Avoiding the Medicaid 'coverage crater'

When Congress approved a prescription drug benefit for the Medicare program in the mid-2000s, it created the infamous ‘Medicare donut hole‘ – a large gap in coverage of prescription drug costs.

The Affordable Care Act (ACA), the landmark health care law, brought about important changes that gradually eliminates the ‘donut hole’ by 2020. But now, as a result of the Supreme Court’s recent ruling, low-income Oklahomans could find themselves in a similar situation,  stuck in a ‘coverage crater’, without access to public or private coverage and consigned to the ranks of the uninsured.

The ACA adopts two primary mechanisms to cover the uninsured. The first is to expand Medicaid, the federal-state insurance program that primarily covers low-income children, seniors, and persons with disabilities. In Oklahoma, like in many states, Medicaid coverage for working-age adults is extremely limited. Only parents of dependent children with incomes below roughly $7,000 per year for a family of three (37 percent of the federal poverty level) are eligible. Working-age adults without children are ineligible for Medicaid regardless of how little they earn. The uninsured rate for this population is extremely high, nearing 50 percent in Oklahoma. This population is especially likely to suffer from chronic physical and mental health conditions that make earning a steady income difficult.

The ACA makes adults with income up to 133 percent of poverty eligible for Medicaid as of January 1, 2014. To ensure that states go along with the expansion, the law provided both a large carrot and a heavy stick. The incentive is a federal commitment to cover the lion’s share of the costs of the newly-eligible Medicaid population – 100 percent for three years, then phasing down to 90 percent in 2020 and subsequent years. For states that didn’t adopt the expansion, the federal government could withdraw all federal funds for the Medicaid program.

The Supreme Court, however, ruled that the threat of withholding all federal Medicaid funds for a state that does not expand  coverage for low-income adults was unconstitutional. As SCOTUSblog explains:

The result is that states can choose to participate in the expansion, must comply with the conditions attached to the new expansion funds if they take that new money, but states can also choose to continue to participate only in the unexpanded version of the program if they want.

The second mechanism for expanding coverage to the uninsured is by providing tax credits to subsidize the purchase of insurance through the newly-created health insurance exchanges that are set to launch in January 2014. These credits will be available on a sliding scale for individuals with income between 100 percent and 400 percent of the federal poverty level. Between expanded Medicaid coverage and subsidies for private coverage through the exchange, the expectation was that everyone would have access to affordable coverage.

A major consequence of the Supreme Court’s ruling is that in a state that chooses not to expand Medicaid, most adults living in poverty will be left without coverage options. They will earn too little to be eligible for premium credits that will make individual coverage affordable through the exchange. Yet they will remain ineligible for Medicaid unless they fit the narrow categorical and income requirements (parents of dependent children under 37 percent of poverty). Some 130,000 uninsured Oklahomans could remain stuck in the ‘coverage crater’.

Expanding Medicaid to this population would help them access timely and appropriate health care, leading to better health status and improved economic prospects. It would reduce uncompensated care costs for hospitals and other providers, and reduce state spending on mental health care and other services for the uninsured. To turn down this opportunity to lift 130,000 Oklahomans out of the coverage crater would be contrary to the state’s interests and lacking in basic compassion and common sense.

See our 1-page fact sheet on Medicaid and the Affordable Care Act