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States Will Be Ground Zero for Medicaid Politics, Experts Predict

By Jane Norman and Rebecca Adams CQ HealthBeat Associate Editors

July 9, 2012 -- The federal health care law always envisioned a prominent role for states in the quest to expand coverage. But the Supreme Court's surprising ruling that upheld the law but allowed states to opt out of its Medicaid expansion now also promises political fights, intense health stakeholder lobbying, and pressures galore in state capitals, panelists at an Alliance for Health Reform briefing said last week.

How many states eventually bow out of the expansion remains uncertain—despite promises to do so by some Republican governors. And what happens will depend greatly on how and whether partisan control changes in state houses after the elections, panelists said. The latest governor to declare his intention to out opt was Republican Rick Perry of Texas, joining at least a half-dozen others.

"It really is going to function as a result of the politics in each state," said Sheila Burke, a health policy expert who served as chief of staff to former Senate Majority Leader Bob Dole, a Kansas Republican. "You're going to see a number of them wait to see what happens in November." Despite the media attention paid to objectors, many Republican governors with large numbers of uninsured residents haven't yet said what they will do, Burke pointed out.

In addition, many state legislatures don't meet until next year, and lawmakers will take part in the decision as well.

It's also possible states could split the difference and request waivers that would cover some subset of the Medicaid beneficiaries who would have been covered by the expansion in the law (PL 111-148, PL 111-152), Burke said. "They could choose to use waivers for certain populations," she said. "You're going to see legislators respond in certain ways. You're going to see governors respond in certain ways."

Consultant Chris Jennings, president of Jennings Policy Strategies and a senior health policy adviser to President Bill Clinton, cautioned that some governors with an immediate negative reaction might modify their positions later, particularly when they see how much Medicaid money the state stands to leave behind if it refuses to participate in the expansion.

They will face business community pressure as well, Jennings said. For stakeholders, including hospitals, pharmacists, insurers and others, "leaving those dollars on the table has tremendous implications," he said, because it means shifting the costs of the uninsured on to them will continue. "I think you will see a substantial effort . . . to push all governors and state legislatures to accept those dollars."

Due in part to that pressure, Jennings added, "I suspect at the end of the day we will have a lot more states coming in than we are hearing."

Burke, a senior public policy adviser at Baker, Donelson, Berman, Caldwell & Berkowitz, also predicted that hospitals and insurers will mobilize. "But again, I think the elections will make a huge difference and the battle will be played out state by state," she said. There should be no assumptions made right now about how many states eventually will opt out, she said.

Under the law, the federal government will pay the states 100 percent of the expansion costs from 2014 through 2016, then 90 percent in 2020 and thereafter.

Burke also said there's a growing sense on the part of states that they need to change their Medicaid programs and do a better job of managing them. That includes increased attention to so-called dual eligibles who qualify for both Medicare and Medicaid, she said. Burke predicted that a National Governors Association meeting in Williamsburg, Va., will feature intense discussion among state executives about the directions they might take on Medicaid.

Jennings said that if states don't expand their Medicaid rolls they will face a "huge problem" in providing for childless adults below 100 percent of the federal poverty level, who won't be eligible for federal subsidies under the law, and so likely would remain uninsured.
Under the Supreme Court's ruling, the health care law was left intact except for the justices' determination that the Medicaid expansion was like a "gun to the head" of states because if they declined to do it, they would lose all their federal Medicaid funds. Such funds make up a large portion of many state budgets.

What's more, it remains unclear how states will signal to the federal government if they plan to opt out—not to mention who in the state decides and how.

Alan Weil, executive director of the National Academy for State Health Policy, said in a July 2 blog post for the publication Health Affairs that if history is followed, states that want to cover their uninsured adults through Medicaid will file an amendment to the state plans they submit to the federal government. States that don't want to do so just won't file an amendment, he said.

But when and how that happens and who decides remains unclear, said Diane Rowland, executive vice president of the Kaiser Family Foundation and the Kaiser Commission on Medicaid and the Uninsured. Rowland said in an interview that the Centers for Medicare and Medicaid Services (CMS) likely will have to promulgate rules to clarify those questions. The problem was the law assumed that the expansion went into effect for all states—though clearly some legislatures would have to take action because of budget effects, she said.

"It's hard to tell, and this is one of the areas where the administration will have to give some real guidance on how they plan to do it," Rowland said. She added that in "most states, it's unlikely it would be totally executive action."

MaryBeth Musumeci, a senior health policy analyst at Kaiser, said "there's real variation" among states as to how the decision might be made.

Rowland said she's also unclear on the deadline by which states will have to tell the federal government what they're doing. "They are supposed to be ready to implement in 2014," she said.

One controversial question is whether states are required to follow maintenance of effort (MOE) rules in the health care law. Some states are exploring whether they can reduce eligibility.

On a recent conference call with state policy makers moderated by a Bipartisan Policy Center official, Weil said that his interpretation of the court ruling is that the MOE rules will remain intact until they expire in 2014 for adults. Weil cautioned that his reading of the ruling was his own take, "not official guidance from any federal agency," but that he did not see anything that invalidated the rules requiring states to keep eligibility standards the same under the existing Medicaid program.

But Dennis Smith, Wisconsin Department of Health Services secretary and a former director of the Center for Medicaid and State Operations under George W. Bush, disagreed. He said the maintenance of effort provisions are located in the law in the same section as the language expanding Medicaid coverage.

"It does raise very serious questions about the maintenance of effort requirement, which is in the same section" as the expansion, Smith said.

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