Potentially the most powerful group to influence health care
reform, governors have yet to emerge from their day jobs to
actively engage Congress and the Obama Administration.
Health plans, drug companies, physicians, and hospitals are at
the table through fear and must only look out for their share of
the health care pie. Governors, though, have a great deal of clout
when it comes to health care, but thus far they have remained on
the sidelines. If this situation continues, governors will have
only themselves to blame for a bill that would likely transfer much
of their health care power to Washington.
Much of the heavy lifting of health care reform is likely to be
left to the states. Congress and the Obama Administration are
banking on using Medicaid to provide coverage to millions of
uninsured Americans. As many as one-third of those who are
uninsured could end up on Medicaid if it is expanded to 150 percent
of the federal poverty level ($16,245 for an individual). Even if a
comprehensive reform effort falls apart, Congress's fallback plan
will be to expand Medicaid at the least.
State opposition could be a tremendous blow to health care
reform. Governors can be game-changers if they mobilize before
momentum is built behind specific legislation that expands
Governors played a major role in welfare reform in the
mid-1990s. This year, in the reauthorization of SCHIP and the
stimulus bill, states took a short-term approach and concentrated
on money, not policy. But SCHIP spending for states accounts for
less than 3 percent of what they spend on Medicaid, and a Medicaid
eligibility expansion alone would nearly wipe out the temporary
gains from the stimulus bill.
Undermining State Financing
Federal Funds Information for States (FFIS) estimates the state
share of expanding Medicaid under several scenarios. As
illustrated in the table below, state costs in just the first year
of expansion could range from $23.8 billion to $93.7 billion
depending on the upper eligibility level and whether states would
be required to increase provider reimbursement to Medicare
Congress created a federal Medicaid and CHIP Payment and Access
Commission under Section 506 of the Children's Health Insurance
Program Reauthorization Act of 2009. The new 17-member commission
is charged with creating "an early-warning system to identify
provider shortage areas or any other problems that threaten access
to care or the health care status of Medicaid and CHIP
beneficiaries." This commission is a likely precursor to
federal mandates on provider rates.
FFIS also published state-by-state impacts of these potential
expansions. New York, Texas, California, Florida, and New Jersey
face the greatest costs of expansion. Because of the Medicaid
matching rate formula, New York, California, and New Jersey would
be required to pay half of the cost of expansion from state funds.
Florida would be expected to pick up 45 percent of the cost and
Texas 41 percent.
Moreover, states already have authority to expand Medicaid
eligibility for parents of Medicaid-eligible children and the
majority of states have chosen not to do so. A federal mandate to
increase eligibility and payment rates would be a significant blow
Threats to State Flexibility
If developments since the beginning of 2009 are any indication,
states also are at risk of losing critical flexibilities in the
administration of Medicaid and SCHIP under reform. States as
diverse as Arkansas, Indiana, Montana, Oregon, Tennessee, Vermont,
and Utah could all be threatened by Medicaid being pushed back into
a uniform, federal benefit package. States have been losing program
flexibility since the inception of the Obama Administration. For
- The Obama Administration has interpreted maintenance of effort
language in the stimulus bill on eligibility to include
cost-sharing. This is a more restrictive interpretation than called
for by the statute. A state that increases cost-sharing as allowed
under current law would put at risk its entire share of $87 billion
in federal funds provided under the stimulus.
- The Obama Administration has delayed final regulations on cost
sharing and benefit flexibility. This action leaves
states uncertain as to how they can change their Medicaid
- SCHIP reauthorization requires state SCHIP programs to follow
more restrictive Medicaid managed care rules.
- Rhode Island is considered by many to have the most successful
model for using Medicaid dollars to support premium assistance.
SCHIP reauthorization provisions on premium assistance would
prevent any other state from using the same rules Rhode Island
Bad Timing for Medicaid Expansion
On the same day the FFIS analysis was released, Ray Scheppach,
executive director of the National Governors Association, testified
before the U.S. Senate Committee on Homeland Security and
Governmental Affairs that "even after the recovery package, states
will continue to face a shortfall of more than $200 billion over
the next three years, and will therefore continue to reduce
spending and consider taxes to balance their budgets."
Irrespective of the congressional timeframe for health care reform,
states are in no position to expand Medicaid.
Get People Out of Medicaid
Medicaid does not provide high quality health care, and its
budget pressures are crowding out other state budgetary priorities.
Congress and state policymakers should reverse course and open up
opportunities for poor families to get better care, getting them
out of Medicaid and into private health insurance of their choice.
In that respect, the President's proposal for a Medicaid expansion
and a public program expansion would be a step backward.
All Americans should be integrated into private health insurance
markets, and those markets should be substantially reformed to
guarantee affordable and accessible health insurance to every
citizen who wants personal and portable health coverage, including
those who today have trouble getting coverage because of
pre-existing medical conditions. With the centralization of health
care decision-making in Washington, choice, competition, and state
innovation and experimentation would be put at risk.
Smith is Senior Fellow in the Center for Health Policy Studies
at The Heritage Foundation.