Modernizing Medicaid Coverage for Medicare Beneficiaries with Low Income

Medicaid serves as a supplemental insurer for eleven million low-income Medicare beneficiaries, known as duals. For these beneficiaries, Medicaid pays for Medicare’s out-of-pocket costs, including premiums, deductibles and coinsurance. For some duals, Medicaid also fills in gaps in Medicare coverage by paying for services such as long-term care.¹ These Medicaid benefits provide vital financial protection to low-income people with Medicare and facilitate access to care that individuals would otherwise avoid due to cost.²

In the next 15 years, the Medicare population is forecast to grow 30%, and one-half of beneficiaries are expected to have incomes below 250% of the federal poverty level³ (below $32,200 for an individual in 2021). Despite these demographic trends and rising health care costs in Medicare, which place a disproportionate financial burden on beneficiaries with low incomes,¹ Medicaid’s eligibility and enrollment rules for elderly and disabled populations with Medicare have changed in little in three decades. These rules lead to an abrupt drop-off—i.e., a “cliff”—in Medicaid assistance for individuals whose incomes are slightly above 100% of poverty ($12,880 in 2021) and can make it difficult for individuals who do qualify for Medicaid to enroll. Consequently, many low-income Medicare beneficiaries are underinsured and exposed to high out-of-pocket costs. This Viewpoint examines opportunities to close these gaps in Medicaid coverage and discusses how these reforms could complement other efforts to modernize Medicaid for low-income Medicare beneficiaries.

Filling in a supplemental coverage gap among the near-poor

Medicaid’s eligibility rules lead to a “cliff” in supplemental coverage for near-poor Medicare beneficiaries whose income is slightly above 100% of poverty. Beneficiaries with incomes up to 100% of poverty and low assets qualify for Medicaid supplemental coverage, which pays for Medicare premiums and cost sharing. However, individuals whose income exceeds 100% of poverty generally do not qualify for Medicaid supplemental coverage, and only a subset receive limited Medicaid benefits that pay the Medicare Part B premium.² This leaves near-poor beneficiaries exposed to potentially high out-of-pocket costs unless they have alternative supplemental insurance.

Medicare beneficiaries who are ineligible for Medicaid can obtain private supplemental insurance through an employer or a Medigap plan. As an alternative to Medigap, beneficiaries can enroll in Medicare Advantage, which has become an attractive alternative to traditional Medicare because of its lower out-of-pocket costs. However, out-of-pocket costs are not eliminated in Medicare Advantage, and enrollment in private supplemental coverage does not fully offset the Medicaid coverage cliff in populations with traditional Medicare. A recent study estimated that near-poor beneficiaries (incomes between 100% and 200% of poverty) with traditional Medicare were 26 percentage points less likely to have any supplemental coverage than those with incomes below 100% of poverty. Beneficiaries affected by this supplemental coverage cliff had higher out-of-pocket spending and used 55% fewer outpatient services than those who qualified for Medicaid, illustrating how this underinsured population cuts back sharply on care.²

Underinsurance among the near-poor partly reflects a lack of affordable coverage alternatives in the Medigap market. In 2021, premiums for one of the most popular Medigap plan types (Plan G) range from approximately $1,200 to over $12,000 per year—6% to over 60% of income for an individual at 150% of poverty.⁴ Less popular plans have lower premiums but cover fewer costs. Moreover, Medigap has limited consumer protections to ensure affordable coverage. In all except four states, insurers are only required to underwrite Medigap coverage at community-rated premiums (i.e., premiums that are not adjusted for health risks) within 6 months of an individual’s 65^th birthday, or in limited circumstances such as the cancellation of a Medigap plan. Medicare beneficiaries under age 65—almost all of whom are disabled—are excluded from these protections.⁵

Expanding Medicaid to near-poor beneficiaries could help close this supplemental coverage gap. To balance the scope and costs of expansion, policy makers could design a “tapered” Medicaid benefit for individuals with incomes between 100% and 200% of poverty. For example, Medicaid coverage could be structured so that cost sharing is gradually phased in for people with higher incomes but capped at a fixed proportion of income (e.g., 10%), above which Medicaid would cover all out-of-pocket costs. The 10% figure is illustrative but approximates out-of-pocket cost limits in Affordable Care Act marketplace plans for non-elderly adults with low incomes. Analyses of similar Medicaid expansion proposals projected an annual cost $9 to $16 billion (reported here with adjustment for inflation) depending on the scope of expansion.¹ However, these costs will also depend on other factors, including how Medicaid benefits are tapered, take-up, and spillovers on other categories of health care use (e.g., prescription drugs).

Facilitating Medicaid enrollment

Expanding Medicaid will only close gaps in supplemental coverage if eligible individuals enroll. Only one-half of Medicare beneficiaries who qualify for Medicaid supplemental coverage under current eligibility rules receive this coverage; take-up of Medicaid benefits that pay the Part B premium is even lower.²

Low take-up of Medicaid is often attributed to complexity of obtaining this coverage, which requires people to navigate complex program rules and provide detailed documentation of their income and assets. This complexity disadvantages some of the most vulnerable individuals, including those with cognitive impairment and who do not have a caregiver to assist with the enrollment process.¹ For these individuals, traditional means of outreach (e.g., mailed letters) may not be sufficient to surmount barriers to participation. This underscores a need for changes to how individuals apply for and obtain Medicaid.

We highlight two opportunities for reform. First, policy makers should pursue opportunities to automatically enroll individuals in Medicaid who receive other means-tested programs with similar eligibility criteria (e.g., the Supplemental Nutrition Assistance Program). There is precedent for automatic enrollment in Medicaid: 34 states and the District of Columbia auto-enroll individuals who receive Supplemental Security Income (cash assistance for aged, disabled, or blind individuals). Prior research found that automatic enrollment of Supplemental Security Income recipients was associated with lower Medicaid disenrollment.⁶ Second, policy makers could simplify Medicaid’s eligibility rules for elderly and disabled populations. Current rules distinguish between sources of income and types of assets (e.g., property, vehicles, and financial assets), requiring individuals to provide a detailed accounting of each. Simplifying the income test to focus on aggregate income would align this component of eligibility determinations with Medicaid’s income test for non-elderly adults. Simplifying the asset test to focus on substantial sources of wealth (e.g., trusts or second properties) would streamline documentation requirements while ensuring that Medicaid serves those with the fewest resources.

Modernizing Medicaid amid broader reforms

The changes we propose could complement other reforms to the Medicaid program for duals. Over the last decade, for example, policymakers have been testing models that integrate Medicare and Medicaid coverage within managed care plans, with the goal of coordinating care and managing costs for this population.⁷ Policies to broaden Medicaid eligibility underscore the importance of these integration efforts, as there will be a greater need to coordinate care for a larger dual population. Integrated plans may also be well-positioned to help members navigate Medicaid’s eligibility rules and redetermination process, lessening administrative barriers to program participation.

Conclusion

Even as Medicare Advantage becomes increasingly popular because of its relatively low out-of-pocket costs, Medicare beneficiaries who do not have Medicaid can face substantial expenses associated with their care. Modernizing Medicaid by closing gaps in supplemental coverage and streamlining enrollment could lessen the financial burden of care among low-income individuals with Medicare. The reforms we propose will increase spending—likely both for Medicaid and Medicare—since expanding supplemental coverage will increase the use of care. Given constraints on state budgets, federal financing for Medicaid’s share of these costs will be critical. However, these investments in Medicaid, coupled with efforts to improve how Medicare and Medicaid function together, could improve the affordability of care and strengthen both programs for future generations of beneficiaries.