Medicaid Coverage Gap: Overview, Eligibility, Coverage – Verywell Health

Medicaid is a government-run program that provides health coverage to Americans with low income (note that Medicaid and Medicare are two very different programs). The Medicaid program is jointly funded and run by the federal government and the state governments.

Although the federal government sets various minimum standards, states have the flexibility to set their own eligibility rules and benefits. This has resulted in a Medicaid coverage gap in some states. This article will explain why and where the Medicaid coverage gap exists, who is affected by it, and how Congress could potentially fix it.

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What Is the Medicaid Coverage Gap?

People can fall into the Medicaid coverage gap if their household income is above their state’s eligibility for Medicaid but is still below the poverty level, making them ineligible for the premium tax credits (tax credits, or subsidies, that help eligible people cover the cost of their health insurance plan purchased through the marketplace) that make marketplace/exchange plans available through government websites more affordable. As a result, they effectively have no realistic health coverage options.

When the Affordable Care Act (ACA, also known as “Obamacare”) was enacted in 2010, it called for a nationwide expansion of Medicaid for adults with low income, starting in 2014. There was never supposed to be a coverage gap, and it is not part of the ACA.

The coverage gap exists in 11 states because of their legislatures’ refusal to expand Medicaid—which would be funded almost entirely by the federal government if they did expand coverage. Those states could choose to close their coverage gaps at any time by expanding Medicaid eligibility as called for in the ACA.

Who Is in the Coverage Gap?

There are more than 2 million Americans in the coverage gap. They are adults with income below the poverty level, and they live in 11 states.

States With a Coverage Gap

The states with a Medicaid coverage gap are:

AlabamaFloridaGeorgiaKansasMississippiNorth CarolinaSouth CarolinaSouth DakotaTennesseeTexasWyoming

People of color make up 60% of the population in the coverage gap. In 2022, the poverty level is $13,590 for a single person and $27,750 for a household of four.

In states that have not expanded Medicaid, the pre-ACA rules continue to be used to determine Medicaid eligibility. In most of those states, adults with low incomes are not eligible for Medicaid at all if they aren’t disabled, pregnant, parenting a minor child, or at least 65 years old.

So most nondisabled adults in those states cannot enroll in Medicaid unless they have minor children. And even if they do have minor children, the income limits are quite low (for pregnant people, the income limits are considerably higher).

Let’s consider a household with two adults and two children and an annual income of $24,000, which is 86% of the poverty level in 2022. The children would be eligible for Medicaid or the Children’s Health Insurance Program (CHIP) in every state. But in nine of the 11 states listed above, the adults would not be eligible for Medicaid.

In South Carolina and Tennessee, the adults would be eligible for Medicaid because the parent/caretaker income limit for Medicaid is set at 95% of the poverty level in those states. (So the $24,000 household income, equal to 86% of the poverty level, would be under the income cap for parent/caretaker eligibility in those two states.)

But a nondisabled adult under age 65 who has no children will not be eligible for Medicaid in any of those 11 states, regardless of how low their income is.

Twelve states have not expanded Medicaid, including Wisconsin. But Wisconsin does not have a coverage gap because Medicaid is available to adults in Wisconsin whose income is under the poverty level.

Wisconsin essentially has a partial Medicaid expansion, but it does not get the enhanced federal funding that would be available if the state were to fully expand Medicaid, allowing adults with income up to 138% of the poverty level to enroll.

What Is Medicaid Expansion?

To understand the coverage gap, it helps to know the history of Medicaid eligibility and how the ACA changed the rules.

Before 2014, Medicaid eligibility was quite limited and depended on more than just income. To be eligible, a person had to have a low income and also fall into one of the following categories:

Age 65 and olderBlind or disabledChildPregnantParent of a minor child

In most states, the income limits for adults tended to be quite low, and there were also asset limits (limits on resources such as having money in the bank).

The ACA called for expanding eligibility to ensure that all adults under the age of 65 would be able to enroll in Medicaid if their household income didn’t exceed 138% of the poverty level.

In 2022, that amounts to $18,754 in annual income for a single adult in the continental United States (the poverty level is $13,590 in 2022; when multiplied by 1.38, it comes to $18,754). The limits are higher in Alaska and Hawaii, and limits are also higher when the household has additional family members.

But a lawsuit over the ACA was soon launched, challenging various parts of the law. In 2012, the Supreme Court ruled that the ACA itself was constitutional. But the Supreme Court ruled that the Medicaid expansion provision in the ACA would be optional for states.

Under the ACA, a state that refused to expand Medicaid would have lost its regular federal Medicaid funding, but the Court ruled that this would not be allowed.

So although the federal government paid the full cost of Medicaid expansion from 2014 through 2016 (states now pay 10% of the cost), only about half the states opted to expand Medicaid eligibility right away in 2014.

Over the years since then, several additional states have expanded eligibility for Medicaid for low-income adults. Some have done so through legislation, and others have used voter-approved ballot measures.

In the 38 states that have expanded Medicaid as of 2022, Medicaid is available to adults under age 65 if their household income doesn’t exceed 138% of the poverty level. Their assets/resources are not considered, and eligibility is just based on income.

But there are still 12 states that have not expanded Medicaid under the terms established by the ACA. In 11 of those states, many low-income adults have no realistic coverage options.

The ACA sets the minimum income threshold for eligibility for marketplace premium tax credits at 100% of the poverty level. People with income below that are ineligible for such subsidies because the ACA called for them to get Medicaid instead.

Incidentally, there is an exception to the minimum income requirements if a person is a recent immigrant who has been in the United States. for less than five years. Medicaid is generally not available during that time, so the ACA allows recent immigrants to qualify for premium subsidies even with an income below the poverty level.

But when the ACA was being drafted, lawmakers had no way of knowing that the Supreme Court would eventually make Medicaid expansion optional for the states. So there is no provision in the ACA to provide premium subsidies to nonimmigrant adults whose income is below the poverty level.

This combination of ineligibility for Medicaid and ineligibility for premium subsidies creates a coverage gap. Purchasing full-price health insurance is generally impossible with an income below the poverty level, so people in this situation tend to be uninsured.

What It Means for You

If your income is below the poverty level and you’re in one of the 11 states with a coverage gap, you may find that you’re ineligible for any financial assistance with your health coverage. Strategies for avoiding the coverage gap might be helpful for you.

Applying for Medicaid

Even if you think you won’t be eligible for Medicaid, it’s in your best interest to apply. You may find that you do qualify after all. You can apply through HealthCare.gov, or you can reach out to the Medicaid office in your state.

If You Don’t Qualify for Medicaid or the Marketplace

If you are ineligible for Medicaid and your projected income isn’t at least 100% of the poverty level, you won’t be eligible for a premium tax credit in the marketplace.

For example, you’re a single adult applying for marketplace coverage for 2022 in Alabama. If you project an income of $12,000, you will have to pay full price for your coverage, which will cost hundreds of dollars each month.

But if you project an income of $13,000, it will show that you’re eligible for a subsidy that will fully cover the cost of the benchmark plan (the second-lowest cost silver plan in the exchange).

That means that the benchmark plan and all plans priced below the benchmark will cost you $0 per month. You’ll also qualify for substantial cost-sharing reductions with this income level, which will make your coverage more robust as long as you choose a silver-level plan.

It’s important to note here that while the current poverty level numbers are used when determining Medicaid eligibility, the prior year’s poverty level numbers are used when determining eligibility for premium tax credits. The 2021 poverty level was set at $12,880 for a single person in the continental United States, which is why an income of $13,000 would make a person eligible for those tax subsidies in Alabama for 2022.

But that same income would put a person in Alabama into the coverage gap for 2023 coverage—assuming Alabama continues to reject Medicaid expansion and a federal solution is not implemented—since the poverty level for 2022 was increased to more than $13,000.)

Your income projection will eventually have to be reconciled with the Internal Revenue Service (IRS) when you file your tax return, so you can’t just pluck a number out of the air. It has to be a reasonable estimate, and the marketplace may ask you for pay stubs or other proof of the income projection you make.

If you’re unable to get your income into the subsidy-eligible range, you may have no option but to go without coverage, at least temporarily. There are ways to obtain charity care if you’re in that situation.

Congress has been working to fix the coverage gap, but the outcome of those efforts was still uncertain as of early 2022.

Closing the Coverage Gap

Ultimately, it’s up to the remaining 11 states to close their coverage gaps. They can do this at any time by accepting federal funding to expand Medicaid. The federal government will always pay at least 90% of the cost of covering the newly eligible population.

The American Rescue Plan also provides additional federal funding to any states that newly expand Medicaid. But so far, only Oklahoma and Missouri have taken advantage of this, and they were already on track to expand Medicaid before the American Rescue Plan was enacted. (In both states, this was due to ballot measures that voters approved in 2020.)

The 11 states with coverage gaps have continued to steadfastly refuse to expand Medicaid. So Congress has also been working to create a federal solution. The Build Back Better Act, which passed the House of Representatives in November 2021, includes a provision to protect the 2 million people caught in the coverage gap. However, that legislation has stalled in the Senate, and its future is uncertain.

The version of the Build Back Better Act that the House approves would temporarily (through 2025) provide full premium subsidies for the people currently caught in the coverage gap. This means the subsidy would cover the entire cost of the benchmark plan (second-lowest-cost silver plan).

It would also boost the available benefits so that their actuarial value is 99% (compared with 70% for an average silver plan and 94% for people who qualify for the ACA’s most robust cost-sharing reductions).

If that version of the Build Back Better Act were to be enacted, people who are currently in the coverage gap could enroll in a premium-free marketplace plan that covers nearly all of their healthcare costs (for at least a few years). This would be a huge improvement.

That version of the Build Back Better Act also calls for federal Medicaid expansion funding to be boosted to 93% in the states with expanded Medicaid (up from the current 90%), which would further solidify Medicaid expansion as a sound financial decision for states.

But again, the future of the Build Back Better Act is uncertain as of early 2022. The version that passed the House did not have enough support to pass in the Senate. The general expectation is that the legislation will have to be broken into multiple bills, so some aspects may eventually be enacted while others might not.

If the healthcare provisions are included in a version of the bill that garners enough support to pass, a federal fix for the coverage gap could still be on the way.

Summary

Medicaid expansion was a cornerstone of the ACA, intended to ensure that low-income Americans would have access to health coverage. But there are a dozen states that have refused to expand Medicaid. In 11 of them, adults with income below the poverty level are often ineligible for Medicaid.

Premium tax credits in the marketplace are also unavailable to people with income below the poverty level, leaving these individuals without a realistic coverage option.

The 11 states that have coverage gaps could close them at any time by accepting federal funding to expand Medicaid. The federal government would pay at least 90% of the cost, and additional funding would be provided under the American Rescue Plan and potentially the Build Back Better Act.

The Build Back Better Act also calls for the federal government to provide premium subsidies and robust marketplace coverage (major medical insurance coverage with low co-pays and other coverage benefits) to people who are in the coverage gap, from 2022 through 2025. But the future of this legislation is uncertain as of early 2022.

A Word From Verywell

If your income is low and your marketplace/exchange application indicates that you’re not eligible for any financial assistance, there’s a good chance that you’re in the coverage gap.

If you’re in Alabama, Florida, Georgia, Kansas, Mississippi, North Carolina, South Carolina, South Dakota, Tennessee, Texas, or Wyoming, you may find that you’re not eligible for Medicaid, even with a very low income.

Your projected income has to be at least at the poverty level to make you eligible for a premium tax credit (subsidy). For 2022 coverage for a single adult, that’s at least $12,880 in income (subsidy eligibility is based on the prior year’s poverty level numbers, which in 2021 was $12,880).

The good news is that the Build Back Better Act would close the coverage gap from 2022 through 2025 by making people in the coverage gap eligible for strong subsidies and robust coverage. If you’ve found yourself in the coverage gap and there’s no way to get your income into the subsidy-eligible range, keep a close eye on the Build Back Better Act.

Frequently Asked Questions

Why does the Medicaid coverage gap exist?

The Medicaid coverage gap exists in 11 states where state leaders have refused to expand Medicaid under the Affordable Care Act. Many adults with income below the poverty level are not eligible for Medicaid in these states. And they’re also not eligible for premium subsidies in the marketplace, because the ACA called for them to have Medicaid instead.

More than 2 million people are ineligible for financial assistance with their health coverage due to the coverage gap in those 11 states.

(While Wisconsin has not expanded Medicaid, there is no coverage gap in that state due to other factors.)

How does Medicaid expansion work?

Medicaid expansion was created by the Affordable Care Act. As a result, low-income adults can be eligible for Medicaid even if they don’t fit into one of the pre-expansion eligibility categories, including being blind, disabled, age 65 and older, a child, or caring for a minor child.

The ACA called for this new eligibility category to be available in every state, but the Supreme Court made it optional. As of early 2022, the District of Columbia and 38 states have expanded Medicaid. There are no asset tests for Medicaid expansion, as eligibility is based on income alone.

Who pays for Medicaid expansion?

The federal government pays at least 90% of the cost of covering the newly eligible population. Initially, the federal government paid 100% of the cost, but that gradually declined to 90% by 2020. The Build Back Better Act, which is under consideration by Congress, would temporarily increase the federal funding to 93%, leaving states responsible for just 7% of the cost.