As enacted, the Affordable Care Act (ACA) broadened Medicaid’s role, making it the foundation of coverage for nearly all low-income Americans with incomes up to 138 percent of the federal poverty level (FPL) ($16,242 per year for an individual in 2015). However, the Supreme Court ruling on the ACA effectively made the decision to implement the Medicaid expansion an option for states. For those that expand, the federal government will pay 100 percent of Medicaid costs of those newly eligible for Medicaid from 2014 to 2016. The federal share gradually phases down to 90 percent in 2020, where it remains well above traditional federal medical assistance percentage (FMAP) rates. As of March 2015, 29 states (including the District of Columbia) adopted the Medicaid expansion, though debate continues in other states. In deciding whether to implement the Medicaid expansion, the effect on state budgets has been a key issue for policy makers. However, isolating the full effects of the Medicaid expansion across all parts of the state budget has proven challenging. State-specific estimates of the Medicaid expansion were created with varying degrees of completeness; those that were complete found net fiscal gains, with state savings and revenues exceeding increased state costs.¹ 

This brief looks beyond the estimates and examines the early budget effects of expansion in three states: Connecticut, New Mexico, and Washington State. The study was conducted during the Fall of 2014; budgets had been enacted for state fiscal year 2015, the first full state fiscal year with the Medicaid expansion in effect. Budget officials were also in the process of closing the books on SFY 2014, the latter half of which included the first 6 months of the Medicaid expansion in each of these states. These findings are based on interviews conducted with budget officials and staff in each of the three states; the interviews focused on their state’s experiences in this early period, when the costs of those newly eligible are fully financed with federal dollars.  Specifically, budget officials were asked about assumptions and early experiences with state savings and costs from the expansion across state budgets (within and outside of Medicaid) as well as the expansion’s impact on state revenue. (See the Methodology section for more details on how the study was conducted.) Findings from a separate report commissioned by Kentucky are also included. Key findings include:

• Overall Finding. Early evidence from interviews with budget officials in these case study states shows state savings and revenue gains with limited costs resulting from expansion, even as some potential fiscal gains have not yet been tracked.
• Medicaid Enrollment and State Costs. Enrollment of those newly eligible exceeded expectations; however, these individuals are fully financed with federal dollars through December 31, 2016, presenting no costs to states during this period. While enrollment among those previously eligible but not enrolled (which is financed at the state’s regular matching rate) increased in each of the study states, the majority of this enrollment growth was driven by other changes in the ACA rather than just the Medicaid expansion.
• Savings within Medicaid Budgets. Savings were reported within Medicaid programs in all study states as beneficiaries who otherwise would have qualified for pre-ACA Medicaid categories at the state’s regular match instead enrolled in the new expansion group and were eligible for the higher ACA enhanced match rate (and therefore reduced state costs.)
• Savings outside of Medicaid Budgets. All study states experienced savings in other areas of the state budget beyond Medicaid, such as state-funded behavioral health services and corrections. Some savings were captured for state general funds and others were reinvested, often to compensate for earlier cutbacks.
• Revenue Effects. The impact on state revenue, as monitored by budget officials, was primarily reflected in increased provider and premium taxes. Only one study state (New Mexico) accounted for the increased economic activity resulting from expansion in general revenue forecasts. A separate study found the Medicaid expansion in Kentucky led to increases in jobs and tax revenues for the state and localities.
• Long-Term Estimates of Full Effects. Disentangling the revenue and budgetary impact of the Medicaid expansion from other ACA effects as well as other factors shaping health care costs, state economies and state budgets is a tremendous challenge that is generally not part of state budget processes. The one study state that produced net estimates, Washington, projected that state savings from expansion would exceed costs, resulting in net fiscal gains. During the current fiscal year (2015), net gains of expansion are estimated to equal 1.7 percent of total General Fund spending.²  Net savings through 2021 due to the expansion were also found in a separate report examining the impact of the Medicaid expansion in the Kentucky. Both states projected net state savings in future years when the federal share of spending on newly eligible adults will fall to 90 percent.

Summary Table

Introduction

As enacted, the Affordable Care Act (ACA) broadened Medicaid’s role, making it the foundation of coverage for nearly all low-income Americans with incomes up to 138 percent of the federal poverty level (FPL) ($16,242 per year for an individual in 2015). However, the Supreme Court ruling on the ACA effectively made the decision to implement the Medicaid expansion an option for states. For states that expand Medicaid, the federal government will pay 100 percent of Medicaid costs of those newly eligible for Medicaid for up to three calendar years from 2014 to 2016. The federal share gradually phases down to 90 percent in 2020, where it remains well above traditional federal medical assistance percentage (FMAP) rates in every state. As of March 2015, 29 states (including the District of Columbia) have adopted the Medicaid expansion though debate continues in other states. A key issue for policy makers at the state level has been the state budget effects of the Medicaid expansion on states’ budgets.

This brief presents findings from a study of the early budget effects of the Medicaid expansion in three states: Connecticut, New Mexico, and Washington State. These interviews took place in the Fall of 2014, as executive-branch officials had begun preparing executive budget proposals for the 2015 legislative sessions. (See the Methodology section for more details on how the study was conducted.) Also included are findings from a separate study commissioned by Kentucky officials that examined the impact of that state’s decision to expand. The findings provide a limited and early insight into the effect of the Medicaid expansion on state budgets, both within and outside of the Medicaid programs. Key findings are summarized below, first looking at effects within the Medicaid budget, then turning to the effects on other parts of the state budget as well as revenues. A summary of the findings is also presented in the Summary Table. This study focused primarily on budget factors that may apply elsewhere, but one should be careful in generalizing, as each state’s budget situation is unique.

Medicaid Enrollment and State Costs

While enrollment among those previously eligible but not enrolled (which is financed at the state’s regular match rate) increased in each of the study states, the majority of this enrollment growth was driven by other changes in the ACA rather than just the Medicaid expansion. All states anticipated increased enrollment resulting from the Medicaid expansion, both for newly eligible adults and among those who were previously eligible but not enrolled. In each state, newly eligible enrollment exceeded expectations. Under the ACA, these costs are fully funded with federal dollars through December 31, 2016, so this did not increase state costs in SFYs 2014 or 2015. The extent to which states saw increased enrollment among those previously eligible but not enrolled varied across the study states. In Connecticut and New Mexico, the enrollment increase was above projections, but it was below projections in Washington State. A separate study commissioned by the Kentucky officials also found enrollment of those previously eligible but not enrolled was well above projections.⁴  However, the enrollment growth among those previously eligible but not enrolled in each of these states was primarily driven by other ACA changes, such as the streamlining and simplifying of Medicaid enrollment processes that occurred in all states regardless of expansion decisions as well as broader outreach efforts. Washington State officials, for example, estimated that nearly three-quarters of such enrollment growth resulted from features of the ACA that would have been present with or without expanded eligibility.

While study states saw some increased Medicaid administrative costs, these costs were relatively small. Medicaid administrative costs in general represent only five percent of total Medicaid spending nationally.⁵  Additionally, most of these administrative costs would have been incurred with or without the Medicaid expansion due to other aspects of the ACA. Officials expect these effects to be ameliorated by the ACA’s shift to a more data-driven and less labor-intensive approach to eligibility determination. The transition to this new approach is supported by 90 percent federal funding for necessary investments in information technology, along with 75 percent federal funding for operating expenses.⁶ 

Savings within Medicaid budgets

All study states reported savings within their Medicaid programs as some beneficiaries for whom states would have received standard FMAP instead qualified as low-income adults eligible for the ACA’s enhanced match rate.⁷  Conversion of limited Medicaid programs for low-income adults in each of the study states provided a source of immediate, significant savings within Medicaid programs. For two of these states, Connecticut and Washington, these limited Medicaid programs for low-income adults had started as state-funded indigent care programs that were converted to Medicaid financed programs (at the state’s regular matching rate) ahead of the ACA expansion. (More details on these programs are provided in Appendix A.)

In addition, some of the study states observed enrollment declines in optional Medicaid eligibility categories without reducing eligibility. For example, some study states saw declines in the enrollment of lower cost programs such as family planning (Connecticut and Washington) and breast and cervical cancer treatment programs (Washington). These two states also saw declining enrollment in higher-cost eligibility categories, such as medically needy spend-down programs for adults; Washington State also saw declining enrollment in an optional eligibility pathway that provides coverage for those awaiting an SSI disability determination. Adults who would have enrolled under these optional eligibility pathways were instead enrolling under the new Medicaid expansion group, qualifying for a higher matching rate.⁸  (See Appendix B for more on these pathways.) Similar declines in enrollment among optional groups were also seen in Kentucky; according to this separate report, the Commonwealth saw savings of over $38 million in SFYs 2014 and 2015 from beneficiaries qualifying under the newly eligible group instead of other optional pathways such as breast and cervical cancer treatment program and spend-down groups among others.⁹ 

Officials in Washington state also observed unexpected declines among pregnant women that had not been included in enacted budgets. Officials in Washington noted that much of the decline was due to more women qualifying under the Medicaid expansion group. Medicaid programs have long been required to cover pregnant women at levels at or above the Medicaid expansion. This requirement continues under the ACA; their coverage is reimbursed at the state’s regular match rate. However, women enrolled in the new adult expansion group who become pregnant are not required to move to the pregnancy-related eligibility group outside of their regular renewal period. Budget officials also noted that the availability or coverage in the Marketplace as well as improving economic conditions could also have caused some of this decline.

Savings Outside of Medicaid Budgets

All study states experienced savings in other areas of the state budget beyond Medicaid.¹⁰  Expanded Medicaid coverage helped to reduce some of the need for state-funded programs to serve this population, such as behavioral health and corrections. Savings either benefited the state general fund or were reinvested within the program area, often restoring cuts made during the economic downturn.

All three study states experienced savings in behavioral health programs. Behavioral health programs across the country saw substantial state funding cuts during the economic downturn; many remain underfunded.¹¹  States that have implemented the Medicaid expansion may use the federal dollars from the Medicaid expansion either to substitute for state funds spent on mental health services, help restore funding cuts implemented during the economic downturn, or reduce general fund spending (e.g. “book” savings.) Connecticut and Washington State “booked” these savings for their general funds, while New Mexico reprogrammed the majority of savings within the behavioral health agency’s budget.

While the study states noted savings and efficiencies in their behavioral health programs due to the expansion, there were some challenges and delays in transitioning behavioral health care providers to billing for their clients’ claims (rather than relying on grant funding) and enrolling beneficiaries of behavioral health programs (a generally hard-to-reach population) into Medicaid. These challenges necessitated adjustments to original budget assumptions, but state officials were confident both that expansion was already yielding savings and that the magnitude of savings would likely grow as these transitions progressed.¹²  General Fund savings were also found for Kentucky as Medicaid beneficiaries – those newly eligible as well as those previously enrolled – received mental health treatment and substance use disorder services through community mental health centers reimbursed with Medicaid funds instead of general fund dollars.¹³  Coinciding with the Medicaid expansion, the Commonwealth of Kentucky had expanded the types of behavioral health providers that were eligible for Medicaid reimbursement, both for the traditional Medicaid program as well as for the Medicaid expansion, increasing access to such services.¹⁴ 

Two of the study states also experienced budget savings or offsets for corrections. Many inmates historically could not qualify for Medicaid since they did not fit into one of the traditional eligibility categories. Even for inmates who did meet the income and categorical eligibility requirements to qualify for Medicaid, federal law prohibits Medicaid payment for services provided in jails or prisons under a policy known as the “inmate exclusion.”¹⁵  However, Medicaid reimbursement is available for care provided to eligible individuals who are admitted to an inpatient facility off jail or prison grounds, such as a hospital, for at least 24 hours. Prior to the ACA, few states had pursued Medicaid reimbursement for these services given the limited share of the incarcerated population that could qualify for Medicaid.¹⁶  However, the Medicaid expansion offers greater potential savings to states from reimbursement for inpatient services provided to incarcerated individuals, since a larger share of the incarcerated population may qualify for Medicaid under the Medicaid expansion and the federal government is providing states an enhanced federal matching rate for newly eligible adults.¹⁷ 

Washington State included limited state budget savings in its enacted corrections budget for SFYs 2014 and 2015. Connecticut officials noted that while they hadn’t quantified savings from the Medicaid expansion, the state’s Department of Correction had been able to weather notable budget reductions in their inmate medical account since the state implemented the early expansion in 2010. New Mexico’s Medicaid program was working to realize savings in this area, but officials also noted that many corrections responsibilities are vested locally.¹⁸  General Fund savings from the Medicaid expansion in the state’s corrections department were also noted in a separate report commissioned by Kentucky.¹⁹ 

Some study states also reported savings in other areas, including uncompensated care payments and high risk pools. In addition to federal funding for uncompensated care costs through Medicare and Medicaid Disproportionate Share Hospital (DSH) programs, states and localities generally fund roughly 40 percent of uncompensated care costs.²⁰  When the previously uninsured gain coverage that pays for their care, previously uncompensated costs decline. Among our three study states, only Connecticut had a state-level uncompensated care program in place before the ACA; Washington state did not have an uncompensated care pool and counties bear much of the responsibility for financing hospital uncompensated care in New Mexico. When it converted its pre-ACA state indigent care program into an early Medicaid expansion, Connecticut was able to significantly reduce their uncompensated care payments to hospitals as well as make some reductions in uncompensated care for community health and mental health centers. Reductions in state and local expenditures for uncompensated care were also noted through SFY 2016 in a separate report examining the expansion’s impacts on Kentucky; this same report also noted general fund savings in later years from the scheduled reductions in DSH funds.²¹  Early evidence from that state’s expansion also saw declines in uncompensated care charges as well as increased revenues for providers.²² 

Case study states noted additional areas of moderate or limited budget savings outside of Medicaid. For example, New Mexico, which was the only study state that operated a state-funded high-risk pool, saw moderate savings as enrollees transitioned to other coverage options.  Like the movement of behavioral health program beneficiaries into Medicaid, this transition moved more slowly than expected, resulting in fewer short-term savings than originally projected. Connecticut and Washington also reported savings from state-funded public health programs; similar savings were also found in Kentucky as services provided through local health departments to Medicaid enrollees were now reimbursed by Medicaid.²³   Washington reported savings from a state-funded program that provided long-term services for adults with developmental disabilities.

Revenue Effects

The impact on state revenue, as monitored by budget officials, was primarily reflected in increased provider and premium taxes and fees. Washington and New Mexico projected increased revenue from provider taxes and fees as a result of expansion in their budgets. Both states have premium taxes on insurers; revenues collected from these taxes and fees increased as more Medicaid members joined managed care plans and more Medicaid patients saw providers. Connecticut experienced no increase in revenues as a result of expansion. The state’s Medicaid enrollment has grown substantially as a result of the expansion and hospital revenues increased as care shifted from uncompensated to Medicaid-reimbursed. While Connecticut has Medicaid provider taxes and fees, they have not been rebased since 2009 and therefore have not increased due to Medicaid expansion. Further, as a state with very high rates of health insurance coverage prior to the expansion, insurance company premium taxes have not appreciably increased following expansion. As a final complicating factor, a state program that allows for the purchase of tax credits to reduce tax liability has been utilized by some providers subject to the Medicaid provider tax, and this has resulted in a reduction in revenue from this source.

Expansion is expected to increase overall economic activity,²⁴  and thus state general revenue, due to the significant influx of federal Medicaid dollars used to purchase health care within such states. However, only one study state (New Mexico) specifically noted this effect in its overall economic and revenue projections for the first years of implementation. The other states’ economic forecasts did not include such detail in their underlying assumptions at this point. It will be difficult to isolate the expansion’s effects on work force and economic growth until more detailed data become available. However, a separate analysis conducted by the Urban Studies Institute at the University of Louisville estimated that the Medicaid expansion in Kentucky led to an increase of 12,000 jobs in SFY 2014 alone and over 40,000 additional jobs through 2021. The analysis estimates that this increase in jobs will result in additional tax revenue for the state an localities through SFY 2021.²⁵ 

Conclusion

Disentangling the fiscal impact of expanded Medicaid eligibility from other ACA effects as well as other factors shaping health care costs can be a tremendous challenge. Policy and budget decisions are not made in a vacuum; isolating the budgetary effects of one policy decision from other policy decisions as well as from larger demographic and economic trends is inherently difficult. In this particular case, other changes resulting from the ACA, such as requirements that all states implement new policies to streamline and simplify Medicaid enrollment, the individual coverage requirement, and new coverage options available through the Marketplace make isolating the effects of the Medicaid expansion particularly difficult.

State budget offices are not set up to estimate the net budget impact of a single policy, such as the Medicaid expansion. Such offices, unlike the Congressional Budget Office, do not typically maintain alternative budget scenarios that estimate costs and revenues in the absence of a particular policy (such as the Medicaid expansion.) They rarely have good reason to spend resources analyzing the effects of past decisions, like expansion. Moreover, the fiscal effects of the Medicaid expansion are hard to analyze comprehensively because they are experienced across budget categories; cost implications fall within and outside Medicaid, and both general and special revenue sources can be affected. Among the three states  examined, only Washington was in a position to assess the overall budgetary impact of expansion; at the time of our interviews, the state was in the final months of maintaining an alternative budget scenario that estimated state costs in the absence of Medicaid expansion. Based on that scenario, state savings from higher federal matching rates for newly eligible enrollees and from reduced spending on some (but not all) pre-ACA, state-funded programs could be analyzed. Without taking into account any revenue gains resulting from expansion, those savings exceeded increased state costs attributable to expansion in both SFY 2014 and 2015 (Appendix C); in fact, the state noted net Medicaid budget savings for each budget period throughout the 2013-2021, including the period during which the FMAP for low-income adults reaches its final 90 percent level. During SFY 2015, the net savings from expansion was projected to equal 1.7 percent of the state’s entire General Fund for SFY 2013.²⁶   Kentucky commissioned Deloitte to examine the fiscal and economic impact of the Medicaid expansion decision on Kentucky; this independent analysis, which examined the impact of the expansion across the state’s budget and at the broader economic effects among other factors, estimates Kentucky will see a net positive fiscal impact of $919.1 million over the SFY 2014 through 2021 period compared to what the state would have spent in the absence of the Medicaid expansion.²⁷ 

Early evidence from these case study states shows that expansion yields state savings and state revenues while causing limited increases in state costs. Both newly eligible consumers and those who qualified under pre-ACA categories can be expected to enroll in large numbers, although much of the latter enrollment will occur with or without expansion. States can experience notable savings both within Medicaid and outside Medicaid budgets, though savings in parts of the budget outside of Medicaid may be slower to materialize than anticipated, and policymakers may choose to reinvest savings to increase the provision of non-Medicaid services rather than reduce General Fund commitments. Two of the study states projected increased revenue from provider taxes and fees; states are expected to also realize revenue gains from increased economic activity as evidenced by the findings of the expansion’s impact on Kentucky. In sum, our analysis of early experiences in three states suggests that expansion creates both state budget savings and some limited initial costs for states in these early years of the expansion, when the cost of the newly eligible is fully financed with federal dollars.

This brief provides insight into the early experiences in only three states along with findings from a separate study commissioned by Kentucky. Each state and its budget are unique. The findings of this brief are likely to illustrate important general trends, but ultimately the effect of Medicaid expansion on state budgets must be assessed in terms of the particular circumstances of each state. In states that have already chosen to expand eligibility, the implications of that decision on state budgets and revenues will continue to be monitored as implementation continues and more data become available.

 

Prior to the ACA, coverage for adults was limited. Parent eligibility in many states was below the poverty level. Adults without dependent children were ineligible for Medicaid regardless of their income; states could only cover adults without dependent children through waivers. As of January 2013, nine states provided coverage for low-income adults comparable to full Medicaid benefits; an additional 16 states provided such adults with limited benefit coverage under Medicaid.²⁸  Provided below is a summary of coverage initiatives the case study states had in place prior to the Medicaid expansion; individuals in each of these programs were transitioned to the new coverage group and eligible for full federal financing under the Medicaid expansion.

Connecticut: Prior to the ACA, Connecticut provided medical assistance under the State Administered General Assistance (SAGA) program, which is state-funded.²⁹  Under provisions in the ACA, states were given the option to implement the Medicaid expansion ahead of January 1, 2014 at the state’s regular matching rate. Connecticut was the first state to take up this option, implementing a state plan amendment to cover non-elderly, non-disabled adults up to 56 percent FPL without an asset test (there was a $1000 asset test under the SAGA program.) The state experienced significantly higher enrollment than expected. Even though the federal government was paying half of the cost, the state’s 50 percent share of expenditures for the new, low-income adult program exceeded the cost for medical assistance under the original SAGA program as enrollment grew substantially above projections. In January 2014, the state implemented the full Medicaid expansion, increasing income eligibility up to 138 percent FPL; the federal share for these expenditures increased to 100 percent.³⁰ 

New Mexico: New Mexico implemented its 1115 waiver to cover uninsured adults up to 200 percent FPL in 2002 under the State Coverage Initiative. The coverage provided was more limited than Medicaid, cost-sharing and premiums were above Medicaid-allowable levels, and enrollment into the program was closed in 2008 due to budget constraints. The waiver program, originally approved as a HIFA waiver, was first financed with CHIP funding and then converted to Medicaid funding. In January 2014, the state ended the SCI program, transitioning two-thirds of those served by the program to the new Medicaid expansion group, under which the federal match increased from approximately 75 percent to 100 percent. The other one-third of SCI enrollees had incomes above 138 percent FPL and qualified for subsidies to purchase coverage in the Marketplace.

Washington: Washington had for decades provided coverage for low-income uninsured adults through its Basic Health Program, which was funded with state-only dollars. During the economic downturn, the state faced notable budget shortfalls. After the ACA was passed, Washington was able to obtain federal matching funds under a Section 1115 waiver program to act as a bridge to the Medicaid expansion. This conversion to a Medicaid waiver allowed the state to collect federal dollars at the state’s regular matching rate for the program (as well as the Disability Lifeline program and the Alcohol and Drug Abuse Treatment and Support Act or ADATSA program, both of which were also previously state-funded.) In January 2014, the state transitioned these adults to the Medicaid expansion group, where the federal match increased from 50 to 100 percent.

Prior to the ACA, some states had adopted Medicaid eligibility pathways that provided limited coverage (meaning that the coverage provided limited benefits or the coverage offered full Medicaid benefits but limited eligibility to those that either had a specific condition or those that met spend-down requirements.) The availability of subsidized Marketplace coverage and expanded Medicaid coverage (in 28 states) provides new options for states to reconsider some of these coverage options, such as:

• Family Planning. Family planning waivers and state plan amendments allow for states to provide limited Medicaid coverage to US citizens otherwise ineligible for Medicaid (largely adults.) Coverage is limited to family planning services only and is reimbursed at 90 percent federal match. Washington State had an existing family planning waivers; Connecticut and New Mexico had previously adopted the family planning state plan option. None of the case study states had elected to eliminate this coverage, though across the country, eight states reported plans to end family-planning only coverage.³¹ 
• Breast and Cervical Cancer Treatment (BCCT). In 2000, Congress gave states the option to extend Medicaid coverage to low-income uninsured or underinsured women under age 65 that had been screened and diagnosed with breast and cervical cancer through state screening programs funded by the CDC. All states had adopted this option; coverage for these individuals is reimbursed at the state’s CHIP matching rate. None of the case study states had elected to eliminate this coverage, though across the country, three states reported plans to end BCCT coverage.³² 
• Medically Needy Spend-Down. Another optional Medicaid eligibility pathway that some states considered eliminating in light of new coverage options was medically-needy spend-down programs for adults. Under this coverage group, people can qualify for Medicaid by incurring medical bills that “spend down” their income to lower levels. None of the case study states had elected to eliminate this coverage, though across the country, five states reported plans to reduce or end medically needy spend-down coverage for adults.³³ 

The figures included below were provided by Washington State budget officials and reflect estimates used when the state enacted its FY 2013-2015 state budget. These figures were derived from an alternative budget scenario that estimates the state costs in the absence of the Medicaid expansion maintained by state officials. States often do not maintain alternative budget scenarios of what would have happened had the state not implemented a specific policy over time; Washington state officials noted that they do not plan to continue this process going forward.

In February 2015, Kentucky released a report it had commissioned Deloitte to conduct and analysis of the impact of the first-year impact of the Medicaid expansion on Kentucky and to estimate the potential future impact. Using data from a number of sources, including the  data from the Centers for Medicare  & Medicaid Services (CMS), the Kentucky Cabinet for Health and Family Services (the state Medicaid agency), Aon Consulting (the state’s Medicaid actuary), and the Urban Studies Institute at the University of Louisville, the study provided point-in-time analysis of the impact across multiple areas – including the impact on Medicaid enrollment, the state’s uninsured rate, the state’s economy, it’s budget, the overall health care system and providers, and access to care for state residents. In terms of the effect on the state’s budget and economy, the study estimated that the Medicaid expansion will have a significant positive cumulative impact of $30.1 billion on Kentucky’s economy through SFY 2021; the net difference between expanding and not expanding Medicaid is estimated to be a positive $919.1 million from SFY 2014 through SFY 2021. The data below reflect the estimates for SFY 2014 and SFY 2015 and puts the fiscal effect in context of total state general fund spending.

1. Researchers found fiscal estimates of the Medicaid expansion in 16 states that were deemed “comprehensive” because they estimated increased state costs resulting from higher enrollment, state budget savings both inside and outside Medicaid programs, and state revenue effects.   Stan Dorn, Megan McGrath, John Holahan. What Is the Result of States Not Expanding Medicaid? Urban Institute, August 2014. http://www.urban.org/UploadedPDF/413192-What-is-the-Result-of-States-Not-Expanding-Medicaid.pdf. ↩︎
2. The calculations are those of the authors based on (1) savings figures provided by state officials (2) compared to state general fund spending across all budget categories for SFY 2013 as reported by the National Association of State Budget Officers in its State Expenditure Report: Examining Fiscal 2012-2014. ↩︎
3. New Mexico noted that the state costs for enrollment among those previously eligible but not enrolled were significant. However, as noted earlier, the enrollment growth among those previously eligible but not enrolled was primarily driven by other ACA changes, such as the streamlining and simplifying of Medicaid enrollment processes that occurred in all states, regardless of expansion decisions, as well as broader outreach efforts. ↩︎
4. Report on Medicaid Expansion in 2014. (Deloitte commissioned by the Commonwealth of Kentucky, February 2015.) http://governor.ky.gov/healthierky/Documents/medicaid/Kentucky_Medicaid_Expansion_One-Year_Study_FINAL.pdf. ↩︎
5. Urban Institute estimates based on data from CMS (Form 64) (as of 9/16/13). ↩︎
6. The 90 percent FMAP for initial eligibility-related IT investments was initially set to expire at the end of 2015, but in October 2014, CMS announced plans to extend the higher federal match permanently. ↩︎
7. In addition to the areas of savings within Medicaid budgets mentioned in this section, states were asked about savings-related declines in applications for disability-based cash assistance and well as savings from health care services provided to adults with disabilities under 138 percent FPL during the months while they are waiting for their disability determinations. No states in this study tracked such savings. ↩︎
8. Washington State also noted savings from the transition of adults who were previously eligible for their presumptive SSI category. This is an optional Medicaid eligibility category that provides Medicaid coverage while adults await a disability determination for SSI coverage. It is unclear how many states offer Medicaid coverage for such individuals, although once a disability determination is obtained that qualifies an applicant for Medicaid, all states are legally required to retroactively pay all Medicaid-covered claims that were incurred up to 90 days before the date of application. While expenses for those who qualified under this pre-ACA eligibility pathway in Washington state were not reimbursed at the 100 percent federal match rate, the state did receive a higher matching rate for these individuals (equivalent to the early adopter matching rates.)  As a general matter, CMS has ruled that, in a state that implements the Medicaid expansion, adults who qualify based on income generate federal matching rates at the level paid for newly eligible adults for claims incurred until the point of disability determination, after which normal FMAP applies. CMS. “Medicaid Program; Increased Federal Medical Assistance Percentage Changes Under the Affordable Care Act of 2010,” Federal Register, April 2, 2013, Vol. 78, No. 63, 19918-19947. ↩︎
9. Additionally, the report commissioned by the Commonwealth of Kentucky reported savings from beneficiaries qualifying for the newly eligible group instead of the Kentucky Temporary Assistance Program (K-TAP)and for a program referred to in that state as “nursing facility,” which provided coverage to disabled adults in select circumstances. Report on Medicaid Expansion in 2014. (Deloitte commissioned by the Commonwealth of Kentucky, February 2015.) http://governor.ky.gov/healthierky/Documents/medicaid/Kentucky_Medicaid_Expansion_One-Year_Study_FINAL.pdf. ↩︎
10. In addition to the areas of savings outside of Medicaid budgets listed in the text, states were asked about savings from reduced health insurance costs for public employees and retirees. While no state included in this study tracked such savings, some state-level projections estimated that, along with other employers, states would see premium increases decline slightly when reductions in hospital uncompensated care, caused by lower levels of uninsurance resulting from Medicaid expansion, reduce hospital cost-shifting to private insurers. The Oregon Health Authority, Estimated Financial Effects of Expanding Oregon’s Medicaid Program Under the Affordable Care Act (2014–2020), February 2013, http://www.manatt.com/uploadedFiles/Content/5_Insights/White_Papers/OR_EffectofACAMedicaidExpansion_Feb2013_Final.pdf. ↩︎
11. State Mental Health Legislation 2014 – Trends, Themes & E­ffective Practices. National Alliance on Mental Illness, December 2014. http://www.nami.org/Template.cfm?Section=Policy_Reports&Template=/ContentManagement/ContentDisplay.cfm&ContentID=172851 ↩︎
12. Additionally, officials in Connecticut believed that the majority of the chronically mentally ill were picked up under the state’s early expansion in April 2010, which included adults with income up to 56% FPL; the increase to 138% FPL in January 2014 therefore did not have a dramatic impact. ↩︎
13. Report on Medicaid Expansion in 2014. (Deloitte commissioned by the Commonwealth of Kentucky, February 2015.) http://governor.ky.gov/healthierky/Documents/medicaid/Kentucky_Medicaid_Expansion_One-Year_Study_FINAL.pdf. ↩︎
14. Vernon Smith, et al. Medicaid in an Era of Health & Delivery System Reform: Results from a 50-State Medicaid Budget Survey for State Fiscal Years 2014 and 2015. (Kaiser Family Foundation, October 2014.) https://modern.kff.org/medicaid/report/medicaid-in-an-era-of-health-delivery-system-reform-results-from-a-50-state-medicaid-budget-survey-for-state-fiscal-years-2014-and-2015/. Kentucky elected to expand access to these substance use services to all of their Medicaid population, not just the newly eligible. The study commissioned by the Commonwealth of Kentucky noted that there would be increased general fund requirements for providing these additional substance abuse benefits to those previously eligible as well as those already enrolled in Medicaid. ↩︎
15. Federal Medicaid law (Subparagraph (A) in the matter after section 1905(a)(29) of the Social Security Act) prohibits the payment of federal Medicaid matching funds for the cost of any services provided to an “inmate of a public institution,” except when the individual is a “patient in a medical institution.” This policy applies to both adults in jails or prisons as well as to youths involuntarily detained in a state or local juvenile facility. This policy does not prohibit individuals from being enrolled in Medicaid while incarcerated; however, even if they are enrolled, Medicaid will not cover the cost of their care, except for care received as an inpatient in a hospital or other medical institution. Because individuals may remain enrolled, states can suspend, rather than terminate, Medicaid coverage for inmates to accommodate the inmate exclusion. However, suspension and termination policies vary across states. ↩︎
16. Managing Prison Health Care Spending, (Washington DC: Pew Charitable Trusts and John D. and Catherine T. MacArthur Foundation, October 2013), http://www.pewtrusts.org/~/media/legacy/uploadedfiles/pcs_assets/2014/PCTCorrectionsHealthcareBrief050814pdf.pdf . ↩︎
17. Managing Prison Health Care Spending, (Washington DC: Pew Charitable Trusts and John D. and Catherine T. MacArthur Foundation, October 2013), http://www.pewtrusts.org/~/media/legacy/uploadedfiles/pcs_assets/2014/PCTCorrectionsHealthcareBrief050814pdf.pdf . ↩︎
18. Some state officials also noted that tracking state savings in this area can require costly reprogramming of Medicaid eligibility systems. ↩︎
19. Report on Medicaid Expansion in 2014. (Deloitte commissioned by the Commonwealth of Kentucky, February 2015.) http://governor.ky.gov/healthierky/Documents/medicaid/Kentucky_Medicaid_Expansion_One-Year_Study_FINAL.pdf. ↩︎
20. Teresa A. Coughlin, John Holahan, Kyle Caswell, and Megan McGrath. Uncompensated Care for the Uninsured in 2013: A Detailed Examination. (Washington, DC: Urban Institute, May 2014.) https://modern.kff.org/uninsured/report/uncompensated-care-for-the-uninsured-in-2013-a-detailed-examination/. ↩︎
21. Report on Medicaid Expansion in 2014. (Deloitte commissioned by the Commonwealth of Kentucky, February 2015.) http://governor.ky.gov/healthierky/Documents/medicaid/Kentucky_Medicaid_Expansion_One-Year_Study_FINAL.pdf. ↩︎
22. Ibid. ↩︎
23. Ibid. ↩︎
24. Council of Economic Advisers. Missed Opportunities: The Consequences of State Decisions Not to Expand Medicaid. July 2014, http://www.whitehouse.gov/sites/default/files/docs/missed_opportunities_medicaid.pdf. ↩︎
25. Report on Medicaid Expansion in 2014. (Deloitte commissioned by the Commonwealth of Kentucky, February 2015.) http://governor.ky.gov/healthierky/Documents/medicaid/Kentucky_Medicaid_Expansion_One-Year_Study_FINAL.pdf. ↩︎
26. The calculations are those of the authors based on (1) savings figures provided by state officials as (2) compared to state general fund spending across all budget categories for SFY 2013 as reported by the National Association of State Budget Officers in its State Expenditure Report: Examining Fiscal 2012-2014. ↩︎
27. Report on Medicaid Expansion in 2014. (Deloitte commissioned by the Commonwealth of Kentucky, February 2015.) http://governor.ky.gov/healthierky/Documents/medicaid/Kentucky_Medicaid_Expansion_One-Year_Study_FINAL.pdf. ↩︎
28. Martha Heberlein, Tricia Brooks, Joan Alker, Samantha Artiga and Jessica Stephens. Getting into Gear for 2014: Findings from a 50-State Survey of Eligibility, Enrollment, Renewal, and Cost-Sharing Policies in Medicaid and CHIP, 2012-2013. (Kaiser Commission on Medicaid and the Uninsured, January 2013.) https://modern.kff.org/medicaid/report/getting-into-gear-for-2014-findings-from-a-50-state-survey-of-eligibility-enrollment-renewal-and-cost-sharing-policies-in-medicaid-and-chip-2012-2013/. ↩︎
29. Connecticut’s SAGA program included both cash and medical assistance; the cash assistance component remains. ↩︎
30. After projecting a $300 million surplus for FY 2015 twice, the state’s Comptroller projected a $31 million deficit due in part to a shortfall in the Medicaid program resulting from federal reimbursement issues and hospital settlement payments that were above projections. http://www.osc.ct.gov/public/news/releases/20150102.html. The state has been working with CMS to finalize the methodology for obtaining the enhanced match. ↩︎
31. New Mexico had originally reported plans to eliminate its family planning program, but did not ultimately do so. Virginia also reduced eligibility for this group to 100 percent FPL in 2014 but plans to restore coverage to 200 percent FPL in 2015. Vern Smith, Kathleen Gifford, Eileen Ellis, Robin Rudowitz and Laura Snyder. Medicaid in an Era of Health and Delivery System Reform: Results from a 50-State Medicaid Budget Survey for State Fiscal Years 2014 and 2015. (Washington, DC: Kaiser Commission on Medicaid and the Uninsured,) October 2014. https://modern.kff.org/medicaid/report/medicaid-in-an-era-of-health-delivery-system-reform-results-from-a-50-state-medicaid-budget-survey-for-state-fiscal-years-2014-and-2015/. ↩︎
32. Vern Smith, Kathleen Gifford, Eileen Ellis, Robin Rudowitz and Laura Snyder. Medicaid in an Era of Health and Delivery System Reform: Results from a 50-State Medicaid Budget Survey for State Fiscal Years 2014 and 2015. (Washington, DC: Kaiser Commission on Medicaid and the Uninsured,) October 2014. https://modern.kff.org/medicaid/report/medicaid-in-an-era-of-health-delivery-system-reform-results-from-a-50-state-medicaid-budget-survey-for-state-fiscal-years-2014-and-2015/. ↩︎
33. Ibid. ↩︎

Higher cost sharing in private insurance has been credited with helping to slow the growth of health care costs in recent years. Plans with higher deductibles and other point of service costs provide health plan enrollees with incentives to make more cost conscious health care choices. For families with limited resources, however, high cost sharing can be a potential barrier to care and may lead these families to significant financial difficulties. Many current policies expose individual enrollees to thousands of dollars in cost sharing expenses and family expenses can easily top ten thousand dollars when someone becomes seriously ill.

While concerns about cost sharing are not new, the recent coverage expansions under the ACA put a new focus on what it means for coverage to be affordable. The goal of the law was to cover more of the uninsured, many of whom have limited means. The law requires most people to have health insurance, if they can afford to pay the premium, or to pay a penalty. The issue for some families, however, is that the policies with affordable premiums may have cost sharing requirements that would be difficult for them to meet when they access services. Many of the policies in the state and federal marketplaces have significant cost sharing, as do many policies provided to people at work [here]. The ACA provides cost-sharing assistance to some, primarily to those with incomes below 200 percent of poverty purchasing through a state or the federal marketplace (see sidebar). Others potentially face much higher out-of-pocket expenses.

We use information from the 2013 Survey of Consumer Finances to look at how household resources match up against potential cost-sharing requirements. We assume that households pay premiums out of current income, but that they may need to use savings or other assets if they become seriously ill in order to meet the deductible or the out-of-pocket limit under their health insurance policies. We show that many households, in particular those with lower incomes or where someone lacks insurance, have low levels of resources that would make it difficult for them to meet health insurance cost sharing demands.

Survey of Consumer Finances

The Survey of Consumer Finances (SCF) is a triennial, nationally representative household survey conducted by the Federal Reserve Board. The 2013 SCF provides a snapshot of household finances, including detailed information on households’ debts, assets, income and other characteristics, including the types of health insurance present in the household.¹ 

The SCF collects information for households, which in some cases will be different than the group of people considered to be a family in other surveys. Most of the information from the SCF, including the financial information, is designed to describe the “primary economic unit” (PEU), which is the economically dominant single person or couple (living together as spouses or partners) in a household and all of the other people living in the household who are financially dependent on that individual or couple. For this analysis, we limit the households to be more representative of those who are likely to rely on private health insurance by excluding (1) households where a dominant economic individual or his or her spouse/partner if either are over age 64 and (2) households with incomes under poverty.

Results are shown for all these households as well as for households where someone had private insurance and for households where someone was uninsured. Although we are looking at cost sharing for people with insurance, we included households with people who were uninsured in 2013 because they are prime targets for coverage expansion under the ACA, either through expanded coverage at work or through new coverage options. For each groups results are further broken out by household size (one person or households of more than one person) and by poverty categories.

Using the information from the survey on household assets and debts, we developed two measures of resources that households may have to meet health insurance cost sharing. The measures used here could be considered conservative because they assume that a household can bring a large share of its saved resources to bear to pay one-year’s cost sharing in a health insurance policy.² 

• The first category is liquid financial assets, which are those most easily converted to cash. The category includes checking and saving accounts, money market accounts, certificates of deposit, savings bonds, non-retirement mutual funds, stocks and bonds, but excludes the value of dedicated retirement accounts (such as 401k accounts) and the cash value of life insurance.
• The second category is net financial assets, which is a broader measure of the household’s total resources. This category includes total all financial assets, including assets dedicated to retirement, reduced by the household’s unsecured debts. For this measure, the value of assets is reduced by credit-card debt and other unsecured loans, but debts secured by real property (such as mortgage debt) and loans for vehicles and education are not counted against assets. This category measures how much money a household has to pay medical expenses after meeting debt obligations.

We look at the median amount (one-half of households have more and one-half have less) for each measure to paint a basic picture of the financial resources available to households. Median asset levels, rather than averages, are used because assets, like income, are unevenly distributed and the high asset levels of wealthier households skew the distribution. We also calculate the percentages of households with the resources to meet specified deductibles and out-of-pocket cost sharing limits. We assume that a household meets medical cost sharing when they spend all of their net-financial assets or liquid financial assets; this assumption would leave households with no additional assets for savings or other emergencies and does not account for the complex financial picture many households face.

Health Insurance Cost Sharing

Private health insurance policies have several forms of cost sharing, including general deductibles that must be met before most services are covered, and specified dollar amounts (copayments) or percentage contributions (coinsurance) that plan enrollees must pay when they receive covered services. Most plans are required to have limits on annual enrollee cost sharing; the maximum allowed limits for 2015 are $6,600 for single coverage and $13,200 for family coverage.

Cost sharing requirements vary widely from policy to policy. Looking at plans offered by employers, about 80% of workers with employer plans have a general annual deductible and, among those, average deductibles for single coverage are almost $1,800 in smaller firms (3 to 199 workers) and about $970 in large firms³ . Among all workers enrolled in a plan with a deductible in 2014, the average is $1,217.  There is considerable variation in deductibles that covered workers face. Around these averages, 25% of workers enrolled in a plan with a deductible at smaller firms have a single deductible of $894 or less while 25% have a single deductible of $2,500 or more. In larger firms, 25% of workers who are enrolled in a plan with a deductible have a single deductible of $500 or less while 25% have a single deductible of $1,265 or more. For all covered workers, 25% are in a plan with a deductible of 500 or less and 75% are in a plan with a deductible of $1,500 or more. Out-of-pocket limits for workers in single coverage in plans offered by employers average about $3,500 in small firms and about $3,000 in larger firms; 25% of workers in smaller firms have an out-of-pocket limit of $5,000 or more for single coverage; the comparable amount for larger firms is $4,000. Deductibles and out-of-pocket limits in family plans are usually about twice the single amounts, but some plans may have a different structure, such as a per enrollee limit which make them harder to characterize. A more complete picture of deductibles, out-of-pocket limits are other cost sharing in employer plans is available [here].

Cost sharing also varies significantly in nongroup plans both across and within metal tiers. For example, average single deductibles for plans with a combined deductible for medical and prescription drugs offered in the federal marketplace range from $69 for platinum plans to $5,328 in bronze plans⁴ . As with employer plans, there is significant variation around the averages, for example 13% of silver plans on the federal marketplaces have a combined deductible of less than $1,500 dollars and seven percent have a deductible of $4,000 or more. Out-of-pocket limits also have a large range: $1,975 for platinum plans and $6,359 for bronze plans⁵ . For more information on cost sharing in the federal exchanges see [here]. Many lower income purchasers in the federal and state marketplaces also are eligible for subsidies that reduce the cost sharing in their policies [here].

For this analysis, we compare household resources against two deductible levels: $1,200 single/$2,400 family (referred to as the lower deductible amounts) and $2,500 single/$5,000 family (referred to as the higher deductible amounts); and against two out-of-pocket limits: $3,000 single/$6,000 family (referred to as the lower out-of-pocket limits) and $6,000 single/$12,000 family (referred to as the higher out-of-pocket limits). We chose these levels to represent the mid to high range of cost sharing. While there are plans with less cost sharing and plans with more cost sharing, these levels should provide a reasonably good measure of the ability of families to meet of the typical cost sharing requirements available in the market. Households with one member are measure against the single amounts and households with more than one member are measured against the family amounts.

Median Financial Resources

Among non-elderly, non-poor households, the median amount of liquid financial assets is $4,560 and the median amount of net financial assets is $2,564. Liquid financial and net financial assets are lower among single households than among households of two or more members, and are much lower in households with incomes below 400% of poverty than above (Figure 1). Households with incomes between 100% and 250% of poverty have quite low levels: the median for liquid financial assets is just over $700 and median for net financial assets is just over $300. The poverty categories are defined based upon the poverty level established by the Department of Health and Human Service for 2013. In 2015, a family of four earning $24,250 would be 100% of poverty and households at $60,625 and $97,000 would be 250% and 400% of poverty, respectively. For a single individual, the poverty level in 2015 is $11,770, individuals earning $29,425 and $47,080 would be at 250% and 400% of poverty respectively.⁶ 

Asset levels vary when everyone in the household is covered by private insurance and when someone in the household is without insurance. In households where the only form of coverage was private health insurance, median liquid financial assets are $9,751 and median financial assets are $7,922 (Figure 2). The distribution is similar to that of all households: median asset levels are higher among households with one member than among those with one-member and households with incomes under 400% of poverty have much lower assets than those with higher incomes. In contrast, households where at least one member was uninsured have lower asset levels: the median level of liquid financial assets is $1,000 and the median level of net financial assets is $315. Households with lower incomes have particularly low asset levels (Figure 3).

The figures above show that many households may have difficulty meeting health insurance cost-sharing requirements with existing resources. Median assets levels for households with incomes below 400% of poverty, and particularly those between 100 and 250% of poverty, are low when compared to the higher deductible amounts and out-of-pocket limits in health insurance policies. Families where someone lacked health insurance, a primary target for coverage expansion under the ACA, have relatively low assets across the board.

Assets to Meet Cost-Sharing Requirements

In this section we look at the percent of households that have sufficient assets to meet the specified deductible amounts and out-of-pocket limits. The discussion here focuses on liquid financial assets because for most households they are the higher measure. Similar figures using the net financial asset measure are shown in the appendix. In general, many households, and particularly those with lower incomes or with someone who was uninsured, do not have sufficient liquid financial assets to cover the deductibles amounts. Looking at the out-of-pocket limits, most households do not have sufficient liquid financial assets to meet either the lower or the higher limit. The percentage of households who have both low incomes and enough assets to meet either of the out-of-pocket limits is very low.

Deductibles

Overall, three in five (63%) households have enough liquid financial assets to meet the lower deductible amounts while one-half (51%) can meet the higher deductible amounts (Figure 4). These percentages are similar for single-member and multi-member households, but vary significantly by family income. Only 32% of households with incomes between 100% and 250% of poverty can meet the lower deductible amounts, while one-in-five can meet the higher deductible amounts. In contrast, 88% of households with incomes over 400% of poverty can meet the lower deductible amounts and three-in-four (79%) can meet the higher amounts.

Deductibles are easier to meet for households with only private coverage, where 76% have sufficient liquid financial assets to meet the lower deductible amounts and 65% can meet the higher amounts (Figure 5). Again there is significant variation across income. Among households with only private coverage and incomes between 100% and 250% of poverty, two in five (45%) have enough liquid financial assets to meet the lower deductible amounts and 32% can meet the higher amounts; in contrast, for households with incomes above 400% of poverty, 90% have enough liquid financial assets to meet the lower deductible amounts and 81% can meet the higher amounts.

Households with at least one person who was uninsured have a particularly hard time meeting the deductible amounts. Only about one-in-three (35%) of these households have enough liquid financial assets to meet the lower deductible amounts and only 22% can meet the higher amounts. Among households with incomes between 100% and 250% of poverty, about a quarter (24%) have enough liquid financial assets to meet the lower deductible amounts and only 13% can meet the higher amounts. Among households with incomes over 400% of poverty, 74% have enough liquid financial assets to meet the lower deductible amounts while just about one-half (57%) can meet the higher deductible amounts.

Out-of-Pocket Limits

Out-of-pocket limits are higher than deductibles and meeting them is more difficult for many families. Forty-eight percent of households have enough liquid financial assets to meet the lower out-of-pocket limits and 37% can meet the higher limits (Figure 7). The percentages are quite low for households with incomes between 100% and 250% of poverty, with 18% having enough liquid financial assets to meet the lower out-of-pocket limits and 11% being able to meet the higher limits. Among households with incomes over 400% of poverty, 75% have enough liquid financial assets to meet the lower out-of-pocket limits while just 62% can meet the higher limits.

Things are somewhat better for households with only private health insurance, where 61% of households have enough liquid financial assets to meet the lower out-of-pocket limit and 49% can meet the higher limit (Figure 8). Still, only 29% of these households with incomes between 100% and 250% of poverty can meet the lower out-of-pocket limit and only 18% can meet the higher amount. The percentages for those over 400% of poverty are similar to those for households overall.

A large share of households in which someone was uninsured lacks enough resources to meet the out-of-pocket limits (Figure 9). Only 20% of these households have enough liquid financial assets to meet the lower out-of-pocket limit and only 12% can meet the higher limit. Even among households with incomes above 400% of poverty, only 50% have liquid financial assets that meet the lower out-of-pocket limit and 35% can meet the higher limit.

Additional Financial Support

Faced with medical bills, people may turn to friends and relatives to help them meet expenses. The SCF asks respondents whether in an emergency they could obtain $3,000 of financial assistance from friends or relatives⁷ . Among non-elderly, non-poor households, 69% respond affirmatively to this question. Households with higher incomes are more likely to say that they can obtain $3,000 from family or friends in an emergency: 82% for households with incomes over 400% of poverty compared with 51% for households with incomes between 100% and 250% of poverty. Similarly, just over one-half (55%) of households that have liquid financial assets below the lower out-of-pocket limits ($3,000 single/$6,000 family) say that they could do so.

Discussion

Many non-elderly, non-poor households lack the resources to meet the deductibles and out-of-pocket limits that they may encounter in the private insurance market. Many households have insufficient liquid financial assets to meet the specified cost sharing measures, and the situation for net financial assets is no better (See Attachment 1). Not surprisingly, the difficulties are greater in households with lower incomes and with someone who lacked health insurance. These groups are targets for expanded coverage under the ACA and, as they transition into coverage, it will be important to assess whether the policies they can get protect them financially if they become seriously ill.

While the ACA provides for reduced cost sharing for some people with incomes below 250% of poverty that purchase coverage in a state or the federal marketplace, there is no assistance with cost sharing for those with higher incomes or for those obtaining coverage through a job. As is evident from the Figures and the appendix, substantial shares of households with incomes between 250% and 400% of poverty would be unable to meet even the lower out-of-pocket limits with their current resources, and meaningful shares of households with incomes over 400% of poverty would have problems as well. For these people, serious illness may require that they borrow funds or become indebted to their health care providers. Roughly half of those with liquid financial assets below the cost sharing measures say they could obtain $3,000 in an emergency from friends or relatives.

The higher cost sharing in private insurance has been credited with helping to slow the rate of health care cost growth. Asking enrollees to pay a portion of costs at the point of service may encourage them to make consumer health care more wisely and to weigh the costs and benefits of alternative treatment options and providers. At the same time, cost sharing that seriously stresses family budgets may act as an impediment to seeking needed care, frustrating a primary reason people seek to be insured in the first place. For these families, having coverage would certainly reduce the ultimate financial consequences of serious illness, which is important both for the family and for providers delivering care, but this is a bargain that may look better in hindsight, after an illness has occurred, than it does when the family is trying to decide whether or not to pay for such a plan in the first place. Particularly as we extend private coverage to more families with lower incomes and limited resources, we need to be cognizant of their financial capacity to use the coverage that they are being asked to buy.

Methods:

The 2013 Survey of Consumer Finances (SCF) is a triennial, nationally representative household survey conducted by the Federal Reserve Board. The survey has a dual frame, with respondents selected both from a national area probability design and a sample of households with high income tax returns.⁸  The 2013 SCF is the most current survey available and is based on 6,015 households.⁹  For this analysis, we excluded households in which (1) a financially dominant individual or his or her spouse was over age 64 or (household income was less than 100% of poverty). These limitations reduce the number of households to 4,080.

The SCF defines a family as a “primary economic unit (PEU),” or all of the individuals living in a household who are financially interdependent with the dominant individual or couple.¹⁰  Income and assets are measured for the PEU in the household. The definitions of the different types of assets and debts are available [here] and [here]. The analysis uses median rather than mean measures of assets to account for the skewed distribution of household financial characteristics. Weights were applied to ensure medians were representative of the population.

The SCF provides information about the types of insurance present in each household, and also about whether each member had coverage or not. Unlike financial characteristics, insurance questions are asked of all members of a household, including members that are not part of the PEU, which could be a relative who is financially independent or a financially independent nonrelative living in the household. This creates some potential ambiguity when we look at households in which someone has private coverage because it is possible that the only people with private coverage are not part of the PEU. To check if this was biasing results, we also looked at households where everyone had private coverage and no other type of coverage and found that the quartiles for liquid and net financial assets were similar. Because we have information about whether or not each person in the household has some coverage or not, we were better able to target the members of the PEU in identifying households where someone was uninsured. We selected only households where the financially dominant individual, his or her spouse or partner, or his or her financially dependent children (regardless of the child’s age) were uninsured. Households with only private insurance are covered those in which all the members are covered by employer coverage, private non-group coverage, Tri-care and/or a union sponsored plan.

 

1. The survey asks whether anyone in the household has health insurance and if so, what types of insurance people have. The survey also ascertains whether everyone in the household is covered by the same type of health insurance, whether everyone is uninsured, and who in the household is uninsured. ↩︎
2. Jacobs, Paul, and Gary Claxton. “Comparing the Assets of Uninsured Households to Cost Sharing Under High-Deductible Health Plans.” Health Affairs 27.3 (2008): W214-221. Web. 14 Jan. 2013. http://content.healthaffairs.org/content/27/3/w214.full.pdf html. ↩︎
3. Kaiser Family Foundation. “Employer Health Benefits Survey”. Sept 2015. https://modern.kff.org/report-section/ehbs-2014-section-seven-employee-cost-sharing/ ↩︎
4. Averages and distributions are not weighted by enrollment. For more information see: Claxton, Gary; Cox, Cynthia and Rae, Matthew. “The Cost of Care with Marketplace coverage”. Kaiser Family Foundation. February 11, 2015. https://modern.kff.org/health-reform/issue-brief/the-cost-of-care-with-marketplace-coverage/ ↩︎
5. Averages and distributions are not weighted by enrollment. For more information see: Claxton, Gary; Cox, Cynthia and Rae, Matthew. “The Cost of Care with Marketplace coverage”. Kaiser Family Foundation. February 11, 2015. https://modern.kff.org/health-reform/issue-brief/the-cost-of-care-with-marketplace-coverage/ ↩︎
6. U.S. Department of Health & Human Services. “2015 Poverty Guidelines.” http://aspe.hhs.gov/poverty/15poverty.cfm ↩︎
7. The exact question wording is: “In an emergency could you (or your {husband/wife/partner}) get financial assistance of $3,000 or more from any friends or relatives who do not live with you?”. “Codebook for the 2013 Survey of Consumer Finances.” Federal Reserve. http://www.federalreserve.gov/econresdata/scf/scfindex.htm ↩︎
8. Kennickell, Arthur B. “Wealth Measurement in the Survey of Consumer Finances: Methodology and Directions for Future Research”.  May 2000. Web. 23 Jan. 2013. http://www.federalreserve.gov/econresdata/scf/files/measurement.pdf ↩︎
9. Kennickell, Arthur. “Codebook for the 2013 Survey of Consumer Finances.” Division of Research and Statistics Board of Governors of the Federal Reserve System. Web. 23 Jan. 2013. http://www.federalreserve.gov/econresdata/scf/files/codebk2013.txt ↩︎
10. Brian K. Bucks, Arthur B. Kennickell, Traci L. Mach and Kevin B. Moore. “Changes in U.S. Family Finances from 2004 to 2007: Evidence from the Survey of Consumer Finances.” Federal Reserve Bulletin, vol. 95 (February 2009), pp. A53. ↩︎

Medicaid is the nation’s main public health insurance program for people with low income and the single largest source of public health coverage in the U.S. covering nearly 70 million Americans. ¹  States design and administer their own Medicaid programs within federal requirements, and states and the federal government finance the program jointly. Medicaid plays many roles in our health care system (Figure 1). Medicaid coverage facilitates access to care for beneficiaries, covering a wide range of benefits and tightly limiting out-of-pocket costs for care. As a major payer, Medicaid is a core source of financing for safety-net hospitals and health centers that serve low-income communities, including many of the uninsured. It is also the main source of coverage and financing for both nursing home and community-based long-term care. Altogether, Medicaid finances 16% of total personal health spending in the U.S.

The Affordable Care Act (ACA), enacted on March 23, 2010, expanded the Medicaid program significantly as part of a broader plan to cover millions of uninsured Americans.²  Specifically, the ACA expanded Medicaid eligibility to nearly all non-elderly adults with income at or below 138% of the federal poverty level (FPL) – about $16,245 for an individual in 2015. This expansion established a new coverage pathway for millions of uninsured adults who were previously excluded from Medicaid, beginning January 1, 2014. The law also provided for 100% federal funding of the expansion through 2016, declining gradually to 90% in 2020 and future years. However, the Supreme Court ruling on the ACA in June 2012 effectively made the Medicaid expansion optional for states.

Beyond expanding Medicaid, the ACA introduced other reforms that improve the program in all states, regardless of their Medicaid expansion decision. The law required states to simplify and modernize their enrollment processes, and to create a coordinated eligibility and enrollment system for Medicaid, the Children’s Health Insurance Program (CHIP), and the Marketplace, to facilitate enrollment and promote continuity of coverage. The ACA also established an array of new authorities and funding opportunities for delivery system and payment reform initiatives in Medicare, Medicaid, and CHIP, designed to advance better and more cost-effective models of care, particularly for those with high needs and costs, whose care is poorly coordinated, leading to both serious gaps and costly redundancy. Finally, the law provided new options and incentives to help states rebalance their Medicaid long-term care programs in favor of community-based services and supports rather than institutional care. Collectively, these provisions have accelerated Medicaid innovation already underway in many states. Because Medicaid covers many of the highest-need populations in the U.S., states have unique financial and policy leverage to reform the systems of care that serve them.

Between action in many states to strengthen the Medicaid program and far-reaching ACA provisions in key Medicaid domains, Medicaid is in a period of historic transformation. While data and analysis on the impact of the changes underway will take time to emerge, this issue brief provides a current profile of Medicaid and highlights developments in the program unfolding at the federal and state level. National and state-level data on key dimensions of the Medicaid program are included in a set of tables following the brief.

Who does Medicaid cover?

Before the ACA, federal law provided federal funding for Medicaid only for specified categories of low-income individuals: children, pregnant women, parents of dependent children, individuals with disabilities, and people age 65 and older. States were required to cover individuals in these groups up to federal minimum income thresholds, but also had the option to expand coverage to people at higher income levels. Importantly, prior to the ACA low-income adults were largely excluded from Medicaid. In FY 2011, the most current year for which national data are available, about three-quarters of all Medicaid beneficiaries were children and non-elderly, non-disabled adults (primarily, working parents), and the elderly and younger people with disabilities accounted for the remaining one-quarter (Figure 2).

Over the last 25 years, many states have taken action to expand coverage for children. To illustrate, while federal law required states to provide Medicaid for children up to at least 100% FPL (133% FPL for children under age 6), as of January 2015, 27 states (including DC) had expanded eligibility to at least 255% FPL under Medicaid or CHIP, and in 19 of these states, the eligibility cut-off was over 300% FPL. Together, Medicaid and CHIP now cover more than 1 in every 3 children, and the role of the programs is even larger among low-income children and children of color. In December 2014, 29.1 million children were enrolled in Medicaid and CHIP—the vast majority in Medicaid.³ 

The history of Medicaid coverage of adults is sharply different. In 2013, before the ACA Medicaid expansion took effect, the median state Medicaid income eligibility cut-off for working parents was 61% FPL and, in most states, non-elderly adults without dependent children (“childless adults”) were categorically ineligible for Medicaid.⁴  States’ income eligibility thresholds have typically been higher for the elderly and people with disabilities. States generally must provide Medicaid automatically to seniors and people with disabilities who receive Supplemental Security Income (SSI) benefits, for which the federal benefit rate is 74% FPL.⁵  States also have the option to cover elderly individuals and people with disabilities who have more income or high medical expenses relative to their income.⁶  The ACA did not alter the Medicaid eligibility rules for these two groups, but some adults with disabilities with too much income to qualify through the Medicaid disability pathway may now qualify for Medicaid through the adult expansion group (in states that have adopted the expansion) .

In FY 2010, 14% of all Medicaid beneficiaries – 9.6 million – were “dual eligible” seniors and younger persons with disabilities who are covered by Medicare as well. One of every five Medicare beneficiaries is a dual eligible. Dual eligible beneficiaries are very poor and many have high health and long-term care needs. Medicaid assists them with their Medicare premiums and cost-sharing, and covers full Medicaid benefits for a large majority of them – most importantly, long-term services and supports, which Medicare does not cover.

Key ACA reforms. The ACA fundamentally reformed Medicaid by establishing eligibility for nonelderly adults, and also by putting in place a uniform, national minimum income eligibility threshold of 138% FPL for nearly all individuals under age 65. The effect of these changes was to establish Medicaid as the coverage pathway for low-income people in the ACA’s broader system for covering the uninsured. As noted earlier, although the Medicaid expansion was intended to be national, the Supreme Court ruling essentially made it optional for states. To date, 29 states (including DC) have adopted the expansion and six states are discussing it; 16 states are not adopting the expansion at this time (Figure 3). Between the three-month period leading up to the first ACA open enrollment period in October 2013, and December 2014, Medicaid and CHIP enrollment increased by more than 10.7 million individuals in the 49 states reporting data for both periods.⁷ 

States’ Medicaid expansion decisions have major implications for low-income adults. Whereas the expansion states provide Medicaid for adults up to 138% FPL, as of January 2015, the median Medicaid income limit for parents in the non-expansion states is just 46% FPL (about $9,200 for a family of three in 2015), and in all but one of the non-expansion states, childless adults remain ineligible for Medicaid (Figure 4).⁸  Because the ACA provided Medicaid eligibility for low-income adults, it did not provide financial assistance to purchase Marketplace coverage for those below 100% FPL. As a result, in the states not adopting the Medicaid expansion, almost 4 million uninsured poor adults fall into a “coverage gap.”⁹ 

The ACA protected the gains in children’s coverage that have been achieved over time in Medicaid and CHIP. The national Medicaid minimum income eligibility threshold of 138% FPL applies to all children up to age 19, and the law requires states to maintain at least the eligibility limits they had in place when the ACA was enacted, through September 30, 2019. Also, as of 2014, states must provide Medicaid coverage for children aging out of foster care, up to age 26. Finally, the ACA extends CHIP funding through 2015, and provides for a 23 percentage-point increase in the federal matching rates under CHIP during the period FY 2016-2019 if the Congress extends CHIP funding beyond 2015.¹⁰ 

What services does Medicaid cover?

Medicaid covers a wide range of services to meet the diverse needs of the populations it serves. Medicaid benefits include both acute care services and a broad array of long-term services and supports that Medicare and most private insurance plans do not cover or tightly limit. States have flexibility to charge limited premiums and cost-sharing in Medicaid, subject to federal parameters. Premiums are generally prohibited for beneficiaries with income below 150% FPL. Cost-sharing for people with income below 100% FPL is limited to “nominal” amounts specified in federal regulations, with higher levels allowed for beneficiaries at higher income levels. However, certain groups are exempt from cost-sharing, including mandatory eligible children, pregnant women, most children and adults with disabilities, people residing in institutions, and people receiving hospice care. In addition, certain services are exempt from cost-sharing: emergency services, preventive services for children, pregnancy-related services, and family planning services. Total Medicaid premiums and cost-sharing for a family cannot exceed 5% of the family’s income on a quarterly or monthly basis.¹¹ 

States are required by federal law to cover specified “mandatory” services in Medicaid, and they can also elect to cover many services designated as “optional” (Figure 5); these benefits apply to adults eligible for Medicaid under pre-ACA eligibility rules. Many states choose to cover prescription drugs (all states), dental care, durable medical equipment, and personal care services. The Medicaid benefit package for children, known as EPSDT (Early and Periodic Screening, Diagnosis, and Treatment), is uniquely comprehensive, addressing children’s developmental as well as health care needs, and includes many services that are critical for children with special health care needs. Under EPSDT, children up to age 21 are entitled to all medically necessary Medicaid services, including optional services, even if the state does not cover them for adults.

In addition to nursing facility and home health benefits, which are mandatory long-term care services, states also cover many optional home and community-based services (HCBS).¹²  HCBS include targeted case management, personal care services, family and caregiver training and support; rehabilitative services, housing coordination to help individuals locate and obtain community housing; and a diversity of other services. Medicaid is the main payer for post-acute institutional and community-based long-term care in the U.S., financing 40% of total spending in this area.¹³ 

Until relatively recently, federal law generally required states to provide the same benefits to all Medicaid beneficiaries statewide. Legislation enacted in 2006 gave states limited flexibility to provide “benchmark” benefits to some Medicaid beneficiaries based on one of three commercial insurance plans specified in the law or a benefit package determined appropriate by the HHS Secretary. However, few states actually used the benchmark authority. States also have authority to use Medicaid dollars to pay premiums for job-based health insurance for Medicaid beneficiaries who are offered it, an approach known as “premium assistance.” States must generally provide wrap-around services and cost-sharing protection to fill in any gaps between the private coverage and Medicaid.

Key ACA reforms. Under the ACA, most adults in the new Medicaid expansion group receive “Alternative Benefit Plans” (ABPs), which is the new term for the Medicaid benchmark options just mentioned. Medicaid ABPs must include the same ten essential health benefit (EHB) categories that Marketplace plans under the ACA must include. In addition, ABPs must provide parity between physical and mental health/substance use disorder benefits, offer the full range of EHB preventive services, and cover family planning services and supplies, FQHC and RHC services, and non-emergency medical transportation. Compared to traditional Medicaid benefits for adults, ABPs based on commercial insurance products may provide broader coverage of some services (e.g., behavioral health care, preventive care) and narrower coverage of other services (e.g., prescription drugs, long-term services).¹⁴  All but a few states have aligned their ABP with their traditional Medicaid benefit package for adults. Certain populations must have access to all Medicaid state plan benefits, even if they are eligible for Medicaid through the new adult expansion group. They include individuals who are medically frail or have special medical needs, including people with disabling mental health disorders and complex medical conditions, dual eligible beneficiaries, and specified other beneficiary groups.

Revised regulations on Medicaid premiums and cost-sharing limit copayments for those with income at or below 100% FPL to $4 for outpatient services, $8 for non-preferred drugs and non-emergency use of the emergency department, and $75 per inpatient admission; as before, states can charge higher cost-sharing for beneficiaries with income above 100% FPL.¹⁵  The prohibition against premiums for those at or below 150% FPL, the exemptions mentioned earlier, and the 5% aggregate cap on premiums and cost-sharing remain in place.

How do Medicaid beneficiaries get care?

Most Medicaid beneficiaries obtain their care from private office-based physicians and other health professionals. Safety-net health centers and hospitals also play a major role in serving the Medicaid population. Thirty-nine states now contract with comprehensive managed care organizations (MCOs) to serve at least some Medicaid beneficiaries, and nationally, over half of all Medicaid beneficiaries – primarily children and parents – get their care through these plans (Figure 6). States pay the MCOs a monthly premium for each enrolled Medicaid beneficiary. States are relying increasingly on MCOs, expanding managed care to include higher-need Medicaid populations, such as people with disabilities and dual eligible beneficiaries, as well as Medicaid expansion adults. States are also adopting managed long-term services and supports. Many Medicaid beneficiaries who are not in risk-based MCOs are enrolled in Primary Care Case Management (PCCM) programs, in which states pay for care on a fee-for-service basis but also pay contracted primary care providers an additional small monthly fee to coordinate care for their Medicaid patients. Both risk-based managed care and PCCM programs can be understood, in part, as means of establishing networks of participating providers and garnering greater access to care for Medicaid beneficiaries.

On the long-term care front, states have been working over the last several decades to rebalance their programs by devoting more of their long-term care spending to HCBS rather than institutional care. While the majority of Medicaid long-term care spending still goes toward institutional care, the share spent on HCBS continues to grow. In FY 2013, HCBS accounted for 46% of total Medicaid long-term care spending, up from 32% in FY 2002.¹⁶ 

Key ACA reforms. The ACA includes many investments, funding opportunities, demonstration programs, and new authorities designed to drive health care delivery and payment system reforms in Medicaid and other public insurance programs. These provisions have accelerated ongoing innovation in Medicaid programs, including implementation of models like patient-centered medical homes and accountable care organizations (ACOs) that involve a more central role for preventive and primary care, increased care coordination for beneficiaries with complex needs, and financial incentives linked to performance. States are combining and integrating these approaches in different ways with their underlying delivery and payment systems in Medicaid. The ACA also provides states with expanded options and enhanced federal financing to improve access to and delivery of Medicaid long-term services and supports, and to provide incentives to states to shift more long-term care spending to HCBS. Nearly every state has adopted at least one of six key Medicaid LTSS options contained in the ACA, with many states pursuing multiple options.¹⁷ 

How is access to care in Medicaid?

Medicaid beneficiaries fare much better than the uninsured on key measures of access to care, utilization, unmet need, and financial protection. The vast majority of Medicaid beneficiaries have a usual source of care, compared to sizable shares of the uninsured who do not, and they are significantly more likely to see a doctor (Figure 7). Medicaid also lowers financial barriers to care and limits out-of-pocket costs, and Medicaid beneficiaries are much less likely than the uninsured to report unmet health care needs.^{18  19  20} 

Comparisons between Medicaid and private insurance are also informative. Research based on national surveys shows that both children and adults in Medicaid have access to and use primary and preventive care at rates comparable to their counterparts with employer-sponsored insurance (ESI). When demographic, health status, and socioeconomic differences between the two insured populations are controlled, the shares with a usual source of care are similar, as are the shares with any office or doctor visit, and the shares with any specialist visit.²¹  Likewise, controlling for these differences, the percentages of children with unmet needs for medical care, dental care, or prescription drugs due to cost are comparable between the two insured groups (and low); among adults, rates of unmet needs due to cost are lower for those with Medicaid, although unmet needs due to non-financial barriers, like transportation, are higher for Medicaid adults.

Although analyses of survey data show quite robust access to care in Medicaid,²²  other research highlights important challenges and gaps. Physician participation is more limited in Medicaid than in Medicare or private insurance.²³  Physicians’ lower participation in Medicaid is often attributed to low payment rates in Medicaid, although evidence on the impact of fees on participation is mixed.²⁴  Low participation of psychiatrists in Medicaid and shortages of substance abuse treatment professionals²⁵  are a particular concern because of the high prevalence of behavioral health conditions among Medicaid beneficiaries; for beneficiaries with physical and behavioral health comorbidities, lack of access to behavioral health care can adversely affect management of their physical chronic conditions as well. Dentist participation in Medicaid is also low, but children with Medicaid are on par with privately insured children in terms of dental care (overall, use of dental care for children falls well below recommended levels). Adult access to dental care in Medicaid is a more significant problem. Coverage of adult dental services is optional in Medicaid and many states only cover care for pain relief or emergency dental care for injuries, trauma, or extractions; many also impose tight dollar caps on adult dental benefits.²⁶ 

According to a 2012 report by the Government Accountability Office, 38 states reported that they experienced challenges securing sufficient provider participation in Medicaid, with the leading reasons being overall provider shortages and low Medicaid payment rates.²⁷  “Secret shopper” studies indicate more limited availability of new patient appointments for Medicaid beneficiaries compared to privately insured people.²⁸  As managed care expands, provider payment rates are increasingly a matter of MCO policy rather than states’ Medicaid fee schedules and MCOs are responsible for establishing provider networks that are adequate to meet the needs of their enrollees. State and federal enforcement of network adequacy standards is essential to ensure that Medicaid managed care enrollees have robust access to care. Two recent reports by the HHS Office of Inspector General highlight significant shortcomings in oversight, including limited state enforcement actions against MCO violation of access standards and widespread inaccuracies in Medicaid provider directories.²⁹  Finally, Medicaid beneficiaries face other barriers to access, including limited access to after-hours care and lack of transportation.

Key ACA reforms. The ACA made a number of major investments to expand access to care in Medicaid as enrollment in the program grows. For 2013 and 2014, the law raised Medicaid fees for most primary care physician services to Medicare fee levels, providing full federal financing for the increase. As a result, Medicaid fees for the affected services rose by an average of 73% overall. Study findings showing that the increase in primary care reimbursement rates resulted in higher availability of new-patient appointments for Medicaid enrollees provides evidence that provider payment rates can be an effective lever for expanding access.³⁰  In the Kaiser Family Foundation’s recent 50-state survey of Medicaid directors, 15 states indicated that they planned to extend the primary care physician fee increase in 2015, at least partially.³¹ 

The ACA also funded a vast expansion of community health centers and the National Health Service Corps, which supplies many of the physicians and other health professionals who staff them and provide care in underserved areas. As a result of these investments, along with the Medicaid expansion, which gives new revenues to health centers for many previously uninsured patients, health centers have been able to open many new sites, provide more comprehensive primary care services, including dental care and behavioral health services, and serve an increasing number of patients, now totaling over 21 million.

How much does Medicaid cost and how is it financed?

In FY 2013, Medicaid spending on services totaled almost $440 billion. About two-thirds of all spending was attributable to acute care and more than one-quarter was associated with long-term care (Figure 8). Supplemental payments to hospitals that serve a disproportionate share of Medicaid and uninsured patients, known as “DSH,” accounted for 3.7% of spending, and Medicaid spending for Medicare premiums and cost-sharing on behalf of dual eligible beneficiaries totaled 3.4%. As mentioned earlier, almost two-thirds of all Medicaid spending for services is attributable to the elderly and persons with disabilities, who make up just one-quarter of all Medicaid enrollees. Dual eligible beneficiaries alone account for almost 40% of all spending, driven largely by spending for long-term care. The 5% of Medicaid beneficiaries with the highest costs drive more than half of all Medicaid spending (Figure 9). Their high costs are attributable to their extensive needs for acute care, long-term care, or often both.

Medicaid spending is driven by multiple factors, including the number and mix of enrollees, medical cost inflation, utilization, and state policy choices about benefits, provider payment rates, and other program factors. During economic downturns, enrollment in Medicaid grows, increasing state Medicaid costs at the same time that state tax revenues are declining. States under recessionary pressures have frequently sought to constrain Medicaid spending through actions such as cutting provider payment rates or reducing benefits.

Increasingly, states are undertaking more fundamental transformation of their Medicaid payment and delivery systems both to control costs and to improve care, particularly for high-cost populations. Over the period 2007-2013, average annual growth in total Medicaid spending for acute care was 7.4%, but on a per-enrollee basis, spending growth was 3.1% – on par with both growth in national health expenditures per capita and medical cost inflation, and less than growth in private health insurance premiums per enrollee (Figure 10).³² 

States and the federal government share the cost of Medicaid. The federal government matches state Medicaid spending at least dollar for dollar for beneficiaries eligible for Medicaid under pre-ACA law. The federal match rate, known as the Federal Medical Assistance Percentage, or FMAP, varies based on relative state per capita income according to a formula specified in federal statute. The FMAP for FY 2015, which began October 1, 2014, ranges from the federal minimum of 50%, to 73.6% in Mississippi, the poorest state today.³³  In 2012, the most recent year for which data are available, the federal share of total national Medicaid spending was about 57%.³⁴ 

Key ACA reforms. The expansion of Medicaid in the states that have implemented it, and greater participation in Medicaid nationwide due to increased outreach and simplified eligibility and enrollment processes, is leading, as intended, to growing enrollment in Medicaid and, in turn, to higher total Medicaid spending. The federal government finances the vast majority of the new costs associated with the Medicaid expansion to adults – the federal match for newly eligible adults is 100% through 2016, and phases down gradually to 90%. In addition, the ACA provides enhanced federal financing for investments that all states can make, including, for example, the establishment of health home programs for Medicaid beneficiaries with chronic conditions, options to expand HCBS, and improvements in Medicaid data systems.

All states, including those not expanding Medicaid, are seeing increased Medicaid costs because of increased participation in Medicaid among people who are eligible under pre-ACA rules. States receive their regular federal match for these beneficiaries. As would be expected, total Medicaid spending growth in FY 2014 and FY 2015 was much higher in the Medicaid expansion states than the non-expansion states, but state Medicaid spending grew more slowly in the expansion states, reflecting these states’ access to the enhanced federal matching funds.³⁵  States expanding Medicaid will pay a small share of the cost for the expansion adults beginning in 2017, reaching a maximum of 10% in 2020. However, many of these states expect offsets or net savings due to reduced state spending for uncompensated care and for state-funded mental health and other programs; broader economic effects of the Medicaid expansion, such as job growth and increased income and state tax revenues; and other impacts. States that are not expanding Medicaid are forgoing substantial federal funding for expanded coverage of their low-income residents.

Looking Ahead

Already an integral source of coverage and access for low-income Americans, including many individuals with complex health and long-term care needs, Medicaid’s role is growing further as the expansion to low-income adults and other key Medicaid reforms take hold. It will be important to track and assess how the program evolves under the ACA, and as Medicaid innovation at the state, health plan, and provider level advances and spreads. The unprecedented transformation and experimentation now underway in Medicaid provide an opportunity to identify successful enrollment and renewal practices, strategies to ensure access to care, effective models of person-centered and coordinated care, and payment systems that align financial incentives with goals for quality and cost. Progress in all these areas can further strengthen the Medicaid program and benefit the millions of people it serves.

1. FY 2011 Distribution of Medicaid Enrollees by Enrollment Group, FY 2011, https://modern.kff.org/medicaid/state-indicator/distribution-of-medicaid-enrollees-by-enrollment-group/, Kaiser Family Foundation. ↩︎
2. The health reform law also provided for new health insurance Marketplaces and premium subsidies for individuals with income between 100% and 400% FPL. ↩︎
3. Medicaid and CHIP: December 2014 Monthly Applications, Eligibility Determinations and Enrollment Report, CMS, February 23, 2015, http://www.medicaid.gov/medicaid-chip-program-information/program-information/downloads/december-2014-enrollment-report.pdf ↩︎
4. Getting into Gear for 2014: Findings From a 50-State Survey of Eligibility, Enrollment, Renewal and Cost-Sharing Policies in Medicaid and CHIP, 2012-2013 (Kaiser Family Foundation, January 2013), https://modern.kff.org/medicaid/report/getting-into-gear-for-2014-findings-from-a-50-state-survey-of-eligibility-enrollment-renewal-and-cost-sharing-policies-in-medicaid-and-chip-2012-2013/ ↩︎
5. States that elect the “209(b)” option are permitted to use financial eligibility standards that are more restrictive than federal SSI rules. However, these states must allow SSI beneficiaries to establish Medicaid eligibility through a “spend-down” by deducting their out-of-pocket medical expenses from their income. See https://modern.kff.org/health-reform/issue-brief/the-affordable-care-acts-impact-on-medicaid-eligibility-enrollment-and-benefits-for-people-with-disabilities/ for a more detailed discussion. ↩︎
6. March 2014 Report to the Congress on Medicaid and CHIP (Medicaid and CHIP Payment and Access Commission (MACPAC), March 2014). See Table 11. ↩︎
7. CMS op.cit. ↩︎
8. Wisconsin provides full Medicaid coverage to adults without dependent children up to 100% FPL although it has not adopted the Medicaid expansion at this time. ↩︎
9. https://modern.kff.org/health-reform/state-indicator/number-of-poor-uninsured-nonelderly-adults-in-the-aca-coverage-gap/ See also Rachel Garfield et al., The Coverage Gap: Uninsured Poor Adults in States that Do Not Expand Medicaid – An Update (Kaiser Family Foundation, November 2014), https://modern.kff.org/health-reform/issue-brief/the-coverage-gap-uninsured-poor-adults-in-states-that-do-not-expand-medicaid-an-update/ ↩︎
10. Robin Rudowitz, Samantha Artiga, and Rachel Arguello, Children’s Health Coverage: Medicaid, CHIP and the ACA (Kaiser Family Foundation, March 2014), https://modern.kff.org/health-reform/issue-brief/childrens-health-coverage-medicaid-chip-and-the-aca/ ↩︎
11. Medicaid: A Primer (Kaiser Family Foundation, March 2013), https://modern.kff.org/medicaid/issue-brief/medicaid-a-primer/ ↩︎
12. Medicaid Home and Community-Based Services Programs: 2010 Data Update (Kaiser Family Foundation, March 2014), https://modern.kff.org/medicaid/report/medicaid-home-and-community-based-service-programs/ ↩︎
13. KCMU estimates based on 2012 CMS National Health Expenditure Accounts data, available at: http://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/NationalHealthAccountsHistorical.html ↩︎
14. MaryBeth Musumeci, Julia Paradise, Erica Reaves, and Henry Claypool, Benefits and Cost-Sharing for Working People with Disabilities in Medicaid and the Marketplace (Kaiser Family Foundation, October 2014), https://modern.kff.org/report-section/benefits-and-cost-sharing-for-working-people-with-disabilities-in-medicaid-and-the-marketplace-key-themes-8644/ ↩︎
15. Federal Register, Volume 78, Number 135, July 15, 2013, http://www.gpo.gov/fdsys/pkg/FR-2013-07-15/html/2013-16271.htm ↩︎
16. KCMU and Urban Institute analysis of Centers for Medicare & Medicaid Services (CMS)-64 data. ↩︎
17. Molly O’Malley Watts, MaryBeth Musumeci, and Erica Reaves, How is the Affordable Care Act Leading to Changes in Medicaid Long-Term Services and Supports (LTSS) Today? State Adoption of Six LTSS Options (Kaiser Family Foundation, April 2013), https://modern.kff.org/medicaid/issue-brief/how-is-the-affordable-care-act-leading-to-changes-in-medicaid-long-term-services-and-supports-ltss-today-state-adoption-of-six-ltss-options/ ↩︎
18. Genevieve Kenney and Christine Coyer, National Findings on Access to Health Care and Service Use for Children Enrolled in Medicaid, MACPAC Contractor Report No. 1, March 2012. ↩︎
19. Sharon Long, Karen Stockley, Elaine Grimm, and Christine Coyer, National Findings on Access to Health Care and Service Use for Non-elderly Adults Enrolled in Medicaid, MACPAC Contractor Report No. 2, June 2012, http://www.urban.org/publications/1001623.html ↩︎
20. Teresa Coughlin, Sharon Long, Lisa Clemans-Cope, and Dean Resnick, What Difference Does Medicaid Make? (Kaiser Family Foundation, May 2013), https://modern.kff.org/medicaid/issue-brief/what-difference-does-medicaid-make-assessing-cost-effectiveness-access-and-financial-protection-under-medicaid-for-low-income-adults/ ↩︎
21. Coughlin et al., Kenney and Coyer, and Long et al. op. cit. ↩︎
22. Genevieve Kenney, Brendan Saloner, Nathaniel Anderson, Daniel Polsky, and Karin Rhodes, Access to Care for Low-Income Medicaid and Privately Insured Adults in 2012 in the National Health Interview Survey: A Context for Findings from a New Audit Study, Urban Institute, April 2014, http://www.urban.org/publications/413089.html ↩︎
23. Sandra Decker, “Two-Thirds of Primary Care Physicians Accepted New Medicaid Patients In 2011–12: A Baseline to Measure Future Acceptance Rates,” Health Affairs 32(7), July 2013, http://content.healthaffairs.org/content/32/7/1183.abstract; Andrew Bindman, Andrew Chu, and Kevin Grumbach. Physician Participation in Medi-Cal, 2008, California Healthcare Foundation, July 2010, http://www.chcf.org/~/media/MEDIA%20LIBRARY%20Files/PDF/P/PDF%20PhysicianParticipationMediCal2008.pdf; Peter Cunningham and Jessica May, Medicaid Patients Increasingly Concentrated Among Physicians, Tracking Report No. 16, August 2006, http://www.hschange.com/CONTENT/866/ ↩︎
24. Stephen Zuckerman, Aimee Williams, and Karen Stockley, “Trends In Medicaid Physician Fees, 2003–2008,” Health Affairs 28(3), May/June 2009, http://content.healthaffairs.org/content/28/3/w510.full#ref-26 ↩︎
25. Report to Congress on the Nation’s Substance Abuse and Mental Health Workforce Issue, Substance Abuse and Mental Health Services Administration, U.S. Department of Health and Human Services, January 24, 2013, http://store.samhsa.gov/shin/content/PEP13-RTC-BHWORK/PEP13-RTC-BHWORK.pdf ↩︎
26. Medicaid Benefits: Dental Services (Kaiser Family Foundation), https://modern.kff.org/medicaid/state-indicator/dental-services/ ↩︎
27. Medicaid: States Made Multiple Program Changes, and Beneficiaries Generally Reported Access Comparable to Private Insurance, General Accountability Office, November 2012, http://www.gao.gov/products/GAO-13-55 ↩︎
28. Karin Rhodes, Genevieve Kenney, Ari Friedman, Brendan Saloner, Charlotte Lawson, David Chearo, Douglas Wissoker, and Daniel Polsky,“Primary Care Access for New Patients on the Eve of Health Reform,” JAMA Internal Medicine, June 2014, https://archinte.jamanetwork.com/article.aspx?articleid=1857092; Joanna Bisgaier and Karin Rhodes, “Auditing Access to Specialty Care for Children with Public Insurance,” New England Journal of Medicine, June 16, 2011, http://www.nejm.org/doi/full/10.1056/NEJMsa1013285 ↩︎
29. State Standards for Access to Care in Medicaid Managed Care, Office of Inspector General, U.S. Department of Health and Human Services, September 2014, http://oig.hhs.gov/oei/reports/oei-02-11-00320.pdf; Access to Care: Provider Availability in Medicaid Managed Care, Office of Inspector General, U.S. Department of Health and Human Services, December 2014, http://oig.hhs.gov/oei/reports/oei-02-13-00670.pdf ↩︎
30. Daniel Polsky, Michael Richards, Simon Basseyn, Douglas Wissoker, Genevieve Kenney, Stephen Zuckerman, and Karin Rhodes, “Appointment Availability after Increases in Medicaid Payments for Primary Care,” New England Journal of Medicine, February 5, 2015, http://www.nejm.org/doi/full/10.1056/NEJMsa1413299 ↩︎
31. Vernon Smith, Kathleen Gifford, Eileen Ellis, Robin Rudowitz and Laura Snyder, Medicaid in an Era of Health & Delivery System Reform: Results from a 50-State Medicaid Budget Survey for State Fiscal Years 2014 and 2015 (Kaiser Family Foundation, October 2014), https://modern.kff.org/medicaid/report/medicaid-in-an-era-of-health-delivery-system-reform-results-from-a-50-state-medicaid-budget-survey-for-state-fiscal-years-2014-and-2015/ ↩︎
32. Rachel Garfield and Katherine Young, Enrollment-Driven Expenditure Growth: Medicaid Spending During the Economic Downturn, FY 2007-2011 (Kaiser Family Foundation, April 2013), https://modern.kff.org/medicaid/report/enrollment-driven-expenditure-growth-medicaid-spending-during/ ↩︎
33. Federal Medical Assistance Percentage (FMAP) for Medicaid and Multiplier, https://modern.kff.org/medicaid/state-indicator/federal-matching-rate-and-multiplier/ (FY 2015). ↩︎
34. Federal and State Share of Medicaid Spending, https://modern.kff.org/medicaid/state-indicator/federalstate-share-of-spending/ ↩︎
35. Robin Rudowitz, Laura Snyder, Vernon Smith, Kathleen Gifford, and Eileen Ellis, Implementing the ACA: Medicaid Spending & Enrollment Growth for FY 2014 and FY 2015 (Kaiser Family Foundation, October 2014), https://modern.kff.org/medicaid/issue-brief/implementing-the-aca-medicaid-spending-enrollment-growth-for-fy-2014-and-fy-2015/   ↩︎

The enactment of the Affordable Care Act (ACA) on March 23, 2010 ushered in sweeping changes to the U.S. health care system. While the law touched almost every aspect of our health care system, from how coverage is obtained to how the health care services are provided, the parts of the law that have garnered the most attention, and generated the most controversy, are those relating to the availability and affordability of health insurance coverage. The coverage provisions in the law were aimed at improving access to insurance, especially for those with pre-existing medical conditions, enhancing the quality of coverage by imposing minimum benefit standards, and increasing the affordability of coverage through expanded public programs and new subsidies for private coverage. This brief examines these coverage provisions, providing an update on how they have been implemented and assessing their impact. It also discusses key issues looking ahead.

Framework of the ACA

Like previous attempts at health care reform, the ACA was structured to address the gaps and limitations of our public-private health insurance system. It builds on employer-based coverage, restructures the individual insurance market, and broadens access to and affordability of coverage by expanding Medicaid for the low-income population and extending tax subsidies for the purchase of private insurance to those with moderate incomes (Figure 1).

As enacted, the ACA created a framework for enhancing access to health coverage. It imposed new regulations on health plans in the individual and small group markets, including guarantee issue and rate restrictions, to ensure everyone could purchase coverage regardless of their health status. In addition, the law created state-based health insurance Marketplaces through which individuals would be able to purchase private insurance coverage with premium and cost-sharing assistance on a sliding scale for those individuals and families with income between 100% and 400% of the federal poverty level (FPL, $11,770-$47,080 for an individual in 2015). These Marketplaces were to be established by the states; however, the law provided for the federal government to establish a Marketplace in any state that chose not to run its own. For the low-income population, Medicaid coverage was extended to all adults with income at or below 138% FPL. The law also imposed new requirements on individuals to purchase insurance, with some exceptions, and large employers to offer insurance to their employees.

The ACA relies heavily on states to implement the coverage provisions in the law. While some provisions went into effect without state action, many others were influenced by state decisions. For example, states were given responsibility for defining the set of benefits that would be offered by all plans in the individual and small group markets. They were permitted to impose tighter restrictions on insurance companies in some areas, such as premium rating. They were also provided the option of establishing a state-run Marketplace, and with the Supreme Court ruling in June 2012, states were given the choice whether or not to adopt the Medicaid expansion.  These decisions have had important implications not only on the cost of coverage available in the states, but also on the number of people who have newly gained coverage as a result of the ACA. Consequently, as it did prior to implementation of the ACA, health insurance coverage continues to look different across the states.

Consumer Protections

On September 23, 2010, a number of ACA provisions took effect, including the elimination of lifetime limits on coverage, restrictions on annual limits on coverage, prohibition on rescinding coverage except in cases of fraud, and the elimination of pre-existing condition exclusions for children. These early market reforms were intended to provide immediate relief to consumers, especially those with high health care needs, who faced limits on coverage or the potential loss of coverage. Other ACA provisions that took effect six months after enactment included protections allowing consumers the right to choose their own doctors, the right to appeal health plan decisions, and the right to access out-of-network emergency care.¹ 

All individual and group health plans must provide coverage to any applicant, regardless of health status, gender, or any other factors.²   Prior to the ACA, insurers in the individual market were allowed to deny people coverage based on their perceived health risk. As a result, those without access to employer-sponsored insurance who had acute or chronic health conditions, such as cancer or diabetes, were often unable to purchase coverage. Even women, especially those of childbearing age, could be denied coverage because of their expected higher use of health care services. The ACA required guaranteed issue and renewability of coverage and prohibited insurers from imposing pre-existing condition exclusions on coverage. These provisions went into effect on January 1, 2014. Prior to the implementation of the guaranteed issue requirement, the ACA created the temporary Pre-Existing Condition Insurance Plan for those who had been denied coverage and who had been uninsured for at least six months. While this program provide stopgap coverage for some, the coverage was unaffordable for many.

On January 1, 2014, new premium rating rules went into effect for plans in the individual and small group markets.³  These rules prohibit insurers from adjusting premiums based on a person’s health status. Insurers may only adjust premiums based on the following factors:

• Individual versus family enrollment: insurers may vary rates based on the number of family members enrolled in the plan.
• Geography: insurers may charge different rates in different areas across the state.
• Age: insurers may charge older adults more than younger adults; however, the variation in premiums is limited to 3 to 1, meaning insurers can’t charge older adults more than three times what they charge younger adults.
• Tobacco use: insurers may charge tobacco users up to 1.5 times what they charge those who do not use tobacco products.

To ease the transition to the new market reforms, the ACA exempted certain plans from some of the new health insurance requirements. These plans, referred to as grandfathered plans, are plans that were in place as of March 23, 2010 (the day the ACA was enacted) and have undergone minimal changes over time. To maintain grandfathered status, plans must not eliminate benefits to diagnose or treat a condition; increase cost sharing beyond certain specified limits; or reduce the employer share of the premium by more than five percentage points.⁴  Grandfathered plans are exempt from some of the new insurance market rules, including those relating to essential health benefits, the provision of preventive services with no cost-sharing, and review of premium increases of 10% or more.⁵  They must, however, extend coverage to dependents up to age 26 and eliminate lifetime and annual limits on coverage. In addition, grandfathered group plans can no longer impose pre-existing condition exclusions on children or adults.  According the Kaiser/HRET 2014 Employer Health Benefits Survey, 26% of covered workers were enrolled in grandfathered plans in 2014, down from 36% in 2013.⁶ 

All group and individual health plans must provide a uniform summary of benefits and coverage (SBC) to applicants and enrollees. The ACA requires insurers and health plans to provide consumers with standardized and easy-to-read information about the plan using a common form that is intended to make it easier for consumers to compare plans. The SBC must describe the main features of the plan, including covered benefits along with any limitations or exclusions, cost sharing requirements, and whether it meets minimum essential coverage and value standards. The SBC must also include examples of how the policy or plan would cover care for certain health conditions or scenarios, showing hypothetical costs for consumers and how much the plan would pay. Currently, the form shows coverage examples for a normal delivery and managing type 2 diabetes. Finally, the SBC includes uniform definitions of common insurance-related terms. A recently released proposed rule would make some changes to the SBC effective for plan years and open enrollment periods beginning after September 1, 2015.⁷ 

Coverage of Preventive Services

Private health insurance plans generally must provide coverage for a range of preventive health services without requiring any patient cost-sharing (co-payments, deductibles, or co-insurance).  These rules apply to all private plans, including individual, small group, large group, and self-insured plans, though grandfathered plans are exempt from this requirement.⁸   The list of required preventive services may be divided into three broad categories:

• Evidence-based services rated A or B by the U.S. Preventive Services Task Force (USPSTF).
• Routine Immunizations recommended by the Advisory Committee on Immunization Practices, which include coverage for both adult and child immunizations such as influenza, meningitis, hepatitis A and B, human papillomavirus (HPV), measles, mumps, rubella, and varicella (chicken pox).
• Preventive services for children and youth recommended by the Health Resources and Services Administration’s Bright Futures Project, including immunizations, behavioral and development assessments, and screening for autism, vision and hearing impairment, tuberculosis, and certain genetic diseases.

Private health insurance plans generally must provide coverage for an additional set of preventive health services for women without cost-sharing requirements. These services include well-woman visits, all FDA-approved contraceptives, broader screening and counseling for sexually-transmitted infections, breastfeeding support and supplies, and domestic violence screening. Certain religious employers (houses of worship) are specifically exempt from the contraceptive coverage requirement and are not required to include coverage for contraceptives in their health plans. An accommodation was established for certain non-profit religious organizations that object to providing these services (such as religiously-affiliated hospitals or universities).  Organizations that qualify for the accommodation do not have to arrange or pay for contraceptive coverage, but must instead send a form to HHS or their insurance company stating their objection to covering contraceptives. The insurance company then provides the coverage without cost-sharing.⁹  In June 2014, the Supreme Court held in the Burwell vs. Hobby Lobby decision that some closely-held for-profit corporations may also exclude contraceptive coverage from their health plans if their owners have sincerely held religious objections to this requirement.¹⁰   In response to the Court’s decision, the Obama Administration issued a proposed rule to expand the “accommodation” in place for non-profit organizations with religious objections to birth control services to closely-held for-profit companies.¹¹ 

Approximately 76 million people (including almost 19 million children) have received no-cost coverage for preventive health services since the ACA preventive services coverage rules took effect.¹²  This coverage went into effect on September 23, 2010 for new individual and employer-based coverage (grandfathered plans are exempt). Despite the length of time the benefit has been in place, awareness of the coverage remains low.¹³ 

The ACA improves access to preventive services in Medicare and Medicaid. The ACA eliminates cost-sharing for certain Medicare covered preventive services (those recommended A or B by the USPSTF), waives the Medicare deductible for colorectal cancer screenings, and provides coverage for personalized prevention plan services, which include an annual health risk assessment. In Medicaid, the ACA provides states that offer coverage for recommended preventive services with no cost sharing a one percentage point increase in the Federal Medical Assistance Percentage (FMAP) for those services. As of January 30, 2014, ten states (California, Colorado, Hawaii, Kentucky, Nevada, New Jersey, New Hampshire, New York, Ohio, and Wisconsin) had submitted State Plan Amendments (SPA) to cover all required preventive services, and eight SPAs had been approved.¹⁴ 

Extension of Dependent Coverage to Young Adults

The ACA extends dependent coverage to young adults up to age 26 beginning in September 2010.  This provision allows young adults to remain on their parents’ health plans until they turn 26. Young adults can qualify for this coverage even if they are no longer living with a parent, are not a dependent on a parent’s tax return, or are no longer a student. While it is difficult to assess the effect of this dependent coverage provision independent of other factors, analysis of data from the National Health Interview Survey indicates that 3.1 million young adults had gained coverage by December 2011.¹⁵ 

Controlling Premium Growth

Medical Loss Ratio (MLR) Requirements

The MLR provisions in the ACA limit the amount of premium dollars insurers can spend on administration, marketing, and profits.  They require most health insurers in the small group and individual market to spend at least 80% of premiums on health care claims and quality improvement. Health insurers in the large group market face a higher standard and must spend at least 85% of premiums on health care claims and quality improvement. Insurers were required to begin reporting MLRs in August 2011. Insurers not meeting the thresholds must issue rebates to consumers annually, beginning in August 2012. In the case of employer-sponsored plans, in which the cost of the premium is shared between employers and employees, insurers must provide a rebate to employees that is proportionate to their share of the premium.¹⁶ 

Insurers issued rebates totaling $519 million across all markets in August 2012 and $332 million in 2013. The drop in rebates in 2013 suggests that insurers were coming closer to meeting the MLR thresholds. Analysis of insurer data indicates this is the case. While most plans sold in the large and small group markets were already in compliance with the MLR requirements before the law went into effect, in the individual market, fewer than half of plans were in compliance. Since implementation of the law, the MRLs in this market have increased (Figure 2). The full impact of the MLR goes beyond just the rebates and includes the savings consumers experience from lower premiums than what would have been charged had the MLR provisions not been in place.  While it is difficult to assess the full impact of the MLR provisions, an analysis by the Kaiser Family Foundation suggested that MLR savings to consumers totaled $1.2 billion in 2011 and $2.1 billion in 2012, with most of the savings resulting from lower premiums.¹⁷ 

Premium Rate Review

The ACA creates new standards for the review of premium rate increases proposed by insurers in the individual and small group markets to ensure the increases are based on accurate and verifiable data and are reasonable. While many states had rate review programs in place prior to the ACA, these programs were variable and set different standards for review.  The ACA established minimum standards for an effective rate review program, permits federal regulators to review rates in states that do not have effective programs, and requires states or the federal government to review premium rate increases of 10% or more beginning September 2011.  As of April 2014, 46 states and DC were deemed to have effective rate review programs in place.  The five states without an effective program are Alabama, Missouri, Oklahoma, Texas, and Wyoming.¹⁸ 

An analysis of rate filings before and after the rate review requirements went into effect suggests these programs have had an impact on premiums.  The premiums that went into effect in 2011 were, on average, 20% lower than the rates requested by insurers, though there were differences across states and markets.¹⁹   In addition, early evidence indicated that insurers were submitting fewer rate increases above the 10% threshold, and rate requests above the 10% threshold were more likely to be denied, reduced, or withdrawn following implementation of the new requirements in September 2011.

Risk Adjustment, Reinsurance, and Risk Corridors

The ACA includes three provisions designed to promote premium stability during the early years of ACA implementation. Changes in the insurance market—guarantee issue, rate restrictions and new subsidies available in the Marketplaces—make it easier for people with high health needs to purchase coverage.  This possibility for adverse selection—when a disproportionate number of people with high health needs enroll in a plan—creates uncertainty for insurers. To encourage insurers to participate in the new Marketplaces and to compete on the basis of quality and value, rather than avoiding high risk enrollees, the ACA includes three premium stability programs: risk adjustment, reinsurance, and risk corridors, collectively known as the “three Rs”.  Risk adjustment is a permanent program that transfers funds from insurers with lower risk enrollees to plans with higher risk enrollees. The temporary reinsurance program uses payments from all health insurance issuers and self-insured plans to partially offset the expenses for high-cost enrollees. The risk corridors program protects insurers against large losses by limiting insurers’ gains and losses beyond an allowable range.²⁰  While the risk adjustment and reinsurance programs are required to be budget neutral, the risk corridor program is not. As a result, the risk corridor program has generated some controversy, with some critics characterizing the program as a bailout to insurers.

Health Plan Benefit Design

The ACA makes significant changes to health plan benefit design, setting uniform standards for covered benefits and cost sharing in the individual and small group markets.  The ACA requires all non-grandfathered plans in the individual and small group markets, including those sold both inside and outside the Marketplaces, to cover ten categories of essential health benefits.²¹   These categories include:

• Ambulatory patient services
• Emergency services
• Hospitalization
• Maternity and newborn care
• Mental health and substance use disorders, including behavioral health treatment
• Prescription drugs
• Rehabilitative and habilitative services and devices
• Laboratory services
• Preventive and wellness services and chronic disease management
• Pediatric services, including vision and dental care

Rather than establish a uniform benefit package to be offered by all plans, regulatory guidance required states to select an EHB benchmark plan that would define the essential health benefits that must be offered by plans in the state. Any benefits covered by this benchmark plan would be considered an essential health benefit. In addition, any limits on amount, duration, and scope of benefits would be included in the definition of the EHB.²²  States had to select the benchmark plan by December 26, 2012 from among the following ten plans operating in the state: the three largest small group plans, the three largest state employee health plans, the three largest federal employee health plan options, or the largest HMO offered in the state’s commercial market.  If a state did not recommend a benchmark plan, the default benchmark was the largest small group plan in the state. The majority of states (45) selected or defaulted to a small group plan, while four chose the largest commercial HMO, and two selected a state employee plan.²³ 

If a state’s EHB benchmark plan did not include services in all of the required benefit categories, states were required to identify supplemental coverage to complete their EHB benchmark packages.  Except for habilitative services, the benchmark plan could be supplemented by adding benefits for any missing categories from another benchmark plan. For habilitative services, states had the option to define the services to be included in that category or, if they chose not to make that determination, insurers were required to provide parity with rehabilitative services or define which habilitative services to cover and report to HHS.

Special rules govern coverage for abortion services.  Abortion services are explicitly excluded from the list of essential health benefits that all health insurance plans are required to offer.  No health plan is required to cover abortion services.  States may allow private insurers to offer a plan in their state Marketplace that includes coverage of abortions beyond what is allowed under federal law (to save the life of the woman and in cases of rape and incest); however, premium payments must be segregated into two separate accounts – one for the value of the abortion benefit and one for the value of all other services. States may also prohibit coverage for any abortions by all plans, and at least one plan within a state Marketplace must offer coverage that excludes abortions outside those permitted under federal law.²⁴ 

Plans sold in the Marketplaces and in the individual and small group markets must also fit into one of four metal tiers defined by their actuarial value (AV), which is the share of health costs covered, on average, by the plan.  The four metal tiers and their AV are:

• Bronze: 60% AV
• Silver: 70% AV
• Gold: 80% AV
• Platinum: 90% AV

Insurers have flexibility to alter the cost-sharing features within metal tiers, for example setting deductibles at different levels or applying copayments instead of coinsurance, as long as the overall AV of the plan meets the required percentage.²⁵ 

The ACA establishes a limit on the amount of cost-sharing consumers can be expected to pay for services covered by the plan.  Once this overall limit is met, the plan must cover 100% of remaining health care costs for the year.  The maximum out-of-pocket limit for 2014 was set at $6,350 per individual and $12,700 per family.  These limits increased to $6,600 per individual and $13,200 per family in 2015. The out-of-pocket limits are lower for those with incomes below 250% FPL who are eligible for cost-sharing reductions. They drop to $2,250 per individual and $4,500 per family for those with incomes 100-200% FPL and to $5,200 per individual and $10,400 per family for those with incomes 200-250% FPL.

While the goal of the benefit changes enacted by the ACA was to improve the adequacy of coverage offered to consumers, particularly in the individual market, many people have faced disruptions because their plans were canceled, either because the plans did not comply with the new ACA requirements or because insurers chose not to continue offering the plans.  Estimates from the Urban Institute indicate that about 2.6 million people had their plans canceled because the plans did not meet the ACA requirements and another 840,000 had plans canceled for other reasons.²⁶   Many consumers whose plans were canceled were able to find comparable coverage through the Marketplaces or in the individual market outside the Marketplaces, though some had to pay more for the coverage.  According to the findings from the Kaiser Survey of Non-Group Health Insurance Enrollees, of respondents who switched from non-compliant to compliant plans, similar shares reported paying higher or lower premiums for the new coverage (39% vs. 46%).  However, plan switchers were less likely to report being satisfied with the plan costs and less likely to perceive their coverage as a good value, perhaps because about half of plan switchers reported having their previous plan canceled.²⁷ 

Requirements for Individuals to Have Coverage

Individuals are required to have health coverage, with some exceptions. Beginning in 2014, the ACA requires individuals to have minimum essential coverage or pay a penalty.²⁸  This requirement was included in the ACA to guard against the potential that young, healthy people would choose to forego insurance, referred to adverse selection. The penalty phases in over time. In 2014, the penalty was the greater of $95 (up to $285 for a family) or 1% of income. The penalty increases to the greater of $325 (up to $975 for a family) or 2% of income in 2015 and $695 (up to $2,085 for a family) or 2.5% of income in 2016.²⁹  There are exemptions to the requirement, including for coverage that is not affordable (costs more than 8% of household income), for religious objections, for members of Indian tribes, for those with income below the tax filing threshold, and for short gaps in coverage of less than three consecutive months. Individuals can also claim hardship exemptions, including those with incomes below 138% FPL who live in states that did not adopt the Medicaid expansion.

Individuals will be required to report health coverage on their 2014 taxes. The individual mandate is enforced through the tax filing process. For the first time, tax filers must document that they had insurance coverage during the year when they file their 2014 taxes. If they did not and they do not qualify for one of the exemptions, they will be assessed a penalty in the form of an additional tax for the months in which they did not have health coverage. Those who were uninsured during 2014 can request certain exemptions when they file their taxes (e.g., for unaffordable coverage, short gaps in coverage, or member of an Indian tribe), while other exemptions must be obtained through the health insurance Marketplace (e.g., for hardship exemptions, religious objections). On February 20, 2015, HHS announced there would be a one-time special enrollment period allowing people who first learned of the penalty for not having insurance when they filed their taxes to enroll in coverage through the Marketplaces. This special enrollment period for the federal Marketplace will run from March 15, 2015 through April 30, 2015. Many states running their own Marketplaces have announced or are considering similar special enrollment periods.

The IRS estimates that roughly 30 million taxpayers who lacked coverage for some or all of the year will qualify for an exemption in 2014, while 3 to 6 million will owe a penalty for not having insurance. The IRS also estimates that 75% of 2014 taxpayers will have had minimum essential coverage for the entire year and so will be able to check a single box on their tax form indicating they complied with the individual shared responsibility requirement. Separately, the Congressional Budget Office (CBO) estimates that about four million people will pay a penalty for not having insurance in 2016, and approximately $4 billion in penalty payments will be collected that year.³⁰ 

Employer Requirements

Beginning in 2015, large employers are required to provide coverage to full-time employees or face a penalty. In 2015, employers with 100 or more full-time equivalent employees will be assessed a fee up to $2,000 per full-time employee (in excess of 30 employees) if they do not offer coverage to at least 95% of full-time workers and their dependents (defined as children up to age 26; does not include spouses) and if they have at least one employee who receives a premium tax credit through a Marketplace. Final regulations issued by the IRS provide transition relief to these large employers in 2015: employers are only subject to the penalty if they do not offer affordable coverage to 70% of full-time workers; and the penalty payments is calculated as up to $2,000 per full-time employee minus up to 80 employees.³¹  These requirements go into effect for employers with 50-99 full-time equivalent employees in 2016. To avoid penalties, employers must offer insurance that pays for at least 60% of covered health care expenses, and the employee share of the premium must not exceed 9.5% of family income. This requirement does not apply to employers with fewer than 50 workers.

For purposes of employer mandate, full-time work is defined as 30 or more hours per week. Opponents of the law are critical of this definition of full-time worker, claiming it unduly burdens certain industries, such as retail and hospitality where part-time employment is more common, and provides disincentives to employers to hire full-time workers. Supporters argue changing the definition will lead to more people being shifted from full-time to part-time work. Proposals to change the definition of full-time from 30 hours per week to 40 hours per week will likely be debated in this Congress.

Firms with large shares of low-wage workers are less likely to offer health coverage, and as a result, may have more difficulty meeting the employer requirements. According to data from the Kaiser/HRET Survey of Employer-Sponsored Health Benefits, among firms with 100 or more employees where 35% or more of workers earn $23,000 a year or less, 74% offer health insurance to workers compared to 96% of firms with a low share of low-wage workers (Figure 3).³²  In addition, fewer workers in firms with a large share of low-wage workers are eligible for coverage if it is offered (workers may not be eligible for coverage because of waiting periods or because they do not work enough hours per week).

Health Insurance Marketplaces

The ACA creates new health insurance Marketplaces (also referred to as Exchanges) where individuals and small businesses can purchase insurance. Marketplaces are designed to create a more organized and competitive market for health insurance by offering a choice of health plans, establishing common rules regarding the offering and pricing of insurance, and providing information to help consumers better understand the options available to them. The Marketplaces serve individuals and small businesses (the Marketplace for small businesses is called the Small Business Health Options Program (SHOP)).  Coverage through the Marketplaces is available to nearly all U.S. citizens and legal resdients (undocumented immigrants and those who are incarcerated are not permitted to buy coverage in the Marketplaces), though financial assistance is only available to those meeting income and other requirements. Plans sold through the Marketplaces must meet certain standards and must be certified as Qualified Health Plans (QHPs).

States approaches to the Marketplaces differ.  The ACA envisioned that all states would implement State-based Marketplaces (SBMs); however, political opposition among Republican Governors and state legislatures led many states to opt for a Federally-facilitated Marketplace (FFM). Thirty-four states rely on a Marketplace fully run by the federal government, while seven states adopted a hybrid approach (a State-Partnership Marketplace) in which the states assume some Marketplace responsibilities, including plan management and consumer assistance. In all, 17 states have established SBMs, with 14 of these fully run the states. Three SBMs (Nevada, New Mexico, and Oregon) that struggled to establish functional websites through which consumers could apply for and enroll in coverage have chosen to use the federal healthcare.gov portal for 2015 (Figure 4).

To assist states in setting up the Marketplace, the ACA provided federal funding to states through Exchange Planning and Establishment grants. This funding was available to states through December 2014. Nearly $5 billion in funding was provided to states through these grants.³³ 

One of the most significant challenge states and the federal government have faced in establishing the Marketplaces has been building the online portal or website through which individuals and small employers can apply for and enroll in coverage. Last year, healthcare.gov, the federal website, launched with nearly catastrophic problems.  Many state websites also experienced problems and while many of these issues were resolved before the end of the open enrollment period, websites in several states never worked well and have since been scrapped.  During the second open enrollment period, the federal website and most state websites were free of the serious problems encountered last year.

Health insurance Marketplaces were marked by volatility in first two years of operation. Most Marketplaces offered consumers a choice of plans in the first year, and premiums overall were lower than expected. In year two, new insurers entering Marketplaces in many states are enhancing competition and increasing consumer choice in those areas. However, decisions by some insurers to leave certain markets have left many consumers with the need to find new coverage and fewer coverage options.³⁴  Overall, premium growth in 2015 was modest, but it masked large variation across states, from increases as large as 28% in Alaska and 18% in Minnesota to declines of 15% and 25% in Colorado and Mississippi, respectively.³⁵  As insurers adjust their premium pricing strategies, some consumers are facing higher prices to remain in the same plan.

Premium Tax Credits and Cost Sharing Reductions

Premium tax credits and cost-sharing reductions are available through the Marketplaces to make coverage more affordable for qualifying individuals. Premium tax credits are available to U.S. citizens and legally residing immigrants who have income between 100% and 400% FPL and who do not have access to affordable coverage through an employer or public coverage (Medicaid, CHIP, or Medicare).  Married consumers must file taxes jointly in order to qualify. The tax credits work by limiting the amount consumers must pay for coverage to a percentage of their income.  In 2015, the required premium contributions range from 2.01% of income for those with income 100-133% FPL to 9.56% of income for those with incomes 300-400% FPL.³⁶  The tax credit amounts are tied to the second-lowest cost Silver plan (the benchmark plan), though consumers may use these tax credits to purchase less or more expensive plans.

Cost sharing reductions are available to individuals eligible for premium tax credits with incomes between 100 and 250% FPL.  The cost sharing reductions lower deductibles, copayments, and other out-of-pocket costs.  They work by increasing the actuarial value of Silver level plans from 70% to 94% for those with incomes 100-150% FPL, 87% for those with incomes 150-200% FPL, and 73% for those with incomes 200-250% FPL.  To take advantage of the cost sharing reductions, consumers must purchase a Silver plan.

Consumers who are eligible for tax credits may receive advance payment of those tax credits based on their projected income for the coverage year; however, they will need to reconcile receipt of the advance payments when they file their taxes. Consumers who received advance payment of premium tax credits in 2014 are reconciling those payments for the first time this year. Consumers who received payments that were too high based on their annual income for the year will be required to repay some or all of the excess payments. Limits are placed on repayment amounts for those with incomes less than 400% FPL. In addition, an exception is made to the repayment requirements for consumers who received advance payment of the tax credits during the year but whose income later fell below Medicaid eligibility levels, or below the poverty level, by the end of the year. These consumers are not required to repay the payments they received. Consumers who received payments that were too low based on their annual income will receive a refund.

Due to what is referred to as the family glitch, many working low-income families for whom the cost of family coverage through an employer is not affordable are not eligible to access subsidized coverage in the Marketplace.  Under the ACA, premium tax credits in the Marketplaces are not available to those who have an affordable offer of coverage from their employer. An offer is considered affordable if the employee share of the premium for single coverage costs less than 9.5% of the employee’s income. This definition applies even if the employee needs to purchase family coverage that may cost more than 9.5% of income. Estimates suggest that as many as 3.9 million dependents are excluded from accessing premium tax credits that would lower their cost of coverage.³⁷  While these dependents are exempt from any penalties related to not having insurance, without an affordable coverage option, many may forego insurance.

Cost sharing in Marketplace plans is high, but cost sharing subsidies meaningfully reduce the out-of-pocket burden for many low and modest-income consumers. In general, consumers enrolling in plans in the Marketplace face high out-of-pocket costs when they access health services. Overall, across the states using healthcare.gov, deductibles for Silver plans averaged $2,556 and the average out-of-pocket limit was $5,826. These amounts were reduced in plans that applied the cost sharing reductions (CSR plans). Deductibles averaged $2,077 in CSR73 plans, $737 in CSR87 plans, and $229 in CSR94 plans while out-of-pocket costs were capped on average at $4,624 in CSR73 plans, $1,692 in CSR87 plans, and $881 in CSR94 plans.³⁸  Particularly for those eligible for CSR94 and CSR87 plans, these reductions in cost sharing amounts can help to alleviate the financial burden of accessing needed health care services.

A decision in the case, King vs Burwell, currently before the Supreme Court, will determine whether the federal government has the authority to continue providing subsidies to consumers in states that do not have a state-run Marketplace. The plaintiffs in the case argue that a strict interpretation of the language of the ACA prohibits subsidies in states that do not have a Marketplace “established by the state.”³⁹  A ruling for the plaintiffs in this case would invalidate premium tax credits and cost sharing reductions for consumers in the 34 states that rely on the Federal Marketplace or operate a Partnership Marketplace. Subsidies in the three SBM states that rely on the healthcare.gov web portal may also be at risk.  As of February 15, 2015, there were over 7.5 million people in the 34 states whose subsidies could be at risk. A ruling by the Court in this case is expected in June 2015 (Figure 5).

Basic Health Program

To date, only Minnesota has adopted the Basic Health Program (BHP) option, which allows states to create an alternative coverage program for adults with income between 133 and 200% FPL who would otherwise be eligible for coverage through the Marketplace. The BHP provides states with the option of offering coverage that is more affordable and/or more comprehensive than what would be available to consumers in the Marketplaces. States have flexibility in designing this coverage, but it must be at least as comprehensive and affordable as subsidized coverage in the Marketplaces. To finance the BHP, the federal government pays states 95% of what BHP enrollees would have received in Marketplace subsidies.⁴⁰  States can implement BHP beginning in 2015. So far, only states that offered more comprehensive Medicaid coverage prior to the ACA are considering adopting the BHP.

Outreach and Enrollment

Marketplaces are required to establish and finance Navigator programs to conduct outreach and provide enrollment assistance to consumers. According to a survey of assister programs nationwide, a total of 28,000 assisters provided enrollment assistance to over 10 million consumers during the 2014 open enrollment period.⁴¹  These assisters have proven instrumental in educating consumers with limited experience purchasing private insurance and who face challenges, such as language barriers and lack of access to the internet, to applying for and enrolling in coverage. While states running their own Marketplaces have been able to use federal grant funds to support robust assister programs during the first two years, support for Navigators in FFM states has been more limited.⁴²  Future funding for assisters is a concern in both state Marketplaces and the FFM.

At the end of the first open enrollment period, over eight million people had selected a Marketplace plan. Despite a slow start to enrollment due to website problems that hindered early enrollment, a surge in sign-ups during the last two weeks of the open enrollment period pushed enrollment above eight million. By October, 6.7 million people were enrolled and paying premiums, a fall-off that was somewhat expected as people’s situations changed and difficulties arose in paying premiums.

As of February 15, 2015, over 11.6 million people had signed up for coverage through the Marketplaces. While the second open enrollment period officially ended on February 15, 2015, extensions were granted in many states for those who were “in line” on the closing date. As a result, the total number of people signing up for coverage in 2015 will increase. Based on the preliminary enrollment data from states using healthcare.gov, about 52% of those enrolling in coverage in 2015 were new to the Marketplace, while 42% renewed their coverage from 2014. Less than half of consumers renewing coverage were automatically reenrolled in their current plan, while 53% of renewing consumers returned to the Marketplace and selected a new plan.⁴³ 

Medicaid Expansion

The ACA sought to fill one of the most notable gaps in Medicaid’s role as a source of coverage for the low-income population— the exclusion of adults without dependent children no matter how poor, unless a state obtained a waiver to provide them coverage (and few states had such waivers). The ACA intended to remove the categorical eligibility requirements for Medicaid coverage stemming from its welfare heritage and convert Medicaid coverage to be based on income— establishing a national minimum income eligibility level effectively at 138% FPL in all states. This standard would apply mostly to adults as all states cover children to substantially higher levels through Medicaid and CHIP with median eligibility at 255% of poverty. The expansion population is 100% federally financed in 2014-2016 with the federal match phasing down to 90% in 2020 and thereafter. Consistent with previous Medicaid policy, undocumented and recent lawfully present immigrants remain excluded from enrolling in coverage.

As enacted, the ACA expanded Medicaid eligibility to adults with income at or below 138% FPL, although this core provision was effectively made a state option by the Supreme Court’s 2012 ruling on the ACA. However, other eligibility changes in the law were unaffected by the Court’s decision, including establishing a new minimum coverage level of 138% FPL for children of all ages in Medicaid, helping to align Medicaid coverage across children. The ACA also changed the method for determining financial eligibility for Medicaid for children, pregnant women, parents, and adults and CHIP to a standard based on modified-adjusted gross income (MAGI).  This new approach, effective January 1, 2014, is intended to prevent gaps in coverage between programs by aligning with the method for determining eligibility for subsidies to purchase Marketplace coverage.

As of February 2015, 29 states and the District of Columbia have implemented the Medicaid expansion to low-income adults (Figure 6). Most states expanded Medicaid consistent with federal rules and options provided under the ACA, but five states (Arkansas, Iowa, Indiana, Michigan, and Pennsylvania) obtained Section 1115 waivers to implement the expansion in ways that extend beyond the flexibility provided by the law (the Governor of Pennsylvania recently announced the state would not proceed with implementing the waiver, but would instead expand Medicaid through the State Plan Amendment process).⁴⁴  Notably, Arkansas has implemented the expansion with a waiver that allows it to implement a mandatory premium assistance program where the state enrolls the expansion population into QHPs in the Marketplace. Other states have used waivers to impose premiums for individuals with incomes between 100 and 138% FPL or to add healthy behavior incentives to coverage.

Medicaid Coverage Gap

Large gaps in coverage persist for parents and other low-income adults in the 22 states that have not yet expanded Medicaid since Medicaid eligibility levels for parents remain very low and childless adults remain ineligible for full Medicaid benefits in all but one of the non-expansion states. Among the non-expansion states, the median eligibility level is 46% FPL for parents and 0% for other adults, compared to 138% FPL for parents and adults in expansion states.

As a result of these limited eligibility levels, 3.7 million poor uninsured adults fall into a coverage gap because they earn too much to qualify for Medicaid and too little to qualify for subsidies for Marketplace coverage, which begin at 100% FPL.⁴⁵  Because the ACA was enacted assuming the Medicaid expansion would go forward in all states and everyone below the poverty level would be covered, the law only provided access to subsidies through the Marketplace for individuals above the poverty level up to 400% FPL. Thus, those individuals between 100-138% FPL, who would have been covered by Medicaid if the state expanded, are able to access subsidized coverage in the Marketplace but those below poverty are ineligible for subsidies. Of the 3.7 million adults in the coverage gap, nearly 90% live in the south and over half are Black or Hispanic (Figure 7).

Even in states that do expand Medicaid, undocumented immigrants and many recent lawfully present immigrants will remain ineligible. Because many uninsured non-citizens are in low-income working families, many are in the income range to qualify for the ACA Medicaid expansion.  However, under federal rules, undocumented immigrants may not enroll in Medicaid.  Many lawfully present non-citizens who would otherwise be eligible for Medicaid remain subject to a five-year waiting period before they may enroll, and some groups of lawfully present immigrants remain ineligible regardless of their length of time in the country.

Medicaid Enrollment

Medicaid enrollment has grown under the ACA. Enrollment data show that as of December 2014, Medicaid and CHIP enrollment has grown by over 10.7 million since the period just prior to the beginning of the initial open enrollment period for the Marketplaces in October 2013.⁴⁶  This change represents an 18.6% increase in enrollment over the period across all states.  Enrollment increases were higher (27%) among states that chose to expand Medicaid eligibility under the ACA, compared to states that had not expanded (7%), suggesting that the Medicaid expansion is contributing to greater enrollment growth. However, some who are eligible remain unenrolled due to limited awareness about the Medicaid program and their eligibility or other enrollment challenges.

Streamlining Application and Enrollment Processes

The ACA also enacted sweeping changes to streamline and modernize application, enrollment, and renewal processes in Medicaid and CHIP and coordinate with the Marketplaces which all states must implement regardless of their Medicaid expansion decisions. Together these processes are intended to achieve the ACA’s vision to provide “no wrong door” access to all health coverage options, minimize the paperwork burden on consumers and state agencies, and enhance the consumer experience.⁴⁷  States must provide multiple options for individuals to apply for health coverage, including online, by phone, by mail, and in person, using a single streamlined application for Medicaid, CHIP, and Marketplace coverage. In addition, states must seek to rely on electronic data to verify eligibility criteria and renew coverage.

Impact on the Uninsured

New coverage options available through the ACA have resulted in many uninsured gaining coverage. Increased coverage through employers, the Marketplaces, and Medicaid is bringing down the uninsured rate. Data from the National Health Interview Survey shows a drop in the uninsured rate among the non-elderly from 16.6% in 2013 to 14.0% in the second quarter of 2014, with the most significant decline for the low-income and minority uninsured population (Figure 8).⁴⁸  In addition, a survey by the Kaiser Family Foundation indicates 11 million uninsured adults gained coverage in 2014.⁴⁹  Other poll data show similar results.

The uninsured rate is dropping more precipitously in states that have embraced the ACA’s coverage expansions. Data from the National Health Interview Survey indicate that there was a greater decline in the uninsured rate in states that are expanding Medicaid. Among states adopting the Medicaid expansion, the uninsured rate dropped by 4.3 percentage points from 18.4% in 2013 to 14.1% through the second quarter of 2014. In contrast, the uninsured rate dropped by only 2.5 percentage points in states not adopting the Medicaid expansion, from 22.7% in 2013 to 20.2% through the second quarter 2014.⁵⁰  Other evidence from the Gallup Healthways Well-Being Index reveals the largest reductions in the uninsured have been in Arkansas and Kentucky.⁵¹ 

Looking Ahead

Four years after the law was enacted, the ACA remains controversial. While many support individual provisions included in the law, Americans are divided in their opinions on the law overall. The political future of the law continues to be debated in Congress and in state legislatures across the country, and ongoing legal challenges create uncertainty. Yet, in the face of these many hurtles and setbacks, real progress has been made in implementing key features of the ACA and important steps have been taken to improve access to and affordability of health coverage for millions of people.

As implementation of the ACA moves forward, a number of key challenges persist:

• The future of the ACA’s coverage expansions remains uncertain. The biggest potential threat to the long-term stability of the Marketplaces is the impending Supreme Court decision in the King v. Burwell A decision in favor of the plaintiffs will not only cut off subsidies in states with a federally-run Marketplace pushing many people back into the ranks of the uninsured, but the viability of the Marketplaces in these states will be threatened as premiums rise. At the same time, debate over the Medicaid expansion will continue in a few states in the coming year given that there is no deadline for expanding Medicaid. More governors may pursue alternative models through waivers; however, opposition to the Medicaid expansion remains strong in state legislatures. Nevertheless, decisions by even a small number of states to expand Medicaid would increase the number of people with access to affordable health coverage. Further complicating the coverage picture, funding for the Children’s Health Insurance Program (CHIP) expires in 2015. While CHIP has maintained broad bipartisan support, the debate over funding and CHIP’s future will be complicated by the availability of coverage through the Marketplaces and questions over how best to integrate CHIP with Medicaid, Marketplace, and employer-sponsored coverage.
• Although enrollment in the second year was strong, many uninsured remain unaware of the requirements to have coverage and of subsidies available to make coverage more affordable. Public opinion polls find over half of the uninsured do not know that the law provides financial help to low and moderate income Americans and nearly four in ten uninsured expect to remain uninsured.⁵²  With limited funding for marketing and outreach, reaching these potentially eligible consumers will be harder. Navigators and other enrollment assisters will continue to play an important role in supporting enrollment, especially among hard to reach populations; however, as Marketplace funding for these programs shrinks, their role may be jeopardized.
• Affordability of coverage is a concern. Premium growth for both employer group coverage and in the new Marketplaces has been modest overall. However, it is unclear whether the moderate premium growth seen over the past couple of years will continue. While subsidies in the Marketplaces will protect many consumers from sharp increases in premiums, those who purchase coverage without financial assistance would feel the full impact of the cost growth. In addition to premiums, high deductibles and other cost sharing in plans in the Marketplaces place a significant financial burden on those who need health services. While, overall, the increase in health insurance coverage appears to be reducing cost-related barriers to accessing health care, the high cost sharing in Marketplace plans may limit access to needed care for some and premiums can still be a financial impediment to coverage.
• Despite progress in lowering the number of uninsured, many people are left out of the ACA’s coverage expansions. State decisions not to expand Medicaid have left over 3.7 million poor adults in the coverage gap. In addition, undocumented immigrants are ineligible for either Medicaid or Marketplace coverage. Without access to affordable insurance, these individual will likely continue to rely on safety net providers for care. While these providers have traditionally cared for the uninsured and other vulnerable, low-income populations, the funding they have relied on to finance this care is declining. In particular, cuts to the Medicare and Medicaid Disproportionate Share Hospital programs will, over time, dramatically reduce the financial support for indigent care. Providers, especially in states that do not expand Medicaid where the uninsured will be increasingly concentrated, will feel the financial squeeze of the continued demand for care and more limited financing to support that care.

The ACA remains a work in progress and a subject of sharp partisan disagreement. The individual market has been reformed, the long-standing barrier to Medicaid coverage for adults without dependent children has been removed in many but not all states, new health insurance Marketplaces are in place, and the ranks of the uninsured have been significantly reduced, while significant legal political and implementation challenges remain.

1. Health Insurance Reform Requirements for the Group and Individual Health Insurance Markets. 45 CFR Part 147 (2010) ↩︎
2. 45 CFR §§ 147.104, 147.106, 147.108 ↩︎
3. Fair health insurance premiums. 45 CFR § 147.102 (2014) ↩︎
4. Preservation of right to maintain existing coverage. 45 CFR § 147.140 (2010) ↩︎
5. Levitt L. September 8, 2011. “Grandfathering Explained.” Kaiser Family Foundation. https://modern.kff.org/health-reform/perspective/grandfathering-explained/ ↩︎
6. Kaiser Family Foundation and Health Research & Educational Trust. 2014. 2014 Kaiser/HRET Employer Health Benefits  Survey.   https://modern.kff.org/health-costs/report/2014-employer-health-benefits-survey/ ↩︎
7. Jost T. December 23, 2014. “Implementing Health Reform: Proposed Changes to the Uniform Summary of Benefits and Coverage, Uniform Glosssary (Updated).” Health Affairs Blog. http://healthaffairs.org/blog/2014/12/23/implementing-health-reform-proposed-changes-to-summary-of-benefits-and-coverage-uniform-glossary/ ↩︎
8. Coverage of preventive health services. 45 CFR § 147.130 (2013) ↩︎
9. Kaiser Family Foundation. September 2014. “How Does Where You Work Affect Your Contraceptive Coverage?”  https://modern.kff.org/womens-health-policy/fact-sheet/how-does-where-you-work-affect-your-contraceptive-coverage/ ↩︎
10. Burwell v. Hobby Lobby, 573 U.S. __ (2014).  Opinion available at http://www.supremecourt.gov/opinions/13pdf/13-354_olp1.pdf ↩︎
11. Center for Consumer Information and Insurance Oversight. “Fact Sheet: Women’s Preventive Services Coverage, Non-Profit Religious Organizations, and Closely Held For-Profit Entities.” Available at http://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/womens-preven-02012013.html ↩︎
12. Burke A and Simmons A. June 27, 2014. “Increased Coverage of Preventive Services with Zero Cost Sharing under the Affordable Care Act.” Office of the Assistant Secretary for Planning and Evaluation, Department of Health and Human Services. http://aspe.hhs.gov/health/reports/2014/preventiveservices/ib_preventiveservices.pdf ↩︎
13. Hamel L; Firth J and Brodie M. March 2014. “Kaiser Health Tracking Poll: March 2014.” Kaiser Family Foundation. https://modern.kff.org/health-reform/poll-finding/kaiser-health-tracking-poll-march-2014/ ↩︎
14. Department of Health and Human Services, Report to Congress on Preventive Services and Obesity-related Services Available to Medicaid Enrollees, 2014. http://www.medicaid.gov/Medicaid-CHIP-Program-Information/By-Topics/Quality-of-Care/Downloads/RTC-Preventive-Obesity-Related-Services2014.pdf ↩︎
15. Sommers B. June 2012. “Number of Young Adults Gaining Insurance Due to the Affordable Care Act Now Tops 3 Million.” ASPE, Department of Health and Humans Services.  http://aspe.hhs.gov/aspe/gaininginsurance/rb.cfm ↩︎
16. Kaiser Family Foundation. February 29, 2012. “Explaining Health Care Reform: Medical Loss Ratio (MLR).”  https://modern.kff.org/health-reform/fact-sheet/explaining-health-care-reform-medical-loss-ratio-mlr/ ↩︎
17. Cox C, Claxton G and Levitt L. June 6, 2013. “Beyond the Rebates: How Much Are Consumers Saving from the ACA’s Medical Loss Ratio Provisions.” Kaiser Family Foundation.  https://modern.kff.org/health-reform/perspective/beyond-rebates-how-much-are-consumers-saving-from-the-acas-medical-loss-ratio-provision/ ↩︎
18. The Kaiser Family Foundation State Health Facts. Data source: State Effective Rate Review Programs, The Center for Consumer Information & Insurance Oversight (CCIIO), CMS; April 16, 2014.https://modern.kff.org/health-reform/state-indicator/rate-review-program-effectiveness/ ↩︎
19. Kaiser Family Foundation. October 1, 2012. “Quantifying the Effects of Health Insurance Rate Review.”  https://modern.kff.org/health-costs/report/quantifying-the-effects-of-health-insurance-rate/ ↩︎
20. Kaiser Family Foundation. January 2014. “Explaining Health Care Reform: Risk Adjustment, Reinsurance, and Risk Corridors.” https://modern.kff.org/health-reform/issue-brief/explaining-health-care-reform-risk-adjustment-reinsurance-and-risk-corridors/ ↩︎
21. 78 FR 12866, February 25, 2013. ↩︎
22. Kaiser Family Foundation. January 2013. “Implementing New Private Health Insurance Market Rules.” https://modern.kff.org/health-reform/issue-brief/implementing-new-private-health-insurance-market-rules-2/ ↩︎
23. The Kaiser Family Foundation State Health Facts. Data compiled by KFF staff through a review of state documents and the final EHB rule from the Department of Health and Human Services. https://modern.kff.org/health-reform/state-indicator/ehb-benchmark-plans/ ↩︎
24. Salganicoff A, et. al. September 2014.  “Coverage for Abortion Services and the ACA.” Kaiser Family Foundation.  https://modern.kff.org/womens-health-policy/issue-brief/coverage-for-abortion-services-and-the-aca/ ↩︎
25. Levitt L, Claxton G and Pollitz K. February 28, 2012. “Private Insurance Benefits and Cost-Sharing under the ACA.” Kaiser Family Foundation. https://modern.kff.org/health-reform/perspective/private-insurance-benefits-and-cost-sharing-under-the-aca ↩︎
26. Clemens-Cope L and Anderson N.  March 3, 2014. “How Many Non-Group Policies Were Canceled: Estimates from December 2013.” Health Affairs Blog. http://healthaffairs.org/blog/2014/03/03/how-many-nongroup-policies-were-canceled-estimates-from-december-2013/ ↩︎
27. Hamel L, et al. June 19, 2014. “Survey of Non-Group Health Insurance Enrollees.” Kaiser Family Foundation. https://modern.kff.org/health-reform/report/survey-of-non-group-health-insurance-enrollees/ ↩︎
28. Individual Shared Responsibility Payment for Not Maintaining Minimum Essential Coverage.   26 CFR §§1.5000A-1 through 1.5000A-5 (2014). ↩︎
29. For individuals and families who owe a penalty based on percentage of income, the penalty is based on income above the tax filing threshold, which is $10,150 for an individual/$20,300 for joint filers in 2014.  This penalty is also capped at the national average premium for a bronze plan.  In 2014, that amount is $2,448 for an individual, $12,240 for a family of five. ↩︎
30. Congressional Budget Office. June 5, 2014. “Payments of Penalties for Being Uninsured under the Affordable Care Act: 2014 Update.” http://www.cbo.gov/publication/45397 ↩︎
31. 79 FR 8543. February 12, 2014. Shared Responsibility for Employers Regarding Health Coverage. https://www.federalregister.gov/articles/2014/02/12/2014-03082/shared-responsibility-for-employers-regarding-health-coverage ↩︎
32. Kaiser Family Foundation. December 18, 2014. “Web Briefing for Journalists: How the ACA’s Employer Requirements and Related Provisions Affect Businesses and Workers.” https://modern.kff.org/health-reform/event/december-18-web-briefing-for-journalists-how-acas-employer-requirements-and-related-provisions-affect-businesses-and-workers/ ↩︎
33. The Kaiser Family Foundation State Health Facts. Data source: “Creating a New Competitive Health Insurance Marketplace,” CMS.gov.  https://modern.kff.org/health-reform/state-indicator/total-exchange-grants/ ↩︎
34. Kaiser Family Foundation State Health Facts. Data Source: Kaiser Family Foundation analysis of health plan information available through healtlhcare.gov and insurance company rate filings to state regulators. https://modern.kff.org/other/state-indicator/number-of-issuers-participating-in-the-individual-health-insurance-marketplace/ ↩︎
35. Kaiser Family Foundation State Health Facts. Data Source: Kaiser Family Foundation analysis of premium data from healthcare.gov and insurer rate filings to regulators. https://modern.kff.org/other/state-indicator/monthly-silver-premiums-for-a-40-year-old-non-smoker-making-30000year-2014-2015/ ↩︎
36. Kaiser Family Foundation. October 27, 2014. “Explaining Health Reform: Questions about Health Insurance Subsidies.” https://modern.kff.org/health-reform/issue-brief/explaining-health-care-reform-questions-about-health/ ↩︎
37. Kaiser Family Foundation. April 24, 2011. “Measuring the Affordability of Employer Health Coverage.”  https://modern.kff.org/health-costs/perspective/measuring-the-affordability-of-employer-health-coverage/ ↩︎
38. Claxton, G and Panchal, N. February 11, 2015. “Cost-Sharing Subsidies in Federal Marketplace Plans.” Kaiser Family Foundation. https://modern.kff.org/health-costs/issue-brief/cost-sharing-subsidies-in-federal-marketplace-plans/ ↩︎
39. Musumeci M. February 2015. “Are Premium Subsidies Available in States with a Federally-run Marketplace? A Guide to the Supreme Court Argument in King v. Burwell.” Kaiser Family Foundation.  https://modern.kff.org/health-reform/issue-brief/are-premium-subsidies-available-in-states-with-a-federally-run-marketplace-a-guide-to-the-supreme-court-argument-in-king-v-burwell/ ↩︎
40. Dorn S and Tolbert J. November 2014. “The ACA’s Basic Health Program Option: Federal Requirements and State Trade-offs.” Kaiser Family Foundation. https://modern.kff.org/health-reform/report/the-acas-basic-health-program-option-federal-requirements-and-state-trade-offs/ ↩︎
41. Pollitz K, Tolbert J, and Ma, R. July 15, 2014. “Survey of Health Insurance Marketplace Assister Programs.” Kaiser Family Foundation.  https://modern.kff.org/report-section/survey-of-health-insurance-marketplace-assister-programs-section-2/ ↩︎
42. Kaiser Family Foundation. September 24, 2013. “Helping Hands: A Look at State Consumer Assistance Programs under the Affordable Care Act.” https://modern.kff.org/health-reform/issue-brief/helping-hands-a-look-at-state-consumer-assistance-programs-under-the-affordable-care-act/ ↩︎
43. HHS.gov/HealthCare Blog. February 25, 2015. “Open Enrollment 2015 Re-Enrollment Snapshot.” Department of Health and Human Services.  http://www.hhs.gov/healthcare/facts/blog/2015/02/open-enrollment-2015-re-enrollment.html ↩︎
44. Rudowitz R, Artiga S, and Musumeci M. February 2015. “The ACA and Medicaid Expansion Waivers.” Kaiser Family Foundation.  https://modern.kff.org/medicaid/issue-brief/the-aca-and-medicaid-expansion-waivers/ ↩︎
45. Garfield R, et. al. November 2014. “The Coverage Gap: Uninsured Poor Adults in States that Do Not Expand Medicaid—An Update.” Kaiser Family Foundation.  https://modern.kff.org/health-reform/issue-brief/the-coverage-gap-uninsured-poor-adults-in-states-that-do-not-expand-medicaid-an-update/ ↩︎
46. Centers for Medicare and Medicaid Services. February 2015. “Medicaid and CHIP: December 2014 Monthly Applications, Eligibility Determinations and Enrollment Report.”  http://www.medicaid.gov/medicaid-chip-program-information/program-information/downloads/december-2014-enrollment-report.pdf ↩︎
47. Kaiser Family Foundation. December 11, 2012. “Medicaid Eligibility, Enrollment Simplification, and Coordination under the Affordable Care Act: A Summary of CMS’s March 23, 2012 Final Rule.” https://modern.kff.org/medicaid/issue-brief/medicaid-eligibility-enrollment-simplification-and-coordination-under-the-affordable-care-act-a-summary-of-cmss-march-23-2012-final-rule/ ↩︎
48. Kaiser Commission on Medicaid and the Uninsured analysis of 2001-2014 National Health Interview Surveys. ↩︎
49. Garfield R and Young K. 2015. “Adults Who Remained Uninsured at the End of 2014.” Kaiser Family Foundation. https://modern.kff.org/health-reform/issue-brief/adults-who-remained-uninsured-at-the-end-of-2014/ ↩︎
50. Kaiser Commission on Medicaid and the Uninsured analysis of 2013-2014 National Health Interview Surveys. ↩︎
51. Witters D. August 5, 2014. “Arkansas, Kentucky Report Sharpest Drops in Uninsured Rate.” Gallup. http://www.gallup.com/poll/174290/arkansas-kentucky-report-sharpest-drops-uninsured-rate.aspx#1 ↩︎
52. DiJulio B, Firth J, and Brodie M. January 28, 2015. “Kaiser Health Tracking Poll: January 2015.” Kaiser Family Foundation. https://modern.kff.org/health-costs/poll-finding/kaiser-health-tracking-poll-january-2015/ ↩︎