California’s Policy Options: Making Individual Market Coverage More Affordable

California embraced the Affordable Care Act (ACA). Today, 93% of its residents have health insurance, the largest coverage increase of any state since the law was passed. This impressive achievement was possible partly because the ACA made health insurance coverage on the individual market more affordable for many. The individual market is where 2.3 million Californians go to buy a health plan when they can’t get affordable coverage at work or through a public program like Medi-Cal or Medicare.

Under the ACA, Covered California, the state’s health insurance marketplace, provides Californians who have low and middle incomes with federal financial assistance to reduce premiums and out-of-pocket costs. The ACA also provides important financial protections for individual market enrollees of all income levels, setting limits on their out-of-pocket expenses, requiring that individual market insurers cover a minimum share of medical costs, and banning insurers from limiting the amount of medical care covered in a year or a lifetime.

Despite Historic Progress, More Work Is Needed to Make Coverage Affordable

Approximately 1.2 million Californians eligible to purchase insurance through Covered California remain uninsured. When asked, the number one reason that these uninsured people give for not having coverage is they cannot afford it or find it too expensive. While data show that the exclusion of undocumented adults from Medi-Cal and ACA subsidies is the largest contributor to the uninsured rate in California, it’s clear that affordability is also a major driver.

And while health coverage affordability is a problem in many states, it is exacerbated by California’s high cost of living, which can make it difficult for many to budget for health care along with housing and other basic needs. The income limit for ACA premium assistance is four times the federal poverty level ($48,240 for an individual or $98,400 for a family of four). But this national standard does not take into account California’s high cost of living. When we factor in local costs, four times the federal poverty level is equivalent to five times that level in California, and six times that level in San Francisco.

With support from the California Health Care Foundation, the UC Berkeley Center for Labor Research and Education released a new report today detailing the affordability concerns of Californians seeking coverage in the individual market and outlining five options state policymakers could consider to address these concerns. These policies could move the state closer to universal coverage, reduce financial difficulties related to health costs, and improve access to care. They could also help to counteract the reduction in individual market enrollment and the increase in premiums expected to occur in 2019 as a result of the elimination of the ACA penalty for not enrolling in a health plan.

Key Findings and Policy Options

1. Californians with incomes in the Covered California premium subsidy-eligible income range were more likely to be uninsured and more likely to have paid the federal tax penalty for lacking insurance in 2015 than those with higher income.

• Policy option: California could add state premium subsidies to the federal ACA subsidies to further reduce enrollees’ premium contributions. Massachusetts, Vermont, and San Francisco have programs that provide additional premium assistance to certain eligible people.

2. Out-of-pocket costs that are high relative to income can be a barrier to care. More than one-third of Covered California single-person enrollees with incomes between $24,120 and $48,240 are covered by bronze plans with a $6,300 individual annual deductible. Most people in this income range lack the savings they need to cover this cost.

• Policy option: California could provide financial assistance to further reduce deductibles, co-payments, and other cost sharing for some Californians already receiving ACA cost-sharing subsidies, and the state could make more Californians eligible for this assistance. Massachusetts, Vermont, and San Francisco provide some people with assistance for out-of-pocket costs.

3. Some Californians who earn too much for ACA premium subsidies face premiums equal to more than 20% of their income. This especially affects those age 50 or older.

• Policy option: For those ineligible for ACA subsidies, California could limit the percentage of income spent on premiums by providing state-funded subsidies. This approach would target the financial assistance to unsubsidized individual market enrollees paying the highest share of their income on premiums.
• Policy option: California could establish a state reinsurance program that would lower premiums paid by unsubsidized individual market enrollees. However, this option would be less targeted to those who need the most help affording premiums because the amount of the resulting premium reduction would not be tied to income. Alaska, Minnesota, and Oregon have received federal approval to run such programs using a combination of state and federal dollars.

4. Some Californians have access to neither affordable employer-sponsored insurance nor affordable individual market coverage. Under the ACA “family glitch,” they are ineligible for subsidies through Covered California because they have an offer of employer-sponsored coverage through a parent or spouse, but the workplace health plan’s dependent coverage is unaffordable.

• Policy option: California could extend eligibility for state-funded premium and cost-sharing subsidies to children and spouses affected by the “family glitch.”

Under the ACA, California has substantially narrowed its coverage gaps. Building on that momentum, state policymakers could take additional steps forward by finding ways to make individual market health plans more affordable in the near-term. This would move the state closer to universal and affordable coverage, sooner rather than later.

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