Six governors say they will opt out of Medicaid. How long will they hold out?

July 9, 2012

Texas Gov. Rick Perry (R) has pledged not to participate in the health law's Medicaid expansion. It's not the first time his state has protested a federal health care expansion.

Texas Gov. Rick Perry declared Monday his state would not participate in the health law's Medicaid expansion, becoming the sixth Republican governor to make such a promise. Taken together, those governors opting-out would single-handedly shrink the Medicaid expansion by nearly 4 million people.

While the stakes are high for the White House, the territory is by no means uncharted. Washington has twice faced off with states over federal health care expansions, when Medicaid initially launched in 1965 and with the Children's Health Insurance Program in 1997. In both cases, all 50 states ultimately signed up - but not without some wrangling.

Senior administration officials look to that history with optimism. "When Medicaid was enacted with a much smaller federal share...the states all ultimately came in," White House Chief of Staff Jack Lew told ABC's This Week.

Some Medicaid experts, however, see a different history lesson. They say that previous experience shows expanding coverage to be a difficult endeavor that could take years to complete. "It may take a little bit of time," said Charles Brecher, a professor of public and health administration at New York University.

Medicaid got a chilly reception when it launched in January 1966. It was up to the states to decide whether to participate and only six initially signed up: Hawaii, Illinois, Minnesota, North Dakota, Oklahoma and Pennsylvania. Twenty-seven followed suit later that year. Across the country, governors weighed the boon of new federal dollars -- Washington would foot half of Medicaid's bill -- against the drawback of putting state money into a new program.

Nascent Medicaid programs quickly faced threats: Republican legislators in the New York introduced a bill in 1967 calling for the state to "live within its means" and repeal its Medicaid program.

Doctors, meanwhile, lamented the program's bureaucracy and griped that payments often arrived late. "Doctors' complaints tie up our telephone lines all day, every day," Frederick W. Richmond, chairman of the Citizen's Committee for Medicaid, told the New York Times in 1967. Some pharmacists voted to boycott the program altogether.

Over time, however, the lure of federal dollars proved strong enough to win over resistant states. Eleven joined the program in 1967. Another wave of eight, largely Southern states came on board in 1970. Arizona proved the last holdout, not joining Medicaid until 1982.

"It was pretty ideological for a long time," said Brecher, who studied the Arizona case. "This was the Arizona of Barry Goldwater, and they didn't want to participate in a federal program."

Arizona counties were seeing  indigent health care costs rising - from $50 million in 1974 to $125 million in 1980 - and petitioned the legislature to accept federal funds. Critics argued that Arizonans paid federal taxes to support the Medicaid program, and ought to see some benefit brought back to the state.

"The counties were operating local hospitals and expenses were going up," Brecher said. "They said, 'Why don't you get federal money for this?'"

In recent years, some states have mulled leaving the program - a handful of Texas legislators floated the idea as recently as 2011 - but have never taken meaningful steps towards such action. The federal government now sends states $263 billion in Medicaid funding annually.

States faced a similar question in 1997, when Congress passed the Children's Health Insurance Plan (CHIP) to extend health coverage to low-income children. The federal government once again left states to decide whether to participate.

"It wasn't clearly known how quickly states would act," Ian Hill of the Urban Institute, who studied states' adoption of CHIP.

But the CHIP program had many factors that worked in its favor. It launched in the late 1990s, when the economy was booming and many states saw budget surpluses. Some were also eager to expand coverage on their own after President Clinton's push for more comprehensive insurance failed.

"This was federal financing for something we were already trying to do: Expand health insurance coverage," said Sandra Shewry, who launched California's CHIP program.

There, was, however, a catch: States would have to pay about 35 percent of the program's bill. That was a better match that Medicaid's regular contribution of 50 percent, but still left states with some financial responsibility - and a commitment to participate in a new government program.

That made CHIP a subject of heated debate in Texas, where the Democratic-controlled legislature clashed with then-Gov. George W. Bush over whether to participate.

"States like Texas sat on the opportunity for a while," said Jason Cooke, who served as Texas' first CHIP director. "The governor was not interested in calling a special session to get it authorized and, frankly, didn't want the CHIP program authorized in the first place."

Texas did eventually enroll, with Bush signing legislation authorizing the program in 2000. By the end of that year, all states had adopted the CHIP program.

Enrollment, however, moved slowly. President Clinton, reportedly "dismayed" with the low uptake, used his 1998 State of the Union address to order federal and state agencies to step up efforts. Today, 84 percent of children eligible for CHIP are enrolled.

Some question whether the Medicaid expansion will receive equally widespread adoption. Part of it has to do with the economic climate, with states now staring down recession-squeezed budgets.

The structure of the program could matter, too. While the CHIP program allowed states to impose waiting lists and limit enrollment to curb costs, Medicaid requires states to cover all residents eligible for the new benefits.

"When we ran out of money, we had a waiting list," said Rose Naff, who oversaw Florida's CHIP program for 17 years. "States got to manage their programs based on the availability of their own money and federal money. Implementing a Medicaid program states won't have those limitations, which made it more comfortable."

Optimists have a different take: They argue that the Medicaid expansion is an even better for the states because the federal government will fund 100 percent of the cost through 2017. The match drops to 90 percent in 2020.

"I do think that virtually all states ultimately will decide to implement," said Ron Pollack, executive director of Families USA. "They would be committing fiscal malpractice if they left all this money on the table."

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