Premium Assistance in Medicaid

States have proposed using expansion funds to buy private coverage for Medicaid beneficiaries through the new health insurance exchanges.

Nearly a year after the Supreme Court’s June 2012 decision declaring the Affordable Care Act’s (ACA) Medicaid expansion optional, states continue to grapple with whether or not to pursue the option for newly eligible populations. Although the Medicaid expansion accounted for about half the total number of people projected to gain coverage under the ACA, many states, to date, have declined to expand Medicaid or are learning toward rejecting the option because of cost and political concerns. But the long-term consequences of denying the Medicaid expansion, especially large coverage gaps for millions of low-income people, are also prompting some states to consider novel alternatives for extending Medicaid under the ACA.

One approach that has piqued states’ interest is using the additional federal funds as “premium assistance” for eligible Medicaid beneficiaries to purchase private coverage through the law’s new health insurance exchanges.

It remains to be seen how many states will pursue the premium assistance approach in order to move their Medicaid rolls to the private exchanges. While the option appeals greatly to conservative leaders looking to reduce the role of government in healthcare, many details must still be negotiated. Advocates speculate that exchanges may offer more efficient cost sharing, greater competition, reduced fraud, less churning, higher reimbursement rates and better provider networks. However, not all of the states choosing premium assistance will see all of these benefits. Alternatively, the cost to an individual state may be higher than traditional Medicaid.

This policy brief examines a range of policy issues surrounding premium assistance using Medicaid expansion funds, and next steps for states.