Insure the Uninsured Project: Opportunities for California Under Section 1332 of the Affordable Care Act

This issue brief from the Insure the Uninsured Project describes some potential options for the state of California if it chooses to apply for a State Innovation Waiver through section 1332 of the Affordable Care Act (ACA).

California could seek a section 1332 waiver to achieve the goals of greater consumer affordability and predictability in consumer costs. With this opportunity, the State could restructure the sliding scale for subsidies, with the goal of smoothing abrupt increases in premiums and cost sharing as households’ income increases. For example, adding cost-sharing subsidies that phase out above 250% federal poverty level (FPL) and premium subsidies that phase out between 400% and 500% FPL would make those transitions less jarring for households.

Covered California could offer additional affordable plan choices to consumers. A section 1332 waiver could include an “enhanced Bronze” plan. This option would offer sliding-scale, cost-sharing reductions that are parallel to the enhanced Silver plans, but with actuarial values that are 10% lower than the enhanced Silver option.

California could also attempt to eliminate the “family glitch” through a section 1332 waiver. Currently, the standard for determining whether or not an offer of coverage is affordable is the cost of self-only coverage. If an offer of self- only coverage (and not family coverage) is greater than 9.5% of household income, then it is deemed unaffordable, allowing the individual who was offered employment-based coverage to access premium and cost- sharing subsides through Covered California. At the same time, if an individual worker’s self-only coverage is less than 9.5% of his/her household’s income, and the worker’s employer simultaneously offers family coverage that exceeds that share of household income, even by a considerable amount, that offer of family coverage is considered affordable. This rule prevents the family members from accessing premium and cost-sharing subsidies to purchase a Covered California plan even if the offer of family coverage is very expensive to the household.

California could also expand the tax credit for small business to provide greater assistance for those that would like to offer coverage. The ACA’s tax credit for small businesses can currently cover up to 50% of premium costs and is available for two years. Qualifying employers must have fewer than 25 employees, average annual employee wages of less than $50,000, and also pay for at least 50% of the cost of premiums for employee coverage through the SHOP exchange. The State could elect to extend the credit to businesses with more employees and/or for a longer period of time to provide stronger incentives for small employers to offer coverage.

California could finance more generous subsidy structures by establishing an additional tax on the most costly health plans, as the ACA will begin to do in 2018. The ACA’s “Cadillac Tax” is a 40% excise tax that will apply to plan costs that exceed $10,200 for individual plans and $27,500 for family plans. A California tax could apply to more plans, by lowering the threshold at which a tax would begin to apply to plan costs. Such a tax would serve to curb increases in plan costs over time, while making coverage more affordable for more households and allowing more people to purchase coverage.

States could also increase or decrease the number of businesses that would be required to offer coverage by adjusting 50-employee threshold currently in place under the ACA. California would also have the ability to broaden or constrict the range of employees to whom businesses would have to offer coverage. For example, the current threshold for full-time employment is 30 hours of work per week. The state could raise or lower that number of hours, which would result in a greater or smaller number of employees receiving an offer of coverage.

Instead of requiring that businesses offer coverage or pay the penalty defined by the ACA, the state could structure employer requirements differently. The State could require that a certain portion of a firm’s payroll be dedicated to health care either through coverage or a “fair share” contribution—a “play or pay” model similar to that of Healthy San Francisco. A portion of the funds from fair share contributions might also be set aside to fund additional premium assistance for individuals and families buying insurance through Covered California.

California could design reforms that would blend the programs so that plans could more easily offer coverage in both Medi-Cal and Covered California. A blended or more unified Medi-Cal and Covered California with a uniform eligibility standard between the programs might allow family members to obtain coverage under the same plan, and if plans offer coverage in both programs, families could keep their provider and plan if their income eligibility churns between them. Policy alignments that allow more plans and providers to participate in both programs would serve to increase continuity of care.

California could use a section 1332 waiver to design even broader market alignment by bringing the entire individual and small-group commercial markets inside Covered California, and also allow large employers to purchase through Covered California, or potentially bring the entire non-self-insured large group commercial market within the marketplace. Some advocates have promoted a section 1332 waiver as a means of allowing undocumented immigrants to purchase Covered California plans, although they would have to do so without federal subsidies.

A more unified marketplace across health care payers would also allow for a more coordinated and concerted push toward higher quality services and cost-containment. If Medi-Cal and Covered California became more unified administrative entities, they would be able to jointly steer the commercial and Medi-Cal delivery systems toward value with parallel or complementary value-based incentives and quality improvement programs.

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