The Affordable Care Act (ACA) has advanced opportunities to expand access to health coverage for low-income Americans through the expansion of Medicaid and the establishment of health insurance marketplaces. As pathways to public and private health coverage, state-based marketplaces (SBMs) perform many cross-program functions that support access to both marketplace qualified health plans and Medicaid. For example, an individual cannot be found eligible for marketplace tax credits and cost-sharing reductions until they are determined ineligible for Medicaid. These shared functions represent an opportunity for states to achieve savings, but in order to capitalize on this opportunity, states are required to properly attribute funding between programs through a process known as cost allocation.
This brief provides an in-depth view of the mechanics of implementing cost allocation between Medicaid and marketplace programs. Targeted to state policy leaders interested in financing options for state-based marketplaces, it outlines: (1) potential shared administrative services between Medicaid and SBMs that may be cost allocated; (2) cost allocation methods between Medicaid and the marketplace; and (3) available federal Medicaid match funding to support shared administrative tasks. It also provides a step-by-step process for states to develop and submit for federal approval a state-specific cost allocation methodology.