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States May Opt Out of Medicaid Expansion, Court Rules

 |  By Margaret@example.com  
   June 29, 2012

The U.S. Supreme Court ruled Thursday that states can opt out of the expansion of the Medicaid program without facing the loss of their existing funding. The ruling provides cash-strapped states with an easy way to avoid adding additional members to their Medicaid rolls and could have a chilling effect on the interest among health plans in the Medicaid market.


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In a victory for the 26 states that filed suit against Patient Protection and Affordable Care Act, the high court called unduly coercive the provision to allow the Secretary of Health and Human Services to cut all Medicaid funding for states that choose not to participate in the Medicaid expansion under the PPACA.

"The threatened loss of over 10% of a state's overall budget is economic dragooning that leaves the states with no real option but to acquiesce in the Medicaid expansion," Justice John Roberts wrote.

"The government claims that the expansion is properly viewed as only a modification of the existing program, and that this modification is permissible because Congress reserved the 'right to alter, amend, or repeal any provision' of Medicaid. But the expansion accomplishes a shift in kind, not merely degree."

The ruling wasn't entirely surprising to stakeholders who follow the Medicaid market. The initial policy, which denied even their existing Medicaid funding to state's that declined to expand their program "always seemed like overreach," Mary R. Grealy, president of the Healthcare Leadership Council, told HealthLeadersMedia.


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Stakeholders reached by HealthLeaders Media in the immediate aftermath of the Supreme Court decision were split as to whether most states will eventually sign on to the expansion. The PPACA sweetens the participation pot with a guarantee that the federal government will pay 100% of the cost of the Medicaid expansion for the first three years and at least 90% after that.

That should be enough to get states interested, says Donald Fisher, PhD, president and CEO of the American Medical Group Association.

However, if the early reaction by governors like Scott Walker (R-WI) is any indication, pushback against anything related to PPACA will reign for a while longer. "Wisconsin will not take any action to implement ObamaCare," said Walker in a press statement.

Mark Lutes, an attorney at Epstein Becker Green in Washington, DC, said that even with the 100% sweetener and the elimination of the penalty, participation in Medicaid expansion is not to be taken lightly. "What happens when federal funding drops to 90%? A state that's already struggling with its existing Medicaid budget may not be able to take the risk."

There are a number of items besides federal funding that states will need to consider in making their expansion decision. The Supreme Court ruling doesn't address other Medicaid provisions in the ACA beyond the expansion penalty, so those provisions, including a mandated increase in primary care reimbursement rates and mandated decreases in disproportionate share hospital (DSH) funding, would continue to apply according to Matt Salo, executive director of the National Association of Medicaid Directors.

"Since all these other things will apply, states will have to consider if they will change their decision." Salo added that states will also have to determine how their decision to expand or not will play into the establishment of the health insurance exchanges.

Health plans will be keeping a watchful eye on state decisions. There has been growing interest among insurers in the potential expansions, which would add an estimated 13 million to the Medicaid rolls. Without the penalty to promote that expansion the potential market may be much smaller and not as financially lucrative.

Margaret Dick Tocknell is a reporter/editor with HealthLeaders Media.
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