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Basic health option plans: How they could hurt PPACA exchanges

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Consultants at Oliver Wyman have given Hawaii insurance regulators explaining the risks that could be involved with using the “Basic Health Program Option” to provide health coverage for moderately low-income residents.

The Hawaii Insurance Division commissioned the report to look into the possibility of using a Basic Health Program — one of the many new types of health coverage entities created by the Patient Protection and Affordable Care Act of 2010 (PPACA) — to expand access to coverage.

The basic plans
PPACA drafters included the basic plan options to please Democrats who wanted to give each state the option of setting up a government-run, “single-payer” health insurance program.

A state with a basic plan would set up a big, state-run, Medicaid-style health insurance program for residents with incomes of 100 percent to 200 percent of the federal poverty level, instead of sending those same people to a health insurance exchange, or Web-based insurance supermarket, to buy commercial health coverage.

A state could either provide the health plan itself or hire a commercial insurer to run the plan, but the state would be in charge of negotiating with the insurer and designing the benefits package.

PPACA calls for the federal government to give moderate-income individuals new, income-based tax credits they can use to pay for health coverage.

The federal government would help a state pay for its basic plan by sending the state 95 percent of the PPACA health insurance purchase subsidy tax credits set to go to the basic plan enrollees.

Sen. Maria Cantwell, D-Wash., recently asked at a Senate hearing whether HHS would keep the plan program from falling between the regulatory cracks. She suggested that HHS officials might be afraid that letting the basic plans start up could hurt the PPACA exchange system.

Jonathan Blum, the director of the Center for Medicare, told her that HHS officials hope to get the basic plan program running in 2015.

What the consultants said
The consultants at Oliver Wyman – a unit of Marsh & McLennan Companies Inc. (NYSE:MMC), an insurance broke — told Hawaii insurance regulators that offering a basic plan might be more affordable for the enrollees than sending those people to a health insurance exchange.

Offering a basic plan also could help eliminate the risk that working-poor enrollees would end up having pay health insurance tax credit money back to the Internal Revenue Service (IRS).

Providing a basic plan also could lower the cost of commercial individual coverage, by getting moderately low-income people with serious health problems out of the individual health insurance risk pool, the consultants said.

But the consultants warned that using a basic plan to cover moderately low-income people could reduce the number of people using Hawaii’s PPACA exchange program, the Hawaii Health Connector.

“This would result in the Hawaii Health Connector’s fixed operating costs being spread over a smaller population, thus negatively affecting affordability for individuals and sustainability for the Connector,” the consultants said.

Reducing the number of people getting commercial health coverage through the exchange could weaken the ability of exchange managers to bargain with insurers for lower prices and better benefits, the consultants said.

Offering a basic plan also could expose the government of Hawaii to tax credit-payment-related financial risk, the consultants said.

In an exchange system, the insurers will be the entities that bear the risks involved with hoping the IRS will send out tax credit payments on schedule, the consultants.

If a state runs a basic plan, the state could face lags in subsidy payments, the consultants said.

The consultants have recommended that officials in Hawaii put off decisions about setting up a basic plan until federal agencies complete work on basic plan regulations. 

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