The effect of the Supreme Court's decision on the Medicaid expansion component of the Affordable Care Act was the focus of my previous Part 1 post on the coming Medicaid wars. Since the publication of that piece, two new data points have been added to the mix: (1) a number of Republicans and conservatives have framed an argument that the federal subsidies for purchase of health insurance on exchanges would not be available in states where the federal government is forced to step in because the state refuses to establish an exchange (an interesting side issue is whether such refusal could jeopardize such state's participation in the "existing" Medicaid program). The argument is that the express language of ACA does not provide for subsidies in federal exchanges, only in state established exchanges. The IRS has already rejected the argument and I am not at all sure who would have standing to to challenge the IRS' ruling. No state or entity would be harmed by the offer of subsidies on federal exchanges so why they would have the right to challenge the decision is not apparent to me. But courts hear cases when they want to. (2) The Congressional Budget Office (CBO) issued a (PDF) revised report considering the effect of the Supreme Court's decision on Medicaid expansion. The CBO concluded that the cost of ACA would be reduced by $89 billion but that 3 million less Americans would have health insurance.
The CBO appears to accept that subsidies can be offered on federal exchanges. The CBO states:
Why are the projected Medicaid and CHIP savings stemming from the Supreme Court’s decision greater than the projected additional costs of subsidies provided through the exchanges? [...]: With about 6 million fewer people being covered by Medicaid but only about 3 million more people receiving subsidies through the exchangesThe reason for this is not because subsidies can not be offered on federal exchanges, but rather "[o]nly a portion of the people who will not be eligible for Medicaid as a result of the Court’s decision will be eligible for subsidies through the exchanges."
and about 3 million more people being uninsured, and because the average savings for each person who becomes uninsured are greater than the average additional costs for each person who receives exchange subsidies, the projected decrease in total federal spending on Medicaid is larger than the anticipated increase in total exchange subsidies[.]
The CBO is constrained by what the laws and regulations say now and can't consider potential additional measures by the federal government. Thus, the CBO writes:
Future legal or administrative actions will probably change the scope of what is possible under the ACA and the Court’s decision; CBO and JCT’s assessments should not be viewed as representing a single definitive interpretation of those possible outcomes.One of the possibilities is one I suggested in Part 1—that the federal government offer Medicaid expansion through a federal exchange in those states (which appear to fully overlap with those states that are threatening to reject Medicaid expansion) that do not create state exchanges.
I'll explore how this might work on the other side.
(Continue reading on the other side.)
To start the analysis, I return to the text of the Affordable Care Act (PDF). I concentrate on the provisions regarding the establishment of federal exchanges in lieu of state exchanges in those states where the state choose to not create a health insurance exchange. I do this because the Medicaid expansion provisions are not presented as conditional. The ACA was written assuming, as a reading of Constitutional law at the time would have supported, that states would be compelled to accept the Medicaid expansion if they wanted to continue in the Medicaid program. Of course, we now know that the Court, in an outrageous act of unsupported judicial activism, declared that state can dictate to the federal government on this point. See Part 1.
A good way to look at this from a policy perspective is provided by Joey Fishkin at Balkinization:
[F]or a state that opts out of the expansion, there is one silver lining. Some of the people who would have been covered under Medicaid will instead end up buying coverage through the health insurance exchanges, with government subsidies. And if you’re a state, those people are great news: (a) they’re insured, so you’re not stuck with the bill for uncompensated care, and (b) the entire subsidy is paid for by the federal government, so you, the state, pay nothing. Let’s make this concrete. In ballpark figures, one person just above the poverty line, on Medicaid, costs the federal government $6000/year, the state $700/year, and the individual almost nothing. If that person instead goes out and buys insurance on the exchange, the federal subsidy is $9000/year (private insurance is more expensive than Medicaid), and the individual will have to pay $500+ on top of that, but now the state pays nothing.If that is the motivation, then there should be no policy or political argument against offering Medicaid expansion on federal exchanges. Fishkin notes a problem with a system that in fact does not do so:
Not bad—if you are the state. You saved $700. In fact, Douglas Holtz-Eakin has suggested that this is the secret rationale behind Republican governors’ coming out against the Medicaid expansion: they’ve figured out this ingenious trick to shift the costs to the federal government.
[T]here is a big problem with this plan from a state budgetary point of view: not everyone who would have been covered by the Medicaid expansion will actually get health insurance on the exchanges. Far from it. Most of these people—two thirds, says CBO—won’t even be eligible to participate in the exchanges. This is because you need to be earning more than the federal poverty line to buy insurance on an exchange. So let’s be clear: if a state like Texas says “no” to the Medicaid expansion, a childless, non-elderly, non-disabled adult earning less than the poverty line is not going to have any realistic way to get health insurance in the state of Texas. She's just out of luck.Here lies the policy imperative to offering Medicaid expansion through federal exchanges. But are the legal stumbling blocks too great? I think not. Consider the triggering event that permits the creation of federal exchanges:
The Secretary of Health and Human Services (HHS) will establish exchanges in states that do not create their own approved exchange.So who tells the secretary of Health and Human Services what her exchange should look like? Well, she does, and do not doubt that the secretary will establish exchanges that will comply with ACA and the regulations she promulgates. Do the regulations disallow participation in the exchange if you do not qualify for subsidies? In my view, they do not. They merely provide for subsidies. If you accept my view, nothing in ACA prohibits the secretary from folding the Medicaid expansion into federal exchanges in those states that do not form exchanges and reject the Medicaid expansion.
The secretary can form federal exchanges that provide subsidies to qualified individuals to purchase health insurance on the exchange AND Medicaid to those persons made eligible by the Medicaid expansion provisions of ACA. Remember, that the first 3 years of Medicaid expansion are fully funded by the federal government and 90 percent funded for the years after that.
After the first 3 years, participants can be offered the opportunity to continue their Medicaid coverage by picking up the 10 percent of costs that was to be covered by the states.
Here is what I think is the winning feature of my proposal—no one has standing to sue. The states have no standing. Employers have no standing. No individuals have standing; after all, they do not have to participate.
So, there you have it, my solution to the coming Medicaid expansion wars.