In 2014, the Affordable Care Act (ACA) will significantly expand coverage options for uninsured, low-income Californians. Families with incomes between 139% and 200% of the federal poverty level (FPL) — about $29,000 to $44,000 for a family of four — earn too much to qualify for Medi-Cal. Instead, the federal law provides tax credits to help adults in this income range afford commercial coverage through the California Health Benefit Exchange.

The ACA offers states an alternative option: to create a Basic Health Program (BHP). If the state creates a BHP, people earning below 200% of FPL would be ineligible to participate in the exchange. Two CHCF-supported reports from the Institute for Health Policy Solutions examine the fiscal impacts to the state should California create a BHP.

The first report, Income Volatility Creates Uncertainty About the State Fiscal Impact of a Basic Health Program (BHP) in California, is based on an analysis by researchers John Graves and Jon Gruber of income-change data from the Survey of Income and Program Participation (SIPP). It concludes that a BHP would experience extraordinarily high turnover in enrollment. This suggests that the BHP would be disproportionately expensive to administer.

A short companion report, Fiscal Risks from Differences in BHP vs. Federal Tax Credit Income-Test Timing, notes that a BHP operating as a public program similar to Healthy Families or Medi-Cal would necessarily base subsidy levels on income determination at the time of application. Yet federal financial support for the BHP would be based on the tax credits the federal government would otherwise (in the absence of a BHP) expend on commercial coverage through the exchange. That sum would be reconciled based on year-end income and could end up substantially lower than the amount already assured BHP enrollees. The difference poses a potential fiscal risk for California.

Key findings from the reports:

• Income fluctuations over a three-year period would cause about twice as many Californians to experience shifts between eligibility for the BHP and coverage subsidized through the exchange as would experience shifts between Medi-Cal and the BHP. Many more would experience shifts in income-based eligibility across all three ranges.
• Only about 30% of California adults who meet the eligibility criteria for the BHP at the beginning of a year will have annual incomes at year-end in the BHP range.
• The number of Californians who would become income-eligible for the BHP over the course of a year is about four times larger than the number who qualify at year’s beginning.
• Changes in income eligibility could compromise efforts to assure continuity of coverage and care for the many people whose incomes will change, and could also impose fiscal risks for the state of California.

Both reports are available as PDF downloads through the External Links below.