Red state Medicaid expansion no shock, policy experts say

“It’s a lot of money when the feds pick up the tab for the first three years”

By Maggie FoxSenior Writer, NBC News
updated 1 hour 59 minutes ago2013-02-21T22:30:16

Florida governor Rick Scott created a stir this week when he said he’d expand Medicaid as requested by the Obama administration -- even though he plans to defy the health reform law as much as he can.

But health policy experts are hardly surprised. They say it’s a no-brainer for even the reddest states to take the federal government up on its offer to pay for the expansion for the first few years.

That doesn’t mean all Republican governors will do it, however. A lot, they say, depends on what concessions these governors can get out of the Health and Human Services Department in return.

“It’s a lot of money when the feds pick up the tab for the first three years,” said Sarah Hale, who directs health policy at the right-leaning American Action Forum.

“That’s a really big deal. It’s hard for states not to take it,” she added. “In a lot of ways, it is a pretty big carrot.”

In fact, expanding Medicaid could generate revenue for the states, Topher Spiro of the left-leaning Center for American Progress says.

"Many governors are realizing how good a deal it is," Spiro says.

The 2010 Affordable Care Act was designed to transform health care in the United States, which most experts agree currently costs too much and leaves far too many people without health insurance. The law required states to extend Medicaid to people earning up to about 138 percent of the federal poverty level, or about $14,800 for single people and $31,000 for a family of four.

The federal government calculated this would add at least 16 million people to Medicaid, the joint state-federal health insurance plan for the low-income.

In return, the law pledges that the federal government will pay 100 percent of the additional costs for the first three years of the program. States will have to kick in a very small percentage more each year after that.

But after a series of challenges to the law, the U.S. Supreme Court ruled in June that the Medicaid expansion requirement went too far. States can’t be forced to add more people to Medicaid, the court ruled.

Any smart governor is taking advantage of this flexibility, or should be, to negotiate deal with the administration on just how to expand Medicaid, several experts said.

“I think the states do have more leverage now than they used to,” said Dr. Mark McClellan, who directs the Engelberg Center for Health Care Reform at the Brookings Institution.

"Many Republican governors have done a smart thing -- they are actually including in their proposals what they call a circuit breaker," Spiro said. "If at any future date the federal government lowers its share of the funding then the state would either automatically scale back the coverage or re-examine it."

Spiro adds that it would be unlikely this would happen. "It’s not going to be a bait and switch," he said, noting that President Obama has pledged the federal government will not scale back support of Medicaid.

Spiro also cites a Georgetown University study that projects Florida will gain $100 million a year by expanding Medicaid. "For example, many of these states have mental health care programs that they pay for themselves. With a Medicaid expansion, Medicaid would pay for mental health care," he said.

A different study done by Ohio State University, the Urban Institute and others projected Ohio could raise $857 million in additional revenue from 2014 to 2022 by expanding Medicaid.

"If you have got more Medicaid funding coming into the state and supporting hospitals, that’s going to increase jobs, it is going to increase economic activity and, as a result, the state is going to yield more tax revenues," Spiro said.

Conservatives are nonetheless suspicious.

“It’s very hard to turn down a 100-percent federally funded program, but there are some costs the states would be taking on,” said McClellan, a medical doctor and economist who headed the Center for Medicare and Medicaid Services under the administration of president George W. Bush.

“There are expectations that when Medicaid expands, more people that were already eligible for Medicaid will come forward and enroll.” Those people’s expenses would not be covered by the federal subsidy, and that’s one argument that South Carolina governor Nikki Haley has made in refusing the Medicaid expansion.

Nina Owcharenko of the right-leaning Heritage Foundation, a former congressional staffer, says states have to think about taking on this population for the long-term.

“This is a risky proposition,” Owcharenko says. “This is a really complicated population that doesn’t get seen (by doctors) as much. This is a population that is below the poverty level. You want to take a moment to say, ‘Why are they under the poverty level?’,” she said in a telephone interview.

“It is changing the face of Medicaid profoundly. We think of Medicaid as a program for children and pregnant women. Serving a kid is completely different from serving a single man in his late 20s.”

The Congressional Budget Office projects that 12 million people will become newly eligible for Medicaid in the states that choose to expand their offerings by 2022.

Owcharenko says Florida’s Scott made a mistake in giving in and expanding Medicaid, even if he did get the Health and Human Services Department to agree he could do so just for three years.

”I think he probably should have taken a longer view on what this would do,” she said.

Hale agrees in part. “At least Florida got something in return. (But) it’s not like they got this great prize,” she said. Other states, she said, may agree to an expansion if they have other interests in play, such as a big hospital industry that might benefit from having more patients.

Hale, Owrachenko and McClellan all agreed that it’s a gamble to presume the federal government can keep up the subsidies, given the current economic and financial climate. “How is it going to look eight years down the road?” Owcharenko asked. “I haven’t seen many studies showing revenues are going to be there.”

States may end up having to cut education, transportation and emergency services if Medicaid costs balloon, she predicts.

The Obama administration and most Democrats say expanding Medicaid will cover the working poor who don’t get health insurance through their employers: from part-time workers, to self-employed cleaners, gardeners, and employees of very small businesses.

Under what the law originally proposed, people making between 100 percent and 138 percent of the poverty level can get federal subsidies to buy private health insurance on new health insurance exchanges that are supposed to be up and running in each state by 2014.

But the poorest poor -- those making less than the poverty level -- will not be eligible for subsidies. The health reform law presumed these people would be covered by Medicaid but they will not be if states don’t expand their programs.

Currently, 13 states, all with Republican governors, have made it clear that they will not expand Medicaid, according to the Advisory Board Company: Alabama, Georgia, Idaho, Louisiana, Maine, Mississippi, North Carolina, South Carolina, South Dakota, Oklahoma, Pennsylvania, Texas and Wisconsin.

Another five, also all with Republicans in charge, probably will not expand Medicaid: Iowa, Nebraska, New Jersey, Virginia and Wyoming.

Twenty-three states, mostly led by Democrats, are on board to expand Medicaid: Arizona -- whose Republican governor Jan Brewer surprised many when she said she’d do it -- Arkansas, California, Colorado, Connecticut, Delaware, Florida, Hawaii, Illinois, Maryland, Massachusetts, Michigan, Minnesota, Missouri, Montana, Nevada, New Hampshire, New Mexico, North Dakota, Ohio, Rhode Island, Vermont and Washington.

Five states with Republican governors are still wavering: Alaska, Indiana, Kansas, Tennessee and Utah. Four Democratic-led states have also not committed: Kentucky, New York, Oregon and West Virginia.