The Supreme Court’s Decision on Medicaid Expansion – Leave the Carrot, Take Away the Stick…

Although the Supreme Court upheld the Affordable Care Act (ACA), it did limit one portion of the law – the Medicaid expansion.  In the ACA, Congress expanded Medicaid to nearly all people under the age of 65 whose household income is at or below 133% of poverty. Currently, the Medicaid program, funded jointly by the states and the federal government, primarily covers pregnant woman, needy families, and the disabled.  Each state operates its own Medicaid program within federal guidelines. Because the federal guidelines are broad, states have a great deal of flexibility in designing and administering their programs. Under the law if a state refused to comply with the new coverage requirements, it may lose funding for not only the expansion population but all of its Medicaid federal funds.

The Court ruled that the expansion can stand and that the provision is constitutional as long as states would only lose new funds if they didn’t comply with the new requirements, rather than all of their funding.  In real world terms, that means that states may now choose whether or not to participate in the expansion without risk of losing other Medicaid funding.

…Does the Decision Create a New “Donut-Hole” Population

What is not known is how many states will choose to participate in the expansion. If a state does not participate in the expansion where does that leave the population of people that are not covered under a state’s existing Medicaid program who would have been covered under expansion.   The law’s provision of subsidies to purchase health insurance on the health insurance exchanges doesn’t kick in until 133% of the federal poverty level.  This means those not covered by expansion won’t be eligible for subsidies to help them purchase insurance but may be required to hold insurance since the Court upheld the individual mandate.

And although some states may not want to participate in the expansion, the incentives are high, at least in the near term – the ACA provides that the federal government will pay 100 percent of the costs of covering the newly eligible individual through 2015 with the amount decreasing to a minimum of 90% in the following years.  In addition, if these individuals are not covered then a major portion of those people who currently receive uncompensated care from hospitals and health care provides will continue to receive care and those providing the care will continue to be uncompensated.  The carrot of having more insured individuals is one of the reasons providers and hospitals agreed to receive less payment as part of the ACA, particularly for uncompensated care.  The states will have to make political, fiscal, and policy calculations of whether or not expansion makes sense for the state. The politics and policy implications of this will unfold in the months to come.  The expansions don’t kick in until 2014 leaving lots of time for debate around this issue.