Warming to the ACA

Whether millions of Americans get the coverage envisioned in the healthcare reform law will come down to this: whether governors can stomach leaving federal money on the table. Even some of the law's fiercest critics now say they won't.

More than half the states are opposed to or are still wavering on expanding Medicaid rolls in order to meet the ambitious coverage goals of the Patient Protection and Affordable Care Act. Republican governors lead all of the states saying no, and most of the other ones are on the fence.

But Arizona Gov. Jan Brewer announced last week plans to broaden the state's safety net insurance.

“My concerns about the Affordable Care Act are well known, but it is the law of the land,” she said. “With this expansion, Arizona can leverage nearly $8 billion in federal funds over four years, save or protect thousands of quality jobs and protect our critical rural and safety net hospitals.”

Her decision followed similar decisions by Republican governors in North Dakota, Nevada and New Mexico.

The Congressional Budget Office estimated last March that 13 million more people would get Medicaid coverage in 2014, the first year that the Affordable Care Act requires that nearly every American be covered or pay a penalty. That estimate dropped to 7 million four months later after the U.S. Supreme Court—resolving a lawsuit joined by Brewer and many of the state officials still mulling how to proceed—ruled that HHS couldn't penalize states for declining to expand Medicaid eligibility to at least 135% of the federal poverty level.

Last June, after the Supreme Court's decision to uphold it, Brewer criticized the law as a “fiscal and regulatory nightmare” and “an overreaching and unaffordable assault on states' rights and individual liberty.”

Betsey Bayless, president and CEO of the Maricopa Integrated Health System, said executives called to argue their case with Brewer, and a group of providers hired a lobbying firm to press the business case for Medicaid expansion. The Phoenix-based system gets nearly two-thirds of its revenue from Medicaid. It risked losing the increased revenue from newly insured Medicaid patients and an estimated $80 million from adults who are expected to lose temporary coverage that was established in 2001, but scheduled to sunset Jan. 1, 2014, with the Affordable Care Act's Medicaid expansion, Bayless said.

In North Dakota, Republican Gov. Jack Dalrymple, who previously called the Affordable Care Act “wrong for North Dakota,” reversed his position and submitted a bill in early January to expand Medicaid.

Susana Martinez, New Mexico's Republican governor, also announced plans in early January to expand Medicaid. But the state will cut the most recent enrollees first if “the federal government breaks its funding promises,” Martinez said in a letter to state residents.

And Nevada Gov. Brian Sandoval likewise said he would pull back if the federal government doesn't carry as much of the burden as promised. The Republican said in December that he would expand Medicaid despite his dislike for the Affordable Care Act. He touted the expansion as a source of coverage for 78,000 residents who might otherwise face tax penalties under the law.

North Dakota's willingness and Arizona's embrace of the expansion—and its strategy to opt out without promised federal support—could help sway debate in South Dakota, said David Hewett, president and CEO of the South Dakota Association of Healthcare Organizations.

South Dakota Gov. Dennis Daugaard said in his budget address last month that without more information, he would not expand the state's Medicaid rolls this year, which he said would cost the state about $43 million to $44 million by 2020.

The federal government will cover the cost of newly eligible Medicaid enrollees through 2016. The following year, states will cover 5% of the costs, and their share rises to 10% by 2020. “We don't know what will happen after 2020,” Daugaard said. “Will the federal share remain at 90%? Will it drop to 80% or 70%?”

Daugaard noted that states have the option to delay the decision, suggesting the debates in South Dakota and elsewhere could drag on for years. The CMS in December said that the state could choose to broaden Medicaid eligibility later than 2014 and still draw the same level of federal funding, and that they may drop the coverage later.

Many low-income, uninsured adults in states where Medicaid does not expand will likely remain without insurance. Some low-income uninsured—those with incomes above 100% but below 400% of the federal policy guidelines—will be eligible to buy subsidized coverage in newly created health insurance exchanges in states without Medicaid.

But about 11.5 million adults do not qualify for Medicaid and have income below 100% of the federal poverty guidelines and cannot qualify for subsidized insurance, according to the Urban Institute.

Matthew Buettgens, an Urban Institute senior research analyst, said the penalty will largely not apply to those below 100% of federal poverty because most will have income too low to require federal income tax filing.

States where governors have declared their intentions may yet see opposition from legislatures.

Arkansas Gov. Mike Beebe, a Democrat, argued at length in his state-of-the-state address for the Republican-controlled Legislature to raise eligibility, saying it would provide an immediate boost to federal funds for some existing Medicaid expenses, aid hospitals and bolster the broader economy.

The state's total cost, even when Arkansas has to pay 10% of the cost, would amount to less than $5 million, Beebe said. He urged the state not to “sacrifice our share of federal money to other states.

“Refusing money to help our people may make a statement to the federal government,” Beebe said, “but it will cost us more at home, will jeopardize the health of our fellow Arkansans and won't solve the problems of our national counterparts.”