Medicaid expansion is a centerpiece of the plan outlined in the Affordable Care Act (ACA) to broaden healthcare coverage in the United States. 

 

Although it is not yet known how many states will participate in the expanded Medicaid program and how many individuals who are eligible for Medicaid will enroll, initial estimates indicated that as many as half of the newly insured—possibly 16 million people—will come from Medicaid expansions.  

Medicaid has traditionally covered some, but not all, poor and low-income individuals. States have been able to influence how many were covered by setting income-eligibility and allowable-asset levels and by deciding whether to exclude coverage for certain populations, such as childless couples. Under the ACA, all individuals who are below 138 percent of the poverty line will be eligible to receive Medicaid. Also unlike current law, where the federal match rate varies between 50 percent and approximately 75 percent, the federal matching rate for the expanded portion of Medicaid will be 100 percent for the first three years and 90 percent thereafter. 

Supreme Court Ruling

The initial language of the ACA imposed a significant penalty on states if they opted out of the Medicaid expansions legislated in the law. A decision not to comply with the Medicaid expansion would cause a state to lose not only all additional money associated with expansion, but also all of its existing Medicaid money. Most of the focus of the Supreme Court ruling this past June was on upholding of the constitutionality of the individual mandate. However, the significance of the ruling disallowing the provision that would have penalized states for deciding not to expand their Medicaid coverage should not be underestimated.  

A Shift in States’ Positions

Since the ruling, many states that had been opposed to all or portions of the ACA have stated either that they do not plan to expand Medicaid coverage or that they are still considering whether to do so. However, some governors have had an apparent change of heart. Rick Scott of Florida, for instance, had said that he would not approve a Medicaid expansion, but now is saying he is looking for a way to “make it happen.” 

To date, only 13 states plus the District of Columbia have committed to expanding Medicaid, while eight states have said that they will not expand Medicaid coverage. Most of the latter states are in the South and Southeast; Texas is by far the biggest of the states that thus far have said “no.” 

The concerns that the states have voiced have ranged from philosophical opposition to the ACA to fears that the federal government will not be able to keep its promise of 100 percent financing for the first three years and 90 percent financing thereafter. These concerns are particularly troubling for many states at this time, given the ongoing battles relating to “fiscal cliffs” and sequestration. But the concerns also are likely to continue as long as entitlement reform remains on the nation’s “to do” list for consideration at some point in the future. Recently, two other states, Wyoming and Virginia, have joined the ranks of states voicing concerns about whether to trust the federal government to fulfill its financial commitment to Medicaid. Given the amount of time that remains until the expansion is due to begin, we may still see others following suit. 

Historically at least, states have tended to increase their levels of participation when the federal match becomes high enough. This was clearly the case after the introduction of the State Child Health Insurance Program (SCHIP), which was passed as part of the 1997 Balanced Budget Act. SCHIP uses an enhanced match rate that varies between 0.65 and 0.83 (versus Medicaid’s rate of 0.50 to 0.76). Within less than a decade, every state but Arizona opted to participate in this voluntary expansion of insurance to families with uninsured children whose family income makes them ineligible for Medicaid. In fact, initially, some states found that children they had enrolled for SCHIP were actually eligible for Medicaid, much to the states’ chagrin, given that shifting these children to Medicaid would result in a lower match from the federal government than the states would have received under SCHIP. 

Based on this experience and what is likely to be enormous pressure from the hospital sector, which has counted on increased numbers of people with insurance coverage to help offset the reductions in Medicare payments hospitals will face under the ACA, it is reasonable to expect that most states ultimately will expand their Medicaid coverage.

Federal Encouragement

Given the importance of expanded Medicaid coverage toward achieving the overall coverage expansion targeted under the ACA—and given that the Congressional Budget Office has increased its estimates of how many people may decide to pay a penalty rather than purchase subsidized insurance in the exchanges—the administration has recently signaled to states a willingness to consider being flexible regarding Medicaid expansion.  

Because so many states have expressed concerns about the federal government’s ability to pay the full cost of the Medicaid expansion for the first three years of the ACA, the administration has attempted to reassure states that they can always pull out of the expanded Medicaid program if they feel the need to do so for any reason. Although some states have questioned how realistic it would be to attempt to do so, there is ample historical precedence for states cutting back on optional coverage or benefits during times of fiscal distress. 

However, much to some states’ disappointment, the federal government recently announced it will not allow states to expand Medicaid coverage only partially. This could become important because individuals below the poverty line—unlike people who are at or above the poverty line—are not eligible to purchase subsidized insurance in the exchanges. Thus, if a state had been able to expand Medicaid coverage to at least the poverty line, it could have ensured that all of its low-income citizens would have had access to some type of subsidized coverage.  

It is not clear whether such a partial expansion is consistent with the law. If it is, in fact, consistent with the law, then the administration has decided to “up the ante” on the states, forcing them to make an all-or-nothing decision. We will have to wait and see who makes the first move on this issue. 


Gail R. Wilensky, PhD, is a senior fellow at Project HOPE; a former administrator of HCFA, now CMS; and a former chair of the Medicare Payment Advisory Commission (gwilensky@projecthope.org).

Publication Date: Tuesday, January 01, 2013

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