If ACA is Overturned: What Happens to Medicaid?

Stronger vetting and enrollment reductions are two likely outcomes, analysts say, while the fallout for early state adoption efforts is unclear.
by | June 4, 2012

With its mandated expansion of Medicaid eligibility to 133 percent of the federal poverty level, the Affordable Care Act (ACA) is expected to add 17 million new people to state rolls by 2016. The federal health-care reform law also required states to maintain their currently Medicaid enrollment leading up to the 2014 expansion and offered states opportunities to upgrade their eligibility system, among other reforms. According to the Kaiser Family Foundation, 48 states plus the District of Columbia have already pursued some of those options.

So what would happen if the Supreme Court overturns the ACA’s Medicaid expansion or tosses the whole law when its decision is released this month?

Would there be drastic cuts to enrollment? What would happen to ongoing state initiatives to prepare for the ACA's Medicaid requirements?

Any answer, of course, is speculative. The Obama administration has remained steadfast in its confidence that the Court will uphold the ACA, and federal officials have declined to comment on any alternative outcomes. But a brief analysis of projected enrollment figures and state actions so far offers some context for a scenario in which the Medicaid expansion is reversed.

Specific state reductions in enrollment and other courses of action are difficult to predict, analysts say, and would likely depend on each state’s particular fiscal and political atmosphere.

“States would have to react quickly to either preserve or dismantle significant changes they have made or are in the process of making,” said Matt Salo, executive director of the National Association of Medicaid Directors. “They would have to decide how to proceed with various reforms to Medicaid under the ACA and, without the maintenance of effort, they could possibly rethink eligibility policies, procedures and methodologies.”

States have been preparing for a dramatic influx in Medicaid enrollment: according to the Kaiser Family Foundation's projections, Nevada and Oregon would experience a 60 percent increase in enrollment by 2019 (largest in the country by percentage). California and Texas would add up to 2 million people each under the new eligibility rules, the largest increases by sheer number, in addition to another million-plus new beneficiaries when currently eligible individuals enroll in Medicaid to satisfy the ACA’s individual mandate.

Some of the states that would experience the greatest increases in enrollment, such as Texas, are also those with a political climate that would make them less likely to enact such increases on their own, said Dan Mendelson, CEO at Avalere Health, an independent health policy consulting group. Texas officials began talking last year, well before the Supreme Court's hearings on the ACA, about backing out of the Medicaid expansion.

"A lot of the expansion occurs in states that are relatively cheap on the Medicaid side already," Mendelson said. "Those states that do not have the budget or the interest frankly... are unlikely to expand their Medicaid programs if they're not forced to. I tend to think you'd see some states initiate the expansion, but that would be the exception, not the rule."

The wear of rising Medicaid costs (the result of increased unemployment) and dwindling state revenues (also the aftermath of the economic downturn) is well-documented. But because of the ACA, states were unable to reduce enrollment, instead cutting costs by dropping provider payments and reducing benefits for enrollees, which has subjected states like Arizona and California to lawsuits from their state hospital associations.

The reversal of the law would provide states with their first opportunity to cut their Medicaid ranks. Policy analysts were hesitant to predict which states might take such action and how aggressively, but acknowledged that it would likely be on the table for some states. Maine and Florida have had recent plans that would have reduced enrollment rejected by the U.S. Department of Health and Human Services (HHS) because of the ACA's maintenance-of-effort requirements.

"It would provide some options for how states address Medicaid cuts," said Joy Wilson, senior health policy analyst at the National Conference of State Legislatures, if the ACA were reversed. "But the impact would be very different across states. Everybody started at a different place."

One likely result is stronger vetting of Medicaid recipients, analysts say. Illinois provides an early example of what that amplified effort might look like. The state’s plan to cut down on Medicaid fraud by checking addresses of those enrolled in the program against state driving records ran afoul with White House officials, who argued that the ACA prohibited states from making it more difficult for people to enroll in the program..

State officials have estimated up to 6 percent of currently enrolled Medicaid recipients live out of state, and reducing fraud could save Illinois up to $1 million annually. Gov. Pat Quinn notified the Obama administration in February that his state would move forward with the plan, and federal officials relented.

"There's a bipartisan focus on ensuring the long-term viability of Medicaid," said Matt Claffey, a spokesman for the Illinois Department of Health and Family Services. "It's important to ensure the integrity of our rolls."

Finally, the fate of early state efforts to adapt to the ACA’s Medicaid provisions is murky. According to the Kaiser Family Foundation, eight states took an offer from the federal government to accelerate their implementation of the new eligibility standard for adults. Twenty-six states have submitted proposals to the new Medicare-Medicaid Coordination Office, created by the ACA, with their pitches for improving care and cost containment for dual-eligibles (people who qualify for Medicare and Medicaid).

Another 29 states have submitted plans to HHS to upgrade their eligibility systems, enticed by the opportunity for a 90 percent federal funding match to do so. NCSL's Wilson said that funding would likely be unaffected by overturning the ACA, as it was attached to federal Medicaid support to states.

Most court watchers expect a decision on the ACA lawsuit at the end of Supreme Court's current term.

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