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JAMA Forum Archive, 2012-2019: Health policy commentary from leaders in the field
JAMA Forum

The Supreme Court’s Medicaid Surprise

Most of the considerable speculation about how the US Supreme Court would rule on the Affordable Care Act (ACA) focused on the fate of the individual mandate, which requires individuals to purchase health insurance or pay a penalty. Few predicted the Court would strike down provisions of the law that dealt with the expansion of Medicaid. Now, instead of the blogosphere ruminating over the prospect of adverse selection in insurance markets without a mandate (meaning many healthy individuals would not purchase insurance until they get sick), the prime topic of discussion is the prospect of states turning down “free” federal money for the expansion of Medicaid that is part of the ACA.

Mark D. Smith, JD

Big dollars are at stake. The federal government is committed to providing all of the additional funds for persons who are newly covered under Medicaid when the expansion begins in 2014. Even governors who are ideologically inclined to reject Medicaid expansion will be under tremendous political pressure from hospitals and others to go along and accept the funds. But it is worth noting that a number of states with very stringent Medicaid eligibility requirements are already forgoing substantial matching federal dollars. After all, even 27% of a state’s Medicaid budget (that’s the proportion Mississippi contributes to Medicaid dollars spent in the state) is still a big number.

Impact on States’ Budgets

Furthermore, the traditional ideological stances on Medicaid are beginning to blur under the relentless financial impact of the program on states’ budgets. Although the idea of “block grants”—federal lump-sum payments to states—is traditionally considered to be favored by Republicans in Washington, some of the bluest states are now actively discussing this and other alternative funding methods that could give them greater “flexibility”—a code word for moderating state spending without losing federal dollars. The next few years may produce increased heterogeneity in the Medicaid program. There may be stubborn gaps in coverage and a renewed emphasis on the kinds of strategies that states usually use to hold down Medicaid costs, including frequent checks for eligibility.

Such actions would be ironic, given that the ACA attempted to lay out a pathway toward broader coverage with mechanisms to make Medicaid eligibility more consistent across the country and fill in the gaps between the very poor and those covered by commercial insurance. In states that expand Medicaid, individuals would be able to move between Medicaid and subsidized coverage through state exchanges as their income rises or falls. The Medicaid expansion would contribute to the trend in health care delivery of more longitudinal (as opposed to episodic) health care by promoting continuity of coverage.

Such progress includes significant efforts to transform the way care is delivered and funded, from a system that pays for clinicians and hospitals to perform reimbursable individual tasks into a system that pays to keep people well or well cared for during the entire course of a disease. Increasingly, clinicians and hospitals are pressed to make health care more longitudinal—both financially, through a shift from fee-for-service payments to “bundled” payments for episodes of care, and clinically, through “accountable care organizations” that take on responsibility for the spectrum of care from prevention to major intervention.

Eligibility Doughnut Hole

However, in states that choose not to expand Medicaid, individuals could lose coverage if their income puts them in an eligibility “doughnut hole”—that is, below the federal poverty level (making them ineligible for subsidies to purchase insurance from an exchange) but higher than their state’s income limit for Medicaid. For parents, the size of this coverage gap will depend on their state’s Medicaid income limits, which may be as low as 17% of the federal poverty level, or $3918 per year for a family of 4. Most states do not currently provide Medicaid coverage to adults without minor children, no matter how poor they are. This could be a sizable problem: according to a recent study, 24% of individuals with incomes between 133% and 200% of the federal poverty level will lose eligibility for exchange subsidies within a year because of a decline in income, and another 19% will lose then regain eligibility within the year.

The challenge doesn’t end there. In California, as in many other states, a Medicaid card may provide coverage, but it does not guarantee access to care when payment rates are too low to attract physicians to see these patients. A recent survey of Medi-Cal enrollees by theCalifornia HealthCare Foundation found that 23% of adults had difficulty finding a primary care clinician who accepts their insurance and 34% had difficulty finding a specialist. About 42% of adult Medi-Cal enrollees reported they had difficulty getting an appointment with a specialist, nearly double the share reported by adults with other types of insurance (24%).

Despite these problems, Medi-Cal is highly valued by its enrollees, with 90% responding that Medi-Cal is a good program and 78% agreeing that it covers most of the care they need. And it is clear that the health of the nation’s poor who have access to care through Medicaid is better than that of those who don’t. In an ongoing study in Oregon, residents covered by Medicaid reported feeling healthier and happier than uninsured residents. Medicaid coverage increased the likelihood of an outpatient visit by 35% and increased the use of recommended preventive care. Early results of this study also found that an unintended consequence of coverage turns out to be greater financial security and the ability to meet other financial obligations.

The picture of Medicaid’s near future may not come into focus for several months or more. Federal and state financing of Medicaid is likely to be in play when deficit-reduction negotiations heat up later this year, and governors of red states may be joined by some of their colleagues from blue states in advancing the concept of federal block grants for Medicaid. Both would be seeking more federal dollars in the short run and greater flexibility in managing state spending.

Whatever the outcome, Medicaid will continue to be a major part of the nation’s system of financing health care, so careful attention must be paid to measuring performance of states and holding them accountable, just as states and private payers hold their health plan partners accountable. This will require states to embrace greater transparency, as Medicare recently has. It will also require more Medicaid participation in multipayer initiatives to analyze data, improve quality, and change the incentives to foster health care that is more longitudinal and less episodic.

About the author: Mark D. Smith, MD, MBA, has been president and chief executive officer of the California HealthCare Foundation since its formation in 1996. CHCF is an independent philanthropy with assets of more than $700 million, headquartered in Oakland, California, and dedicated to improving the health of the people of California.
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