Why Red State Govs May Embrace Medicaid Expansion

As the campaign rhetoric cools and the Patient Protection and Affordable Care Act settles in,  there is speculation that governors who've been adamantly resistant to Medicaid expansion under the law's sweeping reforms, may find a way to drop their objections.

"Fall rhetoric does not always match with winter activity," says Ceci Connolly, managing director of the Health Research Institute at PwC. "I would not be surprised if we see more states now taking a second look at the possible Medicaid expansion, in part, because they have been hearing from providers in their states who are worried about uncompensated care costs."

The Supreme Court in its landmark 5-4 ruling on June 28 that upheld key provisions of PPACA also struck down as overly coercive the federal government's demands that states expand their Medicaid rolls.

Resistance to expanding the rolls, particularly among Republican governors, reached a fevered pitch in July when Texas Gov. Rick Perry sent a letter to Health and Human Services Secretary Kathleen Sebelius.  Perry, who was running for president at the time, explained that the Lone Star State stood "proudly with the growing chorus of governors who reject the PPACA power grab.... Neither a state exchange nor the expansion of Medicaid under the Orwellian named PPACA would result in better patient protection or in more affordable care."

A lot has changed since then. President Obama was re-elected in a campaign that featured sharp criticisms of "Obamacare" from Republican challenger Mitt Romney, who vowed to repeal the law if elected. He was not elected.

And now, the states that decline to expand their Medicaid rolls risk losing some of the estimated $642 billion in direct federal aid that will be made available over the next decade.

Paul Keckley, executive director of the Deloitte Center for Health Solutions, says polls show that attitudes have calcified over the last two years since shrieking protesters disrupted town hall meetings across the nation after PPACA was signed into law.

Since then the America public has held firm in its views of Obamacare. "About one-third thinks it's the second coming and one-third thinks it is the apocalypse and one-third doesn't care," he says.

Obamacare supporters in Congress were buoyed by their strong performance in last week's elections and are expected to be more aggressive in promoting and defending the plan over the next two years.<

"The group that says it is important is dominated by women and urban professionals and lower-socio economic and labor groups and their numbers are big," Keckley says. "They took most of these races. They helped the Democrats increase their Senate cohort. You are going to see more support and proactive selling of health reform over the next couple of years. Its profile will be substantially higher than it has been in the last year."

Keckley says the Supreme Court ruling on the Medicaid expansion "actually forces into this discussion of Medicaid the notion of some level of flexibility. Getting something done maybe better than nothing, but every state is going to negotiate a different deal."

Keckley sees "two dynamics" playing out in the Medicaid expansion talks, especially as they relate to the eligibility threshold of 138% of the federal poverty level for new enrollees.

"One is there is an expectation that (the Centers for Medicare and Medicaid Services) will negotiate with the states and perhaps there will be some concessions made around the 138% threshold, with some states maybe going up to 100%," he says.

"Because of the Supreme Court's ruling there is a lot of deal making that will be made between CMS and the states. People have pretty much set aside 16 million new enrollees, which was the original number. But the thought now is we might pick up between 9 million and 12 million."

Keckley says the second dynamic surrounds states' negotiations with commercial plans to manage these expanded populations.  "I don't think the line in the sand with the feds and the states is 'go' or 'no go,'" he says.  "The line is 'we will go some of the way, you've got to come some of the way.' Once they reach some kind of deal you look to the commercial plans and say 'this is the deal we have cut and now we want you to bid on managing that.'"

PwC's Connolly says the Supreme Court's ruling that effectively makes the Medicaid expansion optional should help with the negotiations between the federal government and states. In addition, she says innovative states already have the ability to request waivers for their Medicaid programs.

"If there was a particular state that wanted to try something at a slightly different level they would probably start with attempting a waiver request first," she says.

On a related topic, the nation's safety net hospitals have complained that a failure to expand the Medicaid population could saddle them with $53.3 billion in uncompensated care costs over the next seven years. That's because the lower disproportionate share payments that the safety nets agreed to as part of PPACA were supposed to be offset by expanded Medicaid coverage. 

With lawmakers now focused on the so-called "fiscal cliff," Connolly says safety net hospitals should brace themselves for renewed scrutiny of the disproportionate share payments. "We are about to get into a season where people are going to be scouring for every nickel and dime they can find," she says. "The safety net hospitals have a reason to be concerned."

Keckley thinks that DSH payments may not disappear quite as quickly as was originally forecasted, "but there will be offsetting that much more pressure through the back door."

"The front door is reimbursement and the feds will probably get a few of those dollars back,  especially for safety net hospitals in light of the fact that not as many people are going to be insured through Medicaid," he says.

"But on the back end I suspect CMS will be more aggressive on fraud and necessary care and accelerate these pilots so they can get the money back in terms of penalties or that they simply don't have to payout as much because of under performers."

"The mood at CMS is that fraud is under-captured and they haven't figured out how to deal with it," he says. "They aren't going to do pay and chase anymore and they think this necessary care issue is big. That there is so much being done that the evidence says is unnecessary that they will have reason to go to the providers and the plans that have allowed it and say 'we need a give back. You can't get away with this anymore."