July | August 2017

Medicaid Expansion Decisions:
Federalism, Politics or Both?

by Debra Miller, Director of Health Policy
The U.S. Supreme Court decision to uphold the Patient Protection and Affordable Care Act will have some impact on federal-state relations. It’ll just take some time to see what that impact is.
“Ask me in a hundred years,” Lisa Soronen, executive director of the State and Local Legal Center, said during a panel discussion on federalism during CSG’s 2013 National Conference in Kansas City, Mo., in September.
The decision on the Affordable Care Act was a little different than the Court’s other decisions on pre-emption in the last term. Of the five cases the Supreme Court heard on pre-emption, Soronen said, three were decided against the states. “Pre-emption didn’t fare all that well.”
In the Affordable Care Act case, the Court upheld Congress’ individual mandate, but as a tax. In fact, five justices found the insurance mandate was not constitutional under the Commerce Clause, a bedrock principle of federalism. But Soronen downplayed the significance of the decision on federalism.
“There are just not that many things that are like health care,” she said. In fact, Soronen said in three other blockbuster cases—the federal Defense of Marriage Act, Arizona immigration law and the Shelby County, Ala., voting rights act case—states won major victories on federalism arguments.
The Court ruled, however, that states must be allowed to choose whether to expand their Medicaid programs to new categories of eligible enrollees. The Court found the threat to defund states’ existing programs was too coercive.
Now, the health care reform ball is in the states’ court.

‘Amazing Deal’

U.S. Department of Health and Human Services Secretary Kathleen Sebelius knows what she would do if she was still governor of Kansas.
“I can tell you if the deal that currently is on the table for states around the country to expand Medicaid mostly on the federal dime was offered to me, … I would have jumped at the offer,” she said. “The offer of 100 percent funding for the first three years and a gradual reduction where the state government never pays more than 10 percent over a decade is a pretty amazing and unique federal deal.”
Matt Salo, executive director of the National Association of Medicaid Directors, said one major concern from states was this: “What if Congress reneges on the funding and leaves the states holding the bag?”
Sebelius recognizes that is a concern.
“I hear that every day from various governors,” she said.
But, she said, states would face no penalty if they decided to drop the expansion. Some states included language in the legislation that, if the federal formula changes, they would leave the expansion.
“I think that is a totally reasonable precedent to set,” Sebelius said.

The Yes and No of Expansion

Salo said money is a huge factor in the expansion decisions by many states.
Some states, he said, have wanted to cover more of their uninsured population. Under the Affordable Care Act, it now will cost them much less to do so. Their attitude, he said, is this: “Now you are giving us more money—great.”
In some cases, the federal money will replace state and county health expenditures, an added bonus, he said.
While money is also a factor for those states that are not expanding Medicaid, Salo said, many states said no for two reasons—politics and ideology.
“Clearly there are a number of states where the governor or legislature has run what is essentially a political campaign against the Affordable Care Act,” Salo told CSG. “They fear political backlash. They can’t reverse their positions. They believe to do so would end their political careers with a far right challenge.”
Salo said the ideological challenge in some states is the primary factor. One solution is to “expand but add more personal responsibility,” such as the Pennsylvania proposal where enrollees must be actively searching for a job. Michigan’s proposal includes a lifetime limit on eligibility. Other states have taken up proposals for drug testing enrollees.
Another solution is to make Medicaid look like the private insurance market, not an entitlement program. Salo said Arkansas is the prime example of this approach.
“They came into the breach with a third way,” he said.
Now Iowa and Indiana also are looking to private market solutions. Other states—including Florida, New Hampshire, North Carolina and Virginia—are moving to reform what they characterize as a broken Medicaid system before moving into expansion,
While the federal money tempts some states, other state leaders are mounting a principled opposition, refusing to be complicit with the federal funding and deficit problems, Salo said.
He said it is significant that a number of states are working on their own approaches to health care reform and addressing high rates of uninsured people—finding “something other than Obamacare or the highway.”

The Arkansas Solution

Just days before the Oct. 1 opening date for its state-run insurance exchange, Arkansas Gov. Mike Beebe received a call from Sebelius approving the innovative state plan to use Medicaid expansion funds to provide premium assistance to low-income individuals to purchase private insurance through the exchange.
Rep. John Burris, chair of the Arkansas House Public Health, Labor and Welfare Committee, laid out the history of the Arkansas Health Care Independence Act of 2013 at the CSG West annual meeting in August. He called it the legislature’s “policy alternative to the Patient Protection and Affordable Care Act’s one-size-fits-all, state-based method of expanding the Medicaid program.”
Instead of perpetuating a broken model of Medicaid that shifts costs to private insurance premiums, Burris said, the Arkansas law would mitigate the cost-shift by adding more individuals to the private market. The larger private market would determine fair provider rates. In addition, Burris said using the private option would avoid the administrative overhead and government agency growth of growing Medicaid.
According to Burris, the law will transition existing Medicaid and state children’s health insurance program populations from Medicaid to the private option in 2015. The law also calls for health savings accounts and creative cost sharing plans, encouraging personal responsibility of individuals dependent upon government assistance.
In a Sept. 28, interview with the Columbia, Mo., Daily Tribune, Burris characterized his state’s action as making the best of a problematic federal-state partnership.
“I just think if we’re ever going to be serious about entitlement reform, this is a key first step,” he said.
“The many, many bad consequences of the (Affordable Care Act) gave Arkansas the opportunity to try and manage those consequences to make them as least harmful as possible.”
Beebe also addressed the federal-state partnership in a press release after the federal government approved the Arkansas private option. He said Sebelius’ blessing of the plan gives the state flexibility to make it a reality.
“(N)ow we will focus on getting this insurance to the Arkansans who need it to lead healthier, more productive lives,” he said.