Medicaid Expansion Gap: What It Means for Your Hospital Bills

If you live in one of the 10 states that has not adopted the Affordable Care Act's Medicaid expansion — Texas, Florida, Georgia, Alabama, Mississippi, Tennessee, South Carolina, Kansas, Wisconsin, or Wyoming — the financial stakes around a hospital stay are considerably higher than they are for people in the other 41 states (including Washington, D.C.) that have expanded coverage. This isn't a minor policy footnote. It's a gap that can translate directly into thousands of dollars in unpaid medical bills, and it affects not just people under 65 but also Medicare beneficiaries who rely on Medicaid as a secondary payer to cover what Medicare doesn't.

The ACA's Medicaid expansion, when a state adopts it, extends Medicaid eligibility to nearly all adults with household incomes up to 138% of the Federal Poverty Level. In 2025, that threshold is $21,597 for a single individual. States that expanded coverage receive an enhanced federal matching rate — meaning the federal government picks up a larger share of the cost — which is why most states have eventually come around to expansion. But the 10 holdout states have not, and the result is what policy researchers call the "coverage gap": adults who earn too much to qualify for their state's traditional Medicaid program but too little to receive premium subsidies on the ACA marketplace, which start at 100% of the federal poverty level. These individuals are effectively stranded.

For people already on Medicare, this might sound like someone else's problem. But it isn't. Dual-eligible beneficiaries — people who qualify for both Medicare and Medicaid — rely on Medicaid to cover Medicare's cost-sharing: deductibles, copayments, and coinsurance that Medicare leaves behind. In 2025, the Medicare Part A hospital deductible alone is $1,676 per benefit period. If you're hospitalized twice in a year in separate benefit periods, that's $3,352 out of pocket before Medicare pays a single dollar of your room and board. For someone living on $18,000 a year in a non-expansion state, that figure is devastating. Medicaid, when available, absorbs much of that. When it isn't available — because the state hasn't expanded eligibility — the bill lands squarely on the patient.

This is exactly the scenario where hospital indemnity insurance earns its keep. A hospital indemnity plan pays a fixed cash benefit — typically ranging from $100 to $500 per day of inpatient hospitalization, depending on the plan and premium — directly to the policyholder, not to the hospital. You can use that money however you need: to pay the Medicare Part A deductible, cover transportation costs, replace lost income during recovery, or pay for home care after discharge. Unlike Medicare Supplement (Medigap) plans, which pay providers directly and require medical underwriting in most states after your initial enrollment window, hospital indemnity plans are often available with simplified or guaranteed-issue underwriting, making them accessible even if you have pre-existing conditions.

The practical math matters here. A basic hospital indemnity plan for a 68-year-old might cost $40 to $80 per month depending on the benefit level and the insurer. Over a year, that's $480 to $960 in premiums. A single three-day hospital stay — the average length of a Medicare inpatient admission — could trigger a $500-per-day benefit, paying out $1,500 in cash. That more than covers the Part A deductible in a single benefit period. For someone in a non-expansion state who doesn't qualify for Medicaid cost-sharing assistance, that cash benefit can be the difference between financial stability and a collections notice. That said, no one should expect a hospital indemnity plan to replace comprehensive coverage — it supplements, it doesn't substitute.

It's also worth understanding what hospital indemnity plans do not cover, because the marketing around these products can be misleading. They do not pay for outpatient procedures, physician office visits, or prescription drugs unless you purchase a rider specifically for those benefits. They pay only when you are admitted as an inpatient — and Medicare's own rules around inpatient versus observation status can complicate this. If Medicare classifies your hospital stay as "observation status" rather than an inpatient admission, you may not trigger your hospital indemnity benefit at all, even if you slept in a hospital bed for two nights. This is a real and frustrating problem that affects tens of thousands of Medicare beneficiaries each year, and it's one reason why reading the fine print on any hospital indemnity policy — specifically the definition of "inpatient admission" — is essential before you buy.

For beneficiaries in non-expansion states who are approaching 65 and transitioning from no coverage or marketplace coverage to Medicare, the window around your 65th birthday is the most important time to evaluate your supplemental coverage options. During your Medigap Open Enrollment Period — which runs for six months starting the month you turn 65 and are enrolled in Medicare Part B — insurers cannot deny you a Medigap policy or charge you more due to health conditions. This is a one-time federal guarantee. Miss that window, and in most states, insurers can medically underwrite you, potentially pricing you out of the most comprehensive Medigap plans. Hospital indemnity plans, by contrast, are typically available year-round with more flexible underwriting, which makes them a fallback option for people who missed their Medigap window or who find Medigap premiums unaffordable.

The political landscape around Medicaid expansion is also shifting in ways that could affect beneficiaries in the coming years. As of May 2026, work requirement proposals for Medicaid expansion populations are being tracked and implemented in some states under new federal reconciliation law provisions. If work requirements are implemented and enforced in expansion states, some low-income adults who currently have Medicaid coverage — including those who help dual-eligible Medicare beneficiaries navigate cost-sharing — could lose eligibility. That would push more of the financial burden back onto individuals and, by extension, onto supplemental insurance products like hospital indemnity plans.

If you're trying to decide whether a hospital indemnity plan makes sense for your situation, start by looking at your current out-of-pocket exposure under Medicare. Add up your Part A deductible ($1,676 per benefit period in 2025), your Part B deductible ($257 in 2025), and any coinsurance you'd owe for extended hospital stays — $419 per day for days 61–90 in 2025. Then ask your state Medicaid office whether you qualify for any cost-sharing assistance programs, including the Medicare Savings Programs, which can help pay these costs even in non-expansion states. If you don't qualify for those programs and you don't have a Medigap plan covering your hospital costs, a hospital indemnity plan priced at $50 to $100 per month may provide meaningful financial protection at a manageable cost. Contact your State Health Insurance Assistance Program (SHIP) — available in every state at no cost — to get unbiased help comparing your options before you enroll in anything.