Red States May Take Advantage of Obamacare Loophole

Thanks to a mistake in the Affordable Care Act's language, some Republicans -- including Wisconsin Gov. Scott Walker -- see a way to push more people to private insurance.
by | February 22, 2013
 

Earlier this week, Governing detailed the backstory of the most important mistake in the Affordable Care Act (ACA), an oversight that led to Medicaid eligibility being capped at 138 percent of the federal poverty level while eligibility for tax subsidies started at 100 percent, an error that had renewed significance in the wake of the Supreme Court’s decision to make the law’s Medicaid expansion optional for the states.

What we didn’t tell you was that one governor has already taken advantage of this loophole -- and more might follow.

Wisconsin Gov. Scott Walker, an outspoken GOP critic of Obamacare, made waves last week when he proposed a unique way of not expanding Medicaid while still expanding insurance coverage, a plan that explicitly exploited this oversight by the law’s authors. This is Walker’s plan: he wants to scale back his state’s Medicaid eligibility for low-income childless adults (the main population that benefits from the expansion) from 200 percent of the poverty line to 100 percent. That way, those under 100 percent are still covered by Medicaid, but those above 100 percent would buy private insurance on the state’s new health insurance marketplace with a federal tax subsidy.

Walker portrayed his plan as a triumph of the private sector over government-run insurance. According to estimates from his office, Medicaid enrollment would drop 37 percent, but nearly as many people would gain insurance as would have if Wisconsin had simply expanded Medicaid as the ACA prescribed (224,520 under Walker’s plan; 252,678 under the law).

“Government can provide a hand up, but should not provide a permanent handout,” Walker said in a statement. “We need to break cycles of generational dependence on the government."

Whether it makes financial sense remains to be seen. The appeal of the Medicaid expansion was that the federal government would pay for 100 percent of the costs through 2016 and never less than 90 percent after that. Wisconsin won’t be able to tap into that federal money under Walker’s plan, though the feds do pay for the tax subsidies used on the marketplace. One independent analyst opined to the Associated Press that the proposal was “crazy policy” and doubted that it will decrease the number of uninsured as effectively as the Medicaid expansion would have.

But that hasn’t stopped some conservative thinkers from pointing to Walker’s plan as the way forward for other Republican governors. If Obamacare is here to stay, the thinking goes, then it’s better to try and move as many people as possible to private insurance under its parameters. Thanks to the unintentional loophole that Governing described, they seem to have an avenue to do that.

“Wisconsin has shown us that there is a third way, one that allows states to make the best of the ‘Sophie’s Choice’ that Obamacare has imposed upon them,” Avik Roy, a senior fellow at the Manhattan Institute, wrote this week in an op-ed for Forbes. “States’ focus should be on maximizing their use of Obamacare’s exchanges, which provide at least some semblance of market-based health coverage, and minimizing their use of Medicaid, which traps the poor in the worst health program in the developed world.”

But how many states follow in Walker’s path remains to be seen. It might not be practical for many of them. Wisconsin started from an unusual situation: the state already offered limited Medicaid benefits to childless adults making up to 200 percent of the poverty line. Most states either have a much lower level of eligibility for that population or don’t offer any Medicaid coverage to childless adults at all. So even setting Medicaid eligibility to 100 percent of the poverty level would be a significant expansion of the program for many states—and they wouldn’t be able to take advantage of the enhanced federal funding match, as the Obama administration has already decided.

But there are a few states that could copy Wisconsin’s model. According to a July 2012 analysis from the Kaiser Family Foundation, six states that have turned down the Medicaid expansion or likely could (Arkansas, Indiana, Idaho, Maine, Oklahoma and Utah) offer some kind of Medicaid benefits to childless adults with incomes above 100 percent of the poverty line. In theory then, they could attempt to craft a plan that, like Walker’s, takes advantage of the loophole.

An aide to Oklahoma Gov. Mary Fallin said it is not a proposal the state is considering at the moment. Similarly, an aide to Indiana Gov. Mike Pence said the governor has already made his own proposal related to the expansion -- that is, he wants to keep the Healthy Indiana program, which covers childless adults up to 200 percent of the poverty line, and reform the Medicaid system in other ways before he considers expanding the program.

In Maine, Gov. Paul LePage was actually the first to proposed a plan like Walker's, though it hasn't garnered nearly the same amount of attention. Last July, as Governing explained, Lepage was reportedly considering reducing Medicaid eligibility to 100 percent of the poverty line in 2014, which would move roughly 17,000 to the exchange. That is still the governor's plan, but Maine hasn't received the necessary federal approval to do it, Adreinne Bennett, LePage's press secretary, says.

The state wasn't consciously taking advantage of the ACA's loophole, though the governor's proposal clearly would, Bennett says. It was instead intended to be a cost-saving measure as Maine faces a $101 million shortfall in its Medicaid budget.

"We're caught in a tough spot," Bennett says, "because we don't have the flexibility from the feds, but we don't the money either."

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