Democrats eye new federal coverage program in states declining Medicaid expansion

Congressional Democrats are likely to create a new federal program in their coming package to provide health insurance coverage in states that have declined to expand Medicaid, following a transition period to set up the new program, aides and advocates say.

The move, coming as part of the $3.5 trillion package Democrats are now crafting, would provide coverage to the more than 2 million people who are currently ineligible because they live in the 12 Republican-led states that have declined to accept the expansion of Medicaid under the Affordable Care Act (ACA).

This population currently falls through the cracks in what is known as the “coverage gap.”

Democrats had previously said they planned to provide coverage to this population in the new package, but the details of how to do that, which have been subject to some debate, are now coming into focus.

The likely plan is to first subsidize the coverage gap population to get private insurance on the ACA’s marketplaces, until sometime around 2025 or 2026, which would give time to set up the new system, aides and advocates say.

Then, a new federal coverage program would kick in to provide health insurance to the coverage gap population in the 12 states that have not expanded Medicaid already.

Providing coverage in states that have not expanded Medicaid is a key priority for many Democrats, including Sen. Raphael Warnock, who is helping back the effort and is up for reelection next year in Georgia, one of the 12 states that have not expanded.

The creation of a new federal health insurance program could be controversial and has drawn pushback from some in the health care industry, given that it could be a stepping stone to a larger, government-run “public option.”

“We have significant concerns with any proposal that would establish a new Federal Medicaid look-alike program to fill the coverage gap,” the Federation of American Hospitals wrote to Congress this month. “The formation and implementation of a new federal program or a Medicaid public option would be complex and costly, burdened by bureaucracy and rulemaking that would unnecessarily delay access to care for millions.”

The hospitals instead pushed for permanently subsidizing the coverage gap population to get private health insurance on the ACA marketplaces.

Private insurance pays doctors and hospitals higher rates than government-run coverage, making it a preferred option for health care providers. The flipside is that it could be less costly to the government to create a new federal program to provide the coverage, rather than permanently relying on private insurers.