On Medicaid expansion, a high-stakes game of chicken

November 15, 2012

Only a handful of states so far have committed to expanding their Medicaid programs under the Affordable Care Act.

Most post-election health care coverage has focused on the exchanges, the insurance marketplaces each state will have by 2014. States need to decide by Friday whether they'll run their exchange themselves or leave the task to the feds.

We've spent less time looking at the Medicaid expansion, the part of the law that was supposed to extend insurance coverage to 17 million Americans -- until the Supreme Court made it optional.

There, it seems, the states and the federal government are playing a high-stakes game of chicken. 

"It's basically both sides waiting to see who budges first," says Matt Salo, who directs the National Association of Medicaid Directors.

Salo works with both Democratic and Republican Medicaid directors, which gives him an interesting perspective on how this fight could play out.

On one side is the Obama administration and its prerogative to get as many states as possible to sign up for the Medicaid expansion. "They have every incentive to make sure all 50 states do this," Salo says. "They have a financial incentive, policy incentive and political incentive. It's all there."

The feds can make a pretty convincing financial case to states: It will cover 100 percent of the costs for new enrollees for the first three years. That's way higher than the regular tab they pick up, usually 50 percent to 80 percent of the overall bill. 

States, Salo says, are coming at this from a different perspective. Many are wary of the cost of the Medicaid expansion, whether those high reimbursement rates could later get ratcheted back. There are still a number of Democratic governors who have yet to commit to expanding the program.

Some have asked the administration for permission to do a partial Medicaid expansion, covering everyone under the poverty line (the full expansion goes up to 133 percent). That could help shield states from the risk of taking on lots of new enrollees.

Those who earn above the poverty line wouldn't be left in the lurch: They could buy coverage on the exchange, where the federal government will provide generous subsidies.

"If they [the Obama administration] agree to do the partial expansion with one state," Salo says, "You can bet there will be 49 states lined up behind them asking for the same deal."

Here's where we get to the administration's dilemma: It could give into the states' demands and do the partial expansion, essentially conceding to shrinking the Medicaid expansion. Or, it could hold out for the full expansion, assuming the lure of federal dollars will ultimately woo the states now standing in opposition - and that, at the end of the day, they'll end up with a larger Medicaid population.

"As long as the administration believes all the noise from [Texas Gov.] Rick Perry and [Florida Gov.] Rick Scott is just noise, there's no way they'll give somebody a partial expansion," Salo says. "But if they think that they'll stand firm, that changes the thinking."

One other challenging dynamic is the lack of a deadline: Unlike the exchanges, there's no point where states have to declare whether they're in the Medicaid expansion or out. Either side could back down at any point, but none has a certain point where they'll know for certain the other side's game plan.

That, from Salo's view, is where the fight over the Medicaid expansion stands right now. No one seems quite ready to budge. Health coverage for millions of Americans, meanwhile, hangs in the balance.

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