In the Affordable Care Act (ACA), the basic framework for expanding health insurance is to enroll uninsured people who are poor and near-poor in Medicaid, and provide access to private insurance in insurance marketplaces for the uninsured with higher incomes.  People with incomes above the Medicaid income eligibility limit, but below 400% of the poverty line, receive tax credits to help pay their premiums in the marketplaces.  To streamline enrollment and the determination of a person’s eligibility for Medicaid versus tax credits, the ACA changed Medicaid income components and family definitions to align with income-tax concepts.  However, although taxes and the premium tax credits are based on annual income, the ACA preserved current monthly income as the basis for Medicaid eligibility.

Testing Medicaid eligibility against monthly income contributes to high turnover and “churning,” where people leave and later re-enroll the program.  Churning is exacerbated by states’ efforts to police income gains: when enrollees do not complete forms or supply documentation demonstrating their continued eligibility, they are disenrolled and then have to be re-enrolled.

Not only do fluctuations in incomes cause churning between Medicaid and being uninsured; they will also contribute to frequent transitions between Medicaid and marketplace plans, because Medicaid eligibility disqualifies individuals from enrolling in the marketplaces.  Enrollment and disenrollment of people moving back and forth across the monthly Medicaid income limit will add to administrative costs for Medicaid and marketplace plans, cause confusion about covered benefits and cost-sharing, and alter provider networks available to patients.  Also, such transitions will likely result in coverage gaps, interrupting treatment plans and undermining health outcomes.

Using data from the 2004-2007 panel of the Survey of Income and Program Participation (SIPP), we develop a longitudinal simulation model to evaluate four policy options for modifying or extending Medicaid eligibility to reduce churning under the ACA:

1) annualize income in determining eligibility;

2) extend coverage for three months after loss of eligibility;

3) extend coverage to the end of the calendar year after loss of eligibility;

4) guarantee twelve months of coverage at enrollment or re-enrollment.

Our simulation year is calendar year 2006, which allows examination of Medicaid eligibility prior to the Great Recession’s effects on incomes.  We assume that all states adopt the ACA Medicaid eligibility expansion for low-income adults and focus on adults aged 19 to 64 at the end of 2006 with data for the entire panel.  The simulations assign coverage according to spells of monthly Medicaid eligibility, using a dynamic algorithm that assumes the monthly probability of enrolling increases with additional months of continuous eligibility.  We consider high and low participation rates, and high and low rates of administrative disruption at an annual eligibility review.

Preliminary results suggest the calendar-year extension and 12-month eligibility are far more effective in reducing turnover and churning than a short extension or annualizing income.  Extending Medicaid to the end of the calendar year maximizes the number of people covered all year, minimizes re-entry, and adds somewhat less to the monthly caseload than 12-month eligibility.