ITUP’s goals for California’s implementation of the Affordable Care Acts are: 1) to cover as many uninsured as possible; 2) to build a strong and successful Exchange to buy more affordable coverage for small employers and privately insured and uninsured individuals; and 3) to develop integrated safety nets that compete on a level playing field on the basis of their price and quality.
The Basic Health Plan (BHP) is an option under the Affordable Care Act for individuals in the 133-200% income range; it could be closer to the design of the Medi-Cal program with lower out of pocket costs for subscribers than the traditional commercial insurance products. It might also be closer to the design of the Healthy Families program, which has low copays, but is closer in design to standard commercial insurance.
The BHP option being discussed now in California could be a valuable design to meet one, and possibly two of these three ITUP goals, while weakening the third (the Exchange). First, lower premiums to subscribers through a BHP could attract more participants. Second the BHP may be attractive to local health plans and give them an environment in which to develop integrated safety net delivery systems. We are concerned that there could be too little competition in a BHP and thus less incentive for the plan networks to excel on price and quality. A BHP may weaken the Exchange by shifting close to a million subscribers out of the Exchange and into the Basic Health Plan. 
We suspect that both of the following propositions are likely true: 1) lower costs to potential subscribers potentially associated with the BHP will result in more participation, and 2) restricting subscribers’ choice among the private sector providers will result in less participation. We have no idea of the respective balance between the two tendencies.
Big Underlying (and Understated) Issues
We think that much of the dispute about BHP is really a dispute about the respective merits and demerits of Medi-Cal and private insurance. Part of that dispute is about philosophy and program design, and part of that dispute is really about market share of different types of providers in the two very different types of coverage. Because BHP and the Exchange are still largely unknown, it is easy to pigeon-hole or caricature them with all the features one may like/dislike about the Medi-Cal program or private insurance.
There are a lot of Medi-Cal and other state and local program patients with incomes over 133% of FPL, and quite a lot of these patients are seen in the safety net. Medi-Cal is a two-tier reimbursement system that works reasonably well for the safety net, due to its DSH and FQHC reimbursement features, but not at all well for the private doctors. Medi-Cal does not work well for private doctors because one of its primary cost containment tools has been cutting physician rates, which hurts access. If the BHP is roughly equivalent to Medi-Cal, there will be weak private provider participation, and this is likely to result in lower subscriber participation as well. On the other hand, safety net providers and advocates are more likely to accept merger of existing state and county programs into a BHP like model than into a private insurance model of care.
The typical model of a private insurance plan does not work too well for low and moderate income subscribers either, because its primary answer to rising costs is higher and ever less affordable out-of-pocket costs for consumers. Private insurance works well for the private sector providers but with limited participation by the safety net. Private insurance has high value to doctors because it pays them so much more than Medi-Cal does. Private insurance also has high value to its subscribers because it offers broad access to a range of private doctors. Safety nets do not participate in private insurance to a significant degree in part because the competition among providers for these patients is intense and in large part because so few low-income patients have individual private insurance.
The problem with these caricatures is that they do not capture the complexity of either system, nor their increasing convergence. Private insurance in California is mostly in managed care with a choice of HMOs being the dominant form of coverage. The Exchange is likely to offer a similar range of plan types, with HMO’s likely to be the preferred option for lower income patients. Medi-Cal offers a choice of commercial insurance and local public plans. Healthy Families offers a somewhat broader range of commercial and public plans.
So what does the BHP have to offer that is or could be different? This is unclear as we do not have one; however, Healthy Families is the closest model and a model that has been reasonably well liked by both the public and private sector doctors and other providers, by parents and by private and public health plans. There is also opportunity for plan and provider creativity in benefit design and quality and outcome incentives due to the big gap between Medi-Cal rates and typical commercial insurance rates. Medi-Cal underpays doctors and hospitals, commercial insurance over-pays providers due in part to the cost shift for uncompensated care. Stan Dorn’s report for the Urban Institute quantifies this gap at about $1000 per member per year. The opportunity for the BHP is to design more affordable coverage for lower income uninsured, using the funds associated with this gap to design better coverage and more effective provider payments. This is the same opportunity afforded to the Exchange in its roles as a savvy purchaser and a price negotiator. So what does the BHP add? An additional purchaser attuned to the safety net? Two weaker purchasers, instead of one stronger purchaser? A different set of policies for the individuals with incomes between 133% and 200% of FPL?
 The Exchange subsidizes premiums and out of pocket for individuals and families on a sliding fee scale basis so that lower income persons pay no more than 2% of family incomes for their share of coverage. In the Medi-Cal program, individuals and families pay nothing for their coverage. In Healthy Families, parents pay for their children’s programs, beginning at $7 per month per child and increasing with the parent’s income. In California’s AIM program, pregnant women pay 1.5% of their income for coverage.
 See Leighton Ku, The Effect of Increased Cost Sharing in Medicaid: a Summary of Research Findings (Center on Budget and Policy Priorities July 7, 2005) at www.cbpp.org/5-31-05health2.html and Congressional Budget Office, Key Issues in Analyzing Major Health Insurance Proposals (December 2008) at www.cbo.gov
 The local health plans are the logical plans to develop an integrated provider network. They may not be as well positioned to compete in the Exchange due to their lack of broker networks and lack of variation in plan design as they would in a BHP where there is greater uniformity of plan design and less reliance on an independent broker network. Local health plans have competed successfully with their commercial counterparts in the Healthy Families program where the language skills and site locations of local safety net providers give them marketing advantages. The $3 premium differential may also be a marketing advantage, albeit a small one.
 In a Medi-Cal style plan, there is a choice of one (COHS), two (Two Plan models) or four (GMC) plans. Due to the relative lack of private sector providers, the DSH and FQHC subsidies for safety nets and the absence of financial consequences for price inefficiencies and quality shortcomings, the safety net providers would have fewer competitive incentives to excel on price and quality than in an Exchange model which is expected to highlight price and quality variations through transparency of plan and eventually provider price and quality measurements.
 Kominski and Wise, Basic Health Plan, What Would it Mean for California (California HealthCare Foundation, April 27, 2012)
 Cost issues clearly impact enrollment. See n. 2.
 Reputational issues are quite significant in impacting enrollment as well. Nearly all of those eligible for Medicare enroll although they must pay a part share of the costs of coverage. See January Angeles and Matthew Broaddus, Federal Government Will Pick Up Nearly All Costs of Health Reform’s Medicaid Expansion (Center on Budget and Policy Priorities, March 28, 2012) at www.cbpp.org Take-up rates for employment-based coverage are about 85% even though employees must pay a part (20% and more) of the costs of coverage. See Lavarreda et al, The State of Health Insurance in California (UCLA Center for Health Policy Research, February 2012). On the other hand, take-up rates for Medi-Cal are estimated at closer to 60% despite the low to no cost of coverage to the subscribers. See Sommers, B. and Epstein, A, Medicaid Expansion, the Soft Underbelly of Health Care Reform (November 25, 2010) N Eng J of Med 2010; 363:2085-2087. Massachusetts and Pennsylvania had a 80% participation rate, California a 60% participation rate and Oregon and Florida a participation rate of slightly over 40%. And over 60% of California’s uninsured children are eligible for Medi-Cal (no cost) or Healthy Families (low cost). See California HealthCare Foundation, California Health Care Almanac: Medi-Cal Facts and Figures, September 2009.
 See Wulsin and Yoo, Medi-Cal Transformation (Insure the Uninsured Project, January, 2012) at www.itup.org and Kiwon Yoo, The Exchange and Public Program Integration (Insure the Uninsured Project, July 26, 2011) at www.itup.org
 See Yoo, 2006-2009 Overview of California’s Uninsured (Insure the Uninsured Project, November, 2010) at www.itup.org; 39% of community clinic visits are by Medi-Cal patients which account for 49% of clinics’ patient revenues. Roughly 30% of BHP eligibles currently use the safety net, 37% use private providers and 31% have no usual source of care; Kominski and Wise, Basic Health Plan, What Would it Mean for California (California HealthCare Foundation, April 27, 2012)
 Wulsin and Yoo, Medi-Cal Transformation.
 National Opinion Research, California Employer Health Benefits Survey (California HealthCare Foundation, December 2011) at www.chcf.org Insurance premiums are increasing five times faster than the CPI and employers are responding by dropping coverage, cutting benefits, increasing employees’ coinsurance, copays and deductibles.
 Only 6% of community clinic patients have private insurance and that accounts for only 4% of community clinic revenues even though 57% of all Californians have private coverage. See Yoo, Overview of California’s Uninsured.
 Rough estimates are that private insurance pays doctors and hospitals at least 20% more than Medicare and Medicare pays at least 20% more than Medicaid.
 In a number of specialties including family practice and internal medicine, participation rates are 50% of less. See California HealthCare Foundation, California Health Care Almanac: Medi-Cal Facts and Figures, September 2009 at www.chcf.org for a comparison of Medi-Cal and Medicare participation rates by specialty. But there are some doctors in practices with high income patients who are abandoning private insurance as well for boutique medical practices.
 Only 15% of individuals with incomes less than 133% of FPL have private insurance while over 85% of individuals with incomes over 400% of FPL have private insurance. Lavarreda et al, The State of Health Insurance in California
 Fifty-four percent of California employees are in HMOs. California Employer Health Benefits Survey. By contrast, 3/4 of the individual market subscribers are in PPOs, for the most part with much smaller benefit packages. CHCF, California’s Individual and Small Group Markets on the Eve of Reform (California HealthCare Foundation, 2011) at www.chcf.org
 Stan Dorn of the Urban Institute estimates that in California, there is about a 20-25% gap between the cost of Medi-Cal coverage for a new eligible and the costs of equivalent coverage through the Exchange. Dorn, Basic Health Program: Issues for California (August 9, 2011) at www.urban.org
 California HealthCare Foundation, California Health Care Almanac: Medi-Cal Facts and Figures
 According to OSHPD, state hospitals administered $2.9 billion in bad debt and charity care in 2010.
 The amount of cost shifting to private insurance is a matter of some dispute; a commonly used figure is that about 10% of private insurance premiums is due to the cost shifting of hospital uncompensated care costs. I have been skeptical about this larger figure as I believe that most hospital uncompensated care costs are shifted to public programs. See Holahan and Hadley, The Cost of Care to the Uninsured, What do We Spend and Who Pays for It? (Urban Institute, 2004) at www.kff.org
 Dorn, Basic Health Program: Issues for California and Using the Basic Health Program to Make Coverage More Affordable to Low Income Households: a Promising Approach for Many States (Urban Institute, September 2011)
 Under the ACA, the essential benefits would not be different, however copays and deductibles could be and so could provider reimbursement rates. The Wise/Kominski report assumes that a BHP could and would offer lower subscriber premiums. This could help with affordability, but then create a large cliff as an individual’s premiums would spike when their income reaches 200% of FPL.