Two thirds of people who become newly insured on state health insurance exchanges (HIX) under the Affordable Care Act (ACA) will not have had coverage. More than one third of them will have had no usual health care provider and no recent checkup. Such estimates suggest the people who enroll in HIX plans will be less healthy and more risky to cover, a problem called adverse selection, which would increase premiums and discourage plans from participating in the exchanges.

Basic Health Plans (BHPs), sometimes called Basic Health Programs, are one way states can manage risk in exchange plans. Basic Health Plans are state-run, subsidized insurance for people with incomes 139 percent and 200 percent of the federal poverty level (FPL). They are funded by federal subsidies those people would have received for plans on the exchange. A BHP could insulate HIX plans from some of the most risky new enrollees under the health reform law, but in doing so it could suffer from adverse selection.

Lessons from Massachusetts
Massachusetts’ Commonwealth Care program, established in 2006, is similar to a BHP, and a recent brief draws lessons from CommCare for states who are weighing whether to establish a BHP to manage risk for qualified health plans in health insurance exchanges.

Initially, CommCare struggled with adverse selection. Its first enrollees were older and more expensive than the overall group of people who were newly eligible for the plan. But risk selection improved after the Massachusetts individual mandate went into effect and after the state started enrolling people automatically and providing higher subsidies for eligible adults.

When CommCare eliminated premiums for new enrollees with incomes from 100 to 150 percent FPL in 2007, new enrollees were nearly twice as likely as current ones to forego covered medical services during their first six months. When automatically enrolled, 42 percent of new enrollees incurred no medical expenses in the first six months. While new enrollees continued to cost less since 2007, they were not as low as those first entering through the introduction of automatic enrollment.

The report comes from the Robert Wood Johnson Foundation (RWJF) and the State Health Access Assistance Center (SHADAC). Deborah Chollett and Allison Barrett from Mathematica Policy Research, and Amy Lischko from the Tufts University School of Medicine wrote the brief.

Because BHPs involve the state taking much more direct reponsibility for the 139-200 percent FPL population, the BHP option allowed under the ACA is viewed differently around the country.  It tends to be a popular idea among liberal health policy wonks.  However, it has not caught on much in states overall, especially states with Republican governors who have little desire to expand the role of state government.