Congress Seeks to Expand Medicaid With or Without the States

Many in Congress are working to expand Medicaid in states where it has so far failed. Following passage of the Affordable Care Act in 2010, states were required to expand their Medicaid coverage to all individuals not covered by Medicare (under 64) with incomes up to 138% of the federal poverty level. Since it was a federal mandate, the federal government promised to pay 100% of the expansion cost until 2017 when it slowly began decreasing the percentage until reaching 90% of the expansion cost in 2020.

Initially, expansion was mandatory, and non-expansion would cause a state to forfeit all of their Medicaid funding. However, in 2012, the U.S. Supreme Court ruled that this requirement was “unconstitutionally coercive” because “Congress does not have authority under the Spending Clause to threaten the states with complete loss of Federal funding of Medicaid, if the states refuse to comply with the expansion.”

This decision was not partisan; seven of the nine justices agreed on this point. Thus, the provision was treated as conditional. States were offered the additional funding for expansion but would face no penalties or repercussions for rejecting expansion.

Many states took Congress up on their offer. By the time expansion took effect on January 1, 2014, 25 states had signed on. Since then, another 13 states have passed legislation expanding their Medicaid programs. However, it has not been as affordable as the states were told it would be. The Foundation for Government Accountability found that “per-person costs have exceeded original estimates by 76%,” and the program has seen “cost overruns of 157%.”  Even New York Governor Andrew Cuomo admitted that “the cost of Medicaid is rising much higher than anyone projected [and] started rising dramatically.” It has led some states to begin levying taxes on healthcare providers.

While the burden on states is nothing to make light of, the federal costs are also enormous. In 2019, the federal government paid $387 billion for Medicaid alone. That’s more than the entire economic output of Delaware, Hawaii, Idaho, Maine and New Hampshire combined.

Twelve states have yet to expand Medicaid, and this has frustrated many in Washington. This summer, two different strategies were developed in an attempt to cover individuals in states without Medicaid expansion: local expansion and federal expansion. Since its inception in 1965, Medicaid has been a collaborative effort between federal and state governments. The federal government sets out the basic guidelines and provides some funding, while states operate and administer Medicaid and fund the remainder of the program. The new proposals would fundamentally change this dynamic.

Earlier this year, the American Rescue Plan Act (ARPA) offered incentives for Medicaid expansion. In addition to the federal government covering 90% of the expansion cost, states that had not yet expanded Medicaid were offered an additional 5% coverage for all of their Medicaid recipients to do so. The Wall Street Journal reported that these incentives did not go unnoticed, as governors have expressed interest in working with the new incentives; however, no state took the bait.

In June, U.S. Rep. Lloyd Doggett (D-TX) introduced the COVER Now Act. It would promote a local expansion option by allowing the Centers for Medicare and Medicaid Services (CMS) to work directly with counties and municipalities. It would give the local governments the same offer initially given to states: three years fully funded by the federal government, then a gradual decline to 90% federally funded by year seven. The local programs would still use the infrastructure of the state Medicaid system, but the local, rather than state governments, would be on the line for the program’s cost.

Earlier this month, U.S. Sen. Raphael Warnock (D-GA) introduced a differing proposal: the Medicaid Saves Lives Act. This bill would fulfill President Biden’s campaign promise of “premium-free access to the public option” for people in non-expansion states who otherwise would have been covered by Medicaid. According to Warnock, his bill would direct CMS to set up “a federal Medicaid look-alike program would provide the same full, essential benefits of Medicaid, and… allow everyone in non-expansion states who is eligible for Medicaid coverage.” Some of those individuals “are currently enrolled in marketplaces plans under [ACA] but could qualify for free Medicaid coverage.”

The bill would also increase incentives for states to expand Medicaid on their own. It would add to the offer given to states in ARPA earlier this year (5% additional coverage for all Medicaid recipients). It would up the amount and timeline to 10% additional funding to the state’s entire Medicaid program for 10 years. However, this plan has raised concerns within the caucus. Rep. Doggett told Politico that “to the extent you give more incentives and benefits to [non-expansion] states, then some of the [already expanded] states will say: ‘I want that, too,’ which adds to the cost. How do you justify excluding states from a federal Medicaid program?”

Recently, some states have tried to compromise and have it both ways: expand coverage while minimizing costs. Virginia, for instance, expanded but compromised by imposing a work requirement. However, it never went into effect, as Gov. Northam unilaterally got rid of the requirement before it was enacted. Several other states, such as Georgia, have sought to enact work requirements for Medicaid but faced court battles. Now, the Biden Administration has revoked federal approval for work requirements, preventing these compromises.

Despite all the supposed financial benefits of Medicaid expansion, ALEC model policies and other publications the detail the potential downsides to expansion.

The Medicaid expansion battle rages on, and it is unlikely to end soon. As states and federal lawmakers weigh the costs and benefits of Medicaid expansion, they cannot forget to consider other alternatives. Block grants and other decentralized options that ALEC members have put forward in the past must also be put on the table. If the goal is expanded health coverage, rejecting these proposals only hinders this goal. It has been 11 years since ACA was first passed; it is time to look forward to new ideas that promote increased quality, coverage, and access while minimizing costs.