Update: Since we posted this, we learned that individuals do not lose a hardship exemption mid-year when their income increases to more than 138% of poverty, so that would not be a trigger for a special enrollment period (SEP). However, guidance issued in August provides a limited circumstance SEP for those in the circumstance described below – individuals who fall into the Medicaid coverage gap and then have an increase in income that would make them eligible for premium tax credits.  The recent proposed Notice on Benefit and Payment Parameters would also make such a circumstance a SEP trigger. We’ll update CHIRblog when that rule, which includes a number of new SEPs, is finalized.

As part of our Robert Wood Johnson Foundation-funded Navigator Technical Assistance project, we’ve had the opportunity to hear the range of questions navigators and assisters are fielding from consumers trying to understand their coverage options. Many of these questions have helped fill out our Navigator Resource Guide, which has 270 FAQs ranging from “what is the individual mandate” to “how do I qualify for financial help?”

Some of the questions we’ve heard point to the complexity of Affordable Care Act (ACA) rules. Others point to the complexity of family situations that can make it difficult to sort through coverage options and eligibility rules. And still others point to areas where the rules can be improved to work better for consumers. An example of this last category of questions is one we’ve heard repeatedly: If an individual falls into the so-called Medicaid coverage gap and later gets a job with income that would qualify them for premium tax credits, can they get a special enrollment period to sign up for coverage? Unfortunately, the answer is no, unless they take early steps to make that option possible.

Who falls into the Medicaid coverage gap?

To be eligible for premium tax credits, individuals and families must have income between 100 percent and 400 percent of poverty. Below the 100 percent poverty threshold, the ACA assumes individuals would be covered by Medicaid under the law’s mandatory expansion of Medicaid. Since the U.S. Supreme Court made that decision optional for states, 25 states have opted not to expand Medicaid, leaving the poorest individuals – those under the poverty level – with no coverage option. It is estimated that 4.8 million people fall into this coverage gap.

Can these individuals qualify for premium tax credits later in the year if their income changes?

Under the current rules, individuals whose change in income would qualify them for premium tax credits can get a special enrollment period – but only if they are already enrolled in a marketplace plan.  That means if an individual’s income was so low that they couldn’t get a marketplace plan with a premium tax credit, they don’t qualify for an opportunity to enroll in a plan until the next open enrollment period.  So even if their luck changes and they get a job with enough income to qualify for premium help, they are out of luck when it comes to affordable coverage. An individual in that case may qualify for a hardship exemption from the mandate penalty, since coverage without a premium tax credit is likely to be unaffordable for that person. Or they may qualify for an exemption because their income falls below the tax filing threshold. But that’s small consolation when you really just want to get covered.

However, individuals can preserve the right to a special enrollment period later if they take specific steps before their income changes. Individuals who fall into the Medicaid gap can obtain an exemption from the individual mandate penalty. But these individuals have to apply for Medicaid and be found ineligible before they can obtain that exemption. If later the individual’s income rises to more than 138% of poverty, he or she will lose their hardship exemption based on being ineligible for Medicaid; losing a hardship exemption then triggers a special enrollment period that will allow them to apply to the marketplace for premium tax credits.

So it’s possible that individuals who fall into the Medicaid gap can have a path to coverage if their luck changes and their income rises. But they need to take the right steps to preserve that right to a special enrollment period, before their income changes: First, they must apply for coverage under Medicaid, knowing they won’t be found eligible. Second, upon receiving their denial from the state Medicaid agency, they must apply for a hardship exemption. Third, once their income changes, they must notify the Marketplace, and apply for a special enrollment period based on the loss of their hardship exemption. Needless to say, this path to coverage requires extra steps, foresight, and a sophisticated ability to navigate the eligibility and enrollment process.

The exchange rules didn’t start out this way. Originally, the rule for special enrollments allowed anyone gaining eligibility for financial assistance because of a change in income to qualify. But HHS, in subsequent rulemaking, limited that option to those already enrolled in a marketplace plan. Because most people under 100 percent of poverty can’t afford to enroll in a marketplace plan without financial help, this change significantly limits access to coverage for these individuals, even if later in the year they experience an increase in income that would qualify them for premium tax credits. Many will have to wait for the next open enrollment period to enroll in a plan.

It’s not clear why the administration made this change – it could be that insurers were concerned about adverse selection (the greater the opportunity to enroll outside of open enrollment season, the greater likelihood healthy people will defer doing so). However, this limit seems particularly unfair for the millions of individuals who were too poor to qualify for premium tax credits and have the misfortune to live in a state that hasn’t expanded Medicaid – and didn’t know about the steps to take to preserve their right to a special enrollment period. On the other end of the spectrum, those who bought coverage outside the marketplace because their income was too high to qualify for premium tax credits are also locked out if their fortunes change and their income drops mid-year.

In the coming months, we may see rules change and enrollment processes made smoother in anticipation of the next open enrollment period, which will begin November 15, 2014.  This is one rule we hope is on the list for review. Stay tuned to CHIRblog for updates on the rules and more on special enrollment periods.