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Expanding Medicaid Makes the Marketplace Work Better

We’ve written about the benefits of the Affordable Care Act’s (ACA) Medicaid expansion for state budgets, substance use disorder treatment, access to care, and employment, but there’s another benefit of Medicaid expansion worth highlighting – there’s growing evidence that it makes the ACA’s marketplaces work better.

For example:

  • Controlling for a wide range of other differences across states, marketplace premiums are 7 percent lower in states that expanded Medicaid, a Department of Health and Human Services study found.
  • States that have expanded Medicaid have healthier individual market risk pools, on average, a Kaiser Family Foundation analysis concluded.
  • And a Standard & Poor’s market analysis noted, “We observed some correlation between insurer participation and Medicaid expansion. For example, four out of five states (Alabama, Alaska, Oklahoma, South Carolina, and Wyoming) that have one insurer on the exchange in 2017 also don’t have an expanded Medicaid program.” Alaska, as an expansion state, is the outlier in this instance.

Anecdotally as well, comparisons of otherwise-similar states suggest Medicaid expansion has a positive impact on marketplaces. For example, both premiums and premium growth have been lower in North Dakota, which expanded Medicaid, than in South Dakota, which did not.

Medicaid expansion affects marketplace costs, because it affects who’s in the marketplace risk pool. The risk pools in the 32 expansion states, including the District of Columbia, mainly consist of individuals with incomes above 138 percent of poverty. That’s because people below this income threshold are enrolled in Medicaid under expansion. In the 19 non-expansion states, adults with incomes below poverty generally don’t have any access to affordable coverage; they fall into the so-called “coverage gap.” But adults with incomes between 100 and 138 percent of the poverty line are eligible for subsidies to purchase marketplace coverage — and they make up an estimated 40 percent of the marketplace population in non-expansion states.

That’s important because the risk pool’s composition directly affects marketplace premiums. Lower-income individuals tend to be in worse health than those with higher incomes, which means they’re often sicker and have higher health care costs. Almost 20 percent of people with incomes between 100 and 138 percent of the poverty line report being in fair or poor health compared to about 8 percent of people with incomes above 138 percent of the poverty line, data show.

Moreover, there’s probably some adverse selection in which near-poor individuals sign up for marketplace coverage. Even with subsidies, marketplace premiums strain near-poor workers’ budgets, which is part of why the ACA envisioned this group getting coverage through Medicaid. Uninsured rates for people with incomes between 100 and 138 percent of poverty are much higher in non-expansion states, Treasury data show. Although a large share of marketplace enrollees in non-expansion states are in this income group, the people who most need health coverage are most likely to sign up for it, making an already sicker-than-average population even sicker.

The close link between Medicaid and the marketplace is just one more reason why expanding Medicaid is a win-win proposition for states. People with incomes below the poverty line gain coverage, people with incomes between 100 and 138 percent of the poverty line gain access to more comprehensive and more affordable coverage, and marketplace consumers see lower premiums.