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

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: 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 percent of federal poverty level, (FPL).

Technically the law expands Medicaid to 133 percent 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 percent of FPL and still qualify for expanded Medicaid, since the 5 percent 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 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 percent by 2020 and remaining at that level going forward. The federal government will always pay at least 90 percent of the cost of covering the newly eligible population, assuming the ACA remains in place.

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 March 2018, 31 states plus the District of Columbia had expanded Medicaid. The other 19 states have not yet expanded their coverage, although voters in Maine approved Medicaid expansion with a November 2017 ballot initiative, and the state is required to expand coverage by July 2018. Some other states have been considering Medicaid expansion for the last several years, but the official count of expansion states has remained unchanged since mid-2016, when Louisiana expanded coverage.

The version of the American Health Care Act (AHCA) that passed the House in May  2017 would have prevented any additional states from expanding Medicaid and receiving the enhanced federal matching that applies to Medicaid expansion, but that bill failed to pass in the Senate and was never enacted. So new Medicaid expansion continues to be available to states that want to implement it.

In Washington, D.C. and the 31 states where Medicaid has been expanded, all legal residents with a household income up to 138 percent 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 13 percent of FPL. For a family of three, that’s $2,701 in annual income in 2018. 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” exists because ACA premium subsidies are only available for people with a household income of at least 100 percent of FPL, up to 400 percent of FPL. The subsidies are not available below 100 percent 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 percent of FPL, since Medicaid would be available instead.

So in states that are not expanding Medicaid, virtually all able-bodied childless adults with incomes below 100 percent of FPL, as well as a large number of parents with incomes below 100 percent of FPL, are not eligible for any financial assistance to help them afford health insurance. There are no exchange subsidies for them, and they don’t qualify for Medicaid unless they meet the stringent existing guidelines.

According to Kaiser Family Foundation data, there are about 2.4 million people in the coverage gap across 18 states (Wisconsin has not accepted federal funding to expand Medicaid under the ACA, but has structured coverage so there’s no Medicaid coverage gap).

Households with incomes below 100 percent 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 minorities, particularly in the southern United States where almost all of the states have maintained their pre-ACA Medicaid eligibility guidelines.

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.