Issues That Could Impact Californians' Health Care Coverage in 2023 and Beyond

AN LAO REPORT Issues That Could Impact Californians’ Health Care Coverage in 2023 and Beyond GABRIEL PETEK | LEGISLATIVE ANALYST | DECEMBER 2022 SUMMARY This brief looks at health care coverage in California; provides background on the drivers of the significant decline in the percent of Californians without health care coverage over the last ten years; and discusses various issues that could impact the number of Californians with coverage, and how the type of coverage they have may change, in calendar year 2023. Most Californians Have Health Care Coverage. Since 2013, the percent of Californians who lack comprehensive health care coverage has declined from over 19 percent to about 8 percent. As a result, about 92 percent of Californians have health coverage. State and Federal Policies Have Improved Health Coverage Rates. Over the last decade, various state and federal policy changes have increased the number of Californians with comprehensive health care coverage. Notable federal policy changes include the Patient Protection and Affordable Care Act (ACA), which gave states the option to expand the populations eligible for Medi-Cal (the state’s Medicaid program) and create health benefit exchanges like Covered California that offer federally subsidized health insurance to eligible populations. More recently, temporary policies put in place during the COVID-19 national public health emergency (PHE) have increased the number of Californians with health coverage from what the number would be absent these policies. In 2023, Various—Potentially Offsetting—Factors Could Impact Coverage Rates. With the possible end of the PHE sometime in the earlier part of 2023, policies that temporarily increased Medi-Cal enrollment from what it otherwise would be will expire—resulting in a decline in Medi-Cal enrollment. In addition, state and federal policies could improve Covered California affordability—likely encouraging more people to purchase coverage. Finally, inflation and the unemployment rate could have various impacts on health coverage rates. BACKGROUND Percent of Californians Lacking Health Care Coverage Has Declined Most Californians Have Over the last decade, various state and federal Health Care Coverage policy changes have increased the number of As shown in Figure 1 on the next page, we Californians with comprehensive health care estimate that most Californians—92 percent—have coverage. As shown in Figure 2 on the next page, comprehensive health care coverage. (Compared to the percent of Californians lacking comprehensive other states, California’s rate of health care coverage health coverage declined from over 19 percent is roughly in the middle—some states have higher in 2013 to roughly 8 percent in 2022. The most rates of health care coverage, while others have lower significant declines are associated with the Federal rates of health care coverage.) Employer-sponsored Patient Protection And Affordable Care Act (ACA)— insurance is the most common source of coverage. most of the provisions of which became effective Major public health insurance programs, including in 2014. In the paragraphs below, we discuss the Medi-Cal, the state’s Medicaid program which ACA and other key policies that impacted access to provides health insurance to eligible low-income comprehensive health care during this period. people, and Medicare, the federal program that primarily provides health coverage to the elderly, also cover large portions of the state’s residents. www.lao.ca.gov 1 AN LAO REPORT Impacts of the ACA Figure 1 As noted earlier, the ACA brought about significant changes to the provision of Most Californians Have Health Insurance, health care coverage in California. Notably, Obtained From a Variety of Sources the ACA gave states the option to expand 2021 Estimate Medicaid eligibility and establish health benefit exchanges. Other Public Insurance Expanded Eligibility for Medi-Cal. Uninsured Prior to the ACA, childless adults generally were not eligible for Medi-Cal regardless Medicare of income. By opting in to an optional provision of the ACA, California was able to Medicare and Medi-Cal expand Medi-Cal eligibility to most adults Employer- with incomes under 138 percent of the Sponsored Private Insurance federal poverty level (FPL) regardless of Insurance Public whether they have children. Currently, over Insurance 4.5 million childless adults, known as the ACA expansion population, are enrolled in Medi-Cal. Medi-Cal Establishment of Covered California. The ACA also provided for the establishment of state-run individual health insurance marketplaces, such as Individual Market Covered California, that allow consumers Subsidized 1.5 Million to purchase health care coverage. Most (All on Covered California) consumers who purchase plans through Unsubsidized 0.5 Million Covered California receive subsidies (About 163,000 on Covered California)a that reduce or eliminate their premiums. About 1.7 million Californians have a Remaining roughly 360,000 purchased coverage "off exchange.” health coverage purchased through Note: Estimates reflect LAO adjustments to California Health Interview Survey 2021 data. Covered California. Individual Mandate for Health Figure 2 Coverage. As originally enacted, the ACA imposed a requirement, referred to as the Percent of Californians Lacking individual mandate, that most individuals Comprehensive Health Coverage Has Declined obtain specified minimum health insurance Ages 0 Through 64 coverage or pay a penalty. The individual mandate was intended to discourage 25% people from going without health insurance coverage, particularly younger 20 and healthier individuals who have lower 15 risk of incurring health care costs and who otherwise would be less likely to 10 enroll in coverage. Increased coverage of younger, healthier populations leads to a 5 more balanced insurance risk pool and allows the costs of covering higher-risk 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 populations to be spread more broadly. This in turn reduces the average cost of coverage. 2 LEGISLATIVE ANALYST’S OFFICE AN LAO REPORT As part of the federal Tax Cuts and Jobs Act coverage requirement.” Largely as a result of of 2017, Congress effectively eliminated the this policy, the Medi-Cal caseload has increased federal individual mandate by setting the penalty by 2 million enrollees between March 2020 and for violating the coverage requirement to zero July 2022 (the most recent data available). Most of beginning in 2019. In response, California adopted this caseload growth has been among families and a personal health care mandate and penalty which the ACA expansion population. went into effect in 2020. The state’s mandate and Increased Federal Support for Covered penalty were modeled after the original provisions California Premium Subsidies. In 2021, Congress of the ACA and are intended to have similar effects temporarily increased the level of federal support on coverage rates and costs. for premium subsidies for coverage purchased on health benefit exchanges like Covered California. COVID-19 Policies Increased Medi-Cal While the increased federal support was set and Covered California Enrollment initially to expire at the end of calendar year 2022, In response to the COVID-19 pandemic, the Congress extended the increased federal support federal government made a number of temporary through calendar year 2025. The increased federal policy changes impacting Medi-Cal and Covered support reduced premium costs for Californians by California. Many of these policy changes are tied about $1.6 billion per year, with premiums dropping to the COVID-19 national public health emergency to $0 for many enrollees. As shown in Figure 3, (PHE). The PHE was first declared in early 2020 the increased federal support for premium and has subsequently been extended for numerous subsidies substantially lowers the cost of premiums 90-day periods. Currently, the PHE has been Californians need to pay for plans purchased extended to at least January 2023. Because the through Covered California—including for federal government has committed to providing households whose incomes made them ineligible at least a 60-day notice before ending the PHE and has not provided such notice, we expect Figure 3 the PHE will be extended beyond Increased Federal Support Reduces Premium January 2023. Costs for Covered California Consumers Continuous Coverage Maximum Required Contribution Toward Premiums as a Requirement Increased Share of Income by FPL Group Medi-Cal Enrollment. Congress made a number of temporary 12% policy and financing rule changes impacting Medi-Cal while the 10 PHE is in effect. Notably, federal Pre-Existing Federal Subsidies 8 (Ongoing) legislation allows the state to draw down additional federal 6 funding while the PHE is in effect. 4 However, in order to receive the Subsidies With Increased Federal Support enhanced federal funding for 2 (Expires December 31, 2025) Medi-Cal, the state must follow certain federal requirements, Under 138- 150- 200- 250- 300- Over including a temporary suspension 138a 150 200 250 300 400 400%b on terminating the eligibility of a Because individuals with incomes below 138 percent of the FPL generally are eligible for Medi-Cal, Californians current Medi-Cal enrollees, except below this income level rarely but sometimes receive subsidized coverage through Covered California. b Federal subsidies were not previously available for individuals with incomes over 400 percent of the FPL. in limited circumstances, until after The temporary increase in federal support for premium subsidies has no such income limit for eligibility. the PHE ends. This requirement FPL = federal poverty level. is known as the “continuous www.lao.ca.gov 3 AN LAO REPORT for the preexisting premium subsidies under the and the unemployment rate could impact the ACA. Following the initial adoption of the increased number of people enrolled in health coverage federal support, the number of individuals who through Medi-Cal, Covered California, and purchased health coverage through Covered employer-sponsored plans. California increased by over 150,000—the largest Medi-Cal Eligibility Redeterminations annual increase in the program’s history. Will Resume After PHE Ends Medi-Cal Eligibility for Once the PHE ends, the continuous coverage Undocumented Residents requirement will expire and counties will have Certain Income-Eligible Undocumented 14 months to redetermine the eligibility of Residents Can Enroll in Medi-Cal. Up until all Medi-Cal enrollees. However, due to the recently, all undocumented residents who met the administrative processes involved, we anticipate income criteria for Medi-Cal have been eligible only that the first individuals to lose Medi-Cal coverage for restricted-scope Medi-Cal coverage, which once eligibility redeterminations restart will not only covers emergency- and pregnancy-related occur until three months after the PHE ends. health care services. Between 2016 and 2020, Were redeterminations to begin in May 2023 the state implemented a number of expansions (meaning the PHE ends in April 2023), we estimate to expand comprehensive Medi-Cal coverage to caseload would peak in July at roughly 14.9 million income-eligible undocumented residents who are enrollees before declining to 12.1 million enrollees under the age of 26. Beginning in May 2022, the by July 2024. However, there is considerable state further expanded eligibility for comprehensive uncertainty around such estimates. In the Medi-Cal coverage to income-eligible paragraphs below, we discuss various factors that undocumented residents over the age of 49. could result in individuals losing Medi-Cal coverage About 500,000 undocumented residents are once eligibility redeterminations restart and steps enrolled in comprehensive Medi-Cal coverage as of being taken to reduce the number of individuals July 2022 (the most recent data available). who could lose health care coverage—either Remaining Income-Eligible Undocumented by taking steps to ensure individuals eligible for Residents to Gain Medi-Cal Eligibility in Medi-Cal do not lose their coverage or by helping 2024. As part of the 2022-23 Budget Act, the individuals who are no longer eligible for Medi-Cal Legislature approved expanding eligibility to transition to other types of coverage. income-eligible undocumented residents between Enrollees Who Are No Longer Income-Eligible the ages of 26 through 49 beginning no later than for Medi-Cal. Because eligibility redeterminations January 1, 2024. At full implementation, over have not been conducted since March 2020 and 700,000 undocumented residents between the low-wage workers have experienced wage growth ages of 26 through 49 are expected to enroll in over the last couple of years, many Medi-Cal comprehensive Medi-Cal. enrollees may no longer be income-eligible for the program. Various steps have been taken to mitigate VARIOUS FACTORS COULD the likelihood that these enrollees lose access IMPACT COVERAGE IN 2023 to health care coverage when redeterminations resume. Pursuant to Chapter 845 of 2019 (SB 260, In the sections below, we discuss various factors Hurtado), the Department of Health Care Services that could impact the percent of Californians (DHCS) and Covered California have developed a enrolled in comprehensive health care coverage in system to streamline the transition from Medi-Cal 2023, including federal and state policies, inflation, to Covered California for individuals no longer and potential increases in unemployment. Notably, income-eligible for Medi-Cal. Upon losing Medi-Cal federal policies will put substantial downward eligibility, individuals will be given an option to pressure on the Medi-Cal caseload while increasing be auto-enrolled in coverage through Covered Covered California caseload to a lesser degree. California if eligible. In addition, DHCS and In addition, economic factors such as inflation 4 LEGISLATIVE ANALYST’S OFFICE AN LAO REPORT counties have adopted increased flexibilities when not have enrolled in Medicare during the PHE. dealing with discrepancies between self-reported The federal government has approved a special information on income-eligibility and income data enrollment period that will commence when the from other sources. Due to these flexibilities, certain PHE expires to allow such individuals to enroll enrollees could keep their Medi-Cal coverage even in Medicare. As a result, individuals who missed if data from federal data sources suggest their previous enrollment windows will have another household income is above the threshold. We also opportunity to sign up for Medicare, allowing them note that at least some of the individuals who are to maintain their Medi-Cal eligibility. no longer income-eligible for Medi-Cal could be Undocumented Residents Who Turned 26 eligible for affordable health coverage through After March 2020. As was discussed earlier, their employer. otherwise income-eligible undocumented residents Individuals Who Lose Eligibility for between the ages of 26 through 49 are not yet Administrative Reasons. Typically, once a eligible for comprehensive Medi-Cal services. year, enrollees receive a notice that either their However, many undocumented young adults who Medi-Cal enrollment has been auto-renewed based have turned 26 since March 2020 have remained on information already on file or that additional in Medi-Cal due to the continuous coverage information is needed to verify eligibility. During requirement. These undocumented residents, the PHE, many beneficiaries have had little to who are now 26 or older, could temporarily lose no contact with Medi-Cal eligibility offices. As a Medi-Cal eligibility between the end of the PHE and result, the information currently on file for enrollees January 1, 2024. In order to prevent a temporary could be out of date. For example, enrollees who lapse in health care coverage for these individuals, have moved since the start of the PHE might not DHCS has directed counties to deprioritize the have updated their addresses. In such cases, eligibility redeterminations for such individuals until individuals who might otherwise still be eligible for after January 1, 2024. Medi-Cal could have their coverage terminated if Federal Policy Changes Impacting counties cannot locate them to verify their Medi-Cal eligibility. DHCS estimates that about 2 million Covered California enrollees could be at risk of losing Medi-Cal Increased Federal Support for Premium eligibility for such reasons. In order to reduce the Subsidies. The American Rescue Plan Act, likelihood of otherwise-eligible individuals losing which Congress passed in 2021, temporarily their Medi-Cal enrollment, DHCS is working with increased the level of federal support for premium county eligibility offices, managed care plans, subsidies for coverage purchased on health benefit and the United States Postal Service to try to exchanges like Covered California. The increased gain updated contact information for enrollees. federal support was set to expire at the end of In April 2022, DHCS, along with various partners, 2022. However, Congress recently extended the also launched an outreach campaign in order to increased federal support through 2025. help ensure enrollees are aware of any steps they Federal Rule Change to Address Family may need to take to ensure their Medi-Cal benefits Glitch. Under the ACA, households that have continue once eligibility redeterminations resume. access to affordable health insurance through Enrollees Who Turned 65 After March 2020 other sources such as an employer are ineligible and Did Not Enroll in Medicare. Under state for federally subsidized health plans through law, in order to continue to receive Medi-Cal exchanges such as Covered California. Beginning benefits, individuals who turn 65 must apply for in December 2022, the federal government Medicare. Typically, individuals have an opportunity considers employer-sponsored coverage of family to enroll in Medicare upon turning 65 during members to be affordable if the employee’s share an annual open enrollment period. However, of cost for the family’s health care coverage is because of the continuous coverage requirement, less than 9.5 percent of household income (this some Medi-Cal enrollees who turned 65 might percentage is updated annually). Prior to this rule www.lao.ca.gov 5 AN LAO REPORT change, the federal government considered a assistance further could improve affordability family to have access to affordable health care and, as a result, encourage some Californians coverage if self-only coverage for at least one who currently lack health coverage to purchase household member met the affordability threshold. plans through Covered California. However, the The definition became known as the “family glitch” state has not developed a program to use the because of its potentially adverse impact on funding to provide additional financial assistance. families being able to access affordable coverage Notably, the Governor recently vetoed a bill that through the health benefit exchanges in certain would have used the funding to provide further circumstances—such as if an employer provided financial assistance in 2023 and 2024 to reduce affordable self-only coverage to employees but out-of-pocket costs for consumers including contributed little to nothing for the coverage of reducing copayments and eliminating deductibles. spouses and dependents. As a result of this rule In the veto message, the administration has change, roughly 38,000 Californians who currently indicated that it intends to reserve the funding lack health care coverage are expected to enroll to ensure that state-only premium subsidies can in plans purchased through Covered California. be provided in the future if the increased federal The rule change also is expected to improve support for premium subsidies expires in 2025 as affordability for many Californians who currently currently scheduled. have health care coverage but previously were not Impacts of Inflation and the eligible for premium subsidies through Covered California. Notably, about 100,000 Californians Unemployment Rate on Health who currently have employer-sponsored Coverage insurance with a share of cost above 9.5 percent Our office currently projects a modest increase of household income are expected to switch to in the unemployment rate through calendar year plans purchased through Covered California due 2023. We also project that inflation will be above to lower monthly costs after the premium subsidies the historical average in 2023 (although not as high compared to what they would pay if they kept their as in 2022). While difficult to quantify, we discuss employer-sponsored insurance. below the potential impacts these trends could have on the number of people enrolled in comprehensive Additional Funding Available to Improve health insurance—particularly coverage through Covered California Affordability employer-sponsored plans, Medi-Cal, and Ongoing Funding of $304 Million for Covered Covered California. California. The 2022-23 Budget Act included Higher Unemployment Could Reduce $304 million from the Health Care Affordability Enrollment in Employer-Sponsored Health Reserve Fund in 2022-23 for improving the Coverage. The most common form of health affordability of health care coverage purchased coverage in California is employer-sponsored through Covered California, with annual funding health coverage—either through an individual’s of a like amount coming from the General Fund own job or the job of someone in their household. in future years. At the time the funding was As a result, some Californians who currently appropriated, it was intended to be used to provide have employer-sponsored coverage could a state premium subsidy program beginning in lose their current health coverage due to 2023 if the increased federal support for premium job losses. Individuals and families who lose subsidies expired at the end of 2022. Since this employer-sponsored coverage may be eligible time, the increased federal support for premium for other sources of coverage such as Medi-Cal, subsidies have been extended through 2025. As a plans purchased through Covered California result, the $304 million in state funding can be (either with or without premium subsidies), or used to provide additional financial assistance to by enrolling in employer-sponsored coverage California residents with household incomes at or through a new job or another household member’s below 600 percent of the FPL. Additional financial employer-sponsored coverage. 6 LEGISLATIVE ANALYST’S OFFICE AN LAO REPORT Inflation Impacts on Employer-Sponsored New FPL guidelines typically are released in Health Coverage. In addition, insurance companies January. When the FPL increases, the income could raise premiums to cover increased costs threshold for Medi-Cal also increases. As such, if due to inflation. If this happens, employers would inflation increases at a faster rate than household face higher costs to provide employer-sponsored income, more households are likely to qualify insurance and might make changes to the benefits for Medi-Cal. Historically, during periods of high they provide. For example, in response to higher inflation, increases in household income have premiums, employers could increase the share of not kept up with inflation. As such, an increase costs employees pay for either self-only coverage in the level of the FPL in 2023 likely will outpace or coverage for their dependents—impacting the household income—which will result in an increase affordability of such coverage for employees. in the number of households eligible for Medi-Cal. However, because premiums generally have been On the other hand, because of wage growth for set for 2023 already, the potential impacts of low-wage workers over the last couple years and inflation on employer-sponsored health insurance the suspension of eligibility redeterminations since likely will not occur until 2024. Moreover, whether March 2020, more Medi-Cal enrollees could be at such changes would impact overall coverage rates risk of losing income eligibility for Medi-Cal than in a is unclear. Depending on how employers change typical year. benefits, impacted individuals potentially could shift Higher Premiums in Covered California. to subsidized coverage through Covered California. Health plans purchased through Covered California Medi-Cal Enrollment Generally Increases are subject to annual premium adjustments, With Unemployment Rate. Historically, when the most typically increases. During periods of higher unemployment rate increases, more Californians inflation, premium increases tend to be higher. become eligible for Medi-Cal. As such, higher For the 2023 plan year, premiums are expected to unemployment rates in 2023 would result in increase on average by 6 percent. In comparison, more people qualifying for Medi-Cal than if premiums increased by less than 2 percent on the unemployment rate was lower. However, average in 2022. However, due to the structure of as previously discussed, we anticipate overall federal premium subsidies and the extension of enrollment in Medi-Cal will still decline over the the increased federal support for these subsidies course of calendar year 2023 due to the resumption through 2025, most households who purchase of eligibility redeterminations. plans through Covered California will not see an Impact of Inflation on Medi-Cal increase in the monthly premiums that they are Enrollment Difficult to Quantify. The required to pay. Consequently, we do not anticipate effect of inflation on Medi-Cal enrollment is premium adjustments to affect enrollment. unclear. The income thresholds for Medi-Cal, which are based on the FPL, typically are adjusted annually to account for inflation. www.lao.ca.gov 7 AN LAO REPORT LAO PUBLICATIONS This report was prepared by Luke Koushmaro, and reviewed by Mark C. Newton and Carolyn Chu. The Legislative Analyst’s Office (LAO) is a nonpartisan office that provides fiscal and policy information and advice to the Legislature. To request publications call (916) 445-4656. This report and others, as well as an e-mail subscription service, are available on the LAO’s website at www.lao.ca.gov. The LAO is located at 925 L Street, Suite 1000, Sacramento, California 95814. 8 LEGISLATIVE ANALYST’S OFFICE