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The White House is trying to strong-arm Florida into expanding Medicaid

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The White House is playing hardball with Florida: expand health-care coverage under Obamacare, or risk losing billions in federal dollars.

Florida currently receives just over $1.3 billion in federal Medicaid funds to help hospitals that rack up big unpaid bills by treating uninsured patients. Those funds run out on June 30.

For months, Florida and the White House have negotiated the possibility of an extension. But the Obama administration is now threatening to cut off those funds unless the state takes up a key provision of Obamacare that could expand coverage to hundreds of thousands of people in the state.

If the strong-arm tactic works, the White House may have found a model to use again and again to overcome one of the most significant remaining hurdles to Obamacare's goal of universal health-care coverage. That could mean millions more Americans could get covered.

A Supreme Court ruling allows Florida, Texas, and the other states not to adopt the Medicaid provisions of Obamacare, a decision that was a blow for the White House.

The stakes are high in Florida alone, where 669,000 adults are in a coverage gap. Only Texas has a worse uninsured problem.

But if Florida doesn't play ball, it's unclear what exactly happens — whether the White House actually will pull the plug on $1.3 billion in Medicaid funding, leaving Florida with a gaping budget hole.

What is clear is things are moving quickly: the Florida legislature is set to adjourn at the end of this month. The Senate currently supports the Medicaid expansion; the House and Governor Rick Scott oppose it. A middle ground, at this point, is elusive — but if it's going to be found, it will have to happen soon.

A Bush-era waiver gave Florida the extra money in 2006

Bush At Fundraiser For Re-Election of His Brother Photo by Alex Wong/Getty Images

States negotiate Medicaid waivers to increase flexibility in the program all the time. These waivers are always time-limited experiments, and when the clock runs out, states have to come back to the federal government to ask for a renewal.

Back in 2006, Florida secured a waiver from the Bush administration that would allocate additional funds to help cover the costs of treating uninsured patients. This was not health insurance, but rather supplemental payments to the hospitals that tended to treat the poorest Floridians and then get stuck with lots of unpaid bills.

That money started off at $1.2 billion in 2006 and has risen to just over $2 billion in 2014. $1.3 billion of that budget comes from the federal government, and another $700,000 from the state. As the funding grew, so did questions about whether LIP (local implementation plan) spending was actually the best way to provide more coverage to low-income Floridians.

One University of Florida analysis found, for example, that only 1.6 percent of the LIP dollars went to non-hospital providers — despite the fact that Americans, low-income or otherwise, typically get lots of care in non-hospital doctor offices. Other data shows that the LIP program had, despite the extra money, made it harder for Medicaid patients to see specialists.

For a few years, the Obama administration worked with Florida to make changes to the LIP program. In 2011, for example, it allowed Florida to extend the program for an additional three years after the state lifted caps on annual benefits.

But in 2014 (when the 2011 waiver ran out), the Obama administration got more skeptical. It did renew LIP funding for one additional year, through June 2015, but it also told Florida that it would need to overhaul the program to get any more money in the future. As one April 2014 letter made clear, the Florida LIP program was on thin ice.

Florida's one year of funding is now set to run out in just under two months — and that leads into the current Medicaid fight.

White House: Expand Medicaid, or risk losing billions

On April 15, the White House raised the stakes of the LIP negotiations significantly: it notified Florida that it will weigh whether to extend the program.

"The state's expansion status is an important consideration in our approach regarding extending the LIP beyond June," Justin Senior, deputy secretary for Medicaid, wrote in an April 15 letter to Florida's Medicaid department.

The case the Obama administration makes is this: LIP was meant to foot uninsured Floridians' bills in an era when there wasn't a public program to do so. But now there is a program, and it's called Obamacare. Namely, Obamacare's Medicaid expansion, which allows states to cover anyone who earns less than 133 percent of the federal poverty line (about $15,000 for an individual.

"When the Affordable Care Act was enacted, it established a more comprehensive approach to providing health care coverage, including Medicaid, while supporting hospitals that serve communities with the greatest need," Senior writes in his letter. "Medicaid expansion would reduce uncompensated care, and therefore have an impact on the LIP."

This isn't just happening in Florida: Kaiser Health News has reported that other states with similar low-income pools have gotten the same warning from the Obama administration. This could be especially meaningful in Texas, which has $4 billion in similar low-income coverage funds that are set to expire in 2016.

"We told states that our letter to Florida articulates key principles CMS will use in considering proposals regarding uncompensated care pool programs in their states, but that discussions with each state will also take into account state specific circumstances," Medicare spokesperson Aaron Albright said in a statement.

The Florida legislature is waging "open war" over what to do next

Florida Governor Rick Scott Appears At South Florida Event

Gov. Rick Scott has threatened to sue the Obama administration if it discontinues Medicaid funds.

Photo by Joe Raedle/Getty Images

How all this shakes out is far from clear at this point. Gray Rohrer's dispatch from Tallahassee for the Orlando Sentinel shows that the Senate and House are still very far apart on the issue of whether to expand Medicaid.

"House Republicans huddled in secret Tuesday seeking to close ranks behind opposition to Medicaid expansion," he writes, "while senators held a public workshop looking at the human and economic costs of an impending loss of $2.2 billion in hospital funding."

Gov. Scott has threatened to sue the federal government if it does cut off the LIP funds. Scott used to support Medicaid expansion, but reversed course in early April when he first caught wind that the government might condition the receipt of LIP funds on the decision.

"It is appalling that President Obama would cut off federal healthcare dollars to Florida in an effort to force our state further into Obamacare," Scott said in a statement to the Miami Herald.

Republican governors are used to having all the Medicaid leverage. Not anymore.

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The White House is finding new leverage in Obamacare negotiations.

Photo by Joe Raedle/Getty Images

For the past few years, Republican governors seemed to hold the trump card on Medicaid expansion. The Obama administration has really wanted them to accept the Obamacare program — but at the end of the day, it's up to governors whether to move forward.

Republican governors have used this leverage to their advantage; they've asked for (and usually gotten) more flexibility in how they run the public program.

"The administration is working very hard to come to agreement with Republican governors where they can," says Tevi Troy, president of the American Health Policy Institute and a former health and human services official in the Bush administration. "Because they want people to sign up for the expansion, they're working pretty hard to make compromises."

The Florida development is notable, in part, because it shows the White House starting to exert its own leverage. And what it has is the power to reject Republican governors' requests for flexibility, like Florida's proposal. And it can refuse to approve certain funding arrangements that it feels violate how Medicaid is supposed to work.

Up until now, the White House hasn't done this in Medicaid expansion negotiations (although it had used such tactics earlier, most notably in 2011, threatening to cut off all Medicaid funding to states that refused to contract with Planned Parenthood). The Florida negotiations suggest a significant switch in tactics, away from carrots to lure governors into expansion — and toward sticks that make expansion the only financially viable option.