The Basic Health Option under Health Reform: Recommendations for California

The Patient Protection and Affordable Care Act (ACA) gives states the option to establish a Basic Health program that provides health coverage for certain low-income residents instead of covering them in a Health Insurance Exchange. This Issue Brief discusses how low-income Californians can benefit from a Basic Health program, and recommends integrating the Basic Health program in California as closely with Medi-Cal as possible.

Section 1331 of the ACA gives states the option to establish a Basic Health program.1 This option permits states to offer one or more ?Basic Health? insurance plans to individuals with incomes between 133% and 200% FPL2 instead of offering them coverage through a Health Insurance Exchange.3 Plans must provide at least the essential health benefits, and may only charge premiums and cost-sharing within certain limits. Plans may be offered by licensed HMOs, licensed health insurers, or some other network of health providers formed for this purpose.  States electing to offer coverage through the Basic Health option will receive 95 percent of the federal funds that would have been spent on tax credits and cost-sharing subsidies for Basic Health enrollees if they had been covered through the Exchange.

The Basic Health presents an important opportunity for California because, if implemented carefully, it could help the state provide affordable, seamless coverage to low-income people.4 A well-designed Basic Health program in California could reduce the number of uninsured residents by making coverage more affordable for lower income people and reducing the administrative burden and interruption in care associated with having to change plans.5 As California decides whether and how to implement the Basic Health option,6 it is important that the Basic Health option be implemented in a manner that will protect the needs of low-income consumers.

A successful Basic Health program in California should be completely integrated with Medi-Cal, such that Basic Health and Medi-Cal would operate as one program.7 As such, Basic Health would use the same benefits package, delivery systems, and cost- sharing as Medi-Cal. It would look just like Medi-Cal on the ?front-end.? A Basic Health enrollee would get a card that says ?Medi-Cal,? would use the same providers as other Medi-Cal enrollees, and access the same plans.  On the back end, the state would separately track Basic Health enrollees, in order to ensure that their expenses are paid for out of the Basic Health trust fund, as opposed to the federal matching system used for other Medi-Cal enrollees.

Integrating Basic Health with Medi-Cal is critical because the two programs will essentially serve the same population. Indeed, many Basic Health enrollees currently rely on Medi-Cal, or Medi-Cal-like programs to provide some or all of their care.  Some potential Basic Health enrollees are already receive Medi-Cal funded limited-scope health care services through, for example, the Breast and Cervical Cancer Treatment Program (BCCTP), the Family Planning, Access, Care and Treatment (Family PACT) program, or the Tuberculosis Program. Other potential Basic Health enrollees receive health care services through California?s Low Income Health Programs (LIHPs), an 1115 waiver program that offers adults ineligible for Medi-Cal a full range of benefits that is less comprehensive than the benefits package offered in Medi-Cal.  Integrating Basic Health with Medi-Cal will allow California to continue serving this population as seamlessly as possible, without major shifts in cost-sharing or provider networks.

Moreover, going forward, enrollees are likely to move between Medi-Cal and Basic Health frequently. A recent study indicates that, nationally, about half of individuals and families with income below 200% FPL will experience changes that shift their eligibility between Medicaid8 and Basic Health in a year.9   These changes in program eligibility are called ?churning.?10   If the programs are not integrated, churning between Medi-Cal and Basic Health may lead to a variety of problems for low-income Californians.  First and foremost, churning can cause people to go without needed health care services for a variety of reasons, for example because the cost becomes too expensive, a service is no longer covered, or a trusted provider is not included in their new plan?s network.  In addition, churning may cause families to be enrolled in different plans, making care coordination difficult.  Finally, people may become confused when forced to navigate completely different systems for obtaining coverage when their life circumstances change.  Thus, integrating the Basic Health option with Medi-Cal is critical to minimizing breaks in coverage and gaps in care and to increasing the potential for low-income health care consumers to experience seamless and simplified coverage.

Even if Basic Health is not integrated with Medi-Cal, it could offer some real benefits to consumers in the form of reduced cost-sharing and a more robust benefits package than what they would be able to purchase in the Exchange.  A well-designed Basic Health program should also facilitate families obtaining coverage through a single health plan, making care more accessible, seamless, and affordable for them.  But if establishing a Basic Health program forces people to move between three separate health coverage programs?Medi-Cal, Basic Health and the Exchange?those gains may be outweighed by the additional administrative burden people will encounter if circumstances change and make it much more difficult for people to receive care continuously from their providers.11   In addition, integrating Basic Health with Medi-Cal offers California the opportunity to ensure that Medi-Cal participation remains attractive to providers by enticing them with slightly higher payment rates in Basic Health.  Thus, a properly designed Basic Health program should offer the same cost-sharing and benefits as Medi-Cal and  seamlessly facilitate enrollees? staying with their providers  and plans as their circumstances shift them between Medi-Cal and the Basic Health program. A poorly designed Basic Health program will only increase the amount of churning by creating two points of discontinuity instead of one.