Help the Poor to Assist the Middle Class

Virginia’s decision to expand Medicaid to the entire income-eligible population, those individuals making less than $16,753 or less than $34,638 for a family of four, should help middle-class families who don’t qualify for subsidized premiums under the Affordable Care Act.  Virginia’s upcoming experience with Medicaid expansion can show how other states that have not expanded Medicaid can lower premiums for the middle class.

While Virginia’s insurers submitted their initial ACA individual market rate requests for 2019 in early May, Medicaid expansion means that the state’s insurers will need to refile significant rate revisions. These rate requests will result in significant savings for individuals who make more than $48,560 as well as families of four who earn more than $100,400 because they don’t qualify for subsidized health insurance premiums under the Affordable Care Act.

There are two ways that Medicaid expansion in Virginia will drive down individual market rates that non-subsidized, middle-class families pay.

First, more individuals with chronic conditions will have access to regular care — a factor we know helps reduce expensive visits to emergency rooms and high-cost hospitalizations. Evidence shows that individuals who earn between 100 percent and 138 percent of the federal poverty level (a family of four earning between $25,100 and $34,638) and currently buy ACA insurance have more chronic conditions and more expensive health care needs than individuals who earn over 138 percent FPL.

We know that low-income individuals and families face more stress, which can contribute to the severity of chronic conditions. We also know that cost sharing, in the form of copays and deductibles, is a barrier to these patients following all of their provider’s recommendations such as taking medication regularly or following recommendations for healthy eating and physical activity.

The ACA intended for all individuals who earned less than the poverty level to be covered by expanded Medicaid while subsidies would be made available to people who earned between 100 percent and 400 percent ($12,140 to $48,560) in order to help them purchase insurance on the exchanges. The Supreme Court’s decision to make Medicaid expansion in states optional left many people who earn below the subsidy threshold uncovered until they earned enough money to qualify for exchange subsidies.  

There is evidence that some non-expansion state residents who earned too little to receive health insurance subsidies aggressively found ways to increase their income to 100 percent FPL ($12,140 for a single individual). This very motivated subset is highly likely to need coverage because of significant health care needs. Bringing these patients into Medicaid instead of having them participate in a subsidized qualified health plan could lead to as much as a 7 percent decrease in premiums for individuals buying insurance on the marketplace who do not qualify for a subsidy.

The second mechanism that could lead to premium reductions for the middle class is a little harder to follow, but is a result of President Donald Trump’s October 2017 termination of payments for cost-sharing reduction subsidies to insurers. CSR payments lower the out-of-pocket expenses (deductibles, coinsurance, copays) for people with low incomes. Individuals earning between $12,160 and $18,240 in 2018 receive the most cost-sharing assistance, while lesser amounts of assistance are available to single buyers earning up to $30,400. Insurers are still obligated to offer these low-cost sharing plans to people whose income qualifies them for assistance, even as the federal government does not directly reimburse the insurers for the mandated benefit.

Virginia — like many other states — had its insurers load the cost of providing CSR into the premiums for silver plans, which are the plans that set the local benchmark from which all premium subsidies are calculated. This led to a significant spike in silver benchmark premiums. Other plans saw significant but far lower premium increases. On average, CSR workarounds led to an extra $960 to $1,040 in premiums for silver plans.  

The data shows us that people who were previously eligible for an ACA health plan and will now be eligible for Medicaid under the expansion were the highest per-capita recipients of the cost-sharing reduction subsidies. As these individuals move to Medicaid expansion, the cost of funding CSR through silver premiums will decline. The decline will be less than a complete silver CSR bump as people whose income is above the Medicaid eligibility threshold are eligible for assistance that still needs to be paid for through higher silver premiums. But this will lead to lower silver premiums than we otherwise would have expected.

Medicaid expansion will benefit not just the working poor but the non-subsidized middle class, as well.

David Anderson is a research associate at the Margolis Center for Health Policy at Duke University.

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