States that are pursuing Medicaid buy-in plans have considerable options in designing a plan to meet their goals. Buy-in plans will reflect key decisions on four major issues: 1) whether plans are sold on or off exchange, 2) whether plans are run by the state or a Medicaid Managed Care Organization, 3) who is eligible to purchase plans, and 4) which benefits and providers will be covered and at what payment rates. Our goal is to clarify the implications of these choices with respect to the goals and with respect to the tradeoffs each choice would involve.
Millions of Americans are eligible to buy health insurance on the individual market but remain uninsured. People often forgo coverage because the premiums and cost sharing of plans are unaffordable or are deemed too high in comparison to the benefits and provider network included in the plans. As federal health policy has shifted under the Trump administration to become antagonistic to the Affordable Care Act (ACA) and downplayed the importance of expanding comprehensive coverage, states that want to continue to expand comprehensive coverage and lower the cost of insurance are taking more active policy-making roles. Medicaid Buy-In policies are at the forefront of these state efforts. Broadly speaking, Medicaid Buy-In policies create mechanisms for people to purchase a state-run public insurance plan or to purchase private plans that are usually restricted to low-income populations.
Why Medicaid Buy-In Is in the Conversation Now
Policies that would expand opportunities for people to purchase public health insurance plans are not new ideas. Public insurance buy-in options featured prominently in the debates around the design and passage of the ACA (Halpin and Harbage 2010). Proponents argued that such policies would increase insurance market competition, leverage efficiencies and market power of existing public insurance programs, or some combination thereof (CBO 2009). Although no public option policy was adopted into the ACA, current discussions about Medicaid Buy-In build on the ideas that were advanced during the ACA's design.
Changes in the political and policy landscape over the past several years have created an environment where state Medicaid Buy-In plans are receiving considerable attention. During the 2016 Democratic primary, Hillary Clinton proposed making a public option available as a way to expand affordable health insurance while building on the ACA (Blendon, Benson, and Casey 2016). Following the 2016 Democratic primary election, increasing numbers of Democratic politicians have expressed amenability to policy options for health reform that include more liberal ideas of government involvement in health care following the popularity in the Democratic electorate of Sen. Bernie Sanders's Medicare for All proposal (Levitt 2018). At the same time, renewed interest at the state level led to attempts to establish a single-payer state-run system in Vermont, Colorado, and California (Fox and Blanchet 2015). These plans were halted in part due to the limits that states can have on reforms and the financial costs of establishing a system. But, as federal reforms to expand coverage faced little likelihood of passage in the years following the 2016 election with a Republican controlled Congress and executive branch, states may be poised to pursue their own health reform efforts.
Meanwhile, the ACA's coverage expansions have reduced the number of uninsured, but premiums and out-of-pocket costs have continued to grow. According to the Kaiser Family Foundation's polling of the remaining uninsured, 45% of people find insurance unaffordable and over half of these remaining uninsured are currently eligible for financial assistance either through premium subsidies to purchase insurance on the exchange or through the Medicaid expansion (DiJulio, Firth, and Brodie 2015; Garfield et al. 2018). As states consider options to address these problems, Medicaid presents a salient alternative for several reasons. First, Medicaid expansions have been the biggest contributor to the ACA's reductions in uninsurance. Second, Medicaid has the lowest per person costs and provides low out-of-pocket costs for beneficiaries, thus posing as a potential alternative to the rising costs to beneficiaries in the private health insurance market. Medicaid's lower costs stem from lower provider payments, limited networks, and prior authorizations and other limitations on services, which lower the overall cost of care but present additional complexities that will be discussed in this article.
Third, Medicaid is a broadly popular program. Medicaid has grown in both political prominence and in the number of people who interact with Medicaid programs over the past 54 years of the program's history. Medicaid originally covered narrow categories of medically frail and low-income people and is now covering one in every five Americans and is a common source of care for middle-class and traditionally nonwelfare populations. Medicaid has also gained political prominence as a potential vehicle for a potential expansion of coverage in part following the program's gain in political attention following the 2017 ACA repeal debate. The repeal proposals included a block granting of the Medicaid expansion and original Medicaid categories of eligibility. After the repeal bill failed to pass the Senate, Medicaid began to be referred to as a third rail of politics, and public support of the Medicaid program was seen as a reason for the defeat of the bill. However, the public polling on Medicaid in 2005 is nearly identical to the public polling on the Medicaid program in 2018, with 74% of the population with a favorable view of Medicaid in both years (Blendon et al. 2006; Kirzinger, Wu, and Brodie 2018). At the same time, the idea of offering a public option has remained popular among the public. The idea enjoyed support ranging from 63% to 83% in polling conducted during the 2009–10 health care reform debate (Silver 2009). The policy received favorable polling in 28 of 32 polls that were conducted during the health care reform debate (Umhoefer 2012). With the policy history and context laid out, we proceed to lay out the potential policy goals and policy design options of Medicaid Buy-In, and we describe potential implications of different design options for meeting different goals.
States may have several potential goals, which may or may not be stated outright, that a Medicaid Buy-In policy might aim to achieve. These goals include: (1) reducing uninsurance in the 100%–400% federal poverty level (FPL) population that is eligible for federal subsidies but remains uninsured, (2) reducing uninsurance in the >400% FPL population, (3) reducing premiums and/or cost sharing for the individual market population, and (4) creating a pathway to state single-payer insurance (Anderson and Sandoe 2018). States also have considerable flexibility in how they design a buy-in plan to meet these goals. As interest in Medicaid Buy-In grows, the advocates, policy makers, and candidates for office in states who back this policy should carefully consider the goals of a Medicaid Buy-In policy, whether a specific Buy-In policy is likely to meet those goals, and at what costs.
Buy-In plans need to make key decisions on four major issues: 1) whether plans are sold on or off exchange, 2) whether plans are run by the state or a Medicaid Managed Care Organization (MCO), 3) who is eligible to purchase plans, and 4) which benefits and providers will be covered and at what payment rates. Our goal is to clarify the implications of these choices with respect to the aforementioned goals and with respect to the tradeoffs each choice would involve.
Offer Medicaid Buy-In Plan On or Off the Exchange
A state could create an insurance plan to sell on the exchange or require an MCO to offer a product on the exchange. This would give people who are eligible to purchase coverage on the exchange another option to compare against the other private plans being offered. People under 400% FPL could use premium tax credits toward the cost of their premiums, but those above 400% of FPL would need to pay the full premium. The challenge here is whether these plans would be considerably cheaper than existing exchange plans, while complying with ACA regulations for actuarial value and network adequacy. To some extent, the ACA does contain provisions that keep private insurance premiums near the cost of care. The Medical Loss Ratio rules require insurers to reimburse beneficiaries if the premiums have been estimated to be significantly above the actual cost of medical care. The risk adjustment program spreads the risk of unhealthy beneficiaries among plans offered on and off the exchange and ensures that one plan cannot have significantly more medical losses due to unhealthy beneficiaries than the other individual market plans do. If the Medicaid Buy-In plans are not cheaper than existing plans despite these regulations, then currently uninsured people, especially those ineligible for subsidies, are unlikely to enroll in the Buy-In plan.
A state could alternatively decide to create a plan that is sold off the exchange and utilize savings from the ACA's premium tax credits to fund the plan. Offering an off-exchange plan provides additional flexibility to change the benefits that are offered, and to meet the requirement to be minimal essential coverage, so long as they are comparable to exchange-plan benefits. Similarly, the state has additional flexibility in the cost sharing and plan design that can facilitate value-based purchasing and benefit design and potentially lower premiums for consumers. The state may have to limit the covered benefits in order to make the plan lower costs, potentially making it less attractive for people to purchase. Existing state and federal laws limit the extent to which states can reduce benefits while still selling something deemed “insurance.” The financial risk of high medical costs would therefore land with the state, potentially making this option undesirable for states. States have the flexibility to extend financial assistance to people making over 400% of FPL for an off-exchange plan, potentially lowering the cost of insurance for this population and in turn increasing the rate of coverage for people in this income group.
If a buy-in plan were to utilize the existing exchange, or if an off-exchange buy-in plan does not conform to the ACA's rules on private insurance plans offered outside the exchange, the plan would likely require a 1332 waiver. Because the Departments of Treasury and Health and Human Services approve the request to offer coverage through a 1332 waiver, it is unclear whether the proposal would be politically feasible, currently. The most recent guidance from the Trump administration emphasized the desire by the administration to prioritize waivers that “foster health coverage through competitive private plans . . . over public programs.” (Department of Treasury and DHHS, 2019). This would make approval of a plan that does not rely on private plans more difficult. There are ways a state could design a plan using state funding and with limited scope to avoid applying for a waiver; however, the potential tradeoff is that the policy would not be broad in scope and effect.
MCO or Not
A state may decide to use an existing MCO in several ways. First, the state could require MCOs to offer plans in the exchange in all counties where the MCO offers a Medicaid plan. Because MCOs operate in most counties, this option would minimize the chance of having “bare counties,” or parts of the country that have no insurers offering coverage on the exchange. This option could reduce the cost of coverage more broadly by increasing competition because in some places a new plan would enter the market and encourage existing insurers to compete on price. However, if the requirement is that the MCO must offer plans statewide, this could deter insurers from operating in an entire state if the insurer only wanted to participate in relatively few counties. This could also deter other insurers from participating in markets that were only profitable without competition. Bare markets are often in rural areas where the cost of care is higher owing to the relatively few providers having market power due to network adequacy standards, along with smaller risk pools. A Medicaid MCO may therefore be unable to offer plans with lower costs than what commercial plans could offer, and the savings for consumers could be minimal.
Second, a state could also decide to create a state-run plan that mirrors the network and/or payment rates of the MCOs in the area. This plan would likely cost the state considerable resources in administration and staffing and could face criticism from MCOs for using proprietary information and could therefore deter participation by MCOs in Medicaid. Providers may also object to the networks or rates.
A state could alternatively create a new state-run plan that either uses newly defined benefits and payment rates or uses existing fee-for-service Medicaid rates. This option gives the state flexibility in providing benefits that meet the limitations of the state budget and plan design and the premiums and cost sharing could be calibrated to either encourage competition with private insurers or provide lower-cost, more generous coverage, depending on the state's goals. A relative disadvantage of this approach is that states may need to create new and costly capabilities to implement and manage such plans, whereas existing MCOs already have expertise and capabilities to administer and manage plans as well as respond to changes in the health care environment.
All of these options may make prices more affordable to consumers, particularly consumers over 400% FPL, by offering a plan that has restricted networks and lower provider payments. It could bolster current levels of competition, but it also risks chasing current insurers from the market, particularly in areas that have few health insurance options or currently have an MCO-like plan available on the Marketplace. If a cheaper buy-in option is the benchmark silver plan, this could mean that the value of the premium subsidy would decrease and people who receive subsidies could end up purchasing lower-value plans. States have shown an ability to manipulate these silver premiums to give people under 400% FPL the largest value premium subsidy. States could have the option to use state dollars to make premium subsidies more robust if the introduction of a Medicaid Buy-In plan were to lower the value of premiums.
Who is Eligible to Buy In?
Plans can be made available to different populations. First, they could be available statewide or only in areas where very few health plans are currently available. Similarly, Medicaid Buy-In eligibility could be limited to people that are currently able to purchase coverage on the exchange or it could be made available to people that have employer sponsored insurance (ESI). Opening up eligibility beyond those currently eligible for the exchange could greatly increase take up and state costs, if the benefits and cost sharing are more generous than employer plans. If the goal is to disrupt the current health insurance system this would align with that goal. However, because of the tax-free nature of ESI and employer contributions, the amount people with ESI currently pay for health care compared to the cost of care is not always obvious, and employers eliminating ESI offers does not always lead to a direct increase in wages. Therefore, the Medicaid buy-in plans could end up being or appearing more costly for consumers who previously had ESI. But to the extent that many ESI offers do not include an option for a lower-cost, narrow-network plan, this may appeal to those who would prefer to accept less provider choice for lower costs.
Several states already operate Medicaid Buy-In programs for people living with disabilities. These programs are designed to allow people with disabilities to return to work without losing the comprehensive Medicaid coverage for services such as long-term care that most private employer health insurance plans do not offer. Future Medicaid Buy-In plans would likely supplement rather than replace these plans. The plan benefits would likely be similar to the benefits available to people who currently are eligible for Medicaid expansion and would provide acute care coverage.
Benefit Generosity Decisions
States have two main decision points around the benefits to be offered in a Buy-In plan. One is related to whether provider payment uses Medicaid's existing payment infrastructure (either fee-for-service or MCO) or uses more generous payment rates, such as those of Medicare. By paying more, there is an opportunity to bring in additional providers that would enhance the network and possibly lead more people to enroll in the program. However, this could also increase the costs of premiums and/or cost sharing in response because people would be more likely to use the medical benefit if it were available to them, driving up health care costs and in turn the costs to consumers or the state. Another decision point is on coverage limits. Medicaid typically provides robust benefits with limited cost sharing but is balanced by extensive use of “supply side” approaches to controlling utilization and costs. States will likely have to design a benefit package for a population with greater economic flexibility that is able to spend more on care than traditional Medicaid beneficiaries and reduce overutilization through some limitations on benefits.
Tradeoffs to Achieving Goals
To achieve any of the aforementioned policy goals, Medicaid Buy-In policies will have to make policy tradeoffs. Providing a plan on the exchange may make plans available to people already eligible for exchange plans but would not make plans available to people currently ineligible for exchange coverage. States will have to balance the competitiveness of Buy-In plans to not drive out private plans while still working to keep costs low for beneficiaries. Making insurance plans available on the marketplace through MCOs might improve options for people currently eligible for insurance and may reduce premiums, particularly for those earning too much to be eligible for subsidies. This plan is unlikely to disrupt the market significantly for people who cannot purchase coverage in the marketplace, and proponents of single-payer insurance may see it as a step away from a state single-payer proposal. This is because the plan cements into place the existing infrastructure of the Marketplace and managed care plans and moves away from setting a path toward a government-determined set of benefits and payment rates and/or driving existing insurers from the market. Limiting buy-in eligibility to defined populations can be a mechanism of providing increased insurance to the subsidized and unsubsidized populations that are currently unable to access affordable options that might be more politically feasible and less expensive for states. But, limiting eligibility to smaller groups of people may go against the goals of increasing access to the broader population and/or moving toward state single payer. Offering new Medicaid Buy-In options that have relatively high provider payments could ensure that the plans have participation of providers, which would make the plans more attractive to consumers and may boost enrollment. But increasing provider rates above the current Medicaid levels could have the effect of increasing the cost of the Medicaid Buy-In plan, which would mean that the costs would be greater to the consumers and the goals of increasing enrollment would be limited. A balance of increased provider payments to make the plans attractive to beneficiaries and keeping costs down would achieve the goals of increasing coverage and reducing the costs to consumers. It is questionable whether there is political will or whether consumers will have much demand for a plan that would have lower provider payment rates. For each of these approaches the interests of providing low-cost plans are at odds with fulfilling the political priorities of vested interests.
States that consider Medicaid Buy-In may pursue very different versions of the policy, if only because different states may have different policy goals they are trying to achieve. States also face different sets of constraints, which include their ability to provide funding for a successful Medicaid Buy-In program and the political willingness to do so. And, states will need to consider whether their goals are best met by a Medicaid buy-in approach, or other approaches such as reinsurance programs, state-based insurance mandates, or direct subsidies for coverage. But Medicaid's federalized nature creates unique opportunities for states to consider creative Buy-In approaches that meet their goals and constraints.
From a national health policy perspective, though, it is unclear whether the federalized Medicaid program is the right vehicle for further health reforms. Since the Supreme Court found in 2012 that the Medicaid expansion would be the decision of the state, 14 states have not taken up the Medicaid expansion as of January of 2019 (KFF 2019). The debate in state legislatures and at the federal level has put many interest groups at the center of a partisan debate over the role of social welfare programs and government spending. Despite evidence that the Medicaid expansion could bring more federal money to state budgets, reduce uncompensated care costs, and improve the financial stability of hospitals and state safety net programs, state legislatures have been hesitant to expand. This hesitation is in part due to uncertainty that the enhanced federal funding will be available in future years and the reluctance of the Trump administration to support the Obama administration's ACA priorities, but it also reflects a historical pattern of some states being slow to adopt the Medicaid program altogether (Rose 2013). This difference in how states approach health reform has created a bifurcation in whether low-income people have access to health care coverage across the country. Expanding coverage through Medicaid Buy-In could have a similar effect of creating a system where coverage options differ even further based on state residency.
Beyond the specific actions that states choose to pursue around Medicaid Buy-In, however, these policies may foreshadow future federal policy making. Historically, health care reforms have been more likely to occur if the policy has been successfully passed and implemented at the state level prior to being implemented at the federal level (Beland, Rocco, and Waddan 2016; Thompson 2012). The ACA was modeled after the Massachusetts health care reforms; the Children's Health Insurance Program was established following successful expansions of coverage in several states including Pennsylvania; and the Medicare and Medicaid programs were modeled after existing state-run programs that provided health care coverage to low-income seniors. Medicaid Buy-In could follow this pattern and serve as a national model for insurance coverage expansion if proven successful at the state level.
Medicaid Buy-In proposals are an extension of the public option policy proposals from the 2009–10 health care reform debate and the political and policy realities of universal coverage and Medicare for All proposals that emerged in the 2016 campaign. Current Buy-In proposals raise the same questions of the role of private insurers, eligibility and availability of the policy, interaction with the current health insurance options, and benefit generosity that were debated over the ACA's public option. But, Medicaid Buy-In proposals have the added complexity of how the program would interact with the existing Medicaid program or whether it would interact at all. These questions will be answered as states begin to define and implement policies that meet their unique needs, and to the extent that Medicaid Buy-In policies are legislatively successful we would expect a wide variety of programs that uniquely meet the needs and political realities of each state, much like the current diversity in Medicaid programs. It is an open question as to whether the decisions made will accomplish the goals defined by the states. Not all paths to Medicaid Buy-In are likely to be successful, and the results will be instructive for ways to advance health insurance policy into the future.