There’s no question that ensuring people have access to quality health care is important for a state’s health and economy. However, health care costs can be a significant financial burden for many families, particularly those with low and middle incomes. One solution that some states have implemented is the use of state funded financial assistance, or “subsidies”. These subsidies are applied in addition to qualifying federal subsidies known as Advanced Premium Tax Credits (APTC), making health insurance premiums more affordable for constituents.
To set up state-specific programs like subsidies, a state must first have a state-based health insurance exchange (SBE) to provide policy flexibility. Without an SBE, states are limited to the enrollment solutions and programs provided by HealthCare.gov.
For example, in 2020, New Jersey launched its own program called New Jersey Health Plan Savings (NJHPS). The subsidy is available to households with annual incomes up to 600% of the Federal Poverty Limit (FPL), but the amount is based on household income, family size, and the cost of the health insurance plan selected. Now, thanks, in part, to the state program, 9 out of 10 New Jersey residents have access to lower premiums.
California, Colorado, Maryland, Massachusetts, New Mexico, Vermont, and Washington are among the other states that have also set up a state subsidy. A study by the Urban Institute found that state-based subsidies for health insurance increased enrollment by 43% among eligible individuals.
State subsidies have many benefits for the state as a whole. By improving access to healthcare, states can reduce the burden of preventable illnesses and injuries, which in turn can lower healthcare costs over time. Moreover, when individuals have access to health care, they are more likely to seek preventative care and early treatment, which can lead to better health outcomes and improved productivity. Now that you know the why, here’s a bit on the how.
How to Set Up a State Subsidy
- Establish a state-based health insurance exchange (SBE): To set up a state health insurance subsidy, a state must have an SBE. An SBE allows the state to have greater control over the design of the health insurance market and policy options offered to residents.
- Determine eligibility criteria: Once the state has established an SBE, it must determine the eligibility criteria for the subsidy program. This typically involves deciding on income thresholds, family size, and other relevant factors that will determine which individuals and families are eligible for the subsidy.
- Determine the level of assistance: States must decide the level of assistance they will provide to eligible individuals and families. This could include financial assistance to help pay premiums or cost-sharing subsidies to help offset the cost of deductibles, co-pays, and other out-of-pocket expenses.
- Determine the funding source: States must decide on a funding source for the subsidy program. This could come from state revenue or from other sources, such as a tax on health insurers or hospitals.
- Develop a plan to administer the program: States must also develop a plan for administering the program. This could include designing a website for enrollment, setting up a call center to answer questions, and hiring staff to process applications and manage the program.
- Coordinate with federal programs: States must coordinate with federal programs, such as the ACA and Medicaid, to ensure that their subsidy program is in compliance with federal regulations and guidelines.