Medicaid Buy-in bill in California

California just passed AB-2472, a bill that requires a feasibility study of a set of waivers and options for the California Exchange (Covered California).

This bill would require the board to prepare an analysis and evaluation, known as a feasibility analysis, to determine the feasibility of a public health insurance plan option to increase competition and choice for health care consumers. The bill would require the feasibility analysis to contain, among other things, an actuarial and economic analysis of a public health insurance plan and an analysis of the extent to which a new public health insurance plan option could address the underlying factors that limit health plan choices in some regions.

The legislative history expresses a concern for single insurer counties as well as duopoly counties. I want to go back to some of my Health Affairs pieces to highlight some things that will be discussed. Last August, I suggested that Medicaid be a functional backstop for bare counties:

Medicaid is better suited as a reserve parachute for bare counties. Temporary Medicaid buy-in would be a useful tool for state regulators to improve the quality of plans offered in counties that otherwise would have been bare….The combination of narrow networks, low premiums, and the ACA’s current risk adjustment formula will lead to an unstable equilibrium…However private insurers that offer broad and expensive networks at a higher premium would likely attract a dis-proportionally sicker population who use more services at a higher per unit cost. The risk adjustment formula is based on the average premium in the state. The low premiums of Medicaid would decrease the average state-wide premium. This would result in net flows to the insurers with relatively sicker populations to decrease and those insurers would incur losses. This would likely deter many private insurers from entering a region with a permanent Medicaid competitor.

Covered California uses an active purchaser model so they will be able to mitigate some effects of a Silver Spamming strategy where the lowest cost structure insurer offers several plans priced within a few dollars of the benchmark Silver. Silver Spamming reduces the premium spread and increases the net of subsidy costs for healthy, price sensitive subsidized buyers.

Emma Sandoe and I also noted that Medicaid buy-in options attempt to solve several different problems and we must be specific in asking what problem is being addressed:

The primary reason that many state legislators are advocating for this policy is a hypothesis that it would increase the coverage options for people. More options would then lead to more people gaining coverage. The two most common reasons that people cite for their lack of coverage are the lack of any options and the lack of affordable options. Medicaid buy-in proposals address both options by providing another option at presumably lower-than-typical premiums. …

The critical premium here is the non-subsidized premium.

Politicians have pointed to “bare counties” as a rationale for Medicaid buy-in proposals. At various points in 2017, more than 100 counties faced the possibility of no insurers to serve the exchange population in 2018. Here, the goal of providing a Medicaid coverage option to higher-income families would give them the ability to purchase coverage where no individual market plan was previously available. Bare counties are an ongoing concern of state leaders and citizens as the community-rated, guaranteed-issued market of the ACA is being undermined by recent policy actions such as the elimination of the individual mandate and the proliferation of underwritten short-term policies.

The big question I have with tying Medicaid managed care (MCO) contracts to ACA Exchange participation is one of motivation. Most MCO’s have pre-exisiting low cost, narrow networks built in regions that they serve the Medicaid population and they have current knowledge and relationships that could be leveraged. Some insurers have elected to participate in the Exchanges and some have not. I am assuming that most MCOs are reasonably rationally run and that there is a specific reason why insurers with MCO contracts have entered or exited particular regions. Tying MCO participation to Exchange offerings may increase Medicaid costs.

I think that if California is interested in decreasing net of subsidy premiums for individuals in single insurer regions, they should soften the product restrictions. This would allow the monopoly insurer to offer two Silver plans instead of the single Silver plan. The second Silver should be a higher premium plan that leverages the subsidy formula.

I am sure that the analysis that California performs will address these points quickly and professionally as they have good people with a supportive technical infrastructure that is able to support creative policy making but those would be some of the initial questions… just what does the state mean by a “public option” and how does that play with the markets as they are currently constituted?