Biden’s Covid-19 relief plan has a Medicaid expansion problem

The Biden White House and Democrats are considering whether the direct cash payments expected to be part of their Covid-19 relief legislation should be more narrowly targeted to the people most in need.

They should ask the same question about the relief bill’s plan to expand health coverage.

No legislative text has been written yet. But the Biden team did release a fairly detailed outline of what their $1.9 trillion Covid-19 package would look like, which Democrats in Congress are treating as the model for their bill. It included a proposal to expand the federal subsidies that people get to purchase private coverage on the Affordable Care Act’s marketplaces.

Currently, under the ACA, anybody can purchase insurance on the exchanges, but those with an income below 400 percent of the federal poverty level (about $51,520 for an individual or $106,000 for a family of four) get additional federal help. Assistance isn’t available for households earning more. The Biden plan specifies that the president wants to extend eligibility for that assistance to all Americans — although it leaves some key details unaddressed — to ensure that nobody would pay more than 8.5 percent of their income for health coverage. That change would most help people in the middle class who make a little too much money to qualify for assistance under current law.

Under current law, a person or family whose income is barely above 400 percent of the poverty level will pay about 15 percent of their annual earnings on health insurance, according to the Kaiser Family Foundation (KFF). So the Biden proposal would cut their premiums significantly, making health insurance more affordable and likely leading to millions of people gaining coverage.

But while the middle class gets more government support, people in poverty are left out. The problem is Medicaid expansion.

The ACA was written to cover people in or near poverty in every state through Medicaid, with the federal government providing most of the funding to cover the cost. But Republican-led states sued in 2012 to challenge that provision, arguing that the federal government could not force states to expand their Medicaid eligibility. The Supreme Court agreed and, while most states have since accepted the expansion, 12 have not.

Those states have left about 2.2 million people living in poverty uninsured, according to estimates from KFF. People with incomes below the federal poverty level ($12,900 for one person, $26,500 for a family of four) are ineligible for subsidies to buy private insurance under the ACA because they were supposed to be getting Medicaid. Without the Medicaid expansion, they have no realistic option to afford a health plan.

“The most vulnerable group among the uninsured are people who have incomes below poverty but have no health coverage options whatsoever because their states have not expanded Medicaid under the ACA,” Larry Levitt, executive vice president at the Kaiser Family Foundation, told me.

In other words, the wonky structure of the ACA combined with the Supreme Court’s decision have locked millions of Americans in poverty out of health coverage. And to make matters worse, there isn’t necessarily an easy solution.

Biden proposed creating a new government health insurance plan, a public option, that would automatically enroll people in the so-called Medicaid expansion gap. But Biden didn’t include a public option in his Covid-19 relief proposal, and it may be difficult to create one under the “budget reconciliation” process that will allow the Senate to advance the relief legislation with only Democratic votes.

There are other possibilities, according to Levitt. Congress could guarantee the federal government would permanently cover 100 percent of the expansion’s costs, as a way to encourage holdout states to come around. Or they could make people in poverty eligible for the ACA’s assistance to buy private insurance.

But in either case, Democrats would run into the problem of how to keep things equitable for states that have already expanded Medicaid.

In the first scenario, the expansion states might want additional federal funding, too, because they are currently covering 10 percent of the expansion’s costs. In the second scenario, the risk is that states would have a strong incentive to roll back their Medicaid expansion now that the people in poverty would be eligible for subsidies to purchase a private plan. A requirement that states must maintain their Medicaid expansion might not hold up in court if a state were to challenge it.

“The tricky part is getting coverage to poor people in the Medicaid coverage gap without creating incentives for states that have already expanded Medicaid to drop the expansion,” Levitt said.

This is a problem Democrats working on the Covid-19 relief plan are aware of — and they recognize it will be difficult to solve. Narrowly appropriating money to cover Covid-19 care for those people and increasing federal Medicaid funding to make sure states don’t cut benefits during a public health emergency may be more feasible options in the short term. Democrats could still try to tackle the Medicaid expansion gap in later legislation, too.

But it remains to be seen whether the Biden White House and the Democratic majorities, given the opportunity to patch up this hole in the ACA, can actually deliver health coverage to the Americans most in need.