If states opt to ignore Medicaid expansion, are feds' hands tied?

If a state doesn't institute the Medicaid expansion included in the Patient Protection and Affordable Care Act (PPACA), that state would no longer be eligible for federal Medicaid funds, just as it would not be eligible if it didn't cover children up to the current mandatory levels, says Edwin Park, vice president for health policy at the Center on Budget and Policy Priorities in Washington, DC.

"That is why a few of the states, like Texas, that discussed withdrawing from the Medicaid program entirely, realized the fiscal implications and backed away from it," he says.

Stan Rosenstein, MPA, principal advisor at Health Management Associates in Sacramento, CA, and former California Medicaid director, notes that while the federal government can't make a state comply, it can take away federal funds. "If they are willing to take away all your federal funds, it can be very, very expensive to the state," he says.

MOE very broad

There was a maintenance of effort (MOE) requirement when Medicaid programs began receiving federal funding for Intermediate Care Facilities for the Mentally Retarded back in the 1970s, but it was very limited in scope, says Leslie Hendrickson, PhD, principal of Hendrickson Development, an East Windsor, NJ-based consulting group that helps to develop and strengthen long-term care programs, and former assistant commissioner in the New Jersey Department of Health and Social Services.

States were required to keep the same level of funding for this program that they had in place before they got federal funds, explains Dr. Hendrickson. "It was a limited MOE that spoke just to the particular service or program that the federal money was supporting," he says. "Now, 40 years later, the MOE is basically just a huge hammer. Under the terms of the PPACA, it is very broad."

If a state changes its eligibility standards, methodologies or procedures, says Dr. Hendrickson, the penalty is a complete denial of all federal funds for the entire Medicaid program. If a state uses federal funds from the American Recovery and Reinvestment Act for hospitals, and changes eligibility methods, for instance, "all its Medicaid money can be lost, not just the money that went to the hospitals," says Dr. Hendrickson.

This means that states are locked into the current configuration that they have in their Medicaid programs, says Dr. Hendrickson, with the possible exception of expansion populations that were covered above 133% of FPL.

De facto noncompliance

With over half of states having launched lawsuits challenging the PPACA's constitutionality, says Dr. Hendrickson, "You start to get a critical mass of opposition. You could well end up with a situation where you have de facto noncompliance from about 10 or 15 states, with the other 30 or 35 states going along to some degree."

It is difficult for federal agencies to deal with situations where there is widespread noncompliance and numerous extension or waiver requests by states, says Dr. Hendrickson. How many fights can CMS [the Centers for Medicare & Medicaid] get into?" he asks.

It doesn't have to be a majority of states, says Dr. Hendrickson, "but once you get a critical mass of states opposed to something, governors have more conversations with the president and Congress. That starts to influence legislation, or the ability of HHS [the Department of Health and Human Services] to do something about those states."

Dr. Hendrickson notes that South Carolina's request to CMS to email notices to Medicaid clients for a projected $6 million savings was denied, via email. After the state's governor talked with President Obama, he says, CMS granted the request.

Political downside

If a state's Medicaid funds were taken away completely, adds Dr. Hendrickson, "the political downside would be enormous."

"What would [Representative Henry A.] Waxman do to Utah or Idaho, who doesn't want to go along with the PPACA?" asks Dr. Hendrickson. "Is he, as a Democrat who moved heaven and earth to expand Medicaid programs, going to say, 'We're going to take away all your Medicaid money?"

If this occurred, says Dr. Hendrickson, congressional offices would be flooded with complaints from constituents. Medicaid provides funding for about 60 million people, he notes, and if the federal agencies cut the Medicaid funds of ten or fifteen states, it could impact more than 10 million people.

"Every state would point a finger at HHS and say, 'They made us do it. They took the money away from us. State officials, advocates, providers and recipients would come unglued," he says.

When an individual state tries to cut programs, notes Dr. Hendrickson, individual recipients of those services are very vocal with complaints. "Multiply that by the hundreds of thousands and see what impact that has on Congress," he says.

Dr. Hendrickson asks, "What congressman is going to get up there and say, 'CMS was absolutely correct in cutting 200,000 people with developmentally or physical disabilities off the Medicaid rolls in our state, and those 10,000 poor 90-year-old women in our nursing homes didn't really need Medicaid support anyway?"

For this reason, says Dr. Hendrickson, "I don't think CMS has much in the way of leverage in situations where multiple states don't go along with new legislation. The feds have the hammer, but they can't use it."

Subject to contempt charges

If the state doesn't follow the PPACA, says Mr. Rosenstein, it is subject to litigation by beneficiary advocates or providers. If you don't follow the eligibility rules and improperly denied somebody coverage, he says, the state can be sued and the court can compel the state to act.

Mr. Rosenstein points to his own experience as California's Medicaid director, when advocates disagreed with the interpretation of the law requiring certain steps to transfer individuals from Supplemental Security Income to Medi-Cal, and sued the department.

"A judge found us out of compliance. We didn't have any choice but to follow the law," says Mr. Rosenstein. "If you don't comply, then you subject both your department and yourself to contempt charges."

Repercussions for not complying with federal law can be enforced upon you thorough the courts as a result of third-party action, explains Mr. Rosenstein. "It can go as far as the court appointing a receiver to basically run your program," he says. "I've never seen that in Medicaid, but if you don't comply, you risk having the courts take over your program."

Expansion is the issue

"For a number of states, the Medicaid expansion is the issue," says Mark Trail, managing principal at Health Management Associates in Atlanta, particularly those that have been more conservative with their eligibility requirements around adults. He notes that a December 2010 analysis done by the Texas Health and Human Services Commission concluded that the state would lose $15 billion in federal funding and increase its uninsured by 2.6 million if it opted out of Medicaid.

"Obviously, then, their conclusion was that opting out is not the way to go," says Mr. Trail. "I think that was instructive to a lot of states that were also thinking that way. I am not hearing about states talking about opting out now, while there was that kind of discussion going on before."

If a state doesn't comply with the Medicaid expansion, Mr. Trail says that the federal government is likely to use whatever weight of authority it has to make the states comply. "Based on my experience with the feds, if you are noncompliant with something and they know about it, then they have the right to come in and perform audits and take exception to things that you're doing," he says.

Mr. Trail says that regarding withholding of all federal funds, "I believe it would be in their purview to do that. Obviously that would be a huge political move for them to make."

Another possibility, says Mr. Trail, is that CMS could go through the courts to compel the state to act. "I don't know that CMS by themselves would have the authority to come in and take over," he says. "But CMS aside, there is another issue, and that is the member issue."

If a state didn't act, says Mr. Trail, various advocacy/legal rights attorneys would quickly locate individuals who couldn't get onto the program despite being entitled by federal law to coverage.

"There are quite a few ways that a state could be compelled to act," says Mr. Trail. "I can't imagine that nothing would happen. I just don't see that as a possibility."

Contact Dr. Hendrickson at (609) 213-0685 or leslie.c.hendrickson@gmail.com, Mr. Park at (510) 524-8033 or park@cbpp.org, Mr. Rosenstein at (916) 792-3740 or srosenstein@healthmanagement.com, and Mr. Trail at (404) 522-0442 or mtrail@healthmanagement.com.