The Affordable Care Act (ACA), or Obamacare, is most widely known for strengthening consumer protections in private insurance and creating new pathways to affordable coverage through the Health Insurance Marketplaces and Medicaid. Less familiar is another aspect of the law—the ACA’s Modified Adjusted Gross Income (MAGI) rules and systems—that sought to align eligibility among the various insurance affordability programs. This effort also aimed to reduce administrative red tape by modernizing eligibility verification and enrollment procedures. Implementing these streamlining measures turned out to be a heavy lift for states as they simultaneously re-engineered their business processes, retrained staff, and designed the information technology systems needed to execute critical eligibility and enrollment functions.
Despite the many challenges in implementing these measures, most states have turned the corner in smoothing out operations and transforming Medicaid into an efficient, modernized data-driven program. Significant progress is clear with leading states achieving success in verifying eligibility immediately or overnight for more than 75 percent of applicants and in automatically renewing coverage for over 75 percent of enrollees through electronic processes. Reversal of these rules, if included in an ACA repeal, would wreak havoc for states and low-income families who depend on Medicaid.
Pushing States Forward
To facilitate coordination between insurance affordability programs and avoid gaps in coverage, the ACA aligned eligibility between Medicaid and the Marketplaces. This meant that the way in which income and household size are counted for Medicaid eligibility shifted to the same tax-based rules used to determine eligibility for Marketplace financial assistance. MAGI closely mirrors the Adjusted Gross Income used for tax purposes but is modified in Medicaid to include Social Security income, non-taxable interest, and excluded foreign income. These rules apply only to income-based Medicaid groups—children, pregnant women, parents, and other adults in Medicaid expansion states—and not seniors or persons with disabilities.
The ACA also propelled states forward in using technology to reduce the administrative workloads of state Medicaid agencies and ease the paperwork burden on states and beneficiaries. The new standards rely on electronic data from trusted sources such as the Social Security Administration to efficiently verify eligibility at application and automate renewals of eligibility. Moreover, the new rules facilitated state adoption of streamlining measures that were pioneered by states in their efforts to advance and stabilize children’s coverage such as limiting renewals to once a year or reducing waiting periods for the Children’s Health Insurance Program (CHIP). Other changes included eliminating asset tests and the hodgepodge of income deductions and disregards that made determining income eligibility complicated for Medicaid programs in the past.
What’s At Stake?
Fewer Eligible Individuals, More Red Tape
By including only taxable sources of income for eligibility purposes, the MAGI rules not only made it easier to verify eligibility through electronic sources but also extended eligibility to individuals whose non-taxable sources of income like child support or pre-tax deductions (such as childcare) previously put them over the income limit. Undoing the MAGI rules would cut some families off coverage.
What is more, if MAGI is repealed with the ACA, it is not clear whether it would be replaced or if the rules would go back to the old way of doing things when paper documentation was needed to verify eligibility. Either way, reintroducing asset tests or income disregards and deductions would create more work for states and result in additional enrollment barriers for applicants.
Loss of Access to Federal Data Services Hub
Some states rely heavily on the federal data services hub that was developed specifically to consolidate access to multiple electronic data sources for the Marketplaces and Medicaid agencies to use in verifying citizenship, qualified immigration status, income, and date of birth. Should the hub be dismantled by ACA repeal, states will need to invest time and resources in establishing electronic data exchanges with individual sources or revert to paper-driven eligibility verification procedures.
High-Performing IT Systems Promote Efficient Government
The biggest obstacle in transforming Medicaid to the ACA standards was states’ continued reliance on outdated, mainframe-based computer systems, which were more than three decades old in some states. To overcome this barrier, the Centers for Medicare and Medicaid Services (CMS) extended the same level of federal funding for eligibility systems (90 percent for development and 75 percent for ongoing operations) that it has long provided for systems that handle Medicaid claims payments.
While some states continue to work on core eligibility functions, others are in the process of maximizing system features and web-based consumer tools like mobile-friendly applications and online accounts common in private business today. These applications promote efficient government by reducing the need for state employees to make manual updates to enrollment systems. Although not directly tied to the ACA, loss of enhanced federal support for eligibility systems would be catastrophic for states and leave a number of states in the untenable situation of having an unfinished technology platform.
Reversing the MAGI-based rules would send states back to the drawing board in the design of their business processes and systems, re-introducing the kind of upheaval experienced during initial implementation. In fact, the National Association of Medicaid Directors (NAMD) is on record stating that “revising this (MAGI) income eligibility standard would come at a significant cost to states and the federal government, and possibly cause states to re-procure new eligibility systems once again.” NAMD cautions that “careful consideration should be given to the impact that reverting to prior eligibility standards would have on Medicaid operations.”
Repealing the MAGI-based rules will be hugely problematic for states and low-income individuals and families who will face additional barriers to coverage. Moreover, reverting to pre-ACA rules would be a horrendous waste of the multi-billion dollar outlay of money, staff time, and other resources that states and the federal government have invested in making Medicaid work better.