Medicaid partial expansion’s consequences

Adrianna Macintryre, Allen Joseph and Nicholas Bagley had a recent perspective in the New England Journal of Medicine regarding the possibility of a partial Medicaid expansion model. I want to explore some of the distributional and macro-economic implications of this possibility. (Disclaimer, I helped Adrianna with some of the data). But first, let’s see the argument and the potential policy:

another decision of arguably greater long-term significance has been overlooked: whether to allow “partial expansions” pursuant to a state Medicaid waiver. Arkansas has already submitted a waiver request for a partial expansion, and other states may well follow its lead… waivers became more consequential in 2012, when the U.S. Supreme Court gave states a choice about whether to expand their Medicaid programs to cover everyone with an income of up to 138% of the federal poverty level.

In general, Obama-era expansion waivers permitted adoption of rules congenial to Republican policymakers….
These waivers, however, did not grant red states everything they requested. The Obama administration refused to approve waivers that would have conditioned Medicaid eligibility for some beneficiaries on their ability to find work. It denied waivers that would have terminated coverage for beneficiaries with incomes below the poverty level if they failed to make out-of-pocket payments for medical care. And it declined states’ requests to partially expand their Medicaid programs to enroll beneficiaries with incomes up to 100% of the poverty level, but not those between 100% and 138%.

Why were states interested in these partial expansions? Starting in 2020, states are responsible for covering 10% of the costs associated with the Medicaid expansion. Because of a drafting mistake, however, the ACA says that the 100-to-138 population can receive subsidies to purchase a private health plan on the exchanges — but only if they are ineligible for Medicaid. For those people, the federal government bears the entire cost of subsidizing private coverage, with no contribution from the states. As a result, the states save money for every beneficiary whom they can move from Medicaid into their exchanges.

The waivers that have been approved for non-standard expansions to 138% FPL have had premiums and cost sharing. Premiums have been limited to 2% of income and cost sharing is limited to 5% of income. That roughly translates to $20 per month in premiums and a $600 deductible. This is the level of a 94% Actuarial Value Silver plan with Cost Sharing Reduction (CSR) subsidies.

The distributional consequences are important. For people who earn between 100-138% FPL in states that have not expanded Medicaid, nothing will change for them. They are no worse off. People who live on less than 100% FPL in these states will be dramatically better off as they will have Medicaid for their coverage. People who earn between 100-138% FPL in waiver states won’t be significantly worse off. A few benefits (vision and non-emergency transportation for instance) may no longer be available but these are marginal changes. People earning under 100% in waiver states won’t see a change.

The major area of change would be individuals who earn between 100-138% FPL and live in states that made a straight forward Medicaid expansion. These individuals will have higher premiums and higher cost sharing. They would be worse off if Pennsylvania or Louisiana or Oregon or anywhere else with a simple expansion reduced the expansion eligibility to only 100% FPL and shifted them onto the Exchanges.

If this is primarily a tool used by states that have not expanded Medicaid or have current cost sharing and premium requirements through Obama era waivers, then the distributional consequences have minimal harms and significant improvements.

I want to geek out a bit below the fold on secondary points.

A minor argument in favor of moving people onto the Exchanges instead of Medicaid is a macro-economic stabilization argument. State governments face balance budget constraints that the Federal government does not have. That means during recessions, state revenue drops even as eligibility and need for Medicaid enrollment spikes. States retrench on their spending at the absolute worse times. Shifting a small proportion of the population to an automatic counter-cyclical stabilizing program is cheap and insufficient but helpful macro-economic insurance if one is ever worried about 2008-2009 striking again.

The authors are also worried about Exchange risk pool composition if this policy was adapted. States without expansion had sicker Exchange risk pools than states with expansion.

Partial expansion could also degrade the quality of states’ individual insurance markets. One analysis found that exchange premiums were 7% higher in nonexpansion states — where the population with incomes between 100% and 138% of the poverty level already qualifies for subsidized coverage — than in expansion states, after adjustment for state differences. Though other factors may contribute to this finding, one possible explanation is that the 100-to-138 population is sicker than the rest of the individual-market risk pool. If so, adding them to the exchanges will drive premiums up for everyone.

If partial expansion was adapted to 100% FPL, a little bit less financial engineering will be going on. This would improve the risk pool as the sickest people making just under 100% FPL in non-expansion states would have been the most motivated to find some way to show that they earned 100.0001% FPL to qualify for subsidies for a Silver CSR. There might even be incentives for the sickest people to stay under 100% FPL and off the Exchanges to avoid maxing out their cost sharing. I think the financial incentives are very messy with no clear direction in this scenario.