Medicaid is a government-funded healthcare program that provides medical coverage to low-income individuals and families. Each state has its own Medicaid program, and the eligibility requirements and coverage options can vary depending on the state. While Medicaid is a crucial program that helps millions of Americans access healthcare, some states have recently started to terminate coverage for Medicaid. So what does this mean for business owners (whose employees may no longer qualify for Medicaid) and individuals who now need to find another healthcare coverage plan?
The Medicaid unwinding rundown
This move is part of an effort to cut costs and reduce the number of people who are enrolled in the program.
As of May 2023, South Dakota is set to start terminating Medicaid enrollees, while other states such as Arkansas, Iowa, and New Hampshire, are also planning to cut back on their Medicaid programs. This means that if you live in one of these states and are currently enrolled in Medicaid, you may soon receive a notice stating that your coverage will be terminated. However, some low-income adults may become eligible for coverage again in the future when the state's Medicaid expansion program begins.
While these changes to Medicaid coverage may be concerning, it's important to stay informed about your options and what you can do to protect your healthcare coverage. It's also important to note that not all states are planning to terminate Medicaid coverage, and some may even be expanding their programs to cover more people. Keep reading to learn more about the potential changes to Medicaid coverage and what you can do to stay covered.
What is Medicaid?
If you are a low-income individual or family in the United States, Medicaid is a government-funded healthcare program that may provide you with medical coverage. Medicaid is jointly funded by the federal government and individual states, and each state has its own eligibility requirements and benefits packages.
Medicaid was created in 1965 as part of the Social Security Act, and it is designed to help Americans who cannot afford healthcare. It covers a wide range of medical services, including hospital stays, doctor visits, prescription drugs, and more.
To be eligible for Medicaid, you must meet certain income and asset requirements, which vary from state to state. In general, you must have a low income and limited assets to qualify. Children, pregnant women, and disabled individuals are often given priority for coverage.
Why are Certain States Terminating Medicaid Coverage?
Medicaid enrollment has ballooned since March 2020, when lawmakers passed the Families First Coronavirus Response Act, which prevented states from involuntarily removing anyone from coverage. As a result, states are now processing all the eligibility redeterminations. Since the expiration of the COVID public health emergency, many states are “unwinding” the Medicaid coverage which means many individuals will no longer qualify for Medicaid. There are other various reasons why states may terminate Medicaid coverage, including budget constraints, political beliefs, administrative issues, and Medicaid expansion.
Budget Constraints
One of the primary reasons why states may terminate coverage for Medicaid is budget constraints. Medicaid is a costly program, and as state budgets become increasingly strained, some states may choose to cut costs by reducing or eliminating Medicaid coverage. This can be especially true for states that are experiencing economic downturns or facing significant budget shortfalls.
Political Beliefs
Another reason why certain states may terminate coverage for Medicaid is political beliefs. Medicaid has been a controversial program since its inception, and some politicians and policymakers believe it is inefficient. In some cases, politicians may terminate coverage for Medicaid as a way to signal their political beliefs and priorities.
Administrative Issues
Another reason why states may terminate coverage for Medicaid is administrative issues. Medicaid is a complex program, and managing it can be challenging. Some states may terminate coverage for Medicaid because they can’t administer the program effectively or because they are facing challenges in implementing new policies or procedures.
Medicaid Expansion
Finally, some states may choose to terminate coverage for Medicaid because of Medicaid expansion. Under the Affordable Care Act, states were allowed to expand Medicaid coverage to individuals with incomes up to 138% of the federal poverty level. While many states have chosen to expand Medicaid coverage, some states have resisted this expansion. In some cases, states that have not expanded Medicaid may terminate coverage for Medicaid altogether as a way to avoid the costs associated with expansion.
It is important to note that terminating coverage for Medicaid can have serious consequences for individuals and families who rely on the program for healthcare coverage. Without Medicaid, these individuals may be unable to afford necessary medical treatments and may have to forgo care altogether.
What are the consequences of terminating Medicaid coverage?
Outside of the direct impact on low-income individuals, healthcare providers, and state budgets, there will likely be a noticeable increase in employees seeking healthcare coverage from their employer. Now is a good time to consider options to providing coverage, or if your business already offers a health benefit plan, be prepared to onboard new participants.
Alternatives to Medicaid: Health Reimbursement Arrangements (HRAs)
If you are one of the millions who may lose Medicaid coverage in certain states — or an employer looking for cost-effective ways to provide employee healthcare benefits— alternative options are available to you. A truly great option is a Health Reimbursement Arrangement (HRA).
An HRA is a type of health benefits plant that allows employers to reimburse employees for healthcare expenses tax-free. With an HRA, employers set a budget for each employee, and employees can use this budget to purchase individual health insurance plans on their own. The HRA reimburses employees for their healthcare expenses up to the budgeted amount.
There are several benefits to using an HRA as an alternative to Medicaid. For one, HRAs are more flexible than Medicaid. With an HRA, employees can choose their own healthcare plan and have more control over their healthcare decisions. Additionally, ICHRAs can be tailored to meet the specific needs of each employee, which can lead to more comprehensive and personalized healthcare coverage.
Another benefit of using an HRA is that it can be less expensive than Medicaid. Medicaid is a government-funded program, and the costs associated with it are borne by taxpayers. In contrast, HRAs are funded by employers (tax-free!), which can help reduce the burden on taxpayers.
Benefits of HRA vs. Medicaid
There are many benefits of an HRA vs. Medicaid, including:
- More flexibility in choosing a health insurance plan: With an HRA, employees can choose their own health insurance plan that best fits their needs and budget, rather than being limited to the plans offered by Medicaid. This can allow individuals to choose a plan with a wider network of doctors or more comprehensive coverage.
- Employer contribution: With an HRA, employers can contribute a tax-free amount towards employees' health insurance premiums and other medical expenses. This can help employees save money on their healthcare costs.
- No income limits: Medicaid is only available to those who meet certain income requirements, while HRAs are available to all employees who are offered the benefit by their employer. This means that even those who make too much to qualify for Medicaid may still be eligible for an HRA.
- No asset limits: Medicaid also has asset limits, which can disqualify individuals who have too many assets from receiving coverage. An HRA doesn’t have any asset limits, so individuals with significant assets can still receive the benefit.
- No stigma: Some individuals may prefer to receive healthcare benefits through their employer rather than through a government program like Medicaid, which can carry a stigma for some people.
Medicaid unwinding and special enrollment period
As states begin to unwind Medicaid coverage and people roll-off of that plan, they will seek out alternative health coverage options. Since this timing is not during open enrollment, they qualify for a special enrollment period.
A special enrollment period is a time frame during which individuals can enroll in a healthcare plan outside of the standard enrollment period. During a special enrollment period, individuals can enroll in a new healthcare plan through the federal or state health insurance marketplace. This can give them access to affordable healthcare coverage, even if they no longer qualify for Medicaid. If a business offers ICHRA, the employee may request to take up ICHRA mid-year.
However, it is important to note that there are time limits for enrolling in a new healthcare plan during a special enrollment period. Typically, individuals have 60 days from the date of their qualifying event to enroll in a new plan, which can include spouses and dependents. If they miss this deadline, they may have to wait until the next standard enrollment period to enroll in a new plan.
Note: The deadline extended under Outbreak Period is set to end July 10th.
What circumstances qualify for a special enrollment period?
- Loss of health coverage: HIPAA requires plans to give special enrollment periods to those who lose eligibility for Medicaid coverage.
- Change in household: If an individual gets married, has a child, or experiences another change in household size, they may be eligible for a special enrollment period.
- Change in residence: If an individual moves to a new state or zip code, they may be eligible for a special enrollment period.
Take Command helps you navigate all things HRA
Take Command is a recognized leader in HRA administration and small business HRA tax strategy. Our team is passionate about HRAs and the impact they can have on a business. We’re ready to help you take your health benefits offerings to the next level!
Chat with our team of HRA administrators with any questions you may have about these new, tax-friendly benefits or check out our HRA guide for more information on its background, setup process, requirements, and rules.
