Why Medicaid Eligibility Will (Still) Level Off at 100 FPL


States’ economic interests are best served by capping Medicaid eligibility at 100 percent of the federal poverty level (FPL), as opposed to the 138 FPL cap called for by the ACA

If the state covers 100 – 138 FPL residents under Medicaid it nets $2700 per beneficiary in federal inflows; if the same residents go to the exchanges (which requires they not be eligible for Medicaid) the state nets about $6640 per beneficiary

This assumes the states can expand partially (only to 100 FPL) and still enjoy the higher federal matching rates (or ‘FMAP’, the percent of Medicaid costs paid by the federal government) the ACA provides for ‘expansion’ beneficiaries. The current average FMAP is about 57 percent; the ACA provides a 90 to 100 percent (depending on year) FMAP for expansion beneficiaries

Last week HHS Secretary Sebelius established a policy that the enhanced 90 – 100 percent FMAP would only be available to states expanding Medicaid (all at once, gradual expansions are excluded) to 138 FPL

At first glance this spoils the otherwise optimal strategy of expanding Medicaid to 100 FPL and sending everyone else to the exchanges; however the all-or-none expansion requirement only extends through 2016; after this point CMS has not ruled out giving the enhanced FMAP (by then 90 – 95 percent) to states expanding partially or gradually

As long as the ban on enhanced FMAPs for partial expansions appears temporary, states’ economic interests are best served by putting 100 – 138 FPL residents on the exchanges as soon as these are operating, and waiting until 2017 (when the all-or-none requirement is expires) to expand Medicaid to beneficiaries with incomes below 100 FPL

On net, the near term effect of the all-or-none policy is likely to be that many states delay covering sub-100 FPL expansion beneficiaries before 2016 – in particular this affects the 10M potential expansion beneficiaries with sub-100 FPL incomes living in Republican-controlled states. In the longer-term, we still expect most states – Republican and Democrat – will cap Medicaid eligibility at 100 FPL

This is mildly bearish for Medicaid HMOs, particularly those with larger exposures to Republican states (see Exhibit 4). Ultimately Medicaid HMOs can produce attractive growth by taking over the care of dual-eligibles, who are unaffected by the all-or-none policy; however large-scale enrollment of duals won’t take place until the current demonstration finishes; in the meantime non-dual enrollment gains may be below expectations

This is also mildly bearish for Hospitals – patient volume gains and bad debt reductions from Medicaid expansion may be further delayed, and this particularly affects hospitals with larger Republican state exposures (see Exhibit 5). Despite this we still see Hospitals as a good value – we believe concerns surrounding Medicare rate reductions are over-done, and that rising demand from improving employment more than offsets delays to the Medicaid expansion

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