New York Times: Uncertainty Over Whether States Will Choose to Expand Medicaid

By Robert Pear

Posted on June 28, 2012

WASHINGTON – After the Supreme Court ruled on Thursday that a huge expansion of Medicaid in the 2010 health care law was an option and not a requirement for states, experts disagreed on whether states would take the option.

Senator Lamar Alexander, a Tennessee Republican who is an opponent of the health law, predicted that many states would choose not to expand Medicaid.

Sara Rosenbaum, a George Washington University professor who supports the law, predicted that “only a small number of states’’ would pass up the expansion, given the generous financial terms of the deal authorized by Congress.

And Matt D. Salo, executive director of the National Association of Medicaid Directors, which represents state officials, said his initial sense was that many states would accept the expansion.

The question is one of the most important created by the court’s decision. The Medicaid expansion is a central part of the law, accounting for roughly half of the insurance expansion, according to the Congressional Budget Office.

The law simplifies Medicaid eligibility, sweeping away many complex factors – like a person’s family status — in favor of a single standard. People under 65 will generally qualify for Medicaid if their income is less than or equal to 133 percent of the federal poverty level (which for a family of three is equal to $25,390 in annual income).

While upholding the expansion of Medicaid, the Supreme Court limited the power of the federal government to force compliance by penalizing states that refuse to go along. In essence, the court said that states could choose between the old version of Medicaid and the new one established by the law.

Chief Justice John G. Roberts Jr. said the federal government could not compel states to comply by cutting off all the federal money they receive for existing Medicaid programs.

The threatened loss of so much federal money — more than 10 percent of state budgets — “is economic dragooning that leaves the states with no real option but to acquiesce in the Medicaid expansion,’’ the chief justice said. “A state could hardly anticipate that Congress’s reservation of the right to ‘alter’ or ‘amend’ the Medicaid program included the power to transform it so dramatically.’’

Mr. Alexander, who was previously governor of Tennessee, said in an interview: “Many states, maybe most, will decide that they simply cannot afford to choose to expand Medicaid. If I were governor of Tennessee, I would not expand Medicaid as the program is currently run.’’

Mr. Alexander said that public higher education was “a big winner’’ under the court decision. “Over the last 25 years,’’ he said, “federal Medicaid mandates have soaked up money that states would normally spend for public colleges and universities.’’

The Congressional Budget Office estimates that, under the new health care law, 17 million uninsured people will gain coverage through Medicaid, at a cost to the federal government of $930 billion from 2014 to 2022.

It is a common misconception that Medicaid covers all poor people. In fact, many low-income people, including millions of childless adults and parents, cannot obtain coverage.

Normally, the federal government and the states share Medicaid costs, with the federal government paying an average of 57 percent of the total.

Under the new law, the federal government will pay the full cost of covering those newly eligible for Medicaid for three years, from 2014 to 2016, and the federal share will then gradually decline to 90 percent in 2020 and later years.

White House officials say this is a good deal for states. But many state officials worry that Congress will reduce the federal share and shift more costs to the states.

Chief Justice Roberts said Congress could offer money to states to expand Medicaid and could attach conditions to such grants. But he said, “What Congress is not free to do is to penalize states that choose not to participate in that new program by taking away their existing Medicaid funding.’’

Thus, he declared, the secretary of health and human services cannot withdraw existing Medicaid financing because of a state’s failure to comply with the requirements for expansion of Medicaid prescribed in the new law.

The federal government has long asserted that it could cut off all Medicaid money to a state that flouted federal requirements for the program. It has never used this sledgehammer, but the threat of the power has often induced states to comply with federal standards.

“The nuclear option has never been used,’’ even though states often lag in complying with new federal requirements, Ms. Rosenbaum said.

If a state chooses not to expand Medicaid, it might be in a peculiar position. People with incomes from 133 percent to 400 percent of the poverty level could obtain federal subsidies to buy private insurance, through online markets known as insurance exchanges, but substantial numbers of people with incomes below that level could not obtain assistance.

For years, governors and other state officials have complained about the growing financial burden of Medicaid, saying it forced them to reduce spending on education, highways and other programs.

Many states say they cannot afford existing Medicaid programs. In the last 24 months, many states have reduced Medicaid payments to hospitals and other health care providers.