A new Health Policy Brief from Health Affairs and the Robert Wood Johnson Foundation examines a range of policy issues surrounding the concept of Medicaid premium assistance. States that decide not to expand Medicaid under the Affordable Care Act (to date, 19 states fall in that category) could create large coverage gaps for many of its low-income residents. One potential solution to this problem would be to use federal Medicaid expansion funds as “premium assistance,” enabling eligible Medicaid beneficiaries to purchase insurance through its newly minted exchange.

As some states explore this option, proponents hope the program will allow states to enroll more people, improve beneficiaries’ care, and reduce churning between Medicaid and the exchange. However, skeptics believe the program’s cost-efficiency is yet to be proven.

Topics covered in this brief include:

  • How did the idea evolve? In June 2012 the US Supreme Court struck down the mandatory expansion of Medicaid coverage, a key part of the Affordable Care Act’s means to extend health coverage to many poorer Americans. As states consider whether or not to expand their Medicaid coverage, Arkansas has been working out a new arrangement with the Department of Health and Human Services (HHS), using its federal Medicaid funds to assist residents earning just over $15,000 annually to purchase private coverage from that state’s health insurance exchange. Several other states are also exploring the possibility.
  • How can a state receive approval from HHS? For a state to provide premium assistance using Medicaid expansion funds, it must show that the approach is cost-effective compared to enrolling the same people in its Medicaid program. Also, it needs to ensure that the coverage from the exchange meets federal Medicaid requirements. These caveats, plus the challenge of getting any proposal through a state’s legislature, make it a challenging option for states to enact.
  • What’s next? Although the option appeals greatly to conservative leaders looking to reduce the role of government in health care, many details have yet to be determined. States will have to negotiate program changes individually with HHS. If Arkansas can figure out how to make premium assistance work, other states, such as Florida, Texas, Tennessee, and Pennsylvania, may attempt similar program modifications and follow suit.

About Health Policy Briefs. Health Policy Briefs are aimed at policy makers, congressional staffers, and others who need short, jargon-free explanations of health policy basics. The briefs, which are reviewed by experts in the field, include competing arguments on policy proposals and the relevant research supporting each perspective.

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