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Sebelius Tells Governors They Cannot Partially Expand Medicaid

By Rebecca Adams, CQ HealthBeat Associate Editor

December 10, 2012 -- The health care law does not allow states to partly expand their Medicaid programs, administration officials recently announced in an 18-page letter to governors. Health and Human Services (HHS) Secretary Kathleen Sebelius also has given conditional approval to six states to go ahead with their exchanges.

The news will disappoint governors, particularly Republicans, who had hoped they would be able to expand their programs beyond the eligibility level of people who are covered now, but not as much as 138 percent of poverty (or about $31,810 for a family of four), as the overhaul law (PL 111-148, PL 111-152) outlines.

"The law does not provide for a phased-in or partial expansion," said the letter from Sebelius.

In June, the Supreme Court ruled that the federal government cannot strip states of all their Medicaid funds if they do not expand the Medicaid program as of 2014 as called for in the law.

Soon afterward, governors began discussing the idea of partly expanding Medicaid. Many legal experts supporting the overhaul have said publicly from the outset that they do not believe that Obama administration officials have the legal authority to allow partial expansions.

Last week Louisiana Gov. Bobby Jindal, chairman of the Republican Governors Association, said in a statement that HHS's refusal to allow a partial Medicaid expansion "is as disheartening as it is short-sighted. The President knows the current Medicaid system is broken, and it is an inefficient mechanism for expanding coverage. While the Administration's answer will make a state's decision on Medicaid expansion more difficult, governors will continue to ask the President to pursue real Medicaid reform and we hope he will join us." Last week, Jindal and 10 other Republican governors sent the president a letter asking him to meet with them about overhauling Medicaid.

In her letter, Sebelius once again urges governors to create a state-based exchange. The deadline is Friday for states to tell HHS if they want to do that. Sebelius has given conditional approval to Colorado, Connecticut, Massachusetts, Maryland, Oregon, and Washington to go ahead with their exchanges.

"It is my hope that all states will seriously consider establishing a state-based exchange, or running components of an exchange," Sebelius wrote. This letter comes not only as the state exchange deadline approaches but also after several letters from Republican governors to Sebelius and to President Barack Obama saying they need more information before making a decision on how to proceed.
The letter answers 39 commonly asked questions about the Medicaid expansion allowed in the law and the creation of exchanges.

Some States on Track

As for the states given conditional exchange approvals on Monday, Acting CMS Administrator Marilyn Tavenner they "are all on track to meet all exchange deadlines."

The health care law allows states to expand their Medicaid programs and provides the full cost of expansion for the first three years, with that matching rate falling to 90 percent by 2020.

Cindy Mann, Centers for Medicare and Medicaid Services (CMS) Deputy Administrator and Director of the Center for Medicaid and CHIP Services, said on a conference call with reporters that states could ask for waivers to partially expand their Medicaid populations in 2017 when states are allowed to request such exemptions if they can show that they can deliver care in a different but equally effective way. Mann said that "we would consider a waiver under the enhanced match" at that time.

But for the first three years, if a state proposes a waiver that would expand coverage to part but not all of the newly-eligible population, states would only get the pre-health care law matching rate. The federal matching rate to states varies, but on average, the federal government picks up 57 percent of Medicaid costs.

Mann said that she hopes state leaders will decide to expand their Medicaid programs, despite the agency's decision to not allow states to partially expand initially.

"It's a very significant financial support for states and we're optimistic that they will move forward," she said.

Safety net hospitals said that they were "greatly encouraged" by the guidance.

Because states face fewer consequences now if they do not expand, more people could remain uninsured—which could take a toll on medical providers, as the National Association of Public Hospitals and Health Systems (NAPH) noted in a statement. The group said that by 2019, six million to 10 million more people than Congress expected when it passed the health law could remain uninsured.

"NAPH hospitals and other providers who care for society's most vulnerable people face severe funding challenges," said NAPH President and CEO Bruce Siegel. "This swelling demand for safety net services, along with planned cuts to federal funding for the very hospitals that provide it, could take a terrible toll on access to care for the uninsured and underinsured. We look to the promise of reform to expand health care coverage as broadly as possible and call on lawmakers to preserve the funding we have. We also urge the administration to work with states to ease their transition to an expanded Medicaid program and support innovative approaches to enhancing access to care."

More Medicaid Details

The letter also says that the administration no longer supports blending the Medicaid rates, an idea put forward last year in President Obama's fiscal 2013 budget. The proposal is being considered by some lawmakers who are looking for budget savings.

In response to a question about whether Obama still backs the idea, the administration wrote, "No...The Supreme Court decision has made the higher matching rates available in the Affordable Care Act for the new groups covered even more important to incentivize states to expand Medicaid coverage."

The letter also said that more information on Medicaid is coming. "States also have significant cost-sharing flexibility for individuals above 100 percent of the federal poverty level, and we intend to propose other cost-sharing changes," the letter said.

Federal officials did not close the door on the idea of approving global waivers that would provide a set allotment for states and give them more flexibility if they broaden coverage. The letter said that CMS would review proposals under the standard of "furthering the interests of the program."

CMS also will issue more information "early next year" about the reduction of payments to hospitals, the letter said. Payments for disproportionate share hospital allotments will fall in 2014 using a methodology based on the reduction of the number of people without insurance.

"We have heard from states and health care providers about their concerns related to this change and are exploring all options," the letter said, adding that the public will be able to comment on the methodology that will be released next year.

The letter includes details about funding, including the provision of a 90 percent matching rate for states to redesign their eligibility and enrollment systems, which will be available through Dec. 31, 2015.

Federal officials also encouraged the use of programs that can help a family all be enrolled in the same health plan, even if part of the family's insurance is paid by one source, such as Medicaid or CHIP, and the other family members get their insurance through the exchange.

The letter also confirms information released earlier this year, such as the fact that states do not face a deadline for making their decisions on Medicaid expansion, and if they initially expand the program they can reverse that decision.

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