UPDATE: ACA 2.0 Hunger Games: Dems on verge of federalizing Medicaid expansion to close the Gap?

Back in January, I posted a story about the ACA subsidy improvements to be included in the then-pending American Rescue Plan (ARP). At the time, I noted what seemed to be a pretty big scoop:

...there's also another small but critical detail included in the table above which escaped my attention last summer in H.R. 1425.

Take a look at the first line of Rep. Underwood's 2019 version (H.R 1868):

  • Over 100.0 percent up to 133.0 percent

Now take a look at the first line under both H.R. 1425 and H.R. 369:

  • Up to 150.0 percent

Notice the difference? I'm not talking about the "up to 150%" part. I'm talking about the removal of the "Over 100.0 percent" part.

If this were to pass the House & Senate and be signed into law by President Biden using this exact language, it would apparently eliminate the Medicaid Gap...albeit with a couple of major caveats.

In short, at the time it looked like the ARP was going to eliminate both the upper (over 400% FPL) and lower (under 100% FPL) "Subsidy Cliffs".

However, it turned out I was wrong about the lower-bound cliff anyway. The ARP didn't directly address the Medicaid gap after all (although it did attempt to do so indirectly...by flat-out bribing the 12 remaining holdout states with over $16 billion in additional cash to get them to do so:

Providing a new incentive for states to expand Medicaid by temporarily increasing the federal medical assistance percentage by five percentage points. If all 12 remaining states expanded Medicaid, more than two million people currently in the coverage gap would gain access to Medicaid.

Unfortunately, that tactic doesn't seem to be working so far; Texas, Tennessee, Mississippi, Wyoming and even Missouri Republican legislators have told their poorest constituents to go pound sand (this is particularly gross in Missouri since the voters of the state actually baked Medicaid expansion into the state constitution and yet their legislature is still refusing to fund the program).

There's some good reasons why Dems didn't simply remove the lower-bound cliff, by the way; as I've noted before:

One possible "solution" would have been to simply remove the lower-bound income cut-off point for ACA exchange subsidy eligibility (that is, to lower the threshold from 100% FPL to 0%). For a week or so in January I actually thought they had decided to do just that.

However, this would create two new problems: First, Medicaid is far more comprehensive than nearly all ACA plans, and usually costs the enrollees nearly nothing, so it would be an inferior form of coverage for most of the Medicaid Gap population.

Secondly, if the lower-end subsidy cut-off were removed, it's almost certain that quite a few states which have already expanded the program would reverse themselves and allow Medicaid expansion to expire, in order to save the 10% portion of the cost that they have to pay.

In other words, instead of adding 2.2 million people to Medicaid, this move would effectively backfire and cause as many as 19 million current Medicaid enrollees to lose that coverage (to be replaced with for-them-inferior ACA exchange policies instead).

OK, so if using reason, logic and flat-out bribery won't do the trick, what's next? There's a grassroots movement to force Medicaid expansion through in Mississippi, and it's conceivable that activists in South Dakota and Florida might be able to pull it off as well...but that's about it. It's been 8 years, and now that Democrats have control of the White House, House and Senate (if just barely), it sounds like patience is wearing thin. Via Susannah Luthi of Politico:

Democrats eye new coverage options in Medicaid expansion holdout states

...The broad idea: The talks in Congress and the White House are in the initial stages, aides said, but liberal policy experts have floated two possibilities: Stand up a federal program narrowly tailored for those in expansion holdout states, or expand Affordable Care Act subsidies to this population so they can get a free private plan on the law’s marketplaces without cost-sharing. Subsidies have been unavailable to people below the federal poverty line.

...On average, per-person federal spending on ACA private plans was close to $6,500 in 2019, compared to just over $4,620 per-person through Medicaid and the Children's Health Insurance Program.

Luthi's article addresses both of the points I raised above about effectively rewarding the holdout states for being jackasses:

Some Medicaid advocates worry a federal workaround in the expansion holdout states could undercut the safety-net program. Others said it could pose a political problem if states that expanded Medicaid see holdouts getting a better deal. However, Fiedler contended that the policy can be designed narrowly enough, with additional carrots for expansion states, to resolve those concerns.

It seems to me that there's a pretty simple, clean way of providing those "additional carrots" for the states which have already expanded Medicaid: Just say "to hell with it" and raise FMAP for Medicaid expansion populations to a full 100% in every state...permanently.

If you do this, it would avoid the "undercutting" issue, none of the states which have already expanded the program would back out of it since it would no longer cost them a dime and it might even finally entice a few of the holdout states to come onboard.

How much would this cost? Well, the article says that per-person federal spending for all Medicaid enrollees was around $4,620 apiece in 2019. However, that doesn't address Medicaid expansion enrollees, who tend to cost a lot more to cover than children (but less than the elderly & disabled).

This was also a couple of years ago, pre-COVID. Today, according to Andrew Sprung, Medicaid expansion enrollment has risen to nearly 20 million Americans. If you include the 2.2 million caught in the Medicaid Gap as well as the other 1.8 million who'd be eligible for Medicaid if all 12 states expanded, that'd be around 24 million people total.

As for the per person cost, Sprung pointed me towards a more recent CBO projection, which assumed:

  • $1.132 Trillion in federal spending on Medicaid expansion over 10 years (2021 - 2030), or an average of $113.2 billion/year
  • An average of 13.4 million Medicaid expansion enrollees per year over that same period
  • That works out to the federal government's 90% portion coming in at roughly $8,447 apiece per year over the next decade.

That should make the other 10% of the cost come in at somewhere around $938/enrollee per year.

If you use the COVID-era "new reality" of at least 24 million people, increasing FMAP for all expansion enrollees to 100% would mean additional federal spending of around $225 billion over a decade.

UPDATE: D'oh!! I completely forgot that there'd be a major cost offset as well:

According to the just-released OEP 2021 Public Use Files, nearly 3 million ACA exchange enrollees living in the 14 states which haven't expanded Medicaid yet (MO & OK passed ballot initiatives but haven't actually implemented it yet, and MO legislators at least are fighting to avoid doing so) earn between 100 - 150% FPL, virtually all of whom are heavily subsidized.

Assuming around 80% of them actually earn 100 - 138% FPL, that's roughly 2.4 million subsidized ACA exchange enrollees who would shift over to Medicaid instead...meaning that while there'd be an additional $2.25 billion to cover the additional 10% of Medicaid costs for them, the federal government would save the entire expense of ACA premium subsidies for this population, which would be at least $6,100 apiece per year.

That's an annual savings of at least $14.6 billion, or $146 billion SAVED over the course of the decade.

In other words, the net additional federal cost of raising FMAP to 100% should actually come in much lower...more like $83 billion or so.

UPDATE x2It also occurs to me that if they were to simply flat-out federalize Medicaid expansion altogether, that would mean that the estimated $16 billion in flat-out bribes which are currently on the table to win over the holdout states would become moot. Assuming none of the states had actually taken the federal government up on the offer by the time the bill passed, they could simply repeal that provision of the American Rescue Plan at the same time and voila, that's another $16 billion saved! 

If so, that would bring the net cost down to as low as $67 billion.

Of course, up to 7 million of these folks are only Medicaid eligible because of the COVID pandemic. If we're ever able to get back to pre-COVID levels, you might be talking about more like 17 million people, which would bring the total 10-year cost down to perhaps $160 billion.

The thing is, raising FMAP to 100% for all expansion enrollees would work regardless of whether they create a special "Gap Only" federal version of Medicaid or if they just remove the lower-bound FPL subsidy cliff. Either way, none of the expansion states would have any reason to complain or to back out of their expansion program, and if one or two holdout states finally caved, fine!

So what about the Public Option (which would be free for Medicaid Gap Americans) which Biden campaigned on? Well, there's two problems there: The razor-thin majorities the Dems hold...and the ticking clock:

...Democratic leaders in Congress are wary of trying to push through a public option, worried it could spark a prolonged fight with the health industry and put vulnerable members in a tough spot.

Again, creating a public option would require a massive new administrative infrastructure unless it was done within the Medicare program itself...and if it was done through Medicare, it presumably would also mean paying providers Medicare rates, which healthcare providers would go absolutely apeshit over. Congress and the Biden Administration could easily get bogged down for a year or more without any guarantee of anything to show for it at the end of the road.