New Developments in Medicaid Expansion

The U.S. Department of Health and Human Services on Monday offered a present to states, just in time for the holidays. The agency announced the forthcoming Medicaid expansion, passed into law as part of the Affordable Care Act, would only be an option for states as a package deal.

The announcement came as several states contemplated enacting only partial Medicaid expansion under the new law. Some states—including Indiana, New Mexico and Wisconsin—asked if they could partially expand the program. In effect, could a state expand its Medicaid rolls to cover everyone making 100 percent of the federal poverty level, instead of 138 percent as the Affordable Care Act sets forth? This was an attractive option to states, as residents between the 100 and 138 percent poverty level technically could qualify for federally subsidized insurance under the new exchanges.

A letter addressed to governors from Health Secretary Kathleen Sebelius said, “the law does not provide for a phased in or partial expansion.” Essentially, states can keep their current Medicaid population or perform the full expansion. The department has assured states they can drop the expansion at a later date if they choose to go forward now.

Sebelius’ letter offered a kernel of hope for states that are still interested in an option somewhere in between. Her letter noted that states do have the option of using Section State Innovation Waivers to offer alternative coverage for eligible adults. States would only be eligible for their existing FMAP, or federal match, reimbursement rate, not the 100 percent FMAP in the first years of expansion. The letter hinted that states may be able to pursue waivers after 2017 that would allow for reimbursement at a lower, but still enhanced, FMAP rate as the federal match scales back from 100 percent to 90 percent between 2017 and 2022.

While the news on Medicaid expansion may be received like a lump of coal in many states, Sebelius’ response regarding plans to blend and reduce FMAP rates among Medicaid and CHIP will be a much more popular stocking stuffer. Despite proposals as recently as last year by the administration to save as much as $60 billion by blending and reducing FMAP rates, Sebelius’ letter effectively takes these plans off the table.

Many Washington insiders assume the blended rate proposal would be included in any long-term deal to address the deficit and forestall the fiscal cliff. Until the larger battle over revenues and spending is resolved, no item can be seen as truly off the table.