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State Medicaid expansion

Bumpy road ahead

HHS answers on expansion raise more questions

Posted: December 15, 2012 - 12:01 am ET

The Obama administration's attempt to clarify Medicaid expansion under the healthcare reform law may have further muddied the waters for states and providers. And the latest uncertainty comes as states prepare for January legislative sessions that will determine if they go along with the law's ambition to enroll millions more Americans in the programs.

The latest round of questions followed a week in which the Obama administration undertook an aggressive push to settle uncertainty about the Medicaid provisions of the Patient Protection and Affordable Care Act triggered when the U.S. Supreme Court struck down HHS' authority to compel states to get on board with it.

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HHS Secretary Kathleen Sebelius issued a letter Dec. 10 to governors aimed at addressing questions on flexibility and state responsibilities that some of them asked months earlier. The administration also dispatched its point person on the issue, Cindy Mann, to field unresolved questions on the issue on Capitol Hill.

One answer was that HHS will provide the full federal funding that the law promises to pay for the new coverage only to states that expand eligibility to 133% of the federal poverty level, which could discourage participation by states where governors have proposed expanding eligibility to a lower threshold as a way to limit their share of future costs as the federal share decreases.

“There probably will be some that will wait as a result of not having available an option to expand up to 100% or some lower level, and what happens from there will probably depend on how the program unfolds over the next few years,” Dr. Mark McClellan, an economist at the Brookings Institution and a former CMS administrator, said in an interview.

Further questions were spurred by HHS' brief comments promising rules next year that clarify the extent of cuts to disproportionate-share hospital payments. Hospitals have raised concerns that they could face the double impact of their state not expanding Medicaid coverage to include many of their uninsured patients and the healthcare law cutting their DSH payments.

Mann confirmed in an interview that those DSH payment cuts could vary between states based on how they use their DSH payments to reduce their numbers of uninsured.

Mann declined to specify when in 2013 those regulations could come, and that could affect whether state legislatures, many of which begin meeting in January, authorize the expansion.

“It seems to me like the overarching issue here comes back to the disproportionate-share payments,” Bruce Caswell, president of the health services segment at Maximus, said in an interview. “Will the impact be so severe in the hospital systems and the delivery networks that with the loss of those funds it gets balanced toward a substantive discussion in the next legislative season about expanding Medicaid?”

States will be weighing their worries over DSH payments against other factors. Some states that expand Medicaid could reduce their spending on non-Medicaid health programs funded solely by the state, such as those for mental illness and substance-abuse treatment, said Deborah Bachrach, special counsel at Manatt, Phelps and Phillips.

Taking stock of state exchanges
In the case of Arkansas, where the Legislature is expected to begin considering the expansion in January, some of the $900 million annual cost of the expansion is expected to be offset by reduced state uncompensated-care spending, said Andrew Allison, director of Division of Medical Services in the Arkansas Department of Human Services. The state also expects an indirect tax boost through the infusion of at least $800 million in new federal funds into the state each year through Medicaid.

“All told, we estimate the fiscal benefits will outweigh the costs and the expansion on net is expected to save or increase state tax dollars by $44 million in fiscal year 2014,” Allison said in Dec. 13 testimony to the Health Subcommittee of the Energy and Commerce Committee.

Similar net savings through reduced spending on state health programs were found in studies of Medicaid expansions in Wyoming and Michigan, Bachrach said.

Nevada Gov. Brian Sandoval—the only Republican state leader to publicly commit to a Medicaid expansion—cited in a Dec. 11 written statement an estimated $17 million in mental-health savings it was expected to provide the state.

State officials in other Republican-led states were less optimistic about the financial impacts of the expansion on their budgets and providers.

For instance, Louisiana officials concluded that the $1.8 billion net 10-year cost of the expansion to the state found in a Kaiser Family Foundation study of the expansion's costs and benefits was likely an underestimate, said Bruce Greenstein, secretary of the Department of Health and Hospitals in Louisiana. Also, Louisiana estimated 467,000 residents would join Medicaid if the state fully expanded eligibility, including 187,000 people already on private insurance.

Democrats dismissed such worry this week as another form of obstruction to the ACA.

Some Republicans insisted they were trying to make it work but need more detail and flexibility. Louisiana Gov. Bobby Jindal, chairman of the Republican Governors Association, wrote in a Dec. 13 letter to President Barack Obama that “it is in the best interests of both the president and the states for a serious meeting about the future of Medicaid to occur as soon as possible.”

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