What is the Difference Between Medicaid and the Health Insurance Marketplace?

Medicaid and the health insurance marketplace, sometimes called “Obamacare,” are two major ways people can obtain health coverage in the United States. But they have some key differences in terms of how they work, who is eligible, and what benefits they provide.

Understanding the distinctions between Medicaid and marketplace plans can help you determine which option may be best for your situation if you need health insurance.

Overview of Medicaid

Medicaid is a public health insurance program that provides free or low-cost health coverage to eligible low-income individuals and families. It is jointly funded by state and federal governments.

Some key facts about Medicaid:

• Medicaid is run by state governments within federal guidelines. Each state operates its own Medicaid program.

• Eligibility and benefits can vary somewhat between states. But there are federal minimum requirements that all state Medicaid programs must follow.

• Medicaid covers around 74 million Americans as of 2021. This includes low-income adults, children, pregnant women, seniors, and people with disabilities.

• To qualify for Medicaid, your income and assets must be below certain thresholds that vary by state. Eligibility is based on modified adjusted gross income.

• Medicaid offers comprehensive health benefits including doctor visits, hospital care, prescriptions, mental healthcare, substance abuse treatment, and more. Dental and vision coverage may be limited for adults.

• There are usually no monthly premiums for Medicaid, and out-of-pocket costs are very low or non-existent.

Overview of the Health Insurance Marketplace

The health insurance marketplace, also called the exchange, offers private health plans to individuals and families who don’t have coverage through an employer or government program. Here are some key facts:

• The marketplace was established by the Affordable Care Act (ACA) in 2014. It is run by the federal government or state governments.

• Private insurance companies offer plans that must meet ACA requirements. All plans cover essential health benefits like doctor visits, hospitalization, prescriptions, maternity care, mental healthcare, and more.

• People with incomes from 100-400% of the federal poverty level can qualify for premium subsidies to lower monthly costs. Cost-sharing subsidies also reduce out-of-pocket expenses for those under 250% of the poverty level.

• Eligibility for marketplace plans is based on income, but there are no asset limits. Anyone can enroll who is a U.S. citizen or legal resident without an affordable employer plan.

• Enrollment is only allowed during the annual open enrollment period or if you have a qualifying life event for a special enrollment period.

• As of 2021, over 11 million Americans obtained health coverage through the marketplace.

Key Differences Between Medicaid and the Marketplace

While both Medicaid and the marketplace aim to make health coverage accessible and affordable, there are some important distinctions between the two programs:

Administration and Funding

• Medicaid is administered by state governments under federal guidelines. Funding is shared by state and federal governments.

• The marketplace is administered by either state governments or the federal government. Health plans are offered by private insurance companies.

Eligibility Requirements

• Medicaid eligibility is based on having income and assets below a certain level set by each state. Additional requirements may apply based on age, pregnancy status, disability status and other factors.

• Marketplace eligibility is based only on income, not assets. You cannot have access to “affordable” and comprehensive employer coverage. There are no other eligibility requirements.

Available Benefits

• Medicaid offers comprehensive benefits, although dental and vision coverage for adults can be limited. Benefits are standardized for certain eligibility groups.

• Marketplace plans offer essential health benefits, although the details vary. All cover major services like hospitalization and prescription drugs. Dental/vision coverage are optional add-ons.

Costs and Subsidies

• Medicaid is free for most enrollees. Some states charge small premiums or copays to certain groups.

• Marketplace enrollees pay monthly premiums plus cost-sharing amounts. But subsidies reduce costs significantly for those eligible.

Enrollment Process and Timing

• Medicaid enrollment is open year-round. Coverage can begin immediately in most cases, and retroactive coverage is possible.

• Marketplace enrollment happens during open enrollment or special enrollment periods. Coverage cannot begin for 1-3 months depending on enrollment date.

Provider Networks

• Medicaid features lower reimbursement rates, which can limit provider participation. But networks are usually adequate for most enrollees.

• Marketplace networks vary by plan. Premium plans tend to have broad provider participation, while lower-premium options can have narrower networks.

Below is more detail on how Medicaid and the marketplace differ across these key areas.

Administration and Funding

One of the main differences between Medicaid and the health insurance marketplace is who administers the programs and where the funding comes from.

Medicaid Administration

Medicaid is run by individual state governments within loose federal guidelines. States have flexibility in certain aspects of their programs like eligibility levels, benefits offered, and how healthcare is delivered to enrollees.

For example, states can choose to deliver Medicaid via:

• Fee-for-service – Providers bill the state directly for each service provided
• Managed care – The state pays private health plans a capitation fee to provide care

States also have choices around optional benefits and populations to cover beyond federal minimum requirements. But every state Medicaid program must follow core federal rules regarding eligibility, benefits, provider payments, and more.

State Medicaid agencies are responsible for functions like:

• Determining eligibility
• Enrolling members
• Setting provider reimbursement rates
• Developing managed care contracts
• Monitoring program performance
• Preventing fraud and abuse

The Centers for Medicare and Medicaid Services (CMS), part of the Department of Health and Human Services, oversees Medicaid at the federal level. CMS issues regulations and guidance for state programs to follow and approves changes states wish to make to their programs.

Federal law changes also frequently impact Medicaid programs. For example, the Affordable Care Act (ACA) expanded Medicaid eligibility in many states and made other program updates.

Medicaid Funding

Medicaid is funded jointly by state governments and the federal government:

• Federal funding: The federal government matches state Medicaid spending based on a formula called the Federal Medical Assistance Percentage (FMAP). The FMAP determines what percentage of Medicaid costs will be covered by federal vs. state funds in each state. Poorer states receive higher federal matching rates than wealthier states. On average, the federal government pays about 63% of Medicaid costs nationwide.

• State funding: States pay the balance of Medicaid costs not covered by federal matching funds. State funds come from general state revenue sources like income and sales taxes. Rising Medicaid enrollment strains state budgets, which is why states pushed back on the ACA’s expansion of eligibility.

To get federal funds, state Medicaid programs must follow all federal requirements. If a state fails to comply, they risk losing federal Medicaid money.

Marketplace Administration

The health insurance marketplace was established by the Affordable Care Act in 2014. It provides access to private health plans for individuals and families who don’t have coverage through an employer or government program.

State-based vs. federally facilitated exchanges:

• State-based: In most states, the marketplace is run by the state government through a state-based exchange. These states control functions like plan certification, consumer assistance, and financial management.

• Federally facilitated: In a minority of states, the federal government runs the marketplace through HealthCare.gov. These are called federally facilitated exchanges. Some federally facilitated states handle plan management and consumer assistance while the feds run the website and call center.

Whether run by the state or federal government, all marketplace platforms must follow ACA regulations in areas like enrollment procedures, plan requirements, and financial assistance eligibility.

Private health insurance companies offer the plans sold on the exchanges. Available plans range from lower-cost Bronze plans to higher-premium Gold and Platinum policies. Insurers set premiums and benefits packages, just as they do for employer-based plans.

Marketplace Funding

The marketplace relies much less on government funding than Medicaid:

• Plan premiums: Monthly premiums paid by enrollees make up the bulk of marketplace funding. Premiums are set by insurers based on expected costs plus allowable profit margins. Premiums rise as health costs rise.

• Federal subsidies: For eligible lower-income enrollees, federal premium tax credits reduce monthly premium costs. The ACA mandates these subsidies to make coverage affordable. The Congressional Budget Office estimated subsidies would total $710 billion from 2016 to 2025.

• Enrollee cost-sharing: When enrollees receive medical care, they pay a portion of the costs through deductibles, copays, and coinsurance. This cost-sharing also funds the system. Lower-income households can receive subsidies to reduce cost-sharing amounts.

• Exchange user fees: Insurers pay a user fee to sell marketplace plans. This helps fund exchange operations. For 2023, the monthly user fee rate per policy is 2.75% to 3.