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JAMA Forum
October 14, 2021

The Inequity of the Medicaid Coverage Gap and Why It Is Hard to Fix It

Author Affiliations
  • 1Kaiser Family Foundation, San Francisco, California
JAMA Health Forum. 2021;2(10):e213905. doi:10.1001/jamahealthforum.2021.3905

The Affordable Care Act (ACA) envisioned a seamless system of health coverage. All people who are poor and near poor would be covered by Medicaid, and those with incomes above that who do not have access to employer-provided health benefits could buy private insurance in the ACA marketplace with subsidies to help make it more affordable.

The Supreme Court had other ideas.

In the 2012 decision that upheld the constitutionality of the requirement to get insured or pay a tax penalty—which has since been repealed—the court threw a curveball (or, maybe more aptly, a knuckleball) on Medicaid. It ruled that states could not be required to expand Medicaid to everyone with incomes up to 138% of the poverty level (currently about $17 800 for a single person and $30 000 for a family of 3).

The federal government still makes it extremely enticing for states to expand Medicaid eligibility. It covers 90% of the cost. And, in the American Rescue Plan passed earlier this year, there is now an additional fiscal incentive provided to states for 2 years if they start the expansion process. The net effect of this incentive is that states would literally make money for 2 years if they expand Medicaid.1 They would still have to cover their 10% share of the cost after the temporary incentive expires.

Thirty-eight states plus the District of Columbia have opted to expand Medicaid, seeing this as a good opportunity to expand access to health coverage with primarily federal funding. In some cases—Idaho, Maine, Missouri, Nebraska, Oklahoma, and Utah—voters passed ballot measures to expand the program over the opposition of state political leaders. However, 12 states, largely in the South, have chosen not to expand Medicaid, wanting to avoid the additional budgetary expense and the appearance of supporting “Obamacare” (as the ACA is still often called).

The result is what has come to be known as the “Medicaid coverage gap.” People with incomes below the poverty level are not eligible for premium help in the ACA marketplace. In the original ACA vision, before the Supreme Court decision, there was no need for ACA marketplace eligibility below that level because all poor people were expected to be eligible for Medicaid.

In states that have not expanded Medicaid, adults who are not elderly or disabled and who are without children are not eligible, no matter how low their income. Parents are eligible in all the nonexpansion states, but generally with very low income thresholds—the median income limit is 40% of the poverty level.2 In Texas, for example, which has the largest number of uninsured adults of any state, a parent with 2 children making more than $3733 per year (17% of the poverty level) would be ineligible for Medicaid and caught in the coverage gap.

An estimated 2.2 million uninsured adults fall in the coverage gap,3 with income too high to qualify for traditional Medicaid but too low to qualify for subsidized ACA marketplace coverage. Over three-quarters of people in the coverage gap live in just 4 southern states: Florida, Georgia, North Carolina, and Texas.

Black and Hispanic people are more likely to be uninsured than White people,4 and one reason is that 59% of those in the Medicaid coverage gap are racial and ethnic minority groups.

President Biden vowed during the campaign to close the Medicaid coverage gap, and it is part of the social spending package Democrats in Congress are currently debating, called the Build Back Better Act. An issue of health and racial equity that plugs a big hole in the ACA would seem like a no-brainer for Democrats, but major challenges must be overcome.

One big challenge is money. If the 12 holdout states chose to expand Medicaid, the federal government would automatically cover its 90% share of the cost as an entitlement. However, if Congress votes to fill the Medicaid gap, it will count as new spending and will be competing against other priorities. Democrats in Congress passed a budget resolution authorizing up to $3.5 trillion in spending over 10 years for the Build Back Better plan, but there is pressure from some centrists within the party to scale back that spending.

When tallying costs of new programs, Congress generally operates on a 10-year time horizon. One way of reducing the budgetary expense of filling the Medicaid gap would be to allow it to “sunset”—expire after a specific date—and hope that a future Congress extends it or that the holdout states decide to continue the expansion themselves.

The cost could be affected as well by what happens in the 38 states (plus the District of Columbia) that already have expanded Medicaid. Some of these states might choose to drop the expansion if the federal government steps in and covers the entire cost, leading to more people in the gap and a higher federal cost. These states—which are covering 10% of the cost of expanded eligibility—may also be resentful that states that have not expanded Medicaid would in effect be let off the hook while their poor residents still get coverage. A maintenance-of-effort requirement would serve as a stick to discourage current expansion states from dropping Medicaid expansion, but may intensify the resentment. Providing additional fiscal carrots to states to maintain Medicaid expansion would also discourage such a policy decision, but cost more money.

There are political headwinds, too. Even though Democrats in Congress overwhelmingly support the ACA and health coverage for poor people, the people in the coverage gap live largely in Republican states. Just 3 Democratic senators represent states that have not expanded Medicaid. Nonetheless, filling the Medicaid gap does have some politically powerful advocates. Democratic Senator Raphael Warnock of Georgia (a nonexpansion state) campaigned heavily on expanding Medicaid and is up for reelection next year. Democratic Representative James Clyburn of South Carolina (also a nonexpansion state), who is the House majority whip, has framed filling the Medicaid gap as an issue of racial equity.

In fact, no health proposal currently being debated would likely do more to expand health coverage and promote racial equity than filling the Medicaid gap. But to become a reality, this proposal will have to overcome political obstacles, fiscal constraints, and competing priorities.

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Article Information

Open Access: This is an open access article distributed under the terms of the CC-BY License. © 2021 Levitt L. JAMA Health Forum.

Corresponding Author: Larry Levitt, MPP, Henry J. Kaiser Family Foundation, 185 Berry St, Ste 2000, San Francisco, CA 94107 (larryl@kff.org).

Conflict of Interest Disclosures: None reported.

Rudowitz  R, Corallo  B, Garfield  R; Kaiser Family Foundation. New incentive for states to adopt the ACA Medicaid expansion: implications for state spending. Published March 17, 2022. Accessed October 5, 2021. https://www.kff.org/medicaid/issue-brief/new-incentive-for-states-to-adopt-the-aca-medicaid-expansion-implications-for-state-spending/
Brooks  T, Gardner  A, Tolbert  J, Dolan  R, Pham  O; Kaiser Family Foundation. Medicaid and CHIP eligibility and enrollment policies as of January 2021: findings from a 50-state survey. Published March 8, 2021. Accessed October 5, 2021. https://www.kff.org/report-section/medicaid-and-chip-eligibility-and-enrollment-policies-as-of-january-2021-findings-from-a-50-state-survey-report/
Garfield  R, Orgera  K, Damico  A; Kaiser Family Foundation. The coverage gap: uninsured poor adults in states that do not expand Medicaid. Published January 21, 2021. Accessed October 5, 2021. https://www.kff.org/medicaid/issue-brief/the-coverage-gap-uninsured-poor-adults-in-states-that-do-not-expand-medicaid/
Tolbert  J, Orgera  K, Damico  A; Kaiser Family Foundation. What does the CPS tell us about health insurance coverage in 2020? Published September 23, 2021. Accessed October 5, 2021. https://www.kff.org/uninsured/issue-brief/what-does-the-cps-tell-us-about-health-insurance-coverage-in-2020/