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Scott Olson, Getty Images News

The battle over Medicaid expansion in 2013 and 2014, explained

Across the country, states fought over whether to except Obamacare's expansion of the program for low-income Americans.

What is the battle over the Medicaid expansion?

Before Obamacare passed in 2010, eligibility requirements for Medicaid — the health program covering low-income people — varied across the country. For instance, in Illinois, parents with two children making up to $40,700 — 185 percent of the federal poverty line — could qualify for the program. But in Alabama, parents with two children earning a mere $2,500 a year — 11 percent of the federal poverty line — could not. And low-income adults without any children couldn't qualify at all in the vast majority of states.

Obamacare's authors wanted to make more people eligible for Medicaid, and to make the eligibility rules more uniform overall. So the law contained an expansion of Medicaid to everyone making beneath 138 percent of the federal poverty line — more generous coverage than any state had previously offered.

But there's a catch: a subsequent Supreme Court ruling let states reject the expansion, and many states with Republican governors or legislatures have done just that. As of January 2015, only 28 states had signed on so far.

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The liberal group MoveOn.org criticizes Louisiana's governor for refusing the Medicaid expansion. (MoveOn.org)

Before the court ruling, the law used both a carrot and a stick to get states to sign on to the expansion. The carrot was new money: the federal government would shoulder 100 percent of the expansion's costs in its first three years, phasing down to 90 percent starting in 2020. To get a sense of how attractive that is, consider that the federal government only shouldered 57 percent of Medicaid costs prior to Obamacare.

The stick was old money: the law said that if any states didn't make Medicaid available to all adults with incomes up to 138 percent of the federal poverty line, they would lose all of their existing federal funding for Medicaid, too.

This looked like an offer the states couldn't refuse, and the Congressional Budget Office estimated that by 2019, the expansion would lead to 16 million more enrollees in Medicaid and CHIP (the program that covers children from low-income families).

Obamacare_expansion

But the Supreme Court threw a wrench in those plans. In a June 2012 decision that upheld most of the health law as constitutional, the court ruled that this threat to zero out Medicaid funding was "coercive" to state governments — and threw out that penalty. States suddenly had the option of refusing the expansion, and many conservative states began to do so. As of early 2015, 4 million low-income adults were in danger of losing out on health insurance as a result, according to estimates by the Kaiser Family Foundation.

How did Medicaid work before the expansion?

The Medicaid program was created in 1965 to provide health insurance to certain particularly needy groups of low-income Americans, including pregnant women, families with children, the disabled, and seniors.The program is unusual in that its costs are shared by the federal governments and the states — the federal government paid 57 percent of overall costs in 2012.

Medicaid was much more limited before Obamacare was signed into law. All states had to abide by certain federal requirements for who would get offered coverage, but many decisions about who to cover were left to individual states — and so the program's generosity varied wildly.

According to a Kaiser Family Foundation report, before Obamacare was implemented, only 18 states covered parents with incomes at the federal poverty level (then $18,530 for a family of three). And 17 states only covered parents if they made less than half the federal poverty level (then $9,265).

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Map by Kaiser Family Foundation for "Performing Under Pressure" report

Moreover, several groups were mostly left out of Medicaid — particularly low-income adults with no young children. If a state wanted to use federal Medicaid funds to cover childless adults, it had to obtain a special waiver, and find a way to pay for it without increasing overall federal costs.

Medicaid spending eventually became the second-largest spending commitment in state budgets, topped only by elementary and secondary education, as this chart shows:

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Obamacare called on states to make Medicaid available to everyone with an income at 138 percent of the federal poverty line or below. And so state budgets wouldn't be overly burdened, the expansion is set up so the federal government picks up nearly all of the tab — between 2014 and 2016, the feds were set to pay everything, phasing down to 90 percent by 2020 and afterward. But though the expansion was supposed to be essentially mandatory, a Supreme Court decision made it optional for states.

Why did the Supreme Court rule Obamacare's Medicaid expansion unconstitutional?

On June 28, 2012, the Supreme Court issued its ruling on the constitutionality of Obamacare in the NFIB v. Sebelius case. The complex decision ended up letting most provisions of the law stand, including the controversial individual mandate. But, in an outcome surprising to many observers, the justices ruled that the law's penalty for states that refused to expand Medicaid was unconstitutional — and struck it down. And this part of the ruling came from a 7-2 majority of the court — the 5 conservatives, plus liberals Stephen Breyer and Elena Kagan.

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Supreme Court Justices Ruth Bader Ginsburg and John Roberts. (Mark Wilson, Getty Images News)

The majority, led by Chief Justice John Roberts, acknowledged that Congress has the authority to modify existing federal programs that provide funding to state governments. But Roberts argued that the Medicaid expansion so differed from the program's original purpose that it should be considered a fundamentally new program.

And, Roberts wrote, the potential penalty for states that didn't sign on to this new program — losing all existing Medicaid funding — was so harsh that it left the states with no real choice on whether to comply. "Congress has no authority to order the States to regulate according to its instructions," he wrote. He called the penalty "a gun to the head," "coercive," and a form of "compulsion," and wrote that "the States must have a genuine choice whether to accept the offer."

But dissenting Justice Ruth Bader Ginsburg called this decision "unsettling" and "political," and pointed out that the court has never found the federal government's spending decisions to be coercive before. She didn't buy that the Medicaid expansion was a fundamentally new program — she argued that Congress was simply altering the existing Medicaid, as it had many times in the past. "My colleagues' position is that the States' reliance on federal funds limits Congress' authority to alter its spending programs," Ginsburg wrote. But in her view, each new Congress should be "empowered to appropriate funds as it sees fit." She also feared that the conservative justices could use this new precedent to further limit federal spending powers.

What happened to poor people in non-Medicaid expansion states?

When Obamacare's authors designed the exchanges where people could get subsidies to purchase private health insurance, they only made the subsidies available to people with incomes above the federal poverty level. They did that because they assumed every state would adopt the Medicaid expansion — and that everyone making less than the federal poverty level would be able to get Medicaid. They didn't anticipate that a Supreme Court ruling would make the Medicaid expansion optional for each state.

The result was what the Kaiser Family Foundation called a "coverage gap." In states that refused to expand Medicaid, many people with incomes below the federal poverty lines didn't have an affordable option to get health insurance. They made too little money to get the subsidies for private insurance, and too much money to qualify for Medicaid.

As of early 2015, Kaiser estimated that 4 million people could lose out on insurance as a result. Here's how they broke down geographically, as of that date:

Kaiser coverage gap

The Orlando Weekly illustrated the coverage gap by profiling Charlene Dill, a 32-year old Florida woman with a heart condition. Dill was dropped from Florida's Medicaid program because she began making too much money ($9,000 a year) to qualify for the state's Medicaid program but she was making too little to qualify for subsidies on the exchanges. She died shortly afterward. If Florida had accepted the Medicaid expansion Dill would have had coverage. It's impossible to know whether being insured would have saved her life, but it likely would have helped her afford the heart medication she needed.

What are the arguments for and against the Medicaid expansion?

Supporters of the Medicaid expansion argued that it was the only affordable way for many low-income people to get health insurance. Obamacare's design created a coverage gap — people with incomes below the federal poverty level made too little money to qualify for subsidized private insurance from the exchanges, but didn't qualify for traditional Medicaid. And studies showed that in states refusing to implement the expansion, millions of people would remain uninsured.

Furthermore, supporters argued that when it comes to costs, the states were getting an incredibly good deal. The federal government was set to pay the entire expansion tab from 2014 to 2016, and at least 90 percent every year afterward. So the states could have gotten quite a lot of uninsured people covered for a relatively small investment on their part. The Congressional Budget Office estimated that over the next decade, states expanding Medicaid would only see their state costs rise 1.6 percent more than states that didn't expand.

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Also, supporters pointed out that if a state refuses to participate, its residents' tax dollars would still go toward funding the expansion in other states, but they'd get nothing out of it themselves. Finally, some argued that their health systems will save save money by reducing uncompensated care.

But the Medicaid expansion was criticized for two main reasons: cost and quality. First, many conservatives argued that the promise of federal funding will prove illusory, and that the states could end up being forced to shoulder more of the bill. They maintain that federal government could or would draw back funding over time. For instance, if Obamacare was to be repealed, as conservatives hoped, those federal funds would vanish. Furthermore, many conservatives viewed Obamacare generally as an undesirable expansion of spending that should be repealed — so the Medicaid expansion would naturally be repealed along with it.

Second, many critics said that Medicaid is dysfunctional, and that it should be reformed rather than expanded — Avik Roy of the Manhattan Institute called it "America's worst health care program." Medicaid's very cheapness means that it has to reimburse doctors at lower rates, and as a result, it's sometimes difficult to find a doctor who accepts Medicaid. Critics also point to a study published in the New England Journal of Medicine that didn't find much improvement in the health of Oregon Medicaid recipients. But that study has itself been criticized, and it did show that Medicaid recipients had better self-reported physical and mental health, less depression, and increased financial security.

Which states refused the Medicaid expansion in 2013 and 2014?

Medicaid expansion as of January 2015
  • As of late January 2015, 22 states had still not expanded Medicaid. Most of them had Republican governors, and most were in the South, Midwest, or Mountain West. They are Idaho, South Dakota, Wisconsin, Nebraska, Kansas, Oklahoma, Texas, Louisiana, Alabama, Mississippi, Florida, Georgia, South Carolina, North Carolina, Maine, Montana, Wyoming, Utah, Tennessee, Virginia, Missouri, and Alaska.
  • In some of these states, such as Virginia and Missouri, governors support some form of expansion, but were unable to reach a deal with the state legislature. In others, such as Utah and Montana, the federal government had not yet approved state plans to change Medicaid while expanding it, as of early 2015.
  • 28 states had accepted the Medicaid expansion by January 2015 — New Hampshire, Vermont, Massachusetts, Rhode Island, Connecticut, New York, New Jersey, Pennsylvania, Delaware, Maryland, West Virginia, Ohio, Kentucky, Illinois, Michigan, Minnesota, Iowa, Arkansas, North Dakota, Colorado, New Mexico, Arizona, Nevada, California, Washington, Oregon, and Hawaii. Most of these states had Democratic governors when expansion was approved, but 10 had Republican governors.
  • Six of those states — Michigan, Iowa, Arkansas, Indiana, New Hampshire, and Pennsylvania — got federal approval to change Medicaid , usually by experimenting with some form of privatization or private accounts.

Which Republicans supported the Medicaid expansion in 2013 and 2014?

While the Democratic Party was near-universal in its support for the Medicaid expansion, the GOP was more split on the issue. While most Republicans opposed it, 10 Republican governors had broken ranks with their national party and signed on to the expansion as of January 2015:

Medicaid governors

"We expanded Medicaid, because we believe that folks are better off going to see physicians and having care than going to emergency rooms all the time," New Jersey Governor Chris Christie said.

Ohio Governor John Kasich led a particularly contentious effort to implement the expansion in 2013, over objections from his own party. Kasich had been a staunch opponent of Obamacare when he was elected three years earlier, so he surprised many when he embraced the expansion in what the Wall Street Journal called "an openly religious fervor." He lobbied his state's reluctant conservative legislature, arguing that Medicaid was necessary to help the poor:

KASICH: "The most-important thing for this legislature to think about: Put yourself in somebody else's shoes. Put yourself in the shoes of a mother and a father of an adult child that is struggling. Walk in somebody else's moccasins. Understand that poverty is real. I had a conversation with one of the members of the legislature the other day. I said, ‘I respect the fact that you believe in small government. I do, too. I also know that you're a person of faith. ‘Now, when you die and get to the meeting with St. Peter, he's probably not going to ask you much about what you did about keeping government small. But he is going to ask you what you did for the poor. You better have a good answer.' "

But the legislature refused. So Kasich decided to bypass them, implementing the Medicaid expansion with only the authority of a special legislative panel. Conservative activists sued, calling Kasich's maneuver illegal, but the Ohio Supreme Court upheld it last December in a 4-3 decision, and Medicaid was expanded in Ohio.

Which states are expanding Medicaid, but changing it?

As Vox's Sarah Kliff reported, Republican governors found one thing to like about Obamacare: the administration is so desperate to get the Medicaid expansion accepted that they can get "the Obama administration to agree to conservative Medicaid reforms they might not otherwise consider."

If any state wants to run Medicaid differently — in a way current federal rules don't allow — it can apply for permission to do so. The Secretary of Health and Human Services can grant temporary waivers to let states experiment with different approaches. A state must submit a proposal and show that it wouldn't increase costs. After a review, and sometimes a back-and-forth-negotiation, the Secretary decides whether to grant the waiver.

During the Medicaid expansion debate , several states with Republican governors or legislatures sought these waivers to try more conservative approaches to expansion. As of April 2015, six states had gotten them: Arkansas, Michigan, Iowa, Pennsylvania, Indiana, and New Hampshire. These states still had to cover the populations that the federal government wants them to — but they got to experiment with how exactly to make that happen.

1) Arkansas Republicans had one simple request — that the expansion should provide private insurance rather than government insurance. This had only very rarely been done before by Medicaid, and only at a much smaller scale, but Democratic Governor Mike Beebe agreed to the proposal, and the Obama Administration gave its approval. It allowed Arkansans below 133 percent of the federal poverty level to purchase insurance through the state's exchange — paid for by Medicaid.

There was a catch, though. Private insurance is generally much more expensive than Medicaid. The Congressional Budget Office projected that private plans offered on Obamacare's exchange would be 50 percent more expensive than Medicaid. And these state demonstration projects aren't supposed to increase costs. Arkansas officials argued that competition among private insurers, via the new exchange, would keep costs down, and that the costs of a regular expansion in the state would've been higher than CBO thought. Yet critics argued that the program is seeing cost overruns already, only months in.

2) Michigan chose to stick with government-provided Medicaid, rather than switching to private insurance. But Governor Rick Snyder (R) got a waiver to make two major changes. First, beneficiaries with incomes above the federal poverty level had to pay monthly premiums equal to 2 percent of their income. Second, various financial incentives for more healthy behavior were added. Though the details aren't yet finalized in 2014, this could entail quitting smoking or losing weight, with the help of making beneficiaries healthier in the long run.

3) Iowa combined elements of the two previous plans. It used private insurance rather than a government plan for everyone with incomes between 100 and 138 percent of the federal poverty level. People in that income bracket were charged premiums of up to 2 percent of income, and could reduce those premiums if they abide by healthy behavior incentives. (Iowa's initial proposal would have also charged premiums for people with incomes between 50 and 100 percent of the poverty level, but the Obama Administration wouldn't approve that provision.)

4) Pennsylvania embraced similar healthy behavior incentives and charging premiums for beneficiaries with incomes above the federal poverty level. Vox's Adrianna McIntyre describes Pennsylvania's plan, which was pushed by Governor Tom Corbett (R) in more depth here. But in November 2014, a new Democratic governor, Tom Wolf, was elected, and he said he would seek to roll back Corbett's changes.

5) Indiana planned to "lock beneficiaries just above the poverty line (those who earn between $11,670 and $15,171) out of coverage for six months if they miss premiums for two straight months," as Vox's Sarah Kliff wrote. "And the lowest-income Hoosiers who earn less than the federal poverty line will lose their vision and dental coverage (but keep core health benefits) if they miss premium payments," she added.

6) New Hampshire proposed using a premium assistance model to have people covered by the Medicaid expansion purchase private insurance starting in 2016. You can learn more about their plan from the Kaiser Family Foundation.

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