To Expand or Not to Expand: Medicaid Impact in the Wake of the Supreme Court’s Decision on the Affordable Care Act

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By Peter W. Thomas, JD; Joel M. Hamme, JD; and Theresa T. Morgan

After the U.S. Supreme Court affirmed the bulk of the Affordable Care Act (ACA), several significant issues have been squarely deposited into the laps of the states, and they will need to act relatively quickly to resolve them. To be sure, legislative efforts to repeal, modify, or defund the ACA or various aspects of it will continue apace in Congress due to the partisan rancor over national health reform—a divide that was not bridged in the slightest by the Court's ruling. In fact, in mid-July, the House of Representatives voted again to repeal the ACA outright, but that bill will go nowhere in the U.S. Senate.

The Obama Administration will continue full speed ahead with its ACA implementation efforts, including issuances of final and proposed rules, releases of agency guidance, and announcements of additional initiatives and grants. But states need to make some decisions on two important fronts, and they need to make these decisions soon. Each state will need to decide whether to expand its Medicaid programs and whether to establish a state-based insurance exchange or leave it to the federal government to do so.

On the Medicaid expansion issue, at least six state governors—including Florida and Texas—have already publicly announced that they do not intend to participate in the Medicaid expansion. If this position holds, it is expected to leave one fifth of those envisioned to have Medicaid coverage under the ACA without health insurance. History suggests that most, if not all, states will eventually agree to expand their Medicaid programs given the generous funding the federal government will provide, but at this point, several states are hardening their positions against the expansion.

This analysis focuses on the impact of the Medicaid aspect of the decision on individuals who need O&P care, and the providers who serve them.

Peter W. Thomas

Medicaid Eligibility Expansion

One of the overarching goals of the ACA was to attain near universal health insurance coverage in the United States. With the nation's uninsured ranks swelling to around 50 million people, Congress fashioned a multi-pronged initiative to reduce the pool of the uninsured.

The initiative includes the following:

  1. The individual mandate (effective January 1, 2014) that people who can afford health insurance either purchase it or pay a penalty for failing to do so.
  2. Subsidies to private businesses to assist in furnishing health insurance to their employees.
  3. Subsidies to certain lower-income individuals to help with the cost of purchasing health insurance.
  4. Expanded Medicaid eligibility, also effective January 1, 2014, to lower-income individuals who were not previously eligible for such benefits.

Despite the relative generosity of the matching rates for the expanded Medicaid population (a 100 percent federal match for the first three years and no less than a 90 percent match in future years), many states—26 in all—ultimately sued the federal government to overturn the ACA in general and the mandatory Medicaid eligibility expansion in particular. These states claimed that the expansion was coercive because, among other things, they would only receive the normal federal match for the administrative costs attendant to the expansion; they would have to bear some direct costs of the expansion, particularly after 2016; and there was nothing precluding future Congresses from scaling back the enhanced federal match, especially in light of cost-cutting efforts related to the federal budget.

The Supreme Court's opinion validated the use of the individual mandate, and the expectation is that it will result in health insurance coverage for about 16 million individuals who are currently uninsured. At the same time, however, the Court ruled that the states could not be compelled to engage in the Medicaid eligibility expansion, directed by the ACA, upon pain of losing all federal funding for their entire Medicaid programs. Instead, the federal government may only withhold the enhanced federal matching funds available under the ACA to assist states in covering the costs attributable to the eligibility expansion.

The Medicaid expansion was projected to result in health insurance coverage for an additional 16 million previously uninsured individuals by the end of the decade. Now, however, the states may make entirely voluntary choices about whether to engage in such an eligibility expansion, and the federal government may not effectively compel them to do so by threatening to withhold all federal Medicaid monies if they fail to enlarge their Medicaid-eligible populations.

To say the Court's holding was a surprise decision is an understatement, and it raises all kinds of difficult questions that are expected to result in additional guidance from the Secretary of the U.S. Department of Health and Human Services (HHS) and additional legal action from those who challenge the implementation of the expansion.

Difficult Questions that States and HHS Are Forced to Confront

The answers to many of the questions raised by the Supreme Court's ruling will clearly impact access to patient care, particularly for people with disabilities and chronic conditions who are low income but do not otherwise qualify for Medicaid under the existing eligibility categories. The Court's holding leaves the states and HHS with a series of thorny and unresolved questions:

Timing of the eligibility expansion decision:

Must states engage in the full expansion by January 1, 2014, or face the loss of the enhanced federal funding if they do not do so by that time? Conceivably, HHS could take the position that states must expand fully by that time to receive the enhanced match. The rationale for taking such a position would be that it forces the states to make the decision and does so in a way that maximizes federal leverage in favor of full expansion. Comments from HHS officials though suggest that HHS will allow states to delay eligibility expansion. The Court's decision does not resolve this question.

Nature of the eligibility expansion decision:

Suppose that a state decides not to engage in full expansion as of January 1, 2014, but it determines that it would like to partially expand eligibility (for example, expand to 100, 110, or 120 percent of the federal poverty limit [FPL]) on January 1, 2014, or that it would like to expand eligibility fully but on a delayed basis. Would the state be entitled to enhanced federal funding for a partial expansion or for a delayed full expansion? While the Court's decision does not resolve this question either, HHS officials have recently indicated that HHS is still assessing its opinions on this point. Thus, it is unclear whether states that choose to expand to only 110 or 120 percent of the FPL would have to settle for the current matching rate that states receive under their other eligibility categories, or would get the enhanced federal match.

Terms of the eligibility expansion decision:

For states that voluntarily agree to expand fully or in part, is the decision irrevocable? If, at some future date, states that expanded later decide to do away with the expansion or pare it back, may HHS deny all federal Medicaid funding or just the enhanced federal match? HHS could take the view that the Medicaid eligibility expansion is like a state joining the union—once you get in, you cannot get out. In other words, HHS could decide that the expansion is voluntary at the outset, but once a state decides to expand, it cannot backslide. Of course, a state would always retain the option of withdrawing completely from Medicaid. And it would seem that the decision should not be irreversible if Congress were to make material changes to the Medicaid program such as reducing the federal match considerably. Once more, there are pragmatic considerations that need to be assessed and weighed, and the Court's opinion does not seem to dictate a particular result. But, recent remarks by HHS officials indicate the agency will probably allow the states to retract eligibility expansion so as to make eligibility expansion truly voluntary.

Maintenance of existing Medicaid eligibility:

Under the provisions of the ACA, states are not permitted to eliminate Medicaid beneficiaries who are on the states' rolls as of March 23, 2010. This is known as the maintenance of eligibility (MOE) provision. The requirement does not mandate extensions or renewals of expiring Medicaid waivers. But overall, states are generally locked into the Medicaid eligibility standards they had in place at the time the ACA was signed. The MOE expires for adults in 2014 when the exchanges are expected to come online, and for children in 2019. The big question is whether the Court's decision allows states to decrease their rolls sooner than the ACA allows. In fact, the governor of the state of Maine is pressing this case and asking the HHS Secretary to permit the state to cut the Medicaid population immediately. The HHS Secretary has said that the Medicaid decision changes no provision in the ACA other than the expansion, and therefore, Maine's request is not expected to be granted. In addition, the Congressional Research Service recently opined that the Court's decision does not affect the MOE at all. This further underscores the need for HHS guidance on this and other Medicaid issues.

Payment to Disproportionate Share Hospitals (DSH):

For years, hospitals that care for a disproportionate share of uninsured and underinsured patients have been eligible for Medicare and Medicaid DSH payments, which are designed to reimburse them, in part, for the uncompensated care furnished to these patients. Operating on the assumption that the ACA would result in far fewer uninsured and underinsured individuals, Congress added provisions to the ACA that were designed to cut Medicare DSH payments by about $22 billion during federal fiscal years 2014 through 2019 and Medicaid DSH payments by approximately $14.1 billion in federal funds over the same period. Now that states may opt out of the Medicaid eligibility expansion, however, these DSH cuts will be overly severe for DSH hospitals in states that decide not to expand fully. In those states, DSH hospitals will continue to see significant numbers of uninsured and under-insured patients. At the same time, it appears that HHS has limited authority to resolve this problem by itself. Instead, any meaningful relief will have to be afforded by Congress.

Impact of the Decision on O&P

The fact that the individual mandate was upheld as constitutional by the Supreme Court means that all of the insurance reforms, such as the prohibition against pre-existing condition exclusions, no lifetime or annual caps on benefits, and other major reforms, will go into full effect in 2014 unless, of course, President Obama is not reelected and the ACA is repealed. Sixteen million low-income uninsured Americans are expected to receive coverage through the federal subsidies that are designed to assist these individuals in purchasing private health insurance through state-based exchanges. Within this large group of Americans, there will be a proportionate number of individuals with limb loss and other orthopedic conditions, and many of these individuals will need O&P care. For this reason, the coverage expansion is expected to enhance access to O&P care significantly, which will need to be provided primarily by O&P professionals.

The Medicaid expansion was expected to yield a similar new group of individuals who are currently without health insurance and are also likely to be newly covered for O&P services. In fact, the Medicaid expansion was expected to cover another 16 million Americans for a total newly insured population of 32 million people. While states largely determine whether O&P benefits will be covered under both scenarios, such care is likely to be covered, at least to some extent. But, as previously noted, it is unclear how many states will undergo Medicaid eligibility expansion in the short run.

No one honestly expects that with this dramatic expansion in coverage, access to care will not be a problem.

The fact is that this new group of insured Americans is expected to drive the marketplace to a large extent. Jobs in the healthcare arena are expected to grow significantly, as will training programs for healthcare providers and practitioners. But until the supply of healthcare providers comes into balance with the demand for care, new delivery models and methods of providing care will begin to emerge in order to achieve efficiencies. The coverage expansion and the system established by the ACA to have insurance companies compete for consumers is expected to put downward pressure on reimbursement rates, impacting healthcare margins for all providers, including O&P practitioners. In addition, evidence-based medicine will become the hallmark for continued coverage of particular services, and unfortunately, the O&P industry has much work to do on this score.

In terms of the impact of certain states opting not to expand their Medicaid populations, many believe this is an unlikely long-term prospect as state governors and legislators experience tremendous pressure to accept 100 percent federal funding (for the first three years). This pressure is expected to come from hospitals (who are large employers and will have to cover the uninsured through charity care in states that do not opt to expand Medicaid coverage). But if certain states hold out, there may be large numbers of indigent state residents who move from one state to another in order to obtain Medicaid coverage. Ironically, in states that do not expand their Medicaid programs, residents will be paying federal taxes and essentially sending those tax revenues to states that choose to expand their Medicaid programs.

Conclusion

In an era of hyper-partisanship and divided government, it is probably too much to expect that the states, Congress, and the Obama Administration will approach the Medicaid eligibility expansion issues in an objective manner rather than with expectations of short-term political gain. Given the generous federal matching rates on the expanded Medicaid population, many expect that most, if not all, states will eventually choose to expand. In addition, the private insurance expansion is expected to occur through federal subsidies provided in the state exchanges. But even in those states that do not choose to create state-based exchanges, a federally facilitated exchange will offer the opportunity to obtain coverage.

The overall impact of the Supreme Court's decision on people who need O&P care is mainly positive, but there will clearly be unintended consequences as these reforms become fully effective. For providers of O&P care, there are plainly pros and cons. In large measure, the way people feel about the ACA continues to depend on their view of the role of government.

Peter W. Thomas, JD, is general counsel for the National Association for the Advancement of Orthotics and Prosthetics (NAAOP). Joel M. Hamme, JD, is a principal at Powers Pyles Sutter & Verville PC, Washington DC, whose practice focuses primarily on healthcare. Theresa T. Morgan is the legislative director at Powers Pyles Sutter & Verville PC.