Rules on the Private Option in Medicaid

With premium assistance (often called "the private option"), a state Medicaid program buys private health insurance for some of its Medicaid population instead of providing coverage directly through the state's Medicaid program. Individuals covered by those plans are still Medicaid enrollees. In the context of Medicaid expansion, states are usually buying policies in the state's marketplace.

Premium assistance can make it harder for Medicaid enrollees to get all Medicaid benefits. Generally, private plans do not cover all services that are required under the Medicaid program. Coordination between those plans and Medicaid to provide those services, known as "wrap-around coverage," can add administrative costs and be confusing for enrollees. Private plans may also cost states more than standard Medicaid coverage.

Medicaid gives states the option of buying private insurance for Medicaid enrollees. States do not have to get a waiver to use premium assistance unless the state requires any Medicaid enrollees to get coverage through private plans. Several states have gained approval from the Department of Health and Human Services to include a premium assistance component to their Medicaid expansions. 

Assess the potential benefits of premium assistance before determining your strategy 

Premium assistance can make it more difficult for enrollees to access Medicaid benefits, as private plans do not cover all services required under the Medicaid program. However, there may be some benefits to premium assistance, depending on your state. As you develop your advocacy strategy and determine whether to advocate against premium assistance, evaluate these factors.

  • Assess the state's individual insurance market: Premium assistance virtually guarantees marketplace plans will have a more robust pool of enrollees. In states with limited individual market offerings, this guaranteed enrollment could encourage more plans to participate in the marketplace. Greater plan participation could lower premiums for all marketplace enrollees. 
  • Assess the impact on "churn": Moving from one health plan to another (known as churn) can disrupt care. People—especially those with low incomes—often experience income fluctuations, causing them to move between Medicaid and marketplace coverage. If the plans available through the marketplace and Medicaid are the same, people can keep the same plans when their coverage changes. This could reduce the amount of churn and its impact on continuity of care.
  • Assess provider networks: Marketplace plans may have more participating providers than a state Medicaid program, although that isn't guaranteed. Compare provider networks, looking at both the number of providers and provider availability in low-income areas.

Premium assistance in Medicaid adult coverage waivers: Arguments for providing care through traditional Medicaid

If the best strategy in your state is to argue against premium assistance, consider these points.

Private plans may cost the state more.

States with Private Option Waiver Element

  • Medicaid is an efficient program with low costs: States will ultimately have to pay for 10 percent of Medicaid expansion costs. The Congressional Budget Office has estimated that, on average, coverage through private plans will cost more than Medicaid. Marketplace coverage may cost the state more than providing the same coverage through its Medicaid program.

It isn't necessary to use marketplace plans for Medicaid enrollees to get private coverage.

  • The state may already be using private plans in its Medicaid program: Nationally, almost 75 percent of Medicaid enrollees are already in private managed care plans. These plans have experience with covering Medicaid enrollees and offering the full suite of Medicaid benefits. If a large percent of state Medicaid enrollees are in managed care plans, there's no need to move to the "private option" to use private plans. The state is already using private plans in Medicaid.
  • The state doesn't need to turn to the marketplace to use private plans: If your state isn't currently using many private managed care plans in its Medicaid program, it can change that. It can contract directly with Medicaid managed care plans to cover expansion enrollees. That could ultimately cost the state less than buying marketplace coverage.

Marketplace plans do not generally offer all Medicaid benefits.

  • Private plans do not provide all Medicaid services: Generally, private plans that do not traditionally cover a large number of Medicaid enrollees do not provide all the benefits required by Medicaid. To provide those benefits, plans will need to coordinate with the state Medicaid program to provide wrap-around coverage, which can add administrative costs.
  • Enrollees may not understand how to use wrap-around coverage: Anecdotal evidence shows that enrollees in premium assistance programs do not fully understand how to access wrap-around coverage
  • Making sure enrollees can access wrap-around services can help lower overall health care costs: Medicaid services that would generally need to be provided through wrap-around coverage, such as non-emergency medical transportation, help keep enrollees healthy and can reduce state costs over the long term. Providing coverage through Medicaid, rather than marketplace plans, will better ensure that enrollees can access these services.

Premium assistance isn't the only way to deal with churn.

  • Include marketplace plans in the Medicaid program: There are ways other than premium assistance to reduce disruptions in care when enrollees move from Medicaid plans to marketplace plans. For example, states can include popular marketplace plans in their Medicaid managed care program.
  • If you can't avoid premium assistance in your state's Medicaid program: Suggestions for minimizing the negative impact on consumers

Make participation in premium assistance optional, not required.

  • Federal approval is not required: If a state makes enrollment in premium assistance for expansion enrollees an option for expansion enrollees rather than a requirement, no federal waiver is required.
  • It allows the state to test the program: Starting with an optional program lets the state evaluate program costs and administrative issues before using the private option more broadly. 
  • This may be the only option if there are not enough marketplace plans that take Medicaid enrollees: For a state to require enrollment in premium assistance, HHS has said that the state must have at least two plans for enrollees to choose from. If there are not at least two marketplace plans available throughout the state, premium assistance can still be used, but only as an option.

For Medicaid expansion states, limit required enrollment to Medicaid enrollees with incomes above the federal poverty level.

  • Limit required marketplace enrollment to enrollees with family incomes between 101 and 138 percent of poverty: This group is eligible for assistance with marketplace coverage in states that haven't expanded Medicaid. If your state is expanding late, many people may have already enrolled in marketplace coverage at some point and be familiar with marketplace plans. 
  • This focuses on those most likely to churn between types of coverage: Higher-income Medicaid expansion enrollees are more likely to move between Medicaid and private plans. This is the best population to focus on to address churn. 
  • This lets the state evaluate enrollee costs: Limiting the program will allow the state to assess average per-enrollee costs of premium assistance compared with a standard expansion. Based on that experience, it can decide whether to extend premium assistance in the future.

Make sure there are systems in place to provide wrap-around Medicaid benefits.

  • Plan for frequent enrollee education: Make sure that there is good enrollee education so consumers are aware of the benefits and understand how to use wrap-around coverage. Education should include clear, simple, and repeated communication through multiple channels (mail, online). Make good customer service available in the languages commonly spoken by enrollees.

Make sure plan networks work for Medicaid enrollees.

  • Federally qualified health centers (FQHCs) and rural health centers (RHCs) should be required in plan networks: Medicaid benefits should include access to FQHCs and RHCs and states should not be allowed to waive these benefits. FQHCs and RHCs are important service providers for the Medicaid population and are often not in commercial plan networks. Make sure the state requires plans to include them. Plan networks should be designed for the benefit of enrollees, not the convenience of the plans.

Incorporate consumer feedback as part of premium assistance evaluation.

  • Include a robust enrollee survey process to evaluate how premium assistance is working: Consumer feedback on their access to plan providers, ability to understand benefits, access to wrap-around services, and general satisfaction can help policy makers understand how well the program is serving enrollees and whether it is a good investment of taxpayer dollars.

If the program isn't working for consumers, start making the case to change it.

  • Collect evidence of the impact of the program: Legislation and waivers can be modified. Document the impact of premium assistance on enrollees' access to care and keep track of program costs. Look at program costs in your state versus costs in comparable states that don't use premium assistance.
  • Include a strong evaluation component: Make sure frequent and objective evaluation is part of the program: It's important to understand how premium assistance affects enrollment, retention, and administrative costs. In addition to any state evaluations, insist on an outside federal evaluation. Likewise, evaluations from sources that are widely trusted in the state (such as universities or state research organizations) can be helpful.
  • Plan a campaign with a broad coalition: Reach out to groups that might join a coalition to argue for moving away from premium assistance. All efforts should underscore the positive effects of Medicaid expansion, both in terms of residents' health and the state economy, and should focus on developing a better structure to deliver the care.