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Health Insurance Down Payments: The Maryland Plan

By Stan Dorn,


Update 2/26/2018: New data from Urban Institute show why Maryland needs the Protect Maryland Health Care Act.

Update 2/20/2018: The Maryland General Assembly holds hearings this week on the bill

The Republican tax plan that President Trump signed into law in late December ended the federal government’s enforcement of the Affordable Care Act’s (ACA) individual mandate. Starting tax season in 2020, people who were uninsured the previous year will no longer pay penalties on their federal income tax returns. The nonpartisan Congressional Budget Office (CBO) projects that this will increase premiums in the individual market by 10 percent and cause 13 million people to lose coverage.

To protect their residents, some states are considering using their own income tax systems to replace the federal government’s enforcement of the individual mandate. But another approach under consideration in Maryland would both prevent the harm forecast by CBO while taking new steps to insure families who would otherwise remain without coverage.

Not only would Maryland’s approach increase coverage, newly insured young and healthy residents would improve the overall risk pool, stabilizing markets and lowering premiums for numerous insured residents who buy individual coverage. For more information about the Maryland approach, see our fact sheet and accompanying scenariosNote: this page describes the underlying vision, which may or may not be fully reflected in the bill as it makes its way through the legislature.

How the Protect Maryland Health Care Act would work in practice

Working with experts from Families USA and the Maryland Citizens’ Health Initiative, legislators in Maryland propose to transform the expiring federal individual mandate into health insurance down payments that provide the uninsured with coverage. By increasing enrollment of young and healthy consumers, the Protect Maryland Health Care Act will lessen premium spikes that could otherwise result from the Trump Administration’s continuing assault on American health care. Here’s how this innovative approach would work, starting at tax time in 2020.

Step 1: Health insurance as the default choice. When uninsured Marylanders who previously would have been charged a penalty for lacking coverage file state income tax returns, they will receive notice that, unless they would rather pay a penalty and get nothing back, their money will instead be used as a down payment to help them buy insurance

Step 2: Immediate health insurance at zero additional premium cost, whenever possible. With the uninsured consumer’s permission, the Maryland health insurance exchange will see whether the consumer is offered a plan that costs no more than the down payment plus any federal premium tax credit (PTC) for which the consumer qualifies. If such a plan is available, the consumer is enrolled, at zero additional cost. This step alone could help numerous uninsured.

In Maryland, for example, more than 60,000 people who were uninsured in 2016 are now offered marketplace coverage that costs less than their PTC plus the applicable down payment.* If no zero-additional-cost plan is available, the down payment is saved in an interest bearing “escrow account” that the consumer can use to buy insurance during the next open enrollment period.

Step 3: A prepayment option that changes the conversation during open enrollment. During open enrollment, uninsured consumers who expect to owe penalties on their upcoming state tax returns can instead use that payment to buy a qualified health plan. Such lump-sum prepayments are subtracted from penalties that would otherwise apply.

The marketplace will operate an on-line calculator to help consumers estimate their likely penalty amounts. This could shift consumers’ perspective from: “Why spend $1,000 on insurance instead of $700 on a penalty?” to: “I’m going to pay $700 no matter what. By adding $25 a month, I can get health insurance for my entire family!”

Between the prepayment, federal PTCs, and whatever additional amounts the consumer is willing to spend, high-quality, affordable insurance could be within reach for many if not most marketplace-eligible uninsured. In Maryland, nearly 240,000 uninsured residents live in the income bands that qualify for marketplace coverage, including more than 160,000 who are financially eligible for PTCs.**

Step 4: Hands-on help during open enrollment, with a “use it or lose it” spur to action. Before open enrollment begins, the marketplace reaches out to a consumer who has a down payment sitting in an escrow account. The marketplace explains that if the consumer doesn’t use the down payment during open enrollment, the consumer will lose that money.  The marketplace then provides the consumer with information to help the consumer decide whether to enroll and, if so, which plan is best for the consumer.

Step 5: A final shot at health insurance for zero additional premium cost. If a consumer with a down-payment sitting in an escrow account has not proactively chosen a health plan by the end of open enrollment, the marketplace will take one final look to see whether a health plan option has become available, at zero additional premium cost to the consumer beyond the down payment and available PTCs. If so, the consumer is enrolled, by default. If not, the down-payment goes into a health insurance stabilization fund that the marketplace can use, as it deems most effective, for reinsurance, consumer assistance, incentives for plans to serve remote rural areas, or other efforts to make insurance more affordable and to increase market stability.

Step 6: Encouragement of continuous enrollment. Steps 3 and 4 involve consumers who make lump sum payments during open enrollment to purchase 12 months of coverage. The lump sum amount would be doled out in 12 equal increments and paid monthly to the insurer. As a result, consumers who drop coverage mid-year would effectively throw away much of the money they already spent on health coverage. This concern about “sunk costs” would encourage wavering consumers to retain coverage.

Step 7: Medicaid and CHIP enrollment for the lowest-income uninsured. An uninsured consumer who qualifies or whose child qualifies for Medicaid or CHIP, based on information on their tax return, will be enrolled in Medicaid immediately. A surprisingly large proportion of the Medicaid-eligible uninsured file income tax returns, either because they are legally required to do so or to claim earned income tax credits or other refunds.

Through all seven steps, no one will be asked to pay a monthly premium unless they actively selected a plan where the premium amount requires them to make payments out of pocket. Automatic, default enrollment is only for plans where the premium is fully covered by the down payment plus PTCs, at zero additional cost to the consumer. And even for such default members, their coverage will not begin until the marketplace verifies PTC eligibility and the insurance company obtains informed consent.

Health insurance down payments could work outside Maryland

The down payment strategy is modular. A state may choose to move forward with only certain parts of the Maryland approach. For example, a state with a federally facilitated marketplace (FFM) might implement the prepayment option along with measures to encourage continuous enrollment. Tax-time enrollment with a down-payment reserved for the next open enrollment period could be more difficult to implement with a FFM.

In addition to Maryland, nine states (California, Colorado, Connecticut, Idaho, Massachusetts, Minnesota, New York, Rhode Island, and Vermont) and the District of Columbia operate their own marketplaces and income tax systems. Ten other states (Arkansas, Delaware, Illinois, Iowa, Kentucky, Michigan, New Hampshire, New Mexico, Oregon, and West Virginia) have state income taxes and use the federal platform, with the state performing some or all marketplace functions beyond website operation.  (In New Hampshire, state income taxes are limited to dividends and investment income.) These states may be able to take all of the steps proposed in Maryland.

The Maryland legislation achieves other important objectives for consumers

With health insurance down payments, states can take the lead in transforming federal acts of ACA sabotage into practical innovations that provide health coverage and lower insurance costs for families in America.

*This estimate is based on Families USA’s (1) identification of the income level and ages where, in every Maryland county, the PTC plus the current federal penalty for lacking insurance exceeds the lowest-cost bronze plan; and (2) analysis of American Community Survey data showing the characteristics of the uninsured in Maryland, by age and income, in 2016.

** Families USA analysis of 2016 American Community Survey data for Maryland.