Beginning January 1, 2014, PPACA required most citizens and legal residents of the United States to maintain health insurance that qualifies as minimum essential coverage for themselves and their dependents or pay a tax penalty. Most Medicaid coverage and private health insurance coverage purchased through the exchanges qualifies as minimum essential coverage. To expand individuals’ access to minimum essential coverage, PPACA provided states the option to expand eligibility for Medicaid coverage, with increased federal financing for the newly eligible population. As of January 2014, 25 states had expanded their Medicaid programs, and an additional 4 states had expanded as of March 2015. Beginning in October 2013, individuals were able to shop for private health insurance qualifying as minimum essential coverage through the exchanges, with coverage effective beginning as early as January 1, 2014. As of March 2015, the federal government operated an FFE in 34 states, and 17 states were approved to operate SBEs (see fig. 1). States with SBEs may use the FFE IT systems for eligibility and enrollment functions. In 2014, two states with SBEs used the FFE IT systems for eligibility and enrollment, while in 2015 three states with SBEs did so. PPACA also created federal subsidies for exchange coverage, most notably the premium tax credit available to eligible individuals with household incomes between 100 and 400 percent of the FPL. Individuals eligible for Medicaid or other minimum essential coverage, such as qualifying employer-sponsored coverage, are not eligible for the premium tax credit. The tax credit is refundable and is generally paid to issuers in advance to reduce enrollees’ premium costs for exchange plans. Advance payments of this tax credit are known as advance premium tax credits (APTC) and are calculated based on an eligible individual’s family size and anticipated household income relative to the cost of premiums for a benchmark plan. According to HHS, approximately 87 percent of individuals selecting a plan for the 2015 coverage year in FFE states qualified for the APTC, with an average per person, monthly APTC amount ranging from $155 in Arizona to $534 in Alaska, and an average reduction in premiums of about 72 percent. In addition to the premium tax credit, PPACA provides for cost-sharing reductions to reduce out-of- pocket costs, such as deductibles and copayments, for eligible individuals with household incomes between 100 and 250 percent of the FPL. PPACA required the establishment in all states of a coordinated eligibility and enrollment process for Medicaid and the exchanges. Since the enactment of the law in March 2010, CMS has issued regulations and technical guidance outlining aspects of this coordination. In particular, exchanges and state Medicaid agencies must enter into agreements with one another to ensure prompt eligibility determinations and enrollment of individuals in the appropriate programs regardless of where they apply, and must transmit individuals’ account information—that is, their records—via secure electronic interface. However, the mechanisms through which this coordination occurs may vary depending on the state. In FFE states, CMS has established an account transfer process through which accounts for individuals enrolled in or applying for exchange or Medicaid coverage are electronically transmitted between CMS and state Medicaid agencies where appropriate. If individuals apply for coverage in an FFE state, CMS is responsible for determining or assessing individuals’ eligibility for Medicaid and determining eligibility for exchange coverage, including exchange subsidies and, if applicable, facilitating enrollment in an exchange plan. If CMS determines or assesses that an individual is or may be eligible for Medicaid, it must transfer the individual’s account to the appropriate state Medicaid agency for enrollment, where appropriate. Individuals may also apply for coverage directly through the state Medicaid agency. In this case, the state is responsible for determining eligibility for Medicaid and, for individuals determined ineligible, transferring accounts to CMS for a determination of eligibility to enroll in subsidized exchange coverage. Conversely, states with SBEs are responsible for determining eligibility for both Medicaid and exchange coverage, including exchange subsidies, as well as enrolling individuals in the appropriate programs. There are differences in eligibility and enrollment policies for Medicaid and exchange coverage. Medicaid. Individuals may enroll in Medicaid coverage at any point in time during the year, with their coverage effective as of the date of application, reported eligibility change, or earlier. Individuals enrolled in Medicaid are generally required to report any changes—such as changes to income or household composition—that may affect their Medicaid eligibility. Outside of self-reported changes, eligibility for Medicaid must generally be redetermined every 12 months. When individuals are determined ineligible for Medicaid, states are required to send them notification that their coverage will be terminating at least 10 days prior to their Medicaid termination date. In addition, states may opt to extend Medicaid coverage through the end of the month if it would otherwise be terminated earlier in the month. Exchange coverage. Individuals’ options for enrollment in exchange coverage are generally restricted to an annual open enrollment period that starts near the end of the calendar year, unless they experience a change that qualifies them for a special enrollment period. Exchange coverage is generally prospective, meaning that individuals must select an exchange plan by a certain date in order to have coverage effective the following month. If individuals choose to end their exchange coverage, they must generally provide advance notice at least 14 days before the requested termination date. As with Medicaid, individuals enrolled in subsidized exchange coverage are required to report any changes that may affect their eligibility. Eligibility for subsidized exchange coverage is redetermined during open enrollment and any time an individual reports a change, regardless of when coverage began during the year. If individuals are determined ineligible for continued subsidized exchange coverage, such subsidies must be terminated or they may be held liable for repayment of the APTC as part of the reconciliation process with IRS. The coordination of federal payments for individuals transitioning between Medicaid and subsidized exchange coverage is addressed through Medicaid’s third party liability rule and IRS’s reconciliation process for the APTC. Specifically: Third party liability in Medicaid. Where individuals are enrolled in Medicaid along with another form of coverage, Medicaid operates as the payer of last resort. This means that the other source of coverage must pay to the extent of its liability before Medicaid pays, referred to as third party liability. For example, for individuals enrolled in both Medicaid and exchange coverage for some period of time, the issuer of exchange coverage is required to pay to the extent of its liability before Medicaid does. Reconciliation of the APTC with the IRS. Individuals enrolled in exchange coverage and receiving the APTC must file federal income tax returns with the IRS to reconcile the amount of the premium tax credit allowed with the amount received in advance, and may be liable to pay back any excess credits received during the taxable year. For individuals transitioning from exchange coverage to Medicaid during the year, this reconciliation could include repayment of APTC received after an individual was determined eligible for Medicaid. Most state Medicaid programs have implemented managed care systems, under which the state pays contracted issuers a set amount per beneficiary per month to arrange for all covered services and the issuer assumes the risk for the cost of providing those services. In states that offer managed care in their Medicaid programs, issuers have the potential to participate in both Medicaid and the exchange market. Issuers approved to offer Medicaid managed care, exchange coverage, or both, must comply with applicable state and federal requirements for the respective programs. For example, issuers offering Medicaid managed care must comply with any applicable state and federal restrictions on marketing their plans to Medicaid beneficiaries. In addition, some states may require issuers contracting with the Medicaid program to offer such coverage statewide, while in other states issuers may offer their Medicaid coverage statewide or to enrollees in selected geographic regions within the state. Issuers of exchange coverage have the option of offering their exchange plans statewide or within selected geographic regions. Information from CMS and selected states and issuers indicates that individuals transitioning from Medicaid to exchange coverage may experience coverage gaps, and that duplicate coverage is occurring under several scenarios. CMS and our selected states had a number of enrollment policies, IT mechanisms, and consumer education efforts that minimize the potential for coverage gaps and duplicate coverage; however, our assessment of CMS’s policies and procedures for FFE states found that additional controls are needed. Officials from CMS and four of our eight selected states told us that individuals may experience gaps in coverage when transitioning between Medicaid and exchange coverage, though they did not have information on the extent to which such gaps were occurring. Specifically, as Medicaid coverage is effective as of the date an eligibility change is reported or earlier, officials from two states explained that coverage gaps should generally not occur for individuals who lose eligibility for exchange coverage and are transitioning to Medicaid. However, as exchange coverage is generally prospective, coverage gaps could occur in the other direction. In particular, officials from one state told us that individuals who lose eligibility for Medicaid toward the end of a month may be more likely to experience coverage gaps because they would have a short window of time to enroll in exchange coverage so that coverage is effective the first day of the following month. Individuals who experience gaps in coverage may decide to forgo necessary care rather than pay out-of- pocket, which could negatively affect health outcomes and result in sicker individuals enrolling in exchange coverage. Information from selected states and issuers indicated that duplicate coverage—that is, enrollment in both Medicaid and subsidized exchange coverage—was occurring under the three scenarios outlined below, the first of which is permitted under federal law. However, the full extent to which duplicate coverage was occurring was unknown. Scenario 1: Individuals who are completing the transition from subsidized exchange to Medicaid coverage. According to officials from three of our eight selected states, some amount of duplicate coverage may be expected for individuals transitioning from subsidized exchange coverage to Medicaid. For example, if an individual with subsidized exchange coverage reports a change and is determined eligible for Medicaid on September 16th, the individual could have duplicate coverage for the period of September 16th through September 30th.