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How the ACA has changed health coverage for the poor

By KENT GARDNER
Policy Wonk
Rochester Business Journal
April 18, 2014

The Patient Protection and Affordable Care Act’s initial enrollment period is over and Health and Human Services Secretary Kathleen Sibelius has resigned, having earned a jacket full of Purple Hearts from countless congressional hearings. What have we wrought?

Make no mistake: This will revolutionize health care in the United States. As the Arab Spring suggests, revolutions can be good or bad. Or both, as in this case.

In the first of two columns on the Affordable Care Act, let’s focus on how coverage for the poor has changed.

Who’s covered?
As the states have long been obligated to pay a portion of the cost of Medicaid, they have retained a high level of autonomy over the program—both coverage and eligibility. As a result, Medicaid has been a patchwork of 51 different programs governed under an array of federal laws and waivers.

The ACA included two revolutionary changes in Medicaid coverage. First, the program was expanded to cover non-disabled, childless adults with the income threshold set to 138 percent of the federal poverty line. Prior to the ACA, only eight states—including New York—provided coverage to this population through federal waivers. Second, the law increased the coverage threshold for parents, again to 138 percent of the federal poverty line. These expansions in eligibility were mandatory and would have imposed some consistency on the state programs. In exchange, Congress promised to pay most of the cost of the expansion—the full cost for three years and 90 percent thereafter.

This eligibility provision was struck down by the U.S. Supreme Court, however. While the plaintiffs sought to have the entire law thrown out, the Supremes split the baby in true Solomonic fashion and the Medicaid expansion became optional for states.

The law was intended to improve access to health care for individuals and families at or near the poverty line and for individuals and families who are working but lack access to an affordable plan. The Medicaid expansion was designed to fix the first problem. The health insurance marketplace, offering subsidized coverage between 100 percent and 400 percent of the federal poverty line, was designed to fix the other. But when the Medicaid expansion became optional, it opened up a gap in coverage.

The coverage gap
Pennsylvania is one of 22 states that chose not to expand Medicaid coverage. Suppose you live in Pittsburgh. You’re a non-disabled, childless adult and you earned $11,490 in 2013, right at the federal poverty line. You are eligible—obligated under the law, actually—to buy health insurance. The ACA guarantees you access to a “silver” plan for a cost of no more than 2 percent of your income. If you buy one of the silver plans available in Pittsburgh, you pay only $230. You could spend more and buy a gold or platinum plan, or you could enroll in a bronze plan and pay nothing.

Ah, but what if you lost your job late in the year and you earned only $11,480? Then you’re out of luck. Pennsylvania Medicaid provides no coverage for non-disabled, childless adults. And you don’t earn enough to qualify for marketplace coverage.

This “coverage gap”—where individuals with income at or above the federal poverty line are eligible for subsidized marketplace coverage but poorer individuals are not—affects an estimated 4.8 million people.

This may be the first time in history when some Americans will have an incentive to overstate their income to the Internal Revenue Service. Will the IRS audit the tax returns of individuals who claim marketplace credits with inflated income?

States that took the deal
The coverage gap doesn’t apply in New York, since we have been covering non-disabled, childless adults up to 100 percent of the federal poverty line. Federal subsidies are funding the cost of expanding to 138 percent of the poverty line. In addition to New York, seven states offered coverage to this population before the ACA passed. Under the law, 20 states have begun to offer Medicaid coverage to non-disabled, childless adults this year.

What about non-disabled parents? Prior to the ACA, all states provided coverage to non-disabled parents, although often at a low income threshold. New York covered non-disabled parents up to 150 percent of the federal poverty line before the ACA, then reduced the threshold to 138 percent when the marketplace was established. (In 2014, 138 percent of the federal poverty line is $16,105 for an individual and $27,310 for a family of three.)

Enrollment strong
Despite the desperate hopes of the naysayers, the final enrollment in either marketplace plans or expanded Medicaid plans is likely to be between 7.5 and 8 million: Through February, marketplace enrollment (not Medicaid) was 4.2 million. Medicaid enrollment was 3 million more.

And why not? Despite some bizarre advertising from opponents, the ACA is a good deal for individuals. Of the 4.2 million who signed up for marketplace plans, 83 percent expect to receive a federal subsidy. The existence of the marketplace (both federal and state-based) has spurred Medicaid enrollment, too.

Are we reducing the number uninsured people? A survey concluded on March 28 by the Rand Corp. reports that about one-third of individuals signing up for new plans were previously uninsured, slightly higher than the number reported by a survey conducted in February by Mc-Kinsey & Co. The remainder signed up for a marketplace plan as a replacement for prior coverage.

The Urban Institute’s Health Policy Center also conducted a survey in February and estimates that the share of individuals without coverage has fallen from 17.5 percent to 15.2 percent. The decline is more pronounced in states expanding Medicaid, as we would expect, from 15.4 percent to 12.4 percent.

What about cost?
Medicaid is funded entirely by federal and state taxpayers; a substantial increase in total Medicaid enrollment is not cheap. Most marketplace enrollees are receiving subsidies, and these also will add up. Although the Congressional Budget Office just announced that its models are predicting lower total cost than they did previously, prediction is tough when many things change at once.

In my next column, we’ll explore more questions:

  •  Might cost be driven down by other ACA changes, such as the broad shift to high-deductible health plans?
  •  What happens to primary care access when we increase the number of people covered by health insurance?
  •  What are the implications of the coverage gap and other ACA provisions on labor mobility?
  •  Is the ACA a “Trojan horse” for a single-payer health system?


Kent Gardner is chief economist and chief research officer of the Center for Governmental Research Inc.

4/18/14 (c) 2014 Rochester Business Journal. To obtain permission to reprint this article, call 585-546-8303 or email service@rbj.net.


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