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What is the Medicaid ‘coverage gap’ and who does it affect?

If your income and your state’s refusal to expand Medicaid have landed you in the coverage gap, you should be legitimately concerned about your ability to pay for medical care. | Image: anzebizjan / stock.adobe.com

Q. I keep hearing about the “coverage gap” in states that are not expanding Medicaid. Can you explain what that means and who it affects?

A: We’ll get into the details below, but the short answer is that people with income below the poverty level are not eligible for the Affordable Care Act’s (ACA) premium tax credits (premium subsidies), and if they’re in a state that has refused to expand Medicaid eligibility under the ACA, they may not be eligible for Medicaid either. That leaves them in a situation in which they’re living in poverty but also ineligible for financial assistance with their health insurance. (Note that for 2021 only, people who are receiving unemployment compensation are considered eligible for premium tax credits even if their household income is under the poverty level).

To clarify, the coverage gap is currently only a problem in 13 states, and it’s entirely caused by those states’ decision to not expand Medicaid. The ACA did not create any sort of coverage gap; it was purposely designed to ensure that there would be no coverage gaps for low-income Americans, even for recent immigrants (as long as they’re lawfully present in the US).

Now, for the details:

When the Affordable Care Act was written, a cornerstone of the legislation was the expansion of Medicaid to everyone with household incomes up to 138% of federal poverty level, (FPL).

Technically the law expands Medicaid to 133% of FPL (states can also opt to set a higher threshold), but the legislation includes an income calculation methodology that disregards the top five percentage points, so a household can have an income of up to 138% of FPL and still qualify for expanded Medicaid, since the 5% disregard brings their income down to 133 percent of FPL.

Originally, the law required states to expand Medicaid in order to continue to receive federal Medicaid funding. But very little of the total burden was placed on the states: The federal government paid the full cost of Medicaid expansion for the first three years (2014 through 2016), and then the states began to pay a small portion, ramping up to 10% by 2020 and remaining at that level going forward. The federal government will always pay at least 90% of the cost of covering the newly eligible population, assuming the ACA remains in place.

Expansion is optional, and some states continue to say no

But in 2012, the Supreme Court, while upholding the rest of the ACA, struck down the Medicaid expansion requirement, leaving it up to each state to decide whether or not to participate. As of early 2021, 36 states plus the District of Columbia had expanded Medicaid.

There are still 14 states where Medicaid eligibility has not been expanded under the ACA, although Wisconsin has a unique situation and does not have a coverage gap (Wisconsin essentially implemented a partial Medicaid expansion — without the enhanced federal funding they’d receive if they fully expanded Medicaid). So there is still a coverage gap in 13 states: Alabama, Florida, Georgia, Kansas, Mississippi, Missouri, North Carolina, Oklahoma, South Carolina, South Dakota, Tennessee, Texas, and Wyoming.

But Medicaid expansion continues to slowly spread across the remaining states, as we knew it would. Voters in Oklahoma and Missouri approved Medicaid expansion ballot measures in 2020, so Medicaid expansion will take effect in both states as of mid-2021, eliminating their coverage gaps (Republican lawmakers in Missouri are working to block state funding for Medicaid expansion, which could mean that a lawsuit is necessary, potentially delaying Medicaid expansion in the state).

Georgia plans to partially expand Medicaid as of mid-2021, but only to about 50,000 people. But Georgia also planned to implement a Medicaid work requirement, which the Biden administration has said is a non-starter

American Rescue Plan provides additional funding to entice holdout states to expand Medicaid

The American Rescue Plan, enacted in March 2021, provides two years of additional federal funding for states that newly expand Medicaid. The federal government already pays 90% of the cost of covering the population that’s eligible due to the ACA’s expansion of Medicaid, but it pays varying percentage of the cost of covering each state’s additional Medicaid population — normally ranging from 50% to about 75%.

Due to the COVID pandemic, the federal government has already given states an extra 6.2% federal matching funds. And if any of the remaining 14 states expand Medicaid, the ARP will give them an additional 5% in federal matching funds for two years. Some of the holdout states are actively considering Medicaid expansion as a result, despite years of rejecting it.

Medicaid eligibility varies depending on where you live

In Washington, D.C. and the 36 states where Medicaid eligibility has been expanded, adults up to the age of 64 (who meet the immigration status requirements) are eligible for Medicaid with a household income up to 138% of FPL are eligible for Medicaid.

But in the states that have not expanded Medicaid, eligibility is still based on pre-ACA guidelines. In most cases, that means Medicaid is only available to people with disabilities, low-income children and pregnant women, and extremely low-income parents. In Alabama, for example, Medicaid is available for parents with a household income of up to 18% of FPL (13% plus the 5% income disregard). For a family of three, that’s $3,952 in annual income in 2021. If the family’s income exceeds that amount, the parents would not qualify for Medicaid.

And Medicaid is generally not available at all to childless adults in states not expanding Medicaid, regardless of how low their income is. (This chart has income limits for Medicaid in each state, and contact information for each state’s Medicaid Department is available here.)

The coverage gap: No realistic access to health insurance

The “coverage gap” exists because the ACA’s premium tax credits (premium subsidies) are only available for people with a household income of at least 100% of FPL, up to 400% of FPL (note that for 2021, people receiving unemployment compensation are eligible for full premium subsidies even if their household income is under the poverty level, and for 2021 and 2022, there is no upper income limit for premium subsidy eligibility).

Premium subsidies are not available below 100% of FPL, because when the ACA was written, Medicaid expansion was an integral part of the law: It was assumed that subsidies would not be needed below 100% of FPL, since Medicaid would be available instead.

So in states that are not expanding Medicaid, virtually all non-disabled childless adults with incomes below 100% of FPL, as well as a large number of parents with incomes below 100% of FPL, are not eligible for any financial assistance to help them afford health insurance. Premium subsidies are not available to them through the exchange/marketplace, and they don’t qualify for Medicaid unless they meet the stringent existing guidelines.

According to Kaiser Family Foundation data, there are about 2.2 million people in the coverage gap across the 11 states that have not expanded Medicaid and do not currently have a plan in place to expand Medicaid. About 208,000 people in Missouri and Oklahoma are caught in the coverage gap until those states officially expand their Medicaid programs.

The majority of the people in the coverage gap are in Texas, North Carolina, Florida, and Georgia — more than 1.6 million of the people in the coverage gap are in those four states. As noted above, Georgia plans to partially expand Medicaid in mid-2021, but the planned work requirement and its documentation/reporting requirements will result in far fewer people moving out of the coverage gap, compared with what would happen if the state were to just expand Medicaid as called for in the ACA.

Households with incomes below 100% of FPL generally cannot afford to pay full price for health insurance. In most cases, they will remain uninsured, simply because they have no other alternatives. Unfortunately, this disproportionately impacts people of color, particularly in the southern United States where almost all of the states have maintained their pre-ACA Medicaid eligibility guidelines.

Possible solutions if you’re in the coverage gap

If you’re in the coverage gap, Medicaid isn’t available, and ACA-compliant coverage can only be purchased at full price – generally an unrealistic option, given that everyone in the coverage gap has an income below the poverty level. There are a few possible solutions, not all of which are adequate or realistic:

For coverage

  • You could move to a state that has expanded Medicaid, but that may be easier said than done for people with low-wage jobs, few assets, and few prospects elsewhere.
  • You could increase your income to at least the federal poverty level (FPL), in order to obtain subsidized health coverage (if that happens mid-year, you’ll qualify for a special enrollment period during which you can enroll in a subsidized plan). Again, this is easier said than done depending on one’s circumstances. Navigators have been invaluable in helping poor people tally up income from varied sources in order to get their total income up to the poverty level, where subsidies become available.
  • In 2021 only, if you’re eligible to file for unemployment benefits and are approved to receive them, you’ll likely qualify for substantial premium subsidies.
  • You can purchase a non-ACA compliant plan, which includes things like short-term health insurance, accident supplements, critical illness coverage, discount plans, direct primary care plans, or health care sharing ministry plans. Although in most cases – with the exception of short-term insurance and health care sharing ministries – these were never intended to be stand-alone coverage, and some are not regulated by state insurance departments or subject to state/federal insurance laws.

For care

  • Free clinics and federally funded community health centers provide a wide range of preventive and primary care services for people in the coverage gap. More than a million low-income, uninsured Americans rely on community health centers that offer care on a sliding fee scale. And the ACA provided funding to increase the number of community health centers across the country. For many in the coverage gap, a community health center is their only realistic access to care, although treatment is limited to primary care.
  • You can rely on EMTALA for emergency situations. Emergency departments cannot turn patients away due to inability to pay. However, emergency departments are only required to stabilize patients; there’s no provision for ongoing treatment under EMTALA. And the emergency department can still send you a bill that can be sent to collections if it’s not paid (they cannot, however, withhold future emergency stabilization treatment due to past-due prior bills).

Louise Norris is an individual health insurance broker who has been writing about health insurance and health reform since 2006. She has written dozens of opinions and educational pieces about the Affordable Care Act for healthinsurance.org. Her state health exchange updates are regularly cited by media who cover health reform and by other health insurance experts.

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Rebecca Braddock
Rebecca Braddock
1 year ago

Hello, Ms. Norris:
My name is Rebecca Braddock. I have a question regarding the Affordable Health Care Act in Texas and my sister’s possible eligibility for a subsidy.
She will be 60 years old in August, 2020.
She is single, no children, not a dependent, and not disabled. Due to low income, she has not been eligible for a subsidy prior to this time, but recently has been doing well with an online business and will be getting a small income from a part-time job. She expects this years income to be approximately $13,000, which will be a little over the 2020 Federal Poverty Level.
When I go on healthcare.gov, and run a “preview”, using her zip code and birthday, it shows she IS eligible for a subsidy, and could get a $1,000+ policy for $0/month.
However, the insurance broker who handles her present Health-shares coverage says that is wrong- he states in Texas she would have to have over $17,236 per year income (for 2019- represents 138% of FPL) in order to qualify for a subsidy.
I have Googled, called healthcare.gov, emailed another insurance agent, etc., and I’m still not getting a clear answer. Her present agent says she is In a “coverage gap” because she lives in Texas.
We understand she is not eligible fir Medicaid, in Texas. Is it true that she also is not eligible for a subsidy if her income us between 100% and 138% of the Federal Poverty Level ?
Thank you,
Rebecca Braddock

Louise Norris
Louise Norris
1 year ago

The broker is incorrect. In states that have expanded Medicaid, a person has to be earning more than 138% of the poverty level in order to qualify for a premium subsidy in the exchange, because eligibility for Medicaid makes a person ineligible for a subsidy.
But in states that have not expanded Medicaid (like Texas), the ACA’s minimum threshold of 100% of the poverty level is applicable for subsidy eligibility. The subsidy calculator tool that you’re using on HealthCare.gov is showing you the correct info — she’d be eligible for a substantial subsidy with an income of $13,000.
The broker is right about there being a coverage gap in Texas, but it only applies to people earning less than the poverty level.
One other point to keep in mind: The minimum threshold for subsidy eligibility will go up to $12,760 for 2021, because it increases each year to keep up with the prior year’s poverty level. So $13,000 will probably only be sufficient for 2021 and likely 2022.

Lisa
Lisa
11 months ago

I’m still a bit confused about this gap and what states have the gap. I am in Illinois and have been unemployed all of 2020. I am not eligible for Medicaid because I do have a positive net worth and savings. The calculators I’m using are telling me that I need to apply for Medicaid and are not saying I can get a credit/subsidy. I do not need my health insurance to be free, but I thought I would be able to get a lower price on my insurance since I’m without an income right now.

Lisa
Lisa
11 months ago
Reply to  Lisa

I’m still trying to figure this out. I guess expanded Medicaid means that they don’t care about assets? That does not really solve my problem, because I would prefer to buy my own insurance. That is not the gap I’m reading about, but still a gap that I don’t like.

Louise Norris
Louise Norris
11 months ago
Reply to  Lisa

Hi Lisa,
Expanded Medicaid applies to adults under the age of 65. For older applicants, there are still asset tests. But assuming you’re under age 65, you can apply based on ACA-specific MAGI only (here’s how that’s calculated: https://www.healthinsurance.org/glossary/modified-adjusted-gross-income-magi/ )
If you’re unemployed for the entire year and have no income at all, you’re not going to be eligible for a premium tax credit (premium subsidy) through the exchange in any state. Instead, in most states (including Illinois) you’ll be eligible for Medicaid. You do still have the option to purchase your own private coverage through the exchange or directly from a health insurance company, but you’ll have to pay full price for it as you can’t get a premium tax credit if you’re eligible for Medicaid.
If you earn at least 139% of the poverty level (for 2021 coverage, that will amount to about $17,736 in annual income for a single person), you can enroll in a plan through the exchange with premium tax credits that offset some (or most/all) of the cost of the premiums. If you anticipate earning less than that amount, you can enroll in Medicaid instead. If your income then picks up later in the year, you can switch to a plan in the exchange at that point, with premium subsidies based on your new projected income for 2021.
I hope that helps!

Lisa
Lisa
11 months ago
Reply to  Louise Norris

Thank you so much for your reply. I think I get it now. Not sure I’m happy with the answer, but at least I understand what is going on.

Connie
Connie
7 months ago

my partner lives in North Carolina. With estimated income of 13,000 he qualified for almost full subsidy. He was on ACA 2020 and developed cancer. The insurance has been paying all his bills. Can they retroactively deny coverage if his actual income falls below the 12,740 minimum. I think he would fall in the Medicaid gap.

Louise Norris
Editor
7 months ago
Reply to  Connie

I’m sorry he’s having to go through cancer treatment, but I’m glad his policy has been taking care of the costs. And no, they cannot retroactively deny his coverage nor would have have to repay his premium subsidies in a situation like that: https://www.healthinsurance.org/faqs/if-my-income-is-less-than-expected-this-year-i-might-be-eligible-for-medicaid-what-can-i-do-during-open-enrollment-to-cover-my-bases/
Also, for 2020 only, nobody has to repay excess premium subsidies, regardless of the reason: https://www.healthinsurance.org/blog/2021/03/10/how-the-covid-relief-law-will-rescue-marketplace-plan-buyers/
However, once his tax return for 2020 shows his income below the poverty level, the marketplace may request proof of his income going forward, to ensure that it’s back to at least the poverty level (assuming he’s still receiving premium subsidies in 2021 and future years).

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