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Why Medicaid Expansion States Are Unlikely to Eliminate Coverage if Congress Enacts a New Pathway for Residents in Coverage Gap

  • Sara Rosenbaum

    Harold and Jane Hirsh Professor of Health Law and Policy, Milken Institute School of Public Health at the George Washington University

  • Sara Rosenbaum

    Harold and Jane Hirsh Professor of Health Law and Policy, Milken Institute School of Public Health at the George Washington University

  • Closing the Medicaid coverage gap would advance the cause of health equity, but would creating a new federal pathway to coverage lead some states to end their Medicaid expansions? No, argues Sara Rosenbaum.

  • States that expanded Medicaid have realized enormous health and economic benefits, making it unlikely they would rescind their expansions if a federal alternative is created

Recently there have been increasing calls from leading members of Congress and civil rights and advocacy organizations to close the “coverage gap.” This refers to an estimated 2.2 million people — disproportionately Black or American Indian — who live in states that have not yet expanded Medicaid and have incomes that are too high to qualify for Medicaid but too low for subsidized marketplace coverage (i.e., below 100% of the federal poverty level, or $21,960 for a family of three). The people caught in this gap have no pathway to affordable insurance, a situation made exponentially worse by the COVID-19 pandemic. Nonexpansion states have failed to act, even after they were offered additional financial incentives in the American Rescue Plan. Given the Biden administration’s unprecedented commitment to health equity, finding a coverage solution is particularly urgent.

Discussions about closing the gap include creating a fallback coverage pathway, which could be a fully subsidized, 100-percent federally funded marketplace plan or a federally administered Medicaid plan, as Senators Raphael Warnock, Tammy Baldwin, and Jon Ossoff have proposed. However, one concern receiving attention is whether creating a federal pathway to coverage could lead existing Medicaid expansion states to eliminate expansion.

Dropping coverage has been an option since the U.S. Supreme Court declared mandatory expansion to be a federally unenforceable requirement in 2012. But the stability of the ACA’s original funding enhancement for expanded Medicaid and the enormous health and economic benefits expansion states have realized, have made expansion highly durable over time. The pandemic has further driven home Medicaid’s vital role in the health care system.

There are three considerations that counter the idea that a federal alternative to traditional state expansion will prompt states to abandon their prior commitments.

First, states that cover low-income people through Medicaid rather than deferring to a federal fallback give themselves enormous direct purchasing power. By controlling enrollment, coverage, network, and payment policies, states can direct the flow of billions of dollars in federal, state, and local funding. For instance, under Medicaid, states can make decisions regarding scope of coverage, whether to include specific insurers in Medicaid managed care, whether to favor certain plans with higher enrollment rates, when and how to use cost sharing, and setting provider payment rules, especially the special payments that flow to large safety-net hospitals and health systems. Giving up a state-administered Medicaid system would mean giving up this control. This is especially true given the large size of the expansion population. The Medicaid and CHIP Payment and Access Commission (MACPAC) estimated that as of June 2019, even before the pandemic swelled Medicaid enrollment, the new adult group — estimated at 15.3 million people — represented 20 percent of Medicaid enrollment across reporting states. Whatever nominal amount a state might save by eliminating its 10 percent contribution to covering the expansion population and opting instead for one of the potential new federal proposals would be swamped by the loss of financial leverage and direct federal revenue flow into the state’s coffers.

Second, as a matter of federal law, unwinding expansion cannot happen overnight. States that seek to remove an eligibility group from their plans — which is almost unheard of in Medicaid’s 55 years — must undergo a lengthy process that is subject to extensive federal oversight. The state is required to give notice to and receive clearance from the Centers for Medicare and Medicaid Services, as well as give timely, advance notice to all affected individuals. Furthermore, individuals threatened with the loss of coverage are entitled to extensive due process protections, including the opportunity for a pretermination hearing. The task of terminating coverage on such a vast scale is astonishing. Expansion has added about 15 million people to Medicaid — one of five beneficiaries. Thus, states dropping expansion effectively would reduce enrollment by 20 percent.

Third, reducing a state’s Medicaid population by such a significant degree — unprecedented in the program’s history — would be an enormous change for health care and managed care markets to absorb, with an especially large impact on state Medicaid managed care operations. Like other forms of health insurance, Medicaid managed care is a high-volume business. The loss of a large block of members would have a major impact on revenue expectations for plans and provider networks, especially network providers that are part of the health care safety net, like public hospitals and community health centers. Losses of this magnitude could be expected to produce major effects in terms of overall health system stability, particularly since many providers have ramped up capacity and services in response to burgeoning demand for care. Even if alternative coverage is ultimately reestablished, there would be a major disruption if huge numbers of people are forced to migrate from one type of insurance to another. This coverage interruption could have extensive and unanticipated effects, especially for Medicaid-funded services to treat the surge in opioid addiction.

It is possible that states could terminate their Medicaid expansion — this has been an option since the Supreme Court made the expansion an unenforceable mandate in June 2012. But given the administrative burdens, capacity issues, and purchasing advantages, in addition to the risk of leaving people without health care coverage, it seems unlikely that states will decide to unwind their expansions.

Publication Details



Sara Rosenbaum, Harold and Jane Hirsh Professor of Health Law and Policy, Milken Institute School of Public Health at the George Washington University

[email protected]


Sara Rosenbaum, “Why Medicaid Expansion States Are Unlikely to Eliminate Coverage if Congress Enacts a New Pathway for Residents in Coverage Gap,” To the Point (blog), Commonwealth Fund, July 20, 2021.