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Court ruling says states can opt out of Medicaid expansion

Last week’s Supreme Court decision on the Affordable Care Act provided a setback to the Obama Administration by ruling that while the federal government can expand the Medicaid program, it cannot withhold funds from states that choose not to participate in the expansion.

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

The effect of this ruling is twofold. First, it jeopardizes the chances of the working poor – those with incomes higher than 100 percent of the federal poverty level (FPL) but less than 133 of FPL – of getting health insurance coverage. Second, it firmly empowers the states to decide how they want to handle both their own Medicaid programs and the issue of widespread lack of insurance among this population.

[See also: 4 likely outcomes of the Supreme Court's ACA ruling]

“The target population that the Medicaid expansion was meant to cover are going to be left out in the cold. These would be the working poor,” said Gregory Pemberton, an attorney in the healthcare practice at Indianapolis-based law firm Ice Miller. “Let’s face reality: these are (the) same people who are going to present at the emergency room for their care and somebody is going to pay for that care, so indirectly that is a cost shift.”

This reality, though, may play directly into the political and budgetary decisions states will face in deciding whether or not to expand their Medicaid rolls.

“Some states will take a look at the Affordable Care Act and the Medicaid expansion and think to themselves: that is free money for several years. Those persons are covered at 100 percent for the first few years and then 90 percent. That’s an affordable way to get your population health insurance,” said Ceci Connolly, managing director of PwC’s Health Research Institute.

While there is uncertainty at what level the federal government will continued to pay in the future for the Medicaid expansion, this short-term enticement could be attractive.

But there is another potent force that could also play a significant role on determining whether a state will expand its Medicaid program or not: hospitals and other healthcare providers. As Connolly sees it, the providers have been engaged in a constant struggle in the past of how to handle the uninsured, who typically come to their emergency rooms for care.

[See also: 4 likely outcomes of the Supreme Court's ACA ruling]

“That is a big uncompensated care burden for those hospitals today,” Connolly said. “One of the reasons we saw the provider community and insurers generally support the Affordable Care Act was they want to have millions more people covered. So I think in some states where you have large numbers of uninsured, it may be the industry who speaks up and says: ‘we really want to get these people covered.’ It is not only good for them from a health perspective, but it is important in terms of running a healthcare company.”

If a particular state decides it will expand the Medicaid program, it is likely many will turn to the state health insurance exchanges to help them manage both the Medicaid members, and those above the 133 FPL threshold who qualify for subsidies to buy health insurance.

“That may be a path that (states) could justify the creation of the exchanges to say ‘why shouldn’t we expand the Medicaid program and extend the exchanges as a forum to be able to allow the people under the expanded program to have the same kind of consumer choices?’” said Pemberton.

While Connolly acknowledges the tradeoffs states will need to make if they choose to expand Medicaid as outlined in the ACA – quality measures and different payment for primary care and prevention – she also sees opportunity.

“I think this is going to spark some real innovation out there across the country and probably one of the unexpected positive developments of the court ruling will be encouraging that kind of experimentation,” Connolly concluded.

“We know that when states try to solve the problem from different angles we come up with some really neat ideas. We know that it is not a one-size-fits all situation when it comes to the delivery of healthcare. I’m excited to see what some of the states will come up with.”

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