Assessing Health Care Reform

New Health Care Reform Insurance Opportunities

The PPACA provides new subsidized insurance opportunities for persons with income of less than 400% of the federal poverty level (FPL). Because 9 out of every 10 uninsured persons with disabilities have income of less than 400% FPL, we focus our analysis on these new opportunities (see Note 1). In the following paragraphs, we describe the characteristics of the new opportunities and when applicable, compare the characteristics of the new opportunities with the current Medicaid program for persons with disabilities (Table 1). To simplify the discussion, we describe the characteristics that are predominant in Medicaid. In actuality, Medicaid for persons with severe disabilities consists of many eligibility groups with varying characteristics. Bruen, Wiener, and Thomas (2003) provide a detailed description of mandatory and optional eligibility groups for persons with disabilities.

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Table 1.

Characteristics of Noncategorical Medicaid, Exchange Plans, and Medicaid for Persons With Severe Disabilities

Characteristic	Noncategorical Medicaid	Subsidized exchange plans	Medicaid for persons with disabilities
Income limit	133% FPL	400% FPL	Varies across states from a minimum of the SSI program income limit (range of 76% to 158% of FPL) to no income limit a
Income methodology	IRS tax rules (modified adjusted gross income)	IRS tax rules (modified adjusted gross income)	SSI program income methodology with some variation within state eligibility groups and across states
Member premiums	Not allowed	Sliding scale ranging from 4% to 9.5% of income	Not allowed for persons with income of less than 150% FPL
Member copayments	Up to 10% of service costs, annual cost capped at 5% of family income	Varies by family income, ranges from approximately US$4,000 to US$8,000 per year b	Up to 10% of service costs, annual cost capped at 5% of family income
Coverage requirements	Benchmark coverage c	Essential health benefits d	Federally mandated and state optional services e
Disability requirement	No	No	Yes
Federal share of benefit subsidy	90% for persons who are newly eligible f	100%	Varies across states from 50% to approximately 75%

Note: FPL = federal poverty level; SSI = supplemental security income; IRS = Internal Revenue Service.

a

Massachusetts does not have an income limit but does require premium payments for persons with income above 150% FPL.

b

The amounts reflect 2010 circumstances.

c

See text for a description of benchmark coverage.

d

See text for a description of essential health benefits.

e

See A. Sommers, Ghosh, & Rousseau, 2005.

f

The newly eligible are persons who are not otherwise eligible for the state’s Medicaid program under the state’s eligibility rules that existed as of December 1, 2009.

Potential for Increased Insurance Coverage

Will the PPACA increase the insurance coverage among persons with disabilities? We look to the outcomes of the Massachusetts reforms, implemented in 2006 and 2007, for experience-based information. The policies of the Massachusetts reforms are not identical to the national reforms; however, the similarities are sufficient to use the Massachusetts experience to demonstrate the potential. Similar to the national reforms, the Massachusetts reforms provide coverage, without premiums, to low-income persons. In Massachusetts, the income limit for no-premium coverage is 150% FPL, a limit that is comparable with the national reform limit of 133% FPL. The Massachusetts income methodology is different from the MAGI income methodology. In the Massachusetts methodology, all income is summed to determine a gross income without the adjustments included in the MAGI methodology. Because of the adjustments of the MAGI methodology, the actual effective difference in income eligibility between Massachusetts and the federal reforms is smaller than is evident in the direct comparison of income limits. The income eligibility for premium subsidies is also comparable between Massachusetts and the federal reforms. The Massachusetts reforms provide premium subsidies for persons with income up to 300% FPL compared with up to 400% FPL for the national reforms.

For those who receive premium subsidies, the premium costs (net subsidy) under the national reform will be comparable with Massachusetts. For example, in 2010 dollars, the subsidized premium costs for a plan in Massachusetts for a family of four with income of 200% FPL is approximately US$200 per month, compared with an estimated US$232 under the national reform.

The outcomes of the Massachusetts reforms demonstrate that a substantial increase in the number of persons insured is very much possible. Prior research has demonstrated that the Massachusetts reforms reduced uninsurance among working-age persons by approximately half (Long, Stockley, & Yemane, 2009). Separate estimates for the subgroup of working-age persons with disabilities also show reductions in uninsurance of approximately half, from 11.2% prior to the reforms to 5.4% in the 2 years the following reforms, with the insurance gains occurring within the Massachusetts subsidized insurance programs (Gettens, Mitra, Henry, & Himmelstein, in press). Because of the policy similarities, the outcomes of the Massachusetts reforms demonstrate the potential for the national reforms. Assuming a national reduction in uninsurance among working-age persons with disabilities comparable with the Massachusetts reduction, approximately one half, the uninsurance rate would fall from 19.9% (3.8 million persons) to 9.9% (1.9 million persons; see Note 1). Nearly 2 million persons with disabilities would gain insurance. Because Massachusetts prereform rates were already much lower compared with current national uninsurance rates (excluding Massachusetts), the potential exists for an even greater percentage of reduction nationally.

Although the policies are similar between the national reforms and the Massachusetts reforms, policy is not the only determinant of outcomes. Program implementation and operations also affect outcomes. Massachusetts conducted very strong outreach and enrollment activities, including an extensive public education campaign and automatic enrollment of low-income uninsured persons participating in existing state programs. Massachusetts also streamlined the application process, creating a common application for Medicaid and subsidized private insurance. The strong outreach and enrollment and the streamlined application process likely contributed to the Massachusetts success (Dorn, Hill, & Hogan, 2009). The national reform also mandates a streamlined application process. Whether the outreach and enrollment activities will be consistently strong across states under the national reforms is uncertain. States may be reluctant to conduct strong outreach activities because they fear increased state Medicaid costs if the outreach results in increased enrollment of persons who are eligible for preexisting Medicaid (woodwork effect). These persons will be more costly for states compared with the newly eligible because the FMAP for pre-PPACA Medicaid will apply rather than the higher FMAP for newly eligible persons.

An important aspect of a streamlined process will be the processing of persons transitioning from Medicaid to Exchange plans and vice versa because of income fluctuations. B. D. Sommers and Rosenbaum (2011) estimate that half of the persons with income below 200% of the poverty level will experience a transition within a year. Persons transitioning will be vulnerable to periods of uninsurance. B. D. Sommers and Rosenbaum and Seifert, Kirk, and Oakes (2010) describe strategies to minimize the coverage disruptions for persons making transitions. Whether or not states will adopt these strategies is uncertain.

In summary, we estimate there will be approximately 2 million newly insured persons with disabilities. We base this finding the insurance increase achieved in Massachusetts given the similarities between the Massachusetts reforms and the national reforms. There is a caveat: If states do not conduct strong outreach and enrollment activities, the increase in the number of insured may be less than estimated.

Potential Unintended Consequence

The two PPACA insurance opportunities, noncategorical Medicaid and Exchange-based subsidies, not only create the potential for increases in insurance coverage but also the risk that some persons will either lose their Medicaid coverage or experience a reduction in Medicaid services. The Medicaid program requires that states provide a baseline level of eligibility and services, but beyond that states have options. In the past, states have used the Medicaid options to fill coverage and service gaps while pulling in matching federal funds. The available matching federal funds provided an incentive for state Medicaid expansions (Vladeck, 2003). There is no precise national accounting of the optional participants or optional costs, but rough estimates, sufficient for our purposes, are available. Roughly one quarter of persons participating in adult disability-based Medicaid are optional participants and 69% of costs are for optional services and optional participants (A. Sommers, Ghosh, & Rousseau, 2005).

The 90% federal financial participation for newly eligible Medicaid participants and the full federal responsibility for Exchange plan tax credits will affect state financial incentives. States will soon have a financial incentive to reduce optional Medicaid participation and, in effect, transfer people and costs from disability-based Medicaid to the largely federally funded newly eligible Medicaid and Exchange-based subsidies. In this context, transfer refers to persons actually transferred from disability-based Medicaid to new PPACA programs or the enrollment of applicants in the new PPACA programs rather than disability-based Medicaid. Thus, rather than Medicaid expansions being a means to increase federal revenue, the opposite will be true. Reductions in optional Medicaid eligibility will be a means to increase federal revenue.

States will be able to transfer disability-based Medicaid participants (and applicants) to the new PPACA programs either through eligibility reductions or simply by enrolling people in either noncategorical Medicaid or Exchange-based subsidies rather than disability-based Medicaid. The potential to transfer people exists because the income limits of the optional Medicaid programs overlap with the income limits of new PPACA programs, and thus some people will meet the financial eligibility requirements for both disability-based Medicaid and the new PPACA programs. It will be up to the states to decide whether these people will be covered in preexisting optional disability-based Medicaid programs or the new PPACA coverage.

Eligibility rules for mandatory and optional Medicaid groups are complex and a complete description of the overlapping financial eligibility is beyond the scope of this article. We refer readers to Bruen, Wiener, and Thomas (2003) and Centers for Medicare and Medicaid Services (2001) for detailed descriptions of mandatory and optional eligibility groups. We illustrate the overlap using the simplified case of a hypothetical state. In the hypothetical state, there are three Medicaid eligibility groups, a mandatory group (SSI recipients), an optional disability-based group referred to as the poverty-level group (persons with income below 100% FPL), and the new PPACA-authorized group, noncategorical Medicaid. The SSI income methodology is used to determine eligibility for the SSI-recipient and poverty-level Medicaid groups and the MAGI income methodology is used for noncategorical Medicaid.

Figure 1 shows the eligibility regions, for a single individual, for these three eligibility groups in two dimensions of income, earned and unearned. For example, if the point representing a person’s earned and unearned income amounts falls within region OBA, he or she is eligible for SSI-recipient Medicaid. Correspondingly, a person is eligible for poverty-level Medicaid if his or her income is within the ABDC region. Figure 1 shows the substantial overlap of financial eligibility between the optional poverty-level Medicaid and the new PPACA-authorized noncategorical Medicaid. Persons with income in region AGHC are financially eligible for both poverty-level Medicaid and noncategorical Medicaid. If states eliminate poverty-level Medicaid, persons in this region would be financially eligible for noncategorical Medicaid. Poverty-level Medicaid–eligible persons with income in region GBDH are not financially eligible for noncategorical Medicaid; however, these persons would be financially eligible for Exchange-based subsidies (not shown in diagram). Thus, there is complete overlap in financial eligibility between the optional poverty-level Medicaid program and the new PPACA programs.

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Figure 1.

Medicaid eligibility regions for three Medicaid eligibility groups

The extent to which states can transfer disability-based Medicaid participants to noncategorical Medicaid is limited by PPACA. States will not be able to use noncategorical Medicaid to cover persons who are eligible for mandatory disability-based Medicaid groups (mainly persons who receive SSI) or to cover persons who meet the state medical criteria for long-term care (LTC) services (SSA, 2010a). This eliminates much of the potential for costs transfers. Medicaid costs for SSI recipients and LTC services account for a very high percentage, approximately 86% of costs for adult disability-based Medicaid (A. Sommers et al., 2005).

To further restrict the transfer of costs, PPACA specifies that the higher FMAP, 90%, only applies to the newly eligible; that is, the noncategorical Medicaid participants who are not otherwise eligible for the state’s Medicaid program under the eligibility rules that existed as of December 1, 2009 (SSA, 2010a). On the surface, this provision would appear to prevent states from benefiting financially by transferring persons from disability-based Medicaid to noncategorical Medicaid; however, the effectiveness of the provision is doubtful for persons with disabilities.

The effectiveness is doubtful because determining whether or not a person with disabilities would be eligible under the former rules is not straightforward. For persons with disabilities, determining eligibility under former rules requires a disability determination. The disability determination is a lengthy and costly process that assesses whether a person is unable to earn at substantial levels because of disability. In the absence of a disability determination, a person’s eligibility under the former rules for disability-based Medicaid cannot be known. The disability determination will not be necessary to determine eligibility for noncategorical Medicaid, and states may forgo disability determinations. This is particularly likely for new applicants (starting in 2014) who have not had a prior disability determination. If states forgo disability determinations, eligibility under the former rules will not be known.

Potential Loss of Medicaid Coverage

If exemptions from benchmark coverage are effectively determined and persons are not harmed by a transfer from disability-based Medicaid to noncategorical Medicaid, will there be a problem? There will be a problem if states do the transfer by reducing Medicaid eligibility. The problem exists because some participants in optional disability-based Medicaid programs will be excluded from noncategorical Medicaid. These persons will lose Medicaid coverage in the event that states reduce eligibility. This is the case for Medicare beneficiaries (Table 2). Medicare beneficiaries will not be eligible for noncategorical Medicaid (PPACA, 2010a).

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Table 2.

States’ Ability to Transfer Persons From Medicaid to New Health Care Reform Programs

		Persons eligible in an optional Medicaid group
Transfer to:	Persons eligible in a mandatory Medicaid group	Medicare beneficiaries	Others
Transfer to noncategorical medicaid?	No transfer allowed	No transfer allowed a	Yes, if person’s income less than 133% of federal poverty level b
Transfer to subsidized exchange plan?	No transfer allowed	No transfer allowed a	Yes if person’s income between 133% and 400% of federal poverty level c

Note: Shaded table cells indicate circumstances where persons would lose Medicaid if states reduce Medicaid eligibility.

a

If states reduce Medicaid eligibility, affected Medicare beneficiaries who lose Medicaid will not be able to replace coverage with noncategorical Medicaid or Exchange-based coverage.

b

The effective income limit is 138% of the federal poverty level because 5% age points of income, relative to the federal poverty level, is deducted (SSA, 2010a). If states reduce Medicaid eligibility, affected persons with income less than 133% of the federal poverty level will be eligible for noncategorical Medicaid and either receive benchmark coverage or be exempt from benchmark coverage and receive full Medicaid benefits. See text for a description of benchmark coverage.

c

If states reduce Medicaid eligibility, affected persons with income between 133% and 400% of the federal poverty level may be eligible for subsidies for Exchange-based plans; however, costs will be higher and services will be less comprehensive compared with Medicaid.

To estimate an approximate number of Medicare beneficiaries who could lose Medicaid coverage and their associated costs, we use 2008 data from the Medicaid Statistical Information System (MSIS). Medicare beneficiaries were counted as members of optional disability-based Medicaid eligibility groups if they met the following conditions: (a) did not receive LTC services, (b) received Medicaid services on the basis of disability, (c) were not eligible for Medicaid based on receipt of cash assistance, (d) were not eligible on the basis of being medically needy if residing in one of the 11 states with eligibility rules more restrictive than the SSI program (209b states), and (e) participated in the Medicare Saving Program (Qualified Medicare Beneficiaries or Specified Low-Income Medicare Beneficiaries). To determine costs, we calculated the Medicaid service costs minus the costs of services for Home- and Community-Based Care waivers, Nursing Facility, Home Health Care, Mental Health Facility or Intermediate Care facilities for the Mentally Retarded. Because Massachusetts had extensive health care reform Medicaid waivers in effect in 2008, we excluded Massachusetts from the estimate.

Using this definition, we estimate there were approximately 400,000 Medicare beneficiaries in 2008 who participated in optional disability-based Medicaid, receiving approximately US$2.2 billion in services. Medicare beneficiaries who lose Medicaid eligibility will not be able to offset the Medicaid loss with Exchange-based coverage because Medicare beneficiaries are also excluded from Exchange plans (Table 2).

Persons with income above 133% FPL in optional groups would also lose Medicaid coverage (Table 2). This would be true for all optional Medicaid groups but particularly apparent for Medicaid buy-in because Medicare buy-in participants generally have higher income compared with other Medicaid participants. Medicaid buy-in programs provide Medicaid coverage to working persons with disabilities who “buy-in” to Medicaid coverage by paying premiums. The income limits for Medicaid buy-in are higher than most other Medicaid programs, typically up to 250% of FPL. In 2009, there were approximately 154,000 Medicaid buy-in participants in 37 states (Kehn, Croake, & Schimmel, 2010). Using the per member service costs in 2005, the most recent year reported, we estimate that the 154,000 buy-in participants received more than US$2 billion in services (Gimm, Andrews, Schimmel, Ireys, & Liu, 2009). If states eliminate buy-in eligibility, most of the people who lose buy-in eligibility will not be eligible for noncategorical Medicaid either because their income is too high or because they are Medicare beneficiaries. Approximately two thirds of buy-in participants are Medicare beneficiaries. Nonmedicare beneficiaries who lose buy-in eligibility may be eligible for Exchange-based subsidies if they are not eligible for ESI, but coverage will be less comprehensive and costs will be higher. Persons who lose Medicaid services that are necessary for their continued employment, for example personal assistance services, may also lose their jobs.

Unfortunately, data are not available to estimate the total number of persons who would lose Medicaid coverage if states reduce optional Medicaid eligibility. As discussed above, it is possible to estimate the number of Medicare beneficiaries who could lose Medicaid coverage (approximately 400,000). However, there is no data to estimate the number of non-Medicare persons participating in optional (non-LTC) Medicaid programs who have income greater than 133% FPL (MAGI income methodology) and would not be eligible for noncategorical Medicaid. Using 2008 MSIS data, we estimate there were approximately 250,000 non-Medicare, non-LTC members in optional Medicaid groups. Given the income methodology differences between optional Medicaid and noncategorical Medicaid (Figure 1) and the high income limits of state Medicaid buy-in programs, we expected that a substantial percentage of the approximately 250,000 non-Medicare, non-LTC participants in optional Medicaid programs will have income in excess of noncategorical Medicaid income limit.

In summary, it appears that once the PPACA changes are implemented in 2014, states will face a dilemma. On one hand, it appears that they will be able to reduce Medicaid eligibility to reduce costs while maintaining insurance coverage for some who lose Medicaid coverage, in effect transferring some of the persons affected and their costs to new PPACA coverage. On the other hand, it does not appear that states will be able to do this without harming Medicare beneficiaries who will be excluded from the new coverage or persons who will lose medical services and incur higher out-of-pocket costs in the transfer (mainly persons transferred to Exchange plans).

Whether states will opt to reduce costs through eligibility reductions or maintain existing Medicaid eligibility is uncertain; however, we expect that state fiscal problems will tip the balance toward reducing costs. In recent years, the enhanced FMAP provided by the American Recovery and Reinvestment Act helped states to maintain Medicaid services during the downturn. However, when the enhanced FMAP expires on June 30, 2011, the state share of Medicaid spending is expected to increase by 25% or more (Smith et al., 2010). Unless state revenues recover before 2014, states will be under severe pressure to reduce Medicaid spending at the same time they are implementing health care reform. This will create pressure on states to reduce Medicaid eligibility and expand federal revenue with the rationale that at least some of the people who are cut will be covered under the new PPACA programs.

Policy Options to Address Loss of Medicaid Coverage

The potential loss of Medicaid coverage is an unintended consequence of the PPACA. There are a variety of ways to fix this to ensure that Medicaid participants will not be harmed. We outline four potential solutions. First, the FMAP for optional disability-based Medicaid groups (other than LTC groups) could be increased. This would decrease states’ incentives for reducing optional Medicaid eligibility. This would be comparable with the PPACA-increased FMAP for the Children’s Health Insurance Program (CHIP). The PPACA increases the CHIP FMAP through Federal Fiscal Year (FFY) 2019 (PPACA, 2010e).

Second, “maintenance of effort” requirements could be extended beyond 2014 for optional disability-based Medicaid groups, an action that would prohibit states from making eligibility cuts. This would be comparable with the PPACA maintenance of effort requirement for state child health plan programs. States are prohibited from reducing eligibility in the State child health plan through September 30, 2019 (PPACA, 2010d).

Third, new optional Medicaid groups could be created to provide states with the flexibility to reduce optional Medicaid eligibility while continuing to provide Medicaid eligibility to persons who would otherwise experience coverage loss. Specifically, an optional group would need to be established for Medicare beneficiaries because Medicare beneficiaries are excluded from noncategorical Medicaid and Exchange plans. In addition, an optional disability-based group would need to be established to provide wrap-around services to Exchange plan participants with disabilities. This would allow persons with income above 133% FPL to obtain their primary coverage through Exchange plans, giving the states the option to provide Medicaid as wrap-around insurance for services not covered in Exchange plans and possibly to also provide premium assistance.

Fourth, stringent federal rules could be implemented to reduce the incentives for Medicaid eligibility reductions by making it more difficult for states to transfer costs to noncategorical Medicaid. For example, federal rules could require disability determinations of noncategorical Medicaid participants who potentially meet the Medicaid disability criteria. This would provide the information necessary to determine whether noncategorical Medicaid participants are eligible under the former Medicaid rules. This would reduce, but not eliminate, cost shifts because there is no flawless way to identify persons who potentially meet the disability criteria.

There are advantages and disadvantages to each of the four solutions. The maintenance of effort requirement maintains the status quo but would reduce the likelihood of any future state Medicaid expansions for persons with disabilities. States expanding Medicaid would face the prospect of assuming new costs that would otherwise be paid by the federal government under the new PPACA programs. The increased FMAP decreases the incentives for state eligibility cuts, with the added advantage of making future expansions less costly for states. The new Medicaid groups also make future Medicaid expansions less costly for states, with an added administrative benefit: They would allow states to cover more people in noncategorical Medicaid rather than disability-based Medicaid, reducing the number of administrative disability determinations. This solution would carry the condition that noncategorical Medicaid participants who are medically frail or have special health care needs must be identified and given the option to receive full Medicaid benefits. If this was the case, persons who participate in noncategorical Medicaid rather than disability-based Medicaid would not be harmed. The final proposed solution, stringent federal rules, would reduce the financial incentives to transfer persons to noncategorical Medicaid, but it would not affect the incentives for transfer of persons to Exchange-based coverage.

Conclusion

On average, persons with disabilities have higher medical needs and lower income compared with persons without disabilities. The combination of high medical need and low income make health insurance a necessity. We assessed the potential for insurance coverage increases among persons with disabilities under the national health care reforms. We estimate that approximately 2 million persons with disabilities will become newly insured. We base this finding the similarities between the Massachusetts reforms and the national reforms and prior empirical estimates of the effects of the Massachusetts reforms on the insurance of persons with disabilities. There is a caveat, if states do not conduct strong outreach and enrollment activities, the increase in the number of insured may be less than estimated.

It is possible that some Medicaid participants will experience a reduction in services. This could occur among persons with disabilities who receive benchmark coverage rather than full Medicaid benefits. This unintended consequence may be prevented for persons with disabilities if states adopt effective processes to determine exemptions from mandatory benchmark coverage or if states provide benchmark coverage that is identical to full Medicaid coverage.

We also find it likely that some Medicare beneficiaries and persons with disabilities with income above 133% FPL will lose Medicaid coverage once the major PPACA changes are implemented in 2014. The loss of coverage will occur if states reduce Medicaid eligibility to shift costs from the current Medicaid program to the new programs created by PPACA. We do not expect the persons who lose Medicaid coverage will become uninsured but rather they will have less comprehensive coverage and incur higher out-of-pocket costs compared with Medicaid coverage. In the past, states had a financial incentive to expand Medicaid eligibility to increase federal revenue. PPACA reverses the incentive; under the PPACA changes, states will have a financial incentive to reduce Medicaid eligibility to increase federal revenue. State fiscal problems make it likely that at least some states will reduce Medicaid eligibility to shift costs. It is not possible to predict how many states will reduce Medicaid eligibility for persons with disabilities; however, the number of persons who could lose eligibility if states do so is large, more than 400,000 persons. The potential loss of Medicaid coverage is an unintended consequence of the PPACA. We describe solutions that would prevent this unintended consequence.