Supreme Court Ruling: Uncertain Future for Medicaid Expansion

The decision leaves an apparent loophole for states to opt out of the law's Medicaid eligibility expansion.
by | June 28, 2012

One portion of the Supreme Court’s 5-4 decision to effectively uphold the Affordable Care Act (ACA) could have profound implications for the law’s goal of universal health coverage: it appears states could opt out of raising their Medicaid eligibility standards to 133 percent of the federal poverty level in 2014 without losing their existing federal Medicaid funding as a result.

The ACA’s Medicaid provision is expected to extend coverage to up to 17 million people within the next decade. But the teeth of the provision, as originally conceived, was that the law gave the U.S. Department of Health and Human Services (HHS) the authority to withhold some or all of a state’s federal Medicaid match (between 50 and 75 percent of each state’s spending for the program) if the state did not adopt the new eligibility standards.

Chief Justice John Roberts, writing for the majority, declared that the Medicaid eligibility expansion is constitutional, but that it is unconstitutional for HHS to withhold existing federal Medicaid funding for states that don’t comply. That could neuter the Obama administration's ability to enforce the expansion.

"Nothing in our opinion precludes Congress from offering funds under the ACA to expand the availability of health care and requiring that states accepting such funds comply with the conditions on their use,” Roberts wrote. “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."

HHS will provide 100 percent of new spending for the newly eligible population, under the ACA, and that match declines to 90 percent by 2020. The expansion is a major part of the law's goal of universal health insurance, covering more than half of the 30 million people expected to receive coverage under the law as a whole.

It would seem, however, that states could now not participate in the Medicaid expansion without facing any financial penalty.

"The ruling, in effect, makes the ACA’s Medicaid expansion optional for states," said Matt Salo, executive director of the National Association of Medicaid Directors. "States will now have to make a series of decisions moving forward. Those include the political, fiscal and policy calculations of whether or not this particular expansion makes sense."

One important factor in states' decisions will be the Obama administration's response to the Court's decision, said Stacey Mazer, health policy analyst at the National Association of State Budget Officers. To encourage adoption of the new standards, HHS could reframe the expansion as a competitive grant program or sweeten the financial incentives for states to participate.

"I think that's kind of a wild card out there," Mazer said. "The federal government is not going to have quite the hammer it did before."

The expansion's impact is substantial: some states, such as Nevada and Oregon, would experience up to a 60 percent increase in their Medicaid enrollment under the expansion. California and Texas would add up to 2 million new enrollees, according to the Kaiser Family Foundation.

A few states—including Florida, Maine and Texas—have already floated the possibility of opting out of the Medicaid expansion. Applications from Florida and Maine to reduce their enrollment have already been rejected by the Obama administration, which cited the ACA. Given the wording of the Roberts decision, it would seem those states, and others, could now have an opening to pursue that option.

Some have already indicated that they might—or that they'll at least hold off until the next president has been chosen. In a statement released after the Supreme Court's ruling, Wisconsin Health Services Secretary Dennis Smith (appointed by Republican Gov. Scott Walker) said his state will "await the results of the November election before taking action" related to the Court's decision.

“While we will be reviewing the decision carefully to determine its full impact, Wisconsin’s health insurance market remains robust and the state has one of the highest levels of people with health insurance coverage," Smith said. "These achievements were made without federal mandates."

Nevada Gov. Brian Sandoval, a Republican whose state would experience one of the largest increases in Medicaid enrollment by percentage, expressed concerns about the cost burden of the program's growth.

Although the federal government will cover the vast majority of the costs for new enrollees, the Centers for Medicare and Medicaid Services (CMS) estimated earlier this month that, under a scenario in which the ACA remains law, state Medicaid spending would increase by more than 7 percent annually after the expansion went into place, well above the projected increase for overall national health-care spending.

"The implications for Medicaid costs are still unclear, but Nevada will prepare to meet the serious financial implications of this decisio," Sandoval said in a statement. "I believe the Congress should act to reform this law and ease the serious burdens it places on the states and the nation’s businesses."

On the other hand, many states will likely still take an offer that is too good to refuse, analysts said following Thursday's ruling. Eight states have already seized an opportunity for enhanced federal funding to implement the ACA's new eligibility standards early, according to the Kaiser Family Foundation.

Oregon Gov. John Kitzhaber, a Democrat whose state would also see a substantial increase in Medicaid enrollment under the ACA, praised the Court's decision. "We’re moving forward with coordinated care organizations that will transform Medicaid for better health and lower cost, " he said in a statement.

"For many states, it's going to be very difficult for them to leave that money on the table," said Linda Blumberg, health economist and senior fellow at the Urban Institute. "I think there is going to be considerable financial pressure, both from providers and the reality of state budgets, to go with this."

The Supreme Court's ACA decision is below.

 

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