For Some States, Expanding Medicaid Remains a Question

The June 2012 U.S. Supreme Court ruling upholding the constitutionality of the Affordable Care Act, or ACA, one of President Barack Obama’s signature domestic policy initiatives, included a bit of a surprise for states.

Writing the majority opinion of the court, Chief Justice John Roberts acknowledged Congress’ ability to incentivize states’ participation in programs under the ACA, such as Medicaid expansion, but with a limit. “What Congress is not free to do is to penalize states that choose not to participate in that new program by taking away their existing Medicaid funding,” he wrote. 

And with that, a major component of the health care reform legislation became an option for the states, leading to a series of new debates in statehouses across the country.

While the Supreme Court’s decision removed the federal stick in the law to help enforce Medicaid expansion, a sizeable carrot for states choosing to expand Medicaid to individuals whose income falls below 138 percent of the federal poverty rate remained—full federal coverage of the cost of expansion for three years, after which the state match would gradually increase to 10 percent.

Four years later, 31 states and the District of Columbia have expanded Medicaid, according to the Henry J. Kaiser Family Foundation, which monitors health policy at the national and state levels. While most states adopted expansion as laid out in the ACA, a few states such as Arkansas and Indiana have expanded the program under the 1115 waiver process, which allows for demonstration programs that give states more flexibility in program design.

For the 19 states that have not expanded Medicaid, the question of whether or not to expand remains, while the clock continues to tick in the countdown to the end of full federal coverage of the program in December. 

While the debates among state and federal lawmakers have been politically charged at times, state lawmakers contend that the decision to expand or not centers around the unique needs of states and their constituents—and how best to meet those needs—rather than around the politics of the issue. And those debates are leading to a variety of solutions in the states.

A High Price

Originally designed to cover young children, the elderly, and blind and disabled people with low incomes, Medicaid expansion under the ACA effectively eliminated the program’s categorical eligibility requirements other than income level, which significantly expanded the scope of the program and its cost.

According to the 2015 State Expenditure Report by the National Association of State Budget Officers, or NASBO, “Medicaid spending accounted for 25.6 percent of total state spending in fiscal 2014, the single largest component of total state expenditures,” and was expected to grow to 27.4 percent by fiscal year 2015. This rise in Medicaid spending represents an increase of 4.8 percent in state expenditures from 2014 to 2015, and an increase of 22.5 percent in federal Medicaid spending. Total Medicaid spending in fiscal 2015 is estimated to be $512.3 billion, according to the report, up 15 percent from fiscal 2014. 

For some state legislators, the price of expanding Medicaid eligibility is simply too great.

In Virginia, Gov. Terry McAuliffe has called to expand the program, but the state’s General Assembly has blocked the plan, citing costs as a principal reason. 

According to Virginia Speaker Bill Howell, Medicaid accounts for 23 percent of state general fund expenditures to cover the state’s match for nearly a million program recipients. 

“The cost of the existing Medicaid program over the next two years is going up close to $950 million,” said Howell. “Every additional dollar that we put into Medicaid is one less dollar that is available for K-12 or higher education or public safety.” 

Expanding Medicaid would add 400,000 members to Virginia’s rolls. 

“It’s just unsustainable,” said Howell.

Costs were also a concern to lawmakers in South Dakota. Soon after the 2012 Supreme Court ACA decision, South Dakota Gov. Dennis Daugaard established a Medicaid Opportunities and Challenges Task Force charged with evaluating the advantages and disadvantages of pursuing expansion. In its final report released in 2013, the task force noted the “considerable” cost of expansion to the state general fund, which it estimated would rise from $1.5 million in fiscal year 2014 to $36.8 million by fiscal year 2020. 

But new developments between the state and federal government have changed the fiscal implications of expansion for the state.

The Centers for Medicare and Medicaid Services, or CMS, agreed in February to fully cover the cost of certain types of care for Native Americans who seek services outside of Indian Health Service, or IHS, the federal agency responsible for providing health care to Native Americans. Previously, costs for Native American health care provided at IHS facilities were fully covered, but the cost of care provided to Medicaid-eligible Native Americans at non-IHS facilities were shared between the state and federal government. 

The savings to the state from the new agreement address initial cost concerns related to expansion, said South Dakota state Sen. Craig Tieszen, who was a member of the governor’s Medicaid Task Force.

“(Gov. Daugaard) has calculated very conservatively that South Dakota will actually benefit from this expansion,” said Tieszen, “because what we will save on Medicaid-eligible Indian health care will exceed what the eventual cost of expansion would be.”

Although the state Legislature did not take up the plan during the regular legislative session, news reports suggest that Daugaard may call a special session to consider the plan this summer.

Indiana also found a way to reduce the fiscal impact of Medicaid expansion when it pursued its plan to expand Medicaid under the Section 1115 waiver process. Under its expanded program, called the Healthy Indiana Plan 2.0—or HIP 2.0—that began in early 2015, Indiana nearly doubled Medicaid rolls in the state, which now covers 400,000 Hoosiers. 

According to Indiana state Rep. Ed Clere, former chairman of the Indiana House Health Committee and co-chair of the CSG Health Public Policy Committee, the state was able to fund expansion by leveraging the hospital assessment fee—a payment imposed on health care providers by the state—authorized under the ACA, which made expansion budget-neutral for the state. 

“Had it not been for the (Indiana) Hospital Association, I don’t think expansion would have happened,” said Clere. “They came to the table with the hospital assessment fee as a funding mechanism.” 

For Clere, the benefits of Indiana’s program—both direct and indirect—outweigh the costs. 

“It has major fiscal implications for the state and it also has major implications for the state in terms of workforce and site selection and job creation,” said Clere. “Other states have talked a lot about how they’re going to save money … and keep a focus on cost. That’s important, but that can’t be the sole focus.”

The Need for Reform

Beyond costs, state leaders have also pointed to the need for reform of Medicaid. 

A recent report by the Virginia Joint Legislative Audit and Review Commission, or JLARC, found the state spent as much as $38 million over a two-year period on ineligible Medicaid enrollees due to delays in reviewing renewals.

“It’s a broken system and the costs are skyrocketing,” said Howell. “We need to come up with ways to make it a better system, and I think we can do that.”

Howell said the JLARC report identified opportunities to curb Medicaid fraud and abuse, and the House of Delegates has formed a Medicaid Improvement Reform Commission to identify options to streamline the program.

“We’ve come up with some good ideas over the last couple of years, but we’re just at the beginning of the process,” said Howell. “But there’s got to be a better way to treat these people who can’t help themselves.”

Clere said Indiana’s unique path to Medicaid expansion through HIP 2.0 addressed some of these concerns that could be used as a model for other states. 

HIP 2.0, which uses managed care services, is modeled after commercial coverage, offering HIP Basic and HIP Plus options for recipients. HIP Plus participants pay premiums in the form of monthly contributions to a Personal Wellness and Responsibility account designed to function much like a health savings account, and they receive expanded benefits and pay co-payments only for non-emergency use of the ER. HIP Plus members above the federal poverty level who fail to pay their premiums can be barred from coverage for six months, while those at or under the federal poverty level who fail to pay premiums are moved to HIP Basic coverage, with fewer benefits.

“It’s Medicaid expansion, it’s just that we did it in a different and, many of us would argue, more innovative way than traditional Medicaid,” said Clere. “It was a major milestone, not only for Indiana but for the country in that it is unique in its features.”

South Dakota, should it move forward with Medicaid expansion, would add a much smaller number of recipients to its rolls than either Indiana or Virginia—50,000—which Tieszen said would add “a very limited exposure to fraud.” But he said there are inefficiencies in the ways these individuals currently receive health care services, as well. 

“The manner in which these Medicaid expansion-eligible people are getting health care now is about as expensive and inefficient as it can be—it’s emergency room type of care,” said Tieszen. “Medicaid, despite what flaws it might have, is a better delivery system than what we’re currently utilizing.”

An Uncertain Future 

In an election year that has been full of surprises, the issue of uncertainty also resonates among state lawmakers as they consider Medicaid expansion. 

And, according to Clere, this applies even in his state that already has expanded Medicaid. In states like Indiana that have an 1115 waiver for Medicaid expansion, which are considered demonstration programs, the waiver is renegotiated bilaterally between the state and federal governments every three years. But in March, Gov. Mike Pence signed Senate Enrolled Act 165, which codifies the program into law, limiting the ability to change the program’s provisions. 

Clere said that may create obstacles down the road.

“HIP 2.0 provided a politically acceptable pathway for expansion, and I think SEA 165 maybe fences in that pathway in a way that allows very little room to maneuver,” said Clere. “I’m concerned that we may find ourselves in a situation where the whole program may be in jeopardy.”

“It’s a volatile time, politically, and we don’t need any more uncertainty with coverage,” Clere added.

Concerns related to uncertainty extend also to future costs of the program—even those not covered by the state. 

“If I were in a state that had expanded Medicaid, I’d be very concerned about the federal government’s promise to pay 90 percent of costs forever,” Howell said. “The country just can’t afford this rapid growth in entitlements.”

But future uncertainty may make action now a bit more likely in South Dakota as it considers its deal with the current administration for federal coverage of Native American health care. 

“There’s a hesitation as to what the future may bring and what direction is the federal government going to take under different leadership,” said Tieszen. “But this is an issue that probably the window of opportunity could close after the November election. Who knows? Things can change.”