States must reduce churn from Medicaid, exchanges

April 1, 2011

Forty-nine states have begun the activity necessary to have health insurance exchanges operational by 2014.

For those individuals and families between 133% and 400% of federal poverty level (FPL) who purchase individual market insurance products through the health benefit exchanges, federal subsidies will be available. In many states, certain populations above 133% of FPL are eligible currently for Medicaid. Now these states will need to decide the break point between Medicaid and exchange-subsidized insurance.

MILLIONS EXPECTED TO CHURN

If these individuals take part-time or other work with no benefits, and their income rises above the Medicaid threshold, they shift from Medicaid to the exchange to buy federally subsidized policies. A recent study by Harvard and George Washington University showed that as many as 28 million individuals could be expected to churn among these programs in the first year exchanges are operational.

Exchanges must be designed as part of the continuum of insurance within the state. States are considering several options:

Over the next two years, as states design exchanges and revisit their Medicaid programs, the challenges of churn are certain to be front and center in any discussion on program design.

This column is written for informational purposes only and should not be construed as legal advice.

Cindy Gillespie is managing director for McKenna Long & Aldridge LLP.