States deciding whether to create a Basic Health Program (BHP) are worried it could undercut their health insurance exchanges, create a new entitlement program, and could carry financial risks if federal funds don’t cover the costs, according to a series of briefings on state progress in implementing the Affordable Care Act.

Most states have not yet decided whether to create a Basic Health Program, which they have the option to offer for people with incomes from 138 percent to 200 percent of federal poverty level. Those people would not be covered by the ACA’s Medicaid expansion but might have limited access to employer-based coverage. They would also be eligible for subsidized coverage through insurance exchanges.

In its reports, the Urban Institute tracked the progress of Minnesota, New Mexico, and Virginia as they implement the health reform law, including their deliberations on whether to create BHPs. None of the three states has decided whether to administer a BHP, though Virginia and New Mexico seemed the least likely to do so.

The states’ concerns were similar:

  • Would mean a further expansion of public health insurance, which is an unpopular prospect in Virginia and which New Mexico’s current governor is unlikely to support.
  • Would result in fewer people enrolling in the health insurance exchange (HIX), since the BHP would cover people who otherwise might have enrolled in subsidized coverage through the exchange. Low enrollment in the exchange, the Urban Institute writes, “could threaten its viability in terms of risk, plan participation, and premiums.” In New Mexico officials estimated that half of the potential exchange enrollees would be eligible for the BHP.
  • Risk that federal payments would not cover the full cost of the BHP. Those payments are worth 95 percent of the value of subsidies BHP enrollees would have received through the exchanges.
  • Providers concerned they would be paid Medicaid rates, which are low, for an even larger proportion of patients than they would without the BHP.
  • Costs associated with administering the BHP.

Officials in Minnesota, meanwhile, were more enthusiastic about creating a BHP because it would allow the state to shift adults currently covered under MinnesotaCare – public insurance for low-income people that goes beyond Medicaid – to the BHP. As a result, the state would eliminate its spending on those populations without reducing their coverage. However, officials still held many of the same concerns as their counterparts in New Mexico and Virginia, and were undecided about how to proceed as of the Urban Institute’s inquiry. “Ultimately, some officials believed that the determinative question will be whether BHP implementation would favorably or unfavorably affect the state budget,” the report said.

A separate brief by the Urban Institute lists reasons states might consider a BHP, including:

  • A state-purchased plan could provide richer benefits to those eligible under the exchange.
  • A BHP could be designed to reduce the negative effects of churning (when people switch frequently from eligibility and ineligibility for Medicaid and subsidized coverage in the exchange).
  • A BHP could specifically address the needs of low-income people in its selection of providers and add-on services, such as transportation or mental health benefits.

In general, it’s safe to say that while the Basic Health Program option is popular with liberal groups, it presents too many political, fiscal, programmatic, and administrative issues to be a viable choice for the vast majority of states.

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Kip Piper is a Medicare, Medicaid, and health reform consultant, speaker, and author.  He advises health plans, health systems, states, drug and device manufacturers, and investment firms throughout the U.S.  For more, visit KipPiper.com.  Follow on Twitter at @KipPiper and connect with Kip on LinkedIn.