Plugging Obamacare’s Biggest Hole Poses Dilemma For Democrats

Democratic lawmakers are grappling with how to extend health insurance to millions of poor Americans in states that have refused Obamacare’s Medicaid expansion, believing their upcoming party-line “human infrastructure” package represents the best chance to plug the health law’s biggest gap.

After months of behind-the-scenes discussions, Democrats are coalescing around three options for closing the coverage gap in the Medicaid expansion holdout states, according to nine sources on and off the Hill. These approaches, which would leverage the existing Obamacare insurance marketplaces or require the Biden administration to create a new coverage program, each carry risks. And lawmakers still don’t see a clear path forward as they face a narrowing window to assemble a massive package of Democratic priorities.

“The question has always been how to do it. It’s a pretty challenging question,” said House Ways and Means Chair Richard Neal (D-Mass.), whose tax-writing panel is helping craft a fix.

Tackling the Medicaid gap would fulfill President Joe Biden’s pledge to extend coverage to the 2.2 million low-income adults in the 12 states where Republican officials have resisted the program for nearly a decade. It would also give Democratic lawmakers from those holdout states — like Raphael Warnock of Georgia, who’s leading efforts in the Senate to close the Medicaid gap — an achievement to campaign on, with control of both chambers up for grabs in next year’s midterms and health care remaining an important issue for voters.

The costly effort faces competition from other Democratic health care priorities that are jostling for position in infrastructure legislation, including an expansion of Medicare’s benefits and permanently increasing financial aid to people who purchase coverage on the ACA’s health insurance marketplaces.

The debate over how best to spend limited health care dollars could force Democrats to choose between leveraging their control of Washington to shore up the ACA, or making a play for swing voters by adding coverage of dental, vision and hearing to Medicare. Closing the Medicaid coverage gap polls high with Democratic supporters, though independents and Republicans in a recent Kaiser Family Foundation poll said expanding Medicare benefits is a bigger priority.

“I’m very keenly aware that poor people are the first to get squeezed out when there’s a budget problem,” said Rep. Lloyd Doggett (D-Texas), whose home state has the nation’s highest uninsured rate. “I’m really pushing to say: At least do something for people who’ve been left out for more than a decade and have nothing to show for the Affordable Care Act. But it’s a challenging sell.”

Yet, momentum for plugging the coverage gap has grown in recent weeks, after key Democratic leaders have embraced the effort. Congressional staff are still hashing out thorny policy questions over how to expand coverage to poor adults in the Medicaid expansion holdout states, but no clear preferred policy has emerged amid concerns over potential drawbacks. Some approaches could take years to set up, cost more than leaders want to spend or inadvertently penalize states that already expanded Medicaid.

Advocates and Democratic lawmakers from Medicaid expansion holdout states say this month marks the first critical deadline in the effort, as congressional budget writers seek to finalize the parameters for infrastructure legislation the party can pass through reconciliation without Republican votes. While that budget resolution won’t include the details of which health policies make the final cut, it could provide the first sign of whether lawmakers are working with enough money to fund a Medicaid gap fix.

The House is largely leading efforts to craft the policy, sources said. Options under consideration include:

— Allowing low-income adults to get free private coverage through Obamacare’s insurance marketplaces. Financial assistance for the marketplaces has been closed off to people earning below the poverty line, about $13,000 for an individual, because Obamacare’s drafters expected they would be covered by Medicaid expansion. However, a 2012 Supreme Court decision made the expansion optional for states, creating the coverage gap Democrats are trying to close.

— Directing the Department of Health and Human Services to stand up a new Medicaid-like program for people who would otherwise be covered by Medicaid expansion in the holdout states. Warnock, whose election helped secure Democratic control of the Senate and faces voters again next year, plans to introduce legislation as soon as next week that would back this approach and substantially boost financial incentives for holdout states to expand Medicaid, according to a draft bill obtained by POLITICO.

— A hybrid model that could address concerns about either of the two approaches, according to a senior Democratic aide. People could quickly receive free coverage on the marketplaces until federal officials can create a new program that would likely provide better benefits.

A White House spokesperson didn’t comment on whether Biden is pushing lawmakers to address Medicaid expansion in the human infrastructure package, which is expected to also include investments in child care, education and combating climate change. The spokesperson referred POLITICO to a recent tweet from domestic policy chief Susan Rice that said Biden “is ready to work with Congress this year to close the coverage gap.”

Biden’s budget called for creating a federal-run health insurance option to cover people in the Medicaid expansion gap, but the White House hasn’t publicly weighed in on the approaches Congress is considering. Policymakers see complications with each idea.

For instance, relying on the Obamacare markets could give the new enrollees skimpier benefits than what they would receive through Medicaid. It could also require the government to provide costly subsidies to private insurers to cover out-of-pocket health costs that Medicaid would typically cover. But creating a new federal program would take time to set up.

Those drafting the legislation are trying to ensure they don’t inadvertently reward states that refused expansion or incentivize expansion states to drop coverage so that the federal government will foot the entire bill.

“To the extent you give more incentives and benefits to irresponsible states, then some of the responsible states will say: ‘I want that, too,’ which adds to the cost,” Doggett said. “How do you justify excluding states from a federal Medicaid program?”

Matthew Fiedler, a fellow at the USC-Brookings Schaeffer Initiative for Health Policy whose research focuses on the Medicaid coverage gap, and other experts said they’re not concerned about states dropping Medicaid expansion, given that the federal government picks up 90 percent of the cost. Still, Medicaid experts believe policymakers must provide the right balance of “carrots and sticks” to discourage states from dropping out.

Whatever approach lawmakers choose will have to pass muster with the Senate parliamentarian, who interprets whether policies satisfy strict reconciliation rules. However, lawmakers and outside experts are optimistic any policy would survive because changes to the Obamacare markets and Medicaid expansion have previously been pushed through the fast-track budget process.

The effort recently received a major boost from the powerful Congressional Black Caucus, Congressional Hispanic Caucus and the Congressional Asian Pacific American Caucus — as well as House Majority Whip Jim Clyburn. The groups argue that closing the coverage gap would be “one of the single most important steps” toward reducing the stark racial inequities in America’s health care system.

It would also give red state Democrats a concrete win to take to their voters.

“By this time next year, by the time you guys run for re-election next year, you’ll be able to run on Medicaid expansion,” Clyburn recently told lawmakers in Alabama’s statehouse. “I think we [can] get that done — I know I’m gonna raise hell to get it done.”


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