Health Care Coverage Gap

Millions Trapped in Health-Law Coverage Gap

Earning Too Little for Health-Law Subsidies but Ineligible for Benefits Under Existing Medicaid Programs

By CHRISTOPHER WEAVER
Updated Feb. 18, 2014

Nearly five million lower-income Americans are caught in a mismatch of state and federal rules that leave them with no help to buy insurance, while better-off workers can buy coverage with taxpayer-funded subsidies.

BIRMINGHAM, Ala.—Ernest Maiden was dumbfounded to learn that he falls through the cracks of the health-care law because in a typical week he earns about $200 from the Happiness and Hair Beauty and Barber Salon.

Like millions of other Americans caught in a mismatch of state and federal rules, the 57-year-old hair stylist doesn't make enough money to qualify for federal subsidies to buy health insurance. If he earned another $1,300 a year, the government would pay the full cost. Instead, coverage would cost about what he earns.

"It's a Catch-22," said Mr. Maiden, an uninsured diabetic. Without help, he said, he must "choose between paying the bills and buying medicine."

The 2010 health law was meant to cover people in Mr. Maiden's income bracket by expanding Medicaid to workers earning up to 138% of the federal poverty line. People earning as much as four times the poverty line can receive federal subsidies. The federal poverty level is $11,670 for a single person this year; more for families.

But the Supreme Court in 2012 struck down the law's requirement that states expand their Medicaid coverage. Republican elected officials in 24 states, including Alabama, declined the expansion, triggering a coverage gap. Officials said an expansion would add burdensome costs and, in some cases, leave more people dependent on government.

The decision created a gap for Mr. Maiden and others at the lowest income levels who don't qualify for Medicaid coverage under varying state rules. The upshot is that lower-income people in half the states get no help, while better-off workers elsewhere can buy insurance with taxpayer-funded subsidies.

The federal government offered to pay the full cost of the expansion for three years, and then states would pay 10% of the annual expansion costs. The Congressional Budget Office estimates the current expansion will cost the federal government nearly $800 billion over the next 10 years.

Some GOP-led states are revisiting their decision as complaints pile up over the coverage gap—and its consequences for businesses—in such states as Utah and Florida. The state senate in New Hampshire last week reached a tentative deal to expand Medicaid. In Virginia, newly elected Democratic Gov. Terry McAuliffe hopes to get legislators to reverse his Republican predecessor's stance against expansion.

Lawmakers are also getting a push to boost Medicaid rolls from hospitals that expected a vast new pool of paying customers under the health-care law. Instead, the failure to expand Medicaid coverage by some states not only adds fewer insured patients, it also eliminates the payments hospitals had long received to cover the cost of uninsured people they treat free.

Obama administration officials are touring some states that resisted the expansion, including Texas. "Expanding Medicaid will significantly increase the number of patients with insurance," said Aaron Albright, a spokesman for the Centers for Medicare and Medicaid Services, the federal agency overseeing the law's implementation. "This is a critical opportunity to help millions more Americans gain access to quality, reliable health coverage."

For now, nearly five million people ages 18 to 64 get no financial help to buy coverage because of the gap, according to estimates by the Kaiser Family Foundation. Many of those people are clustered in the South, living in states where income limits for Medicaid coverage have historically been among the lowest in the U.S.

Eugene Steuerle, an Urban Institute economist and former Treasury Department official who served under presidents in both parties, said he couldn't recall a social program that excluded beneficiaries because they earn too little.

In Alabama, Gov. Robert Bentley, a physician, said in his annual address last month that Medicaid expansion carried costs he doubted the federal government or his state could afford. Medicaid accounts for more than one-third of Alabama's budget, the state's costliest service after education, and it would have to grow larger to comply with the health-care law.

A spokeswoman for Mr. Bentley said his position was clear in public statements.

One of Mr. Bentley's constituents, 27-year-old Tanisha Fields, who is uninsured, arrived at University of Alabama at Birmingham's flagship hospital on a recent evening for treatment after a miscarriage. Hospitals are obligated to treat emergency room patients, regardless of their ability to pay.

Ms. Fields, who has a 4-year-old son, earned about $7,000 last year working at a cleaning service. That is too little to qualify for federal help buying coverage in new health-law marketplaces, and too much for coverage in Alabama's Medicaid program, which has an income ceiling of $2,832 for a family of two, after deductions. If Ms. Fields could buy insurance for $50 a month, she said, "I definitely would."

Governors in some states that refused to expand Medicaid now say the coverage gap is hard to ignore. "I am not a fan of the Affordable Care Act," Utah Gov. Gary Herbert said in an interview. But, he said, he is working with state legislators on a plan to expand Medicaid after advisers calculated that about 60,000 of his constituents would fall through the gap.

"That is not fair," Mr. Herbert said. "When I say doing nothing is not an option, I'm talking about the 60,000 people in Utah who live below the poverty line and don't have access to health care."

Mr. Maiden, the hair stylist, learned in a Dec. 23 letter from the federal government that he wasn't eligible for help. The cheapest "bronze"-level insurance plan available to Mr. Maiden, who is single and a smoker, costs $437 a month. That plan, from Blue Cross & Blue Shield of Alabama, has a $6,350 annual deductible.

Mr. Maiden would have to spend about $11,600 a year—more than his entire annual income—on premiums and the deductible before Blue Cross would begin paying for most services. If he earned an extra $1,300 a year, he would qualify for about $470 a month in federal subsidies under the health-care law to pay premiums, and additional subsidies that would reduce the deductible for certain plans to as little as $100 a year.

Earning more, he said, is a challenge. Demand in Birmingham for his styling services is low, he said: "These are difficult times."

A Blue Cross spokeswoman said the insurer offered "some of the most cost-effective health insurance premiums in the country" and noted that Alabama has among the lowest average rates of states using HealthCare.gov, the federal insurance exchange.

But higher-wage families in some cases pay less for coverage in Alabama. Cal Morris, 37 years old, opened Church Street Coffee & Books with his wife, Heather, in a wealthy Birmingham suburb nearly three years ago.

The coffee shop and Mr. Morris's second job as a church janitor yields about $35,000 a year for the couple, who have three children.

Under the law, the family qualifies for a subsidy of as much as $439 a month. They could pay as little as $83 a month for a midlevel—or so-called silver—Blue Cross plan that lists at $522.43 a month, according to HealthCare.gov. The couple's children are covered by the state's Medicaid program.

Mr. Morris, who has severe and untreated psoriasis, said he looked forward to seeing a doctor, now that he has coverage.

Federal census data show about two-thirds of nearly 30,000 uninsured people living in Jefferson County, which includes Birmingham, would qualify for Medicaid if the program was expanded to fit with the health-care law.

While Birmingham's unemployment rate is low, many of its workers are poor. The bottom 10% of local workers employed full-time in 32 professions—including health-care aide and hairdresser—earn less than $16,000 a year, according the Bureau of Labor Statistics.

Many of these people are only now learning of the health-care gap. Shunteria Taylor, 28 years old, lost a job as a personal-care aide in 2012. She lives on about $10,500 a year in child support and disability benefits for her 9-year-old son, Brandon. She said she was looking for work.

Based on her income, the cheapest insurance coverage would cost Ms. Taylor $146 a month, with a $6,350 deductible. "I have a lot of health problems," she said, "but I just can't afford" insurance.

Hospitals, including UAB Health System, see the coverage gap as a threat.

"All we see is our revenues going down," said Will Ferniany, UAB's chief executive. Like other hospitals, it faces deep cuts in federal reimbursement for treating uninsured patients under the health-care law, he said, but won't see many new paying patients without the Medicaid expansion.

On a recent evening, as a rare blizzard struck Birmingham, dozens of uninsured patients filed through the emergency room at UAB's main campus. Complaints ranged from headaches and swollen feet to broken bones. Such visits contribute to more than $100 million in uncompensated care costs at the hospital, according to 2012 Medicare data.

Seneca Womack, age 38, arrived that evening seeking treatment for an epileptic seizure. A couple of hours later, he was discharged but then slipped on a patch of ice on his way home, breaking his leg.

Since losing his last two jobs—as a ride operator at an amusement park and restaurant cook—Mr. Womack has had no regular income, leaving him below the threshold for health insurance subsidies.

Before his latest mishap, Mr. Womack had piled up more than $50,000 in hospital bills for treatment of seizures and related injuries. He said he borrows $130 a month from his sister to buy drugs for high blood pressure, depression and epilepsy.

"I need insurance," he said.

Write to Christopher Weaver at christopher.weaver@wsj.com

Corrections & Amplifications
The 2010 health law called for expanding Medicaid to workers earning up to 138% of the federal poverty line. An earlier version of this article incorrectly said the law extended Medicaid to people earning up to the federal poverty line.