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. The Build Back Better Act would extend this into 2022 as well, for people who receive unemployment compensation in 2022.)
To clarify, the coverage gap is currently only a problem in 11 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:
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% 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. The Build Back Better Act, under consideration in Congress in late 2021, would temporarily boost federal Medicaid expansion funding to 93%.
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 late 2021, 38 states plus the District of Columbia had expanded Medicaid.
There are still 12 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 11 states: Alabama, Florida, Georgia, Kansas, Mississippi, North Carolina, 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 just took effect in those two states in 2021.
American Rescue Plan provides additional funding to entice holdout states to expand Medicaid
The American Rescue Plan (ARP), 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 a 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 states expand Medicaid, the ARP will give them an additional 5% in federal matching funds for two years. Some of the holdout states have actively considered Medicaid expansion as a result, despite years of rejecting it.
But as of late 2021, only Oklahoma and Missouri have expanded coverage (both are receiving the additional ARP funding as a result), and they both had already scheduled Medicaid expansion to take effect in 2021, with the process already underway before the ARP was enacted.
Built Back Better Act would temporarily close the coverage gap
The Build Back Better Act would close the coverage gap for 2022 through 2025. The legislation would provide full premium subsidies and cost-sharing reductions to people with income below the poverty level (assuming they aren’t eligible for Medicaid, which is the case in states that have a coverage gap), thus allowing them to obtain coverage in the marketplace.
The Congressional Budget Office projects that the BBBA’s subsidies for low-income enrollees would reduce the number of uninsured Americans by 2.3 million, and would increase total Medicaid enrollment by about 3.8 million people.
Medicaid eligibility varies depending on where you live
In Washington, D.C. and the 38 states where Medicaid eligibility has been expanded, adults under the age of 65 (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. As described above, the BBBA would allow premium subsidies for people under the poverty level who aren’t eligible for Medicaid, starting in 2022 and continuing through 2025).
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.
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:
- Read this article, about strategies for avoiding the coverage gap.
- Keep a close eye on the Build Back Better Act. If it’s enacted and the final version is similar to what the House passed in November 2021, it would temporarily provide full premium subsidies to people in the coverage gap.
- 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.
- 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.
- 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.