On Jan. 1, when millions of Americans obtained health coverage through the Affordable Care Act, states were supposed to be free to focus on getting them care. Instead, state officials are grappling with the ACA’s troubled insurance exchanges and the unexpected cancellation of many people’s policies.
In addition, elected officials in half the states are still trying to decide whether to accept the federal government’s time-limited offer to cover their poorest residents, or to decline Medicaid expansion because they are philosophically opposed to “Obamacare.”
Election-year politics will further complicate the health care debate, as 36 governors and a majority of state lawmakers will be up for re-election in November.
In debating expansion, some Republican-led states are tilting toward a so-called “private option.” Instead of expanding Medicaid, they would use federal Medicaid dollars to help people purchase private insurance on the exchanges. Last year the federal government allowed Arkansas and Iowa to pursue the strategy, while warning that it would not grant permission to every state.
“I’d be really surprised if we see any more straight Medicaid expansions,” said Judith Solomon of the Center on Budget and Policy Priorities. “Every one of the remaining states wants to put its own stamp on it.”
Even two Democratic governors are expected to seek federal approval for their own twists on Medicaid expansion. New Hampshire Gov. Maggie Hassan plans to pursue a version of the private option, while in Virginia GOP lawmakers are likely to force Democratic Gov. Terry McAuliffe to embrace something other than a standard expansion.Pennsylvania and Tennessee—where officials have been talking to the U.S. Department of Health and Human Services (HHS) about their own versions of the private option—may be next in line. But conservative lawmakers in those states aren’t necessarily on board with their Republican governors.
Also at issue, but getting far less attention, are the billions in grants and incentive payments the federal government is offering to states that improve the efficiency of Medicaid, which is a joint federal-state program. Out of the $1.8 trillion the ACA is projected to cost over the next decade, $10 billion is dedicated to innovation programs. With the majority of the money already disbursed, states will be racing to meet statutory deadlines for completing their reform projects, some as early as 2015.
The lure of ACA dollars is expected to accelerate states’ efforts to move away from “fee-for-service” systems, which reward providers based on the volume of care they deliver, in favor of financial incentives for providers to improve the health of their patients.
“When the history of Medicaid is written, the innovations the ACA fostered will come to be known as the most significant consequence of the law,” said Vernon K. Smith of Health Management Associates, a consulting firm. Accelerated state reform efforts, Smith said, may start to show tangible quality and cost containment results this year.
Grant programs include state initiatives to reduce health care costs by aligning payments and quality standards among all insurers, including Medicaid, Medicare and private carriers. States also are trying to deliver better and cheaper care to people who qualify for both Medicare and Medicaid, and to provide long-term care to more frail elders and the disabled in their homes, rather than in nursing homes.
States spend about a fourth of their budgets on Medicaid, and it is growing faster than any other expense.
About 72 million people were insured under Medicaid at some point in 2013, the Congressional Budget Office estimates. Another 9 million would be covered in 2014. Under ACA, 25 states and the District of Columbia agreed to expand Medicaid to adults with incomes up to 138 percent of the federal poverty level ($15,856 for an individual and $32,499 for a family of four).
So far, about a million have signed up through state and federal exchanges, according to a December 2013 report from HHS. States are also automatically enrolling hundreds of thousands who already qualify for other income-based federal and state assistance.
This year, additional states that decide to expand can do so at any time and still receive federal funding for 100 percent of the costs of the newly enrolled. The 100 percent coverage only lasts through 2016, however. After that, the federal share declines each year, tapering to 90 percent in 2020 and beyond.
States and the federal government spent $415 billion on Medicaid in 2012. By 2016, the Urban Institute projects that number will grow to $621 billion, assuming no new states decide to expand. CBO predicts the federal government will spend a total of $710 billion on just the Medicaid expansion in the first 10 years. States will kick in an additional $65 billion.
In fiscal year 2014, which starts in July for most states, a Kaiser Family Foundation survey of Medicaid directors found that the state share of Medicaid spending is expected to increase less in expansion states than in non-expansion states. That’s because the federal government will pick up the full cost of covering some low-income adults and mental health services in states that expand Medicaid.
GOP governors in Arizona, Iowa, Michigan, Nevada, New Jersey, New Mexico, North Dakota and Ohio initially rejected Medicaid expansion but later broke ranks with their party and approved it.
“In some Republican-led states,” said Robin Rudowitz, senior analyst at the Kaiser Family Foundation, “supporting local providers, creating jobs and bringing large sums of federal money into the state economy won out over political and ideological objections to the health law.”
Ohio Gov. John Kasich, for example, bypassed the state legislature to get Medicaid expansion approval from a state board in October, arguing it would create a healthier workforce, which would in turn attract new business.
Republican governors have sought to tinker with the ACA’s envisioned Medicaid expansion in a variety of ways. In addition to the private option, some states want to combine Medicaid expansion with a requirement that covered adults pay a monthly premium of less than $10, plus nominal co-pays for doctor and hospital visits. Michigan and Iowa have won federal approval for that strategy.
Pennsylvania Gov. Tom Corbett is pushing a similar plan that includes both the private option and monthly premiums. Corbett’s proposal, which is under public review at the state level, would also require any adult in expanded Medicaid to work at least 20 hours per week or register with the local employment agency and search for work.
Tennessee Republican Gov. Bill Haslam wants to combine the private option and nominal premiums (discounted for healthy behavior) with changes in the way health care providers are paid. “We can no longer sustain the current reimbursement system, which simply rewards providers for doing more rather than for delivering the highest quality services in the most cost-effective manner,” Haslam wrote in Dec. 9 letter to HHS secretary Kathleen Sebelius. He also said he will not move forward with expansion until “the implementation failures” of the ACA have been resolved.
Given the poor performance of the federal health insurance marketplace so far, Matt Salo, director of the National Association of Medicaid Directors, suggested the Obama administration might be more inclined to approve GOP alternatives.
The administration’s goal is to insure 25 million more Americans by 2021. The CBO estimates about 9 million will purchase private insurance on the exchanges and nearly twice that number will enroll in Medicaid. At the end of 2013, sign-ups for private insurance on the exchange fell well short of the administration’s goals. If that trend continues, Salo said, HHS could approve the private option and other GOP alternatives as a way to boost the overall number of people with health insurance.
The private option also offers another benefit: It would increase the number of relatively healthy people purchasing insurance on the exchange. From the beginning, the administration has cautioned that unless enough young, healthy people purchase policies, the risk pool could be dominated by sicker people who have more incentive to purchase insurance. The result would be a spike in insurance premiums by the end of this year.
Part of Arkansas’ original argument for the private option was that it would prevent such an insurance spike in the small, relatively low-income state. Actuarial studies indicate that about 90 percent of Arkansas’ 233,000 newly eligible Medicaid enrollees are relatively young and healthy. Under the private option, they will purchase insurance on the state’s fledgling exchange. The remaining 10 percent – those with multiple chronic conditions and other infirmities – will enroll in Medicaid.
Although expansion and state cost-containment reforms are expected to take center stage, the 15 states that are running their own exchanges will be working full-force on improvements and upgrades. In Oregon and Maryland, for example, both governors have promised big improvements to their poorly performing exchanges.
Other states that are now relying on the troubled federal website may also enter the fray. Last year, HHS approved plans from New Mexico and Idaho for new exchanges to be completed this year. Arkansas, Iowa and Illinois, which have federal-state partnership exchanges, have declared an interest in building their own sites as well. Any state interested in building its own exchange has until Oct. 15 to apply for federal funds.
In addition, states will continue the massive effort of upgrading their Medicaid enrollment systems to meet broad new standards under the ACA. Although Medicaid enrollment generally ran more smoothly than private insurance signups on most exchanges, new ACA-compliant Medicaid systems also experienced some technical problems.
This story was originally published by stateline.org. Stateline is a nonpartisan, nonprofit news service of the Pew Charitable Trusts that provides daily reporting and analysis on trends in state policy.