At the start of the pandemic in Jan. 2020, the U.S. Department of Health and Human Services (HHS) declared a public health emergency (PHE), which granted each U.S. State’s Medicaid program broad flexibility to support their enrollees during the unprecedented public health crisis.  Shortly after, Congress enacted the Families First Coronavirus Response Act (FFCRA). The FFCRA included a provision that offered each State’s Medicaid program financial incentives in exchange for keeping covered individuals continuously enrolled—and suspending their standard periodic eligibility reviews—for the duration of the COVID-19 PHE. Primarily as a result of this Medicaid maintenance initiative, enrollment in Medicaid and the Children’s Health Insurance Program (CHIP) ballooned by more than 20 million across all U.S. states through Feb. 2023, an increase of nearly 30% when measured against enrollment levels in Feb. 2020.

Now, more than three years later, all U.S. states are at the doorstep of a daunting undertaking to “unwind” that protected Medicaid and CHIP eligibility.  That’s because last December, the Consolidated Appropriations Act of 2023 (CAA 2023) decoupled the Medicaid and CHIP continuous enrollment provision from the COVID-19 PHE. Accordingly, starting Apr. 1, 2023, the federal government’s supplemental funding of State Medicaid programs will phase out over a 12-month period, and states will be permitted to resume their pre-pandemic Medicaid eligibility determinations and disenrollment operations.

During this one-year unwinding period, State Medicaid program officials must contact every current Medicaid and CHIP enrollee, collect pertinent data, and reevaluate each individual’s eligibility based on qualifications such as income, number of dependents, disability status, and sometimes age.  While states are permitted (and even encouraged) to stagger the start of their eligibility redeterminations over 12 months beginning April 1, officials must finalize all reevaluations by the end of May 2024 to receive extra federal funding during the unwinding period.  Thus, the great race to unwind is on.

While the number of Medicaid and CHIP enrollees who will lose eligibility during the unwinding period is still unknown, the anticipated impact is substantial. The Kaiser Family Foundation, a highly reputable healthcare research organization, estimates that anywhere from 5.3 million to as many as 14.2 million Americans will lose their low-cost safety net coverage over the next 14 months—perhaps due to increased income, a change in health status or residence, or because they’ll simply be unaware that they must takes steps to reapply for the coverage to avoid disenrollment. HHS estimates that the number will be closer 15 million.

Impact on Employer-Sponsored Health Plans

With multiple millions of individuals soon to be disenrolled from Medicaid and CHIP, some employers are bound to see an uptick in requests for enrollment under their employer-sponsored medical plans.  Group plan sponsors should be reminded that under the Health Insurance Portability and Accountability Act of 1996 (HIPAA), loss of eligibility for Medicaid or CHIP represents a special enrollment opportunity for any employee, spouse or dependent who is eligible for the group major medical plan, but not enrolled, at the time they lose the state coverage. That opportunity applies even when the request for enrollment is made outside of the group plan’s open enrollment period. And as with most compliance matters, these circumstances are governed by several nuanced rules that often trigger questions from employers and benefits professionals.

One common question involves the timing of special enrollments. Honoring a HIPAA special enrollment request is a mandatory obligation of major medical group plans, provided the request for enrollment is made by a benefit-eligible employee, spouse or dependent on a timely basis. To be timely, starting Jul. 10, 2023, the employee or family member must request special enrollment within 60 days of being terminated from their Medicaid or CHIP coverage. However, up to and including Jul. 9, 2023 (under a special relief provision connected to the COVID-19 national emergency), any individual who lost Medicaid or CHIP within the preceding year and 60 days should be permitted to enroll under the group plan.   

Also noteworthy is that once special enrollment is requested on a timely basis in connection with the loss of Medicaid or CHIP, the general rule is that the group coverage must begin no later than the first day of the following calendar month.  That coverage start date is measured from the date of the individual’s request for special enrollment under the plan (not from the date their Medicaid or CHIP coverage actually terminated, which is typically earlier).  While some plans can be designed to start coverage sooner than minimally required, a very vast majority of group medical insurance contracts and ERISA plans are designed to conform with that default HIPAA special enrollment timeline.

 Further, if the employer’s cafeteria plan recognizes HIPAA special enrollment or loss of Medicaid as an event that permits mid-year election changes to pre-tax deductions for qualified benefits (which most do), the IRS prohibits those election changes from taking effect retroactively.  Taken together, this means that virtually all of these special enrollments should only begin prospectively, which will often result in at least some gap in health coverage for the employee and their family members.  While exceptions can sometimes be made with approval from the plan’s insurer or stop loss provider, ERISA plan sponsors should be mindful of administering their plans according to their written terms.

Health Coverage Alternatives

In some cases, those who experience an abrupt loss of Medicaid or CHIP may experience a bit of sticker shock once they examine the total premium and out-of-pocket cost-share requirements under their employer’s plan. The good news is that in an effort to forestall gaps in coverage during the unwinding period, HHS will be offering a Marketplace Special Enrollment Period  from March 31, 2023 to July 31, 2024 under the federal Health insurance Marketplace. States that operate their own healthcare Marketplaces have also been encouraged to offer a similar special enrollment period.

Moreover, thanks to certain legislative and regulatory changes that were adopted in 2022 (for example, elimination of the upper income limit on federal premium tax credit eligibility under the Inflation Reduction Act), financial assistance for health coverage secured through the federal and State Marketplaces is now more robust and widely available than ever.  In short, many low and middle-income families losing Medicaid or CHIP in 2023 and 2024 may be quite surprised at how affordable Marketplace coverage will be. They just have to know where to find it.  

For those reasons, employers might consider encouraging their employees to examine their options in the federal or state healthcare Marketplace (as applicable) before enrolling in their group plan. In anticipation of a dramatically amplified need for health insurance alternatives during the unwinding period, most states have already created consumer education campaigns for this purpose. The Georgetown University’s Center for Children and Families has published this matrix of materials related to each state’s Medicaid unwinding plan; the FAQ column houses hyperlinks to a collection of consumer-focused resources generated by all 50 states and the District of Columbia. Human resource and benefits professionals might find this a useful starting point when offering information to assist employees with their transitions from Medicaid.