As Democrats Bicker Over Massive Spending Plan, Here’s What’s at Stake for Medicaid

Hours after the Supreme Court in 2012 narrowly upheld the Affordable Care Act but rejected making Medicaid expansion mandatory for states, Obama administration officials laughed when asked whether that would pose a problem.

In a White House briefing, top advisers to President Barack Obama told reporters states would be foolish to turn away billions in federal funding to help residents lacking the security of health insurance.

Flash-forward nearly a decade, and it’s clear to see the consequences of that ruling.

Today, 12 Republican-controlled states have yet to adopt the Medicaid expansion, leaving 2.2 million low-income adult residents uninsured.

Tired of waiting for Republican state lawmakers, congressional Democrats are moving to close the Medicaid coverage gap as they forge a package of new domestic spending that could run as high as $3.5 trillion over 10 years and would significantly enhance other federal health programs. But the cost is raising concerns within the party, and the competition to get initiatives in the package is fierce.

With Democrats controlling both chambers of Congress and the White House, health experts say this could be the only time such a fix to the “Medicaid gap” will be possible for many years.

“This is a last best chance to do this,” said Judith Solomon, a senior fellow with the left-leaning Center on Budget and Policy Priorities.

Here are six things to know about what’s at stake for Medicaid.

1. Who would be helped?

The adults caught in the coverage gap have incomes that are too high for them to qualify under their states’ tight eligibility rules that predated the 2010 health law but are below the federal poverty level ($12,880 a year for an individual). When setting up the ACA, Congress expected that people making less than the poverty guideline would be covered by Medicaid, so the law provides no subsidies for coverage on the ACA marketplaces.

About 59% of adults in the coverage gap are people of color, according to a KFF analysis. Nearly two-thirds live in a household with at least one worker.

The states that have not expanded Medicaid are Alabama, Florida, Georgia, Kansas, Mississippi, North and South Carolina, South Dakota, Tennessee, Texas, Wisconsin and Wyoming.

About three-quarters of those in the coverage gap live in four states: Texas (35%), Florida (19%), Georgia (12%) and North Carolina (10%).

2. Why haven’t states expanded?

Republicans in these states have listed a litany of reasons. They assert that Medicaid, a state-federal program launched in 1966 that today covers 1 in 4 Americans, is a broken system that doesn’t improve health, despite dozens of studies to the contrary. Or they say working adults don’t deserve government help with health insurance. They also complain it’s too expensive for states to put up their 10% share (the federal government pays the rest), and they don’t trust Congress will keep up its funding promises for expansion states.

Each time Medicaid expansion has made it onto a ballot in a Republican-majority state, it has passed — most recently in 2020 in Oklahoma and Missouri.

3. How would the Democrats’ plan work?

The House plan has two phases. Under the bill passed by the Energy and Commerce Committee, starting in 2022, people in the coverage gap with incomes up to 138% of the federal poverty level (about $17,774 for an individual) would be eligible for subsidies to buy coverage on the marketplace.

Enrollees wouldn’t pay a monthly premium because the tax credits would be enough to cover the full cost, according to an analysis by Solomon. There would be no deductibles to meet and only minimal copays, like most state Medicaid programs.

Help not typically available under the ACA would be offered. For example, Solomon’s analysis notes, low-paid workers wouldn’t be barred from enrolling in marketplace plans because they have an offer of employer coverage. In addition, people could enroll at any time during the year, not just during open enrollment season in late fall/early winter.

Phase two would begin in 2025. That’s when people in the coverage gap would transition to a federally operated Medicaid program run by managed-care plans and third-party administrators.

Enrollees would not pay any cost sharing in the federal Medicaid plan.

4. Would the coverage be as good as if the states adopted expansion?

It would be very close, Solomon said. The new plan would include coverage for all services defined by the law as “essential” health benefits, such as hospital services and prescription drugs.

One difference is coverage for nonemergency transportation services would not start until 2024. In addition, during those early years of the plan, some long-term services for medically frail people typically covered under Medicaid would not be included and some screening and treatment services for 19- and 20-year-olds would not be offered.

The first phase would also not provide retroactive coverage for the three months prior to application. Medicaid today covers medical expenses incurred in the three months before an individual applies if the person is found to have been eligible during those months.

One potential benefit of using the marketplace plans is they could have broader networks of doctors than those associated with Medicaid programs.

5. How much would it cost?

The Congressional Budget Office has not yet revealed estimates, although the price tag would likely be in the billions of dollars.

The federal cost for covering people by helping them buy marketplace plans is higher than it would be if the states had expanded Medicaid. That’s because marketplace plans generally pay higher fees to doctors and hospitals, making them more costly, Solomon explained.

6. Could states that have already expanded Medicaid rescind that policy and require residents to get coverage under the new setup?

The bill offers incentives for states to keep their current Medicaid options. If a state opts to stop spending funds on the Medicaid expansion, it may have to pay a penalty based on the number of enrollees that move to the federal program, potentially amounting to millions of dollars.

KHN (Kaiser Health News) is a national newsroom that produces in-depth journalism about health issues. Together with Policy Analysis and Polling, KHN is one of the three major operating programs at KFF (Kaiser Family Foundation). KFF is an endowed nonprofit organization providing information on health issues to the nation.

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