As States Consider Medicaid Expansion, Obama Administration Limits Options

Published December 24, 2012

With the passing of the deadline for states to inform the U.S. Department of Health and Human Services whether they will implement an exchange under President Obama’s law, the next big decision facing governors and legislatures is whether to participate in expansion of the Medicaid program—a decision HHS recently announced would truly be all or nothing.

Under the Supreme Court’s 2012 decision on the constitutionality of Obama’s law, states won the right to reject the Medicaid expansion if they wished. But several governors expressed interest in the possibility of partial expansions of their programs, increasing their coverage to a lower percentage of the Federal Poverty Level (FPL) than the 133 percent demanded by Obama’s law, in exchange for more flexibility.

In a December letter, HHS Secretary Kathleen Sebelius stated this would not be acceptable.

“Congress directed that the enhanced matching rate be used to expand to coverage to 133% of FPL,” Sebelius wrote. “As such, we will not consider partial expansions for populations eligible for the 100% matching rate in 2014 through 2016.”

Sebelius’s decision may give pause to states that had considered partial expansion, says Tarren Bragdon, CEO of the Florida-based Foundation for Government Accountability. He says the decision is just the latest of a multitude of incidents where the federal government has chosen to restrict the decisions of states.

“So much for federal flexibility,” said Bragdon. “This is just the latest broken ObamaCare promise. The message from Obama and Sebelius to the states is ‘our way or no way,'” Bragdon said.

Little or No Flexibility

Jonathan Ingram, director of health policy and pension reform at the Illinois Policy Institute, said states are getting used to having no say in Obamacare’s implementation.

“The Obama administration’s announcement that states will not receive the enhanced matching rate for partially expanding Medicaid is just one more example of the complete lack of flexibility states face under Obamacare,” Ingram said.

At the time of publication, only 18 states have informed the administration they will implement a state-based insurance exchange, and only 16 have said affirmatively they will participate in the Medicaid expansion. According to Ingram, this is partly due to the fact that HHS is now mandating states expand their programs into the population covered by exchange subsidies—those between 100% and 133% of FPL.

“The federal government is now telling states that if states wish to participate in the Medicaid expansion at all, they’ll be forced to include millions of Americans who would otherwise be eligible for federal subsidies and tax credits to purchase health insurance,” said Ingram.

Costly Requirements

The expansion will require more than just a simple yes or no, says Gary Alexander, secretary of the Department of Public Welfare (DPW) in Pennsylvania. In testimony before the House Energy & Commerce Committee the day after Sebelius’s announcement, Alexander detailed a series of costly challenges facing his state as it attempted to decide whether to expand Medicaid under Obama’s law.

“Even the federal government has not yet figured out what all the law’s provisions mean, and administrators at the state level still do not know in a definitive way the full scope of their impact on us in terms of finances, staffing requirements, system changes, and operations,” Alexander said. “DPW has literally hundreds of policy, operational, and technical staff working on this health reform law, and yet DPW realized very early on that it does not have the internal capacity or the financial resources to address all of the mandates in this law.”

Feds Will Micromanage

Alexander says Obama’s law and HHS regulations mandate Pennsylvania undertake the following steps, among others, in order to adopt the Medicaid expansion:

  • expand the provider enrollment system to interface with an unindexed Medicare database, requiring the state to add staff resources to make over 100,000 manual inquiries every month;
  • adopt so-called “passive” Medicaid renewals, junking the state’s current established system for renewal;
  • shift from ClaimCheck, Pennsylvania’s current standard approach to coding medical incidents, to the National Correct Coding Initiative (NCCI), with federal reapproval every 90 days
  • use the Modified Adjusted Gross Income (MAGI) methodology to determine Medicaid eligibility, a system change which Alexander estimates will cost the state more than $250 million alone;
  • prohibit the use of asset-limit tests within Medicaid, which Pennsylvania had reactivated in recent years after having lottery winners on food stamps;
  • allow hospitals to do presumptive eligibility determinations for Medicaid, which Alexander maintains is likely to explode Medicaid costs in the state.

Expansion ‘a Fools Errand’

Alexander expressed frustration that the Centers for Medicare and Medicaid Services (CMS) forced the state to “create new transaction methods for claim status and eligibility verifications” to abide by the implementation requirements.

“Pennsylvania’s technology is more advanced than what is mandated, and no one will use the outmoded method,” Alexander said. “But CMS has told Pennsylvania that the law requires the Commonwealth to develop it anyway.”

Ingram says although states may be tempted by the appeal of federal money, in reality the implementation of the expansion would be “a fool’s errand.”

“The all-or-nothing approach the administration has taken is clearly an attempt to pressure states into cleaning up the mess ObamaCare has left. There’s no reason for states to bear the blame for decisions made by the federal government,” Ingram said. “Given the complete lack of flexibility here, it’s time for states still sitting on the fence to simply walk away from the expansion altogether.”

Bragdon agrees. “States should just say no,” he said.