The Coverage Gap and Medicaid Expansion

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In this segment, our experts discuss the forthcoming debate around the coverage gap in non-Medicaid expansion states, potential policy options, and the impact on key stakeholders.
“Alternatively, for plans who may have been looking at those states and seeing large potential managed Medicaid enrollment, at first glance, this is less positive for them, but there could be a long game where a new federal program would include a managed Medicaid option akin to Medicare Advantage.” Massey Whorley


Elizabeth Carpenter , President

As president of Avalere Health, Elizabeth Carpenter is responsible for the firm’s consulting, sales, and operational functions.

Massey Whorley , Principal, Policy

Massey Whorley provides clients with data-driven policy analysis using his quantitative skills, modeling expertise, and knowledge of public health insurance programs.

This interview was originally published as a podcast. The audio is no longer available, but you can read the transcript below. For updates on our newly released content, visit our Insight Subscription page.

If you would like to watch the video version, please visit our video page.


Elizabeth Carpenter

Hello, and welcome to another edition of the Avalere Health Essential Voice. I’m Elizabeth Carpenter, Head of Advisory Services at Avalere, and today I’m joined by Massey Whorley, an associate principal in our policy practice and one of the leaders on our policy analytics team.

Everyone at home I am sure is gearing up for a big healthcare debate on Capitol Hill this fall, a debate that we expect to include issues like extending Affordable Care Act subsidies, expanding benefits offered through Medicare and drug pricing reforms.

But today’s discussion is really going to be about the debate that we expect to see around the Medicaid expansion population, or more accurately the population who’s not in Medicaid because states have not yet expanded. So this gap population, people who make too much money to qualify for Medicaid and not enough money to qualify for exchange subsidies. And so to date, 12 states have yet to expand Medicaid. Avalere estimates that about 2. 6 million people fall into this gap. And Massey is here to talk about how we expect this all to unfold.

So let’s go ahead and jump right in. Massey, talk to me about these people. Who are they? Where do they live? What are some of the key considerations related to the population as policymakers consider potential reforms?

Massey Whorley

That’s a great question, Elizabeth. So the folks that we’re talking about are low- income individuals who live in predominantly southern states. Think of Texas, Florida, Georgia, the Carolinas, Alabama, Mississippi, and Tennessee.

There also happen to be a handful of states in the middle of the country, notably Kansas, Wyoming, and South Dakota that have also not moved forward with Medicaid expansion. As you mentioned, the challenging thing to understand is that in these states, there are roughly 2.6 million people who find themselves making too much at their jobs to qualify for Medicaid, but not enough to qualify for subsidies in exchange. And they fall into what folks call the coverage gap. To put a finer point on this, these individuals are typically making less than $12,880 a year as an individual or more if they’re in a family, but they don’t typically have employer-sponsored insurance either because their employer doesn’t offer it or they can’t afford it.

And this creates an equity issue where very low-income people either have or don’t have access to affordable coverage depending on what side of an invisible line they live on. So again, thinking about how states are right next to each other, if you live in one state, you may have access, whereas if you live to the state of the south, you don’t.

Elizabeth Carpenter

Yeah. Okay. So that’s really helpful. Now that we know a little bit more about the population, let’s talk about some of the potential solutions policymakers are considering, right?

Congress can’t just put them all in Medicaid. We tried that, right? And it’s part of the reason the situation exists that it does. So just talk us through some of the key policy options that are being debated.

Massey Whorley

Yes, you’re right. The important context here and a bit of history is that the entire situation that we’re in with Medicaid expansion as a state option stems from the 2012 Supreme Court case in NFIB versus Sebelius. That court decision upheld the constitution of the Affordable Care Act, but said states could not be forced to expand Medicaid. So as a result of that, proponents of the Affordable Care Act have tried multiple paths to expand Medicaid in the roughly half of states that didn’t immediately move forward in January of 2014.

The new federal option that is being discussed would apply to the 12 states that have yet to move forward. And there are two options being debated currently. First is the idea that the rules for the exchange subsidies would be changed to let people below the federal poverty line in non-expansion states gain access to the subsidized coverage.

Generally speaking, subsidies are currently only available to those folks with incomes above the poverty level. Second is the concept of a new federal public program that provides Medicaid-like benefits to those individuals in the holdout states.

Elizabeth Carpenter

Got it. And we’ll talk more about this, but two main options on the table. Put the gap population into exchanges or make them eligible for exchanges, or creating a new federal program. So not a new public option the way it’s been talked about more publicly, but a new federal program for this population.

I can’t help but wonder as I hear you talk, the majority of states have decided to expand Medicaid. We’re at the point now where they’re contributing to that Medicaid expansion. And then you have these 12 states that have not expanded Medicaid who have sort of said, ” I don’t want to expand Medicaid.”

So talk to me before we move on, sort of how do you expect this federal policy discussion to play in the states, both among states that chose not to expand and those states that have expanded and are contributing financially?

Massey Whorley

So for those states that haven’t yet expanded, I imagine they have a continued sense that DC should really stay out of state affairs, but there also could be a sense of relief that they no longer have to worry about this.

This is something that the federal government is going to take on, and you don’t typically hear states, for example, complaining that the federal government runs Medicare. At the same time, you have states that from the beginning and then along the way have complied with the intent of the Affordable Care Act and expanded Medicaid.

So while this means that low income people in those states have access to coverage, it also means that those states, as you mentioned, are paying that share of coverage. So as it stands right now, expansion states are responsible for 10% of the costs of expansion.

That creates a situation where non- expansion states may be let off the hook and expansion states are left holding the bag. And because of the NFIB case, we know that states can’t be compelled to expand Medicaid, meaning some expansion dates will likely ask, ” Well, why shouldn’t we backtrack? We can put these folks in the exchanges and book the savings.” As a result, it wouldn’t surprise me to see a sweetener in the final package to keep expansion states happy and move the deal forward to provide coverage to those in non-expansion states.

Elizabeth Carpenter

Yeah, that’s a really interesting point. And as somebody who used to work in state government, I’m sure you have a particular point of view and experience sort of as to how states are thinking about budgets.

We know that this is not an easy time, it’s never an easy time for state budgets, but it’s certainly not an easy time as we think about the impact of the pandemic and the like. So always fascinating when sort of state and federal budgetary and policy issues collide on Capitol Hill.

So more to come there. We’ve talked about states, a big stakeholder obviously in this debate. Let’s talk about some other ones. Health plans. We’ve seen a resurgence of interest of health plans in the exchange market. Obviously, health plans have stepped up to the plate as part of the Medicaid expansion, providing Medicaid managed care coverage. So if you’re a health plan at home and you’re watching this unfold, what are some of the things that you’re considering?

Massey Whorley

Yes, if you’re a health plan at home watching, you should be thinking about how this potential policy intersects with your organizational growth strategy. For plans heavily invested in the exchanges, the idea of allowing these new folks in the exchanges is, on its face, a really positive thing because there will be more covered lives.

However, there is a second order consideration that you need to think about concerning the risk scores of those individuals who would enter the market, and that really shouldn’t be taken for granted. Alternatively, plans who may have been looking at those states and seeing large potential managed Medicaid enrollment, that at first glance this is less positive for those plans. But there could be a long game where a new federal program would include a managed Medicaid option akin to Medicare Advantage.

Elizabeth Carpenter

Yeah. And this reminds me so much of the early days of the Affordable Care Act when there were various reforms. And the question would be, “Well, how does this impact plans?” And I think the answer really is, well, it depends on the plan, it depends on their strategy. It depends on where they operate, right? This isn’t a one-size-fits-all answer. And so speaking of no one-size-fits-all answers, let’s talk about how this policymaking can impact real people.

And we already see some difference in consumer experience, obviously, as it relates to healthcare and where people live. This strikes me as something that continues to add to that potential complexity. So, let’s talk about the impact on real people.

Massey Whorley

So this effort really should be viewed as a backup plan. Again, proponents of the ACA have tried multiple different ways to get folks in these states covered, to no avail thus far.

And that means there are some tradeoffs which will play out in timing, cost, and benefits. As I mentioned earlier, there are two options being considered, the exchanges and a new public program, but what we may eventually see is a hybrid or a stacking of the two.

If Congress chooses to go with the exchanges, these folks could have access to coverage as soon as 2022. That’s the clear upside. However, there are important questions about the level of out-of-pocket spending these individuals would have when they use their coverage, and there’s the question of benefits. Since exchange benefits may fall short of Medicaid required coverage in some instances, which could leave vulnerable individuals struggling. Alternatively, if they go with the new federal program, the runway is much longer to actually getting people covered.

Benefits and cost sharing would likely be more Medicaid-like. But all of that would take quite a while to design and implement. Not to mention if there would be a role for managed Medicaid or if it would all be fee-for-service.

That leads to the conclusion that is gaining traction with some people on the hill. First, allow these folks into the exchanges and then eventually migrate eligibility into the new program once it has been established.

Elizabeth Carpenter

Yeah. And Massey, as I hear you talk, all I can think about is the churn conversation that we have with this population and how that certainly sort of re-emerges. Not that it ever went away, but becomes sort of in the spotlight especially if we’re talking about sort of putting people in exchanges, transferring them, et cetera, et cetera. So another really interesting piece to watch.

You mentioned the difference in benefits and more specifically benefit design. If you’re a biopharmaceutical company listening right now, what are you thinking about as it relates to your patients really being able to access their drugs?

Massey Whorley

So Elizabeth, you kicked us off in this conversation talking about reconciliation. And certainly biopharma has a lot of things to pay attention to. So this may not be on your front burner, but it is worth paying attention to.

So on the one hand, getting more people coverage is great news because they can gain access to a regular source of care, identify and treat issues they may have, and increase compliance with their prescription regimens.

On the other hand, the path that this takes is really important. It has ramifications for drug pricing and reimbursement. Exchange plans function very differently from Medicaid fee-for-service or managed Medicaid, and lots of questions could emerge about formularies, rebates, and other things depending on the path.

Elizabeth Carpenter

Yeah, that makes sense. And there’s definitely a lot to talk about today, but I think we’re going to go ahead and start to wrap things up. I’d ask if there’s anything that we didn’t talk about that we should mention before we let our listeners go.

Massey Whorley

Absolutely. So I think, again, there is the cost to the federal government and how this competes with other congressional priorities. By taking this exclusively into federal control, all of the costs will be borne by the federal budget.

And moreover, the policy specifics of this will directly in the impact the price tag since, for example, exchange coverage is usually more expensive than Medicaid because exchange plans typically have higher rates than Medicaid.

And then the last piece of this is the procedural part. This legislative vehicle for the policy proposal will be the reconciliation package, and as a result, it will have to comply with the Byrd Rule. Coincidentally, the fact that this policy prevents a federal cost likely helps its procedural case.

Elizabeth Carpenter

Yeah, talk about a podcast episode, The Byrd Rule, and how it’s going to impact how all of us spend our next few months. So Massey, with that, I’m going to thank you for your time and for the really interesting discussion.

And thanks to everyone for joining Avalere Health’s Essential Voice. Please stay tuned for more episodes and visit us at for more information. Have a good day.

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