States Send Warning to Feds with Medicaid Expansion 'Triggers'

Even as they embrace the expansion, some governors are signaling that they'll pull out if federal funding drops in later years.
by | February 5, 2013

What makes the Medicaid expansion work is the enhanced federal funding. To recap: the federal government will cover 100 percent of the costs from 2014 to 2016. That match will gradually decrease to 90 percent by the end of the decade, but is supposed to stay there indefinitely. Estimates place the costs to the federal government at $800 billion or more in the next 10 years; state are expected to spend as little as $8 billion combined. It is, in short, a very good deal.

So good, in fact, that Republican governors who have been vocal opponents of the Affordable Care Act (ACA) are now coming around to begrudgingly accept the expansion. But when they do so, they’re sending an implicit warning to the Obama administration and future administrations: reduce the federal funding, and we’ll back out.

Think of it as a ‘trigger’ to pull out of the deal. Sometimes, the language is opaque: Nevada Gov. Brian Sandoval said that “if there is any sign of change… at the federal level, it may alter my support for the expansion.” Other times, it’s much more direct: Arizona Gov. Jan Brewer included a provision in her proposed budget that would automatically repeal the expansion if the federal match dropped below 80 percent in later years.

“I won’t allow Obamacare to become a bait-and-switch,” she said in her State of the State address.

Why the bravado? The reasons are likely twofold. First, as Governing has reported, there is a very real fear among states and Medicaid offices that the program, including expansion funding, could be cut as part of any federal deficit reduction deal. And second, a conventional wisdom has grown that once a state accepts the expansion, it won’t be able to drop it in the future for both practical and political reasons. The optics of cutting off health insurance for millions of low-income Americans are never going to be pretty, no matter what might have happened in Washington.

“It's a signal. In part, it is a political message: ‘We're going to do this, but if you screw it up, it's on you. We're telling you right now: If you do this, we're out," says Matt Salo, executive director of the National Association of Medicaid Directors (NAMD). “On another level, given how hard it could be to back up the battleship, if you build it into the statute, from the political perspective, then the statute says we have to do it. It's more of a glide path.”

The White House has done everything it can to reassure states that they don’t have to include those kinds of caveats. The enhancing federal funding isn’t going anywhere, they say. Administration officials recently said publicly for the first time that Medicaid was off the table in the coming round of deficit reduction talks. Health and Human Services (HHS) Secretary Kathleen Sebilius has pledged repeatedly, using Brewer’s precise language, that the expansion won’t become a “bait-and-switch” for states. Even if the federal funding is reduced, administration officials have said that states would be allowed to drop out of the expansion if they wanted.

But there are only so many assurances the feds can give. To state the most obvious issue: this administration is only going to be in power through the third year of the expansion. Those attractive cost estimates that go through the next decade, usually 2022? They don’t take into account that the country could have had two different administrations in the White House by then, administrations without the same attachment to the ACA that the Obama White House has.

“It’s reassuring. It’s saying the right things. It’s putting states in a better place to make decisions. But is it a guarantee? Absolutely not,” Salo says. “These are static deals. There’s always a risk in what a future Congress or a future administration could do. Who knows what the future holds?”

But some think all this posturing on both sides is unnecessary. If the federal government needs to cut Medicaid funding to get the national deficit under control, they eventually will. Recent federal projections estimate the program will be costing the country more than $950 billion by 2021, nearly as much as Medicare. Some would argue that’s a lot of fat to cut—and it’s easy to imagine a future Republican administration or a Republican Congress trying to undermine a program that’s a big piece of Obama’s signature legislative achievement.

But it wouldn’t be easy for the feds to renege on their promise for enhanced expansion funding specifically. Though HHS has some leeway in how Medicaid is administered, the 90-10 match is written into the federal code as part of the ACA. The only way to change that would be an act of Congress, a difficult proposition in most political environments. So states that include these triggers in accepting the expansion might be overestimating how easy it would be for the feds to change course.

“There is some skepticism at the state level, but I think some of that is a misunderstanding about how the law is written and what the federal commitment is,” says Robin Rudowitz, associate director of the Kaiser Commission on Medicaid and the Uninsured. “Congress would need to pass a law to reduce the federal funding.”

On the other side, despite that conventional wisdom that states would have political difficulties abandoning the expansion, states have proven themselves capable of making hard decisions with the program. The last few years, as Medicaid has eaten up more and more of state budgets, have resulted in hefty cuts to benefits, cost-sharing shifts and even attempts to reduce eligibility, though the ACA explicitly forbade states from doing so.

So the rationale that states won’t accept the Medicaid expansion and its generous federal funding because they wouldn’t be able to walk it back later is “nonsense,” said Gail Wilensky, former health care adviser to President George H.W. Bush, at a rural health policy conference in Washington, D.C., on Monday. That means the warnings that red states are sending as they accept the expansion might be more than just bluster.

“States have shown us all too often that when their budgets are squeezed, they are capable of narrowing Medicaid,” Wilensky said. “States have shown a willingness and an ability to do it. To me, that is not a very compelling reason for why states won't take advantage of the expansion now.”

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