Is a Public Option the Solution to the Medicaid Expansion Coverage Gap?

The Affordable Care Act (ACA) allowed states to expand Medicaid to adults with incomes up to 133% of the Federal Poverty Level (FPL). Initially, a requirement in the ACA, a later Supreme Court ruling made Medicaid expansion a state option.

The majority of states have expanded Medicaid eligibility, though 12 states have not. Those states count nearly 15 million uninsured residents, 5.8 million of which have income below the FPL. According to a KFF report on the Medicaid coverage gap, the median income limit for parents in those states was less than 41% of the FPL. In most non-expansion states, childless adults are ineligible for Medicaid.

Unfortunately, the ACA envisioned Medicaid expansion as universal, not optional. As a result, most adults with income less than the FPL do not qualify for subsidies in ACA health insurance marketplaces. Those subsidies are only available to those with income between 100% and 400% of FPL. It’s estimated that more than 2 million Americans are likely uninsured because the costs of insurance are too high without either subsidized or Medicaid coverage.

Have politicians proposed options to close the Medicaid expansion coverage gap?

To solve the Medicaid coverage gap, earlier this year Democrats tried to entice holdout states with incentives that increased federal matching funds. To date, they’ve found no takers, with most of the holdout states entrenched in rejecting Medicaid expansion.

Democrats have proposed other solutions to close the gap. One solution is a Federal public option specifically for those that fall into the Medicaid coverage gap. President Biden mentioned the public option in his 2022 budget, which said “In States that have not expanded Medicaid, the President has proposed extending coverage to millions of people by providing premium-free, Medicaid-like coverage through a Federal public option, paired with financial incentives to ensure States maintain their existing expansions.” Additionally Georgia’s two senators recently wrote a letter proposing a “federal Medicaid look-alike program that is run through the Centers for Medicare and Medicaid Services (CMS).”

How would a public option work?

The federal government has not defined the specifics of a public option yet. However, they would likely create a narrowly defined plan. That plan would cover those whose incomes are less than 100% of FPL. CMS would likely administer the program and pay providers based on Medicare rates and negotiated prescription drug prices.

How much would closing the Medicaid expansion coverage gap cost?

The Urban Institute recently studied the financial impact of several options to close the Medicaid expansion coverage gap. Their study examined the costs of a public option compared to making the expansion population eligible for subsidies in the individual exchanges. Their analysis found that the public option would cost the federal government $11.4 to $12.3 billion. Meanwhile, marketplace subsidies would range from $16.6 to $18.1 billion. In their analysis, a public option would save the federal government money when compared to subsidies offered in the ACA marketplaces to those whose incomes are less than 100% of FPL.

Would it lead to states reversing Medicaid expansion?

It may. As previously discussed, the Biden administration’s budget indicated increased funding to current expansion states may be required. It may be financially favorable for states that implemented Medicaid expansion to roll back that expansion. Realistically, a new federal public option plan ultimately costs states nothing.

But will they? A recent Commonwealth Fund blog post indicated that states may not. First, they’ll give up control of their plans. Today they can control things like enrollment, coverage, networks, payment policies and include specific insurers in managed care. As a result, they control a significant flow of funds to businesses and other organizations within their states. That control may be difficult to relinquish.

Second, rescinding expansion requires federal oversight as well as a lot of administrative work to get there. Will states think that work is worth the effort?

Third, states face unintended consequences if rolling back Medicaid expansion. As the Commonwealth Fund argues “Losses of this magnitude could be expected to produce major effects in terms of overall health system stability, particularly since many providers have ramped up capacity and services in response to burgeoning demand for care. Even if alternative coverage is ultimately reestablished, there would be a major disruption if huge numbers of people are forced to migrate from one type of insurance to another.” Politicians and administrators likely see the disruption of the health care market as a political landmine.

Will the federal government implement a Medicaid expansion public option?

Reading the tea leaves, it looks like an immense undertaking compared to other options. That’s likely why the Biden administration’s first action to close the gap was offering non-expansion states incentives. There’s also a significant political backlash to contend with — public options are fraught with political risk in the US. But as a last resort, implementing a public option may become the only option to closing the Medicaid expansion gap and giving up to 3 million Americans health insurance. Ultimately, though, it seems like a public option to close the Medicaid expansion coverage gap is a longshot.

Certifi helps states with Section 1115 Medicaid waivers bill and collect payments thanks to a premium billing and collections module that earned R3 certification under the requirements of the Medicaid Enterprise Certification Toolkit (MECT).

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