Will States Opt Out of Medicaid Expansion?
Policy + Politics

Will States Opt Out of Medicaid Expansion?

REUTERS/Jessica Rinaldi

Medicaid, a state-based health care system for the poor created in 1965 was optional from the start. It took a decade before the 50th state – Arizona – joined the program.

Every time Medicaid expanded in the ensuing decades – such as the extension of coverage to all uninsured children in the 1990s – the federal government allowed states to opt out. Eventually, none did.

Now states are facing another crossroads in the evolution of the program, assuming the Affordable Care Act, better known as Obamacare, politically survives beyond the fall elections. The Supreme Court on Thursday reaffirmed the right of states to reject expanding Medicaid to cover poor-but-working adults and prohibited the federal government from withdrawing support for other parts of the program to penalize non-participation.

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Some states are already planning to ignore the coverage expansion offer when it goes into effect in 2014. “We’re not going to consider it,” vowed Anthony Keck, state Medicaid director in South Carolina. About 20 percent of the state’s population is uninsured, giving it one of the highest rates in the nation. “We believe you have to make health care more affordable first.”

The 26 states that mounted the legal challenge to Obamacare said the Medicaid expansion placed an unsustainable financial burden on their state budgets. While the federal government will provide 100 percent of the costs in the first two years of the expansion and provides additional payments to allow payments to physicians and other providers to Medicare rates, federal support dwindles to 90 percent after ten years, leaving states with 10 percent of the responsibility.

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Health care proponents believe most if not all states will eventually accede to the expansion, just as they did to the original law and the children’s expansion. “Over time they will have to ask themselves why you would not want to do this,” said Cathy Schoen, vice president for policy at the Commonwealth Fund, a pro-reform think tank and advocacy group. “In states where 20 to 30 percent of working age adults are uninsured, it will provide relief to local taxpayers and the already insured, who pick up the cost of their emergency room care.”

About half the 33 million people slated to get coverage under the law will get it through Medicaid. The program’s coverage guidelines will be expanded to include uninsured individuals or families earning up to 133 percent of the federal poverty level. These are people who, though working, are too poor to afford policies sold through the health insurance exchanges even with subsidies.

Now that state participation is optional, it is impossible to predict how many people will not gain coverage because of state opt-outs. The Congressional Budget Office issued a terse statement Thursday saying it will take some time to project how the court’s decision will affect its original coverage projections and program costs. 

Other pro-reform analysts noted that very poor working people without coverage on their jobs will be the biggest losers if they live in states that do not expand Medicaid to take advantage of the new federal subsidies. “People with incomes between 100 percent and 400 percent of the poverty line will be eligible for subsidies to help them afford coverage in the new health insurance exchanges,” said Robert Greenstein, president of the Center for Budget and Policy Priorities. “But people below the poverty line will not be eligible, because the Affordable Care Act assumes they’ll be in Medicaid instead.”