Will the Medicaid Safety Net be Stretched?

By Bankrate.com

Like a stagehand suddenly caught in the spotlight, Medicaid unexpectedly took center stage in the health care reform debate this summer when the Supreme Court disallowed a forced expansion of the program under President Barack Obama's health insurance overhaul.

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The star of that historic court showdown was expected to be the Affordable Care Act's "individual mandate" portion that requires most Americans to acquire insurance or pay a penalty beginning in 2014, not the 47-year-old federal-state health care safety net for the poor that already insures 60 million people.

But the justices upheld the individual mandate along with the bulk of the law, then surprised almost everyone by ruling that the Medicaid expansion, designed to help provide health coverage to more than 30 million low-income Americans, should be optional for each state.

"People assumed that the individual mandate was much more at risk than the Medicaid expansion," says John McDonough, director of Harvard University's Center for Public Health Leadership and an architect of the Massachusetts health reform, which inspired the federal law. "Nobody foresaw them making the Medicaid expansion voluntary as an option."

Some states are balking

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Republican Govs. Rick Scott of Florida and Rick Perry of Texas, whose states are among those with the largest populations of uninsured low-income residents, immediately vowed not to expand their Medicaid programs. Other governors blindsided by the court's decision unleashed their insurance commissioners to explore the choices for states under a ruling that generated more questions than answers.

"There are at least 300 questions that have legitimately been raised in the wake of the decision, and there is nothing in the actual language that can help you understand it one way or another," says McDonough.

What is certain is that there's a strong incentive in the law for states to extend Medicaid to everyone with incomes of up to 133% of the federal poverty level (approximately $15,000 for an individual or $30,000 for a family of four) and cover eligible childless adults for the first time.

States that do so will have their expansion completely funded by the federal government for three years, with the federal share later declining to 90%. But wait, there's more: The feds' offer of three "free" years only applies to the years 2014 through 2016, further prompting states to act now.

Regardless of how a state proceeds on Medicaid expansion, individuals and families earning between 133% and 400% of the poverty level will be eligible for insurance premium subsidies beginning in 2014 under the federal health care law.

McDonough says the Medicaid expansion was designed to standardize Medicaid eligibility levels, thereby eliminating the current state-by-state patchwork, cutting the cost of uncompensated care at hospitals and emergency rooms and leaving less room for lawmakers to manipulate Medicaid programs for their own purposes. Fear of a Medicaid influx

Some governors are particularly concerned about the so-called woodwork effect. Under this scenario, large numbers of Medicaid-eligible residents who haven't yet signed up might hear of the expansion and come "out of the woodwork" and enroll before 2014, creating a budget crunch for some already cash-strapped states.

"That is not trivial for some states," admits Deborah Chollet, a lead health insurance researcher at Mathematica Policy Research in Washington, D.C. "But the truth is, those people have to be pretty healthy, or they would already be in Medicaid. So you may get large numbers enrolled, but your per-person cost should be very low for those people."

In fact, Arkansas recently crunched the numbers and found that while health care reform would add 250,000 people to the state's Medicaid rolls, the law would result in a $372 million savings for the state from 2014 through 2021.

"There definitely were people in the state who were surprised by the numbers," says Amy Webb, spokeswoman for the Arkansas Department of Human Services. "The 'woodwork' cost is offset by other areas where we would be saving, such as our medically needy population. They won't have to go into bankruptcy to cover medical expenses." Benefits for society?

Long before the Supreme Court nudged Medicaid into the spotlight, Harvard health economist Benjamin Sommers and his team began conducting a cost-benefit analysis of extending Medicaid to all adults younger than 65, rather than just the four required eligibility groups (parents, children, pregnant women and the disabled). His study focused on three states -- Arizona, Maine and New York -- that have undertaken this very expansion in the program since 2000.

The results were not surprising: People live longer, seek medical care sooner and generally feel better when Medicaid is available to them.

"Our paper serves to remind everyone that expanding insurance is not just a cost issue, that there is a real health impact and a real effect on people to get the care they need when they need it," Sommers says. "The Affordable Care Act in some ways turns Medicaid into the program that a lot of Americans already think it is, which is a health insurance program that is available to all poor Americans."

The question remains: Will the states expand Medicaid, and if so, when?

Judy Feder, a health policy expert with the Urban Institute, says foot-dragging by states on Medicaid is nothing new, going back way beyond health care reform. While most states began their Medicaid programs within five years after the program was created in 1965, it took Arizona and a few others more than a decade to do so -- and that was with a mere 75% federal match, not the 100% initial match for expansion.

"Our hope is that the state governors will recognize that this is a good deal and one that their citizens sorely need," says Feder. "Even if it takes a little time, I think the states are going to come in."