The SCOTUS Ruling

What it decided and means for Medicaid moving forward

On Thursday, June 28, 2012 the United States Supreme Court issued its decision on the constitutionality of portions of the Affordable Care Act (ACA). This was the highly anticipated decision on the constitutionality of portions of the Affordable Care Act (ACA) (Nat. Fed’n of Indep. Bus. v. Sebelius, together with Florida v. Dept. of HHS and Dept. of HHS v. Florida).

In a closely divided decision, the Court ruled to (1) uphold the individual mandate as a valid exercise of Congress’ power under the Taxing Clause. Importantly, the Court established a new fundamental precedent that the Commerce clause of Congressional power does have limits. And, the Court further ruled to (2) uphold the expansion of the Medicaid population, but prohibit the federal government from withholding existing (non-expansion) Medicaid funds for non-compliance with the expansion requirements.

This ruling on the individual mandate came as a surprise to many. Nevertheless, the limitations placed on the ACA’s provisions expanding Medicaid eligibility turned out to be a bigger surprise. This affects a large portion of ACA. It is estimated that about half of the uninsured in America whom ACA was supposed to cover (estimated at 30 million) were supposed to be covered by the Medicaid expansion (estimated at 17 million). Why did the ACA creators rely so heavily on Medicaid for the expansion of access to health care? There are probably many reasons, but surely one of these has to be that Medicaid is cheap because it pays less than private insurance, with some estimates by as much as 25 percent less.

Medicaid
What exactly did the majority of the Supreme Court say about the Medicaid expansion? It upheld the expansion of the Medicaid population, but concluded that the federal government cannot condition existing funding on the expansion because to do so would be unconstitutionally coercive, just like over half of the state governments argued in their pleadings in the case. Or said another way, the government cannot take away states’ existing Medicaid money if a state declines to comply with the new eligibility expansion provision.

The ACA’s Medicaid expansion required states to expand Medicaid eligibility in 2014 to all individuals under the age of 65 with incomes that are 133 percent of the federal poverty level. The Court held this violates principles of federalism. In previous cases, the Court has held that although the federal government may place conditions on grants of federal funds to states in order to “encourage” states to regulate in a particular way, the conditions must not be so restrictive as to “compel” states to enact or administer a federal regulatory program.

Chief Justice Roberts emphasized in his opinion that “Congress may attach appropriate conditions to federal taxing and spending programs to preserve its control over the use of federal funds.” Nevertheless, Roberts went on to add that while Congress can place conditions on the use of certain federal funds, these conditions may not “take the form of threats to terminate other significant independent grants.” The Chief Justice determined that the Medicaid expansion should properly be considered a separate program from the existing Medicaid program, rather than a simple “modification,” as it “is no longer a program to care for the neediest among us, but rather an element of a comprehensive national plan to provide universal health insurance coverage.” Subsequently, Medicaid now is considered to be two distinct programs.

The Supreme Court ruling expressly distinguished the expansion from previous amendments to the Medicaid program – such as an amendment requiring States to cover pregnant women and increase the number of eligible children – holding that these amendments “simply do not fall into the same category as the one at stake here.” The threat to withhold all Medicaid funding, Roberts decided, was “a gun to the head” of states. Subsequently, Roberts held that the government may not condition the continuance of existing federal Medicaid funding on compliance with the new expansion.

Similarly, in the joint dissenting opinion, Justices Scalia, Kennedy, Thomas and Alito stressed the balance that must be struck between Congress’ authority to attach conditions to federal grants to states without coercing states to accept these conditions. Examining the federal government’s significant contribution to state Medicaid programs and the resulting burden on a state if it were to withdraw from the Medicaid program, the dissenting Justices concluded that a state’s “choice” not to comply with the expansion was a choice in the hypothetical alone. The Justices further stressed that the drafters of the ACA intended to provide near-universal coverage and had not included a “backup plan” if states elected not to comply with the Medicaid expansion, signaling Congress’ “informed view that no State could possibly refuse the offer that the ACA extends.” As such, the Justices agreed that the expansion of the Medicaid program exceeded Congress’ constitutional authority.

States’ concerns
Some argue that states will “have to take the money” for the Medicaid expansion. I am pretty sure that several states are disinclined to this offer – Texas, Florida, Iowa, Louisiana, Mississippi, and South Carolina for starters having already announced they will forgo the expansion. As a result of the Supreme Court ruling, this was an outcome the creators of ACA did not envision. Turns out some state governments in their lawsuit were actually serious about their concerns about the Medicaid expansion. Or, said another way, new money is not always a “for-sure” incentive for states to act the way the federal government wants them to.

Here is the problem as some states see it with the Medicaid expansion. The ACA pays 100 percent of the cost of benefits the first three years and then declines to 90 percent by 2020. However, states still have to come up with the money to cover all the administrative costs on their own, estimated as high as 5.5 percent for some states. This leaves states on the hook for billions in new spending. Also, many states have long dealing with the federal government and don’t consider it to be the best partner for some long range strategic policy objectives.

One of the most striking aspects of the Robert’s ruling is that while the coercive aspects of the expansion are not permissible, citizens in states that opt out of the Medicaid expansion will likely have easier access to more generous private health insurance in the state based exchanges. This is due to the fact that the ACA will still provide insurance subsidies to everyone between the federal poverty level and 133 percent of that level. Also, states that participate in the expansion, and those that don’t, have been given new flexibility under ACA to scale back their existing Medicaid programs if they choose. It is reasonable to assume that many states will take the opportunity to examine the advisability of making some changes.

Right now, their does not seem to be a consensus as to if federal costs will be actually lower, due to some states refusing the expansion, or if the feds will be paying more to those who qualify for the subsidies. The Congressional Budget Office is trying to get a handle on this question which some predict could cost an additional $500 billion over ten years. With the new two-part Medicaid program in the U.S. many policy watchers agree that there is big money on the table right now.

Implications for November
President Obama and the supporters of ACA won the day at the Supreme Court. What has been achieved is indeed historic. However, some say the achievement was almost by accident – and not at all because their Commerce clause arguments were constitutionally sound.

President Obama said after the Court ruling “The highest court in the land has now spoken.” Nevertheless, there appears to be an even higher authority about to weigh in on going forward or not with the ACA – the American people. In the upcoming November elections, the people will have a chance to choose between two individuals for our next President – one who vows to fully implement the ACA and the other who vows to repeal it. Health care reform as a policy and political issue is far from over in Washington, or – given the new two-part Medicaid program we now have – in the states.


Robert Betz, Ph.D., is President of Robert Betz Associates, Inc. (RBA), a well-established federal health policy consulting firm located in the Washington, D.C. area. Additionally, Dr. Betz is an adjunct professor teaching at The George Washington University where he specializes in political science and health policy. For more information about RBA, visit www.robertbetz.com.

Robert Betz Ph.D. About Robert Betz Ph.D.

Robert Betz, Ph.D., is president of Robert Betz Associates, Inc. (RBA), a well-established federal health policy consulting firm located in the Washington, D.C. area. Additionally, Dr. Betz is an adjunct professor teaching at The George Washington University where he specializes in political science and health policy. For more information about RBA, visit www.robertbetz.com.

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