Federal Policy May Temporarily Close the Coverage Gap, But Long-term Coverage May Fall Back to States

Recent policy attention has focused on closing the coverage gap for roughly 2.2 million individuals living in the 12 states that have not adopted Medicaid expansion included in the Affordable Care Act (ACA). These individuals do not qualify for Medicaid and have incomes below poverty, making them ineligible for premium subsidies in the ACA Marketplace. Pending federal legislation may temporarily provide coverage to individuals in the coverage gap, but providing a permanent pathway to coverage may fall back to the states in the long-term.

The Build Back Better Act currently pending in Congress includes a provision to close the Medicaid coverage gap for three years. From January 1, 2022 through December 31, 2025, individuals in the coverage gap residing in nonexpansion states would become eligible for subsidies for coverage in the Marketplace. They would qualify for a full premium subsidy for a benchmark plan and for a cost-sharing reduction that gives them access to plans with an actuarial value of 99% (which means the cost-sharing paid by patients would average just 1% of expenses). The legislation would also increase the federal matching assistance percentage (FMAP) from 90% to 93% for the expansion population from 2023 through 2025 to help ensure that states that have already implemented expansion maintain coverage. In addition, the legislation includes provisions to phase out the current continuous coverage requirements under the public health emergency, but includes a 3.1 percentage point reduction in a states’ FMAP if a state restricts eligibility (including but not limited to expansion coverage) through December 2025.

Although the Build Back Better Act would expire after 2025, states that newly implement Medicaid expansion will have the option to receive a temporary fiscal incentive under the American Rescue Plan Act (ARPA). Under the ACA, the federal government pays for 90% of the costs for the expansion group. However, under ARPA which was enacted in March 2021, new expansion states would be eligible for an additional 5 percentage point increase in the state’s traditional match rate for two years if they implement the expansion at any time. The traditional FMAP applies to most services for non-expansion groups. Since this group is much larger than a state’s expansion population, states would benefit from additional funds for a large share of their Medicaid program. A KFF analysis also shows that all non-expansion states would see a net fiscal benefit for two years by newly expanding.

The ARPA federal incentive reignited discussion around Medicaid expansion in a few non-expansion states during the last state legislative session. While no state newly adopted expansion after the ARPA incentive was enacted, a number of states debated expansion and could come back to these debates when the federal coverage for those in the gap expires or at any time before that. Such action could depend on state politics (who is governor and what party controls the state legislature) as well as thoughts about tradeoffs with a short term federal fix versus an expansion program that is designated by the state. Recent activity around Medicaid expansion included activity in the following states:

• In March 2021, Wyoming legislators introduced a Medicaid expansion bill recognizing the ARPA incentive. The bill passed the House but subsequently failed in a Senate committee by a slim margin – the furthest advance of Medicaid expansion legislation in the state.
• Three states – Wisconsin, Kansas, and North Carolina– have Democratic governors that reintroduced Medicaid expansion proposals this year after failed attempts in prior years. Efforts did not advance in Republican-controlled legislatures, although as of November 1, 2021 the budget and the issue of Medicaid expansion are in flux in North Carolina.
• Lawmakers in Texas introduced (but did not advance) Medicaid expansion proposals in the 2021 legislative session, with some bipartisan support. For example, there was legislation to place Medicaid expansion on the ballot as a constitutional amendment and other legislation to implement Medicaid expansion via Section 1115 authority, with premium requirements and healthy behaviors incentives.
• Prior to ARPA, advocates in several states have considered expanding Medicaid through a voter-driven ballot initiative process. Efforts are on-going in South Dakota, but efforts in Mississippi were suspended and an initiative in Florida was delayed. Both Oklahoma and Missouri adopted expansion via ballot initiative last summer. Oklahoma implemented expansion on July 1, 2021. In Missouri, the path to implementation faced roadblocks but ultimately the state began processing Medicaid expansion applications on October 1.

For now, it seems like action to fully address the coverage gap will likely depend on federal action, but longer-term coverage may fall back to the states. If enacted, the Build Back Better legislation would provide a coverage option for the 2.2 million living in nonexpansion states who fall into the coverage gap. The plan would expand health coverage and promote racial equity. As the plan would only be available through 2025, the decision may fall into the hands of states again where they can choose to implement expansion and receive the temporary fiscal incentive under ARPA, or to Congress where they can choose to renew the federal proposal.

To track updated state-by-state activity on Medicaid expansion, please visit our Medicaid Expansion State Tracker.