Medicaid Expanded NC Health-Care Access. This Fix Could Make It Run Smoother

(The Carolina Journal, Craig Richardson and Erik Randolph) – Two years ago, many low-income households in North Carolina had an unsettling fear: getting a pay raise or a promotion. In some cases, it might trigger the sudden loss of health insurance for adult family members if they were on Medicaid. This scenario was termed a “benefits cliff.”

Between a rock and a hard place, families often went without health insurance, or even turned down pay raises or better jobs. Ironically, they made too much for Medicaid and too little to qualify for government-subsidized insurance offered through the Affordable Care Act (ACA).

In December 2023, Gov. Roy Cooper signed bipartisan legislation to eliminate that insurance gap, helping more than 600,000 North Carolina adults by expanding Medicaid eligibility to higher income levels. That closed the health-insurance gap with opportunities to later gain health insurance through the ACA marketplace.

That’s better for these 600,000 adults. For those already on Medicaid, it extends their income range and allows them to earn more without fear of losing their Medicaid benefits, despite the program having poor health outcomes when compared to other types of coverage. And it helped others who were uninsured, because having Medicaid should be better than no coverage at all. It also helps employers retain their workers, although now the government is picking up more of the cost at taxpayers’ expense.

But there is still an unsolved problem: When the income rises too high to qualify for Medicaid, the transition is a far cry from, say, switching cell phone providers.

Getting health care from NC Medicaid is simple. Present your Medicaid card to the health-care provider, and treatment is usually free or at most a $4 co-pay. There are no monthly premiums either.

When Medicaid gets dropped after a pay raise, out-of-pocket expenses will increase, whether it is employer-based insurance or the ACA Marketplace. Employer-based insurance will most certainly cost more with deductibles, premium shares, and other out-of-pocket expenses. At least for most lower income earners, ACA Marketplace subsidies make it a better deal. To participate in the government-run Marketplace, an individual cannot be offered adequate and affordable health coverage from their employer. For all others, the entry into the ACA Marketplace can be daunting. There are Gold, Silver, and Bronze plans with different monthly premiums, deductibles, and co-pays to contend with.

Understanding these new terms and implications on a family budget can be overwhelming, especially for those with limited English or digital proficiency. One way the state of North Carolina’s Department of Health and Human Services helps is by collaborating with NC Navigators Consortium to assist individuals, using trained and certified counselors.

Not only is there a new grab-bag of terms and payments to understand, but families also face something different than a Medicaid benefits cliff. ACA insurance gets more expensive every time the worker gets a raise, since the subsidies decrease. Despite the added expense, workers only lose a portion of their raise — keeping the lion’s share. It’s a slope rather than a cliff.

However, these changes can be difficult to anticipate for those who don’t understand how the system works. And that fear of change can translate into folks sticking with lower-paying jobs just to avoid the complicated and often unknown consequences when losing Medicaid.

Take the example of Joe, who is the married head of household for his family with two children, earning $40,000 a year. He, his wife, and his children will qualify for full Medicaid benefits.

With salary raises, there is a bit of a bumpy road ahead that the family may or may not foresee.

For example, if annual family income jumps to $50,000, Joe and his wife lose Medicaid eligibility but now qualify for ACA health insurance. In a bit of a quirk of health policy, the family’s children get to retain Medicaid, because of their eligibility at a higher income level than the adults.

The true market cost for the couple’s ACA insurance is $9,322, but the federal and state government subsidy is $8,982, so that leaves a modest annual premium of $340 for the couple to pay but total out-of-pocket costs can rise to an unaffordable $6,300 limit.

If the family’s income rises to $60,000, the couples’ annual ACA premium rises in turn to $1,200 for the couple, with the children still on Medicaid.

But at $70,000, the family faces more complexity. The children will now lose eligibility for Medicaid. The family now needs an ACA plan that covers everyone. The market cost of that family plan jumps to $15,476, but the subsidy rises as well to $13,152, leaving a new annual premium of $2,324 with a new and increased out-of-pocket cost limit of $15,100.

In other words, a $10,000 raise resulted in a near doubling of the family’s health insurance premium, but 85% of the total healthcare premium is still borne by the federal and state government.

The ACA marketplace still saves taxpayers a lot of money. When the entire family was on Medicaid, the cost to state and federal taxpayers was $21,488 annually.

The ACA family plan, on the other hand, only costs $15,476 to provide. With taxpayers chipping in, say, a $2,374 annual premium at a family income of $70,000, the taxpayer cost drops even further, to $13,152. That’s a 39% savings compared to providing Medicaid to the family but with more potential expenses if a family member gets sick.

Certainly, the new system is better than families falling into a health-insurance gap. But families getting ACA benefits still face challenges the rest of us don’t, including not always understanding or anticipating how changes in employment and income affect health coverage.

As North Carolina continues its journey with Medicaid expansion, we have an opportunity — and an obligation — to address the challenges of individuals transitioning to the ACA Marketplace or employer coverage. By minimizing stress points and work disincentives, we can ensure that all North Carolinians have access to the healthcare coverage they need to thrive.

To help, our research teams at Winston-Salem State University and the Georgia Center for Opportunity are reimagining how the state of North Carolina can improve Medicaid, transitioning off Medicaid, and healthcare insurance coverage in ways that improve work incentives and strengthen the state economy. We look forward to sharing that over the next two weeks with forthcoming articles. More information on how North Carolina can reform Medicaid and health insurance will be made available with the third and last article in this series.