Filling the Medicaid Gap with a Public Option

A government-sponsored health insurance plan paying Medicare rates for hospital and other provider services, known as the ‘public option,’ would reduce federal spending on premium tax credits for people in the ‘Medicaid gap.’

The Issue

Adults who fall into the Medicaid gap and reside in states that have not expanded Medicaid are not eligible for Medicaid coverage because their incomes are above state eligibility standards and are not eligible for Affordable Care Act Marketplace subsidies because their incomes are below the minimum federal eligibility standard.

Key Findings

Researchers presented three options for filling the Medicaid gap, based on different subsidy schedules, and explores how the effects of these reforms differ when they are based on Affordable Care Act (ACA) Marketplace benchmarks versus when they are available through a public option.

• Marketplace expansion using the pre–American Rescue Plan Act (ARPA) subsidy schedule without a public option would cover 2.8 million people in the Medicaid gap at a net increase in federal government spending of $16.6 billion. With a public option, this reform would cover the same number of people at a net increase in federal government spending of $11.4 billion.   
• Marketplace expansion using the ARPA subsidy schedule without a public option would cover 3.2 million people in the gap at a net increase in federal government spending of $17.2 billion. With a public option, this reform would cover the same number of people at a net increase in federal government spending of $11.7 billion.
• Marketplace expansion using an enhanced subsidy schedule without a public option would cover 3.2 million people in the gap at a net increase in federal government spending of $18.1 billion. With a public option, this reform would cover the same number of people at a net increase in federal government spending of $12.3 billion.

Conclusion

Under the reforms examined, savings from the public option will largely lower federal subsidy spending, granting policymakers the ability to increase federal matching rates for expansion states, which would further increase federal spending.

About the Urban Institute

The nonprofit Urban Institute is dedicated to elevating the debate on social and economic policy. For nearly five decades, Urban scholars have conducted research and offered evidence-based solutions that improve lives and strengthen communities across a rapidly urbanizing world. Their objective research helps expand opportunities for all, reduce hardship among the most vulnerable, and strengthen the effectiveness of the public sector. Visit the Urban Institute’s Health Policy Center for more information specific to its staff and its recent research.