Brief Filling the Medicaid Gap with a Public Option
John Holahan, Michael Simpson
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As of July 2021, 12 states have not expanded Medicaid as permitted by the Affordable Care Act,  contributing to 5.8 million people with incomes below the federal poverty level being without coverage. One approach to help cover people in this “Medicaid gap” would be to have the federal government make Marketplace coverage available to those between current Medicaid eligibility levels and  the federal poverty level. An alternative would be to employ a public option plan in the Marketplace to for the same population. The public option would be a government sponsored plan paying Medicare rates to providers. In this paper we show that a public option that typically pays Medicare rates would considerably reduce the cost of increasing coverage in the Medicaid gap. Using a public option instead of marketplace benchmark premiums would reduce federal premium tax credits for people in the Medicaid gap by about 28 percent. Federal spending for the Medicaid gap population would range from $16.6 to $18.1 billion in 2022 with marketplace benchmarks compared to $11.4 to 1$2.3 billion with the public option, depending on the subsidy schedule. Ten year estimates of federal spending range from $199 billion to $217 billion with marketplace benchmarks compared to $136 billion to $148 billion with the public option.

This report was revised on October 12, 2021, to correct errors resulting from a coding issue that did not apply all cost-sharing reductions to household spending. This issue overstated changes in household spending and, as a result, total national spending on health care under reforms in a previous version. We also combined estimates of spending on premium tax credits, cost-sharing reductions, and reinsurance into a single estimate, labeled “Marketplace subsidies and reinsurance,” for the federal government and state governments. In a previous version, estimates for these three spending categories were reported separately. The new estimate reported here is the same as the total for the three categories in a previous version. The most important changes are summarized in the “Errata” section of the brief.

Research Areas Health and health care
Tags Health insurance Federal health care reform Health equity Private insurance Health care spending and costs
Policy Centers Health Policy Center