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After Election, Governors Face Medicaid Decision

By Rebecca Adams, CQ HealthBeat Associate Editor

November 7, 2012 -- Now that President Obama has been reelected and Congress has no chance of repealing the health care law, much of its implementation will be affected by the decisions of state officials. Starting next year, 30 states will have Republican governors—the most control either party has had in a dozen years.

Many of those GOP governors are philosophically opposed to the 2010 health care law (PL 111-148, PL 111-152), including the idea of expanding Medicaid. And thanks to the Supreme Court's ruling on the overhaul, states will be able to decide whether to broaden the program in their states.

So far, six GOP governors, all of whom remain in power, have said that they would not expand the health program for the poor. Others have been waiting for the results of the election to decide. For those governors who haven't committed, what to do about Medicaid will likely figure high on their agendas come January. And now that it is clear that Obama will press ahead on implementing the overhaul, state officials are already hearing pleas to make a decision.

The governors will face tremendous pressure from medical providers, including hospital officials, to bring more people into the Medicaid program. Most providers aren't fans of the rates that Medicaid pays, which usually are less than those paid by Medicare or private insurance, but it's better than the little that they would get from uninsured people.

Gail Wilensky, who ran the Medicaid and Medicare programs under President George Bush, said that despite any ideological opposition to expansion, most states will have a hard time saying no to the Medicaid expansion because the federal government has pledged to pay unusually high matching rates for people who are newly eligible. For the first three years, the federal government will pay all of the costs for people who gain eligibility under the law. The matching rate will gradually decline after that but is not supposed to ever fall below 90 percent.

"Historically when the federal matching rate has been high, not even 100 percent, there's been an overwhelming move in that direction," said Wilensky. "The only rationale for it not happening is either states don't believe the feds will really come up with 100 percent of the money or they take the position that 10 percent of a big expansion is still a lot of money" after the matching rate phases down.

A major question is whether the Obama administration has the authority and the interest in allowing states to do a partial expansion. The law says that states can get a higher matching rate if they expand the program to people earning up to 133 percent of the federal poverty line. Separately, the law offers federal subsidies to people who want to buy private insurance in the new exchanges if their income falls between 100 and 133 percent of the poverty level.

Policy makers in many states have asked the Centers for Medicare and Medicaid Services (CMS) if they can expand Medicaid to people up to the poverty level, but keep those with incomes between 100 percent and 133 percent of the poverty level out of the program and instead steer them toward buying subsidized insurance in the exchanges.

CMS officials have not yet ruled on that question, and policy analysts are divided on whether the agency has the power to allow it.
One thing that is clear after the elections is that the 2010 law is here to stay.

"We've moved out of the cloud of uncertainty," said Matt Salo, executive director of the National Association of Medicaid Directors. "The path forward may not be easy but it certainly got a lot clearer. The Affordable Care Act is here and it's now a question of implementing it."

Governors' Decisions

Wilensky said that pressure from providers to expand the program is "hard to resist because the argument is, 'Hey, guys, you're not paying anything for this.' Saying no just on principle seems pretty brutal to your friendly providers."

She predicted that a "relatively small number" of states will be holdouts.

But states do have some leverage. The Obama administration is clearly interested in having as many states as possible expand the program. To make things easier, administration officials have said that states that try the expansion can drop out later if they want. States can also choose when to expand so that they don't have to be ready on Jan. 1, 2014, although the full federal matching rates are only available during the first three calendar years.

Many states are seeking to use that leverage to get the federal government to agree to a partial expansion.

That would save money for states but not the federal government. The Congressional Budget Office has estimated that every newly enrolled Medicaid beneficiary would cost roughly $6,000 for those enrolled in Medicaid but about $9,000 if they get coverage in the exchange.

The Supreme Court ruled in June that the federal government could not penalize states who don't expand by taking away all of their Medicaid money, which made it more of a realistic option for states to say no.

"It seems to me that if expanding is voluntary, expanding partway would be voluntary," said Wilensky.

Salo agrees.

"You can find the authority to do anything you want to do," he said. "Yes, I think they can. Will they? Do they want to? That's a different question."

Alan Weil, executive director of the National Academy of State Health Policy, said he has studied the law's wording carefully.

"It's not permitted under the law so I don't know why people would hold out hope for this option," said Weil. "The law doesn't say expansion is up to whatever level the state sets. This is not a part of the statute where states are authorized to set their own eligibility levels."

Governors' decisions could be swayed by the tenor of the deficit reduction debate in Washington. Some governors believe that Congress will look at Medicaid as a source of funds in future deficit reduction talks. That could reduce their interest in expanding the program.

There is one way to save federal money in Medicaid that might seem relatively painless compared to other options: Congress could delay the implementation of the health care law, considering that most states may not be ready by next October, anyway, to start enrolling people in programs that would be effective on Jan. 1, 2014. But if Congress does not take that step, the federal government and state officials will be involved in intense negotiations over the details of implementation, particularly the questions about partial expansion.

"There will be a very complicated Kabuki dance that will go on for months, trying to maneuver around who's got leverage," predicted Salo. "A bunch of states clearly want to do a partial expansion and we have an administration that clearly, for lots of reasons, doesn't. At some point the dance will lead to either states capitulating and saying, 'Ok, fine we'll do it,' or a number of states saying no, at which point I think the Obama administration has to say, 'Ok, we'll take half a loaf rather than none.' Until we reach that tipping point, we'll see this dance."

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