Financial Shocks And Affordable Care Act Protections: Opportunity For Public Policy Intervention Via Bridge Credit – healthaffairs.org

The early pandemic lockdowns of 2020 led to immediate, widely felt financial shocks on US households. The 2020 Survey of Household Economics and Decisionmaking reported that 36 percent of adults would be unable to cover a $400 emergency expense with cash. In the same study, one in four adults reported “having one or more bills that they were unable to pay in full that month or were one $400 financial setback away from being able to pay them.” When stratified by race, Black and Hispanic adults experience financial fragility disproportionately more than White adults, as 39 percent and 38 percent of employed adults, reported they were unable to pay some bills, or they could not pay some bills if faced with a $400 emergency expense, respectively. By contrast, only 18 percent of employed White adults reported as such.

Financial shocks caused by job losses, medical expenses, or other unexpected events have profound effects on families who are forced to allocate their available resources to competing needs. In a 2015 Survey of American Family Finances, the Pew Charitable Trust reported that 55 percent of all respondents struggled financially after a shock. This finding is magnified at lower incomes: More than 68 percent of respondents with less than $50,000 annual income struggled to pay bills after a shock. The survey also found that “the effects of destabilizing shocks are long-lasting”; one in two respondents who had not yet recovered from a destabilizing shock experienced that shock more than six months ago. This “crowding out” effect on other important financial obligations such as rent, food, energy, and medical debt can initiate a cycle of past due bills. And in turn, households lose the ability to regain “current” status, creating chronic financial stress. Simply put, financial shocks knock at-risk households off already tenuous balancing acts, past due bills mount and are paid back slowly or not at all as they seek to regain financial equilibrium.

An incomplete patchwork of federal, state, and nonprofit programs exists to provide support to households experiencing financial shocks. As it applies to health insurance coverage, Affordable Care Act (ACA) reforms established consumer protections to help households access and maintain coverage (124 Stat. 199). Marketplace enrollees receive income-based premium tax credits to help them afford health coverage and have a three-month-long grace period should they fall behind on monthly premiums. While these protections provide some support, their structure is ill-suited to help enrollees regain “current” status for three reasons:

While the three-month grace period provides additional time to pay past due premiums, a household with limited savings and discretionary income may not have the near-term budgetary flexibility to do so.
Premium tax credits only scale after a household reports a loss in income. As a result, households experiencing financial shocks that did not reduce incomes are not helped.
When a financial shock results in a loss of income, increases in premium tax credits are only prospective. Households that report reduced incomes will experience increased premium tax credits on their next premium bill. While future affordability improves, the household’s present limited ability to pay the past due premium endures.

There is a public policy opportunity for states to limit the impact of financial shocks on health coverage. The establishment of a supplementary, limited duration premium credit administered by a state-based Marketplace would promote continuous health coverage and could improve market stability through reduced attrition. A so-called bridge credit would ensure health coverage remains current, dampen the “crowding out” effect on access to care, and limit household accrual of health care debt. Analogous to programs that provide emergency assistance to help households afford critical needs, such as utility assistance under the Low Income Home Energy Assistance Program, a bridge credit would support continuous health coverage in kind—as a critical resource necessary for household well-being.

Bridge Credit Benefits

State legislative action to add a bridge credit policy to the existing set of ACA consumer protections would ensure that coverage is responsive to a more comprehensive set of household circumstances. This financial support feature would undergird household financial stability, ensure access to care, and create an additional public commitment to future-proof the individual market from economywide, acute financial shocks.

The provision of temporary premium credits to support households during financial shocks has precedent. Federal guidance issued during the early months of the pandemic provided flexibilities for carriers to offer temporary “pandemic credits” to their membership. It is important to note, however, that the issuer response was uneven—resulting in a patchwork of consumer experiences across, and within, Marketplaces. For example, in the Los Angeles-area only one of six national carriers provided such pandemic premium credits to their individual market enrollees in 2020. From a national perspective, a Peterson Center-Kaiser Family Foundation review of insurer responses to the pandemic estimated that in November 2020, only 29 percent of individual market enrollees were covered by plans that offered such premium credits. Given this variation, a standard bridge credit policy would ensure uniform consumer protections, and experiences, irrespective of their existing carrier’s ability to take additional supportive action.

Access, Eligibility, And Effective Dates

A bridge credit would be available to consumers enrolled in a qualified health plan offered on a state’s Marketplace, irrespective of whether the consumer receives premium tax credits. To receive the bridge credit the enrollee must:

Report difficulty with paying a past due, or upcoming, monthly premium to the Marketplace.
Attest to experiencing a financial shock in the current month, or the month prior to the premium due date.
The financial shock must be an unforeseen/unexpected expense incurred by the enrollee, or a member of the enrollee’s household, with an amount that affects the enrollee’s capacity to pay other financial obligations that are structural to the household, such as health insurance premiums, housing/rental costs, or food.
Provide information about the financial shock, including date of occurrence and indicate a reason from a set of options that best fits the circumstance.

Implementing legislation may set defined financial shock scenarios for bridge credit eligibility and allow the Marketplace to establish scenarios through regulation. The below list posits an example set of eligible financial shocks. The selected financial shock types represent the top four most common financial shocks reported by respondents to the 2015 Survey of American Family Finances, each experienced by between 24 percent and 30 percent of households.

Example set of eligible financial shocks:

Immediate termination of employment or loss of income
Unexpected/emergency medical expense
Unexpected/emergency housing expense
Unexpected/emergency transportation expense

Following submission of the reported financial shock, the Marketplace would apply a bridge credit that is retroactive to the first past due month—bringing their coverage current. Simultaneously, reported income changes and premium tax credit changes, if any, would become effective for the first prospective month of coverage, providing financial assistance that is commensurate with the enrollee’s actual capacity to pay for their coverage. Each enrollee would be allowed to use the bridge credit only once per coverage year for any coverage month with a qualifying unexpected expense.

To ensure public awareness of the bridge credit, issuers would be required to add informative text to their premium bills. Such text may, for example, be: “Having trouble paying this premium bill? Report any income changes or unexpected expenses to <Marketplace Name> at <Marketplace website> to check if you qualify for additional financial help with paying your premium bills.”

The expansion of bridge credit eligibility to apply to more than one month should be considered by each Marketplace. Generally, eligibility determination rules for additional bridge credit months could incorporate:

Financial shock verification requirements that are not burdensome for enrollees to meet
The estimated duration of the disruption to the enrollee’s ability to pay premiums attributed to the financial shock
Tapering the enrollee’s bridge credit allocation over the span of the eligible coverage months
Limits to bridge credit applicability to certain calendar months or require additional information for spans that cross coverage years
Bridge credit funding availability

Such rules could maximize the intended impact of the bridge credit, that is, reduced attrition and risk pool stability, while maintaining program integrity. Furthermore, eligibility determination rules should be calibrated to the needs and technical/operational capabilities of a given Marketplace to simplify bridge credit administration, increase access, and encourage uptake.

Credit Determination And Alignment Of Program Incentives

To ensure universal access to the bridge credit and ensure fairness across the income distribution, the proposed bridge credit would cover the household net premium. This would include, after advance premium tax credits and state subsidies, up to 50 percent of the amount of the statewide average premium, when calculated for the household. Given that higher-income households can purchase more costly health plans, policy makers may want to limit the proportion of bridge credit funding that is made available to higher-income households to ensure adequate funding is available to lower-income households. 

Leveraging a statewide average premium to determine maximum bridge credit generosity will limit incentives for enrollees with expensive premiums to disproportionately use the benefit and will shift with the Marketplace over time—ensuring that the bridge credit remains meaningful and helpful to enrollees.

Funding Opportunities

The proposed bridge credit could be funded through several options, each of which have different implications on the social construction of the credit:

Use American Rescue Plan Act (ARPA) of 2021 funding to pilot the bridge credit. Given the likelihood of employment/financial instability through the pandemic, use of ARPA funds to support a bridge credit could be broadly acceptable.
Incorporate a standard per-member-per-month fee into individual market premiums and use revenues to fund a permanent bridge credit with flexible parameters that is responsive to budgetary limitations.
Carve out funding from an existing (or new) Health Insurance Premium Assessment to fund a bridge credit.
Establish the bridge credit under a State Innovation Waiver to access federal pass-through funds generated by expected federal savings under the program.

Conclusion

The Affordable Care Act’s reforms and expanded premium tax credits under the American Rescue Plan have increased access to health coverage for millions of Americans. Even still, there is opportunity for states to take additional action to future-proof the individual market from macroeconomic financial shocks. A bridge credit program can step into this space by providing enrollees with additional time and premium support to regain their financial footing after experiencing a financial shock.

A bridge credit could have an outsized impact on reducing attrition in the individual market, with the greatest retention effects for the enrollees with the lowest incomes. Importantly, crafting a bridge credit as a universal benefit acknowledges the impact of financial shocks across the income spectrum. As rising prices crowd-out discretionary incomes in the medium term, US households need support maintaining health insurance coverage when unexpected financial shocks arise. A bridge credit would help families make it to the other side with their health, and health coverage, intact.

Author’s Note

The author is a non-policy, technical/operational employee with Kaiser Permanente Southern California supporting their integration with Covered CA. He also has his own consulting practice under JP Consulting, LLC, which does not provide consultancy services to entities described in this article.