In a move that ought to raise eyebrows in Washington, the Hochul administration is requesting additional federal money for New York’s Essential Plan, which is already sitting on more than $9 billion after years of running a multi-billion-dollar surplus.
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.
The state could cover that amount with the funding it already receives from Washington, billions of which have been piling up unspent in a trust fund.
Yet the state’s draft application – posted for public comment last week – asks the U.S. Department of Health & Human Services to partially finance the expansion with an additional $184 million in the first year.
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.
Notably, the waiver application makes no mention of using the Essential Plan to cover undocumented immigrants, something Hochul committed to do last year but has yet to act upon.
The state established the Essential Plan in 2015 as an optional benefit under the Affordable Care Act. It covers residents with incomes between 138 percent and 200 percent of the poverty level, which is just above the cutoff for Medicaid. It also covers several hundred thousand low-income non-citizens who are in the country legally but ineligible for federal Medicaid funding because, for example, they arrived less than five years ago.
As of January, enrollment in the program was 1.1 million.
To finance the plan, the state receives 95 percent of the money the federal government otherwise would have to spend on ACA premium tax credits for the enrollees.
In an unexpected quirk, this funding formula has generated far more money than the Essential Plan needs, mostly because the plan pays lower fees to providers than commercial plans typically do.
Under current law, the state has no way to redirect the extra money for any other purpose, and federal health officials have no way to claim it back – or even slow down how much they keep paying to New York. Thus the Essential Plus surplus remains stuck in limbo, earning interest but going nowhere.
The ACA’s waiver process, on its surface, seems like an opportunity to rationalize the situation. It’s meant to make it possible for states to provide more or better health coverage while using the same amount of federal resources.
As figures in New York’s application make clear, the Essential Plan could cover the additional eligibility group with the cash it already has available – and still run a surplus of more than $1 billion per year.
However, New York’s waiver application seeks additional funds from Washington to partially finance the expansion. It calculates that the new Essential Plan enrollees would otherwise be entitled to about $200 million per year in federal tax credits and asks the federal government to forward that amount to Albany. The program’s existing funding – surplus and all – is treated as part of the baseline and would continue unchanged.
As seen in the first table, the expansion would cost $683 million in the first year, but the state would contribute only $499 million. The annual surplus would get smaller but still amount to almost $2 billion. Over the next five years, the surplus would balloon by $10 billion instead of $12 billion.
As seen in the second table, officials estimate that the Essential Plan's enrollment would rise by 91,000, including 68,000 people who currently buy subsidized coverage through the ACA exchange. That group would save substantially – because they would pay only $15 a month in premiums, compared to an average of almost $500 now, and see lower out-of-pocket costs.
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.
It's worth remembering that New York's commercial insurance premiums are among the highest in the U.S. – in part because the state heavily taxes health insurance and imposes excessive coverage mandates and other regulations.
Those high premiums trigger higher federal tax credits under the ACA and thus drive more money into the overfunded Essential Plan. Another way of reducing the plan's surplus would be to roll back or repeal the $5.2 billion in insurance surcharges under the state's Health Care Reform Act, which are due for renewal in the current budget.
That would lower insurance costs for the whole state – and make the New Yorkers less dependent on taxpayer-financed safety nets.
As federal officials review New York's waiver application, they should ask the Hochul administration whether it really needs more money for an overfunded Essential Plan – and what it's doing to make insurance more affordable and accessible for the state as a whole.