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A Supreme Court silver lining?: How Medicaid dodged the deficit debate

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On Monday, the Obama administration quietly reversed its support for a policy that would cut billions in Medicaid funding.

For health care advocates, the small move reaffirmed a big message already delivered by White House staff: Medicaid is largely off the table in deficit reduction negotiations.

Medicaid's $389 billion budget has found protection in an unlikely place: The Supreme Court ruling in June, which found that the Affordable Care Act's expansion of entitlement program must be voluntary. The decision disappointed health law supporters, as it left a program meant to cover 17 million Americans in the hands of the states, some of which oppose the new reforms.

Now, as legislators eye entitlements as one way to cut the deficit, advocates see a silver lining in the Supreme Court's decision: The White House appears reticent to cut Medicaid at the same time it's trying to woo governors into participating in a crucial Affordable Care Act provision.

“There’s a deep realization among Democrats that the Supreme Court altered the dynamic on Medicaid,” said Neera Tanden, president of the left-leaning Center for American Progress. “We live in a new reality where any additional burdens to Medicaid could have new meaning.”

“I have participated in many different types of meeting that included White House staff, and there’s a strong conviction that Medicaid really deserves the highest protection,” said Ron Pollack, president of health advocacy group Families USA. “The Supreme Court decision changed the dynamic of the process, in a way that requires stronger protection of federal funding to the states.”

Robert Greenstein, president of the Center for Budget Policies and Priorities, recalls asking President Obama about the issue at a Nov. 13 White House meeting with progressive groups.

"He was very sympathetic," Greenstein said of the president's response. "They don't want to jeopardize this."

The Affordable Care Act initially required all states to expand Medicaid to cover everyone below 133 percent of the federal poverty line, about $15,000 for an individual. The Congressional Budget Office projected that about half of the 32 million Americans expected to gain coverage under the Affordable Care Act would do so through Medicaid.

The Supreme Court in June changed all of that. The justices found that the requirement was unconstitutional, leaving states to decide whether to participate. The Congressional Budget Office revised its forecasts, estimating that 3 million fewer Americans would gain coverage.

Seven states have indicated they will not participate, according to consulting firm Avalere Health.

Eighteen states have signed, including one, Nevada, with a Republican governor. That leaves 23 undecided states that the White House must woo into the program.

“We’ll continue to work side by side with states, giving them the guidance they need to move forward,” Marilyn Tavenner, acting administrator of the Center for Medicare and Medicaid Services, told reporters on a recent call.

Tavenner announced Monday that the White House no longer supports a tweak to the Medicaid program that it pushed for in last year’s budget, which would have reduced funding for the program by $17.9 billion over the next decade.

“You couldn't get a more direct indication of how the federal government is trying to make sure that the states implement the expansion,” said Pollack of the decision. “They’re trying to show there aren’t going to be dollars taken away from them.”

While the federal government usually only pays a portion of states’ Medicaid costs, it will foot the complete bill for all newly-eligible enrollees brought in under the Affordable Care Act. The federal share falls to 90 percent in 2020, still well above traditional match rates.

Any cuts to Medicaid now, the thinking goes, could make governors queasy about signing up for the program’s largest expansion since its creation in 1965.

“Governors are already talking about the expansion like it could be a bait and switch,” said Shawn Gremminger, a lobbyist for the National Association of Public Hospitals, which supports the expansion. “If I’m Rick Scott or Rick Perry and I’m trying to find an excuse not to participate, I would point to any cuts now and say, ‘you were trying to cut us before we even expand.’”

Gremminger is not especially worried about Medicaid cuts during this round of deficit reduction talks. He thinks the White House has too much to lose if it signals governors that it's not committed to fully funding the entitlement program.

“We’re in some ways protected by a Supreme Court decision that we did not like,” he said. “There is a silver lining. Now, there’s a real incentive here in D.C. to protect this program so that you get a full Medicaid expansion.”

Top Democratic legislators say protecting Medicaid has taken on new significance in this round of deficit reduction negotiations, with the future of the Affordable Care Act hanging in the balance.

“I do think it would send the wrong signal to states,” Rep. Chris Van Hollen, the top-ranking Democrat on the House Budget Committee, said. “I don’t think that we should do anything that signals a reduction in the federal commitment to Medicaid because that would raise concerns that ultimately states would be left on their own. That would mean they would be less inclined to participate.”

Governors, meanwhile, are watching the negotiations closely. CBPP's Greenstein recalls briefing Democratic governors prior to the National Governors Association summer meeting in Williamsburg. A handful raised concerns that funding for the provision may not prove stable.

"The states' decisions are probably the single most consequential decisions for Medicaid in 40 years," he said. "The White House understands that. this is the single issue where the savings they're pursuing are less significant than the ones proposed in their 2013 budget."