Future of Health Law Is Largely in State Hands

More than 80 percent of those served at the Nuestra Clinica Del Valle health clinic in San Juan, Texas, are uninsured. (AP)

See: State of the States 2013

After running a gauntlet of legal and political opposition, the Affordable Care Act is poised to bring the United States closer than it has ever been to universal health insurance. But just how close it gets will be up to individual states. (See Stateline infographic.)

To reach its goal of covering 30 million low-income Americans in 2014, the Obama administration wants states to take two crucial steps: create an online health insurance exchange where people can sign up for coverage; and expand state Medicaid programs to cover 17 million more low-income adults. Each state will have an exchange whether it wants one or not, because the federal government will create them in states that fail to do it on their own. But the administration is asking states to take the initiative.

Republican governors, who have almost uniformly refused to build exchanges, are also rejecting the idea of extending their Medicaid programs for the poor to include able-bodied adults. Breaking ranks are GOP governors in Arizona, Michigan, Nevada, New Mexico, North Dakota and Ohio, who have agreed to the expansion; and officials in Idaho, Mississippi, Nevada, New Mexico and Utah who have said Yes to running state insurance exchanges.

Supporters of the health law hope that over the course of this year, more Republican governors will have a change of heart. “Once state lawmakers start hearing from patient advocates and health care providers, many governors are likely to change their positions,” says Ron Pollack, executive director of Families USA, which supports the law.

Critics of the act, however, predict state Republican legislators will largely stand by their governors’ refusal to engage. In fact, they say, even some Democratic governors who support Medicaid expansion may have to shift their positions if they encounter enough resistance from Republican lawmakers. In Arkansas, for example, Democratic Governor Mike Beebe admits he may not succeed in persuading the new GOP majority in the state legislature to vote for expansion.

The same may be true for Republican governors. Arizona Governor Jan Brewer’s January 18 announcement of support for the Medicaid expansion stunned GOP members of the legislature, many of whom are expected to vote against her proposal.

What might persuade some wary governors and legislators to create an exchange, expand Medicaid, or do both would be latitude from the Obama administration on how to structure the product. The administration has been granting that latitude in some areas while denying it in others.

Decision Time

See Stateline Infographic: How Many People Would Medicaid Expansion Cover? States must decide whether to expand their Medicaid programs to low-income, able-bodied adults. The potential effect varies widely among states.

With the announced deadline for the exchange decision two weeks away, 25 states have said No to running their own exchange, 19 have said Yes, and six have decided to partner with the federal government. The Obama administration has conditionally approved plans for exchanges in 19 states and the District of Columbia, which means they can begin operation this October. Hoping to get more states to engage, the U.S. Department of Health and Human Services has said states currently holding out can change their decision at any time in the future.

For some governors, running an exchange represents an opportunity to involve employers and the insurance industry in improving the health of state residents.  For governors opposed to the law, however, creating an exchange is considered a risky and thankless task dictated by the federal government.

But no matter which choice a state makes, it will have an exchange where individuals and small businesses can go on line and comparison shop for health insurance – and consumers will be hard-pressed to know which level of government is running it.

The Medicaid decision will have much broader consequences. In addition to affecting millions who stand to get health insurance coverage, many for the first time, doctors and hospitals would benefit because they would see far fewer patients who are unable to pay them.

As envisioned in the Affordable Care Act, the Medicaid expansion would extend coverage to everyone with an income at or below 133 percent of the federal poverty line, about $31,000 for a family of four and $15,000 for an individual.

Currently, children, pregnant women, the disabled and elderly can receive Medicaid benefits if their incomes are at or below 133 percent of the federal poverty measure. But in most states, able-bodied adults are either not covered at all or receive benefits only if they have dependent children or their incomes are far below the poverty level.

Originally mandatory for states, the Medicaid expansion was made optional by the Supreme Court last June as part of a decision that otherwise upheld the controversial law.

A majority of governors have already weighed in on Medicaid expansion – 14 Republicans who are opposed to it and 15 Democrats, one Independent and four Republicans and the District of Columbia, who have accepted it. But the governors’ decisions will not be final in most states until state legislatures take action. Since there is no deadline for deciding whether to participate in the expansion, the debates in some statehouses may carry over into 2014.

In fact, some Medicaid experts predict it could be years before all states decide whether to expand their programs. When Medicaid was first made available to states in 1965, only a handful of states joined in the first year. More opted in during the second year, while others lagged behind. Arizona, the last to join, waited until 1982 to sign up.

High Stakes

Health Law Scoreboard

For states that decide to expand their Medicaid programs, the federal government will pay 100 percent of the costs in the first three years. After that, states are responsible for a gradually increasing share that will be capped at 10 percent in 2020 and thereafter. Although the offer seems generous, more than a few states worry that the increased expenses in the fourth year and beyond will strain their already overburdened Medicaid budgets.

Complicating states’ calculations are ongoing budget talks in Washington that threaten to limit future Medicaid spending. The worry is that the federal government’s 90 percent share of the costs for those newly covered could shrink over time, or that funding for the existing program might be curtailed.

In deciding whether to cover millions of new beneficiaries, states must balance concerns about the future costs of a bigger Medicaid program against the benefits of improving the health of their residents and providing substantial new revenue for the hospitals and other health care providers within their borders.

The economic pressures underlying each state’s decision will be different. Any state that chooses to expand its Medicaid program will increase its spending to some degree over the next decade. A few states will see an immediate fiscal benefit.

Since the recession began, states have tried to reduce Medicaid spending in virtually every way federal law allows. Prohibited from reducing enrollment, states have limited benefits and cut payments to health care providers. Some have attempted major changes in the way health care is delivered and financed.

Even so, the program accounted for nearly one-quarter of state budgets in 2012, according to a new report from the National Association of State Budget Officers. In 2013 and afterward, Medicaid will continue to crowd out other state funding priorities.

Seeking Flexibility

When the Medicaid expansion first became optional after the Supreme Court’s decision last June, experts predicted Republican governors would accept the federal money, just as they eventually did when federal stimulus money was offered up in 2009. But unlike the one-time stimulus dollars, which had few strings attached, the Medicaid expansion involves a complex tradeoff. The states would get an estimated $931 billion in federal money between 2014 and 2022, according to the Congressional Budget Office; they would also have to spend $73 billion of their own money.

The U.S. Department of Health and Human Services has said states can back out of the expansion later on.  But taking away people’s health care coverage once it has been offered is something both Democrats and Republicans want to avoid.

Even with hopes for repeal of the health law extinguished, most Republican governors remain opposed to it on principle. Instead of expanding Medicaid, they argue states should be given the flexibility to find their own means of covering uninsured residents.

“We have a vibrant vision for health care in America,” Republican governors wrote in a letter to President Obama last December. As an alternative to the expansion of Medicaid outlined in the health law, GOP governors asked the administration to work with them on “market-driven health care reform.”

Despite the administration’s professed eagerness to work with Republican governors, one of the governors’ most important proposals has already been rejected. Instead of expanding Medicaid to everyone with incomes below 133 percent of the federal poverty line, Republican governors asked for leeway to set lower income ceilings. Those with incomes above the federal poverty line, they reasoned, could purchase private insurance using federal tax credits.

But in a December 10 release, the federal agency that oversees Medicaid made a legal determination that the health law did not allow for such a partial expansion. Instead, the agency offered a variety of other ways states could adapt their Medicaid programs to keep costs down.

For example, states could require newly covered adults to bear a portion of the costs, through such devices as co-pays and deductibles. An important Republican policy precept, cost-sharing in the existing Medicaid program has previously been rejected by the federal government because of concerns that low-income beneficiaries might forego needed medical treatments.

The December ruling represented a change in policy. Despite the negative verdict on lowering income ceilings, it signaled the administration’s willingness to treat the new expansion group of Medicaid beneficiaries differently in an effort to win states’ agreement to cover them.

If every state ultimately accepted the expansion, the result nationwide would be a 25 percent increase in the number of Medicaid beneficiaries, from about 60 million people to 76 million. But in some states, the expansion would be more dramatic.

Supersized Medicaid

See Stateline's 13th annual State of the States report on key issues, with a particular emphasis on the relationship between states and the federal government.

In Texas, which currently has one of the nation’s leanest Medicaid programs and highest uninsured rates, the number of beneficiaries would swell by 63 percent. That would increase Medicaid rolls from their current level of 3.7 million beneficiaries to 6.1 million, according to a November 2012 report from the Kaiser Family Foundation. Even with the federal government paying most of the bill, the cost to Texas would be $5.7 billion between 2013 and 2022, the report projected.

On the other hand, in states that have already expanded their Medicaid programs to cover able- bodied adults, federal money will replace existing state expenditures, resulting in immediate fiscal gains. New York stands to reap $33 billion in the first 10 years, Massachusetts $6.6 billion, and Maryland $1.8 billion.

A major benefit for states that choose to expand Medicaid will be lower costs for so-called safety net hospitals, those that serve most of a state’s uninsured patients. With more of the bills getting paid by Medicaid, the safety net hospitals will be able to lower their rates for paying customers.

In states that choose not to expand, however, safety net hospitals will suffer. The federal health law envisioned that all states would expand Medicaid, so it included a provision that phases down a federal subsidy to shore up hospitals that serve the largest numbers of uninsured patients. So far, the federal government has not said precisely how it will allocate the reductions in this subsidy, adding some uncertainty for states attempting to determine the pluses and minuses of expansion.

In statehouse debates over the issue this year, opponents of expansion are drawing clear philosophical lines between covering their most vulnerable residents (the disabled, elderly, pregnant women, and children) in the current Medicaid program and extending coverage to able-bodied adults. Many caution that what they consider to be unacceptably high rates of fraud and abuse in the existing program will balloon if Medicaid is suddenly expanded to millions of new people. Critics are also cautioning that state and federal Medicaid dollars will be spent to replace private insurance policies now held by many in the expansion group.

In addition to debating the expansion and exchange options, state lawmakers will be struggling to rein in 2014 spending for their existing Medicaid programs. Those discussions, plus worries about potential federal budget cuts, are likely to define the 2013 legislative sessions in most states.

See: State of the States 2013


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