California: More details on Gov. Newsom's ACA subsidy expansion proposal

Earlier this week, newly-sworn-in Governor Gavin Newsom announced several proposals for improvements to California's implementation of the Affordable Care Act along with some other important healthcare-related measures. The most important ACA-specific ones were:

  • Reinstating the individual mandate penalty at the state level, as New Jersey, the District of Columbia, Vermont and Massachusetts have (VT's doesn't kick in until next year, and MA simply reverted back to their own pre-ACA mandate penalty), and
  • Enhancing ACA subsidies and expanding them to those earning 400-600% of the Federal Poverty Level

Newsom didn't include any details on either proposal, but I assumed that the mandate would simply reinstate what it was under the ACA before being repealed by Congressional Republicans in December 2017 ($695 per person or 2.5% of household income), and that the expanded subsidies would simply take the existing ACA formula (which limits the cost of benchmark Silver plans to no more than 9.86% of household income and provides subsidies to cover the difference after that), and raise the cut-off point from 400% FPL to 600% FPL.

Today, Samantha Young and Ana B. Ibarra of Kaiser Health News provide some additional details on each, although they still don't get into the exact formula being proposed:

The new governor declared his $209 billion state budget proposal, of which health care accounts for nearly 30 percent, “a reflection of our values.”

Newsom’s 2019-20 budget plan is just the starting point. He must negotiate with the legislature on a final budget by June 15 — so some of these proposals are certain to change or be eliminated.

...The governor’s plan to create subsidies for middle-class Californians, for example, relies on lawmakers approving a financial penalty on the uninsured, which was an unpopular provision in the Affordable Care Act. Newsom estimated the penalty would raise roughly $500 million a year.

The estimated subsidies would be modest. For an individual who earns between 250 and 400 percent of the federal poverty level — or between about $30,350 and $48,560 — the subsidies would average about $10 a month, said Newsom cabinet secretary Ana Matosantos. Although these Californians already qualify for a federal tax credit under the Affordable Care Act, many still can’t afford their insurance.

I actually didn't catch the enhanced subsidy part of Newsom's proposals earlier, but I'm glad to hear it. It's important to keep in mind that the $120/year average credit would be in addition to existing ACA subsidies for this income range, and that average is per enrollee, so it'd save a family of 4 around $480/year, which isn't bad. Put another way, California's 2019 ACA premiums average around $595/month, so this amounts to roughly a 1.7% premium savings for the 250-400% FPL crowd.

For individuals who make between 400 and 600 percent of the federal poverty level — or between about $48,560 and $72,840 — and therefore don’t qualify for federal tax credits, the state subsidy would come to about $70 a month on average, depending on location and premium costs, Matosantos said.

NOW we're talking turkey: Again, that's $70/month per enrollee, or around $840/year apiece. For a family of 4, that would come to $3,360 in savings per year, or around 11.8% of average permiums. Again, though, I'm not sure what the exact formula being used here is.

Congress eliminated the federal tax penalty for uninsured people, effective this year, as part of its 2017 tax bill. In response, New Jersey, Vermont and the District of Columbia have passed their own mandates in an effort to keep healthy enrollees from dumping coverage. A third state, Massachusetts, already had a state mandate.

Newsom argued during his budget briefing that, unlike the federal tax penalty, the California penalty would not be considered a tax and would only need a simple majority to win legislative approval.

Huh. That's interesting, especially since Newsom's actual budget summary specifically notes that "The Franchise Tax Board will implement the penalty". The KHN story still doesnt clarify whether the penalty would be the same as the just-repealed federal version or not.

As I expected, getting the penalty reinstated will be difficult (I was surprised to see New Jersey manage to pull it off):

...Whether lawmakers will embrace the penalty is unclear, even though Democrats have supermajorities in both houses. California voters last year recalled a Democratic state senator who voted for a gas tax increase.

Assembly Health Committee Chair Jim Wood acknowledged the vote could be “a difficult one.” The Healdsburg Democrat, who is carrying a bill to create state-based subsidies, said he is hopeful his colleagues will consider all the governor’s health care proposals as a revenue-neutral package.

If I was Newsom I'd make sure to stress that reinstating the mandate penalty should lower unsubsidized premiums by around $230 per enrollee per year, or roughly 3.2% if implemented in time for 2020.

If passed and implemented as Newsom is proposing, it sounds like this is how 2020 premiums should change for a single, 40-something adult in California with no kids earning, say, 500% FPL (around $61,000, though the exact FPL amounts haven't been set for 2020 yet), enrolled in a Silver plan:

  • 2019 avg. premium: $595/month or $7,140/year (11.7% of income)
  • 2020 avg. premium w/out penalty reinstatement: assume ~4% increase ($619/mo or $7,428/year; 12.2% of income)
  • 2020 avg. premium with penalty reinstatement: ~1% increase ($601/mo or $7,212/year; 11.8% of income)
  • 2020 avg. premium w/penalty reinstatement & subsidies expanded to 600% FPL: ~10.8% decrease ($531/mo or $6,372/yr; 10.4% of income)

That would be a savings of over $1,000 per enrollee compared to what 2020 premiums would otherwise be for that individual. This is very rough back-of-envelope math, but you get the idea.

If Newsom's proposal does use the same 9.86% cap for 400-600% FPL as the ACA currently uses for 300-400% FPL, that would mean a premium limit of $501/month for someone earning $61,000/year ($6,014/year). My example above suggests it might not be quite that generous, but it's a highly speculative example so I could be wrong...but without seeing the exact proposal it's hard to tell.