Morbidity discrepencies and Basic Health Plans

This is going to be wonky even for me.

The Medicare’s Office of the Actuary (OACT), came out with their projection of what the proliferation of short term, underwritten, and renewalable plans would do the ACA market. They project significant movement out of the ACA plans by healthy people into short term plans.  They also project that this will cost the federal government almost $40 billion dollars in additional subsidies over the course of time.

Independent CMS actuaries predict:

~1.6M healthier ACA-compliant plan enrollees switch into short-term plans

↑ ACA plan premiums by 6%.https://t.co/2RqcHEuScS pic.twitter.com/5Gxno7SxPi

— Loren Adler (@LorenAdler) May 18, 2018

I have a question.

OACT and other actuaries are all predicting that the ACA risk pool will become increasingly morbid as there are more and more exit points for people who can pass underwriting to get out of the ACA.  The only people who will stick around are those who are either very well subsidized or those who cannot pass underwriting because they have expensive chronic conditions.

This is a fairly standard story and it makes sense as the underlying morbidity of the ACA eligible pool is far healthier than the morbidity of the pool of people who actually buy an ACA policy.

What happens to Basic Health Plan (BHP/Section 1331) funding in this scenario?

The BHP is a program where states take a per enrollee block grant that is equal to 95% of what the Federal government would have spent on that individual in the ACA market.  This pool of money is then used to pay for enhanced benefits and lower premiums for people who earn under 200% Federal Poverty Level (FPL).  So far, only New York and Minnesota are using a BHP.

Note the important words: per enrollee block grant.  Let’s assume a a state had a ACA group of 100,000 BHP eligible buyers at an average federal subsidy of $3,000 per enrollee for $300 million in ACA funds for the enrolled population.  Now let’s assume the state signs up 200,000 people to their new BHP, the state gets $570 million dollars for their BHP (.95*$3,000*200,000).

As the relative morbidity increases, the BHP arbitrage increases.  The baseline from which the BHP per enrollee grant is calculated from is the far more expensive and morbid ACA enrollee.  The healthier not enrolled individuals who would sign up for the BHP will cost significantly less on a per capita basis than the benchmark.  States could tap into a significant pool of federal funds that will continue to grow as the ACA risk pool is intentionally made more morbid and expensive.

I don’t think this is a 2019 question as we are too late in the year for the implementation planning to go well.  I think this should be a 2020 question in states that actually want to protect their citizens.