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The State of Medicaid: Will your state expand its Medicaid program
Posted in Government

On June 28, 2012, the U.S. Supreme Court held that the expansion of Medicaid envisioned in the Patient Protection and Affordable Care Act was an option, not a mandate for states (see the full text of their opinion here). While upholding the expansion of Medicaid, the Supreme Court limited the power of the federal government to secure compliance by penalizing states that refuse to expand their Medicaid programs. Chief Justice John Roberts said that the federal government could not compel states by cutting off all of the federal money they receive for existing Medicaid programs.

Medicaid expansion a “genuine choice” for states

The Medicaid expansion is a central part of the Act, which was passed in 2010. Congress mandated that the states expand their Medicaid programs to include people within 133 percent of the poverty line in the Act. That means that an individual earning less than $14,856 or a family of four earning less than $30,656 in 2012 would qualify for Medicaid under the new law.

It is estimated that roughly half of all uninsured people would gain coverage through the Medicaid expansion. The Congressional Budget Office estimated that 17 million uninsured people could gain coverage through Medicaid, at a cost to the federal government of $923 billion from 2014 through 2022. States would collectively spend about $73 billion on the expansion.

Following the recent decision of the Supreme Court, Congress is allowed to offer money to the states to expand Medicaid and to attach conditions to such grants, but Congress cannot take away existing Medicaid funding from states that choose not to participate in the new expansion. The threatened loss of so much federal money, which is more than 10 percent of state budgets, “is economic dragooning that leaves the states with no real option but to acquiesce in the Medicaid expansion.” Chief Justice Roberts continued by saying that “a state could hardly anticipate that Congress’s reservation of the right to ‘alter’ or ‘amend’ the Medicaid program included the power to transform it so dramatically.” He said that Congress “put a gun to the head” of states by requiring them to expand Medicaid or risk the loss of all federal Medicaid money, and that all “states must have a genuine choice.”

Although the mandate for states to expand their Medicaid programs was struck down by the Supreme Court, states can still choose to voluntarily expand Medicaid.

To expand, or not to expand?

Experts disagree on whether states will choose to expand Medicaid coverage. Normally, the federal government and the states share Medicaid costs, with the federal government paying 50 to 80 percent of the cost of Medicaid coverage in each state. The poorest states get the largest proportion of federal money. Under the terms of the Act, the federal government will pay the full cost of covering those newly eligible for Medicaid for three years, from 2014 through 2016. In 2017, the federal government’s share will begin to phase down gradually until it reaches 90 percent in 2020, where it will remain. The states will be responsible for paying for 10 percent of the costs.

Paying the remaining 10 percent of the Medicaid expansion costs may not sound like a large amount of money, but many states are already struggling to cover their share of Medicaid, which is the fastest growing part of state budgets. States facing a shortfall for current Medicaid recipients may be reluctant to expand their programs. States may decline to participate because they are unsure whether they will be able to afford their share of the new funding obligations, or because they are unwilling to commit the administrative resources that are necessary to support the expansion. Additionally, as the federal debt rises, there is concern that more of the financial burden may be shifted to the states as the federal government seeks ways to reduce the federal budget deficit. This means that states will either need to cut their annual budgets or raise taxes.

Other experts believe that states will voluntarily sign up because they find the idea of expanding Medicaid coverage attractive, especially since the federal government is essentially paying 100 percent of the costs for the first three years of the expansion and then gradually reducing its share of the costs by only 10 percent. Other states will be reluctant to leave such a large amount of federal money on the table. This is an opportunity for states to help low-income people who currently make too much money to qualify for Medicaid coverage.

Making the decision

State governments must decide by next year whether to participate in the Medicaid expansion. Several states have already announced their decisions to opt out of the expansion. Florida was the first and led the lawsuit against the Act. Twenty-six states, including Indiana, participated in the lawsuit, and several governors cited the cost of expansion in their decisions to join the suit.

Voluntarily expanding Medicaid would be an expensive decision for states, including Indiana. According to a report commissioned by Indiana, a full expansion would increase the number of Indiana Medicaid enrollees from approximately 1.2 million to more than 1.8 million. The Kaiser Family Foundation, a nonpartisan health policy research group, estimates that Indiana’s Medicaid enrollment could increase by 29 percent, which is a rate slightly higher than the national increase. Assuming a 29 percent increase, the federal government would pay $8.5 billion of the five-year cost for expansion and Indiana would be responsible for paying $478 million.

Gov. Mitch Daniels said that the “Medicaid expansion would put one in four Hoosiers – approximately 500,000 new enrollees – in Medicaid at a cost of approximately $2 billion” to the state over 10 years. Daniels is choosing to leave the decision about the expansion of Indiana’s Medicaid program to his successor and a new General Assembly.

If you have questions about the expansion of Medicaid in your state, please contact a member of our Government Practice Group.

DISCLOSURE REQUIRED BY CIRCULAR 230.  This Disclosure may be required by Circular 230 issued by the Department of Treasury and the Internal Revenue Service.  If this article, including any attachments, contains any federal tax advice, such advice is not intended or written by the practitioner to be used, and it may not be used by any taxpayer, for the purpose of avoiding penalties that may be imposed on the taxpayer.  Furthermore, any federal tax advice herein (including any attachment hereto) may not be used or referred to in promoting, marketing or recommending a transaction or arrangement to another party.  Further information concerning this disclosure, and the reasons for such disclosure, may be obtained upon request from the author of this article. Thank you.

  • Of Counsel

    Brenda is a member of the Economic Development Department and concentrates her practice in the areas of government services and public finance law. She regularly works with cities and towns all over Indiana and advises them in a ...

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