Medicaid Expansion and State Health Exchanges – Risky Propositions

Recent decisions by the Obama Administration concerning the health care exchanges and Medicaid expansion underscore what a risky proposition the Patient Protection and Affordable Care Act (PPACA) is for the states. Congress presumed in PPACA (Obamacare) that the states would agree to build and run exchanges and could be forced to expand Medicaid. The Supreme Court, however, ruled the Medicaid expansion voluntary, which has made states increasingly concerned over new burdens related to costs, control, and coverage—in both the exchanges and Medicaid.

State Health Exchanges

Cost. Proponents deflect attention from the true cost of the exchanges by focusing on the PPACA grants to fund states establishing them. However, unlike past federal-state policy ventures, like Medicaid or even the State Children’s Health Insurance Program (SCHIP), there will be no steady flow of federal dollars to the states. The law specifies that starting in 2015, any state implementing a state exchange must develop its own revenue source to fund the exchange’s annual operations. That puts the long-term costs squarely on the states.

Control. Some argue that states should establish exchanges as a means to maintain control of their markets. However, in all matters not otherwise preempted by federal law, the states still regulate insurers (including those participating in the exchanges) regardless of who operates the exchange. States can also regulate exchange “navigators” through state professional licensure statutes to ensure a level playing field with existing insurance agents, regardless of who operates the exchange”

Coverage. Proponents point to the exchange as essential to expanding coverage. However, the law also created a federal default for states declining to establish exchanges.

Medicaid Expansion

Cost. As proponents attempt to convince states that the cost of the Medicaid expansion will be covered by the federal government, the facts remain the same. To start with, the enhanced match is only for the expansion population, not the existing Medicaid population. In addition, it does not apply to administrative costs, which add about 5 percent to benefit payments. Finally, the full 100 percent enhanced match is temporary, with states picking up 10 percent of the new costs in 2020 and thereafter. At a time when Medicaid is already overwhelming current state budgets, it would be counterproductive for states to voluntarily add to those liabilities.

Control. While the HHS Secretary has touted offering flexibility to the states, the law and HHS regulations offer states no meaningful policy discretion.

Coverage. As with the exchanges, proponents stress the importance of Medicaid in expanding coverage. Unlike the federal default in the exchange, there is no federal default for the Medicaid expansion.

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