Can PPACA Work If States Reject Medicaid Expansion?

Now that states can opt out of the Medicaid expansion under the Patient Protection and Affordable Care Act (PPACA) (P.L. 111-148), what happens in the states that opt out? Some states have resisted establishing health insurance exchanges. Those that opt out may skip the exchanges as well.

Alternatively, they may take the approach that Mississippi did, where, on general principles, they would rather run it themselves than let the federal government have control. Who loses out in the states that don’t expand their Medicaid programs?

  • Low-income residents who would have been eligible under the Medicaid expansion
  • Hospitals, because the Medicaid expansion was to be paid for, in part, with reductions in their Medicare payments. Without the expansion, they’ll bear the burden without any benefit.
  • States with high percentages of uninsured individuals. It’s interesting that some of those states plan to opt out. For example, Mississippi has the poorest population in the country, which means that its Medicaid program is more heavily subsidized than any other. The Medicaid expansion would add somewhere between 330,000 and 400,000 beneficiaries.

The Medicaid expansion was essential to the streamlined enrollment system under which people could make one application for a determination of their eligibility for Medicaid, the Children’s Health Insurance Program(CHIP), qualified health plans and subsidies for premiums and cost sharing. (The details were discussed here.) Section 2201 of PPACA explicitly made adoption of the shared system a condition of states’ receiving any Medicaid funding as of January 1, 2014. By ruling that the states cannot lose funding for their existing programs, the Supreme Court has eliminated the requirement for interoperable systems. It also may have set the stage for states to roll back Medicaid eligibility for adults to the levels that applied in 2009 or earlier.

The federal government can operate the health insurance exchanges in states that choose not to do so. But the law didn’t provide for a back-up plan in the event a state chose not to participate in the Medicaid expansion. Congress assumed that every state would participate. There were grant funds available to states to upgrade their eligibility determination hardware and software. The regulations assume that states are verifying eligibility electronically through information exchange with the Internal Revenue Service and the Department of Homeland Security in addition to the Social Security Administration and the health insurance exchanges. States were given guidance on maximizing the use of those dollars to share the benefits with other programs.

PPACA requires state Medicaid agencies to accept determinations by the exchanges that applicants are eligible for Medicaid or CHIP. Without the interoperable information systems in place, it’s unlikely that the transfer of information will be smooth. Most likely, the application process will be even more cumbersome than it is now.

PPACA’s affordability measures were a three-legged stool: one leg was insurance exchanges, the second was premium subsidies and the third was Medicaid expansion. Now one leg has been knocked out, the future remains to be seen.