OFFICE OF FISCAL ANALYSIS

Legislative Office Building, Room 5200

Hartford, CT 06106 (860) 240-0200

http: //www. cga. ct. gov/ofa

sSB-1204

AN ACT ESTABLISHING THE CONNECTICUT HEALTH INSURANCE EXCHANGE.

OFA Fiscal Note

State Impact: See below

Municipal Impact: See below

Explanation

Insurance Exchange

This bill creates the Connecticut Health Insurance Exchange (the Exchange). The Exchange is a quasi-public agency tasked with implementing the insurance exchange requirements of the federal Patient Protection and Affordable Care Act (PPACA).

The Exchange will have ongoing operational costs that will depend upon the administrative structures that are developed by the board. For purposes of comparison, the Commonwealth of Massachusetts (with roughly twice the population of Connecticut), established a health insurance exchange in 2007. Initial operating costs were $19. 5 million in the first year and $29. 9 million in the second year. However, the Massachusetts Exchange is tasked with administering a publically subsidized health insurance program, which is outside the scope of this bill. Therefore, the cost of the Connecticut Exchange is likely to be proportionately less.

The bill specifies that the Exchange can charge assessments or user fees to health carriers to generate necessary funding to support operations. Connecticut has already received an exchange planning grant from the federal government of $996,848. Under PPACA, additional federal funds are available to assist states in the implementation of the health insurance exchanges. A consortium of the six New England states has already been granted $35. 6 million to develop an on-line gateway to health insurance options.

It is anticipated that the federal grants available will fund the implementation of the Exchange. Once established, it is assumed that the Exchange will charge any fees necessary to fund its operations.

Agencies will incur minimal costs, estimated to be less than $5,000, associated with mileage reimbursement of 51 cents per mile for agency staff (who seek such reimbursement) participating on the Exchange Board.

Medicaid for Low Income Adults

Section 18 of the bill expands the Medicaid LIA coverage group, effective January 1, 2014. Currently, childless adults are covered under this group with incomes up to approximately 68% of the federal poverty level (FPL). This bill raises this income limit to 133% FPL, as required by PPACA. PPACA requires states to submit an amendment to the state Medicaid plan to implement this expansion. As the bill is codifying an existing federal mandate, there is no direct fiscal impact from this language. 1

Basic Health Plan

Section 18 of the bill also requires the Department of Social Services (DSS) to implement, on or after January 1, 2014, the Basic Health Plan (BHP) option in accordance with PPACA. This requirement will result in a net additional annual state cost of between $184. 4 million and $425. 2 million, and will cover an estimated 80,250 new individuals. Details on the various parts involved in this estimate appear below.

This proposal will create a new state program, outside the federally mandated insurance exchanges, for adults with incomes between 133% FPL and 200% FPL. This section specifically moves parents within this income band who are current enrollees in the HUSKY A program to the new BHP. The section specifies that all benefits, cost sharing requirements and consumer safeguards in place for the Medicaid program shall apply to the BHP.

The fiscal impact to the state from these provisions is twofold. First, the state will realize a savings under the HUSKY program as parents with incomes in excess of 133% FPL are disenrolled. It is estimated that there will be 31,000 parents in this category by 2014, with an annual cost per case of $4,700. 2 Therefore, the state will realize net annualized savings of $72. 9 million (after 50% federal reimbursement).

The new BHP program is expected to serve 111,250 clients when fully annualized. 3 The BHP is required to have the same benefits and cost sharing as the Medicaid program. Although the costs for the clients transferred from HUSKY are anticipated to be consistent, it is not known what the cost profile of the new, non-HUSKY enrollees will be. This new population is likely to include individuals with significantly higher cost profiles. 4 It is assumed that the cost per case for the non-HUSKY enrollees in this new program will be $6,000 by 2014. Therefore, the gross annualized program cost is anticipated to be $627. 2 million. Should the cost profile of the non-HUSKY BHP enrollees be similar to that of the LIA population discussed above ($9,000 annually), the gross annualized program cost would be $868. 0 million.

Under PPACA, the state will receive a federal subsidy for those residents enrolled in the BHP. This subsidy is equal to 95% of what the federal government would have spent on premium tax credits and cost sharing reductions that BHP enrolled individuals would have been eligible for had they purchased private insurance through the State Insurance Exchange. The tax credits and cost sharing reductions are based on the “Silver Plan” on the insurance exchange. At this time, the federal government has not stated what the essential benefit package will be, which will dictate both the cost of the Silver Plan and the value of the associated federal subsidy.

For the purposes of this analysis, the cost of the Silver Plan is estimated to be $4,500 annually. 5 Based on maximum client contributions included in PPACA, it is estimated that the federal subsidy available for the BHP will be $3,325 annually. 6 Compared to the $6,000 to $9,000 estimated cost for the non-HUSKY BHP, there exists $2,675 to $5,675 annual cost per person that is not covered by the federal subsidy. Given the bill's requirement that the BHP have the same cost sharing as the state Medicaid program (which is currently $0), it is assumed that the state must pay the unsubsidized costs for all BHP enrollees. Based on the enrollment and cost assumptions above, the new BHP benefit for all clients would result in a net state cost of between $257. 3 million and $498. 0 million annually.

The total state impact from implementing the BHP is summarized in the following tables:

Basic Health Plan – HUSKY A Impact

 

Clients

State Cost per year

Impact

Remove clients from HUSKY A

-31,000

$2,350

-$72,850,000

HUSKY A BHP Cost

31,000

$1,3757

$42,630,000

Net Savings

   

-$30,220,000

Basic Health Plan - Non-HUSKY Impact

 

State Cost – HUSKY Level

State Cost – LIA Level

Clients

80,250

80,250

Per Person Cost

$6,000

$9,000

Non-HUSKY BHP Cost

$481,500,000

$722,250,000

Per Person Federal Subsidy

($3,325)

($3,325)

Non-HUSKY BHP Federal Subsidy

($266,831,250)

($266,831,250)

Net State Cost Non-HUSKY BHP

$214,668,750

$455,418,750

 

Cost Less HUSKY A Savings

$184,443,750

$425,193,750

Basic Health Plan Account

Section 19 creates a non-lapsing basic health program account from which the costs to operate the BHP are to be paid by DSS. It is assumed that the federal BHP subsidy would be deposited in this account. However, it is not clear what the source of funds is for the state cost for the unsubsidized portion of the BHP benefit identified above. Presumably, a General Fund appropriation would have to be made.

The Out Years

The relevant out year impacts from this bill are included in the analysis above. The proposals in the bill are closely tied to federal reform efforts, and are likely to be affected by regulations and changes that are still forthcoming from the federal government.

1 It is estimated that by 2014, there will be approximately 81,000 enrollees in the existing LIA coverage group, at a cost of $728 million annually. Based on this enrollment pattern, the expansion to 133% FPL would add an additional 32,000 clients, with annual costs of $288 million.

Under PPACA, the cost of the expansion of coverage to childless adults is fully covered by the federal government until January 1, 2017. Therefore, there is no cost to the state for this expansion until that date. After January 1, 2017, the federal government's share gradually declines from 100% to 90% by 2020. Therefore, the state's cost for this expansion grows from $8. 9 million in FY 17 to $32. 8 million in FY 20.

2 Based on DSS cost and caseload data for the adult 133% - 185% population. Costs inflated at 5% annually.

3 This assumes 31,000 former HUSKY A parents and 80,250 non-HUSKY adults. According to Connecticut Department of Revenue Services data, there were 225,000 tax filers with incomes between $14,000 and $22,000 in 2009. The U. S. Census Bureau estimates that 29% of individuals with incomes under $25,000 are uninsured. This would yield approximately 65,250 individuals. It is further assumed that 15,000 of those in this income bracket who currently have insurance would transition to BHP, for a total of 80,250 non-HUSKY BHP enrollees.

4 A portion of high cost Medicaid clients who currently spend down to Medicaid eligibility are likely to instead spend down to the BHP.

5 Although the cost of the Silver Plan has not been established, the Congressional Research Service and Congressional Budget Office have used $4,500 as a general estimate. The final average cost of the Silver plan will be dependent upon the benefit plan as well as the cost profile of the individuals enrolled.

6 PPACA includes maximum client premium and cost sharing for Exchange products, which vary by income limit. Based on these requirements, this analysis assumes that a client's share of the premium would average $1,000 (derived from Kaiser Family Foundation estimates). The federal subsidy available for the BHP would be 95% of the federal share of the cost of the Silver Plan. Therefore, the federal subsidy would be $3,325, which equates to ($4,500 - $1,000)*95%. It should be noted that the federal subsidy will not consider any state health mandate costs that are in excess of the essential benefit package. Also, PPACA indexes the federal subsidy to the Consumer Price Index (CPI). If the average cost of the Silver plan increases at a higher rate than the CPI, the real value of the subsidy will decrease over time.

7 State HUSKY BHP cost is the cost of care ($4,700) less available federal subsidy ($3,325)