ObamaCare Coverage Gap 101

Are You Affected and Is There Anything You Can Do to Avoid It?

ObamaCare Coverage Gap 101
June 11, 2014

ObamaCare, as the Affordable Care Act (ACA) is known, has had mixed results for consumers so far, with some people reporting savings and receiving previously unattainable healthcare coverage and others reporting skyrocketing premiums and plans with unwanted and unnecessary coverage components. However, there is one clear losing group under ObamaCare – the "working poor" that fall into the ObamaCare Coverage Gap.

The coverage gap involves people who have incomes too high to qualify for Medicaid coverage but do not make enough to qualify for the federal subsidies available on the exchanges. While the concept of not making enough to qualify for subsidies sounds absurd, it is a reality for an estimated 5 million Americans (according to the Kaiser Family Foundation).

As much as some people enjoy blasting ObamaCare, the Supreme Court is to blame for this one. A central underpinning of ObamaCare was that states would be mandated to expand Medicaid coverage up to the income levels where federal subsidies would kick in (generally 138% of the relevant Federal Poverty Level). The coverage gap was created when the Supreme Court selectively threw out the mandate, making Medicaid expansion voluntary while effectively upholding the rest of ObamaCare.

So far, 24 states have failed to expand Medicaid and cover the gap, generally arguing it will be too expensive (either for the Federal government or eventually for their state government). Most of these states are located in the Southeast and Midwest, led by Texas with slightly over 1.2 million estimated residents left uninsured by the failure to expand. Considering the polarized nature of our national politics today, it is not surprising that nearly all these states are Republican-led.

To their credit, states such as Arkansas, Iowa and Indiana have tried innovative variations, generally through creating expansion methods that let private insurers fill the coverage gap instead of Medicaid. This is a continually evolving situation, but as of this writing, none of these programs has fully solved the problems caused by the coverage gap.

What can you do if you are caught in the coverage gap? Unfortunately, very little. Unless you are able to increase your income to qualify for subsidies at the next sign-up window, your best hopes are that you can switch to a job with employer-based coverage or that favorable legislation is passed in your state.

Intentionally decreasing your income to attempt to qualify for Medicaid is generally not wise, but you should verify how your income is calculated. Medicaid coverage is now calculated using MAGI (Modified Adjusted Gross Income) instead of traditional AGI. MAGI excludes some items such as qualified tuition expenses and a portion of the self-employment tax. Make sure the correct numbers are being used to determine your Medicaid eligibility.

In the meantime, you may still be able to purchase limited insurance coverage that falls outside of ObamaCare requirements. Temporary health insurance plans with relatively high deductibles are available outside the exchanges. Unfortunately, they will not have much in the way of preventative care services, and will not avoid the penalties under ObamaCare for non-compliant coverage. Still, some health care coverage is usually better than none.

If you are currently relying on lower-cost community clinics and dealing with medical expenses out of pocket, pay close attention to your state legislature for any changes. Medicaid expansion is a hot-button issue that may determine election results – and therefore control of the legislative agenda. Meanwhile, assuming that Medicaid expansion does not take place in your state and you are not fortunate enough to receive coverage through your job, check into your options for altering your income to allow you to qualify for coverage during the next sign-up window.

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