How optimism can close the Medicaid coverage gap

How optimism can close the Medicaid coverage gap

More than 2 million people with low incomes — half of them in Florida and Texas — are uninsured because they are stuck in a coverage gap: They earn too much to qualify for Medicaid, but because of a quirk of the Affordable Care Act, they earn too little to qualify for a subsidized ACA marketplace plan.

The problem affects people in 11 states that have not expanded Medicaid.

However, some of these consumers could likely receive financial help purchasing a marketplace health plan. All they have to do is make a good faith estimate that they will earn at least the federal poverty level in 2023, or $13,590 for a single person. This is the minimum income required to qualify for subsidies that help pay premiums for Marketplace plans.

If their 2023 income is found to fall short of that estimate, they will not face a fine or have to pay any money back to the government, as long as the prediction was not made with “willful or reckless disregard for the facts.” said Eric Smith, an IRS spokesman.

No one interviewed by KHN advises people stuck in this “coverage gap” to lie on their marketplace applications (which is a crime). But determining whether an income estimate is optimistic or fraudulent is a gray area. An accurate income forecast is often impossible, especially for part-time workers or small business owners.

“People need to be honest when predicting their income for next year, but what does it mean to be honest if you have no idea what your income will be?” said Senior Fellow at the Urban Institute Jason Levitis who worked in the Ministry of Finance until 2017 and helped implement the health law.

Open enrollment in the federal marketplace began this month and runs until January 15th.

Many people don't realize that whether they receive Marketplace subsidies depends on their income forecast for next year, rather than the current or previous year, said insurance agents and ACA navigators who help consumers enroll in Marketplace plans. In contrast, eligibility for Medicaid and most other federal assistance programs is based on current income, and some states refuse to enroll adults without children, even if they have extremely low incomes.

Several ACA navigators and insurance agents interviewed by KHN mistakenly thought that customers would have to pay money back to the government if they expected their income to exceed the poverty level, but then didn't. They also believed that the government would ask applicants for documents verifying their income if their estimate did not match other government data.

But this assumption is also wrong.

“The Marketplace will no longer require additional income documentation when available data from prior years shows income below 100% FPL, but the current year certification is above 100% FPL,” he said Ellen Montz Deputy Administrator and Director of the Center for Consumer Information and Insurance Oversight at the Centers for Medicare & Medicaid Services.

Previously, documentation was required when applicants projected their income would be above the poverty line, and federal data showed current income to be below it. But in March 2021, a federal court overturned this provision. And falling below the poverty line does not affect a person's eligibility to apply for subsidies in future years, Montz said.

The Affordable Care Act required states to use billions in federal dollars to expand eligibility for Medicaid, the federal health program for low-income people, to everyone with income up to 138% of the poverty level, currently $18,755 for an individual. But in 2012, the Supreme Court ruled that the expansion was optional for states.

Today, 11 states have a coverage gap because they have not expanded Medicaid. In addition to Florida and Texas, these are: Alabama, Georgia, Kansas, Mississippi, North Carolina, South Carolina, South Dakota, Tennessee and Wyoming. South Dakota voters approved a constitutional amendment this month to expand eligibility starting in July 2023. Wisconsin also has not expanded Medicaid, but it does cover adults earning up to 100% of the poverty level.

Sarah Christian, navigator coordinator with the South Carolina Primary Health Care Association, said she didn't know there was no penalty for people who earn less than the poverty line and overestimate their income to qualify for subsidies. She said her organization advised consumers based on the belief that “the government” will flag predictions that exceed current income and ask for evidence.

Alison Holmes, 58, of Longwood, Florida, thought she would be stuck in the Medicaid coverage gap for the 10th straight year in 2023 because her family's income that year was $16,000 — far less than the $27,750 a family of four must earn to receive market subsidies. But after recently being offered a part-time job as a fellow, she believes her earnings in 2023 will push the family's income above the poverty line. That's why she plans to sign up for coverage.

For the first time in a decade, Holmes said, she has hope that health insurance might be within her reach. “Even if it was a year,” she said, “to be able to do all the testing, what a burden it would be off my shoulders.”

Holmes' children are covered by Medicaid and her husband is covered by the Department of Veterans Affairs.

Although she met with ACA navigators, Holmes said, she didn't know that the IRS couldn't require her to repay if her family's income ultimately fell below the poverty level. She fears that without health insurance, she will not be able to stay healthy to care for her disabled son.

Kelly Fristoe, president of the National Association of Health Underwriters and an insurance agent in Wichita Falls, Texas, said he is asking clients who are not eligible for Medicaid but whose incomes are below the poverty line to think about how they can make more money. "When I hear people say they only make $10,000 or $12,000 a year, I say, 'Come on, man, is there anything else you can do to make money, like mowing grass or cleaning a garage just to get you to the $13,500 mark?'" he said. “'And if you do that, you can get your health insurance for free.'”

That's because people with the lowest incomes are eligible for the highest subsidies, which generally allows them to choose a health plan with no monthly premium and little or no out-of-pocket costs. Fristoe said he helps enroll people who are confident they will earn enough to get them above the federal poverty line. But "some say, no, there's no way they can, and I have to say, 'There's no way I can help you,'" he said.

Cynthia Cox Vice President of KFF, said marketplace applicants often expect to make more money the following year and can be reasonably optimistic.

She noted that the income of low-income people often fluctuates, in part because the number of hours they work and their pay can change throughout the year. Consumers may want to provide a good faith estimate for next year that is higher than what they earned in the current year.

“How do you distinguish fraud from optimism?” She said.

Although people with incomes below the poverty line do not have to pay anything back if they overestimate the following year's income and receive ACA marketplace subsidies, people with higher incomes are expected to pay money back to the government if they underestimate their income and receive a larger subsidy than they are entitled to — up to certain amounts. For example, an unmarried person whose income is 100% to 200% of the poverty level would repay a maximum of $350 if the person's income in 2023 was higher than predicted, according to the IRS.

José Ibarra, who leads the ACA navigators at CentroMed, a community health center in San Antonio, said about a third of people seeking help have incomes below the poverty line and are in the care gap.

“It is the most heartbreaking situation when we encounter people right at the bubble,” he said. "We coach people to ask applicants if they think they can expect to take on a few more hours of work because they're so close to the threshold. We want people to make the best honest forecast for next year, and we take them on their word."

Islara Souto, navigation program director for the nonprofit Epilepsy Alliance Florida, said the government's previous income verification system for people with incomes below the poverty line discouraged people from enrolling, so many consumers stopped seeking help and navigators stopped convincing them to apply.

"This is what we're used to. We're a Medicaid non-expansion state," she said. “You fall below the income limit and don’t get any subsidies.”

But after learning about the loosening of requirements from a KHN reporter, Souto said she would work with navigators to reach consumers who had been rejected in the past. "We'll go back a few years and find consumers that we know have had this situation and revisit them and maybe reach out and say, 'Let's try this,'" she said.

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