The Perils of a Medicaid 'Coverage Cliff'

By Stacie Dusetzina, PhD
April 23, 2021

Stacie Dusetzina is an associate professor of health policy at Vanderbilt University School of Medicine and a member of the 2021 Tradeoffs Research Council. Her research focuses on measuring and evaluating the costs of prescription drugs.

Though Medicare and Medicaid are distinct programs, Medicare beneficiaries with incomes less than 100% of the federal poverty level (FPL) ($12,800 per year for a single person in 2021) are eligible for Medicaid to help cover their out-of-pocket costs. These “dual eligible” beneficiaries pay very little out-of-pocket when they go to the doctor, hospital or fill a prescription. In contrast, for people with slightly higher incomes — between 100% and 200% of FPL (up to $25,760 per year) — out-of-pocket costs are much higher without the help of Medicaid.

new study in Health Affairs shows just how much of a difference the Medicaid subsidy makes for the costs and care of low-income Medicare beneficiaries. Researchers Eric Roberts, Alexandra Glynn, Noelle Cornelio, Julie Donohue, Walid Gellad, J. Michael McWilliams and Lindsey Sabik compared out-of-pocket spending, hospital and outpatient care patterns, and prescription drug use for people just above and just below the Medicaid subsidy threshold, what they call the “coverage cliff.”

They found that the coverage cliff increased out-of-pocket spending by $2,288 over two years and increased the percentage of enrollees with more than $2,000 in out-of-pocket spending over two years by 33.1%. They also found that beneficiaries just above the threshold used 55% less outpatient care — like doctor’s office visits — but there was no difference for emergency department and hospital care. In other words, people with incomes just too high to qualify for payment help from Medicaid spent more and received less care than those just under the subsidy cliff. Those who didn’t receive subsidies also filled fewer prescriptions, including those used to treat chronic diseases.

These findings highlight affordability and access concerns for so-called near-poor individuals enrolled in Medicare. The authors suggest that expanding access to Medicaid supplemental coverage up to 200% of FPL or limiting out-of-pocket spending to a percentage of income could help to improve access to care for low-income beneficiaries who do not currently qualify for Medicaid. Though these benefit expansions would need to come from either state budgets or the federal government, this study shows that they are likely to be a good investment in people’s health and financial well-being.

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