How Governors Could Become America’s Health Care Czars

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a doctor tends to a patient in the US health care system
National Journal
Sophie Novack
Aug. 12, 2014, 1:09 a.m.

Courts have put more and more power in the hands of states to run health care cov­er­age — and not in the way the Af­ford­able Care Act in­ten­ded.

The health care law as­sumed that all states would ex­pand Medi­caid and es­tab­lish state-based ex­changes. But a 2012 Su­preme Court de­cision made it easi­er for gov­ernors to opt out of Medi­caid ex­pan­sion, and 24 states de­cided not to ex­pand their cov­er­age, leav­ing mil­lions of low-in­come people un­in­sured. An­oth­er round of court chal­lenges could soon al­low gov­ernors to de­cide wheth­er to provide sub­sid­ized cov­er­age on the in­sur­ance ex­changes as well.

A re­cent set of law­suits chal­lenges the pro­vi­sion of sub­sidies on the fed­er­al mar­ket­place, ar­guing the law spe­cific­ally says they should be avail­able on “ex­changes es­tab­lished by the state.” In Hal­big v. Se­beli­us, the U.S. Court of Ap­peals for the D.C. Cir­cuit ruled last month against the Obama ad­min­is­tra­tion, say­ing that sub­sidies are il­leg­al in the states that are on the fed­er­al ex­change. On the same day, the 4th Cir­cuit Court of Ap­peals came to the op­pos­ite con­clu­sion in King v. Bur­well, say­ing it’s clear that Con­gress in­ten­ded sub­sidies to be avail­able on all ex­changes. Both de­cisions are be­ing ap­pealed, and the is­sue could go to the Su­preme Court as soon as next ses­sion.

If the Hal­big rul­ing is up­held, sub­sidies will van­ish in more than half the states, mak­ing in­sur­ance un­af­ford­able to many who now re­ceive them. Gov­ernors in states cur­rently on the fed­er­al ex­change would thus be put in the po­s­i­tion of de­cid­ing wheth­er to switch to a state ex­change and keep the sub­sidies, or al­low res­id­ents to lose their in­sur­ance cov­er­age.

The de­cision is a com­plex one, and par­tic­u­larly un­com­fort­able for Re­pub­lic­an gov­ernors, most of whom are op­posed to any ac­tion that would make the ACA work bet­ter. Al­low­ing the sub­sidies to ex­pire would cripple the very found­a­tion of the law, but it could also in­cur the wrath of the health and busi­ness com­munit­ies, along with their con­stitu­ents.

An es­tim­ated 7.3 mil­lion people could miss out on $36.1 bil­lion in sub­sidies if the Hal­big de­cision stands, ac­cord­ing to a re­port from the Urb­an In­sti­tute re­leased last month. This is about 62 per­cent of the 11.8 mil­lion people ex­pec­ted to en­roll in the fed­er­ally fa­cil­it­ated mar­ket­place by 2016. Res­id­ents in the red states of Texas and Flor­ida would lose the most: $5.6 bil­lion and $4.8 bil­lion, re­spect­ively.

This could throw the over­all in­sur­ance mar­ket in­to a tailspin.

“There’s a ques­tion of wheth­er the in­di­vidu­al mar­ket would be stable in states without sub­sidies,” said Larry Levitt, a seni­or vice pres­id­ent at the Kais­er Fam­ily Found­a­tion. “The in­di­vidu­al man­date would still stand, but many wouldn’t be able to af­ford cov­er­age. Most of those eli­gible for sub­sidies would end up be­ing ex­empt, be­cause their in­sur­ance costs more than 8 per­cent of their in­come. The in­di­vidu­al man­date would be very weakened, and with no abil­ity to at­tract healthy people, the risk pool in states without ex­changes would likely de­teri­or­ate quickly.”

Yet there are hurdles that could give pause even to Demo­crat­ic gov­ernors. While the Medi­caid de­cision was simply a mat­ter of ex­pand­ing an ex­ist­ing pro­gram, set­ting up an ex­change would re­quire build­ing a whole new in­fra­struc­ture, something that has proven a ma­jor chal­lenge for many states — and the fed­er­al gov­ern­ment — in the first open-en­roll­ment peri­od.

Pay­ing for the new ex­changes would be a prob­lem as well. States that es­tab­lished their own ex­changes early on had ac­cess to an un­lim­ited pool of fed­er­al grant dol­lars, but those that choose to switch now are es­sen­tially on their own to get the ex­change up and run­ning.

“The state has to start from ground zero; this is clearly a prob­lem, be­cause fed­er­al fin­an­cing is lim­ited,” said Ray­mond Schep­pach, former ex­ec­ut­ive dir­ect­or of the Na­tion­al Gov­ernors As­so­ci­ation and cur­rent pro­fess­or at the Uni­versity of Vir­gin­ia. “There are three or four states that seem to have done a good job [set­ting up their own ex­changes], but a lot have not. The av­er­age gov­ernor looks at it as polit­ic­ally risky and fin­an­cially risky.”

“The whole health care com­munity is go­ing to want the state to do an ex­change; “¦ there would be a fair amount of pres­sure. [Gov­ernors] will have to com­pare that with the fin­an­cial risk and the polit­ic­al risk of fail­ing. Then for the Re­pub­lic­ans, you have all the na­tion­al polit­ics play­ing out.”

Ex­perts say if it came to this, the ad­min­is­tra­tion would be sure to al­le­vi­ate some of the bur­den, either by al­low­ing states to sub­con­tract from the fed­er­al sys­tem or bor­row from an­oth­er state’s ex­change.

“The bar has con­tin­ued to evolve; it’s easi­er and easi­er to be­come a state ex­change,” said Joel Ario, former dir­ect­or of health in­sur­ance ex­changes at the De­part­ment of Health and Hu­man Ser­vices and cur­rent man­aging dir­ect­or at Man­att Health Solu­tions. “So far, the [HHS] sec­ret­ary has been pretty flex­ible, if you as a state are will­ing to co­oper­ate. In that light, it be­comes a mat­ter of ideo­logy for gov­ernors to stick their feet in the sand and not move.”

The polit­ic­al push­back for that kind of op­pos­i­tion could prove sig­ni­fic­ant, par­tic­u­larly as the group of people af­fected would be lar­ger, and pos­sibly more polit­ic­ally act­ive, than those who missed out on Medi­caid ex­pan­sion. Yet it’s un­likely that this would come in­to play be­fore the next elec­tion, ex­perts say.

“I doubt there will be any real tan­gible ef­fect be­fore midterm elec­tions,” Levitt said. “[The case] would have to move pretty quickly for that to hap­pen; for now it’s more polit­ic­al noise than any­thing that mat­ters for real people.”

But while the is­sue’s im­pact on midterms is fuzzy, elec­tion res­ults will have a ma­jor im­pact on health cov­er­age for mil­lions of Amer­ic­ans if the de­cision is ul­ti­mately up­held.

“The [Hal­big] case has already got­ten much fur­ther than many ex­pec­ted to be­gin with, and the [2012] de­cision [on Medi­caid ex­pan­sion] was a sur­prise,” Levitt con­tin­ued. “No one is go­ing to go broke bet­ting on Obama­care out­comes at the Su­preme Court.”

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