Forget states opting out. What happens to Medicaid if they opt-in?

July 16, 2012

Tennessee Gov. Bill Haslam, a Republican, has mulled demanding a Medicaid block grant for participating in the health law's expansion. (Mark Humphrey/AP)

Ever since the Supreme Court ruled on the Affordable Care Act, the health policy conversation has revolved around one question: What happens if states opt out of the Medicaid expansion? But there's an equally important question that hasn't gotten much discussion and is starting to worry Medicaid advocates: What if states opt in?

Medicaid advocates, unsurprisingly, would like see the program expand to cover 17 million additional Americans, as it is expected to do by 2019. The concern stems the demands that governors are already starting to make in return for their participation, which have the potential to cut into the coverage that Medicaid currently provides.

At the National Governor's Association meeting this past weekend, a handful mulled the idea of pursuing a block grant — a lump sum budget to spend on Medicaid with fewer requirements from the federal government on how it had to be spent. At least six are mulling the idea of demanding a block grant in exchange for participating in the Medicaid expansion.

Block grants worry Medicaid advocates because they tend to mean less money for the program. The congressional Republicans proposal to block grant the program for all 50 states would, for example, cut $180 billion in Medicaid funding.

"Obviously, as a Republican, I'm with the folks who say, if you can block grant us Medicaid, we'd look at it differently," Tennessee Gov. Bill Halsam told Politico's Kyle Cheney.

A block grant may not be in these states' future: The Obama administration has repeatedly opposed such a policy. But Medicaid advocates worry that other flexibilities, something that looks like a watered-down block grant or another policy that could roll back coverage, could end up on the table.

The White House has "every political incentive to do what they can to be able to say 'all 50 states have expanded,'" says one Medicaid advocate in Washington, who was not authorized to speak by his organization on the matter. "I'm very concerned that with the states' new leverage and the administration's desire to get states to expand that they might give away the store."

States are constantly in negotiation with the federal government over what they can, and can't, do in their Medicaid programs. Waivers are granted to states that want to test out a new idea for delivering care or cover an optional population, such as adults without children. There are currently 426 active waivers.

Not all waivers, however, get granted: The Center for Medicare and Medicaid Services recently turned down Florida's proposal to charge Medicaid recipients a $100 copay for non-emergency use of the emergency room.

The concern among Medicaid advocates is that some waivers that reduce coverage — perhaps not all the way to a block grant — could get approved that otherwise may not have made the cut. "There are lots of other ways to give states much more flexibility," the advocate says.

There would be some precedence for this. When Arizona joined Medicaid in 1982, becoming the last state to do so, it signed up with its entire program under a waiver, which made it easier to drop certain populations decades down the line. The state got additional flexiblities to use private insurance companies to manage its program. That, at the time, was very unusual.

"In order to get them in, it really had to be on certain terms of a waiver," says Charles Brecher, a New York University professor who studied the Arizona case.

How exactly this plays out is still to be seen: The White House has not set a deadline for states to decide whether they are in or out. The Supreme Court ruling does, however, look like it could change the way federal and states interact around Medicaid — with the states now bringing a much stronger hand to the table.

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