Saving the Medicaid Expansion

Within days of the Supreme Court’s ACA ruling that made the Medicaid expansion optional, the governors of Florida, South Carolina, Iowa, and Louisiana all announced that they wanted to opt out of it.

The governors of six other states were considering the same thing.

However they frame their views for the media, they are in fact an attack on two different constituencies.  The first is lower income uninsured families, elders, and single adults, 17 million of whom expected to become insured as a result of the expansion.  The second is safety net providers - nursing homes, hospitals, community health centers, mental health facilities, and others - who need Medicaid dollars to offset the costs of caring for people who have no insurance.

Some hospital providers will even get hit twice - once when they lose direct Medicaid dollars and again when they lose their Medicaid Disproportionate Share (DSH) payments that were cut by ACA in anticipation of the Medicaid expansion.

The Court’s opinion characterized the ACA Medicaid expansion mandate as “a gun to the head” of states.  I have included the full quotation at the end of this column. 

It said that this was because the “financial inducement” the federal government created to get states to participate – the loss of all Medicaid funding – went far beyond “relatively mild encouragement.”

So how might the federal government save the Medicaid expansion in states reluctant to embrace it, and deliver on its promise of coverage to millions of American citizens? 

It could thump its chest and hope providers will rise up in opposition to the governors.  Or it could be guided by the Supreme Court’s majority opinion and come up with a better idea that might actually work.

This is what it might look like.

The federal government should just keep the expansion “option” in place for all the states, paying almost all the bill for those states that accept it. 

And it should make a slight modification in the existing Medicaid funding formula to reduce its reimbursements by one-quarter of 1% to those states that reject the expansion.

Right now, the federal government pays at least half of the costs of every state’s Medicaid program.  But it also rewards failure, by paying much more to states that have done worse jobs of developing and maintaining a good economy for everyone. 

Not by chance, the federal share is higher in the states that want to opt out of the expansion.  South Carolina gets 70%, Louisiana gets 61%, Iowa gets 59%, and Florida gets 58%. Wealthier states like Connecticut, by contrast, get only 50%.

It’s a lot easier to turn down the funding for the Medicaid expansion when you’re already getting tens and hundreds of millions of dollars more than other states for your basic Medicaid program! 

The governors of these states know what a good deal they already have, and how much more Medicaid money they get at the expense of others who do more for their residents.

If the federal government were to change the formula in the way I’ve suggested, they would still have a very good deal.  Florida would still get 57.83% of its Medicaid costs from the federal government.  Iowa would still get 59.24%, Louisiana would still get 60.99%, and South Carolina would still get 70.18%.

Such modest adjustments would surely meet the Court’s definition of “mild encouragement” versus a “gun to the head.” 

Taxpayers would be happy, because it would save us real money if a state chose not to take on the expansion.  Concern for taxpayers was exactly what Florida’s Governor Scott, among others, suggested was his motivation for dismissing the expansion. 

But, most importantly, it would change the economic incentives for these states.

Let’s use Florida as an example.  For the sake of the illustration, we’ll pretend that there’s no inflation. 

In its Supreme Court brief, Florida contended that the Medicaid expansion would cost $351 million. 

Over the next ten years, Florida’s share would average of 7% of that, or just under $25 million per year.

Florida’s existing Medicaid program currently costs around $21.2 billion a year.  The federal government pays $11.6 billion of this.  If it were to reduce its reimbursement to Florida by one-quarter of 1%, it would save $29 million annually.

Under this scenario, Florida’s Governor would have a true choice.  He could embrace the expansion at a cost to the state of $25 million per year, or turn it down at a cost to the state of $29 million per year.

If it’s really only about the money, these governors will know exactly what they need to do.

Here is the extended quotation from the Roberts ruling on the constitutionality of the Medicaid expansion:

“We have upheld Congress’s authority to condition the receipt of funds on the States’ complying with restrictions on the use of those funds, because that is the means by which Congress ensures that the funds are spent according to its view of the “general Welfare….” When… such conditions take the form of threats to terminate other significant independent grants, the conditions are properly viewed as a means of pressur­ing the States to accept policy changes….”

 “In this case, the financial “inducement” Congress has chosen is much more than “relatively mild encourage­ment”—it is a gun to the head. Section 1396c of the Medi­caid Act provides that if a State’s Medicaid plan does not comply with the Act’s requirements, the Secretary of Health and Human Services may declare that “further payments will not be made to the State.” 42 U. S. C. §1396c. A State that opts out of the Affordable Care Act’s expansion in health care coverage thus stands to lose not merely “a relatively small percentage” of its existing Medi­caid funding, but all of it…. We cannot agree that existing Medicaid and the expansion dictated by the Affordable Care Act are all one program simply because “Congress styled” them as such. Post, at 49. If the expansion is not properly viewed as a modification of the existing Medicaid program, Congress’s decision to so title it is irrelevant.”  Roberts Decision, p. 50, 51-52