Why Republican state leaders are resisting Medicaid expansion

July 15, 2012

The expansion of Medicaid called for in President Obama’s health-care law would seem an irresistible deal for states: Starting in 2014, in exchange for spending a percent or two more of their own funds, states will get nearly a trillion additional federal dollars during the next 10 years to extend health insurance to 17 million of their neediest residents.

So why are so many Republican state leaders balking?

Increasingly they speak of two experiences that, they charge, raise questions about whether the federal government can be counted on to hold up its end of the bargain: Congress’s decision not to fund a mandated increase in Medicaid pay rates for doctors beyond two years and Obama’s recent willingness to consider cutting the federal contribution to Medicaid.

The latter idea came up during Obama’s unsuccessful negotiations with House Speaker John A. Boehner (R-Ohio) toward a “grand bargain” to slash the deficit.

Obama suggested scrapping the system of varying rates at which the federal government reimburses states for insuring people through Medicaid — which is jointly financed with state and federal funds. Instead, Obama proposed using a single “blended rate” for each state that would have effectively reduced the total federal contribution to Medicaid by tens of billions of dollars in a 10-year period.

After an outcry from liberal groups, Obama scaled back the idea, including a version in his proposed 2013 budget that would reduce federal spending on Medicaid by less than 1 percent.

Still, Republicans now point to the episode as proof that, down the line, even Democrats could be open to making the terms of the health-care law’s Medicaid expansion less generous to states.

Under the law, if states adopt the new eligibility rules for Medicaid — opening the program to people with incomes of up to 133 percent of the federal poverty level — the federal government will initially pay almost the full cost of insuring those who are newly qualified.

“Today Washington may pay. But what’s going to happen when reality sets in and they realize they can’t continue to run up the nation’s credit card?” asked Joe Negron (R), a Florida state senator and chairman of the state’s budget subcommittee responsible for Medicaid. “I think ultimately there’s a very high likelihood that an additional burden will be placed on states.”

Edwin Park, an analyst with the liberal-leaning Center on Budget and Policy Priorities, noted that the 2013 budget adopted by the GOP-led U.S. House would not only repeal the Medicaid expansion but also reduce the current federal contribution to states by 22 percent in the next 10 years.

“They are the ones pushing the biggest cuts to Medicaid,” Park said. “They have been supporting huge cost shifts to states.”

Another point of contention is a provision in the health-care law intended to raise the historically low Medicaid compensation for primary-care doctors. Many doctors say they simply cannot afford to accept Medicaid patients, and beneficiaries must often travel long distances or endure substantial waits to get care.

The law mandates that, starting in January, state Medicaid programs must pay primary-care doctors the rate offered by Medicare — a generally far-higher rate. The federal government will pick up all the extra cost. But the mandated pay boost — and the $11 billion in additional federal funding for it — expires at the end of 2014.

At that point, congressional and state leaders will probably face pressure to keep the higher rates in place. Can Congress be relied on to renew the increase?

“I think most pragmatic state budget officers would say, ‘We cannot bank on that.’ And I think they are right,” said Matt Salo, director of the National Association of Medicaid Directors.

Here again, he and other state officials point to a previous experience that gives them pause.

In 1997, Congress adopted a new formula for setting the rates at which Medicare pays doctors. The formula was intended to prevent federal spending on doctors from growing faster than the economy as a whole. But the new arrangement soon became unworkable because mandated pay cuts were unrealistically steep.

To repeal it, Congress would need to come up with billions in savings to offset the resulting increase to federal spending. Instead, over the years Congress has adopted a Band-Aid approach, periodically postponing the cuts called for by the formula by a year or two — often after a round of eleventh-hour haggling that keeps doctors on edge.

Now some state officials worry the pay boost for Medicaid doctors will fall victim to the same dynamic. And they argue that because, in contrast to Medicare, Medicaid is partly funded by states, future Congresses could seek to pass the buck — essentially telling states that if they want to keep the higher pay rates in place they will need to start picking up the tab.

Salo said states would be hard-pressed to refuse.

“Certainly it would be a legal option,” he said. “But is that going to be a feasible decision to make at the state level, given the political leverage of hospitals and physicians? Once you giveth, it’s very hard to taketh away.”

Matthew Buettgens of the Urban Institute said that if state leaders are going to speculate about such downside scenarios, they should also consider the windfall in potential additional savings that states are far more likely to reap.

These include the likelihood that with so many of their uninsured residents gaining Medicaid coverage, states will be able to cut back on the millions they pay hospitals and doctors for providing uncompensated care.

Similarly, states that offer Medicaid to people with incomes above 133 percent of the poverty level could choose to eliminate that coverage and direct those individuals to buy private plans with federal subsidies that the health-care law will also provide, beginning in 2014.

In a study last year, Buettgens and his co-authors estimated the effect if both scenarios are taken into account. “Overall, when you factor in the savings, states would spend less under [the Medicaid expansion] than without it,” he said.

Buettgens cautioned that the effect would depend on how aggressively states choose to go after the savings and would not be evenly distributed across states. Florida, for instance, could see additional expenses ranging from $95 million to $2.4 billion from 2014 to 2019 — a few percentage points above what its outlay would have been without the expansion. For Texas, the result varies from savings of $554 million to extra spending of up to $2.4 billion. Total state spending would be reduced by between $23 billion and $49 billion.

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