A Supreme Court silver lining: Saving Medicaid from budget cuts

November 14, 2012

The Supreme Court dealt a blow to the Affordable Care Act's Medicaid expansion by telling states that participation in the program, expected to cover 17 million Americans, is completely optional. Seven states have already committed to opting out. 

The ruling may, however, have a silver lining for the entitlement program: The Obama administration could be reticent to cut Medicaid funding at the same time it's trying to woo Republican governors into expanding the program.

"The Medicaid conversation has shifted since the debt talks," says Center for American Progress president Neera Tanden. "With the Supreme Court decision, there are governors out there who are going to take a strong signal if we were taking money back from Medicaid."

It would, as Tandeen puts it, "undermine the strong case the administration is making each and every day for governors to...do the Medicaid expansion."

The Center for American Progress released a health savings plan Wednesday that proposed $10 billion in Medicaid cuts. That's a far cry from the $100 billion in Medicaid cuts that the Obama administration proposed in debt reduction negotiations. 

Tanden and her colleagues, however, make the case that times have changed: The Supreme Court decision fundamentally reshaped how the administration has to think about Medicaid spending.

"The states are watching to see if they can count on the federal government to pay their share," says Don Berwick, former Center for Medicaid and Medicare Services administrator and CAP senior fellow. "To signal to states now that Medicaid is vulnerable is misguided."

In 2014, the federal government will start covering 100 percent of the costs for each newly-eligible beneficiary enrolled through the Medicaid expansion. The 100 percent match rate does not, however, last forever. After the first three years, the federal government’s match rate starts dropping: It will pay 95 percent of the cost beginning in 2017 and then, in 2020, foot 90 percent of the bill. 

States already fear that the federal government might decide to ratchet back even further, the National Association of Medicaid Directors' Matt Salo said shortly after the Supreme Court decision. After all, why wouldn’t it rejigger a program that pays for Medicaid at a rate much higher than it has traditionally spent?

"When you see the administration pushing hard on the expansion, and then talking about maybe backing away from Medicaid funding, that could have a chilling effect," says Salo. "It can get you thinking, maybe this 100 percent match we're being pressured to take is actually going to be less than that."

There are a lot of states on the fence right now on the Medicaid expansion. The Advisory Board Company estimates that only nine states have fully committed to implementing the expansion. That leaves a lot of states on the fence, still deciding what they will do on a crucial aspect of the health law's coverage expansion. How the Obama administration handles Medicaid might be one tea leaf they read as they make weigh the decision.

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Suzy Khimm | November 14, 2012