Tough talk from governors about Medicaid after reform law ruling

A small but vocal group of states threatens to reject the law's Medicaid expansion, opening a new front in the battle over the statute.

By — Posted July 16, 2012

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The U.S. Supreme Court’s June 28 ruling upholding the Affordable Care Act resolved legal uncertainty about the law’s future and allowed stakeholders to turn their attention back to the implementation phase. But the decision also cast fresh doubt on the ability of the nation’s poorest individuals to obtain new coverage.

In a much-anticipated ruling, the court affirmed the law’s central requirement that nearly all individuals obtain health coverage starting in 2014 or pay a penalty. Though the court deemed this individual mandate unconstitutional under Congress’ ability to regulate interstate commerce, it ruled that the mandate was an acceptable application of Congress’ taxation powers.

The court also upheld the law’s expansion of Medicaid eligibility up to 133% of the poverty level, but it invalidated a provision requiring states to accept the expansion or forfeit all federal Medicaid funding. That effectively gives states an opportunity to opt out of the expansion while maintaining their current Medicaid programs.

In upholding nearly the entire reform law, the court allowed physicians who were in a holding pattern to move forward on preparing for some of the law’s provisions that most directly affect them, such as those establishing accountable care organizations. But the decision also means some provisions largely unpopular with physicians — such as the Medicare Independent Payment Advisory Board — remain intact and a prime focus of physicians’ legislative repeal efforts.

The Medicaid opt-out enabled by the ruling also means states, about half of whom had sued to invalidate the entire ACA, now have a major decision to make that will impact how many uninsured people will gain coverage under the statute. Until the court’s ruling, the Medicaid expansion question had been a sleeper issue compared with the more contentious debate about mandating the purchase of insurance.

By the beginning of July, the governors of at least seven states had said they would not support expanding their Medicaid programs to everybody up to 133% of poverty, potentially complicating ACA coverage plans for millions of low-income uninsured. Florida Gov. Rick Scott was one of the first following the ruling to make it clear his state would opt out, saying Florida otherwise would spend about $1.9 billion more taxpayer dollars “to implement a massive entitlement expansion.”

States that refuse the expansion will give up the federal funding designated to pay for the new coverage. For the first three years starting in 2014, the federal government will pick up the entire cost of the expansion, although states will be expected to pay 10% of those new costs by 2020.

Mississippi, another state whose leaders say they will opt out, is struggling under the budgetary weight of Medicaid, said Steve Demetropoulos, MD, president of the Mississippi State Medical Assn. Nearly a third of the state’s residents already have Medicaid coverage, probably one of the highest rates in the U.S., and simply expanding that coverage would put even more of a burden on the state, he said.

“I just think that as much money as they pumped into this thing, it would have been much better to have tax credits and health savings accounts, where there’s much more personal responsibility for patients for their health care as opposed to pushing along a system that’s not the most efficient system,” Dr. Demetropoulos said.

Even in states like Illinois, one of the handful that had indicated by early July that it would accept the expansion, physicians were advocating for program reforms beyond just an increase in the Medicaid rolls. Building coverage through a Medicaid expansion alone “is not a sensible policy in states such as Illinois with struggling Medicaid programs,” said William Werner, MD, president of the Illinois State Medical Society. “More must be done to fix this program.”

The majority of states that are assessing the Medicaid expansion face a dilemma.

The question in Nevada, for instance, is “not how much the federal government is willing to fund, but how much Nevada will have to pay,” said Larry Matheis, executive director of the Nevada State Medical Assn. Though the federal government does pick up the check for the first three years, states still will be on the hook for administrative costs, he said.

On the flip side, if Medicaid coverage isn’t expanded, “it will leave a huge gap [in] coverage in our state even with the [other] changes contemplated by the law,” Matheis said. “I don’t know exactly how that would be addressed.”

Complex calculation for states

Though the reform ruling reenergizes political battles over the health reform law, more substantive Medicaid policy decisions will be taking place at the state level. Those decisions are bound to be complex ones.

Under the court’s ruling, other Medicaid provisions in the law would continue to apply even in the case of a state opting out, said Matt Salo, executive director of the National Assn. of Medicaid Directors. “This includes a variety of policies, ranging from the mandated increase in primary care reimbursement rates to the mandated decreases in disproportionate share hospital funding.”

Also, it remains largely unclear the deadline states will face to opt in or out of the Medicaid expansion provision, what steps they’ll need to take to make their decisions official and whether governors will need to seek approval from state legislatures for their decisions. The Centers for Medicare & Medicaid Services plans to issue additional guidance to the states on next steps.

Major political considerations also are at play. The consequences for a state opting will fall on some of the state’s poorest residents, said Jennifer Tolbert, director of state health reform with the Kaiser Family Foundation. Some individuals whose incomes fall between 100% and 133% of poverty that would have qualified for Medicaid under the expansion conceivably could obtain federally subsidized private coverage through the law’s health insurance exchanges. But those under 100% of poverty who are shut out of Medicaid cannot, and probably would remain uninsured, Tolbert said.

Most states will be doing careful assessments of the advantages and disadvantages of the Medicaid expansion, said Deborah Bachrach, New York’s former Medicaid director and special counsel in the health care practice at Manatt, Phelps & Phillips, LLP, in New York. States must assess how many uninsured they have and what the true state costs of covering those individuals would be.

States undoubtedly will be focusing on the 10% portion they will be paying by 2020, Bachrach said. But the analysis requires another step — a calculation of state spending on programs and health professionals serving uninsured patients. These are costs states are underwriting today that largely could be offset by the federal government after 2014, she said.

“When they complete that analysis, I think most states will find that the benefits of the expansion far outweigh the costs,” Bachrach said.

Such considerations have not stopped the handful of states that have said they will opt out. “The way states are looking at this, it makes sense for a couple of years, but they’re then left with something that has significant, ongoing and long-term budget costs that they may or may not be able to afford, given the current fiscal state,” said Sanjay Saxena, MD, a partner in the North American health practice at Booz & Co., a global management consulting firm.

Still, state stances on the Medicaid expansion undoubtedly will shift during the coming months, Dr. Saxena said. He said some of the vocal political rhetoric on the expansion probably will die down after the November elections, at which point some may move toward opting in.

Glen Stream, MD, president of the American Academy of Family Physicians, said he hopes states upon further reflection will elect to cover more individuals through the expansion. “To intentionally continue to leave a large number of people uninsured by not having the Medicaid expansion, I just have a hard time” with that, he said. He said hospitals in particular will be pressuring states to expand Medicaid, given that the facilities are taking on more charity care of the uninsured even as federal help for unpaid patient bills is getting smaller.

Georges C. Benjamin, MD, executive director of the American Public Health Assn., cited the human cost of rejecting the change.

“The law’s Medicaid expansion provision transforms a fragmented system of insurance coverage for the poorest of Americans into a seamless and better coordinated program,” Dr. Benjamin said. “Ironically, many of the states that have opposed this particular provision are home to residents who experience the greatest need of this expanded coverage and are burdened by some of the worst health outcomes.”

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Coverage for millions of uninsured on the line

By the beginning of July, chief executives in nearly half of the states had indicated whether they would support expanding Medicaid under the Affordable Care Act starting in 2014, although those positions could change in the coming months.

Opting in
13 states: California, Connecticut, Delaware, Hawaii, Illinois, Maryland, Massachusetts, Minnesota, New York, Oregon, Rhode Island, Vermont, Washington
Projected expansion enrollment: 4.3 million
Portion of total: 28%

Opting out
7 states: Florida, Louisiana, Mississippi, Nebraska, South Carolina, Texas, Wisconsin
Projected expansion enrollment: 3.9 million
Portion of total: 25%

30 states: Rest of the U.S.
Projected expansion enrollment: 7.5 million
Portion of total: 47%

Note: Information was not available for the District of Columbia.

Source: Booz & Co. analysis of state preferences as of July 10

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GOP governors rejecting exchanges, too

Some Republican governors who oppose the Affordable Care Act aren’t just resisting the law’s Medicaid expansion in the wake of the U.S. Supreme Court’s ruling to uphold the law. They say they are not interested in setting up state marketplaces known as health insurance exchanges, either.

In a July 9 letter to federal Health and Human Services Secretary Kathleen Sebelius, Texas Gov. Rick Perry made it clear that he opposed the Medicaid expansion and the creation of state-based exchanges “because both represent brazen intrusions into the sovereignty of our state.” Neither would result in better patient protection or more affordable care, Perry wrote, but “would make Texas a mere appendage of the federal government when it comes to health care.”

In the event Texas or another state refuses to set up its own exchange, the ACA authorizes the federal government to impose a “federally facilitated” exchange.

There will be a handful of states “that have been so vocally opposed to the Affordable Care Act that they have not accepted federal grant funds, or returned grant funds” earmarked for forming exchanges, said Jenna Stento, manager in the health reform practice at Washington consultant group Avalere Health, LLC. Those are states that will have to default to the fully federal exchange model, at least for the first few years, she said.

In some cases, the reasons for states defaulting to the federal exchange “are as much political as they are pragmatic and budgetary,” said Sanjay Saxena, MD, a partner in the North American Health Practice at Booz & Co., a global management consulting firm.

Some states just don’t have enough time before 2014 to implement their own exchanges, Dr. Saxena said. Also, he said, “If Massachusetts is a good predictor, the costs associated with setting one up are not necessarily justified, particularly in small states.”

The way South Carolina Gov. Nikki Haley sees it, “the state is ceding nothing” by refusing to form a state-based exchange. In a July 2 letter, she insisted states would have too little flexibility under the concept of state-based exchanges.

Gregory Tarasidis, MD, past president of the South Carolina Medical Assn., said his concern about the bureaucracy a health exchange may create “keeps me awake at night.” Government regulation over insurance purchasing and delivery will interfere with the physician-patient relationship, he said.

Not all states will be quick to reject the exchanges, Stento said. With a Nov. 16 deadline for states to submit proposals on their exchange models closing in, many are moving ahead on state-based exchanges, and others probably will develop partnership exchanges with the federal government.

“Those are some of the states where it’s been politically a little bit challenging for them to fully move forward with legislation or an executive order,” she said. “But they’ve been doing some work behind the scenes.”

Michigan Gov. Rick Snyder, a Republican, said in a statement that he didn’t agree with everything in the reform law but saw the practical advantages of developing a state partnership exchange. He said it would enable Michiganders to make insurance decisions “as opposed to Washington, D.C., making those decisions for us. It will also allow us to draw down federal dollars to assist with the costs of complying with the law.”

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