Reflecting both ideological and budgetary concerns, as many as 15 states are leaning toward or firmly committed to not participating in the health reform law’s provision to expand the Medicaid program by allowing adults with annual incomes up to 133% of the federal poverty level (FPL) to enroll starting in 2014. All of the 15 states, except for Missouri, are led by Republican governors.

Soon after the June 28 Supreme Court decision to uphold the health reform law’s individual mandate as a tax by a 5-4 margin, attention quickly turned to a secondary ruling to permit states to decide whether to expand their Medicaid programs.

The court rejected as federal overreach the notion states must do so or lose all program funding. As a result, insurers and health market observers tell HRW they now are trying to gauge how much of the discussion on states opting out of the Medicaid expansion is posturing versus a bona fide refusal to take part, and what it all may mean.

The Supreme Court ruled that Congress violated the Constitution’s Spending Clause in allowing HHS to withhold all Medicaid funding from states that don’t expand program eligibility by 2014 to adults with annual incomes up to 133% of the FPL (HRW 7/2/12, p. 1). While the reform law lives, its key goal of increasing the number of Americans with health insurance by about 30 million starting in 2014 is in serious jeopardy as some states weigh opting out of expanding their Medicaid rolls. Of the 30 million persons expected to come into the system as newly insured under the reform law, around 17 million are to come from the easing of eligibility standards for Medicaid. The court decision has made the law’s requirement for state participation a mere option now. Some states are balking even though the federal government will pick up 100% of the cost of the Medicaid expansion from 2014 to 2016, with the contribution level gradually dropping to no less than 90% thereafter. The current federal match for Medicaid payments to the states is 57%.

States also are reviewing whether to make it harder for adults now enrolled in Medicaid to qualify starting in 2014. According to a July 3 article in Kaiser Health News, a part of the reform law left untouched by the Supreme Court ruling actually allows states to roll back eligibility standards and effectively cut the number of their adult Medicaid recipients.

Thomas Johnson, president and CEO of Medicaid Health Plans of America, tells HRW that he hopes states will agree to the Medicaid recipient increase, thus giving the reform law’s fundamental goal of expanding coverage pools a real chance to work. “This is one of the most generous programs that exists in the federal government, period,” says Johnson. He contends that many states are looking for guidance from the Obama administration as they decide what path to pursue, but that the managed care marketplace in any case will continue on a path set in recent years.

“There are companies out there setting up alliances” to take advantage of the new opportunities in the states with future Medicaid program expansions, Johnson notes. He cites the Humana Inc.-CareSource partnership unveiled this year and Health Alliance Plan’s 2011 purchase of for-profit Medicaid HMO Midwest Health Plan as examples of the type of deals that will continue even after the Supreme Court rulings. One large deal was just announced July 9 in the Medicaid managed care space when WellPoint, Inc., said it would pay $4.9 billion to buy Medicaid health plan operator Amerigroup Corp., which has 2.3 million members in 13 states.

15 States May Refuse Medicaid Expansion

Six states led by Republican governors have declared their intention to refuse federal funding for a Medicaid expansion. They are Florida, Louisiana, Mississippi, South Carolina, Texas and Wisconsin. A total of 15 states are in the rejected or leaning to reject Medicaid expansion camp, according to a July 3 report in The Hill newspaper. In addition to the six listed above as on the “no” or “leaning no” side are Alabama, Georgia, Indiana, Iowa, Kansas, Missouri, Nebraska, Nevada and Virginia. The most vocal opponent, and representing a state with one of the nation’s largest populations of uninsured, is Texas Gov. Rick Perry (R), who vowed his state won’t take part.

Besides politics, there are real budget concerns for the states, even with the sizable share of the load being carried by the federal government to pay for the Medicaid expansion. The Congressional Budget Office, ahead of the Supreme Court’s ruling to uphold the health reform law, projected that states would pay around $73 billion for adding newly eligible Medicaid recipients, amounting to roughly 7% of the cost for the years 2014 to 2022. The federal government would pay 93%, or $931 billion. The amounts may not be huge when compared side by side, but any increase in budgetary pressure on the states forces decisions on what other programs to cut to afford it all.

Still, ideology is a large factor in the stances being taken in some states. Louisiana Gov. Bobby Jindal (R) told Fox News that he is against adding to Medicaid numbers because “what makes the country great in part is that we’re not dependent on government programs.” Perry on July 9 released a letter to HHS Sec. Kathleen Sebelius in which the governor blasted the Medicaid expansion and health insurance exchanges, saying neither would work, and both permitted the federal government to intrude in a state’s business.

Opponents of Perry’s stance point to the fact that Texas, if it follows through on refusing federal funding to expand Medicaid, would lose out on $164 billion in federal aid and keep 1.2 million Texans from getting into the program.

A July 3 article in The Wall Street Journal quoted Florida Gov. Rick Scott (R) as saying his decision to opt out is the right one for the state’s citizens. That choice means as many as 1.38 million Floridians will not be able to get Medicaid coverage under the 2014 federal expansion, the article said. Some residents may qualify for subsidized insurance under the reform law, but many will remain uninsured.

Some observers see the pre-emptive attacks on Medicaid expansion by Perry and others as a way to gain leverage with the federal government for future talks on state waivers to allow states to model their Medicaid programs as they see fit.

“This is a real opportunity for a number of Republican governors to go to HHS and say as a condition of expanding they want a waiver,” Bob Laszewski, president of Alexandria, Va.-based Health Policy and Strategy Associates, LLC, tells HRW. The waivers likely would seek permission to privatize parts of state Medicaid programs or allow different eligibility levels than the 133% of the FPL in the reform law. Republicans also could ask that federal funding be sent in a block grant without any requirements from Washington on how the money is spent, he notes.

“There are opportunities [if waivers are granted] in Medicaid like we have never seen before to experiment,” Laszewski says, adding that the Supreme Court’s upholding of the overall reform law could have the consequence of giving Republican-held states the opening they need to revamp Medicaid in the manner they have always wanted. “Republicans are not able to repeal [at least pending the November elections], but there is this huge opportunity for experimentation,” he adds.

Election Year Complicates Medicaid Outlook

Carly Kelly, a director in consulting firm Avalere Health LLC’s health reform practice, says it is “tough to tell” right now what the talk about opting out will amount to, considering 2012 is a presidential election year. In the end, “we think most states will proceed with expansion….2014 is soon but also a bit far out [from the current post-election season],” she says.

If no action is taken by states to expand under the federal program or to seek a waiver for a state-based program, there will be the continuation of uncompensated care for the system to deal with, Kelly adds. “For insurers that do have a product line with the Medicaid program, it is to their advantage for states to expand and align with providers to move forward,” she says.

Duke University law professor Barak Richman, Ph.D., expects states to come around to the expansion plan, though not necessarily under the original tenets of the reform law. “I think the trend in Medicaid is toward flexibility. It would be hard to imagine that states, even Republican ones, would turn down the money. They would have significant flexibility in how they spend it,” Richman told HRW.

Health insurers already had been waiting on what to do about entering Medicaid markets pending the influx of the newly covered (HRW 4/23/12, p. 1), and may wait a few more months now.

Johnson sees the November election as the next “must-wait” date for figuring out what lies ahead for health reform in general and the Medicaid expansion in particular. “I really think the hard decisions will come after the election takes place in November….It is such a political year,” he says.

© 2012 by Atlantic Information Services, Inc. All Rights Reserved.

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