California: State budget includes ACA subsidy enhancement/expansion to 600% FPL

Back in January, I noted that California Governor Gavin Newsom was proposing a stripped-down version of one of the most important ACA 2.0 provisions I've been pushing for years now: Raising the ACA's APTC subsidy income eligibility cap and beefing up the underlying subsidy formula.

At the time, he was

Well, the latest official revision to the proposed CA 2019 - 2020 state budget has been released, and not only are both the mandate reinstatement and the enhanced subsidies included, the subsidies have actually been increased a bit more than Newsom was originally proposing:

EXPANDED SUBSIDIES TO PROMOTE AFFORDABLE COVERAGE

To improve affordability and access to health care, the Governor's Budget proposed subsidies to help more low and middle class Californians afford health coverage through Covered California.

The Governor’s Budget proposed to make California the first state in the nation to offer financial assistance to qualified individuals with incomes between 400 percent and 600 percent of the federal poverty level, while also increasing subsidies for individuals with incomes between 250 percent and 400 percent of the federal poverty level. The May Revision expands upon this proposal by offering subsidies to individuals between 200 percent and 250 percent of the federal poverty level.

So that's additional subsidies from 200 - 400% FPL instead of 250% - 400%, and new subsidies from 400 - 600%.

In addition to the direct assistance for consumers receiving the additional subsidies, these subsidies will benefit all individual market consumers by encouraging younger, healthier consumers to enroll in coverage. Combined with the Governor's Budget proposal to create a state individual mandate to obtain comprehensive health care coverage, the subsidies will improve the overall risk pool in the individual market, reducing future premium increases.

I don't see the details on the reinstated mandate penalty in the May budget summary, but I'm assuming it would, like in New Jersey and DC, simply replicate the now-defunct federal ACA penalty: Either $695/adult + $347/child or 2.5% of household income, whichever is higher.

The expanded subsidies and the individual mandate penalty are proposed to begin on January 1, 2020 to provide immediate relief to Californians and to prevent further destabilization of the insurance market. The increased subsidies will be funded by penalty revenues, and the program design will be adjusted in coverage years 2021 and 2022 to maintain a budget-neutral program.

This is actually the same thing New Jersey is doing with their reinsurance waiver...using the revenue from the mandate penalty to fund the premium-reduction program. The difference is that reinsurance lowers the unsubsidized premiums (which helps those earning more than 400% FPL), while using it to fund direct subsidies helps both those earning 400-600% FPL as well as those earning 200-400% FPL. Both are good ideas, but given the choice of one or the other I prefer the way California is doing it.

The May Revision includes General Fund expenditures of $295.3 million in 2019-20, $330.4 million in 2020-21, and $379.9 million in 2021-22 to provide these subsidies. These proposed expenditures are aligned with individual mandate penalty revenue projections of $317.2 million in 2020-21, $335.9 million in 2021-22, and $352.8 million in 2022-23.

To improve affordability for middle-class Californians who are ineligible for federal assistance, approximately 75 percent of subsidy expenditures would be allocated to qualified individuals with incomes between 400 percent and 600 percent of the federal poverty level. Subsidies for these individuals would average around $100 per month. Similar to the federal subsidies currently offered through Covered California, individual subsidy amounts will vary significantly depending upon an individual’s income, family size, age, region, and health care premium costs. Individuals with incomes between 200 percent and 400 percent of the federal poverty level would receive average state subsides of around $10 per month, in addition to federal subsidies of hundreds of dollars per month.

Again, the exact formula isn't laid out, but 75% of $295.3 million = $222 million. Assuming $1,200 apiece, that suggests they expect around 184,000 exchange enrollees in the 400-600% FPL range. The remaining $74 million would go to around 615,000 enrollees in the 200 - 400% FPL range at $120 apiece per year.

Around 660,000 Californians earning 200 - 400% FPL enrolled in 2019 ACA exchange plans this year, so after subtracting the ~10% who don't actually pay their first premiums and are never actually enrolled, that's right in the same ballpark (around 595,000 enrollees).

How much would this actually help? Well, the average 2019 ACA policy premium is around $595/month, or $7,140 per year.

For 2020, the mandate penalty should more than cancel out any average premium increase, so let's assume premiums will be around the same as they are now.

If so, this would knock down the average price for those in the 400-600% FPL range by roughly 17%, or by around 1.7% for those in the 200 - 400% range (remember, those folks are already receiving substantial subsidies to begin with).

In terms of the mandate penalty itself, that's a bit trickier...the budget projects $317.2 million in revenue from mandate fees in 2021. I don't know what the expected average fee would be, but assuming it's $695 apiece, that would mean roughly 450,000 Californians having to pay it.

In addition to the expanded subsidies program, the May Revision also proposes $8.2 million ongoing General Fund for the Franchise Tax Board to implement the individual mandate and reconcile annual subsidy payments. Finally, the May Revision proposes statutory amendments. The expanded subsidies are proposed to sunset in three years. They provide a bridge to the work of the Healthy California for All Commission.