In his recent blog post, Tim Jost describes proposed policies — part of the Build Back Better Act (BBBA) — to improve Affordable Care Act (ACA) coverage. These include making insurance premiums more affordable, generously subsidizing the purchase of marketplace health plans, and making more people with unaffordable employer coverage eligible for subsidies in ACA marketplaces.
One of the most significant reforms is providing fully subsidized marketplace coverage for residents of states that have not expanded Medicaid coverage under the ACA. This change is temporary; it would expire at the end of 2025. The policy represents a commonsense strategy for working around the practical and legal fallout of the U.S. Supreme Court’s 2012 decision that left millions of the nation’s poorest adults uninsured.
The Affordable Care Act was supposed to achieve near-universal coverage by ensuring financial help for low-income people. The ACA entitles people with incomes between 100 percent and 400 percent of the federal poverty level — and without another source of insurance — to coverage through marketplace health plans, which are subsidized through refundable premium tax credits and cost-sharing assistance. For the poorest people, the ACA expanded Medicaid to cover working-age adults with incomes up to 138 percent of the federal poverty level.
As with earlier mandatory Medicaid expansions for children and pregnant women, the adult Medicaid expansion was intended to be nationwide, paid for through highly generous federal subsidies. However, dozens of states challenged the mandate and the Court agreed that Congress could not constitutionally force states to expand the program. But even as it barred the federal government from enforcing the mandate, the Court nonetheless left the money on the table, encouraging states to adopt expansion.
Expansion has been slow. As of the fall of 2021, 12 states had yet to expand Medicaid. The Court’s decision has been catastrophic for the residents of these states. They are caught in the so-called Medicaid coverage gap — that is, ineligible for Medicaid because they reside in a nonexpansion state but too poor for subsidized marketplace plans because their incomes are less than the 100 percent of the federal poverty level ($23,030 for a family of three in 2022) to meet eligibility requirements for the marketplace subsidies.
The states without Medicaid expansion are mainly in the South and Great Plains, meaning the excluded, uninsured population is disproportionately Black and American Indian. The impact of the gap is exacerbated by the fact that in nonexpansion states, the median financial eligibility level for traditional Medicaid benefits is extremely low — 40 percent of the poverty level or $9,212 for a family of three in 2022. The people left out face financial barriers to affordable insurance and have been forced to endure this extraordinary health inequity during a pandemic.
Although the BBBA’s solution is temporary, its significance cannot be overstated. The BBBA strategy borrows from the federalism model embodied in the ACA’s marketplace provisions and insurance market reforms. Termed the “federal fallback approach,” this strategy gives states the option either to run their own marketplaces, using federal insurance market rules as part of their own state insurance codes, or default to federal market oversight and marketplace. By preserving state autonomy, the strategy honors constitutional principles while ensuring that all people have the benefit of the ACA reforms, regardless of where they live.
The BBBA would use this federal fallback strategy to create a pathway to coverage for the poorest Americans who have been deprived of Medicaid. The strategy would respect states’ rights to opt out of the ACA Medicaid expansion, while extending eligibility for fully subsidized ACA plans to residents caught in the coverage gap.
The fallback solution is not without its limits. For the 2022–25 plan years, people with incomes below the federal poverty level would be entitled to a standard marketplace plan (also known as a silver plan) with a $0 premium. The actuarial value (i.e., the percentage of total average costs a plan will cover) would be set at 94 percent, well below Medicaid’s value, although it would rise to 99 percent during 2023–25 plan years for members with household incomes up to 138 percent of the poverty level, or $31,781 for a family of three in 2022. Medicaid offers more generous coverage than marketplace plans, with lower cost sharing and a greater scope of benefits such as adult dental care in many states. In the 2024 and 2025 plan years, marketplace plans for the fallback population would expand to cover certain benefits found in Medicaid, including nonemergency medical transportation and additional family planning benefits. Beginning in 2024, marketplace plans for the Medicaid expansion population also would provide retroactive coverage for costs incurred in the three months prior to enrollment. To discourage states that already have adopted Medicaid expansion from rolling back coverage, the federal contribution rate for the expansion population would rise from 90 percent to 93 percent during the 2023–25 plan years.
The federal fallback in Medicaid nonexpansion states is an enormous breakthrough, a constitutional workaround for an intractable problem that has had profound health equity implications. Enacting it will help advance health care coverage for all Americans.