Health Care Ruling Makes for Medicaid Headache

Democrats received a huge win with the Supreme Court’s ruling that the insurance mandate, at the heart of their health care law, is constitutional. But headaches over the Medicaid expansion lurk just around the corner.

The Court ruled on Thursday that the federal government cannot force states to agree to the law’s Medicaid expansion by threatening to take away their current Medicaid funding. The Medicaid expansion is expected to cover 17 million of the estimated 30 million people who will get insurance under the law.

The federal government and the states roughly split the cost of the Medicaid program, which currently covers 60 million people. As of now, most states do not cover low-income adults. The Affordable Care Act aimed to change that. The federal government promised to fully fund an expansion of the Medicaid program to poor, childless adults for the first few years, but then states would have to pick up some of the costs later on. If they did not participate in the expansion, the ACA said that states could lose all of their federal Medicaid money.

But the Supreme Court says Congress cannot force states into such a deal.

“The States claim that this threat serves no purpose other than to force unwilling States to sign up for the dramatic expansion in the health care coverage effected by the act. Given the nature of the threat and the programs at issue here, we must agree,” said the majority opinion from the Court, written by the conservative Chief Justice John Roberts. “What Congress is not free to do is to penalize States that choose not to participate in that new program by taking away their existing Medicaid funding.”

That essentially means that the Medicaid expansion to 17 million people under the health care law is optional, said Alan Weil, executive director of the National Academy for State Health Policy.

“Functionally, that is an optional expansion, as there’s no penalty for their current programs,” Weil said in an interview.

Whether states will opt out of the Medicaid expansion is now the question. It would be a politically difficult position to choose against the Medicaid expansion, but governors of both red and blue states have grumbled about Medicaid costs since the health care law passed in 2010, and the economic slowdown has squeezed state budgets. Medicaid made up nearly a quarter of state spending in fiscal 2010, according to the National Association of State Budget Officers.

If states do opt out of the Medicaid expansion, it could mean that the cost of the health care law will increase as people who would have gone on Medicaid shift to private insurance and collect federal subsidies. The subsidies for private insurance can be more expensive than Medicaid coverage, meaning the Congressional Budget Office might be forced to increase the cost of the law and potentially increase the deficit. The CBO said on its blog that a new cost estimate would "probably take some time."

"CBO is in the process of reviewing the Supreme Court’s decision related to the Affordable Care Act to assess the effect on CBO’s projections of federal spending and revenue under current law. We expect that this assessment will probably take some time," the office said.

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