- Issue: As an alternative to expanding Medicaid in nonexpansion states, some policymakers propose expanding eligibility for marketplace premium tax credits to people below 100 percent of the poverty level.
- Goal: Explore three options for expanding eligibility for subsidized marketplace coverage. Option 1 uses the Affordable Care Act’s subsidy schedule prior to the American Rescue Plan Act (ARPA). Option 2 enhances subsidies at all incomes to match those in the ARPA. Option 3 enhances premium and cost-sharing subsidies. Each option also could increase the federal matching rate for Medicaid expansion enrollees to 100 percent.
- Methods: Assess coverage and cost impacts of each alternative using the Health Insurance Policy Simulation Model.
- Key Findings and Conclusions: Option 1 covers up to 3.0 million people at a cost of $15.1 billion to the federal government in 2022 ($181 billion over 10 years). Option 2 covers 4.6 million for $22.5 billion in 2022 ($270 billion over 10 years). Option 3 covers 5.0 million for $27.9 billion in 2022 ($335 billion over 10 years). These options compare to the $30.5 billion cost ($366 billion over 10 years) of expanding Medicaid. Although Medicaid expansion would cover many more low-income people, extending marketplace subsidies to low-income individuals could cover millions who otherwise would lack coverage assistance.
The Affordable Care Act (ACA) allows states the option of expanding Medicaid coverage for people under age 65 to 138 percent of the federal poverty level (FPL) ($17,774 for an individual and $36,570 for a family of four in 2021).1 As of this writing, 12 states have neither expanded Medicaid nor passed ballot initiatives to expand Medicaid as allowed by the ACA. We project that there will be 14.6 million uninsured,2 of whom 5.8 million are below 100 percent of FPL in these 12 states in 2022.3
Lawfully present individuals in these states with incomes above 100 percent of FPL ($12,880 for an individual and $26,500 for a family of four in 2021) can use premium tax credits and cost-sharing reductions to obtain ACA marketplace coverage, provided no family member has an offer of coverage deemed affordable under the law. If a person or household has an income below 100 percent of FPL, they are not eligible for marketplace subsidies.4 In states that have not expanded Medicaid under the ACA, few in this group are eligible for Medicaid under current rules.5 This leaves millions of people uninsured and without access to low-cost health insurance.
Because of the very large gap between traditional Medicaid eligibility levels and 100 percent of FPL, a large number of uninsured adults could gain coverage if the gap were filled. For example, Texas covers parents below 17 percent of FPL and Alabama 21 percent; childless adults are generally not covered in nonexpansion states. Moreover, there are some people with incomes between 100 percent and 138 percent of FPL who are ineligible for marketplace subsidies because family members have an employer offer of coverage for the worker that is deemed affordable under the ACA. Since there is no such employment-related test for Medicaid eligibility, Medicaid expansion makes more people in this income range eligible for affordable coverage.
Absent Medicaid expansion, the federal government could extend eligibility for premium tax credits and cost-sharing reductions to people below 100 percent of FPL, thereby covering the large majority of this group, at 100 percent federal cost. To avoid giving current expansion states a financial incentive to reverse their decisions, however, the federal government could increase the matching rate — the Federal Medical Assistance Percentage (FMAP) — from 90 percent to 100 percent for the ACA Medicaid expansion population in those states. This, of course, adds to the cost of each option. We show separately the cost of increasing the FMAP matching rate to 100 percent in current expansion states.
Subsidy estimates in this analysis are for nonexpansion states only, as they are necessary to make the coverage expansion work. Increasing subsidies would affect all states and would cost considerably more than shown here.
In this brief, we examine the coverage and cost impacts of three alternative approaches to filling the gap:
- Option 1. In nonexpansion states, use existing ACA subsidies to extend federal marketplace coverage to people with incomes under 100 percent of FPL, not counting the temporary increase in premium tax credits under the American Rescue Plan Act (ARPA).
- Option 2. In nonexpansion states, extend federal marketplace coverage to people with incomes under 100 percent of FPL but with enhanced premium subsidies, consistent with the ARPA.
- Option 3. In nonexpansion states, extend federal marketplace coverage to people with incomes under 100 percent of FPL but with enhanced premium and cost-sharing subsidies. We assume the subsidy schedule described below, which is consistent with a bill sponsored by Senator Shaheen (D–N.H.) and other members of Congress.6 This bill has the same premium tax credit schedule as that in the ARPA but with additional cost-sharing reductions.
- Medicaid expansion. We show the results if nonexpansion states were to adopt the Medicaid expansion. We model this to see the differences between expanding marketplace coverage and expanding Medicaid eligibility.
Premium and Cost-Sharing Subsidy Schedules
Table 1 shows premium and cost-sharing subsidies under each of the three options. The first column shows these subsidies before the ARPA’s enactment. This schedule would be reinstated after 2022 without subsequent legislation to make the ARPA enhanced tax credits permanent.7
Option 1 has the same premium and cost-sharing subsidies that existed prior to the ARPA but extends subsidy eligibility to people with incomes below 100 percent of FPL. Note that, unlike Medicaid, there are premiums of just over 2 percent of income, with disenrollment for nonpayment.8 Also, coverage is at 94 percent of actuarial value — that is, plans cover 94 percent, on average, of the costs of covered health benefits — while Medicaid coverage generally has zero or nominal cost sharing.9
Option 2 also extends eligibility to people with incomes below 100 percent of FPL but enhances premium subsidies. As shown in Table 1, premium subsidies are considerably more generous at each income level and extend above 400 percent of FPL ($51,520 for an individual and $106,000 for a family of four in 2021). Premiums are eliminated for those below 150 percent of FPL. This option not only extends assistance paying for coverage to those below 100 percent of FPL but also improves affordability for those throughout the income distribution.
Option 3 extends eligibility to people with incomes below 100 percent of FPL but increases both premium and cost-sharing subsidies. Subsidies are tied to the gold plan level. Option 3 also adds a federal reinsurance plan. The main difference between options 2 and 3 is the improvement in cost-sharing subsidies and reinsurance.
Medicaid expansion would mean no premiums and cost sharing below 100 percent of FPL. Premium and cost-sharing subsidy schedules in the marketplaces would remain the same as they were prior to the ARPA.
Exhibit 1 and Table 2 show the coverage effects in 2022 for each option, emphasizing the changes relative to current tax credit eligibility with pre-ARPA premium tax credits.