The Unintended Uninsured: The Affordable Care Act’s Coverage Gap

[Cross posted from the Harvard Law and Policy Review]

By Julian Polaris

This is a golden age for access to healthcare in America. In 2015, over 90% of Americans had health coverage, the highest insurance ratein the 50 years the federal government has collected insurance data. This astonishing progress is due in large part to the Affordable Care Act (ACA): President Obama recently announced that 20 million people are covered thanks to the ACA. The victory is bittersweet, however: had the ACA been implemented as designed, an additional three million people would have insurance today. This is the story of the “coverage gap,” a crack in the ACA created by the Supreme Court and left unrepaired in nineteen states. A crack so wide that three million low-income people have fallen through it.

The ACA, as originally passed, aimed to increase access to health coverage in two main ways. First, the Act expanded Medicaid, the public health plan for people with low income. Previously, most states had limited Medicaid eligibility to specific groups like children and pregnant women. The ACA enlarged and standardized the Medicaid program to cover all people who earn up to 138% of the federal poverty level (FPL). The federal government picks up 90% of the cost of healthcare services for newly eligible beneficiaries, whereas costs in traditional Medicaid are split closer to 50-50.

Second, the ACA established the health insurance “exchanges,” portals in each state where consumers can shop for standardized plans that aren’t tied to a particular employer. Federal tax credits are available to subsidize exchange coverage for those earning 100 to 400% of the FPL.

These overlapping reforms created a seamless continuum of coverage for low-income Americans: everyone earning less than 138% of the federal poverty level is eligible for Medicaid, and subsidized exchange coverage is available to those who earn 100 to 400% FPL.

Then came the Supreme Court’s 2012 decision in NFIB v. Sebelius, best known for upholding the ACA’s central requirement that all Americans secure comprehensive health coverage or pay a penalty. The Court was less conciliatory when it came to the ACA’s Medicaid expansion, however, prohibiting the federal government from instituting a new nationwide eligibility standard and, instead, allowing each state to choose whether or not to expand Medicaid under the ACA’s terms. As of March 2016, 31 states (and DC) have chosen to do so.

Nineteen states have so far rejected the expansion. These states tend to be politically conservative, and their leaders justify non-expansion on familiar conservative grounds related to state budgets, the federal deficit, and distrust in public welfare programs. (See, for example, this explanation from Louisiana’s former governor Bobby Jindal.) President Obama has accused the states of refusing to expand coverage out of “political spite” as much as anything else.

The collateral damage in this ideological crossfire is the three million low-income people who should have health coverage, but don’t. They don’t qualify for their states’ existing Medicaid programs, which exclude childless adults and only cover parents with extremely low incomes (the median income cutoff is 44% of the poverty level, or less than $11,000 for a family of four). Perversely, these same people earn too little to qualify for subsidized coverage on the exchanges: the tax credits only kick in at 100% FPL because everyone below that was intended to be covered by the Medicaid expansion.

The ACA’s access reforms were designed to create a seamless continuum of affordable coverage. Instead, three million people are trapped in the coverage gap, stranded in a regulatory no man’s land between Medicaid and the exchanges.

The coverage gap could be addressed at either the federal or the state level. Congress could amend the ACA to extend the exchange tax credits all the way down the income ladder, but is extremely unlikely to do so. Since the ACA was enacted, Congress has prioritized attempts at repeal over attempts at repair.

This is why all eyes have been on the states. Each state can decide for itself whether to expand its Medicaid program to cover all low-income individuals, and most have already done so. Medicaid expansion allows more individuals to enjoy the benefits of health coverage (which I have previously catalogued here), and also benefits the states in the form of reduced costs and even new state revenue.

The Obama administration has gone to great lengths to make the expansion deal even more attractive for reluctant states. The federal Centers for Medicare & Medicaid Services (CMS) has granted “waivers,” which allow states to modify their Medicaid expansions with Republican-favored policies like beneficiary cost sharing or reliance on private insurance markets. CMS recently announced that the federal government will fund 100% of the costs for most healthcare services received by American Indians and Alaskan Natives who qualify for the state Medicaid program, a particularly powerful incentive in rural states with large Tribal populations. In the President’s 2017 budget proposal, he also extended additional federal funding to holdout states that agree to expand their Medicaid programs now, though Congress is not likely to approve that (or perhaps any) Obama proposal.

In red states that have adopted the expansion, Republican governors emphasize the moral imperative of providing health coverage for low-income people, and point to the billions of federal dollars available to pay for it. So far, however, nineteen states remain unconvinced.

Meanwhile, three million people are stuck in the coverage gap, accounting for a full 10% of America’s remaining uninsured population. Health coverage is a critical support for individual health and financial security, especially for low-income people who are already at higher risk for poor health and may struggle to pay for basic needs. The benefits of affordable and comprehensive coverage ripple out beyond the covered individual to family and friends, employers, and public institutions. Here’s hoping we can bridge the gap and restore the ACA’s promise of affordable coverage for all Americans.

Julian Polaris is a recent Yale Law School graduate and an Associate in the Healthcare Division at Manatt, Phelps & Phillips, LLP, where he advises state governments, providers, and private payers on healthcare regulatory matters. This post was written in his personal capacity.

The Petrie-Flom Center Staff

The Petrie-Flom Center staff often posts updates, announcements, and guests posts on behalf of others.

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