After Supreme Court ruling, Medicaid expansion faces uncertainty

This week's Supreme Court on health-care reform represented a legal victory for President Obama on many fronts, but the ruling made it easier for states to opt out of one important area, the expansion of Medicaid for America's poor.

The president won a major enlargement of Medicaid funding as part of the 2010 Affordable Care Act. As many as 17 million people, or about one-third of Americans who lack health insurance, stood to gain coverage under the law.

But many states, which administer the Medicaid program and help to fund it alongside the federal government, joined a legal challenge to the act. Some 26 states argued that this portion of the law was an unlawful federal intrusion into their affairs.

Participation in Medicaid has always been at the discretion of states. In Thursday's ruling, a majority of justices indicated that the federal government could not force states to accept the law's expansion of the program, saying the threat that states refusing to participate in the expansion would lose all federal Medicaid funding was unconstitutionally coercive.

The result, potentially, could be to undercut Mr. Obama's major goal of expanding health insurance to more Americans. As many as half of people gaining coverage were expected to do so within Medicaid.

The law will still call for a big increase in federal spending on Medicaid, as much as $930 billion during the next decade to insure Americans whose income is 1.33 times the official poverty level or lower. But how many new people are enrolled under this plan will depend on whether states opt in.

"We are concerned many states will choose not to expand coverage," Bruce Siegel, president of the National Association of Public Hospitals and Health Systems, said Thursday in a statement released following the court's decision. "In the 26 states that participated in the federal lawsuit, more than 27 million people have no insurance," he added, and many of those who would have been eligible for Medicaid in 2014 "might no longer have that option."

His association represents so-called "safety-net hospitals," which serve a high percentage of poor patients and get significant funding through Medicaid.

States that challenged the Obama law include many in the South, Midwest, Great Plains, and Rocky Mountain region. Whether they opt out of the law remains to be seen. The vast sums of money that the federal government would be sending to the states to cover the Medicaid expansion create significant incentives to participate.

Republican governors didn't commit to a particular position on the Medicaid expansion. Still, several went out of their way in statements released after the ruling to cast Medicaid as a budget-buster in the law.

"A Medicaid expansion would put 1 in 4 Hoosiers (approximately 500,000 new enrollees) in Medicaid at a cost of approximately $2 billion over 10 years," Gov. Mitch Daniels of Indiana said. Indiana is seeking a federal waiver to cover more people through a program called the Healthy Indiana Plan instead.

Gov. Tom Corbett of Pennsylvania said the ACA "expands Medicaid to unsustainable levels."

In Utah, Gov. Gary Herbert said the law "results in burdensome regulation, higher costs, and a massive, budget-busting Medicaid expansion."

Many Democrats argue that such outcries aren't justified, given that the ACA calls for the federal government to pick up about 90 percent of the tab for enlarging the program (and even more than that for its first five years, from 2014 to 2019). The Republican response is that the 10 percent is still real money, and that state costs could escalate as time goes by.

The argument that nonparticipating states will be throwing away "free money," and neglecting their poorest citizens, could put pressure on states to participate even when their overall political climate is conservative.

In fact, policy analysts at the Urban Institute argue that states will see their budget positions improve by participating. In part, that's because leaving residents uninsured carries some cost. Those residents who land in emergency rooms leave "uncompensated care" bills to be paid partly by states.

At the same time, it's hard to predict how the political battleground over health-care costs will evolve, as Republicans seek momentum to overturn the Obama law.

The Medicaid question raised serious concerns among the justices. Seven justices indicated that Congress had overstepped its constitutional spending powers by seeking to withhold all Medicaid funding from states that didn't accept the program's expansion.

But, after placing this significant limit on Congress, a 5-to-4 majority of justices agreed that the law's effort to expand Medicaid could survive, minus the threatened penalty.

The four dissenting justices argued that the entire ACA should be overturned, because its provisions were so intertwined. On Medicaid, for example, these four conservative justices argued that taxpayers in nonparticipating states would end up footing a share of the federal bill for Medicaid's expansion, while their states reaped no benefit. Moreover, a state's decision not to participate might well push up the cost of health insurance there, because local health insurers wouldn't have an inflow of new Medicaid funds to offset new regulatory costs under the ACA.

The dissenting opinion argued that, since those outcomes would be contrary to the intent of those who wrote the law, the court's majority decision has essentially rewritten the act rather than simply ruling on it.

Medicaid currently covers more than 60 million Americans, including a quarter of the nation's children, according to research by the Kaiser Family Foundation. But because of complex eligibility rules, many low income individuals remain uninsured.

An analysis by the foundation spells out how that might change under a full implementation of the ACA (state by state tables are near the end of the report).