Casual readers of media reports on last year’s Supreme Court decision upholding the Patient Protection and Affordable Care Act (PPACA) may not have noticed that the Court invalidated one PPACA requirement. The Court said the federal government cannot require states to expand Medicaid coverage.

Still, most states have decided to go along with the expansion. What’s going on?

PPACA, also known as Obamacare, mandates health care coverage for every American. The law aims to accomplish its goal in several ways. One is expanding the number covered through voluntary state participation in the Medicaid program. Initially, the federal government will pay virtually all the cost of expansion for states that choose to participate, but states will have to pay ten percent of the cost after 2020.

How Medicaid Works

Medicaid provides health care benefits to certain categories of poorer Americans and legal permanent residents. Most Medicaid participants – 65 percent – are “working poor” families in which someone is employed.

Although state participation in Medicaid is voluntary, since 1982, all states have chosen to do so. States decide what kind of benefits to provide and to whom, and they receive 57 percent of the funding from the federal government. Through these programs, states manage to provide basic health care services to their most vulnerable citizens.

Program is ‘Means Tested’

Medicaid is a “means tested” program, meaning that an individual’s or family’s earnings are a determinant of eligibility. While each state sets its own requirements, in many states, the current cut-off is below 133 percent of the annually-adjusted federal poverty level (FPL).

The provision of PPACA that was struck down by the Court would have required all states to expand the threshold for Medicaid coverage to 133 percent of FPL. With that provision ruled unconstitutional, the federal government is asking states to voluntarily expand the program.

Medicaid Addresses Real Problems

According to the Kaiser Family Foundation, the average cost of individual health insurance in 2012 was $5,615 ($15,745 for families). At this price, Americans earning less than 133 percent of FPL (currently, $15,282 for individuals and $31,322 for families of four) cannot afford insurance, and one in five Americans accesses health care through Medicaid. If a state expands coverage, more low-income individuals and families will qualify for Medicaid. If it does not, these people will have to access care through an employer plan or purchase in an exchange (where they may need to be heavily subsidized so they can do so).

Debate Continues

Medicaid costs have risen substantially since 2008, primarily due to the ongoing economic crisis which has increased general unemployment while leading more employers to eliminate employer-provided health insurance. Just as the safety net was intended to do, Medicaid is filling this gap. From 62.8 million participants in 2008, Medicaid served 70.4 million in 2011, a 12 percent increase. Program advocates point out that once employment returns to pre-recession norms and PPACA reinforces employer-provided insurance, the number of Medicaid recipients will likely return to routine levels. Debate continues over the extent to which waste and inefficiencies are important causes of recent rises in program costs.

Overall, Medicaid is a cost-effective program that makes a real difference, not just for poor families, but for social stability in every state. That is why all states participate in it, and many are supporting its expansion.

[Steve Clark]