While the Supreme Court upheld the constitutionality of PPACA’s individual mandate, it also ruled that states can opt out of PPACA’s Medicaid expansion plan. Some governors have drawn the line and will not participate. What’s behind their rejection

The purpose of PPACA’s Medicaid expansion is to increase the number of “working poor” citizens who have health insurance coverage. Under the present system, the very poor (especially, unemployed single mothers and their children) have coverage under Medicaid. Also, many working people have coverage through employer-sponsored or union-sponsored (multi-employer) plans. Aside from healthy, young adults (who often don’t see the need for coverage), the largest segment of uncovered Americans are those working in low-paying, part-time or seasonal jobs.

One way PPACA seeks to reduce this number is by having states expand the roster of Americans on Medicaid by raising its eligibility income limit to 138 percent of the federal poverty line. To help Medicaid get even more bang for its buck, the law requires hospitals and other health care providers to trim Medicaid reimbursement rates. Because for decades hospitals have been inflating rates to cover their losses in serving uninsured patients (as required by the Emergency Medical Treatment and Active Labor Act), they are now willing to accept lower reimbursements on the theory that, henceforth, expanded Medicaid will significantly reduce the number of uninsured patients.

Aside from reduced reimbursement rates, the cost of expanded Medicaid coverage will be paid by tax revenues, though federal authorities assert that widened wellness coverage, reduced emergency room use and other efficiencies in the system should help make up much of the difference.

PPACA intended that all states would embrace the expansion under threat that federal funding of their current, more limited Medicaid programs would be cut if they did not. The Court, however, ruled that this threat was too coercive and exceeded the proper bounds of American federalism. Thus, it barred the threat, making Medicaid expansion optional for states.

As the Court-approved law now stands, states initially will be reimbursed 100 percent for the cost of expansion but, over several years, will gradually assume a 10 percent share. Despite the option of not participating, most states may ultimately sign on because (a) the cost-sharing is standard for state-federal collaborations, (b) for many low-income state citizens, access to health insurance would be a significant quality-of-life improvement and (c) hospital and health care providers in a state have a strong interest in widening the revenue stream that pays for the health care that they, by law, must provide.

Already, however, several state governors have announced that they will lead their states to not participate in the Medicaid expansion. Philosophically, they are opposed to expansion of government – and the taxes required to support expanded government services – and are willing to take the political heat, both from the working poor and from the hospital industry. After scoring well in the 2010 elections, these governors believe their message will attract support in this fall’s campaign. On the other side, supporters of PPACA are touting the plan as a significant step toward universal coverage while waging a companion battle for higher taxes on high-income Americans to fund its (and other government) services.

With the fall elections approaching, it remains unclear how prominent a place PPACA will assume in campaign politics and debates, but some governors’ decisions to abstain from Medicaid expansion could spur the discourse. Whatever the states’ ultimate decision on expansion, the November elections look to be the next turn in the nation’s long road to effective health care reform.

[Steve Clark]