Medicaid Post-SCOTUS: Nevermind Whether States Choose to Expand; It Appears States Have the Choice to Shrink

Richard

SCOTUS ruled that Congress cannot withhold all of a state’s Medicaid funding if the state refuses to participate in the Affordable Care Act’s (ACA) Medicaid expansion

Many states’ Medicaid eligibility levels are well above the federal minimums, in large part because of a separate ACA provision (maintenance of effort, or MOE) that requires states to maintain eligibility at levels of generosity established at the peak of the last economic cycle. The penalty for violating this ACA provision – losing all Medicaid funding – is the same as for not participating in the expansion, i.e. the penalty for reducing eligibility is the same penalty the Court just ruled unconstitutional

If the MOE provision is in fact invalid, states would have the ability to reduce eligibility to the federal minimums – disenrolling as many as 13 million current beneficiaries and reducing current Medicaid spend by $40B

Thus the question is not whether states participate in the expansion or stay at current eligibility levels; rather the question is whether the states fall back to (or very nearly to) the federal minimums (lose 13M beneficiaries and $40B in spending) or participate in the expansion (gain 16M beneficiaries and $70B in spending). Unless the MOE provision is valid or CMS can negotiate a compromise, the outcome inevitably varies by state

Of the 13M beneficiaries who exceed the federal minimum eligibility requirements, 4.6M are in Republican states. Of the 16M beneficiaries that could become eligible in an expansion, 8.8M are in Republican states. If Republican states reduce eligibility to federal minimums and forego the expansion, 2014 Medicaid enrollment would be roughly 13.4M less than if all states had participated in the expansion

Maine has announced plans to officially challenge the MOE requirement, and we expect other states to soon follow

The risk of Medicaid disenrollment is an obvious negative for the Medicaid HMOs (e.g. AGP, CNC, MGLN, MOH, WCG). Less obvious are effects on Hospitals; Medicaid disenrollment would reduce patient volumes and increase uncompensated care; however because most disenrolled Medicaid beneficiaries can be covered under the exchanges, any such patients switched to commercial carriers would pay hospitals at the considerably higher commercial rate. Drug and Generic Manufacturers potentially would benefit for similar reasons, namely a shift of demand from lower to higher priced payors

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