Some states balk at expanding Medicaid under health law

Kaiser Health NewsJuly 2, 2012 

— Hours after the Supreme Court upheld President Barack Obama’s health care law Thursday but made its Medicaid expansion optional, a reporter asked senior White House officials how they’d entice states to participate.

They laughed. It seemed almost inconceivable to them that states would opt out. After all, the federal government will be paying the entire bill for three years for the expanded health insurance program for the poor, from 2014 to 2017, and then picking up at least 90 percent of the costs after that.

But a growing number of Republican lawmakers and state Medicaid officials – including those in Florida, Texas and at least seven other states – have said they may indeed walk away from the nearly $1 trillion federal pot, putting at risk the administration’s plans to cover up to 17 million people, or more than half the total expected to gain coverage under the law.

While politics is a factor, cash-strapped states have legitimate budget concerns, said Matt Salo, the executive director of the National Association of Medicaid Directors. Many state officials already are struggling to pay for the entitlement program, which typically is the largest or second-largest state expense.

Their future share may sound small, but it represents billions in new spending that could require cutting back more popular programs, such as education or transportation, or raising taxes. “Downstream there is exposure for uncontrollable costs,” Salo said.

The Congressional Budget Office projected that states would pay about $73 billion, or 7 percent of the cost of the Medicaid expansion from 2014 to 2022, while the federal government would pay $931 billion, or about 93 percent.

Salo and others also dispute the notion that the program is “free” in the early years, saying that startup costs, along with the likelihood that millions of people who currently are eligible for Medicaid but aren’t enrolled will come forward as a result of publicity about the expansion, are sure to drive up states’ expenses. Officials also are fixated on the prospect that a future, deficit-focused Congress will scale back the federal contribution, leaving states on the hook for a much greater share.

States may try to negotiate smaller expansions that leave them less exposed in the future, but it’s unclear whether the White House would go along.

Texas would pay $27 billion over a decade

Take Texas, which has the nation’s highest rate of uninsured, with more than one in four of its residents under 65 without insurance. Under the law, the state would be in line for $164 billion in federal money over a decade to cover an additional 2 million people through Medicaid, according to state estimates. But state officials, who underfunded Medicaid by billions this year to balance their budget, estimate Texas’ share at $27 billion over that time.

Charles Begley, a professor of management, policy and community health at the University of Texas, predicts that Lone Star officials will try to negotiate a smaller expansion, perhaps up to 90 percent of the poverty level, rather than the 133 percent called for in the law. “The GOP in Texas will say we can’t fund the current Medicaid program, and they won’t want to spend more money on the program” than they have to, he said.

Hospitals, doctors and insurers are likely to put strong pressure on legislators to accept at least some of the expansion, he said. Providers want the expansion to help pay for their treatment of the uninsured. Insurers want it because states increasingly are shifting Medicaid enrollees into private managed-care plans that they operate.

It’s not just future costs that state officials are worried about, Salo said. States also will incur costs to prepare for the expansion. While the federal government will pay most administrative costs, states will share in the expense of some information technology and personnel.

The requirement that most individuals carry insurance is expected to spur at least some of the estimated 13 million people who currently qualify for Medicaid but aren’t enrolled in it to sign up, Salo said. States will receive their traditional federal funding match, averaging 57 percent, for those people.

“As it stands now, there’s no way we can afford to do it,” said Tony Keck, South Carolina’s Medicaid director.

Beyond that, Keck said there was little incentive “to pour more money into a broken system,” which he argued does little to hold down costs or improve the health of the poor.

He estimated that the expansion of Medicaid would add 500,000 people to the rolls in South Carolina at a cost to the state of as much as $2.4 billion over 10 years.

He acknowledged that cost predictions are uncertain, however, since it’s unclear how many might enroll, especially since some lower-income people will be exempt from the mandate to carry insurance.

States also face costs if they opt out

The law’s supporters argue that states also will pay a cost for not expanding Medicaid. They probably will have to pay hospitals more to compensate them for caring for people who don’t have coverage, said Jocelyn Guyer, a co-executive director of the Center for Children and Families at Georgetown University.

Another factor that Guyer thinks will drive participation is the reduction of Medicaid funding to hospitals that care for the uninsured starting in 2014. The assumption was they wouldn’t need the help because fewer people would be uninsured, she said.

That will spur hospitals, as well as doctors and other health care providers that care for the uninsured, to lobby hard for states to expand Medicaid, she said.

Don Berwick, who until December was the administrator of the federal Centers for Medicare and Medicaid Services, argued that states would be shortsighted not to participate.

“It does not make sense morally or economically to leave a person out of the health system,” he said. “That can lead to human suffering and increase costs for states.”

But some state officials worry that it’s shortsighted to go along with the plan when the likelihood is good that a future deficit-focused Congress may scale back federal funding, leaving states to pay a bigger share.

Maine Republican state Sen. Richard Rosen, a co-chairman of the state Senate appropriations committee, noted that federal lawmakers had channeled additional money for the program in the 2009 economics stimulus package only to take it away in 2011.

“Living with those gyrations makes me cautious about any expansion,” he said.

Rosen said he’d be more inclined to expand Medicaid if the Obama administration granted states more flexibility, so they had more power to determine benefits and how they’d pay providers.

“That would go a long way to addressing out concerns to take on a greater population,” he said.

Kaiser Health News is an editorially independent program of the Henry J. Kaiser Family Foundation, a nonprofit, nonpartisan health policy research and communication organization that isn’t affiliated with Kaiser Permanente.

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