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 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 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.

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 mid-2020, 35 states plus the District of Columbia had expanded Medicaid, and Nebraska will do so as of October 2020.

That will leave 14 states where Medicaid expansion has not moved forward, 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).

Voters in Oklahoma and Missouri have a chance to decide whether their states expand Medicaid. In both states, the issue will be on the 2020 primary ballots (June 30 in Oklahoma, and August 4 in Missouri).

Medicaid eligibility varies depending on where you live

In Washington, D.C. and the 35 states (soon to be 36 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 18 percent of FPL (13 percent plus the 5 percent income disregard). For a family of three, that’s $3,909 in annual income in 2020. 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 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 2.3 million people in the coverage gap across 13 states (the KFF analysis does not include Nebraska as a state with a coverage gap, since Nebraska will expand Medicaid soon. And Wisconsin has not accepted federal funding to expand Medicaid under the ACA, but has structured coverage so there’s no Medicaid coverage gap).

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.

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 people of color, 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.

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Rebecca Braddock
Rebecca Braddock

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… Read more »

Louise Norris

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… Read more »