Build Back Better Would Change the Ways Low-Income People get Health Insurance

The Build Back Better Act would make a number of changes to the way people get health insurance and how health care is financed, including by temporarily closing the Medicaid coverage gap. Under current law, 2.2 million uninsured people living in the 12 states that have not expanded Medicaid under the Affordable Care Act (ACA) fall into the Medicaid coverage gap, meaning they are generally ineligible for financial assistance to get health coverage.

What are current health coverage options for low-income people?

The ACA expanded health coverage to millions of people, including by expanding Medicaid and creating health insurance Marketplaces with subsidized coverage starting in 2014. The ACA originally intended to expand Medicaid for nearly all adults with incomes below 138% of the poverty level (about $17,770 for a single individual in 2021) and for those with incomes over that level who did not get insurance through work or Medicare to buy health insurance on the Marketplaces with subsidies based on income. However, a 2012 Supreme Court decision effectively made it optional for states to expand Medicaid, and to this day 12 states have not adopted the expansion, leaving many adults (including low-income parents as well as adults without dependent children) without affordable coverage options. Although Wisconsin has not adopted the Medicaid expansion, there is no one in the coverage gap in Wisconsin because the state provides Medicaid to people under 100% of poverty through a waiver.

Under current law, in non-expansion states, non-elderly adults who do not qualify for Medicaid based on disability and who do not have dependent children are not eligible for Medicaid regardless of their income. And, while all Medicaid programs cover parents, the eligibility levels in non-expansion states are very low (the median eligibility level is 40% FPL). Because Marketplace subsidies are only available to those with income above the poverty level, poor adults who are not eligible for Medicaid are also ineligible for subsidized Marketplace coverage, unless they are American Indian or are recent immigrants who would otherwise be eligible for Medicaid.

Adults with incomes over the federal poverty level in non-expansion states are eligible for generous Marketplace subsidies that help with both the monthly premium and deductibles if they are not otherwise eligible for affordable coverage through work or Medicare. The recent COVID-19 relief legislation – the American Rescue Plan Act (ARPA) – increased the amount of financial assistance available to low-income Marketplace enrollees, making those with incomes between 100 and 150% of the poverty level eligible for $0 premium silver plans with very low deductibles. But, the ARPA did not extend these subsidies below the poverty level, meaning the Medicaid coverage gap persists in non-expansion states. The ARPA did however include additional temporary fiscal incentives for states to newly adopt the Medicaid expansion.

How would Build Back Better change health coverage options for low-income people?

If passed, the Build Back Better Act would temporarily close the Medicaid coverage gap by extending Marketplace subsidies below the poverty level in non-expansion states to adults who may not be eligible through a non-expansion pathway. In states that have adopted the expansion, the legislation would increase the federal match rate from 90% to 93% from 2023 through 2025 to encourage states to maintain their expansion status).

In states that do not expand Medicaid, starting in 2022, the ACA Marketplaces subsidies would offer $0 silver plans with reduced cost-sharing. In 2022, people below poverty would have access to 94% actuarial value silver plans with no monthly premium and deductibles typically under $200. (The actuarial value is the share of a typical populations’ costs that are covered by insurance). In 2023 through 2025, silver plan premiums would still be $0, but for those under 138% of poverty, silver plans would have a 99% actuarial value – meaning their plan will have little or no deductible.

How would Marketplace coverage compare to Medicaid expansion?

In addition to lowering out-of-pocket costs, the Build Back Better Act would make other changes to how Marketplace plans work for low-income enrollees to bring the plans closer to Medicaid standards. For years 2024 and 2025, silver plans for individuals with incomes under 138% of poverty would have to cover non-emergency transportation services and family planning services and supplies that are required under state Medicaid plans with no cost sharing. The requirement to file federal tax returns in order to reconcile premium tax credits would also be waived for these new enrollees with income below 138% of the poverty level. And, an offer of employer-sponsored health insurance would not make these new enrollees ineligible for marketplace subsidies.

Low-income enrollees also would not be limited to signing up during the open enrollment period, and could have access to Marketplace coverage year-round. One advantage of using the Marketplace to expand coverage to low-income people is that, if their income rises above 138% of poverty, they can keep the same Marketplace plan and not have to reapply for a different source of coverage, which might mitigate some coverage loss during transitions.

However, there are some disadvantages to Marketplace coverage compared to Medicaid for low-income individuals. While some states require nominal co-payments for certain services, Marketplace coverage under the Build Back Better Act will likely require higher cost sharing for some enrollees than what they would have paid in Medicaid. (While plans with cost sharing subsidies have very low deductibles and copays for most services, coinsurance might apply for key costly services, such as hospitalization, emergency room care, or specialty drugs).

Medicaid requires retroactive coverage for three months prior to application, so Medicaid covers costs incurred during this period. Coverage in marketplace plans will only take effect prospectively, generally on the first day of the month following plan selection. As a result, marketplace plans will not cover health care expenses incurred prior to the effective date of coverage.

Additionally, Marketplace plans, particularly lower cost plans, often have narrow provider networks, which may limit the choice of hospitals or other providers compared to Medicaid, though this will depend on the state and the plans offered on the Marketplace. On the Marketplace, if a low-income enrollee wants to enroll in a plan with more choices of doctors or hospitals, and if such a plan is offered in their area, they may have the option to pay the difference in the monthly premium between the benchmark silver plan and the broader network plan.

Finally, while people in the Medicaid gap will generally qualify for $0 silver plans, the Marketplace tax credit can only be applied to the portion of the premium that is for essential health benefits. If both the lowest-cost and second-lowest-cost (benchmark) silver plans include non-essential health benefits, the enrollee must pay a small monthly amount to cover the non-essential benefit portion of the premium. In about 13% of counties in states using Healthcare.gov, both of the two lowest-cost silver plans include non-essential health benefits in 2022. Low-income enrollees in those counties would otherwise be eligible for $0 premium plans, but may instead have to pay a few dollars per month. If payment is missed, coverage can be terminated.

Looking ahead

While navigating and signing up for health insurance will remain a complicated task for many low-income people, the Build Back Better Act would provide $105 million in additional funding through 2025 for targeted outreach to individuals in the Medicaid coverage gap to inform them of their eligibility for subsidized coverage in the Marketplaces. In addition, the Act directs the federal Marketplace to make no less than an additional $70 million—at least $10 million in FY 2022 and $20 million in each of FY 2023-2025—available to Navigators in non-expansion states to help individuals sign up for coverage. Finally, to facilitate enrollment in coverage, the legislation would allow individuals with income below 138% of poverty to enroll in Marketplace coverage throughout the year.

Seven years after the Medicaid coverage gap was created, passage of the Build Back Better Act would provide affordable, comprehensive coverage, albeit temporarily, to the more than 2 million that are uninsured because their states have chosen not to expand Medicaid. However, the Build Back Better Act’s closure of the Medicaid coverage gap is only temporary, at a cost to the federal government of $57 billion according to the Congressional Budget Office. After the year 2025, if Congress does not act to extend the subsidies, approximately 2.2 million people living in non-expansion states who have incomes under 100% of poverty would fall back into the Medicaid coverage gap unless the state adopts the Medicaid expansion (with the ARPA financial incentive). Similarly, Marketplace-eligible people with incomes between 100-138% of poverty would see their monthly silver plan premiums rise.