Last month’s Supreme Court ruling on the constitutionality of the Patient Protection and Affordable Care Act (PPACA, Obamacare) produced two large surprises.
One was the needle-threading by Chief Justice John Roberts, as he did a reverse 2 ½ somersaults with 2 ½ twists in pike (degree of difficulty 3.8) in order to justify the constitutionality of the so-called individual mandate (now called the “individual tax except when it’s imposed at the state level” by Republicans).
The second was the ruling that Congress could not force states to expand Medicaid by withdrawing existing Medicaid funding, but could only threaten to withdraw the projected increase in funding that would come with an expansion of the program. That makes it much more likely that states will opt out of Medicaid expansion.
Why would states opt out, and what would be the result if they do?
First, let’s return to the Court’s ruling. The Court said that taking away that much funding would be “coercive” but did not set guidelines as to how much or how little of a penalty would pass constitutional muster. (As an aside, a quick glance at this March 28 Forbes article shows just how accurate the court observers were in predicting what the Roberts Court would actually do.)
From Amy Howe’s excellent “Plain English” summary over at SCOTUSblog:
At issue is a provision in the health-care law that would require the states to provide Medicaid coverage for virtually all poor Americans under the age of sixty-five – a significant expansion of what the federal government currently requires – or risk losing all of the Medicaid funding that they get from the feds. The states argued that the provision is unconstitutional because the federal funding is so large, and they are so dependent on it, that they really don’t have a choice about whether to comply with the new requirements.
The Court acknowledged that Congress can put strings on the money that it gives to the states. However, it explained that this was not the kind of “relatively mild encouragement” that the Court had approved in earlier cases involving this “coercion” theory – for example, in a 1987 case in which it had held that Congress could threaten to withhold five percent of federal highway funds from states that did not raise their drinking age to twenty-one. Instead, the Medicaid provision goes too far and is more like a “gun to the head.” Having said that, however, the Court made clear that Congress could still attach some strings to the Medicaid funds. Specifically, even if it can’t take away all of the funding for states that don’t comply with the new eligibility requirements, it can still withhold the new Medicaid funds if states don’t comply. So although the Obama Administration lost on this issue, it’s probably a loss that it is willing to live with for now, as few states (if any) are ultimately expected to turn down the new Medicaid money, even with the strings.
It’s that last sentence that now resonates. Indeed, some states have loudly and publicly announced their intentions to refuse Medicaid expansion. Is this a bluff, or is it really likely to happen?
First of all, why did Congress write Medicaid expansion into the law? There are an estimated one in six Americans — 50.7 million — are uninsured (about the same number as those who voted for George W. Bush in 2000).
Currently, about 58 million Americans (20 percent of the population) are covered by Medicaid. These individuals are at or below the Federal poverty level. (For 2012 in the contiguous 48 states, that’s $11,170 for an individual or $23,050 for a family of four.)
The Urban Institute estimates that about 15 million would qualify for Medicaid under the expansion if all states adopt the PPACA provisions. That’s clearly a large chunk of the uninsured, about a third of the 50.7 million.
These individuals, who are mostly the working poor, sit at or below 133 percent of the Federal poverty level ($14,856 for one, $30,657 for four). If their employers do not offer health coverage, then they have been forced to buy health insurance on the open market. The average premium paid for an individual was $2,196 per year and the average family insurance bill would be $4,968 per year. Bear in mind also these are high-deductible policies, suitable only for insulation against major medical expenses. The average deductible is $2,935 for individuals and $3,879 for families. This is not a plan that will allow you to get your kid’s skinned knee cleaned and dressed for free, or even for a $25 co-pay.
Rather, the working poor are either uninsured or they have high-deductible policies. That means that they will wait until the last possible moment to seek health care. When they do, it will be in an expensive hospital setting rather than in a much less expensive community health clinic setting.
The nation’s “safety net” or “charity” hospitals are understandably worried that states will opt out, and are actively lobbying state governors and legislators to try to prevent that from happening. For example, Bruce Siegel, head of the National Association of Public Hospitals was interviewed by the Washington Post’s Sarah Kliff:
We see this as a huge problem. We’re not surprised at how it’s happening. We’ve seen some states and some governors turn back federal money in the past few years. You look at the stimulus dollars, for example. They could very well turn down Medicaid money.
You look at Florida, with Gov. Rick Scott there. He’s had a fairly uneasy relationship with the hospitals in that state. It’s been contentious over Medicaid for the last two years now. So I would take it all very seriously.
Siegel continues that public hospitals have a razor-thin operating margin:
The average American hospital has an operating margin of 7 percent. The average among [public hospitals] is 2 percent.
We project that if you took away DSH [payments to hospitals to compensate them for caring for the uninsured], the margin drops to negative 6 percent. If that happens, you can’t keep up a negative 6 percent margin for more than short time. After a year or two, you have to think about what happens next. You’re having to think about what you shut down after a year or so.
We think there are essentially three options. One is you start cutting back on services. You start figuring out what isn’t bringing in much revenue. And that could be things like community clinics or trauma services. You make some hard decisions.
You may be forced to go to local taxpayers. You find yourself basically putting this in the lap of taxpayers and tacking on the bill for your uninsured to their bills.
In the worst circumstance, you simply decide you can’t go on in that situation and close your doors. It’s a pretty grim menu of choices.
The “DSH payments” in the above quote refer to what pays for the uninsured when they show up in the Emergency Room of Big City Charity Hospital. It’s an acronym for Disproportionate Share Hospital payments, and they go to the hospitals that treat more Medicare and Medicaid patients than any others. Overall, about one-third of revenues come from current Medicaid patients, and these DSH payments are threatened by states that appear to be poised to refuse the Medicaid expansion provisions in PPACA.
Republican state governors are publicly threatening to refuse the Medicaid expansion funds. These governors feel that the offered funds — 100 percent of costs initially, then 90 percent — are a “Big Lie” that will never materialize.
Governors Rick Perry (R-Texas), Phil Bryant (R-Mississippi), Rick Scott (R-Florida), Bobby Jindal (R-Louisiana) and Nikki Haley (R-South Carolina) have all said they’ll opt out of Medicaid expansion.
Even the conservative (or at least, not-liberal) media, like the editors at the Lubbock (Texas) Avalanche-Journal, hate Obamacare but also aren’t keen on Perry playing politics with Medicaid expansion.
Other, more moderate Republican governors, such as Bob McDonnell (R-Virginia), Dave Heineman (R-Nebraska), Gary Herbert (R-Utah), Bill Haslam (R-Tennessee) and Matt Mead (R-Wyoming), are taking a more nuanced, “I’m staking out a negotiating position” approach, by asking for the money as block grants rather than as direct payments for services.
Which of these positions is politically wise will depend critically on who gets elected (or reëlected) President on November 6.
- Governors put off health care questions, for now — BlueRidgeNow.com (blueridgenow.com)
- Governors come out swinging over Medicaid (msnbc.msn.com)
- My Little Golden Book of the ACA Supreme Court Decision (delong.typepad.com)
- A Gap in Health Coverage (nytimes.com)
- Governors’ Reactions to Medicaid Expansion Reflect Complexity of Issue (nytimes.com)
- The Most Overlooked, And Important, Part Of The ObamaCare Decision (outsidethebeltway.com)
- The Supreme Court’s Bizarro World Health Care Ruling (reason.com)
- Conservative Governors Are Right to Resist Medicaid Expansion (johnmalcolm.me)