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How Will States and the Feds Align Medicaid and Subsidized Health Care?

By Jane Norman, CQ HealthBeat Associate Editor

May 20, 2011 -- One of the biggest unanswered questions about the huge expansion of Medicaid coverage expected in 2014 is what to do about people whose incomes or family makeup change, prompting a move from one type of health care coverage to another.

A February study in the Health Affairs estimated that 28 million people in a typical year will shift between being eligible for Medicaid and for subsidized health care through the health insurance exchanges.

And it's an issue many states are wrestling with as they design their exchanges.

No magic solutions are at hand. But panelists at an Alliance for Health Reform forum tried to untangle the knot. Most ideas revolved around the need for state and federal policy makers to coordinate eligibility for Medicaid and the Children's Health Insurance Program with the new subsidized plans to be offered through the health benefit exchanges.

"The goal is to achieve continuity of coverage," said Deborah Bachrach, a lawyer and health policy expert with Manatt, Phelps & Phillips.

The health care law (PL 111-148, PL 111-152) will bring together in the states two different worlds that in the past have existed separately, she said—that of Medicaid administrators and insurance commissioners.

In a paper for the National Academy for State Health Policy, Bachrach argues that this new alliance provides states with "new opportunities to consolidate and rationalize the oversight of public and private insurers and powerful new tools to drive delivery system reform."

Shifts in coverage already happen now when low-income people move in and out of Medicaid in its current form. It's known as "churn."

But the problem—and likely confusion for enrollees—will be magnified when Medicaid is expanded to cover everyone earning under 133 percent of the federal poverty level.

It's projected that 18 percent of Americans eventually will be enrolled in Medicaid and by 2019 it will be the second-largest source of health coverage for people under 65. In addition, through the state health benefit exchanges, Americans earning up to 400 percent of the poverty level will be able to get subsidies.

People whose life circumstances change will be moving between programs that could have very different enrollment requirements, provider networks, coverage and more. And as the Health Affairs study indicates, such churn may be common.

study for the Commonwealth Fund by Pamela Farley Short of Pennsylvania State University found that a quarter of people with incomes below 133 percent of the poverty level in 2005 had higher incomes in 2006.

Short, one of the panelists, said there's even more churn among the group of people with incomes just above 133 percent and up to 200 percent. And it will be a challenge for states to keep those people enrolled without gaps. Some may find it so complicated and confusing they just give up. "We know it takes special effort to get high participation rates," she said.

In her study, Short recommended that federal and state authorities assign a high priority to coordinating eligibility for premium credits with eligibility for Medicaid and CHIP. One option would be for states to create basic health plans for residents between 133 percent and 199 percent of poverty rather than enrolling them in exchanges, she said, thereby creating uniform standards across those three programs.

Another option would be to extend eligibility for Medicaid and CHIP until the next open enrollment period at the end of the year, she said, easing uncertainty and minimizing changes in coverage.

She also recommended states try to simplify the transitions for people moving between the individual exchanges and small business exchanges and among those who lose or gain jobs with small firms. Many low-income people work for small companies, her research has found.

A single exchange that covers both individuals and small business would help people retain coverage and reduce administrative costs, Short said.

Another panelist, Louisiana Medicaid Director Don Gregory, described how his state has moved aggressively to stay in touch with Medicaid recipients and keep them enrolled without gaps in coverage. In 2,000 the state found that it had a net loss of 6,000 children a month from its programs for "paperwork" reasons.

A telephone renewal process was instituted as well as heavy reliance on computer systems for income verification and eligibility renewal. State workers would call up Medicaid enrollees when paperwork went missing, rather than sending them letters. "We simply started using the darn telephone," he said. By August 2010, the state couldn't renew for procedural reasons just 327 children, out of more than 45,000, Gregory said.

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