Increasing Subsidies and Expanding Health Insurance Options in Connecticut

Although the Affordable Care Act (ACA) greatly expanded health insurance coverage in Connecticut, about 7 percent of the state's population under the age of 65 was uninsured in 2019 (Kaiser Family Foundation, 2019), and health care affordability remains a persistent concern among the state's residents. To address these issues, Connecticut has recently considered health insurance reforms aimed at improving coverage and affordability, including expanding subsidies on Access Health CT (the state's health insurance marketplace); introducing a publicly contracted, privately operated plan (the public option plan) on the ACA marketplace; and offering a version of the state employee health plan (SEHP) that would be available to small businesses, large nonprofit firms, and Taft-Hartley plans (collectively bargained, multi-employer plans). In this study, we used a microsimulation approach to estimate the effects of these policies on health insurance enrollment, premiums, consumer out-of-pocket (OOP) spending, and the state budget. We also considered whether these effects differentially impacted groups across race, ethnicity, and income.

Because details regarding how these options would be implemented are still being debated, we considered a range of policy options with different assumptions regarding the generosity of additional benefits and how the policies would be combined. Broadly, we grouped policies into two types of reforms—those aimed at increasing affordability in the individual market and those aimed at enhancing employer insurance options.

Policies to Increase Affordability in the Individual Market

The ACA created two types of subsidies for individual market health coverage (that is, coverage that is not job-based). First, advance premium tax credits (APTCs) reduce premium costs for marketplace enrollees with incomes between 100 and 400 percent of the federal poverty level (FPL) who do not have an affordable offer of coverage from another source, such as an employer or Medicaid. APTCs cap spending on a benchmark insurance plan at a percentage of income (approximately 2 to 9.5 percent) that varies with enrollees’ income level. In 2021, Connecticut passed legislation, Covered Connecticut, that further reduced premium contributions to $0 for people with incomes under 175 percent of FPL. In addition, the U.S. Congress temporarily enhanced APTCs under the American Rescue Plan Act of 2021 (ARP) by setting the percentage contribution for people with incomes below 150 percent of FPL at zero, reducing contribution levels for higher-income people, and extending APTCs to people with incomes above 400 percent of FPL if they would otherwise have to pay more than 8.5 percent of income for a benchmark plan.

Second, the ACA offered cost-sharing reductions (CSRs) to APTC-eligible individuals with incomes under 250 percent of FPL. CSRs reduce copays and deductibles, lowering enrollees’ OOP costs. The generosity of the CSRs can be measured in terms of actuarial value (AV), which is the share of health expenditures that are paid for, on average, by the plan. The benchmark silver plan on which APTCs are based has an AV of 70 percent. CSRs increase this AV to 94 percent for people with incomes below 150 percent of FPL, 87 percent for people with incomes between 150 and 200 percent of FPL, and 73 percent for people with incomes between 200 and 250 percent of FPL. Covered Connecticut included state-funded CSRs that further increased the AV to 100 percent for those with incomes under 175 percent of FPL.

Connecticut is considering the following additional enhancements to the ACA's subsidy structure:

• reducing the premium contribution for a benchmark plan to $0 for eligible individuals with incomes below 200 percent of FPL
• eliminating cost-sharing for people with incomes below 200 percent of FPL (i.e., setting the plan AV to 100 percent), if they enroll in a benchmark plan
• enhancing and expanding CSRs for people with incomes between 200 and 400 percent of FPL, if they enroll in a benchmark plan.

In all cases, the additional costs of the enhanced subsidies would be borne by the state.

Additionally, the state has recently considered offering a public option plan on the individual market. We modeled the reforms above both with and without a public option that would set rates at 125 percent of Medicare rates, or about 90 percent of commercial rates currently paid by marketplace plans.

Table 1 shows the range of policy scenarios that we considered in this analysis. We compared the scenarios with a status quo that includes the ARP.

Policies to Enhance Employer Insurance Options

We also considered a set of reforms that would aim to make employer insurance more affordable by allowing small businesses, large nonprofit businesses, and Taft-Hartley plans to offer a plan resembling the SEHP. We assumed that the SEHP-like plan (referred to throughout the remainder of this study simply as the SEHP plan) would be subject to modified community rating and would be separate from the ACA's small business risk pool, so that premiums for existing SEHP enrollees would not be substantially affected, and the state would not bear direct costs for the plan. Then, we considered several modifications to benefit design that adjusted the SEHP's benefit structure (Table 2). SEHP Scenario 1 offers a SEHP plan that is similar in AV to the average employer-sponsored insurance (ESI) plan offered by small groups. The plans increase in AV to 96.5 percent, which is similar to the current health plan available to state employees. However, all of the SEHP plans we modeled were more comprehensive than typical employer coverage among small groups, where the average AV is around 80 percent. In all cases, we assumed that employers can achieve administrative savings by offering the SEHP plan and that the plan was priced such that the state does not directly bear any costs to offer the SEHP plan.

Results

We modeled results for 2023, using RAND's COMPARE microsimulation model adapted for the state of Connecticut. The results presented below assume that the marketplace subsidy enhancements offered through the ARP remain in place in 2023.

Individual Market Reforms

Health Insurance Enrollment: We estimated that Subsidy Scenario 1.a, which enhances subsidies for people with incomes below 200 percent of FPL, would increase insurance enrollment in Connecticut by 1,200 people (Figure 1). This reduces the number of uninsured individuals from 226,700 to 225,600 and therefore represents only a marginal decrease in the uninsurance rate. In Scenario 2, in which people with incomes between 200 and 400 percent of FPL are offered enhanced CSRs, insurance enrollment fell by 1,600 people in the scenario without a public option. This counterintuitive result stems from the effects of federally funded CSRs on premiums. Because of the Trump administration's decision to halt federal CSR payments, federal CSR costs for people with incomes under 250 percent of FPL are loaded onto the silver marketplace plans, increasing the benchmark premium. In turn, the higher premium increases APTCs, giving consumers more purchasing power. Unlike federal CSRs, state-sponsored CSRs would not be loaded onto silver premiums; they would be paid directly by Connecticut. By offering state-sponsored CSRs, the state would attract people who are not eligible for federal CSRs onto silver marketplace plans. The influx of additional people into the silver tier who are ineligible for federal CSRs would spread federal CSR costs across a larger number of enrollees, diluting the effects of federal CSR loading on premiums and reducing the value of APTCs. Hence, we estimate that purchasing power would decline for some consumers, and they would opt not to enroll.

A similar effect occurs in the public option scenarios (1.b and 2.b). We estimate that the public option would become the benchmark plan, which would reduce APTCs available to consumers. This would result in a loss of purchasing power for subsidy-eligible people who wish to enroll in more-expensive, private plans. As a result, total insurance enrollment fell in both of these scenarios relative to Scenario 1.a and 2.a, respectively, as well as relative to the current-law scenario. In an alternate specification of the public option scenarios, we found that the state could avoid these unintended consequences by offering the public option only on the bronze and gold premium tiers; however, this approach is not currently legal given ACA requirements. The impacts of the public option also are sensitive to our assumptions about whether the ARP is in place. In scenarios without the ARP, the public option led to a substantial increase in enrollment because it improved affordability for people with incomes above 400 percent of FPL, who were no longer eligible for APTCs. With the ARP, those with incomes above 400 percent of FPL can receive APTCs, so the public option could lead to a decrease in affordability for a larger proportion of enrollees, since the value of subsidies falls, and more enrollees are subsidized under the ARP.

Subsidy Scenario 1, without Public Option

1,200

Subsidy Scenario 1, with Public Option

–2,100

Subsidy Scenario 2, without Public Option

–1,600

Subsidy Scenario 2, without Public Option

–3,700

NOTE: Our analysis assumed that the ARP health insurance subsidy enhancements remain in place. Without any reforms (i.e., under current law), the estimated number of uninsured people in Connecticut in 2023 is 226,700.

Affordability: As alluded to above, the proposed changes have complicated effects on affordability, which we measure as health care expenditures (OOP premium contributions plus cost-sharing) as a share of income. We note that increases in spending can reflect higher premiums or cost-sharing but can also reflect increased health care utilization and moves to more-generous plan types. Table 3 shows this measure for people who were insured on the individual market in the status quo scenario. The reforms would unambiguously increase affordability for people with incomes between 175 and 200 percent of FPL, who newly receive $0 premiums and $0 cost-sharing in all scenarios. (Expenses did not fully fall to zero for this group because some people were ineligible for subsidies because of ESI offers, and, in Scenario 2.b, some people opted to enroll in the more expensive private plan.) Affordability also increased or remained unchanged for people with incomes between 200 and 250 percent of FPL in all scenarios.

In scenarios with the public option, affordability decreased slightly for some income groups because of the reduced purchasing power of the subsidy. These results are somewhat sensitive to assumptions about the ARP; in sensitivity analyses without the ARP's subsidy enhancements, the public option increased affordability for people with incomes over 400 percent of FPL, although some lower-income groups continued to be adversely affected. Again, the adverse consequences could be avoided if the public option could be offered outside of the silver tier.

Costs to Connecticut: Figure 2 shows the new costs that Connecticut would incur (in millions) under the policy scenarios described above. New costs to the state ranged from $19 million to $94 million, depending on the scenario. Costs were lower in scenarios 1.a and 1.b, which targeted a narrower range of enrollees, than in scenarios 2.a and 2.b. Adding the public option did not substantially change costs in Scenario 1. By contrast, the public option reduced costs to the state in Scenario 2, because both premiums and cost-sharing amounts fell when providers were paid publicly negotiated rates, but Medicaid costs changed only slightly.

In sensitivity testing in which we assumed that subsidy enhancements expired after 2022, additional costs to the state were substantially higher than those shown below for scenarios 1.a and 1.b. Additional costs to the state were not particularly different between scenarios 2.a and 2.b under the assumption that ARP subsidy enhancements expire after 2022, because fewer people with incomes between 200 and 400 percent of FPL enrolled in the marketplace when the APTC enhancements offered by the ARP were eliminated.

Subsidy Scenario 1, without Public Option

$19.3

Subsidy Scenario 1, with Public Option

$19.4

Subsidy Scenario 2, without Public Option

$94.2

Subsidy Scenario 2, without Public Option

$85.0

NOTE: This analysis assumed that the ARP subsidy enhancements remain in place.

Impacts by Race and Ethnicity: We examined insurance transitions across scenarios and changes in affordability across race and ethnicity to better understand whether there were differential impacts of these policies. We found that although there were large differences in insurance enrollment and affordability at baseline, the changes across scenarios did not differ substantially by racial or ethnic group.

Employer Reforms

Enrollment: In all four SEHP scenarios, total insurance enrollment and total ESI enrollment (traditional ESI plus SEHP) increased when the SEHP plan was introduced (Figure 3). The total number of uninsured individuals in the state fell by 3 to 4 percent across scenarios. This result reflects that most employees were offered lower premiums for more-comprehensive coverage with the introduction of the SEHP option.

SEHP Scenario 1

7,300

SEHP Scenario 2

8,400

SEHP Scenario 3

8,900

SEHP Scenario 4

6,800

Affordability: Figure 4 shows total employer premiums for SEHP plan enrollees and for individuals at SEHP-eligible firms who remained on traditional employer coverage. The cost of the SEHP plan was substantially lower than the cost of traditional employer coverage under current law, reflecting the lower administrative costs of these plans, despite the higher generosity.

Current Law (Traditional ESI)

$9,800

SEHP 1 (82.5% AV)

$7,400

SEHP 2 (86.5% AV)

$7,800

SEHP 3 (87.7% AV)

$8,300

SEHP 4 (96.5% AV)

$8,700

Table 4 shows OOP costs (premium contributions plus cost-sharing) as a share of income for people who were eligible for SEHP and enrolled in ESI in the status quo. These costs were, in general, low, representing less than 5 percent of income. Across income groups, spending as a percentage of income remained the same or fell slightly as a result of the introduction of the SEHP plan.

Cost to Connecticut: Because the cost of the SEHP plan is borne by employers and their workers, it is not obvious that these policy options should have implications for spending by the state. This is consistent with our findings; the four SEHP scenarios resulted in little to no effect on the state budget.

Impacts by Race and Ethnicity: We again examined insurance transitions across scenarios and changes in affordability across race and ethnicity. Similar to the subsidy analysis, we found that although there were differences in insurance enrollment and affordability at baseline, the changes across scenarios did not differ substantially by racial or ethnic group. However, based on the existing population that has an offer of ESI, the increase in total insurance enrollment following the SEHP expansion likely would benefit white, Asian, and higher-income individuals more than other groups.

Limitations

As with any analysis that attempts to estimate future outcomes, there is a high degree of uncertainty in our results. Partly, this is because we must estimate how consumers will respond to new choices that have not previously been available to them. Beyond the difficulties of estimating consumers’ response to new policies, there are many implementation decisions that would need to be made to develop a public plan in Connecticut. We made important assumptions related to issues such as how provider payment rates would be set and how risk adjustment would be implemented that may not hold in practice. We also assumed that commercial insurers would respond to the public option by lowering premiums and that people would have a slight preference for private plans because of concerns about network adequacy in the public option. Finally, we assumed that the SEHP plan would be able to achieve administrative savings relative to current employer insurance policies.

Discussion

In this analysis, we modeled several reforms aimed at enhancing health insurance coverage and improving affordability in the individual and employer insurance markets in Connecticut. The individual market reforms that we considered substantially increased affordability for people with incomes between 175 and 200 percent of FPL, reducing OOP spending as a share of income by 50 percent in some scenarios. Changes to affordability for higher-income groups were smaller, in part because the proposed policy changes for people with incomes between 200 and 400 percent of FPL were relatively modest and focused only on reducing cost-sharing (not premiums). Adding a public option improved affordability for unsubsidized enrollees but may decrease affordability for subsidized individuals by reducing the benchmark premium and hence lowering APTCs. This finding is sensitive to assumptions about the ARP; in scenarios without the ARP, adding a public option unambiguously increased affordability for people with incomes over 400 percent of FPL. We also considered sensitivity analyses in which the lower-cost public option plan was offered on the bronze and gold tiers only and therefore did not substantially affect the benchmark premium. In these scenarios, both subsidized and unsubsidized individuals were better off when the public option was introduced. However, such an option would require a waiver or change to federal law to be feasible.

Unexpectedly, we found that state-funded CSR enhancements for people with incomes between 200 and 400 percent of FPL could reduce the number of people with insurance slightly. This surprising result stems from the fact that, as modeled, the state-funded CSRs were offered on the silver marketplace tier. Bringing more people onto this tier diluted the value of federal CSR loading on premiums, reducing APTCs. One potential solution to this problem would be to offer the state cost-sharing enhancements only on the gold metal tier. However, this would require implementing both a state-funded APTC increase to allow people to purchase a gold plan and a CSR increase to bring the gold plan AV up to the desired level. A possible solution to the issue of losing federal CSRs would be for the state to offer the enhanced gold plan only to people who are ineligible for federal CSRs while offering state-funded CSR enhancements on the silver tier for those who are currently eligible for federal CSRs.

Estimated costs to the state for 2023 varied substantially across the individual market scenarios, from $19 million in scenarios that limited subsidy enhancements to people with incomes between 175 and 200 percent of FPL to $85 to $94 million in scenarios that also enhanced CSRs for higher-income people. In Subsidy Scenario 2, adding a public option decreased costs to the state.

Our analysis of the SEHP suggests that enabling employers to buy into a SEHP option would improve insurance coverage and affordability by offering higher-AV plans at a lower premium, assuming that the SEHP plan is able to achieve lower administrative costs relative to traditional ESI. We found that the addition of a SEHP plan increased affordability, on average, for consumers, given the lower premiums (due to lower administrative costs for the plan) and higher generosity of the plan. We also found that the addition of the SEHP led to increases in insurance enrollment. There were minor differences between the four SEHP specifications, but they all led to the same bottom-line conclusion that offering a SEHP plan would improve insurance coverage and affordability for those eligible for the plan.

Overall, this analysis suggests that expanding eligibility for the SEHP holds promise for stabilizing or reducing consumer costs, improving plan generosity, and bringing more people into the market. This finding is driven by the lower administrative costs associated with the SEHP. The effects of options to enhance affordability on the individual market are less clear-cut. In some cases, such policies can have unintended effects, due to interactions with existing ACA policies. In particular, offering enhanced CSRs brought more people onto the marketplace silver tier, which diluted the effect of CSR loading, thereby reducing the value of APTCs. To avoid this issue, state policymakers could consider offering state-funded CSRs to those with incomes above 250 percent of FPL on the gold tier rather than on the silver tier. We found that offering a public option could also reduce the value of premium subsidies if the public option plan has a lower premium than the existing benchmark plan. In theory, this issue could be avoided by offering the public option plan on the bronze and gold tiers only; however, this would require a waiver or change to federal law to implement. Alternatively, if the introduction of the public option plan leads to federal APTC savings, the state could apply for a waiver to use the federal savings toward reducing costs for low-income individuals.