The Patient Protection and Affordable Care Act (ACA, P.L. 111-148 , as amended) expands health insurance coverage primarily through two mechanisms: by expanding the existing Medicaid program and by establishing new health insurance exchanges where certain individuals and businesses can purchase private health insurance. Under ACA, Medicaid and exchanges are envisioned to work in tandem, with the potential to provide a continuous source of subsidized coverage for lower-income individuals and families, beginning in 2014. However, a significant legal development has the potential to impact the connection and possibly coordination between Medicaid and the exchanges, as well as the overall rate of uninsurance. On June 28, 2012, the U.S. Supreme Court issued a decision in National Federation of Independent Business v. Sebelius . The Court held that the federal government cannot terminate current Medicaid program federal matching funds if a state does not expand its Medicaid program, effectively making the ACA expansion "optional." As a result, some states may choose not to expand their Medicaid program. Thus, some individuals in these states would not be eligible for Medicaid and could become eligible for subsidized exchange coverage, while others may remain uninsured. The Congressional Budget Office (CBO) and the Joint Committee on Taxation (JCT) issued the original cost estimate of ACA's coverage provisions on March 20, 2010. Their latest estimate (February 2013 Baseline) incorporates the potential impact of the Court's decision. According to the 2013 Baseline, by 2022, ACA's coverage provisions will result in 12 million individuals being covered under Medicaid and the State Children's Health Insurance Program (CHIP), and 26 million individuals obtaining health insurance through the newly established exchanges, leaving 29 million nonelderly individuals uninsured. The potential impact of the Court's decision on coverage may be seen in the comparison of the baseline estimate issued prior to the Court's decision (March 2012 Baseline) with the most recent estimate. Post the Court's decision, 5 million fewer individuals would be covered under Medicaid and CHIP, and 3 million more individuals would be enrolled in the exchanges in 2022. The Court's decision on the Medicaid expansion and the subsequent estimates by CBO and JCT highlight the underlying relationship between Medicaid and the exchanges. With participation in the ACA Medicaid expansion now a choice for states, this report analyzes the implications for those who may become eligible for subsidized exchange coverage because their state chose not expand its Medicaid program, or as a result of other small shifts in coverage. Specifically, the differences between Medicaid and exchange coverage may have critical implications for the estimated 3 million individuals who may become eligible for subsidized coverage through the exchanges. In addition to this population, this report also considers the impact on current Medicaid beneficiaries who could lose access to Medicaid if they live in a state that scales back on currently required program eligibility policies when the ACA maintenance of effort (MOE) provisions no longer apply in 2014 for adults or 2019 for children (referred to as the "scale back population"). A third group of potentially affected individuals are those who may "churn", that is, they may go back and forth between Medicaid and exchange coverage, depending on their financial or other situation at the time. While some "churning" may be unavoidable, minimizing its effects may be critical to the health coverage of affected individuals and families. This report provides broad comparisons between federal statutorily required beneficiary benefits and costs associated with Medicaid and the exchanges. The analysis is focused on the beneficiary's perspective, and does not address costs to the federal government or the states associated with the ACA expansion provisions. The analysis of the potential implications on populations less than 65 years of age is divided into four groups: (1) non-disabled children, (2) pregnant women, (3) non-disabled adults, and (4) individuals with chronic disabling conditions (i.e., individuals whose chronic condition leads to a disability). Medicaid's different statutory eligibility classifications determine the benefits that the individual is entitled to as well as cost sharing obligations they must meet. This report does not include an analysis of the impacts on Medicaid's age 65+ populations (those populations who are dually eligible for Medicare and Medicaid), as these individuals, by virtue of their eligibility for Medicare, are not permitted to receive federal subsidies through the exchanges. This report does not attempt to capture state-specific details on program design, but rather provides a comparison of the federal requirements that will structure the choices available to states in designing their programs. This analysis is by no means exhaustive; rather it is illustrative of the complexities that are inherent in the interactions between Medicaid and the exchanges. While the analysis is current, the overall coverage and regulatory landscape is evolving. This report reflects information about how the Administration will likely implement certain aspects of the coverage provisions of the ACA based on regulations and other administrative guidance and announcements that were publicly available at the time of the publication of this report. For a discussion of the fundamental differences between Medicaid and ACA exchanges that shape the interactions between these programs, see Appendix A . This section provides a description of benefits under Medicaid and the exchanges. It provides a framework for the comparison of benefits, which follows. For many beneficiaries, states cover a comprehensive package of mandatory and optional benefits, often referred to as "traditional" Medicaid state plan coverage. These benefits are identified in federal statute and regulations, and include a wide range of primary, preventive, and acute medical services as well as long-term services and supports (LTSS). Some benefits are items, such as eyeglasses and prosthetic devices. Other benefits are defined by the provider of the service (e.g., physicians, hospitals). Still others are a type of service (e.g., pregnancy-related services). Additional benefits include premium payments for coverage provided through managed care arrangements, for example. Finally, in certain circumstances the Medicaid program includes coverage for non-medical benefits such as habilitation services which are designed to assist individuals with disabilities in acquiring, retaining, and improving self-help, socialization, and adaptive skills necessary to reside successfully in home and community-based settings. States define the specific features of each covered benefit within broad federal guidelines. For example, states may place different limits on the amount of inpatient hospital services a beneficiary can receive in a year (e.g., up to 15 inpatient days per year in one state versus unlimited inpatient days in another state). For these reasons, there is great variability across states in terms of their Medicaid benefit coverage. Thus, it is difficult to make benefit comparisons across the state Medicaid programs (which also varies by individuals and/or groups). As an alternative to providing all of the mandatory and selected optional benefits under "traditional" Medicaid, the Deficit Reduction Act of 2005 (DRA, P.L. 109-171 ) gave states the option to enroll state-specified groups in "alternative" plans, that is, benchmark and benchmark-equivalent benefit packages. In general, these benefit packages may cover fewer benefits than traditional Medicaid. The alternative plans include the same benefits offered under one or more of the following: the Blue Cross/Blue Shield preferred provider plan under the Federal Employees Health Benefits Program (FEHBP), a plan offered to state employees, the largest commercial health maintenance organization (HMO) in the state, other Secretary-approved coverage appropriate for the targeted population, or an additional option under which (benchmark-equivalent) coverage must have the same actuarial value (AV) as one of the benchmark plans. Beginning in 2014, these alternative packages must cover at least the essential health benefits (EHBs) that will also apply to plans offered in the exchanges. In addition, these packages must cover family planning and mental health services. All health plans offered through the exchanges must provide a comprehensive set of covered benefits (with the exception of stand-alone dental plans), and comply with all applicable ACA private market reforms (e.g., extend dependent coverage to children under age 26). In general, exchange plans must provide coverage for EHBs. ACA does not explicitly list the benefits included in EHBs, rather the law identifies 10 broad categories of benefits that, at a minimum, must be included as part of EHBs: ambulatory patient services; emergency services; hospitalization; maternity and newborn care; mental health and substance use disorder services, including behavioral health treatment; prescription drugs; rehabilitative and habilitative services and devices; laboratory services; preventive and wellness and chronic disease management; and pediatric services, including oral and vision care. ACA provides the Secretary of HHS with the authority to define and periodically update EHBs. The law requires the Secretary of HHS to ensure that the scope of EHBs is equal to the scope of benefits under a typical employer-sponsored health plan. In addition, the HHS Secretary must consider the diverse needs of different consumer groups, as well as other factors, in defining EHBs. HHS published a bulletin on December 16, 2011, which required that "EHB be defined by a benchmark plan selected by each State." HHS identified four benchmark plan types that a state could use for the purpose of defining EHBs in the state (see Table 1 for a comparison between Medicaid and exchange benchmark plans): One of the three largest plans in the state's small group health insurance market; One of the three largest health plans offered to state employees; One of the three largest national plans offered through the Federal Employees Health Benefits Program (FEHBP); or The largest commercial non-Medicaid health maintenance organization in the state. On February 25, 2013, HHS issued final regulations on standards related to EHBs. In the Appendix of that rule, the EHB benchmark plan for each state is listed. (For states that did not voluntarily select a benchmark plan, the default benchmark option—the largest plan by enrollment in the state's small group market—will apply.)