget. The state contributed another $700 million.

Under the House GOP’s American Health Care Act, however, cost-sharing reduction subsidies would be eliminated nationwide, which would cost the plan about $900 million in aid.

AHCA also replaces Obamacare’s need-based tax credits with tax credits that are based on age – ranging from $2,000 for consumers in their 20s to $4,000 for those in their 60s. For the lower-income people in the Essential Plan’s eligibility range, AHCA’s tax credits would likely be worth less, on average, than Obamacare’s, and therefore generate less funding for the Essential Plan. How much less would depend on demographics of the enrollment pool, and no official estimates have been made public.

State officials say the bill would also bar the use of credits to purchase plans that cover abortion – a benefit required by state regulation, with an exception only for the Catholic-affiliated Fidelis Care.

Another wrinkle concerns how the tax credits are claimed. Currently, the credits are available only to consumers who sign up for coverage through the state’s Obamacare exchange and paid either to health plans or the state. This enables the state to identify those who are eligible for the Essential Plan, calculate the value of tax credits and subsidies they would otherwise receive, and claim that funding for the plan’s budget.

Under AHCA, consumers could claim tax credits directly without going through the exchange – potentially complicating the state’s ability to identify enrollees and claim funding for the Essential Plan.

These provisions of AHCA have led to divergent predictions about the program’s fate.

In his reaction to passage of the House bill, Governor Cuomo said it “would effectively defund the Essential Plan.”

The funding cuts make it “unlikely that the program could continue,” the director of New York’s health insurance exchange, Donna Frescatore, said in an emailed statement.

By contrast, Rep. Tom Reed (R-Corning), who voted for AHCA, told reporters, “This whole argument that that plan will be immediately repealed by the passage and signing into law of the American Health Care Act is just false.” He acknowledged that program faces a reduction in its current funding, but suggested that the state could offset that loss with grants made available through other parts of the bill.

Rep. Chris Collins (R-Clarence) disputed the idea that Essential Plan enrollees would be denied coverage, saying they could use their tax credits to buy commercial plans: “Going forward, these patient populations will be covered on the individual marketplace. This will provide New Yorkers with more choice and flexibility, as well as lower costs.”

To be sure, the credits provided under AHCA would be far smaller than those available under Obamacare for low-income consumers. This is especially true for younger consumers, whose AHCA credits would be capped at $2,000. Low-income consumers would also lose the benefit of cost-sharing reductions that hold down their copayments and deductibles.

Whether AHCA’s would provisions would lead to lower costs in New York is less clear. That would depend on state government taking advantage of regulatory flexibility under the bill, including controversial changes in insurance regulations regarding pre-existing conditions and the establishment of a high-risk pool.

Since AHCA also repeals the individual mandate, with its tax penalties for those who lack coverage, many current enrollees might find that premiums are unaffordable and go uninsured.

The proposed changes to the Essential Plan would also open a potential hole in the state budget.

By court ruling, the state is obliged to provide health coverage to some 250,000 legally present immigrants who are ineligible for federal Medicaid assistance. Before Obamacare, the state paid the full cost of their Medicaid coverage, which was approximately $1 billion. After 2015, however, the state shifted those beneficiaries to the Essential Plan, where federal aid covered 81 percent of the cost. This made the program a net savings to the state, even as some 400,000 other New Yorkers signed up.

Under AHCA, state officials say legally immigrants would lose eligibility for tax credits. The state would have to go paying the full cost of Medicaid coverage for that group, making the Essential Plan a significant net cost instead of a net savings to the state.

Other provisions of AHCA would cut billions of dollars in federal funding for New York’s Medicaid program and disrupt the commercial insurance market in unpredictable ways.