The Supreme Court surprise: Medicaid ruling could reduce coverage

June 28, 2012

The Supreme Court's decision on Medicaid could significantly reduce coverage (Melina Mara/The Washington Post)

Buried in the Supreme Court's 193-page decision on the health reform law was one big surprise: States can opt out of the law's sweeping expansion of Medicaid, significantly reducing the number of Americans who gain insurance.

That ruling, experts say, could leave some of the poorest Americans in a "no-man's land:" Not covered by the federal entitlement program but not eligible for the subsidized health insurance.

"Governors and state legislatures have a fundamental decision to make," said Sue Sherry, deputy director of Community Catalyst, a Boston-based think tank. "They have to decide whether they'll provide basic health care to their poorest residents."

The Medicaid expansion is expected to extend health insurance coverage to about 17 million Americans by 2019 by expanding the program to cover everyone below 133 percent of the federal poverty line (about $14,500 for an individual).

In a lot of places, that expansion is pretty huge: In Texas, 1.8 million people would be expected to gain coverage under this provision. That number stands at 2 million in California and 950,000 in Florida.

What the Supreme Court said today was: States do not have to participate in that part of the law. If they want to leave their Medicaid program as is, there will not be a penalty. What was once a guaranteed insurance expansion is now left to the discretion of the states.

"Prior to the court's decision today, failure to implement this expansion meant you lost all your Medicaid funding," says Matt Salo, executive director of the National Association of Medicaid Directors. "Now, you have a political and financial decision to make: Do you do this?"

The Affordable Care Act provides financial incentives to entice states into the expansion. The federal government will, for the first three years, cover the entire cost of all these new patients. Usually states have to chip in for some of the cost.

The match, however, starts to decrease in 2017, with the federal government paying 90 percent of the bill. That's still significant, but may not be enough to entice states already struggling under the weight of growing Medicaid bills.

The financial burden would be higher on states that have traditionally had less expansive Medicaid programs. Texas, for example, only covers parents up to 26 percent of the Federal Poverty Line (about $2,900). The state would end up spending an estimated $2.6 billion on the coverage expansion between 2014 and 2019.

"There is a real debate here where states are going to have to weigh leaving huge amounts of federal dollars on the table versus accepting potential exposure in the future," Salo said. "Before, you just had to just hold your nose and do it."

We don't know yet whether states will opt out. I reached out to Florida — one state that has been a stalwart opponent of the law — and was told they're still looking over the law and weighing their options.

What we do know is this: If a state does not expand its Medicaid program, it would create a "donut hole" in insurance coverage for low-income Americans.

The federal law was written with the assumption that all people living below the poverty line would become eligible for Medicaid. Federal subsidies, therefore, would be unavailable to anyone making less than that — even if the state opts out of the Medicaid expansion.

That could mean that some of the poorest Americans would be the ones who do not gain coverage through the Affordable Care Act. "It creates a no-man's land," Salo said.

It's hard to know how many people would fall into that area, largely because — as Salo puts it — "this was a total surprise. We weren't studying it because it didn't matter prior to today." Going forward, however, this part of the Supreme Court decision could have a big impact on the Affordable Care Act's future.

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