Medicaid Expansion May Be Key To Permanently Closing Coverage Gap

The federal government could temporarily close the Medicaid coverage gap with the Build Back Better Act, but permanent coverage may ultimately depend upon state legislation around Medicaid expansion, according to the Kaiser Family Foundation (KFF).

Twelve states have yet to expand Medicaid, leaving around 2.2 million individuals in a coverage gap due to their income levels. These individuals are not eligible for Medicaid but have incomes below the poverty level, rendering them ineligible for premium subsidies in the Affordable Care Act (ACA) marketplace.

The Build Back Better Act would provide a temporary solution for residents in non-expansion states by making them eligible for marketplace subsidies from January 1, 2022 to December 31, 2025.

The pending federal policy would allow individuals to receive premium subsidies for benchmark plans which would also offer reduced cost-sharing, requiring members to cover just one percent of benefit expenses.

However, KFF researchers argued that the bill’s temporary nature will not solidify coverage access, whereas expanding Medicaid might do so. Non-expansion states can receive additional support if they choose to introduce Medicaid expansion.

The federal government currently offers expansion states a 90 percent federal medical assistance percentage (FMAP) under the ACA. States that newly expand Medicaid will be eligible for an additional five percentage point increase for two years, thanks to the American Rescue Plan Act (ARPA). Additionally, non-expansion states would see a two-year net fiscal benefit if they expanded Medicaid, the report said.

For states that have already enacted Medicaid expansion, the Build Back Better Act would increase their FMAP from 90 to 93 percent, starting in 2023 until 2025. This would ensure that expansion states do not lose any coverage under the policy, according to KFF.

If enacted, the bill would eventually eliminate the continuous coverage requirements that went into effect during the public health emergency. But it would penalize states that restrict eligibility through December 2025, administering a 3.1 percentage point reduction in FMAP.

The Build Back Better Act may help temporarily close the Medicaid coverage gap, but when the three years are up, individuals may still experience coverage issues if state leaders have not acted.

Following the ARPA federal incentive, a handful of states debated expanding Medicaid and went as far as introducing bill proposals. However, many of the bills failed to advance due to state politics.

Wyoming introduced an expansion proposal in March 2021 after the ARPA incentive passed, but while the bill made it through the House, it was rejected by a Senate committee. Texas legislatures also introduced Medicaid expansion bills that did not advance further.

Some states chose the ballot initiative process as a route for Medicaid expansion. Mississippi and Florida were unsuccessful, while South Dakota’s efforts are still in process as of the KFF report’s publication date.

Oklahoma used a statewide ballot and became the first state to expand Medicaid during the COVID-19 pandemic. The ballot question added a new article to Oklahoma’s state constitution stating that adults with incomes at 133 percent of the federal poverty level or less are eligible for Medicaid.

Around 190,000 individuals became eligible under the new law and 120,000 Oklahoma residents have enrolled in Medicaid coverage as of July 2021.

Missouri also used a ballot initiative to amend its constitution to include Medicaid expansion. However, the state faced multiple legal roadblocks before the policy went into effect in October 2021.

More than 275,000 Missourians became eligible for Medicaid coverage following the expansion.

The federal government can help address the Medicaid coverage gap with the Build Back Better Act, but long-term policies are needed to provide permanent security, KFF researchers stressed.

In 2025, when the proposed bill is set to expire, it would be up to Congress to renew the proposal to solidify access to ACA Marketplace subsidies, or up to state legislatures to enact Medicaid expansion in the twelve remaining states that have yet to do so.