Medicaid opt-out possible

An issue that has received scant attention with all the uproar related to the individual mandate in the healthcare reform law is what will happen if a state decides against expanding Medicaid to comply with the law's provisions.

The Patient Protection and Affordable Care Act was signed into law nearly two years ago but will not be fully implemented until 2014.

The U.S. Supreme Court takes up the law in March, with the major focus on the constitutionality of requiring people to buy at least minimal healthcare coverage.

But another aspect of the case is whether the federal government can force states to expand Medicaid. Refusal would end a state's participation in the program, cutting off federal funds for healthcare coverage for the poor.

The justices asked both sides to argue whether forcing the states to accept "onerous conditions" by "threatening to withhold federal funding" exceeds the powers of Congress and "violates basic principles of federalism."

The court has ruled in the past that offering financial inducements to the states must stop short of being coercive. It also has ruled state participation in Medicaid is voluntary.

Those opposed to healthcare reform have said the PPACA is coercive because of the amount of money states would have to pony up should federal support for Medicaid be eliminated.

In its review of the situation, the Heritage Foundation, using figures from 2007 to avoid distortions wrought by the recession, reported Medicaid gobbles an average 20 percent of state budgets and said that will increase to 25.75 percent in 2013.

Federal support for Medicaid varies by state. Connecticut, for example, receives 50 percent of Medicaid funding from the federal government while Mississippi gets 75 percent, meaning opting out of Medicaid would be much more burdensome to Mississippi than Connecticut. And the greater percentage of the population qualifying for Medicaid, the greater the burden. The percentage of state budgets devoted to Medicaid also varies by state.

The Congressional Budget Office pegged Medicaid spending at $180.4 billion in 2007 and that is projected to grow 7 percent a year to $256.9 billion by 2013 with the states facing similar increases even though revenues are not expected to keep pace.

"The steadily increasing fiscal burden that Medicaid imposes on state budgets is already a major problem for state lawmakers, and the PPACA's Medicaid expansion will only make that problem worse in 2014," the Heritage Foundation concluded. "States argue that they cannot afford their current Medicaid programs, much less the scheduled expansion.

"Indeed, earlier versions of the PPACA raised the possibility that states might be able [after Jan. 1, 2014] to dump their Medicaid programs and redirect most beneficiaries into new, federally subsidized exchange coverage -- a rational response by states. However, the final legislation largely foreclosed that possibility by stipulating that the new federal subsidies would not be available to individuals with incomes below 100 percent of the federal poverty level.

"Thus, it is not surprising that states feel that the federal government is coercing them into accepting an unaffordable Medicaid expansion under the PPACA. Rather than enacting structural reforms in Medicaid, Congress expanded Medicaid in the PPACA. Congress also wrote the legislation to provide that a state refusing to comply would need to replace federal funding with additional state funds or disrupt the existing healthcare coverage of its poorest residents."