Health Coverage Policy Explorer: Insights

What insights can someone pull from the Health Coverage Policy Explorer?

There are more than 500 scenarios to explore in the tool, but here are seven insights to consider:

1) To Optimize Cost and Coverage, the 90% Enhanced Federal Funds Match Matters.

If Texas wants to maximize the number of Texans who have health insurance at the lowest cost to the state budget, legislators need to pursue a Texas solution that qualifies for the enhanced federal 90% match. To do this, Texas must increase income eligibility for Medicaid to 138% of the federal poverty level (FPL). For a family of four in 2020, that’s $36,156.

By obtaining this funding, Texas can provide coverage to more than 700,000 additional Texans at 10% of its cost and shift more of the costs for existing Medicaid recipients onto the federal government. This policy combination makes the program virtually budget neutral.

This formula reflects the offsets of shifting Texas’ existing spending at a 60/40 split to a 90/10 split. Texas will need to pay 10% for some new people to be covered by Medicaid, but other state spending can be shifted to the 90/10 split. Shifted spending at the current 60/40 generates a 30 percent savings to the state. Other state spending at 100% will generate a 90% savings.

For instance, increasing eligibility to 138% of the federal poverty level and reforming Texas’ ACA Marketplace will allow Texas to provide health insurance coverage to 1 million more Texans for under $2 per person per year because the federal government will send an additional $5.3 billion of our federal taxes back to Texas each year.

2) Without Negotiating a Lengthy Federal Waiver with a New Administration, Texas Can Lower Costs on the ACA Marketplace, Increase State Revenues, and Increase Coverage

Texas legislators can act now to increase the federal subsidies flowing to the state through the ACA Individual Marketplace like Virginia and a dozen other states — without the need for a lengthy federal negotiation and at no net cost to the state budget. Actions could include beginning to operate a State-Based Exchange for health insurance and implementing a Focused Rate Review process. Together, these steps can cover about 275,000 additional Texans while saving the state $85.4 million per year by 2025 and bringing in an additional $1.3 billion in federal money.

By running a state insurance exchange, Texas could receive $200 million in insurance fees that currently go to the federal government, while providing service at a lower cost. Focused Rate Review ensures that gross premiums for the benchmark plan (from which subsidies are calculated) are increased to reflect actual program costs. This, in turn, will increase the amount of subsidies that Texans are eligible for, so that net premiums for benchmark plans remain the same. These increased subsidies can also be applied to non-benchmark plans, resulting will in lower net premiums for those non-benchmark plans and attracting more consumers to the insurance marketplace.

3) Innovative Options Could Help Resolve Flaws in the ACA Marketplace

One flaw in the current ACA Marketplace is what’s known as the “death spiral”: the high cost of premiums discourages younger and/or healthier people from purchasing insurance on the marketplace. Therefore, the marketplace disproportionately serves people in poorer health, often with chronic conditions that are more expensive to treat, which causes premiums to rise further, which pushes additional healthy people out of the market, resulting in even higher premiums. The death spiral has become so pronounced that only the sick and heavily subsidized have remained. Premiums have begun to stabilize, but only because most of the less subsidized and unsubsidized healthy people have fled the market. Therefore, Texas must improve market dynamics to attract more young and healthy adults into the risk pool.

Through the 1332 Waiver process, in conjunction with creating a state-based exchange, Texas could take control over how federal subsidies are allocated to make insurance plans more attractive to younger Texans and place downward competitive pressure on insurance premiums. These two factors would bring down overall premiums for everyone. Our model shows that this strategy could add about 200,000 people to the ACA Marketplace and save the state $63.8 million by 2025. Also, it could create a long-lasting “virtuous cycle” (the opposite of a “death spiral”) where the positive impacts of a healthier pool of enrollees will continue to attract additional healthy people.

However, this strategy is not without risk. Federal funding for subsidies is capped at a “baseline” amount. If the waiver improves Texas’ state-based exchange too much, which attracts too many new enrollees to the marketplace too quickly, Texas taxpayers could be on the hook for higher premium subsidy costs. It may be possible to mitigate this risk by negotiating with the federal government to allow Texas to cap enrollment or adjust subsidy amounts in future years to reduce the rate of enrollment growth. An additional risk is that the state does not currently have the infrastructure to administer such a plan and would need to develop it. Despite the risks, the potential for long-term positive impacts is large. While early impacts may not be as dramatic as other options, the structural reforms put in place lay the foundation for long-term sustainable growth and stability of the individual insurance market.

4) Reinsurance Pools Offer Surprisingly Little Value to Texas Taxpayers

Reinsurance pools seek to reduce the cost of gross insurance premiums (the price of premiums before they are subsidized) in the ACA marketplace by paying for claims from individuals with high-cost conditions or just all high-value medical claims. The goal is to benefit people ineligible for federal subsidies by reducing their gross premiums — without affecting subsidized premiums. These lower gross premiums should attract more people into the marketplace who otherwise would be priced out of insurance. High-cost individuals or claims could be partially funded with the savings from reduced federal subsidies, though the state would be on the hook for the remaining balance.

However, as the Explorer shows, reinsurance pools create minimal impact on Texas’ uninsured rate, because they require a significant administrative burden but do not help more people to sign up for insurance. As the Explorer shows, a reinsurance pool with the goal of reducing gross premiums by 5% by removing the cost of individuals with certain high-cost medical conditions from the regular insurance pool would cost the state nearly $150 million per year by 2025 while only helping about 10,000 Texans find coverage. A more aggressive reinsurance pool that seeks to reduce gross premiums by 25% would provide a better value but at a much higher cost with approximately 52,000 additional Texans expected to sign up at an increased state cost of $212 million.

5) Costs and Benefits Differ Depending on the Year

The 2021 legislative session will produce a budget for fiscal years 2022 and 2023. Many benefits of coverage options modeled in the Health Coverage Policy Explorer may not be realized immediately, meaning that the next biennium’s actual costs could be higher or lower than projected ongoing costs once programs stabilize.

For example, any policy that requires federal approval can require a slow and painstaking negotiation. Other options, such as a focused rate review process, can also take considerable time, as stakeholders design new plans and educate the public on the new health care coverage options. In contrast, a traditional full Medicaid expansion (to 138% of the Federal Poverty Level) can occur more rapidly.

As a means of standardization, our analysis looks to 2025 as the point when costs and benefits begin to stabilize for the long term.

6) To Maximize Covered Lives at Minimal State Cost, “All of the Above” Should be on the Table

The path to having the most people with health coverage at the lowest taxpayer cost requires mixing and matching various strategies captured in the Health Coverage Policy Explorer. For example, if the state pursued the following options:

a. Increase Medicaid eligibility to 138% Federal Poverty Level, either through traditional Medicaid expansion or an 1115 Medicaid Waiver negotiated with the federal government to improve the Medicaid program;
b. Conduct focused rate review at Texas Department of Insurance; and
c. Establish a state-based health insurance exchange;

The net effect would be about 1 million newly insured Texans with a net state savings of over $40 million by 2025. Even a scaled-back version, including a Medicaid Program that qualifies for the Enhanced 90% Federal Match and focused rate review process, could see nearly a million newly insured Texans for just a net state cost of $1.6 million total per year by 2025 ($1.70 per newly insured Texan per year).

A comprehensive approach, combining choices from all three sets of policy options, can add even more Texans to the insured rolls. If the state pursued the following four options:

a. Increase Medicaid eligibility to 138% federal poverty level, either through traditional Medicaid expansion or an 1115 Medicaid Waiver;
b. Conduct focused rate review at the Texas Department of Insurance;
c. Establish a state-based exchange; and
d. Optimize subsidies through a 1332 Waiver;
The net impact would be 1.04 million newly insured Texans with net state budget savings of $43 million by 2025.

7) Fully Deploying the Texas Coverage Toolkit Still Leaves Room for Additional Policy Action

None of the coverage policy options available to Texas is a silver bullet. Even under the most optimistic scenarios (regardless of cost) with the policies we’ve modeled, nearly 14% of Texans would remain uninsured. We know many Texans who are eligible for assistance will not sign up, but we don’t know exactly why. This remains an area for additional study.

While increasing insurance coverage is an important policy action, Texas must also address health care affordability and access. Many Texans, both insured and uninsured, do not receive necessary care due to cost or the lack of available care options.

Before the pandemic, 56% of Texas households with insurance, and 75% of households without insurance, reported skipping or postponing health care because of costs. Further, families on Medicaid have difficulty finding doctors who accept new Medicaid patients. Also, families with private insurance struggle to afford out-of-pocket expenses such as high deductibles and co-pays. And accessible options for primary and emergency care are often lacking for families who live in rural areas or more impoverished neighborhoods.

A competitive marketplace would make health care more affordable, and it would give Texans options to regain control over their health care expenditures. A critical first step is making information on price and quality more transparent so Texans can make informed choices. The state also should remove bureaucratic barriers to increased utilization of telemedicine services and increase options for in-person visits by allowing nurse practitioners to practice independently in areas that are chronically short of health care providers.

These areas all work together to increase Texans’ access to affordable care. Lower health care prices will cause more people to get the care they need, which will keep Texans healthier and reduce the need for more expensive interventions later on. And they will bring down the cost of insurance, which will enable more people to get covered.

Our goal at Texas 2036 is to ensure all Texans can afford and access the care they need, when they need it. Learn more about Texas 2036’s complete legislative agenda on healthcare.

Where does Texas go from here?

In 2021, Texas legislators have one big opportunity and hundreds of options to make significant improvements in health insurance coverage for Texans. That said, none of these policies is a silver bullet. Even under the most optimistic scenarios under the policies we’ve modeled, nearly 14% of Texans would remain uninsured. Increasing insurance coverage is an important tactic, but we need to do more to increase health care affordability and access.