ACA exchange plans cost near-poor more than Medicaid

The Commonwealth Fund just released an interesting brief regarding the effects of failing to expand Medicaid on the health care costs of people between 100 and 138 percent of the poverty line.

Yes, that sounds about as exciting as watching paint dry, loyal readers (both of you) but it’s important – so wake up, dammit!

Here’s the score:  the Affordable Care Act expands Medicaid to cover everyone under 138 percent of the poverty line. The problem is that 19 states – generally dominated by Republicans – have

refused to expand their Medicaid programs. This poor public policy has created a “Medicaid gap” consisting of people who are too rich to qualify for legacy Medicaid (in Texas, for example, parents earning more than 15 percent of the poverty line – about $2,400 a year for a family of 2 – don’t qualify) but too poor to qualify for subsidies on the health insurance exchanges, which are available to households earning between 100 and 400 percent of the poverty line.

The 3.2 million people in this gap have no functional access to insurance, since there’s no way a person making, say, $10,000 a year can afford several hundred dollars a month in health insurance premiums.

People earning between 100 and 138 percent of the poverty level in non-expansion states are considerably better off though, because they qualify for both premium subsidies and cost-sharing subsidies for exchange plans. The indispensable Charles Gaba has estimated this group at roughly 1.9 million people.

But do the exchange plans stack up favorably with the generosity of Medicaid for poor people?

The good scholars over at Commonwealth Fund set out to find out. And their general answer is “no.”

Follow me below for more details.

To get a thorough answer, we need to look at both premium costs and out-of-pocket costs. For this analysis, we’ll use a single person making $13,000 (about 109 percent of the poverty line for 2016) as an example.  

Under the premium subsidies for an exchange plan, individuals get charged on a sliding scale for premiums between 100 and 150 percent of the poverty line that ranges from 1 to 4 percent of income to buy the second-lowest Silver plan on the exchange. So a person making $13,000 a year will owe about 2 percent of income, $260 a year, toward premiums.

Traditional Medicaid rules don’t allow the state to charge premiums to people under 150 percent of the poverty line, though some states have negotiated waivers to this. Even the most lax waiver (employed in Montana and Indiana) caps monthly contributions at 2 percent of monthly income – and allow those contributions to go toward out of pocket costs either directly or in a health savings account. What’s more these waivers usually exclude medically frail people from paying premiums.

At best then, premium costs borne by the covered person are slightly higher than expanded Medicaid, and generally considerably worse.

The cost sharing side generally magnifies the gap between the two plans. 

Medicaid plans limit out-of-pocket expenses in several ways. Though each state Medicaid plan caps expenses in slightly different ways, federal policy sets benchmarks.

First, co-pays (flat fees) and coinsurance (an amount owed as a percentage of the total cost of the bill) have strict limits: federal policy caps drug payments at $4 for a generic drug, for example, and doctor’s visits and hospitalizations are limited to 10 percent of the costs paid by Medicaid. Total out-of-pocket costs are limited to five percent of income.  For our hypothetical person earning $13,000 a year, that means total costs are capped at $650 a year. 

However, there are two additional forces that drive practical costs down further. First, Medicaid pays considerable lower rates than commercial insurers, which further limits the exposure of the recipient.  So, for a doctor’s appointment Blue Cross might reimburse a provider at $195 for a appointment, whereas Medicaid might only pay $100, with the resulting 10 percent coinsurance checking in at $10 instead of $19.50.  

Second, Medicaid calculates its out-of-pocket caps on a monthly or quarterly basis, not an annual one, which further limits exposure. Imagine out person needs no other care except for a five-day hospitalization. With a monthly limit, he only owes $54, while with a yearly limit he would owe the full $650 – a difference of $596, which might be enough to stave off eviction and/ or keep the lights on.  

Exchange plans don’t match this level. In general, Silver plans generally limit out-of-pocket costs to about $6,350. Generous cost-sharing subsidies for individuals between 100 and 150 percent of the poverty line drop that to $2,250. However, that out of pocket maximum is still much higher than out-of-pocket maximums for Medicaid.

Because the exchange plans vary greatly both within states and from state to state, the Commonwealth study examines the second-lowest silver plan (the benchmark for determining subsidies) for the largest city in each of the states that haven’t expanded Medicaid to get an idea of how. Deductibles range from zero to $550, with a median of $175, considerably higher than Medicaid plans. Out-of-pocket caps range from $500 to the legally allowable $2250 (in my city of Houston, Texas, of course), with a median of $650 (the same as the maximum Medicaid cap) See exhibits 3 and 4 for more detail.

Deductibles are considerably higher than Medicaid deductibles. The out-of-pocket caps seem competitive with some Medicaid caps, but are calculated on an annual basis, not a monthly or quarterly one, so will likely cost the beneficiary more, especially if they have acute health needs.

In general then, exchange plans are inferior to Medicaid for individuals earning between 100 and 138 percent of the poverty line. Even with premium and out-of-pocket subsidies provided to the exchange plans, they generally charge higher premiums and have much greater exposure to out of pocket costs. In a best-case scenario for the exchange plans, premiums would be similar and out-pocket costs might be a few hundred dollars higher. In a worst-case scenario (in the Houston plan), the combination of premiums and out-of-pocket costs might eat up $2,510 for a beneficiary earning $13,000 a year -- or about 19.3 percent of an already minimal income, and roughly $1,800-$1,900 more than even a modified Medicaid expansion would likely cost. That $1,800 probably puts food on the table and pays the electric bill for a year.

Let’s step back one second: this doesn’t mean that exchange plans are worthless – they have helped more than 10 million people get access to decent insurance. And for the 1.9 million people between 100 and 138 percent of the poverty line using them, they are a lifeline to reasonably good care at a highly discounted price. In some isolated cases, they might offer some one flexibility to see a needed specialist who doesn’t accept Medicaid. However, even with generous cost-sharing and premium subsidies, they leave people just above the poverty line in a considerably worse position than the equivalent access to expanded Medicaid would.

And that’s why people under 138 percent of the poverty line were supposed to qualify for Medicaid under the terms of the Affordable Care Act.

And that's also why we need to elect people who will expand Medicaid like they ought to.