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Did the Court Undermine the Medicaid Expansion?

As it turns out, the scariest part of Thursday’s ruling on the Affordable Care Act was the issue that got the least attention. Yes, the Supreme Court upheld the individual mandate and its associated reforms of private insurance. But it also ruled that the law’s expansion of Medicaid was unconstitutional.

Does that mean the Medicaid expansion might not go forward? Does it mean that a significant number of low-income Americans will remain uninsured because they can't get into the program?

In the long run, probably not. In the short run, quite possibly yes.

The Medicaid challenge was among the sleeper issues in the case, in part because it seemed to challenge a funding arrangement that undergirds a variety of government programs and has survived legal challenge before. The federal government sets broad guidelines for the Medicaid: Whom the program must cover, what benefits it must include, etc. The federal government also provides a substantial share of the funding. States are under no obligation to take the money or be part of Medicaid; they can walk away from this deal, in its entirety, if they want. But if states choose to participate—that is, if they want the money—they must craft programs that stay within those federal guidelines.

Right now, those guidelines mean that participating states must cover millions of poor people, but not all of them. There’s no requirement, for example, that states cover single men, no matter how low their incomes. But the Affordable Care Act seeks to change that, by changing the terms of the deal. Starting in 2014, the federal guidelines will say that states must cover everybody with incomes below 133 percent of the poverty line (or about $30,000 for a family of four). As always, states will remain free to turn down the deal.

But what happens if states choose not to expand Medicaid to meet the new guidelines? That's where the conservative majority, joined by liberals Stephen Breyer and Elana Kagan, surprised a lot of people. As the law was originally written, the entire Medicaid package became an all-or-nothing deal: States that didn't want to meet the new, more expansive guidelines were free to do so. But choosing that option meant forgoing all federal Medicaid money. The Court on Thursday ruled that choice was "coercive." Roberts, echoing the arguments of the law's challengers, likened it to holding a gun to the states' heads. 

The remedy was not as extreme as it might have been: The justices didn’t strike down the Medicaid expansion altogether. But they insisted that states choosing not to expand coverage give up only the money that would have gone to covering the new populations. Those states would remain eligible for the funds that they already get, to cover people who already qualify for Medicaid under the old guidelines.

The practical effect is to change the trade-offs states face when deciding whether to expand Medicaid, as the Affordable Care Act seeks to do. That raises the possibility that multiple states will turn down the deal, leaving millions of their poorest residents without insurance. If you look at the state officials who challenged the law in court, they come from states representing about half the uninsured people who are supposed to get Medicaid coverage. That’s no small thing. It takes no intellectual creativity to imagine a Rick Perry or a Rick Scott rejecting the new Medicaid money from Washington—and making a very big show of it.

But sending money back to Washington sounds a lot better than in theory than it works in practice. State officials frequently complain about the burden Medicaid places on their budgets and, no doubt, that burden is real. But that’s because they’re generally responsible for a substantial portion of the money—anywhere from a quarter to half, depending on the state. For the Medicaid expansion, most states won't pay anything for the first few years. The federal government will pick up the entire cost. And while the federal contribution will decline after that, it will fall only a bit, so that most states are never responsible for more than one-tenth of the cost. That’s a sweetheart deal, particularly when you remember that Medicaid money goes straight into the pockets of local hospitals, doctors, and other health care providers. In other words, the program creates jobs and sustains incomes—not to mention all the new economic activity that goes with it. 

Yes, you can say similar things about high-speed rail funding, which Scott famously returned to Washington. But state officials who refuse Medicaid funding are going to get an earful from hospital lobbyists, whose facilities will end up seeing many of these patients regardless of their insurance status. The Medicaid dollars are the hospitals’ best chance to recoup funding for charity care, particularly at a time when they are adjusting to payment reductions designed to push them into more efficiency. Keep in mind that hospital executives are typically among the most influential advocates in state politics. They have strong ties to elite circles and represent a huge economic interest. In many cities, hospitals and hospital systems are the top employers. 

An instructive example may be the history of Medicaid itself. It became law in 1965, as part of the same act that created Medicare. By 1972, every state but one had opted into the program, according to Sara Rosenbaum, a professor at George Washington University and an expert on Medicaid. “The vast majority signed up right away,” says Len Nichols, an economist at George Mason University and another well-known historian of health policy. “It actually built off state programs that were budding in about ten states at the time.” The lone holdout was Arizona, which had some special circumstances: Much of its low-income population received coverage through the Indian Health Service. State officials resisted Medicaid for another ten years, but finally gave in (as I recall) because the local hospitals were losing so much money on charity care.

A lot has changed since the late 1960s and early 1970s: Republican opposition to Washington has obviously become a lot more fanatical. Governors like Perry and Scott, not to mention John Kasich and Scott Walker, will undoubtedly refuse the federal largesse at first. And they’ll stick to that position as long as it’s politically tolerable. That's why a lot of smart progressives, including my colleagues Ed Kilgore and Alec MacGillis are so worried. As Ed says,

the even sadder truth is that many of these solons don’t think of this as primarily a fiscal issue, but as an ideological test of their hatred of the “welfare state.” There’s a reason southern Republicans, perhaps even more than their compatriots elsewhere, love Paul Ryan’s Medicaid “block grant” proposal. They want significant reductions in the existing Medicaid program, along with structural changes that would make it unrecognizable as a low-income entitlement. This involves a philosophical objection to giving poor people free health insurance, not just a budgetary concern.

It's important to watch this issue closely and call out Medicaid opponents for what they are doing: Refusing a sweetheart deal that would help their poorest, most vulnerable residents get decent health care, just because they hate Washington and don’t want to put up just a little state money for that effort. It's also important to keep a close watch over the Medicaid waiver process, through which states can ask Washington for more flexibility or time to meet federal standards. (As Len Nichols notes, many states were going to apply for waivers anyway. This ruling will increase their leverage.)

Eventually, all the states will probably choose to participate in the Medicaid expansion, just as they did with the original Medicaid initiative. But it may take a little time, and a lot of pressure, for that to happen.

Follow me on twitter @CitizenCohn