How Congress Can Preserve Medicaid — Via Employer-Based Coverage
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As part of budget reconciliation legislation, Congress should seek to reduce crowd-out—that is, government programs like Medicaid crowding out private insurance coverage—by implementing premium assistance within Medicaid on a broad basis.
This policy change would require individuals with an offer of employer-sponsored coverage to utilize that coverage instead of going on “free” Medicaid. Under premium assistance, Medicaid dollars provide supplemental “wrap-around” benefits and assistance with cost-sharing (e.g., deductibles, co-payments, etc.) that an enrollee’s employer-based plan does not cover—the government program serving as the secondary, rather than primary, form of health coverage.
To achieve this vision, lawmakers should:
- Require state Medicaid programs to create premium assistance programs, by modifying language making their creation optional (42 U.S.C. 1396e-1(a));
- Require beneficiaries to participate in premium assistance as a condition of Medicaid eligibility if they have an offer of employer coverage that is cost effective (42 U.S.C. 1396e-1(d)(2) and (d)(3));
- Remove language permitting employers to opt-out of participation in premium assistance (42 U.S.C. 1396e-1(d)(1));
- Eliminate an unnecessary restriction preventing high-deductible health plans associated with Health Savings Accounts (HSAs) from qualifying for premium assistance (42 U.S.C. 1396e-1(b)(2)(B)); and
- Consider whether to modify the cost-effectiveness test, which currently includes the administrative costs of premium assistance as part of the overall cost of coverage (42 U.S.C. 1397ee(c)(3)(A)).
This policy change would achieve many positive outcomes:
- Premium assistance would restore private insurance coverage for millions of Americans—coverage which in many cases will provide better access to care than government-run Medicaid.
- It complements work requirements in Medicaid, promoting a culture of self-sufficiency and a move away from welfare and towards the dignity of work.
- By utilizing employer coverage of able-bodied adults whenever possible, it would also ensure that federal funds remain focused on the populations for whom Medicaid was originally designed—individuals with disabilities, pregnant women, and other vulnerable groups.
- Premium assistance could save scarce taxpayer dollars. If one-third of Medicaid expansion enrollees have an offer of employer-sponsored coverage, and premium assistance reduces per-beneficiary costs by 10% for this population, these changes could generate $47.9 billion in federal savings over ten years, based on the June 2024 CBO Medicaid baseline.
The numerous benefits of premium assistance demonstrate the common-sense nature of this proposal, one that lawmakers across the political spectrum can embrace.